9. Rotate Black, Gaming, Inc.

12 Months Ended

Jun. 30, 2012

Notes to Financial Statements

10. Rotate Black, Gaming, Inc.

Development Agreement

On June 22, 2007, Gaming entered into a Development Agreement with the Seneca Nation of Indians (Nation), a Federally-recognized Indian tribal government, to act as the Developer to provide managerial expertise and financial resources to assist the Nation in acquiring land and developing and constructing a gaming facility (Facility).

Under the terms of the Development Agreement, the Company was responsible for arranging a limited recourse loan or other arrangements to finance the Facility in an aggregate principal amount of up to $350,000,000. The proceeds of the loan were to be used exclusively for the development, design, construction, furnishing and equipping of the Facility, for start-up and working capital and reimbursing the Company for development advances. Development advances are the funds advanced by the Company for necessary costs in advance of the facility loan. In accordance with the Development Agreement, development costs include the costs of the design, construction, furnishing and equipping of the Facility and such other costs incurred by the Company or by the Nation to advance the conclusion of the project, including consultant and attorney fees and costs. According to the Agreement, funds advanced as development costs, together with the development fee, would constitute the initial principal of the development loan and the funds advanced by the Company, as developer will be reimbursed from the proceeds of the Facility Loan.

A development fee of 2.5% of total development costs was to be paid to the Company for services rendered pursuant to the Development Agreement and are in addition to the amounts advanced to cover the development costs.

Management Agreement

On June 14, 2008, Gaming entered into a Management Agreement with the Nation for an exclusive right and obligation to manage, operate and maintain the gaming facility to be developed in Sullivan County, New York, commencing on the effective date, as defined, and continuing for a period of seven years after the date on which gaming commences in the facility. The term would be automatically extended for a period of seven years unless terminated under the provisions of the agreement.

Under the Management Agreement, the Nation would have paid the Company a fee based on a percent of gaming revenues, as defined.

Contract Rights

Contract rights consisted of the various rights acquired under the Development and Management Agreements. It is composed of contract rights acquired by Rotate Black, LLC and draws from an asset-backed lending agreement used to finance the expenses associated with acquiring the Development and Management Agreements.

 Sale of Gaming

On July 1, 2010, as amended, the Company and RBL entered into an agreement to sell 100% of the common stock of Gaming to Catskills Gaming and Development, LLC (Catskill) in exchange for an aggregate contingent consideration of $21,000,000 in cash and the assumption of indebtedness of approximately $6,300,000. According to the Agreement, the consideration is to be paid in installments as follow:

● $15,000 at closing

● $2 million on or before the first anniversary of the date of the opening for business to the public of a gaming facility under a management agreement between Catskills, as manager, and the Seneca Nation of Indians, in or near the Counties of Ulster and Sullivan in the State of New York (the “Opening Date”);

● $2 million on the second anniversary of the Opening Date;

● $3.4 million on the third anniversary of the Opening Date:

● $3.4 million on the fourth anniversary of the Opening Date;

● $3.4 million on the fifth anniversary of the Opening Date;

● $3.4 million on the sixth anniversary of the Opening Date; and

● $3.4 million on the seventh anniversary of the Opening Date.

As of June 30, 2011, the Company received the payment of $15,000 and, since the balance of the compensation is contingent upon the opening for business of a gaming facility under a management agreement between Catskills, as manager, and the Seneca Nation of Indians, the Company has not recorded a receivable for the balance of the sales agreement.

The Company has recorded the deconsolidation of Gaming in accordance with ASC 810-10-40 and has recorded a loss on the sale of Gaming of $6,843,246, by calculating the difference between the sum of the consideration received and the carrying amount of the noncontrolling interest and the carrying amount of the entity’s assets and liabilities as follows:

Intangible assets – Contract rights	$	6,323,884
Developer loan receivable		2,397,834
Noncontrolling interest		(1,363,608	)
Accounts payable & accrued expenses		(1,508,209	)
Accumulated deficit – noncontrolling entity		1,221,966
Deferred revenue		(49,621	)
Contingent liability		(164,000	)
	$	6,858,246
Less consideration on sale:		(15,000	)
Loss on sale of Gaming	$	6,843,246

Land Purchase Deposit

On May 26, 2009, the Company entered into an agreement to acquire real property in Sullivan County, New York. The purchase price for the property was 1,409,828 shares of common stock of the Company, $1,750,000 in cash on escrow and $1,750,000 in cash upon closing. On May 11, 2009, the Company issued 630,735 shares of common stock and Rotate Black, LLC transferred, on behalf of the Company, 779,093 shares of the Company’s common stock to the seller, both being held in escrow, as a deposit under the agreement. The shares were valued at $7,049,142, $5.00, per share.

In October 2009, the Company issued 779,093 shares of common stock to Rotate Black, LLC as repayment of the advance.

On November 9, 2009, March 16, 2010 and May 21, 2010, the Company issued 70,000 (valued at $350,000, $5.00, per share), 208,613 (valued at $521,532, $2.5, per share) and 500,000 (valued at $550,000 $1.10, per share) shares of common stock in satisfaction of anti-dilution rights of the land purchase agreement.

The Company has evaluated the fair value of the land deposit and has determined that the acreage of land has a fair value in excess of the book value of the deposit recorded, however,  the value of the 2,188,441 shares of the common stock of the Company provided as a deposit on the land is not in excess of its fair value and, therefore, has recorded a loss on impairment of the land purchase deposit of $8,032,986 as of June 30, 2012. The remaining value of the deposit of $437,688 represents the current fair value of the shares at $0.20, per share.