10-K 1 tv498654_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, 2018
     
¨   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, Las Vegas, 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, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer o Non-accelerated filer o Smaller Reporting Company x
Emerging growth company o      

 

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, 2017, 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 $2.16, as reported on the NYSE MKT Stock Exchange, was $35,236,996.

 

As of July 15, 2018, the registrant had 16,848,182 shares of common stock outstanding.

 

 

 

 

 

NEVADA GOLD & CASINOS, INC.

TABLE OF CONTENTS

 

    Page
     
PART I    
     
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 5
ITEM 1B. UNRESOLVED STAFF COMMENTS 7
ITEM 2. PROPERTIES 7
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. MINE SAFETY DISCLOSURES 8
     
PART II    
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 8
ITEM 6. SELECTED FINANCIAL DATA 9
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 16
ITEM 9A. CONTROLS AND PROCEDURES 16
ITEM 9B. OTHER INFORMATION 17
     
PART III    
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 17
ITEM 11. EXECUTIVE COMPENSATION 21
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 24
     
PART IV    
     
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 24

 

i 

 

 

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.

 

ii 

 

 

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.

 

Our current gaming facility operations are located in the United States of America (the “U.S.”), specifically in the states of Nevada, Washington and South Dakota.

 

We operate a portfolio of nine mini-casinos in Washington State (“Washington”) which include restaurants, bars and approximately 125 table games. We acquired these operations in three separate transactions between 2009 and 2011. In 2012, we acquired all of the shares of A.G. Trucano, Son and Grandsons, Inc. (“South Dakota”), a slot machine route operation in Deadwood, South Dakota currently consisting of approximately 658 slot machines in 16 locations. In December 2015, we acquired Club Fortune Casino in Henderson, Nevada. It has approximately 405 slot machines, seven table games and a poker room, two bars, an entertainment lounge, a William Hill sports book, a café, a snack bar, and a gift shop.

 

We have three business segments and Corporate: Washington, South Dakota, and Nevada. For a summary of financial information concerning these segments, please refer to the information provided in Segment Reporting footnote in our consolidated financial statements. Also see the Subsequent Events footnote regarding the sale of the Nevada and South Dakota segments.

 

Objective and Strategies

 

Our primary business objective is to increase 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 interests;
-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 Casino Operations

 

Washington

 

On May 12, 2009, we acquired three mini-casinos in the state of Washington for $15.75 million. The transaction was funded with available cash and $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. We believe that Crazy Moose Casino in Mountlake Terrace attracts customers from the greater 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 and northeastern Oregon.

 

On July 23, 2010, we acquired six additional mini-casinos and a related administrative center, for $11.07 million, which was funded with $6.0 million in cash and $5.07 million financed by the prior owner’s senior debt holder. These locations were acquired through bankruptcy proceedings. The six mini-casinos are Silver Dollar Casinos in SeaTac, Renton, and Bothell, Golden Nugget Casino in Tukwila (which was subsequently sold in 2015), Club Hollywood Casino in Shoreline, and Royal Casino in Everett. The properties are located in the Seattle area, and we believe that these casinos attract customers from the greater Seattle area and western Washington.

 

On July 18, 2011, we acquired the Red Dragon in Mountlake Terrace, Washington for $1.25 million. This transaction was financed with $400,000 in cash, $500,000 in our common stock and $350,000 in two promissory notes payable to the seller. We believe that this location attracts customers from the Seattle area and western Washington. 

 

With these three acquisitions we have become the largest operator of mini-casinos in the state of Washington with nine such facilities, which represents approximately 18% of the state's active mini-casinos. Each location includes a full service restaurant, a bar and a maximum of 15 table games. In addition to Player Banked Poker, the table games offered include Pai Gow poker, Baccarat, Spanish 21, Blackjack-Double Action, Ultimate Hold’em, Player’s Edge, Three and Four Card Poker and High Card Flush. New games are frequently introduced and traditional “pull tabs” are also allowed. Our combined Washington operations provide approximately 125 table games and employ approximately 1,050 people.

 

We own the land and building at Crazy Moose in Pasco, and Coyote Bob’s in Kennewick. Our other seven locations are operated in leased facilities.

 

 1 

 

 

South Dakota

 

On January 27, 2012, we completed the acquisition of all shares of A.G. Trucano, Son & Grandsons, Inc. for $5.1 million. The South Dakota operations consist of a slot machine route operator that has been in business since the legalization of gaming in South Dakota in 1989. As of April 30, 2018, we operate approximately 604 slot machines in approximately 15 locations in Deadwood, South Dakota, which represents about 20% of the total number of slot machines in that market. Deadwood is a town of 1,300 residents located in Black Hills, in the southwest corner of South Dakota. Deadwood attracts over a million visitors each year and is a one hour drive from Mount Rushmore and 40-minute drive from Rapid City, South Dakota. Initiated in 1989, Deadwood was the third jurisdiction in the United States to host legalized gambling. Our South Dakota operations employ approximately 25 people.

 

Club Fortune Casino

 

In December 2015, we acquired Club Fortune Casino in Henderson, Nevada. It has approximately 405 slot machines, seven table games and a poker room, two bars, an entertainment lounge, a William Hill sports book, a café, a snack bar, and a gift shop. Henderson’s population is approximately 293,000 and is part of the Las Vegas metropolitan area. The purchase price for the acquisition, exclusive of working capital, was $14,159,623 and 1,190,476 shares of common stock of the Company for a total purchase price of $16,362,004. The acquisition was financed pursuant to an expansion of the Company’s existing Credit Agreement with Mutual of Omaha Bank. Club Fortune employs approximately 179 people.

 

Colorado Land

 

Through our wholly-owned subsidiary, Gold Mountain Development, LLC, we owned approximately 268 acres of undeveloped land in the vicinity of Black Hawk and Central City, Colorado. On April 8, 2013, we signed a one year option agreement, with two one year extensions to sell the land for an initial sale price of $1.1 million plus $118 per day after April 8, 2013. On April 22, 2016, we executed an amendment to the option agreement for the sale of the vacant land for a purchase price of $750,000. In connection with the transaction, we recorded a non-cash impairment of $350,000 in the fourth quarter of fiscal 2016. We received a $75,000 down payment, which is included in other long-term liabilities on our balance sheet, and financed the balance at 5% interest only, with interest payable monthly, and a balloon payment of $675,000 due April 30, 2019. The transaction was accounted for under the deposit method, recording the down payment as a liability and deferring the recognition of the sale until the buyer’s investment is at least 20% of the initial purchase price.

 

Previous Projects

 

Colorado Grande Casino – Cripple 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. 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 6% interest rate promissory note. This note receivable was paid as of February 2018.

 

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, Baccarat, Texas Shootout, Spanish 21, Pai Gow Poker, and others.  The law allows both player-sponsored and house-banked card-rooms.  The Washington Gambling Commission allows a maximum $300 table game wager for house-banked card-rooms. In addition, these establishments are allowed to be open 24 hours per day, seven days per week. 

 

 2 

 

 

To operate our nine “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. 

 

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 and as of July 2015, Roulette, Craps and Keno. 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.

 

Nevada

 

On November 19, 2015, the Nevada Gaming Commission approved the Company’s application for a non-restricted gaming license in conjunction with the acquisition of Club Fortune Casino. The ownership and operation of gaming establishments in 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 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;
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.

 

 3 

 

 

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 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 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.

 

The laws, regulations and supervisory procedures of the Nevada gaming authorities are based upon declarations of public policy which are concerned with, among other things:

 

the character of persons having any direct or indirect involvement with gaming to prevent unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;

 

establishment and application of responsible accounting practices and procedures;

 

maintenance of effective control over the financial practices and financial stability of licensees, including procedures for internal controls and the safeguarding of assets and revenues;

 

recordkeeping and reporting to the Nevada gaming authorities;

 

fair operation of games; and

 

the raising of revenues through taxation and licensing fees.

 

Any person who is licensed, required to be licensed, registered, required to be registered, or who is under common control with those persons, collectively, “licensees,” and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $0.03 million to pay the expenses of investigation by the Nevada Gaming Control Board of the licensee’s participation in foreign gaming. We comply with this requirement. The revolving fund is subject to increase or decrease at the discretion of the Nevada Gaming Commission. Licensees are required to comply with the reporting requirements imposed by the Nevada Gaming Control Act. A licensee is also subject to disciplinary action by the Nevada Gaming Commission if it:

 

  knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation;

 

  fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations;

 

  engages in any activity or enters into any association that is unsuitable because it poses an unreasonable threat to the control of gaming in Nevada, reflects or tends to reflect, discredit or disrepute upon the State of Nevada or gaming in Nevada, or is contrary to the gaming policies of Nevada;

 

  engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or

 

  employs, contracts with or associates with a person in the foreign operation who has been denied a license or a finding of suitability in Nevada on the ground of unsuitability.

 

We have adopted a compliance plan and appointed a compliance committee which currently consists of Company directors and officers, in accordance with Nevada Gaming Commission requirements. Our compliance committee meets quarterly and is responsible for implementing and monitoring our compliance with Nevada regulatory matters. This committee will also review information and reports regarding the suitability of potential key employees or other parties who may be involved in material transactions or relationships with us.

 

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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.

 

Employees

 

As of April 30, 2018, we employed approximately 1,260 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 such material with, or furnish to, 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 those factors that we consider our key challenges and risks:

 

Financing future acquisitions may be difficult.

 

Our principal challenge is the necessity to obtain financing in order to expand gaming operations. 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 Vice President/Chief Financial Officer, our Vice President/Chief Compliance Officer and our Vice President/Washington Operations.

 

Indebtedness could adversely affect our financial health.

 

On December 1, 2015, the Company and certain of its subsidiaries entered into a new $23,000,000 Reducing Revolving Credit Agreement with Mutual of Omaha Bank (the “Credit Facility”). The maturity date of the Credit Facility is November 30, 2020, and is secured by liens on substantially all of the real and personal property of the Company and its subsidiaries. At April 30, 2018, outstanding indebtedness was $8,000,000.

 

As of April 30, 2018, scheduled principal payments on the Credit Facility are as follows:

 

May 1, 2018 – April 30, 2019  $- 
May 1, 2019 – April 30, 2020   - 
May 1, 2020 – November 30, 2020   8,000,000 
   $8,000,000 

 

The Credit Facility contains customary covenants for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of the Company’s assets and covenants restricting our ability to merge, transfer ownership, incur additional indebtedness, encumber assets and make certain investments.  The Credit Facility also contains covenants requiring the Company to maintain certain financial ratios including a maximum total leverage ratio ranging from 2.75 to 1.00 from February 1, 2017 through January 31, 2018, and 2.50 to 1.00 from February 1, 2018 until maturity; and lease adjusted fixed charge coverage ratio of no less than 1.15 to 1.00. We are in compliance with the covenant requirements of the Credit Facility as of April 30, 2018.

 

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

 

 5 

 

 

·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. 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.

 

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 caused by 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. Legislative changes beyond our control such as minimum wage and tax rates, among others, may impact our profitability. We cannot ensure that we will be able to comply with or conduct business in accordance with applicable regulations.

 

 6 

 

 

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 adverse effects on our business, financial condition, results of operations, prospects, ability to service or otherwise satisfy our obligations.

 

Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security.

 

We rely on information technology and other systems to maintain and transmit customers' personal and financial information, credit card settlements, credit card funds transmissions, and mailing lists. We have taken steps designed to safeguard our customers' confidential personal information. However, our information and processes are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation, disclosures, and loss of reputation, potentially impacting our financial results. Further, as cyber-attacks continue to evolve, we may incur significant costs in our attempts to modify or enhance our protective measures or investigate or remediate any vulnerability.

 

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. 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.

 

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

 

As a result of acquiring facilities in Washington, we own the buildings for the Crazy Moose Casino in Pasco and Coyote Bob Casino’s in Kennewick. In addition we have real property leases as follows:

 

Washington Casinos.

 

·Crazy Moose Casino in Mountlake Terrace has a building lease which expires in May of 2019 with an option to renew for an additional term of five years.
·Crazy Moose Casino in Pasco has a parking lot lease which is leased on a monthly basis.
·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.
·Silver Dollar Casino in Renton has a building lease which expires in April of 2024 with an option to renew for an additional term of 10 years each.
·Silver Dollar Casino in Bothell has a building lease which expires in April of 2022 with an option to renew for two additional terms of 5 years.
·Club Hollywood Casino in Shoreline has casino building and parking lot leases which expire in March of 2022 with options to renew for up to three additional five-year terms.
·Royal Casino in Everett has a building lease which expires in January of 2021 with an option to renew for up to three additional five-year terms.
·Administrative offices lease in Renton expires in April of 2024 with an option to renew for an additional term of five years.
·Red Dragon Casino in Mountlake Terrace has a building lease which expires in October of 2021 with an option to renew for up to two additional five-year terms.

 

 7 

 

 

South Dakota. We have an administrative center lease which expires in January of 2022 with an option to renew for an additional five-year term.

 

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, LLC, we sold approximately 268 acres of undeveloped land in the vicinity of Black Hawk, Colorado. However, the transaction is accounted for under the deposit method, recording the down payment as a liability and effectively deferring the recognition of the sale until the buyer’s investment is at least 20% of the initial purchase price. We continue to recognize the land on our balance sheet, classified as real estate held for sale, and valued at the selling price of $750,000.

 

Club Fortune Casino. In December 2015, we acquired Club Fortune Casino in Henderson, Nevada, which includes the 35,000 square foot building and 8.1 acres of land.  We rent land and administrative buildings adjacent to our property.

 

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 31, 2019.

 

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 Year Ended 
   April 30, 2018   April 30, 2017 
   High   Low   High   Low 
                 
First Quarter  $2.59   $2.08   $2.06   $1.80 
Second Quarter  $2.52   $2.09   $2.13   $1.68 
Third Quarter  $2.80   $2.13   $2.02   $1.64 
Fourth Quarter  $2.76   $2.08   $2.23   $2.00 

 

Holders of Common Stock

 

As of July 23, 2018, we had approximately 4,056 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 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, 2018 including 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.

 

 8 

 

 

   Number of         
   Securities       Number of Securities 
   To be Issued Upon   Weighted Average   Remaining Available for 
   Exercise of   Exercise Price of   Future Issuance Under 
   Outstanding   Outstanding   Equity Compensation 
   Options, Warrants   Options,   Plans Excluding 
   and Rights   Warrants and   Securities 
Plan Category  (A)   Rights   Reflected in Column (A) 
                
Equity Compensation Plans Approved by Security Holders   676,000   $1.10    507,611 

 

Recent Sales of Unregistered Securities

 

During the year ended April 30, 2018 and 2017, we did not sell any shares.

 

Issuer Purchases of Equity Securities

 

In July 2016, our board of directors approved a $2.0 million stock repurchase program to purchase our common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements, loan covenants and other factors. In July 2017, the board of directors authorized an additional $2.0 million for future stock purchases. The repurchase plan does not obligate the Company to acquire any specified number or value of common stock. During the year ended April 30, 2018, the Company repurchased 788,301 shares at a weighted average price of $2.16 per share, costing $1,700,291. During the year ended April 30, 2017, the Company repurchased 296,665 shares at a weighted average price per share of $1.89, costing $561,606. As of April 30, 2018, $1.7 million remains available under the share repurchase authorization.

 

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 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 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 in 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 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 if we can exert significant influence over, but do not control the policies and decisions of an entity. We use the cost method of accounting if we are unable to exert significant influence over the entity.

 

 9 

 

 

Goodwill, Other Intangible Assets, and Other Long-Lived Assets

 

In connection with our acquisitions of the nine Washington mini-casinos from May 12, 2009 to July 18, 2011, the acquisition of the South Dakota slot route operation in South Dakota on January 27, 2012, and the acquisition of Club Fortune Casino on December 1, 2015, we have goodwill and identifiable intangible assets of $20.4 million, net of amortization. Goodwill represents the excess of the purchase price over the fair market value of net assets acquired and is 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 unit level, which is the same as our operating segments. 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 and on a discounted cash flow method. 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. 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 operations.  The Company impaired the full value of goodwill associated with the South Dakota operations during the year ended April 30, 2017 based on indicators of impairment using market and income valuations. The calculations and key assumptions contemplate changes for both current year and future year estimates in earnings and the impact of these changes to the fair value of the route.

 

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 if impairment indicators are present or if other 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 value 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. A recoverability test of our long-lived assets resulted in a $117,857 impairment charge to South Dakota’s customer relationships and a $240,950 impairment charge to South Dakota’s property and equipment, bringing the net balance of South Dakota’s customer relationships and property and equipment to zero as of April 30, 2018.

 

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 the Notes Receivable footnote in our consolidated financial statements.

 

We review on an annual basis, or more frequently, 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.

 

Revenue Recognition

 

We record revenues from casino operations. 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. These amounts are included in promotional allowances in the accompanying consolidated statements of operations. We record the redemption of coupons and points for cash as a reduction of revenue. The estimated retail value of providing such promotional allowances is as follows:

 

   Fiscal Year Ended 
   April 30, 2018   April 30, 2017 
Food and beverage  $6,184,733   $6,722,157 
Other   262,169    236,909 
Promotional allowances  $6,446,902   $6,959,066 

 

 10 

 

  

The estimated cost of providing such complimentary services that is included in casino expense in the consolidated statements of operations was as follows:

 

   Fiscal Year Ended 
   April 30, 2018   April 30, 2017 
Food and beverage  $5,771,698   $6,112,343 
Other   243,899    222,886 
Total cost of complimentary services  $6,015,597   $6,335,229 

 

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, 2018 and 2017, we also maintained $2.2 million and $1.9 million, 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 for 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 recognize the impact of uncertain tax positions in our financial statements only if that position is more likely than not of not 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.

 

Accrued Contingent Liability

 

We assess our exposure to loss contingencies including legal matters. If a potential loss is justified, probable, and able to be quantified, 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, 2018 and 2017, we did not record any accrued contingent liability.

 

Fair Value

 

United States 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 fair value less selling costs.

 

 11 

 

 

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

 

Interest rate swaps are adjusted on a recurring basis pursuant to accounting standards for fair value measurements. We categorize our interest rate swap as Level 2 for fair value measurement.

 

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

 

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. As of April 30, 2018, we had no notes receivable outstanding. 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.

 

Stock-Based Compensation

 

Compensation cost for stock options granted are based on the fair value of each award, measured by applying the Black-Scholes model on the date of grant and using the weighted-average assumptions of (i) expected volatility, (ii) expected term, (iii) expected dividend yield, (iv) risk-free interest rate and (v) forfeiture rate. Expected volatility is based on historical volatility of our stock. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award. Compensation cost for grants of the Company’s stock are based on the shares granted and the market price at the date of the grant.

 

 

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 Nevada, Washington and South Dakota. We own nine mini-casinos in Washington State, which were acquired in three separate purchases between May of 2009 and July of 2011. On January 27, 2012, we acquired all of the shares of A.G. Trucano, Son & Grandsons, Inc., a slot machine route operation in Deadwood, South Dakota. On December 1, 2015, we acquired the assets of Club Fortune Casino in Henderson, NV. 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 profitability can be expected to increase.

 

Comparison of Fiscal Years Ended April 30, 2018 and April 30, 2017

 

Net revenues.  Net revenues increased 0.1% to $74.6 million from $74.5 million for the fiscal year ended April 30, 2018, compared to the fiscal year ended April 30, 2017. Our Washington casino revenues increased $0.1 million, due to one of our Washington properties being converted into an all-poker card room. However, this was offset by Club Fortune’s and South Dakota’s combined $0.2 million decrease in casino revenue.  South Dakota revenues decreased due to 54 fewer units in operation compared to the prior year.  Club Fortune slot revenues decreased due to a decrease in slot play but that was more than offset by a $0.3 million reduction in promotional allowances.

 

Total operating expenses. Total operating expenses decreased to $72.0 million from $72.7 million for the fiscal year ended April 30, 2018, compared to the fiscal year ended April 30, 2017.  South Dakota had an impairment expense of $1.1 million in the prior year and $0.4 million this year. Food and beverage expenses increased $0.6 million, or 10%, due to Washington’s minimum wage increase and food specials at Club Fortune. Corporate expense increased $0.3 million mainly due to $0.6 million in legal and professional fees related to the sale of South Dakota and Club Fortune, partially offset by $0.2 million of professional fees in the prior year related to the Club Fortune acquisition and the South Dakota impairment.  Casino, marketing and administrative, facilities, and other expenses remained relatively steady compared to the prior fiscal year.  Depreciation and amortization expenses decreased by $0.7 million due to Washington customer relationship intangibles that are now fully amortized and certain South Dakota and Washington assets that are now fully depreciated.

 

Non-operating expenses. Total non-operating expenses remained relatively steady when compared to the prior fiscal year.

 

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Income taxes.  The effective tax rates for the years ended April 30, 2018 and 2017, were 39.2% and 58.3%, respectively.  The decrease is primarily due to the decrease in the tax rate as part of the Tax Cuts and Jobs Act on December 22, 2017 and the non-deductible goodwill impairment in the prior year.

 

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, write-offs of project development costs, acquisition costs, sale transaction fees, litigation charges, non-cash stock grants, non-cash employee stock purchase plan discounts, exclusion of income or loss from assets held for sale, and net losses/gains from asset dispositions. 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 GAAP results, to compare to the performance of other companies that also publicize this information.

 

Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to net income or cash flow as an indicator of our operating performance or any other measure of performance derived in accordance with GAAP.

 

The following table shows adjusted EBITDA by operating unit:

 

   Adjusted EBITDA 
For the fiscal year ended:  Washington   South Dakota   Nevada   Corporate -
Other
   Total 
                     
Ápril 30, 2018  $6,545,065   $105,390   $1,727,902   $(2,340,034)  $6,038,323 
                          
Ápril 30, 2017  $7,037,344   $162,939   $1,537,922   $(2,493,072)  $6,245,133 

 

Net income reconciliation to Adjusted EBITDA:

 

   Fiscal year ended 
   April 30, 2018   April 30, 2017 
         
Net income  $1,323,425   $563,964 
Adjustments:          
Net interest expense   591,146    666,543 
Income tax expense   853,426    790,829 
Depreciation and amortization   2,370,752    3,021,280 
Acquisition and sale related expenses   589,839    113,900 
Write downs and other charges   358,807    1,101,472 
Deferred rent amortization   9,943    36,068 
Stock compensation amortization   104,140    124,279 
Increase in swap fair value   (171,018)   (250,385)
Loss on disposal of assets   7,863    77,183 
Adjusted EBITDA  $6,038,323   $6,245,133 

 

 13 

 

 

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, 2018 and April 30, 2017:

 

   Fiscal Year Ended 
   April 30,
2018
   April 30,
2017
 
Cash provided by (used in):          
Operating activities  $5,464,944   $4,754,488 
Investing activities  $(601,975)  $(287,489)
Financing activities  $(5,985,941)  $(5,418,203)

 

Operating activities. Net cash provided by operating activities during the fiscal year ended April 30, 2018 increased $0.7 million compared to the same period in the fiscal year ended April 30, 2017. This increase resulted primarily from the change in working capital.

 

Investing activities. Net cash used in investing activities during the fiscal year ended April 30, 2018 increased $0.3 million compared to the same period in the fiscal year ended April 30, 2017. The increase primarily resulted from the $0.3 million decrease in collections on the G Investments note receivable due to prepayments received in the prior year.

 

Financing activities. Net cash used in financing activities increased $0.6 million for the year ended April 30, 2018 compared to the fiscal year ended April 30, 2017. We used $1.1 million more cash this year for purchases of treasury stock (offset by $0.7 million borrowed to buy treasury stock), and we used $0.1 million more in repayments of our credit facility.

 

Future Sources and Uses of Cash

 

On April 30, 2018, excluding restricted cash of $2,369,063, we had cash and cash equivalents of $9,508,931. The restricted cash consists of progressive liabilities and player supported jackpots. We expect that our future liquidity and capital requirements will be affected by:

 

-capital requirements related to future acquisitions;
-cash flow from operations;
-working capital requirements;
-treasury stock purchases
-obtaining debt financing; and
-debt service requirements.

 

As of April 30, 2018, scheduled principal payments on the Credit Facility are as follows:

 

May 1, 2018 – April 30, 2019  $- 
May 1, 2019 – April 30, 2020   - 
May 1, 2020 – November 30, 2020   8,000,000 
   $8,000,000 

 

Please see note 8 of our Consolidated Financial Statements.

 

In July 2016, our board of directors approved a $2.0 million stock repurchase program to purchase our common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements, loan covenants and other factors. In July 2017, the board of directors authorized an additional $2.0 million for future stock purchases. The repurchase plan does not obligate the Company to acquire any specified number or value of common stock. During the year ended April 30, 2018, the Company repurchased 788,301 shares at a weighted average price of $2.16 per share, costing $1,700,291. During the year ended April 30, 2017, the Company repurchased 296,665 shares at a weighted average price per share of $1.89, costing $561,606. As of April 30, 2018, $1.7 million remains available under the share repurchase authorization.

 

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 arrangements to ensure that we have sufficient working capital to fund our obligations as they come due. We believe that funds from operations 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. 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 maintain, or grow, at a pace that cash resources could support. Also see the Subsequent Events note of our Consolidated Financial Statements.

 

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 a company may have problems meeting its short-term obligations. As of April 30, 2018, we have a 2.25 current ratio, sufficient to service debt and maintain operations.

 

 14 

 

 

Indebtedness

 

On November 30, 2015, the Company amended its existing credit agreement with Mutual of Omaha Bank (“MOOB”) to increase the lending commitment to $23 million.  The Amended and Restated Credit Agreement (“Credit Facility”) matures on November 30, 2020, and is secured by liens on substantially all of the real and personal property of the Company and its subsidiaries. The interest rate on the borrowing is based on LIBOR plus an Applicable Margin, determined quarterly beginning April 1, 2016, based on the total leverage ratio for the trailing twelve month period. The initial Applicable Margin was 4.00% until April 1, 2016, when the first quarterly pricing change took effect, and decreased to 3.00%. As of July 1, 2018, the Applicable Margin is 2.50%. In addition, the Company was required to fix the interest rate on at least 50% of the credit facility through a swap agreement.

 

The Credit Facility contains customary covenants for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of the Company’s assets and covenants restricting our ability to merge, transfer ownership, incur additional indebtedness, encumber assets and make certain investments.  The Credit Facility also contains covenants requiring the Company to maintain certain financial ratios including a maximum total leverage ratio ranging from 2.75 to 1.00 from February 1, 2017 through January 31, 2018, and 2.50 to 1.00 from February 1, 2018 until maturity; and lease adjusted fixed charge coverage ratio of no less than 1.15 to 1.00. We are in compliance with the covenant requirements of the Credit Facility as of April 30, 2018.

 

We are required by the Credit Facility to have a secured interest rate swap for at least 50% of the Credit Facility commitment. On December 28, 2015, the Company entered into a swap transaction with Mutual of Omaha Bank, which has a calculation period as of the tenth day of each month through the maturity date of the Credit Facility. As of April 30, 2018, the Company had one outstanding interest rate swap with MOOB with a notional amount of $8,375,000 at a swap rate of 1.77%, which as of April 30, 2018, effectively converts $8,375,000 of our floating-rate debt to a synthetic fixed rate of 4.27%. Under the terms of the swap agreement, the Company pays a fixed rate of 1.77% and receives variable rate based on one-month LIBOR as of the first day of each floating-rate calculation period. Under the International Swap Dealers Association, Inc. (“ISDA”) confirmation, the floating index as of April 30, 2018 is set at 1.9285%.

 

The Company did not designate the interest rate swap as a cash flow hedge and the interest rate swap did not qualify for hedge accounting under ASC Topic 815. Changes in our interest rate swap fair value are recorded in our consolidated statements of operations. Each quarter, the Company receives fair value statements from the counterparty, MOOB. The fair value of the interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As a result of our evaluation of our interest rate swap, we recorded a $171,018 increase in our interest rate swap fair value for the year ended April 30, 2018. As of April 30, 2018 and 2017, our interest rate swap fair value was an asset of $134,672 and a liability of $36,346, respectively, which is included in other assets as of April 30, 2018 and other long-term liabilities as of April 30, 2017 on the consolidated balance sheets.

 

Off-Balance Sheet Arrangements

 

None.

 

New Accounting Pronouncements and Legislation Issued

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company is currently evaluating the impact this guidance will have on its financial position and results of operations.

 

In May 2014, the FASB issued a new accounting standard for revenue recognition which requires entities to recognize revenue when it transfers promised goods or services to customers, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard supersedes the existing accounting guidance for revenue recognition, including industry-specific guidance, and amends certain accounting guidance for recognition of gains and losses on the transfer of non-financial assets. For public companies, the new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017.

 

 15 

 

 

The Company will adopt the standard as of May 1, 2018 and will follow the modified retrospective approach. The accompanying financial statements and related disclosures do not reflect the effects of the new revenue standard. The Company is finalizing the assessment of the effects of the standard on its consolidated financial statements and will begin reporting under the new guidance in its consolidated financial statements for the first quarter of fiscal 2019. The quantitative effects of these changes are not expected to be material and are still being analyzed.

 

The Company’s current presentation, which reports the retail value of services provided to customers without charge as revenues with a corresponding contra amount deducted as promotional allowances, will no longer be allowed under the new revenue standard. Upon adoption of the new guidance, revenues will be allocated among the Company’s departmental classifications based on the relative standalone selling prices of the goods and services provided to guests. The Company currently anticipates that this methodology will result in a reduction of reported gaming revenues by an amount equivalent to reported promotional allowance revenues, with no change to total net revenues.

 

Currently, the Company estimates the cost of fulfilling the redemption of rewards earned through customer loyalty programs based upon the cost of historical redemptions. Upon adoption of the new guidance, the Company will account for the rewards using a deferred revenue model for the classification and timing of revenue recognized as well as the classification of related expenses when player rewards are redeemed. The impact of this change in accounting is not expected to be material to any annual accounting period.

 

Historically, and in accordance with prior guidance, the Company reported the expense for amounts paid to operators of wide area progressive games as contra-revenues. Upon adoption of the new guidance, these payments will be reported as an operating expense. The impact of this classification change will be to increase our gaming revenues and gaming expenses by equal amounts.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 ("ASU 2017-04") "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment." ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning after 15 December 2019, and early adoption is permitted. The Company adopted this guidance in the second quarter of fiscal 2018 with no material impact on its financial position or results of operations.

 

A variety of proposed or otherwise potential accounting guidance is currently under study by standard-setting organizations and certain regulatory agencies. Due to the tentative and preliminary nature of such proposed accounting guidance, the Company has not yet determined the effect, if any, that the implementation of such proposed accounting guidance would have on its consolidated financial statements.

 

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.

 

 16 

 

 

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, 2018. 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 2013. Management, including our CEO and CFO, has concluded that the internal control over financial reporting was effective as of April 30, 2018.

 

(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.

 

17

 

 

Name

 

Age

 

 

Class/Term Expiration

 

Principal Occupation

Frank Catania   76   Class I/2020   President, Catania Consulting Group, LLC
             
Rudolph K. Kluiber   58   Class II/2018   Managing Director of GRT Capital Partners, an Investment Management Firm
             
Francis M. Ricci   75   Class II/2018   President, Orchard Lane Consulting
             
William G. Jayroe   61   Class III/2019  

Executive VP, Sales and Marketing IEA, Inc.;

President & CEO, Hunter International Partners, LLC

             
Shawn W. Kravetz   48   Class III/2019   President and Chief Investment Officer of Esplanade Capital LLC, an Investment Management Firm
             
William J. Sherlock   68   Class III/2019  

Chairman, Nevada Gold & Casinos, Inc.

Former President/CEO, Foxwoods Resort & Casino

 

Frank Catania. Mr. Catania has served as a director since October 2009. Mr. Catania has over 30 years of gaming and legal experience and is currently a principal of Catania Consulting Group, LLC, which specializes in providing gaming expertise to both the public and private sectors. Mr. Catania also serves as counsel to the law firm of Catania & Ehrlich, P.C., which specializes, in part, in all aspects of casino law, including licensing and compliance. He is a member of the Board of Directors of Continental 8 Technologies, an operator of data centers worldwide. Mr. Catania served on the Board of Directors of Empire Resorts, Inc. from May 2006 until March 2009. He had also served as the Director of New Jersey's Division of Gaming Enforcement, a premier and world-renowned gaming regulatory and enforcement agency. Mr. Catania is a former Deputy Speaker of the New Jersey General Assembly and served for four years as an Assemblyman, representing his district in Passaic County. Mr. Catania was a founding member of the International Masters of Gaming Law, a non-profit association dedicated to the education and advancement of gaming law, having served as its first President. He is a graduate of Rutgers University and Seton Hall University Law School where he was an adjunct professor of gaming law. The Board believes Mr. Catania is qualified to serve as a director due to his knowledge of the casino industry, his experience as an independent director of other casino companies and his experience in gaming regulatory matters.

 

Rudolph K. Kluiber. Since 2001, Mr. Kluiber has served as a Managing Director of GRT Capital Partners (“GRT”), an investment management firm located in Boston, Massachusetts. Prior to forming GRT, Mr. Kluiber was Senior Vice President and Portfolio Manager for State Street Research & Management Company from 1997 to 2001, where he ran the State Street Aurora Fund and managed the Small-Cap Value effort. Mr. Kluiber served as a director of Steinway Musical Instruments, Inc. from 2001 to 2011 and currently serves on the board of Wessanen, a publicly traded Dutch organic food company. Mr. Kluiber is a cum laude graduate of Harvard College and holds an MBA from the University of California Los Angeles. The Board believes that Mr. Kluiber’s financial and business expertise, including capital markets, combined with his company and industry experience, make him well qualified to serve on the Board.

 

Francis M. Ricci. Mr. Ricci has served as a director since July 2003. Since 1991, he has served as Director, CEO or CFO of several private companies including Natural Swing Products Co., Premier Scale Co., and starting in 1998, Pro Gear Holdings, Inc. d/b/a Yes! Golf. Since 2010, through his business consulting practice Orchard Lane Consulting, he offers investors, lenders and attorneys due diligence, investigation and evaluation of proposed investments or loans, and forensic accounting services. He is a CPA and practiced as an audit specialist for 22 years with Deloitte & Touche, serving as a partner for 12 years. He received his MBA and BS degrees from the University of Montana. His qualifications include financial and accounting expertise, executive leadership and marketplace knowledge.

 

William G. Jayroe. Mr. Jayroe has served as a director since September 1995. Mr. Jayroe has three decades of technology development, sales, and management expertise. In 2013, Mr. Jayroe joined IEA, Inc. headquartered in Houston, Texas, a provider of environmental health and safety solutions to fortune 100 organizations, as Executive Vice President of Sales and Marketing. Prior to that he was an executive at IHS, a global environmental and crisis management software solutions provider headquartered in Englewood, Colorado. From May 2005 until January 2007, Mr. Jayroe was the Senior Vice President South East Region of Enviance, Inc., a software solutions company headquartered out of Carlsbad, California. From September 2001 until October 2003, Mr. Jayroe served as a Senior Vice President of Digital Consulting and Southwest Services. Mr. Jayroe founded and has been the CEO of Hunter International Partners, LLC since September 1998. Mr. Jayroe has a BS in Industrial Distribution from Texas A&M University. The Board believes Mr. Jayroe is qualified to serve as a director due to his experience as a senior executive, his executive leadership, and his contributions to strategy development and marketplace knowledge.

 

18

 

 

Shawn W. Kravetz. Mr. Kravetz is President and Chief Investment Officer of Esplanade Capital LLC, an investment management company he founded in 1999. The firm manages private investment partnerships. From 1997 until 1999, Mr. Kravetz was a Principal at The Parthenon Group, a leading strategy consulting boutique, where he advised chief executives on corporate strategy. From 1995 until 1997, Mr. Kravetz was Director of Strategic Planning and Corporate Development at the CML Group, where he oversaw activities at subsidiaries including NordicTrack, The Nature Company, and Smith & Hawken. Mr. Kravetz received an A.B. in Economics from Harvard University, magna cum laude, in 1991 and an MBA with High Distinction from Harvard Business School in 1995. The Board believes that Mr. Kravetz’s experience in the capital markets, his management insight and business knowledge make him well qualified to serve on the Board.

 

William J. Sherlock. Mr. Sherlock has served as Chairman since November 2009. Mr. Sherlock is a hospitality and casino industry veteran of 39 years. From 1997 to 2000, he was Chief Operating Officer and, from 2000 to 2006, he was Chief Executive Officer of Foxwoods Resort & Casino in Mashantucket, Connecticut, one of the world’s largest casinos. He currently serves as a Board member of the Inn at Mystic, Mystic, Connecticut and is a member of the Foxwoods Tribal Audit Authority. Prior to his service at Foxwoods Resort & Casino, Mr. Sherlock was President/CEO of various casino/hotel properties including the New York New York Hotel & Casino in Las Vegas, Nevada, the Flamingo Hilton in Laughlin, Nevada and the Reno Hilton in Reno, Nevada. Mr. Sherlock served as Interim President of Foxwoods Resort Casino in Mashantucket, CT from June until December of 2010. From May 2012 to December 2014, Mr. Sherlock served as an Advisor to the Board of Directors of the Cosmopolitan Hotel and Casino in Las Vegas, Nevada. Mr. Sherlock is a Business Administration graduate of the University of South Carolina. As Chairman of our Board, Mr. Sherlock’s qualifications include industry, accounting and corporate governance experience, operating and executive leadership, strategy development, management experience and marketplace knowledge.

 

Director Qualifications

 

In discharging its responsibilities to nominate candidates for election to the Board, the Corporate Governance and Nominating Committee has not specified any minimum qualifications for serving on the Board. However, the Corporate Governance and Nominating Committee endeavors to evaluate, propose, and approve candidates with business experience and personal skills in gaming, finance, marketing, financial reporting and other areas that may be expected to contribute to an effective Board. The Corporate Governance and Nominating Committee seeks to assure that our Board is composed of individuals who have experience relevant to our needs and who have the highest professional and personal ethics, consistent with our values and standards. Candidates should be committed to enhancing shareholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Each director must represent the interests of all shareholders.

 

Identifying and Evaluating Nominees for Directors

 

The Corporate Governance and Nominating Committee utilizes a variety of methods for identifying and evaluating nominees for director. Candidates may come to the attention of the Corporate Governance and Nominating Committee through current Board members, professional search firms, shareholders or other persons. These candidates are evaluated at regular or special meetings of the Corporate Governance and Nominating Committee and may be considered at any point during the year. As described above, the Corporate Governance and Nominating Committee will consider properly submitted shareholder nominations for candidates for the Board. Following verification of the shareholder status of persons proposing candidates, recommendations will be aggregated and considered by the Corporate Governance and Nominating Committee. If any materials are provided by a shareholder in connection with the nomination of a director candidate, such materials will be forwarded to the Corporate Governance and Nominating Committee.

 

The Board has four standing committees: (1) the Compensation Committee; (2) the Audit Committee; (3) the Corporate Governance and Nominating Committee; and (4) the Compliance Committee.

 

Membership of the Board’s standing committees is as follows:

 

  Audit
Committee
    Compensation
Committee
   

Corporate Governance

and

Nominating Committee

   

Compliance

Committee

   
William J. Sherlock M     M     M     M    
Francis M. Ricci C     M     M     M    
William G. Jayroe       C           M    
Frank Catania M     M     M     C    
Shawn W. Kravetz       M     C          
Rudolph K. Kluiber M                      

 

 

 

C—Chairman

M—Member

 

19

 

 

Audit Committee

 

The Audit Committee consists of four directors: Messrs. Ricci, Catania, Sherlock and Kluiber, each of whom is independent as defined in the listing standards of the Stock Exchange. The Audit Committee engages our independent auditors, reviews our financial controls, evaluates the scope of the annual audit, reviews audit results, consults with management and our independent auditors prior to the presentation of financial statements to shareholders and, as appropriate, initiates inquiries into aspects of our internal accounting controls and financial affairs. The Board has determined that Mr. Ricci is an independent audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Exchange Act. Mr. Ricci serves as Chairman of the Audit Committee.

 

Compensation Committee

 

The Compensation Committee consists of five directors: Messrs. Jayroe, Sherlock, Ricci, Kravetz and Catania, each of whom is independent as defined in the listing standards of the Stock Exchange. The Compensation Committee reviews and approves salaries and incentive compensation for our executive officers.

 

Compensation Committee Interlocks and Insider Participation

 

No member of the Compensation Committee serves as an officer or employee of the Company. None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer who serves on our Board or the Compensation Committee.

 

Corporate Governance and Nominating Committee

 

The Corporate Governance and Nominating Committee currently consist of four non-employee directors: Messrs. Kravetz, Sherlock, Ricci, and Catania, each of whom is independent as defined in the listing standards of the Stock Exchange. The Corporate Governance and Nominating Committee reviews and approves candidates for election and to fill vacancies on the Board, including re-nominations of members whose terms are due to expire. The Corporate Governance and Nominating Committee is also responsible for developing and implementing guidelines relating to the operation of the Board and its committees and the Company as a whole.

 

The Corporate Governance and Nominating Committee operates pursuant to a written Charter. A copy of the Corporate Governance and Nominating Committee Charter is available on our website at http://www.nevadagold.com under the heading “Corporate Governance.

 

Compliance Committee

 

The Compliance Committee operates pursuant to a Gaming Compliance Program adopted by the Board and currently consists of four non-employee directors: Messrs. Catania, Sherlock, Jayroe and Ricci. The Compliance Committee was established in February of 2012 in accordance with an Order of Registration issued by the Nevada Gaming Commission. The Compliance Committee was created in order to: (i) monitor our compliance with gaming laws in jurisdictions which we and our affiliates operate in order to prevent regulatory violations and to promptly detect and correct any regulatory violation that might occur; (ii) advise the Board of any gaming law compliance problems or situations which may adversely affect the objectives of gaming control in jurisdictions where we operate; (iii) provide appropriate reports for the purpose of keeping the Nevada Gaming Control Board advised of our compliance efforts in the State of Nevada and other jurisdictions; (iv) perform due diligence regarding proposed transactions and associations involving any of our affiliates’ gaming operations; and (v) receive, coordinate and distribute appropriate input from our affiliates to enhance their respective compliance with respect to gaming laws and regulations.

 

20

 

 

Item 11.Executive Compensation

 

Summary Compensation Table

 

The following table provides information about the compensation for the fiscal years ended April 30, 2018 and 2017 of our Principal Executive Officer, our Principal Financial Officer and Vice President of Washington Operations.

 

NAME
AND
PRINCIPAL
POSITION

 

FISCAL YEAR (1)

 

SALARY
($)

  

BONUS
($)

  

STOCK AWARDS ($) (2)

  

ALL OTHER
COMPENSATION
($)

  

TOTAL PAY

($)

 
Michael P. Shaunnessy  2018   300,000    10,000    40,860    -    350,860 
   CEO  2017   300,000    21,500    -    -    321,500 
   (Principal Executive Officer)                            
                             
James D. Meier  2018   225,000    10,000    34,050    1,091    270,141 
    Vice President, CFO  2017   215,000    21,500    -    824    237,324 
    and Secretary                            
   (Principal Financial Officer)                            
                             
Victor H. Mena  2018   225,000    10,000    27,240    1,800    264,040 
    Vice President of Washington  2017   215,000    21,500    21,294    1,800    259,594 
    Operations                            
                             

 

 

  (1) Compensation data for the fiscal year ended April 30, 2018 includes the period from May 1, 2017 through April 30, 2018.
  (2) The amounts in this column reflect the aggregate grant date fair value for stock grants awarded during the fiscal year ended, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718. Assumptions used in the calculation of this amount for fiscal year ended April 30, 2018 are included in Footnote 10 to our audited financial statements for the fiscal year ended April 30, 2018, filed with the SEC.  

 

Outstanding Equity Awards at Fiscal Year-End

 

The table below presents information on the outstanding stock option awards held by our named executive officers as of April 30, 2018.

 

Name(*)

 

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

  

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

  

Option
Exercise
Price
($)

  

Option
Expiration
Date

Michael P. Shaunnessy   200,000    -    0.82   12/01/2022
    100,000    -    1.23   07/22/2024
                   
James D. Meier   100,000    -    1.23   11/01/2024
                  
Victor H. Mena   20,000    -    1.25   07/28/2019
    50,000    -    0.98   07/27/2020
    25,000    -    1.57   07/27/2021

 

 

(*)       The option awards were granted pursuant to our 2009 Plan, which was approved by shareholders at the 2009 Special Meeting of Shareholders. During the fiscal year ended April 30, 2018, no stock options were exercised by our named executive officers.

 

21

 

 

Director Fees

 

Our independent directors are paid an annual fee of $35,000 (“Base Compensation”). A portion of the Base Compensation ($10,000) is paid in fully vested common stock of the Company the value of which is determined as the closing price of such stock on the date of the Annual Meeting of Shareholders of the Company. The independent Chairman of the Board and the Chairman of the Audit Committee are paid an additional annual fee of $15,000 and the Chairman of the Compliance Committee receives an additional annual fee of $3,000. Members of the Compliance Committee, Messrs. Sherlock, Jayroe and Ricci receive $1,000 annually for service on the committee. All directors are reimbursed for their reasonable expenses for attending Board and Board committee meetings.

 

Director Summary Compensation Table

 

The table below contains information about the compensation received by each of our directors during the fiscal year ended April 30, 2018.

 

Name

 

Fees
Paid
in Cash
($) (1)

  

Fees Paid in Stock
($) (2)

  

Total
($)

 
William J. Sherlock   41,000    10,000    51,000 
Frank Catania   28,000    10,000    38,000 
Francis M. Ricci   41,000    10,000    51,000 
William G. Jayroe   26,000    10,000    36,000 
Shawn W. Kravetz   25,000    10,000    35,000 
Rudolph K. Kluiber   25,000    10,000    35,000 

 

 

 

(1) Includes fees for the Board and two committee chairmanships, and membership on the Compliance Committee.  Only the chairs of the Board (i.e., Mr. Sherlock), the Audit Committee (i.e., Mr. Ricci) and the Compliance Committee (i.e., Mr. Catania) receive chairmanship fees.  As the chairs of the Board and the Audit Committee, Messrs. Sherlock and Ricci receive $15,000 annually while, as the chair of the Compliance Committee, Mr. Catania receives $3,000 annually.  Also, as members of the Compliance Committee, Messrs. Sherlock, Jayroe and Ricci receive $1,000 annually.
(2) An annual grant of fully vested common stock valued at $10,000 on the date of grant.

 

As of April 30, 2018, the directors had outstanding option awards as follows:

 

Name

 

 

Outstanding Stock Options

Exercisable

(#)

 

  

Outstanding Stock
Options Unexercisable

(#)

 

  

Option
Exercise
Price
($)

 

  

Option
Expiration
Date

 

William G. Jayroe   10,000    -    1.57   07/27/2021
    10,000    -    1.25   07/28/2019
    20,000    -    0.82   10/17/2022
                   
Francis M. Ricci   10,000    -    1.57   07/27/2021
    10,000    -    1.25   07/28/2019
                   
William J. Sherlock   6,000    -    1.57   07/27/2021

 

22

 

 

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

 

The table below shows the number of shares of our common stock beneficially owned as of the close of business on April 30, 2018 by each of our directors and executives as well as the number of shares beneficially owned by all of the directors and executive officers as a group.

 

   SHARES BENEFICIALLY OWNED AS OF April 30, 2018
NAME AND ADDRESS (1)  NUMBER OF SHARES  PERCENT OF CLASS
        
Frank Catania   84,004   *
William G. Jayroe   162,935(2)  *
Rudolph K. Kluiber   10,087   *
Shawn W. Kravetz   868,296(3)  5.2%
Francis M. Ricci   47,504(4)  *
William J. Sherlock   141,004(5)  *
Michael P. Shaunnessy   315,000(6)  1.9%
James D. Meier   100,000(7)  *
Ernest E. East   115,000(8)  *
Victor H. Mena   113,343(9)  *
All current directors and executive officers   1,963,841(10)  11.7%
   as a group (11 persons)        

 

 

 

(1) Unless otherwise indicated, the address for the persons listed is 133 E. Warm Springs Road, Suite 102, Las Vegas, Nevada 89119.
(2) Includes (a) options to purchase 40,000 shares of common stock exercisable as of July 15, 2018 within 60 days thereafter, (b) 3,334 shares of common stock owned by Hunter Jayroe, and (c) 3,334 shares of common stock owned by Haley Jayroe.
(3) Mr. Kravetz personally owns 28,067 shares of common stock.  An additional 840,229 shares are owned by Esplanade Capital Partners I LLC.  Mr. Kravetz is the President and Chief Investment Officer of Esplanade Capital LLC, which is the manager of Esplanade Capital Partners I LLC.
(4) Includes options to purchase 20,000 shares of common stock exercisable as of July 15, 2018 or within 60 days thereafter.
(5) Includes options to purchase 6,000 shares of common stock exercisable as of July 15, 2018 or within 60 days thereafter.
(6) Includes options to purchase 300,000 shares of common stock exercisable as of July 15, 2018 or within 60 days thereafter.
(7) Includes options to purchase 100,000 shares of common stock exercisable as of July 15, 2018 or within 60 days thereafter.
(8) Includes options to purchase 100,000 shares of common stock exercisable as of July 15, 2018 or within 60 days thereafter.                                                                                 
(9) Includes options to purchase 95,000 shares of common stock exercisable as of July 15, 2018 or within 60 days thereafter.
(10) Includes options to purchase 661,000 shares of common stock.
     * Less than one percent

 

Item 13.Certain Relationships and Related Transactions and Director Independence

 

The Board determines independence on the basis of the standards specified by the New York Stock Exchange (NYSE). The Board is comprised entirely of independent directors and none of our directors have any economic relationship with the Company other than as a shareholder or director.

 

The Company paid $10,200 during both fiscal years ended April 30, 2018 and 2017, in accordance with Club Fortune entering into a ground lease agreement with Gaming Ventures Las Vegas, Inc., the previous owner of Club Fortune, which is owned by a shareholder who owns over 5% of the Company. The Company paid $204,923 and $200,715 during the fiscal years ended April 30, 2018 and 2017, respectively, in accordance with a consulting agreement with the same shareholder. Our Audit Committee charter requires that the Audit Committee reviews and approves all related party transactions for potential conflicts of interests.

 

We have entered into indemnity agreements with our directors which provide, among other things, that we will indemnify such directors, under the circumstances and to the extent provided for in the agreements, for expenses, damages, judgments, fines and settlements he may be required to pay in actions or proceedings which he is or may be made a party to by reason of his position as our director, and otherwise to the full extent permitted under Nevada law and our Bylaws.

 

23

 

 

Item 14.Principal Accountant Fees and Services

 

E&Y provided professional services related to our fiscal year ended April 30, 2018, and for our fiscal year ended April 30, 2017. Fees for audit services include fees associated with the annual audit and the reviews of the Company’s quarterly reports on Form 10-Q. Tax fees included tax compliance, tax advice and preparation of our Federal and State tax returns.

 

Approximate fees for professional services provided in each of the last two fiscal years:

 

   Fiscal 2018   Fiscal 2017 
Audit Fees  $257,049   $247,812 
Tax Fees  $81,900   $61,100 

 

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, 2018 and April 30, 2017

Consolidated Statements of Operations for fiscal years ended April 30, 2018 and April 30, 2017

Consolidated Statements of Stockholders’ Equity for fiscal years ended April 30, 2018 and April 30, 2017

Consolidated Statements of Cash Flows for fiscal years ended April 30, 2018 and April 30, 2017

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   

 

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).

 

24

 

 

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).
     
10.1   First Amendment to Asset Purchase Agreement between Colorado Grande Enterprises, Inc., as seller, and G Investments, LLC, as purchaser (filed previously as Exhibits 10.1 to the Company’s Form 8-K filed May 29, 2012).
     
10.2   Credit Agreement dated December 10, 2013 by and among Mutual of Omaha Bank, as the Lender, Nevada Gold & Casinos, Inc., as parent, and Restricted Subsidiaries, as borrower (filed previously as Exhibits 10.9 to the Company’s Form 10-Q filed December 23, 2013).
     
10.3   Amended and Restated Credit Agreement dated November 30, 2015 by and among Mutual of Omaha Bank, as the Lender, Nevada Gold & Casinos, Inc., as parent, and Restricted Subsidiaries, as borrower (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed December 3, 2015).
     

10.4

 

  Asset Purchase Agreement between Gaming Ventures of Las Vegas, Inc., as seller, and Nevada Gold & Casinos LV, LLC, as buyer (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed May 22, 2015).
     
10.5   First Amendment to Option Agreement dated April 22, 2016 between the Company and Clear Creek Development Company (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed April 25, 2016).
    
10.6(+*)  Amended Employment Agreement dated May 1, 2018 by and between Michael P. Shaunnessy and Nevada Gold & Casinos, Inc.
    
10.7(+*)  Amended Employment Agreement dated May 1, 2018 by and between James Meier and Nevada Gold & Casinos, Inc.
    
10.8(+*)  Amended Employment Agreement dated May 1, 2018 by and between Victor H. Mena and Nevada Gold & Casinos, Inc.
    
10.9(+*)  Amended Employment Agreement dated May 1, 2018 by and between Ernest E. East and Nevada Gold & Casinos, Inc.
    
10.10(+*)  Amendment of Employment Agreement by and between Ernest E. East and Nevada Gold & Casinos, Inc. by letter dated April 2, 2018.
    
10.11(+*)   Amendment of Employment Agreement by and between Ernest E. East and Nevada Gold & Casinos, Inc. by letter dated July 10, 2018.
    
10.12(*)  Asset Purchase Agreement dated May 23, 2018, between A.G. Trucano, Son and Grandsons, Inc., as seller, and Michael J. Trucano, as buyer.
    
10.13(*)  Asset Purchase Agreement dated June 26, 2018, between Nevada Gold & Casinos LV, LLC, as seller, and Truckee Gaming, LLC, as buyer.
     
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.

 

25

 

  

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.

 

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

 

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 Meier

  James Meier
 

Chief Financial Officer

(Duly Authorized officer and Principal Financial and Accounting Officer)

   
  Date: July 26, 2018

 

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 26, 2018
         
/s/ WILLIAM G. JAYROE        
William G. Jayroe   Director   July 26, 2018
         
/s/ FRANK CATANIA        
Frank Catania   Director   July 26, 2018
         
/s/ FRANCIS M. RICCI        
Francis M. Ricci   Director   July 26, 2018
         
/s/ SHAWN KRAVETZ        
Shawn Kravetz   Director   July 26, 2018
         
/s/ RUDOLPH KLUIBER        
Rudolph Kluiber   Director   July 26, 2018
         
/s/ MICHAEL P. SHAUNNESSY        
Michael P. Shaunnessy   President and Chief Executive Officer (Principal Executive Officer)   July 26, 2018
         
/s/ JAMES MEIER        
James Meier   VP and Chief Financial Officer (Principal Financial and Accounting Officer)   July 26, 2018

 

26

 

 

Index to Consolidated Financial Statements

Consolidated Financial Statements of Nevada Gold & Casinos, Inc.

 

  Page
   
Report of Independent Registered Public Accounting Firm 28
Consolidated Balance Sheets as of April 30, 2018 and April 30, 2017 29
Consolidated Statements of Operations for fiscal years ended April 30, 2018 and April 30, 2017 30

Consolidated Statements of Stockholders’ Equity for fiscal years ended April 30, 2018 and April 30, 2017

31
Consolidated Statements of Cash Flows for fiscal years ended April 30, 2018 and April 30, 2017 32
Notes to Consolidated Financial Statements 33

 

27

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Nevada Gold & Casinos, Inc.:

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Nevada Gold & Casinos, Inc. (the Company) as of April 30, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended April 30, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2018, in conformity with U.S. generally accepted accounting principles.

 

Basis for the Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion

 

  /s/ Ernst & Young LLP

 

We have served as the Company’s auditor since 2014.

 

Las Vegas, Nevada  
July 26, 2018  

 

28

 

  

Nevada Gold & Casinos, Inc.

Consolidated Balance Sheets 

 

   April 30,   April 30, 
   2018   2017 
ASSETS          
Current assets:          
Cash and cash equivalents  $9,508,931   $10,631,903 
Restricted cash   2,369,063    1,994,312 
Accounts receivable, net of allowances   485,774    808,484 
Prepaid expenses   1,436,538    1,209,507 
Notes receivable, current portion       383,093 
Inventory and other current assets   430,296    423,113 
Total current assets   14,230,602    15,450,412 
           
Real estate held for sale   750,000    750,000 
Goodwill   16,923,588    16,923,588 
Identifiable intangible assets, net of accumulated amortization of $9,361,189 and $8,869,497 at April 30, 2018 and April 30, 2017, respectively   3,497,779    4,107,328 
Property and equipment, net of accumulated depreciation of $9,260,152 and $7,635,620 at April 30, 2018 and April 30, 2017, respectively   12,812,411    13,958,715 
Deferred tax asset   704,044    1,557,470 
Other assets   204,672    70,000 
Total assets  $49,123,096   $52,817,513 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $1,695,495   $1,303,571 
Accrued payroll and related   2,049,313    1,925,592 
Accrued player's club points and progressive jackpots   2,592,456    2,348,068 
Total current liabilities   6,337,264    5,577,231 
Long-term debt   7,895,240    12,061,411 
Other long-term  liabilities   637,207    667,110 
Total liabilities   14,869,711    18,305,752 
           
Stockholders' equity:          
Common stock, $0.12 par value per share; 50,000,000 shares authorized; 18,715,985 and 18,627,167 shares issued and 16,848,182 and 17,547,665 shares outstanding at April 30, 2018, and April 30, 2017, respectively   2,245,927    2,235,269 
Additional paid-in capital   27,557,151    27,449,319 
Retained earnings   13,644,239    12,320,814 
Treasury stock, 1,867,803 and 1,079,502 shares at April 30, 2018 and April 30, 2017, at cost   (9,193,932)   (7,493,641)
Total stockholders' equity   34,253,385    34,511,761 
Total liabilities and stockholders' equity  $49,123,096   $52,817,513 

  

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

 

29

 

  

Nevada Gold & Casinos, Inc.

Consolidated Statements of Operations

 

   Year Ended 
   April 30,   April 30, 
   2018   2017 
Revenues:          
Casino  $65,767,827   $65,838,576 
Food and beverage   13,252,982    13,439,326 
Other   1,978,619    2,140,113 
Gross revenues   80,999,428    81,418,015 
Less promotional allowances   (6,446,902)   (6,959,066)
Net revenues   74,552,526    74,458,949 
           
Expenses:          
Casino   36,476,733    36,488,019 
Food and beverage   6,801,269    6,194,698 
Other   206,764    208,090 
Marketing and administrative   20,715,534    20,752,103 
Facility   2,008,090    2,126,150 
Corporate   3,009,735    2,719,003 
Depreciation and amortization   2,370,752    3,021,280 
Loss on disposal of assets   7,863    77,183 
Write downs and other charges   358,807    1,101,472 
Total operating expenses   71,955,547    72,687,998 
Operating income   2,596,979    1,770,951 
Non-operating income (expenses):          
Interest income   46,241    81,011 
Interest expense and amortization of loan issue costs   (637,387)   (747,554)
Change in swap fair value   171,018    250,385 
Income before income tax   2,176,851    1,354,793 
    Income tax expense   (853,426)   (790,829)
Net income  $1,323,425   $563,964 
Per share information:          
Net income per common share - basic and diluted  $0.08   $0.03 
           
Basic weighted average number of common shares outstanding   16,985,532    17,688,229 
           
Diluted weighted average number of common shares outstanding   17,350,402    17,990,524 

 

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

 

30

 

  

Nevada Gold & Casinos, Inc.

Consolidated Statements of Stockholders' Equity 

 

           Additional           Total 
   Common Stock   Paid-in   Retained   Treasury   Stockholders' 
   Shares   Amount   Capital   Earnings   Stock   Equity 
Balance at April 30, 2016   18,571,693   $2,228,612   $27,315,517   $11,756,850   $(6,932,035)  $34,368,944 
Net Income               563,964        563,964 
Issuance of common stock                        
Stock compensation   43,974    5,277    119,002            124,279 
Stock options exercised   11,500    1,380    14,800            16,180 
Treasury stock purchased                   (561,606)   (561,606)
Balance at April 30, 2017   18,627,167   $2,235,269   $27,449,319   $12,320,814   $(7,493,641)  $34,511,761 
Net Income               1,323,425        1,323,425 
Stock compensation   34,630    4,156    99,984            104,140 
Stock options exercised   17,500    2,100    12,250            14,350 
Warrant exercised   36,688    4,402    (4,402)            
Treasury stock purchased                   (1,700,291)   (1,700,291)
Balance at April 30, 2018   18,715,985   $2,245,927   $27,557,151   $13,644,239   $(9,193,932)  $34,253,385 

 

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

 

31

 

 

Nevada Gold & Casinos, Inc.

Consolidated Statements of Cash Flows

 

   Year Ended 
   April 30,   April 30, 
   2018   2017 
Cash flows from operating activities:          
Net income  $1,323,425   $563,964 
Adjustments to reconcile net income to net cash provided by operating activities:          
 Depreciation and amortization   2,370,752    3,021,280 
 Stock compensation   104,140    124,279 
 Amortization of deferred loan issuance costs   133,829    95,040 
 Change in deferred rent   9,943    36,069 
 Write downs and other charges   358,807    1,101,472 
 Changes to restricted cash   (374,751)   (560,584)
 Change in swap fair value   (171,018)   (250,385)
 Loss on disposal of assets   7,863    77,183 
 Changes in deferred income taxes   853,426    790,829 
Changes in operating assets and liabilities:          
 Receivables and other assets   88,495    (152,708)
 Accounts payable and accrued liabilities   760,033    (91,951)
Net cash provided by operating activities   5,464,944    4,754,488 
Cash flows from investing activities:          
Collections on notes receivable   383,093    725,976 
Purchase of property and equipment   (983,568)   (1,044,297)
Capitalized licensing costs       24,946 
Deposit refunded   (3,500)    
Proceeds from the sale of assets   2,000    5,886 
Net cash used in investing activities   (601,975)   (287,489)
Cash flows from financing activities:          
Proceeds from credit facilities   700,000     
Repayment of credit facilities   (5,000,000)   (4,872,777)
Purchase of treasury stock   (1,700,291)   (561,606)
Cash proceeds from exercise of stock options   14,350    16,180 
Net cash used in financing activities   (5,985,941)   (5,418,203)
           
Net decrease in cash and cash equivalents   (1,122,972)   (951,204)
Cash and cash equivalents at beginning of period   10,631,903    11,583,107 
Cash and cash equivalents at end of period  $9,508,931   $10,631,903 
Supplemental cash flow information:          
Cash paid for interest  $512,345   $676,715 

 

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

 

32

 

 

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 Nevada, Washington and South Dakota. 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.

 

Certain reclassifications between the operating expenses of casino, food and beverage, and other have been made to conform prior year financial information to the current period presentation. Those reclassifications did not impact working capital, revenue, operating income, net income or stockholders’ equity.

 

Revision of Previously Issued Financial Statements

 

As part of the financial statement close process for the year ended April 30, 2018, a classification error was identified that resulted in certain progressive jackpot liabilities recorded as operating expenses rather than contra-revenue in prior years.  The Company has performed an evaluation to determine if the financial statement impacts resulting from this classification error were material, considering both quantitative and qualitative factors. Based on this materiality analysis, the Company concluded that the errors were not material to any individual prior period.  However, the Company has elected to correct the classification error for the year ended April 30, 2017.  Accordingly, the Company has adjusted the statement of operations for the year ended April 30, 2017 to reflect a reduction in casino revenues and marketing and administrative expense of $168,000. 

 

The following table presents the effect of the items listed above on the Company’s statement of operations:

 

   Year ended April 30, 2017 
   Previously
Reported
   Adjustment   As Adjusted 
Casino revenues  $66,006,576   $(168,000)  $65,838,576 
Marketing and administrative expense  $20,920,103   $(168,000)  $20,752,103 

 

Note 2.   Summary of Significant Accounting Policies 

 

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 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 if we can exert significant influence over, but do not control the policies and decisions of an entity. We use the cost method of accounting if we are unable to exert significant influence over the entity.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period and disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, investments, intangible assets and goodwill, property, plant and equipment, income taxes, employment benefits and contingent liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

 

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.

 

33

 

 

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

 

Real estate held for sale is recorded at fair value less selling costs.

 

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

 

Interest rate swaps are adjusted on a recurring basis pursuant to accounting standards for fair value measurements. We categorize our interest rate swap as Level 2 for fair value measurement.

 

Long-lived assets, including property and equipment and amortizable intangible assets, comprise a significant portion of our total assets. We evaluate the carrying value of long-lived assets if impairment indicators are present or if other 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.

 

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.

 

Each reporting period we review 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. 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.

 

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. On April 8, 2013, we signed a one year option agreement, with two one year extensions to sell the land for an initial sale price of $1.1 million plus $118 per day after April 8, 2013. On April 22, 2016, we executed an amendment to the option agreement for the sale of the vacant land for a purchase price of $750,000. In connection with the transaction, we recorded a non-cash impairment of $350,000 in the fourth quarter of fiscal 2016 within write downs and other changes on the consolidated statement of operations. We received a $75,000 down payment, which is included in other long-term liabilities on our balance sheet, and financed the balance at 5% interest only, with interest payable monthly, and a balloon payment of $675,000 due April 30, 2019. The transaction was accounted for under the deposit method, recording the down payment as a liability and deferring the recognition of the sale until the buyer’s investment is at least 20% of the initial purchase price.

 

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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 improvements are capitalized.

 

Goodwill and Other Intangible Assets

 

Goodwill and intangible assets with indefinite useful lives are tested for impairment annually (on April 30) 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 the same as our operating segments. 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 and on a discounted cash flow method. 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. 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 as disclosed in Note 5.  

 

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 if impairment indicators are present or if 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 value 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.

 

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.

 

Advertising Costs

 

We expense advertising costs as incurred. Advertising expense related primarily to our casino operations and for the years ended April 30, 2018 and 2017, was $4.5 million and $4.2 million, respectively. These costs are included in marketing and administrative on our consolidated statements of operations.

 

Revenue Recognition

 

We record revenues from casino operations. 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. These amounts are included in promotional allowances in the accompanying consolidated statements of operations. We record the redemption of coupons and points for cash as a reduction of revenue. The estimated retail value of providing such promotional allowances is as follows:

 

   Fiscal Year Ended 
   April 30, 2018   April 30, 2017 
Food and beverage  $6,184,733   $6,722,157 
Other   262,169    236,909 
Promotional allowances  $6,446,902   $6,959,066 

 

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The estimated cost of providing such complimentary services that is included in casino expense in the consolidated statements of operations was as follows:

 

   Fiscal Year Ended 
   April 30, 2018   April 30, 2017 
Food and beverage  $5,771,698   $6,112,343 
Other   243,899    222,886 
Total cost of complimentary services  $6,015,597   $6,335,229 

 

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 for 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 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.

 

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. Compensation cost for grants of the Company’s stock are based on the shares granted and the market price at the date of the grant.

 

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, 2018 and 2017, was $104,140 and $124,279, 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”.

 

Accrued Contingent Liabilities

 

We assess our exposure to loss contingencies including legal matters. If a potential loss is justified, probable and able to be quantified, 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, 2018 and 2017, we did not record any accrued contingent liabilities.

 

Derivative Financial Instruments

 

We have managed our market risk, including interest rate risk associated with variable rate borrowings, through balancing fixed-rate and variable-rate borrowings with the use of derivative financial instruments. The fair value of derivative financial instruments are recognized as assets or liabilities at each balance sheet date, with changes in fair value affecting net income. The Company’s interest rate swap did not qualify for hedge accounting. Accordingly, change in the fair value of the interest rate swap is presented as a change in fair value of swaps in the accompanying consolidated statements of operations.

 

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New Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company is currently evaluating the impact this guidance will have on its financial position and results of operations.

 

In May 2014, the FASB issued a new accounting standard for revenue recognition which requires entities to recognize revenue when it transfers promised goods or services to customers, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard supersedes the existing accounting guidance for revenue recognition, including industry-specific guidance, and amends certain accounting guidance for recognition of gains and losses on the transfer of non-financial assets. For public companies, the new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017.

 

The Company will adopt the standard as of May 1, 2018 and will follow the modified retrospective approach. The accompanying financial statements and related disclosures do not reflect the effects of the new revenue standard. The Company is finalizing the assessment of the effects of the standard on its consolidated financial statements and will begin reporting under the new guidance in its consolidated financial statements for the first quarter of fiscal 2019. The quantitative effects of these changes are not expected to be material and are still being analyzed.

 

The Company’s current presentation, which reports the retail value of services provided to customers without charge as revenues with a corresponding contra amount deducted as promotional allowances, will no longer be allowed under the new revenue standard. Upon adoption of the new guidance, revenues will be allocated among the Company’s departmental classifications based on the relative standalone selling prices of the goods and services provided to guests. The Company currently anticipates that this methodology will result in a reduction of reported gaming revenues by an amount equivalent to reported promotional allowance revenues, with no change to total net revenues.

 

Currently, the Company estimates the cost of fulfilling the redemption of rewards earned through customer loyalty programs based upon the cost of historical redemptions. Upon adoption of the new guidance, the Company will account for the rewards using a deferred revenue model for the classification and timing of revenue recognized as well as the classification of related expenses when player rewards are redeemed. The impact of this change in accounting is not expected to be material to any annual accounting period.

 

Historically, and in accordance with prior guidance, the Company reported the expense for amounts paid to operators of wide area progressive games as contra-revenues. Upon adoption of the new guidance, these payments will be reported as an operating expense. The impact of this classification change will be to increase our gaming revenues and gaming expenses by equal amounts.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 ("ASU 2017-04") "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment." ASU 2017-04 removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning after 15 December 2019, and early adoption is permitted. The Company adopted this guidance in the second quarter of fiscal 2018 with no material impact on its financial position or results of operations.

 

A variety of proposed or otherwise potential accounting guidance is currently under study by standard-setting organizations and certain regulatory agencies. Due to the tentative and preliminary nature of such proposed accounting guidance, the Company has not yet determined the effect, if any, that the implementation of such proposed accounting guidance would have on its consolidated financial statements.

 

Note 3.   Restricted Cash

 

As of April 30, 2018 and 2017, we maintained $2.4 million and $2.0 million respectively, in restricted cash, which consists of progressive and player-supported jackpot funds for our Washington operations.

 

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Note 4.   Notes Receivable 

 

G Investments, LLC

 

As of April 30, 2018 and 2017, we had a note receivable of $0 and $390,368, respectively, with no valuation allowance, due from G Investments, LLC resulting from the sale of the Colorado Grande Casino on May 25, 2012. The initial amount was $2,300,000, requiring $40,000 monthly payments, bearing interest at 6% per annum through the amended maturity date of February of 2018, and was secured with the assets of the Colorado Grande Casino, pledge of membership interest in G Investments, LLC (“GI”), and a personal guaranty by GI’s principal. This note receivable was paid as of February 2018.

 

RSM Partners, LLC

 

We owned approximately 268 acres of undeveloped land in the vicinity of Black Hawk and Central City, Colorado. On April 22, 2016, we executed an agreement for the sale of the vacant land for a purchase price of $750,000. We received a $75,000 down payment, which is included in other long-term liabilities on our balance sheet, and financed the balance at 5% interest only, with interest payable monthly, and a balloon payment of $675,000 due April 30, 2019. The transaction was accounted for under the deposit method, recording the down payment as a liability and deferring the recognition of the sale and the note receivable until the buyer’s investment is at least 20% of the initial purchase price.

 

Note 5.   Goodwill and Intangible Assets

 

In connection with our acquisitions of the Washington mini-casinos on May 12, 2009, July 23, 2010 and July 18, 2011, the South Dakota slot route on January 27, 2012, and the Club Fortune Casino in Nevada on December 1, 2015, we have goodwill and intangible assets of $20,421,367, net of amortization for intangible assets with finite lives.

 

The change in the carrying amount of goodwill and other intangibles for the fiscal year ended April 30, 2018, is as follows:

 

           Other 
   Total   Goodwill   Intangibles, net 
Balance as of April 30, 2017  $21,030,916   $16,923,588   $4,107,328 
Current year amortization   (491,692)   -    (491,692)
Impairment of South Dakota   (117,857)   -    (117,857)
Balance as of April 30, 2018  $20,421,367   $16,923,588   $3,497,779 

 

Goodwill and net intangibles assets by segment as of April 30, 2018, are as follows:

 

           Other 
   Total   Goodwill   Intangibles, net 
Washington  $15,969,136   $14,092,154   $1,876,982 
Nevada   4,039,727    2,831,434    1,208,293 
Corporate   412,504    -    412,504 
Total  $20,421,367   $16,923,588   $3,497,779 

 

Intangible assets are generally amortized on a straight line basis over the useful lives of the assets. State gaming registration and trade names are not amortizable. A summary of intangible assets and accumulated amortization as of April 30, 2018, are as follows:

 

   Gross         
   Carrying   Accumulated     
   Amount   Amortization   Net 
Customer relationships  $8,555,464   $(8,003,578)  $551,886 
Non-compete agreements   1,379,000    (1,357,611)   21,389 
State gaming registration   412,504    -    412,504 
Trade names   2,512,000    -    2,512,000 
Total  $12,858,968   $(9,361,189)  $3,497,779 

 

A summary of intangible assets and accumulated amortization as of April 30, 2017, are as follows:

 

   Gross         
   Carrying   Accumulated     
   Amount   Amortization   Net 
Customer relationships  $8,673,321   $(7,548,552)  $1,124,769 
Non-compete agreements   1,379,000    (1,320,945)   58,055 
State gaming registration   412,504    -    412,504 
Trade names   2,512,000    -    2,512,000 
Total  $12,976,825   $(8,869,497)  $4,107,328 

 

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The remaining weighted average useful life of acquired intangibles is 4.3 years for customer relationships and 0.6 years for non-compete agreements.  Amortization expense for the years ended April 30, 2018 and 2017 was $491,692 and $871,707, respectively. The estimated future annual amortization of intangible assets, which excludes trade names and State gaming registration, is as follows:

 

Fiscal year  Amount 
2019  $153,513 
2020   117,143 
2021   117,143 
2022   117,143 
2023   68,333 
Total  $573,275 

 

Goodwill represents the excess of the purchase price over the fair market value of net assets acquired. At April 30, 2017, our goodwill impairment analysis resulted in a non-cash $1.1 million impairment of goodwill relating to our South Dakota operations. At April 30, 2018, we performed a goodwill impairment analysis of our Washington and Nevada operations and determined no impairment charge to goodwill was required. A recoverability test of our long-lived assets resulted in a $117,857 impairment charge to South Dakota’s customer relationships, bringing the net balance of South Dakota’s customer relationships to zero as of April 30, 2018.

 

Note 6.    Property and Equipment

 

Property and equipment at April 30, 2018 and April 30, 2017 consist of the following:

 

           Estimated
   April 30,   April 30,   Service Life
   2018   2017   in Years
Leasehold improvements  $1,750,367   $1,556,824   7-20
Gaming equipment   5,332,453    5,300,898   3-5
Furniture and office equipment   4,648,998    4,506,639   3-7
Building and improvements   7,803,486    7,762,201   15-39
Land   2,387,750    2,387,750    
Construction in Progress   149,509    80,023    
    22,072,563    21,594,335    
Less accumulated depreciation   (9,260,152)   (7,635,620)   
              
Property and equipment, net  $12,812,411   $13,958,715    

 

Depreciation expense for the years ended April 30, 2018 and 2017 was $1.9 million and $2.1 million, respectively.

 

A recoverability test of our long-lived assets resulted in a $240,950 impairment charge to South Dakota’s property and equipment, bringing the net balance of South Dakota’s property and equipment to zero as of April 30, 2018.

 

Note 7.   Income Taxes 

 

The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the US federal corporate tax rate from 35% to 21%. At April 30, 2018, we have not completed our accounting for the tax effects of enactment of the Act. However, in certain cases as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances. For any amounts we have not been able to make a reasonable estimate, we will continue to account for those items based on our existing accounting under ASC 740 Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law. The Company provisionally remeasured its net deferred tax assets to incorporate the future lower corporate tax rate resulting in a $230 thousand reduction to net deferred tax assets.

 

Given the significance of the legislation, the U.S. Securities and Exchange Commission (the "SEC") staff issued Staff Accounting Bulletin ("SAB") No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed. SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Act.

 

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Several provisions of the Tax Act have significant impact on our U.S. tax attributes, generally consisting of credits, loss carry-forwards, and reserved notes. Although we have made a reasonable estimate of the gross amounts of the attributes disclosed, the Company is continuing to analyze certain aspects of the Tax Act and is refining its calculations which could potentially affect the measurements of these balances or potentially give rise to new deferred tax amounts. Other significant provisions that are not yet effective, but may impact income taxes in future years, include: limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income and a limitation of net operating losses generated after December 31, 2017 to 80 percent of taxable income.

 

Income taxes are accounted for 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 recognize the impact of uncertain tax positions in our financial statements only if that position is more likely than not of not 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.

 

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

 

   April 30, 2018   April 30, 2017 
Deferred tax assets:          
Net operating loss carryforwards  $1,376,229   $345,678 
Tax credit carryforwards   494,675    437,896 
Stock options   149,376    246,726 
Impairment of notes receivable and land   -    2,101,288 
Revenue not recognized for tax reporting and other   118,063    187,770 
Accrued expenses   61,308    104,580 
Other   -    15,396 
Total deferred tax assets   2,199,651    3,439,334 
Deferred tax liabilities:          
Amortization of intangibles   (1,151,037)   (1,404,551)
Fixed assets   (190,769)   (263,072)
Prepaid expenses   (130,826)   (214,241)
Other   (22,975)   - 
Total deferred tax liabilities   (1,495,607)   (1,881,864)
Net deferred tax assets  $704,044   $1,557,470 

 

At April 30, 2017, we had $6.3 million ($2.1 million tax effected) in note receivables that were fully reserved for book purposes, which were written off for income tax in fiscal 2018. We have deferred tax assets of approximately $0.4 million related to general business credits and $0.1 million related to Alternative Minimum Tax credits. The net operating losses and general business credits can be carried forward and applied to offset taxable income for 20 years; they will begin to expire in 2035. The Alternative Minimum Tax credit can be carried forward indefinitely and will offset future regular tax liabilities.

 

We have analyzed our income tax filing positions in all jurisdictions and believe our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments which will result in a material change to our financial position. As of the time of this filing, no income tax examinations are currently being undertaken by any jurisdiction.

 

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Reconciliations between the weighted average statutory federal income tax expense rate of 29.7% in the fiscal year ended April 30, 2018 and 34.0% for the fiscal year ended 2017, and our effective income tax rate as a percentage of pre-tax book income, is as follows:

 

   Year Ended 
   April 30, 2018   April 30, 2017 
   Percent   Dollars   Percent   Dollars 
                 
Income tax expense at statutory federal rate   29.7   $647,091    34.0   $460,630 
Change in tax rate   10.6    229,904    -    - 
Impairment of nondeductible goodwill   -    -    27.6    374,500 
Non-deductible expenses   2.3    50,475    2.8    37,933 
Utilization of general business credits   (2.5)   (55,551)   (6.3)   (85,187)
Adjustment to deferred balances   (0.8)   (16,421)   -    - 
Tax return to provision adjustments   (0.1)   (2,072)   0.2    2,953 
Income tax expense at effective income tax rate   39.2   $853,426    58.3   $790,829 

 

Note 8.   Long-Term Debt 

 

Our long-term financing obligations for the fiscal years ended April 30, 2018 and 2017, are as follows:

 

   April 30,   April 30, 
   2018   2017 
$23.0 million reducing revolving credit agreement, LIBOR plus an applicable margin (4.43% at April 30, 2018), $625,000 quarterly reductions beginning January 31, 2016 through November 30, 2020, and the remaining principal due on the maturity date of November 30, 2020, net of accumulated debt issuance costs of $104,760 and $238,589 at April 30, 2018 and 2017, respectively.  $7,895,240   $12,061,411 
Less: current portion   -    - 
Total long-term financing obligations  $7,895,240   $12,061,411 

 

On November 30, 2015, the Company amended its existing credit agreement with Mutual of Omaha Bank (“MOOB”) to increase the lending commitment to $23.0 million.  The Amended and Restated Credit Agreement (“Credit Facility”) matures on November 30, 2020, and is secured by liens on substantially all of the real and personal property of the Company and its subsidiaries. The interest rate on the borrowing is based on LIBOR plus an Applicable Margin, determined quarterly beginning April 1, 2016, based on the total leverage ratio for the trailing twelve month period. The Applicable Margin at April 30, 2018 was 2.50%. In addition, the Company was required to fix the interest rate on at least 50% of the credit facility through a swap agreement.

 

As of April 30, 2018, scheduled principal payments on the Credit Facility are as follows:

 

May 1, 2018 – April 30, 2019  $- 
May 1, 2019 – April 30, 2020   - 
May 1, 2020 – November 30, 2020   8,000,000 
Total payments   8,000,000 
Unamortized debt discount   (104,760)
Total long-term debt  $7,895,240 

 

The unamortized debt discount above consists of debt issuance costs paid directly to the lender. The discount is amortized using the effective interest rate method over the period of the Credit Facility through interest expense.

 

On July 12, 2017, the Company borrowed $700,000 on the credit line. During the year ended April 30, 2018, we paid $5,000,000 to reduce the outstanding balance of the Credit Facility. As of April 30, 2018, the Company had $8,682,777 available to borrow on the reducing revolving credit agreement.

 

The Credit Facility contains customary covenants for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of the Company’s assets and covenants restricting our ability to merge, transfer ownership, incur additional indebtedness, encumber assets and make certain investments.  The Credit Facility also contains covenants requiring the Company to maintain certain financial ratios including a maximum total leverage ratio ranging from 2.75 to 1.00 from February 1, 2017 through January 31, 2018, and 2.50 to 1.00 from February 1, 2018 until maturity; and lease adjusted fixed charge coverage ratio of no less than 1.15 to 1.00. We are in compliance with the covenant requirements of the Credit Facility as of April 30, 2018.

 

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Note 9.   Interest Rate Swap

 

We are required by the Credit Facility to have a secured interest rate swap for at least 50% of the Credit Facility commitment. On December 28, 2015, the Company entered into a swap transaction with Mutual of Omaha Bank, which has a calculation period as of the tenth day of each month through the maturity date of the Credit Facility. As of April 30, 2018, the Company had one outstanding interest rate swap with MOOB with a notional amount of $8,375,000 at a swap rate of 1.77%, which as of April 30, 2018, effectively converts $8,375,000 of our floating-rate debt to a synthetic fixed rate of 4.27%. Under the terms of the swap agreement, the Company pays a fixed rate of 1.77% and receives variable rate based on one-month LIBOR as of the first day of each floating-rate calculation period. Under the International Swap Dealers Association, Inc. (“ISDA”) confirmation, the floating index as of April 30, 2018 is set at 1.9285%.

 

The Company did not designate the interest rate swap as a cash flow hedge and the interest rate swap did not qualify for hedge accounting under ASC Topic 815. Changes in our interest rate swap fair value are recorded in our consolidated statements of operations. Each quarter, the Company receives fair value statements from the counterparty, MOOB. The fair value of the interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As a result of our evaluation of our interest rate swap, we recorded a $171,018 increase in our interest rate swap fair value for the year ended April 30, 2018. As of April 30, 2018 and 2017, our interest rate swap fair value was an asset of $134,672 and a liability of $36,346, respectively, which is included in other assets as of April 30, 2018 and other long-term liabilities as of April 30, 2017 on the consolidated balance sheets.

 

Note 10. Equity Transactions and Stock Option Plans 

 

We have obligations under our 2009 Equity Incentive Plan (the “2009 Plan”). On April 14, 2009, our shareholders approved the 2009 Plan providing for the granting of awards to our directors, officers, employees and independent contractors. The number of common stock shares reserved for issuance under the 2009 Plan is 1,750,000 shares. The 2009 Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has complete discretion under the plan regarding the vesting and service requirements, exercise price and other conditions. 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 ISOs,
·Stock Appreciation Rights, and
·Restricted Stock Grants.

 

Our practice has been to issue new or treasury shares upon the exercise of stock options. Stock option rights granted under the 2009 Plan 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.

 

In October of 2017 and 2016, the Committee granted stock to the board of directors as $10,000 per director in annual compensation paid in the form of a stock grant. The Committee also granted 57,000 and 12,000 shares of restricted stock in October 2017 and April 2017, respectively, to certain management, both to vest over three years. A summary of stock grant activity under our share-based payment plans for the years ended April 30, 2017 and 2018, is presented below:

 

For the year ended April 30, 2017 
Grants  Shares   Weighted
Average Grant
Date Value (per
share)
 
Unvested at beginning of year   12,600   $1.69 
Issued   51,774   $1.86 
Vested   (43,974)  $1.75 
Forfeited   -      
Unvested at end of year   20,400   $1.98 

 

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For the year ended April 30, 2018 
Grants  Shares   Weighted
Average Grant
Date Value (per
share)
 
Unvested at beginning of year   20,400   $1.98 
Issued   83,430   $2.27 
Vested   (34,630)  $2.19 
Forfeited   -      
Unvested at end of year   69,200   $2.23 

 

As of April 30, 2018, there was $120,577 of unamortized compensation cost related to stock grants, which is expected to be recognized over approximately 2.4 years.

 

A summary of stock option activity under our share-based payment plans for the years ended April 30, 2018 and 2017 is presented below:

 

           Weighted     
       Weighted   Average     
       Average   Remaining   Aggregate 
       Exercise   Contractual   Intrinsic 
   Shares   Price   Term (Year)   Value 
Outstanding at April 30, 2016   705,000   $1.10           
Granted   -    -           
Exercised   (11,500)  $1.41           
Forfeited or expired   -    -           
Outstanding at April 30, 2017   693,500   $1.10    5.26   $779,300 
                     
Exercisable at April 30, 2017   693,500   $1.10    5.26   $779,300 
                     
                     
Outstanding at April 30, 2017   693,500   $1.10           
Granted   -    -           
Exercised   (17,500)  $0.82           
Forfeited or expired   -    -           
Outstanding at April 30, 2018   676,000   $1.10    4.26   $660,160 
                     
Exercisable at April 30, 2018   676,000   $1.10    4.26   $660,160 
                     
Available for grant at April 30, 2018   507,611                

 

Compensation cost for stock options granted is based on the fair value of each award, measured by applying the Black-Scholes model. As of April 30, 2018, there was no unamortized compensation cost related to stock options.

 

Treasury Stock

 

In July 2016, our board of directors approved a $2.0 million stock repurchase program to purchase our common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements, loan covenants and other factors. In July 2017, the board of directors authorized an additional $2.0 million for future stock purchases. The repurchase plan does not obligate the Company to acquire any specified number or value of common stock. During the year ended April 30, 2018, the Company repurchased 788,301 shares at a weighted average price of $2.16 per share, costing $1,700,291. During the year ended April 30, 2017, the Company repurchased 296,665 shares at a weighted average price per share of $1.89, costing $561,606. As of April 30, 2018, $1.7 million remains available under the share repurchase authorization.

 

Warrants

 

On November 7, 2011, we closed on the sale of 2,625,652 shares of our common stock to certain investors through a registered direct offering. 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 had an exercise price of $2.18 per share and were exercisable for five years from the initial exercise date. During the first week of May 2017, warrants were exercised in cashless transactions and the Company issued 36,689 shares as a result. The remaining warrants expired on May 7, 2017.

 

Note 11. Commitments and Contingencies 

 

We are party to contracts in the ordinary course of business, including leases for real property and operating leases for equipment.

 

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The expected remaining future annual minimum lease payments as of April 30, 2018 are as follows:

 

Fiscal Year  Total 
     
2019  $3,327,044 
2020   3,218,244 
2021   3,178,258 
2022   2,402,724 
2023   808,697 
Thereafter   716,780 
   $13,651,747 

 

Total rent expense for the years ended April 30, 2018 and 2017 was $3,490,908 and $3,404,302, respectively.

 

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 12. Earnings Per Share

 

The following is presented as a reconciliation of the numerators and denominators of basic and diluted earnings per share computations:

 

   Fiscal Year Ended 
   April 30,
2018
   April 30,
2017
 
Numerator:          
Basic and diluted:          
Net income  $1,323,425   $563,964 
           
Denominator:          
Basic weighted average number of common shares outstanding   16,985,532    17,688,229 
Diluted weighted average number of common shares outstanding   17,350,402    17,990,524 
           
Income per share for continuing operations:          
Net income per common share – basic and diluted  $0.08   $0.03 

  

Note 13. Segment Reporting 

 

We have three business segments: (i) Washington, (ii) South Dakota, and (iii) Nevada, as well as the Company’s corporate location. For the year ended April 30, 2018 and 2017, the Washington segment consists of the Washington mini-casinos, the South Dakota segment consists of our slot route operation in South Dakota, the Nevada segment consists of Club Fortune casino and Corporate includes the land held for sale in Colorado and its taxes and maintenance expenses. Corporate also includes corporate-related items, results of insignificant operations, and income and expenses not allocated to other reportable segments.

 

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Summarized financial information for our reportable segments is shown in the following table.

  

   As of, and for the Year Ended,  April 30, 2018 
   Washington   South Dakota   Nevada   Corporate   Totals 
                     
Net revenue  $54,415,031   $6,579,494   $13,558,001   $-   $74,552,526 
Casino and food and beverage expense   29,235,661    5,887,792    8,154,549    -    43,278,002 
Marketing and administrative and corporate expense   16,845,756    496,426    3,373,352    3,009,735    23,725,269 
Facility and other expenses   1,810,881    89,886    314,087    -    2,214,854 
Depreciation and amortization   586,020    345,868    1,412,725    26,139    2,370,752 
Operating income (loss)   5,928,963    (599,398)   303,288    (3,035,874)   2,596,979 
Assets   28,637,877    1,019,362    15,823,139    3,642,718    49,123,096 
Purchase of property and equipment   686,349    107,032    157,992    32,195    983,568 

 

   As of, and for the Year Ended, April 30, 2017 
   Washington   South Dakota   Nevada   Corporate   Totals 
                     
Net revenue  $54,259,258   $6,728,808   $13,470,883   $-   $74,458,949 
Casino and food and beverage expense   28,868,415    5,980,534    7,833,768    -    42,682,717 
Marketing and administrative and corporate expense   16,512,236    458,629    3,781,238    2,719,003    23,471,106 
Facility and other expenses   1,888,328    126,706    319,206    -    2,334,240 
Depreciation and amortization   951,960    552,373    1,491,521    25,426    3,021,280 
Operating income (loss)   6,031,378    (1,502,353)   (13,645)   (2,744,429)   1,770,951 
Assets   28,303,228    1,751,461    17,337,408    5,425,416    52,817,513 
Purchase of property and equipment   344,963    37,474    606,672    55,188    1,044,297 

 

Note 14. Related Party Transactions 

 

The Company paid $10,200 during both fiscal years ended April 30, 2018 and 2017, in accordance with Club Fortune entering into a ground lease agreement with Gaming Ventures Las Vegas, Inc., the previous owner of Club Fortune, which is owned by a shareholder who owns over 5% of the Company. The Company paid $204,923 and $200,715 during the fiscal years ended April 30, 2018 and 2017, respectively, in accordance with a consulting agreement with the same shareholder.

 

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 15.   Subsequent Events 

 

On June 27, 2018, the Company announced it had entered into a definitive agreement to sell its Club Fortune Casino in Henderson, Nevada to Truckee Gaming, LLC for $14.6 million, subject to certain adjustments, including a working capital adjustment. The transaction, which received lender consent, is subject to customary closing conditions, including approvals of the Nevada Gaming Control Board and Commission, and is expected to close in late 2018. Following the consummation of the Club Fortune sale, Nevada Gold intends to close its Las Vegas corporate office and move its corporate headquarters to its Washington Gold office in the Seattle, Washington area.  The Company expects to reduce its corporate overhead by approximately $1.2 million as a result.

 

On June 30, 2018, the Company sold its South Dakota route operations to Michael J. Trucano for $400,000. The sale included all fixtures, equipment, trade names, and operating agreements used in connection with the business, but excluded all cash in excess of $400,000. The proceeds from the sale and the excess cash that was used in the working capital of the route operations will be used to reduce the outstanding debt of the Company by approximately $650,000.

 

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