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EX-21 - NEVADA GOLD & CASINOS INCv191661_ex21.htm
EX-31.2 - NEVADA GOLD & CASINOS INCv191661_ex31-2.htm
EX-31.1 - NEVADA GOLD & CASINOS INCv191661_ex31-1.htm
EX-32.2 - NEVADA GOLD & CASINOS INCv191661_ex32-2.htm
EX-32.1 - NEVADA GOLD & CASINOS INCv191661_ex32-1.htm
EX-23.1 - NEVADA GOLD & CASINOS INCv191661_ex23-1.htm

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, 2010
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from               to              

Commission File No. 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)
 
(IRS Employer Identification No.)
     
50 Briar Hollow Lane, Suite 500W, Houston, Texas
 
77027
(Address of principal executive offices)
  
(Zip Code)

Registrant’s telephone number, including area code: (713) 621-2245

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 AMEX

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 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 is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
  
Large accelerated filer o          Accelerated filer o              Non-accelerated filer o            Smaller Reporting Company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
o Yes x No

As of June 30, 2010 the aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price per share of $0.88, as reported on the New York Stock Exchange, was $11,025,751.

As of July 27, 2010, the registrant had 12,764,130 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s 2010 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year end of April 30, 2010 are incorporated by reference into Part III of this report.

 
 

 

NEVADA GOLD & CASINOS, INC.
TABLE OF CONTENTS

       
Page
         
PART I
       
         
ITEM 1.
 
BUSINESS
 
1
ITEM 1A.
 
RISK FACTORS
 
6
ITEM 1B.
 
UNRESOLVED STAFF COMMENTS
 
8
ITEM 2.
 
PROPERTIES
 
8
ITEM 3.
 
LEGAL PROCEEDINGS
 
8
ITEM 4.
 
REMOVED AND RESERVED
 
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
 
10
ITEM 7.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
10
ITEM 7A.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
18
ITEM 8.
 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
18
ITEM 9.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
18
ITEM 9A.
 
CONTROLS AND PROCEDURES
 
19
ITEM 9B.
 
OTHER INFORMATION
 
20
         
PART III
       
         
ITEM 10.
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
20
ITEM 11.
 
EXECUTIVE COMPENSATION
 
20
ITEM 12.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
20
ITEM 13.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
20
ITEM 14.
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
20
         
PART IV
       
         
ITEM 15.
  
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  
20
 
 
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 the Company 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 the financial condition, results of operations, future performance and the business of the Company, 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 the Company’s 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 the Company’s 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, was formed in 1977 and, since 1994 has been primarily a gaming company involved in financing, developing, owning and operating gaming projects.

Commercial Gaming Projects.

We own and operate the Colorado Grande Casino in Cripple Creek, Colorado.  On May 12, 2009, we purchased three mini-casinos in Washington State, the Crazy Moose-Pasco, Crazy Moose-Mountlake Terrace, and Coyote Bob’s-Kennewick.

In March 2010, we signed management and technical services contracts for the development and management of a hotel and casino adjacent to the Las Vegas Motor Speedway in North Las Vegas. The project will be owned by various limited liability companies of which Nevada Gold will hold a minority interest and option rights to acquire additional equity.

In April 2010, we reached an agreement to acquire up to an additional seven mini-casinos in the state of Washington for $11.1 million, which closed on July 23, 2010. The casinos were owned by subsidiaries of Evergreen Gaming Corporation ("Evergreen"), a British Columbia corporation, which is under bankruptcy court protection. The transaction was financed by cash on hand as well as a $5.1 million note issued to Evergreen's current senior lender.  See Note 18 of our Consolidated Financial Statements for a pro-forma analysis of the transaction.

Native American Gaming Project.

As of May 2007, we owned a 40% interest in Buena Vista Development Company, LLC (“Buena Vista Development”) which is developing a casino for a Native American tribe in Amador County, California.  Effective November 25, 2008, through our wholly owned subsidiary, Nevada Gold BVR, L.L.C., we sold our 40% interest in Buena Vista Development, L.L.C (BVD) to B.V. Oro, L.L.C. (BVO), which is owned by our former partner and related parties, for $16 million cash and a $4 million receivable from BVD which is due no later than two years after the opening of a gaming/entertainment facility to be built by BVD for the Buena Vista Rancheria of Me-Wuk Indians.  This receivable bears interest at the rate of prime plus 1% and is guaranteed by our former partner and related parties.  In addition we are entitled to a 5% carried interest in the Class B membership interest.  Should the facility not be developed, the collectibility of this receivable cannot be assured.

Management Agreements.

Effective November 10, 2008, we signed a management contract with Oceans Casino Cruises, Inc., owner of SunCruz Casinos.  The contract was to extend to December 31, 2010.  On December 16, 2009, Ocean Casino Cruises, Inc. (d/b/a “SunCruz”) discontinued operations.  We were paid for our management fee through that date.  On December 28, 2009, SunCruz filed Chapter 7 bankruptcy.  On February 10, 2010, we submitted a claim in the United States Bankruptcy Court for the Southern District of Florida for the $500,000 termination fee due to us per the Management Agreement.  At this time, we do not believe it is likely to collect the termination fee, or any part thereof.   
 
Our management agreement has been terminated as a result of the bankruptcy proceedings.  The Company continues to pursue outside management agreements.
  
We also have real-estate interests in Colorado which are currently offered for sale.

We report our operations in two segments - gaming projects and non-core assets. For a summary of financial information concerning these two segments, please refer to the information provided in Note 12 to our Consolidated Financial Statements.
 
Objective and Strategies

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

 
-
enhancing the return from, and the value of, the gaming properties in which we own interests;
 
-
acquiring or developing additional gaming properties; and

 
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-
assisting in finding financing, developing and/or managing of, or providing consulting services to gaming projects.

Current Commercial Casino Projects

The Colorado Grande Casino-Cripple Creek

On April 25, 2005, we acquired the Colorado Grande Casino located in Cripple Creek, Colorado, from Isle of Capri Black Hawk (IC-BH) for $6.5 million. The Colorado Grande Casino is located at a primary intersection, near the center of the Cripple Creek market. The property currently consists of a casino with approximately 191 slot machines, four table games, two restaurants with bars and 44 parking spaces. The friendly atmosphere is enhanced as good customers are treated to "comps" in the form of free drinks, free meals, or other benefits.  In November 2008, Colorado passed Amendment 50 which effective July 2, 2009, increased bet limits from $5 to $100, permits craps, roulette, poker, blackjack, and other table games, allows 24 hour gaming, and lowered gaming tax rates.  To take advantage of this and remain competitive in the market, we invested an additional $600,000 in the property to provide blackjack, roulette, house-banked poker, and a food outlet on the casino floor.

      Cripple Creek is 40 miles west of Colorado Springs, Colorado, which is 65 miles south of Denver, Colorado. We believe that the Cripple Creek market attracts customers primarily from Colorado Springs, Pueblo, Fort Carson and smaller areas south of Denver.

Nevada Gold Washington – Washington State

On May 12, 2009, Nevada Gold completed its acquisition of three mini casinos in the State of Washington, for $15.75 million. The casinos were owned by Gullwing III, LLC (“sellers”) and the transaction was funded by existing cash as well as a $4.0 million note issued by the sellers.  See Note 7 of our consolidated financial statements.

The three casinos are the Crazy Moose Casino, located in Pasco, Coyote Bob's Roadhouse Casino, located in Kennewick, and the Crazy Moose Casino, located in Mountlake Terrace in close proximity to Seattle. Combined, the facilities have a total of 40 table games including blackjack, Pai Gow poker, Baccarat, Spanish 21, Blackjack-Double Action, Ultimate Holdem, and Three and Four card poker. New games are frequently introduced to keep the customers interested and active. Additional banked table games are permitted along with poker and pull tabs. Each casino includes a full service restaurant with bar. The friendly atmosphere is enhanced as good customers are treated to "comps" in the form of free non-alcoholic drinks, free meals, or other benefits. The three casinos operate with approximately 400 employees and have a total of 306 parking spaces.

As of January 1, 2009, the maximum bet for each facility was increased from $200 to $300 and the law was changed to allow casinos to be open 24 rather than 20 hours per day.

Two of the casinos are located within 250 miles in the Tri-cities area and one is located in the Seattle area.  We believe that the Crazy Moose Casino in Mountlake attracts customers from the Seattle area, whereas the Crazy Moose Pasco and Coyote Bob’s Roadhouse Casino located in the Southeast portion of Washington state, attracts customers from Walla Walla, southeastern Washington State, and northeastern Oregon.
 
Nevada Gold Washington II – Washington State
 
On July 23, 2010, the Company acquired six additional casinos, and their related operating center, in the state of Washington. See Note 18 of our consolidated financial statements.
 
Native American Casino Projects

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

On May 4, 2005, we, through our wholly owned subsidiary, Nevada Gold BVR, L.L.C., acquired a 20% interest in BVD in exchange for an approximately $14.8 million loan and an equity investment of approximately $200,000.   Our initial 20% ownership interest in BVD increased by five percentage points at the end of every six month period the loan remained outstanding, up to a maximum of an additional 20%, for a total of 40%.  At May, 2007, we owned a 40% interest in BVD.

Effective November 25, 2008, through our wholly owned subsidiary, Nevada Gold BVR, L.L.C., we sold our 40% interest in BVD to BVO, which is owned by our former partner and related parties, for $16 million cash and a $4 million receivable from BVO which is due no later than two years after the opening of a gaming/entertainment facility to be built by BVO for the Buena Vista Rancheria of Me-Wuk Indians.  This receivable bears interest at the rate of prime plus 1% and is guaranteed by our former partner and related parties.  In addition, we are entitled to a 5% carried interest in the Class B membership interest.

We cannot predict the future performance of the casino. We expect the casino’s primary market to include Sacramento and Stockton, California. In this market, the casino will most directly compete with the Jackson Rancheria Casino located in Jackson, California, approximately 10 miles from the proposed Buena Vista Casino, the Cache Creek Casino located approximately 45 miles northwest of Sacramento, Thunder Valley Casino located a few miles northeast of Sacramento, Red Hawk Casino located approximately 40 miles northeast of Sacramento, and the Shingle Springs Casinos located just east of Sacramento on Highway 50.

 
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Other Casino Projects

Route 66 Casino; Albuquerque, New Mexico

We owned a 51% interest in Route 66 which we accounted for using the equity method. We received no cash distributions from the Route 66 Casinos venture. Our portion of the earnings of the Route 66 Casinos venture was estimated and recorded based on available financial information. In April 2008, we signed a settlement agreement with American Heritage, Inc. and Fred Gillman, the principal of American Heritage, Inc. (“The Gillmann Group”). Per the agreement, The Gillmann Group paid us $1 million on May 1, 2008, $1.3 million on June 2, 2008 and was obligated to pay us $2.3 million by April 15, 2010.  There was an offsetting $0.7 million liability previously netted against the $2.3 million, resulting in a net balance of $1.6 million.  The $2.3 million was not received as of April 30, 2010, as a result we elected to establish a valuation allowance against the remaining $1.6 million receivable on the balance sheet. We are pursuing legal action to collect the receivable.  See Note 16 to the accompanying Consolidated Financial Statements for a discussion of our current legal position and accounting of the settlement agreement and our former investment in this joint venture.

Management Contracts

Oceans Casino Cruises, Inc.

On November 10, 2008, we signed a contract to manage the SunCruz Casinos for Oceans Casino Cruises, Inc.  The contract was to extend to December 31, 2010.  On December 16, 2009, SunCruz discontinued operations.  We were paid for our management fee through that date.  On December 28, 2009, SunCruz filed Chapter 7 bankruptcy.  On February 10, 2010 we submitted a claim in the United States Bankruptcy Court for the Southern District of Florida for the $500,000 termination fee due to us per the Management Agreement.  At this time, we do not believe it is likely to collect the termination fee, or any part thereof.   

Our management agreement has been terminated as a result of the bankruptcy proceedings.

Regulation and Licensing

 
Colorado

The ownership and operation of gaming facilities in Colorado are subject to extensive state and local regulations. No gaming may be conducted in Colorado unless licenses are obtained from the Colorado Limited Gaming Control Commission (the “Gaming Commission”). In addition, the State of Colorado created the Division of Gaming (the “CDG”) within its Department of Revenue to license, implement, regulate, and supervise the conduct of limited stakes gaming. The Director of the CDG (“CDG Director”), under the supervision of the Gaming Commission, has been granted broad powers to ensure compliance with the laws and regulations. The Gaming Commission, CDG and CDG Director that have responsibility for regulation of gaming are collectively referred to as the “Colorado Gaming Authorities.”

The laws, regulations, and supervisory procedures of the Colorado Gaming Authorities seek to maintain public confidence and trust that licensed limited gaming is conducted honestly and competitively, that the rights of the creditors of licensees are protected, and that gaming is free from criminal and corruptive elements. The Colorado Gaming Authorities’ stated policy is that public confidence and trust can be maintained only by strict regulation of all persons, locations, practices, associations, and activities related to the operation of the licensed gaming establishments and the manufacture and distribution of gaming devices and equipment.

The Gaming Commission is empowered to issue five types of gaming and related licenses. To operate our Colorado casino we are required to maintain a retail gaming license, which must be renewed each year, and the Colorado Commission has broad discretion to revoke, suspend, condition, limit, or restrict the licensee at any time. Under Colorado gaming regulations, no person or entity can have an ownership interest in more than three retail licenses, and our business opportunities will be limited accordingly. The Colorado Casinos’ licenses are renewable annually, subject to continued compliance with gaming regulations. The failure or inability of the Colorado Grande-Cripple Creek (the "Colorado Casino"), or the failure or inability of others associated with the Colorado Casino to maintain necessary gaming licenses or approvals would have a material adverse effect on our operations.

The Colorado Casino must meet specified architectural requirements, fire safety standards and standards for access for disabled persons. It also must not exceed specified gaming square footage limits as a total of each floor and the full building. Casinos may operate 24 hours daily. Colorado casinos are permitted to operate slot machines and various types of table games, such as blackjack, poker, craps and roulette.  Casino patrons must be 21 or older to gamble in the casino.  Effective July 2, 2009, the casino is permitted to operate 24 hours per day and the maximum bet limit was increased $5 to $100. No Colorado Casino may provide credit to its gaming patrons.

 
3

 

The Colorado Constitution permits a gaming tax of up to 20% on adjusted gross gaming proceeds, and authorizes the Gaming Commission to change the rate annually. As of July 2, 2009, any increase in the gamming tax rate requires statewide voter approval.  The current gaming tax rate is 0.25% on adjusted gross gaming proceeds of up to and including $2 million, 2% over $2 million up to and including $5 million, 9% over $5 million up to and including $8 million, 11% over $8 million up to and including $10 million, 16% over $10 million up to and including $13 million and 20% on adjusted gross proceeds in excess of $13 million.

Colorado law requires that every officer, director or stockholder holding either a 5% or greater interest or controlling interest of a publicly traded corporation, or owners of an applicant or licensee, shall be a person of good moral character and submit to a full background investigation conducted by the Gaming Commission. The Gaming Commission may require any person having an interest in a license or a licensee to undergo a full background investigation and pay the cost of investigation in the same manner as an applicant. Persons found unsuitable by the Gaming Commission may be required to immediately terminate any interest in, association or agreement with, or relationship to, a licensee. A finding of unsuitability with respect to any officer, director, employee, associate, lender or beneficial owner of a licensee or applicant may also jeopardize the licensee’s license or applicant’s license application. Licenses may be conditioned upon termination of any relationship with unsuitable persons.

The rules impose certain additional restrictions and reporting and filing requirements on publicly traded entities holding gaming licenses in Colorado. A licensee or affiliated company or any controlling person of a licensee or affiliated company, which commences a public offering of voting securities, must notify the Gaming Commission with regard to a public offering to be registered with the Securities and Exchange Commission ("SEC"), no later than ten business days after the initial filing of a registration statement with the SEC, or, with regard to any other type of public offering, no later than ten business days prior to the public use or distribution of any offering document, if: 1) the licensee, affiliated company or a controlling person thereof, intending to issue the voting securities is not a publicly traded corporation; or 2) if the licensee, affiliated company or controlling person thereof, intending to issue the voting securities is a publicly traded corporation, and if the proceeds of the offering, in whole or in part, are intended to be used: a) to pay for construction of gaming facilities in Colorado to be owned and operated by the licensee; b) to acquire any direct or indirect interest in gaming facilities in Colorado; c) to finance the operation by the licensee of gaming facilities in Colorado; or d) to retire or extend obligations incurred for one or more of the purposes set forth in subsections a, b, or c above.

We may not issue any voting securities except in accordance with the provisions of the Colorado Limited Gaming Act and the regulations promulgated thereunder. The issuance of any voting securities in violation will be void and the voting securities will be deemed not to be issued and outstanding. No voting securities may be transferred, except in accordance with the provisions of the Colorado Limited Gaming Act and the regulations promulgated thereunder. Any transfer in violation of these provisions will be void. If the Colorado Limited Gaming Control Commission at any time determines that a holder of our voting securities is unsuitable to hold the securities, then we may, within sixty (60) days after the finding of unsuitability, purchase the voting securities of the unsuitable person at the lesser of (a) the cash equivalent of such person’s investment, or (b) the current market price as of the date of the finding of unsuitability, unless such voting securities are transferred to a suitable person within sixty (60) days after the finding of unsuitability. Until our voting securities are owned by persons found by the Commission to be suitable to own them, (a) we are not permitted to pay any dividends or interest with regard to the voting securities, (b) the holder of such voting securities will not be entitled to vote and the voting securities will not for any purposes be included in the voting securities entitled to vote, and (c) we may not pay any remuneration in any form to the holder of the voting securities, except in exchange for the voting securities.

Washington

The gaming legislation in Washington State is codified in chapter 9.46 of the Revised Code of Washington (“RCW”). The gaming legislation stipulates the Washington State Gambling Commission (the “Commission”) to be the regulator of gambling activities in this state.  The 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 social 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.  Traditional casino games, such as craps, roulette and keno, are prohibited.  House-banked card-rooms have been authorized in Washington State since 1997 and, under current law, each establishment is allowed to have up to 15 tables offering games, such as Blackjack, Ultimate Texas Hold’em, Three Card Poker, Four Card Poker, Spanish Poker, Texas Shootout, Spanish 21, Pai Gow Poker, and others.  The law allows both player-sponsored and house-banked card-rooms.  As of January 1, 2009, the Commission increased the maximum bet for house-banked card-rooms’ table game wager limit to $300 and allowed card-rooms to offer Mini-Baccarat. In addition, these establishments are allowed to be open 24 hours per day, provided they close for at least four continuous hours two times per week.

In order to operate our three “mini casinos,” Crazy Moose Casino in Pasco, Crazy Moose Casino in Mountlake Terrace and Coyote Bob’s Roadhouse Casino in Kennewick, each of them is required to maintain a Public Card room license and Punch Board/Pull-Tab Commercial Stimulant license.  These licenses are renewable annually, subject to continued compliance with applicable gaming regulations.  In addition, the Commission requires, prior to the licenses being issued, each substantial interest holder in the licensees (including our officers, directors and owners of five percent or more of any class of our stock) submit to the 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.

 
4

 

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 receipt for card-rooms 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 in the cities of Pasco and Mountlake Terrace is 10% of table games gross receipts and 5% of pull-tabs gross receipts while in the city of Kennewick the current gaming tax rate is 10% of table games gross receipts and 10% of pull-tabs net 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.

Native American Gaming

Although it may seek new agreements, the Company does not currently operate gaming facilities on behalf of any Native American tribe nor is it receiving compensation pursuant to any consulting, financing or advisory agreement.  Reference is made to “Native American Casino Projects” above.

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

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, L.L.C., we own approximately 265 acres of real property in the vicinity of Black Hawk, Colorado. In November 2004, the Central City Business Improvement District completed the construction of a new 8.4 mile four-lane road connecting Interstate 70 to Central City, Colorado. The new road is adjacent to a portion of our 265 acres.
 
      Nevada Gold Speedway, LLC.  Through our wholly owned subsidiary, NG Speedway, LLC, we have signed management and technical services contracts for the development and management of a hotel and casino adjacent to the Las Vegas Motor Speedway in North Las Vegas. The project will be owned by various limited liability companies of which Nevada Gold will hold a minority interest.  We  will assist in the development and manage the operation of the property.  The development is expected to be completed in three phases. The first phase, which will include 250 hotel rooms, restaurants, meeting rooms and a casino with up to 500 gaming positions, is expected to be completed during 2012. The development remains subject to numerous conditions, including obtaining financing to repay the outstanding obligations related to the land and securing financing for the development.
 
NG Washington II, LLC. Through our wholly-owned subsidiary, NG Washington II, LLC, we signed an agreement in April 2010 to acquire up to seven mini-casinos in Washington State.  We escrowed $1.0 million as a deposit and as of April 30, 2010, spent $0.3 million additional funds for licensing and legal matters pertaining to the acquisition.  Closing of the acquisition was subject to the bankruptcy court process which was finalized May 28, 2010. In addition, the acquisition was subject to other customary closing conditions, including licensing and necessary lease transfers, among other conditions.

On July 23, 2010, the Company acquired six of the seven casinos, and their related operating center. The casinos are the Silver Dollar Seatac, the Silver Dollar Renton, the Silver Dollar Mill Creek, Club Hollywood, located in Shoreline, the Royal Casino, located in Everett, and the Golden Nugget Casino, located in Tukwila, collectively “Silver Dollar Casinos”. All of the casinos are located in western Washington.  The casinos were previously owned by subsidiaries of Evergreen Gaming Corporation, a British Columbia Corporation, which is under bankruptcy court protection.  The Company purchased the six casinos from Fortress Credit Opportunities I, LP and Fortress Credit Funding II, LP, (the “Sellers”) for $11.07 million, $6.0 million which was paid in cash and $5.07 million by a credit agreement, issued by the Company to the Sellers that is due July 23, 2012, and bears an interest rate based on the 30 day LIBOR at the end of each calendar month, plus 9%, with a floor of 11.0%.  Interest is due monthly.

Employees

As of April 30, 2010, we employed 481 people.

 
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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 the Securities and Exchange Commission.

Item 1A.
Risk Factors

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

Financing future acquisitions may be difficult.

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

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

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

Indebtedness could adversely affect our financial health.
 
As of April 30, 2010, we had $10.0 million of indebtedness outstanding, consisting of a $6.0 million interest only promissory note which matures on June 30, 2013 and a $4.0 million debt for the Washington properties which matures on May 12, 2012.  Although we have substantially reduced our debt, our indebtedness could have important consequences and significant effects on our business and future operations. For example, it could:

·  
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
 
·  
limit our ability to fund future working capital, capital expenditures and other general operating requirements;
 
·  
place us at a competitive disadvantage compared to our competitors that have less debt or greater resources; and
 
·  
limit our ability to borrow additional funds.
 
The occurrence of any one of these events or conditions could have a material adverse effect on our business, financial condition, results of operations, prospects, ability to service or otherwise satisfy our obligations.
 
We will require cash to service our indebtedness and fund our gaming operations. Our ability to generate cash depends on many factors beyond our control.
 
Our ability to fund our gaming operations will depend on our ability to generate cash flow from our gaming operations and borrow or refinance $4.0 million by May 12, 2012 and $6.0 million by June 30, 2013. 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.

 
6

 

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

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

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

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

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

We could fail to monetize recorded assets.

The Company has receivables that are projected to be collected. If the Company is not able to collect or monetize these assets timely then the lack of such collection may have a negative impact on the Company’s projected cash flow. The occurrence of monetizing our recorded assets could have a material adverse effect on our business, financial condition, results of operations, prospects, ability to service or otherwise satisfy our obligations.

There are significant risks in the development and management of commercial and Native American Casinos that could adversely affect our financial results.

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

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

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

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

 
7

 

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

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

Item 1B.
Unresolved Staff Comments

None.

Item 2.
Properties
 
Colorado Grande Casino-Cripple Creek. We lease (through our wholly-owned subsidiary, Colorado Grande Enterprises, Inc.) a portion of a building in Cripple Creek, Colorado, and an adjacent parking lot, for use in connection with the Colorado Grande Casino facilities. We lease this property at an annual rent of the greater of $144,000 or 5% of Colorado Grande-Cripple Creek’s adjusted gross gaming revenues, as defined, with an annual cap of $400,000. On July 7, 2005, we exercised the option to extend the lease to January 2021. On April 1, 2008 we negotiated an extension of the lease to January 2033 at a flat annual rent of $400,000 from February 2021 through January 2033. In addition, we own an additional parcel of land adjacent to the Colorado Grande, which is used for parking.

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, L.L.C., we own approximately 265 acres of real property in the vicinity of Black Hawk, Colorado. In November 2004, the Central City Business Improvement District completed the construction of a new 8.4 mile four-lane road connecting Interstate 70 to Central City, Colorado. The new road is adjacent to a portion of our 265 acres. The acreage is for sale and will be listed with a broker.

Washington Casinos. As a result of acquiring facilities in Washington, the Crazy Moose II Mountlake Terrace has a building lease which expires May, 2011, with an option to renew for two additional five year terms. The annual rent is $192,000.  The administrative office has a lease which expires February, 2011 with an option to renew for one additional term.  The annual rent is $28,800.  In addition, the Crazy Moose I Pasco has a parking lot lease which expires January, 2011 with an option to renew for one more two year term.  The annual rent is $6,300.  We own the buildings for the Crazy Moose Pasco and Coyote Bob’s in Kennewick as well as a parcel of land at Pasco used as a parking lot.

Office Lease. We currently lease approximately 6,110 square feet of office space in Houston, Texas. The lease expires March 31, 2011. The total monthly rent for this office space is currently $8,700.

Item 3.
Legal Proceedings

None

Item 4.
Removed and Reserved
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 New York Stock Exchange-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.

 
8

 
  
 
Fiscal Years Ended
 
 
April 30, 2010
 
April 30, 2009
 
 
High
 
Low
 
High
 
Low
 
                 
First Quarter
  $ 1.40     $ .80     $ 1.34     $ 1.02  
Second Quarter
    1.27       .97       1.29       .53  
Third Quarter
    1.08       .83       .89       .38  
Fourth Quarter
    1.10       .74       .84       .66  

Holders of Common Stock

       As of June 30, 2010, we had approximately 4,670 shareholders of record.

Dividends

We have not paid any dividends during the last four fiscal years and our current policy is to retain earnings to provide for the growth of the Company. 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, 2010 including the 1999 Stock Option Plan and the 2009 Equity Incentive Plan, as well as shares of our common stock that may be issued under individual compensation arrangements that were not approved by our stockholders (such grants, the “Non-Plan Grants”).

Plan Category
Number of
Securities
To be Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
(A)
   
Weighted Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
(B)
   
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column
(A) (C)
 
                 
Equity Compensation Plans Approved by Security Holders
  1,456,000     $ 1.77       1,320,000  
Equity Compensation Plans Not Approved by Security Holders
      $        
Total
  1,456,000     $ 1.77       1,320,000  

Recent Sales of Unregistered Securities
 
Not applicable.

Issuer Purchases of Equity Securities

In December, 2009, in a private transaction, we purchased 175,000 shares of our common stock at the then prevailing market price of $0.87 per share.  During the years ended April 30, 2010 and April 30, 2009, we repurchased a total of 175,000 and 0 shares, respectively.

Stock Performance Graph

The following graph sets forth the cumulative total stockholder return (assuming reinvestment of dividends) to the Company’s stockholders during the two-year period ended April 30, 2010, as well as an overall stock market index (NYSE Arca Major Market Index) and the Company’s peer group index (Dow Jones US Gambling Index):

 
9

 


ASSUMES $100 INVESTED ON MAR. 31, 2005
ASSUMES DIVIDEND REINVESTMENT
FISCAL YEAR ENDING APRIL 30, 2010

Item 6.
Selected Financial Data

       Not required for smaller reporting companies.

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

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

Critical Accounting Policies and Estimates

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

Principles of Consolidation

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

 
10

 

Capitalized Development Costs

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

Goodwill, Other Intangible, and Other Long Lived Assets

In connection with our acquisition of the Colorado Grande casino on April 25, 2005, and the acquisition of the Washington casinos on May 12, 2009, we have goodwill and identifiable intangible assets of $15.3 million, net of amortization.  Goodwill represents a significant portion of our total assets. We review goodwill for impairment annually and or more frequently if certain impairment indicators arise under the provisions of authoritative guidance. We review goodwill at the reporting level unit, which is one level below an operating segment. We review the carrying value of the net assets of each reporting unit to the estimated fair value of the reporting unit, based upon a multiple of estimated earnings. If the carrying value exceeds the estimated fair value of the reporting unit, an impairment indicator exists and an estimate of the impairment loss is calculated. The fair value calculation includes multiple assumptions and estimates, including the projected cash flows and discount rates applied. Changes in these assumptions and estimates could result in goodwill impairment that could materially adversely impact our financial position or results of operations. All of our goodwill is attributable to reporting units within our gaming segment.  

We use earnings before interest, taxes, depreciation, and amortization (“EBITDA”) as the measure for future earnings in our impairment test.  Management estimates future EBITDA based primarily on its projections of future revenues. We utilized comparable industry average multiples of EBITDA rates based on industry standards ranging from 5.5 to 7.5 times EBITDA when we estimated fair values of our casinos as of April 30, 2010.   
 
During the 2010 fiscal there were significant declines in the U.S. economies and in the casino industry overall, which led to declines in our revenues, margins and cash flows.  Our sales and profitability declined throughout the year.  We considered the impact of these significant adverse changes in the economic and business climate as we performed our annual impairment assessment of goodwill as of April 30, 2010.  The estimated fair values of our reporting unit were negatively impacted by significant reductions in estimated cash flows for the income approach. 
 
Our goodwill impairment analysis led us to conclude that there was a significant impairment of goodwill for the Colorado Grande and, accordingly, we recorded a non-cash charge of $2.8 million to our operating results for the year ended April 30, 2010, for the impairment of our goodwill.  This $2.8 million expense is included in the “Impairment of Assets” expense on the Consolidated Statements of Operations.    This impairment charge did not have an impact on our liquidity; however it was a reflection of the overall downturn in our industry and decline in our projected cash flows.
  
Long-lived assets, including property, plant and equipment and amortizable intangible assets, also comprise a significant portion of our total assets. We evaluate the carrying value of long-lived assets when impairment indicators are present or when circumstances indicate that impairment may exist under authoritative guidance. When management believes impairment indicators may exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of long-lived assets held for use are prepared. If the projections indicate that the carrying values of the long-lived assets are not recoverable, we reduce the carrying values to fair value. For 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.  

Asset and Investment Impairments

We evaluate an asset or investment for impairment when events or circumstances indicate that its carrying value may not be recovered. These events include market declines that are believed to be other than temporary, changes in the manner in which we intend to use a long-lived asset, decisions to sell an asset or investment and adverse changes in the legal or business environment such as adverse actions by regulators. When an event occurs, we evaluate the recoverability of our carrying value based on either (i) the long-lived asset’s ability to generate future cash flows on an undiscounted basis or (ii) the fair value of our investment in unconsolidated affiliates. If an impairment is indicated or if we decide to exit or sell a long-lived asset or group of assets, we adjust the carrying value of these assets downward, if necessary, to their estimated fair value, less costs to sell. Our fair value estimates are generally based on market data obtained through the sales process or an analysis of expected discounted cash flows. The magnitude of any impairments are impacted by a number of factors, including the nature of the assets to be sold and our established time frame for completing the sales, among other factors. We also reclassify the asset or assets as either held-for-sale or as discontinued operations, depending on, among other criteria, whether we will have any continuing involvement in the cash flows of those assets after they are sold.

 
11

 

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

We review on a quarterly basis each of our notes receivable to evaluate whether the collection of such note receivable is still probable. In our analysis, we review the economic feasibility and the current financial, legislative and development status of the project. If our analysis indicates that the project is no longer economically feasible then the note receivable would be written down to its estimated fair value.  Based on this policy, we established a $1.6 million valuation allowance as of April 30, 2010 in regards to the receivable due from the Gillman Group.

Revenue Recognition

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

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

 
Fiscal Year Ended
 
 
April 30, 2010
 
April 30, 2009
 
Food and beverage
  $ 1,120,638     $ 595,499  
Other
    13,601       5,994  
Total cost of complimentary services
  $ 1,134,239     $ 601,493  

 Accrued Jackpot Liability
 
We accrue jackpot liability as games are played under a matching concept of coin-in.  As of April 30, 2010, we also maintain approximately $267,000 in Player Supported Jackpot accrued liability, which are progressive games that customers fund and when a jackpot is hit it is paid from reserved funds.
 
Income Taxes
 
Income taxes are accounted using an asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. We record current income taxes based on our current taxable income, and we provide for deferred income taxes to reflect estimated future tax payments and receipts. We account for tax credits under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. Deferred tax assets are reduced by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances.

 
12

 

Accrued Litigation Liability

We assess our exposure to loss contingencies including legal matters. If the potential loss is justified to be probable and estimable, we will provide for the exposure. If the actual loss from a contingency differs from management’s estimate, operating results could be impacted. As of April 30, 2010, we did not record any accrued litigation liability.

Share-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 volatility considers factors such as the volatility of our share price. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we historically have not paid dividends and have no current plans to do so in the future.

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

Executive Overview

We were formed in 1977 and since 1994, have primarily been a gaming company involved in financing, developing, owning and operating gaming projects. Our gaming facility operations are located in the United States of America (“U.S.”), specifically in the states of Colorado and Washington. On April 25, 2005, we acquired the Colorado Grande Casino from IC-BH.  On May 12, 2009, we acquired three mini-casinos in Washington State.  Our business strategy will continue to focus on gaming projects with a continued emphasis on owning and operating gaming establishments. If we are successful, both our future revenues and costs and our profitability can be expected to increase. Our net revenues were $22.0 million and $5.9 million for fiscal years 2010 and 2009, respectively.
 
We hold investments in various development projects that we consolidate. Our net ownership interest and capitalized development costs in development projects are as follows (see Note 4 to the Consolidated Financial Statements):
 
   
Net Ownership Interest
   
Capitalized Development Costs
 
Development Projects:
 
April 30,
2010
   
April 30,
2009
   
April 30,
2010
   
April 30,
2009
 
   
(Percent)
       
                         
NG Washington, LLC (1)
    100       100     $ -     $ 617,071  
Nevada Gold Speedway, LLC (2)
    100       -       90,652       -  
NG Washington II, LLC (3)
    100       -       1,273,731       -  
Other (4)
                    54,406       128,953  
Total investments– development projects
                  $ 1,418,789     $ 746,024  

(1)  
Refundable deposits and license costs incurred for three mini-casinos in Washington State; acquisition closed May 12, 2009.
(2)  
Deposit and acquisition costs related to management and technical services contract for development of Las Vegas Speedway casino and hotel
(3)  
Refundable deposits and license costs incurred for seven additional mini-casinos in Washington State
(4)  
Development costs incurred for other development projects.

 
13

 

Consolidated Results of Operations

The following table sets forth our consolidated results of operations for the fiscal years ended April 30, 2010, and April 30, 2009:

   
Fiscal Years Ended
 
   
April 30,
   
April 30,
 
   
2010
   
2009
 
Revenues:
           
Casino
  $ 18,822,900     $ 5,356,885  
Food and beverage
    4,534,744       1,395,130  
Other
    865,264       49,366  
Management fees
    620,968       493,382  
Gross revenues
    24,843,876       7,294,763  
Less promotional allowances
    (2,817,888 )     (1,426,511 )
Net revenues
    22,025,988       5,868,252  
Operating expenses:
               
Casino
    8,562,284       1,750,014  
Food and beverage
    2,851,635       614,779  
Marketing and administrative
    5,564,288       2,485,881  
Facility
    1,070,933       362,009  
Corporate expense
    4,216,475       4,366,670  
Legal expenses
    241,468       403,694  
Depreciation and amortization
    1,344,323       627,618  
Impairment of assets
    4,347,183       -  
Write-off of project development cost
    50,486       1,215,383  
Other
    476,395       145,018  
Total operating expenses
    28,725,470       11,971,066  
Operating loss
    (6,699,482 )     (6,102,814 )
Non-operating income (expenses):
               
Loss from unconsolidated affiliates
    -       (7,863 )
Gain on sale of equity investees and assets
    16,511       403,388  
Interest income
    192,708       975,490  
Interest expense
    (866,034 )     (1,307,296 )
Amortization of loan issue costs
    (58,972 )     (128,266 )
Loss on extinguishment of debt
    (128,834 )     -  
Loss before income tax benefit
    (7,544,103 )     (6,167,361 )
Income tax (benefit) expense
               
Current
    (1,546,698 )     (2,265,155 )
Deferred and change in valuation allowance
    (1,248,623 )     285,930  
Total income tax benefit
    (2,795,321 )     (1,979,225 )
                 
Net loss
  $ (4,748,782 )   $ (4,188,136 )
                 
Per share information:
               
Net loss per common share - basic
  $ (0.37 )   $ (0.32 )
Net loss per common share - diluted
  $ (0.37 )   $ (0.32 )
                 
Basic weighted average number of shares outstanding
    12,878,240       12,939,130  
Diluted weighted average number of shares outstanding
    12,878,240       12,939,130  
 
 
14

 

Comparison of Fiscal Years Ended April 30, 2010 and April 30, 2009

Net revenues. Net revenues for fiscal year 2010 increased 275.3%, or $16.2 million, to $22.0 million compared to fiscal year 2009. Net Casino revenues increased $13.5 million due to the addition of three mini-casinos in Washington State, the addition of table games at the Colorado Grande as a result of the passage of a bet limit initiative which allows $100 bet limits and twenty four hour gaming in Colorado as of July 2, 2009.  Food and beverage revenues increased $3.1 million due to the addition of three restaurants in Washington and an additional kiosk restaurant in the Colorado Grande’s new table games area.  Other revenues increased $0.8 million mainly due to the addition of Pull Tab revenue in Washington.  This was offset by a $1.4 million increase in promotional allowances due to the additional casino operations.

Total operating expenses. Total operating expenses for fiscal year 2010 increased 140.0%, or $16.8 million, to $28.8 million compared to fiscal year 2009.  Operating expenses, excluding write-offs and impairments, increased $13.6 million due to the addition of three casinos in Washington State.  Operating expenses specifically related to the casinos increased $6.8 million compared to 2009,  food and beverage expenses increased $2.2 million, marketing and administrative increased $3.1 million in tandem with the increase in revenue, and facility operations expenses increased $0.7 million compared to 2009 as a result of the additional three casinos and central office in Washington State.  We also saw an increase in depreciation and amortization expense of $0.7 million directly related to a $0.7 million annualized amortization of intangible assets from the Washington purchase.   We experienced a $0.2 million decrease or 3% less corporate expense primarily due to a decrease of audit expenses.  Legal expenses for fiscal year 2010 decreased 40%, or $0.2 million, to $0.2 million compared to fiscal year 2009. The decrease is primarily due to an effort to prepare legal documents internally and a reduction in litigation activity.  The remaining $3.2 million increase in operating expenses is due to the impairment of the Colorado Grande goodwill of $2.75 million, a valuation allowance of $1.6 million against the Route 66 settlement receivable, and a $51,000 write off of our remaining unamortized investment in SunCruz compared to a write off of $1.2 million of our investment in Vicksburg Horizon Casino in 2009.

Earnings from unconsolidated affiliates. Earnings from unconsolidated affiliates for fiscal year 2010 were $0 compared to a loss of $8,000 in 2009.  As a result of the sale of our interest in BVD in December 2008, we are no longer recording earnings from unconsolidated affiliates.

Interest income, interest expense, and amortization of loan issue costs. Interest expense, net consists of a net balance of interest expense, loss on extinguishment of debt, and amortization of loan issue cost, offset by interest income. Interest expense for fiscal year 2010 decreased 33.8%, or $0.4 million, to $0.9 million compared to fiscal year 2009. The decrease is primarily due to the repayment of approximately $9.6 million of debt during fiscal 2009, despite having added $4.0 million of debt in fiscal 2010 which is at a more favorable interest rate. Interest income for fiscal year 2010 decreased 80.2%, or $0.8 million, to $0.2 million compared to fiscal year 2009. The decrease is primarily due to the sale of the BVR note of $14.8 million and due to the low interest rates of return on the monies in the Project Fund. We recorded a loss on extinguishment of debt of $129,000 related to the new note with our senior lender.  Amortization of loan issue cost was $59,000 and $128,000 for fiscal years 2010 and 2009, respectively.

Other non-operating income and expenses. During fiscal year 2009, we recorded a $0.4 million gain related to the sale of our development and loan agreement with BVR.  We had no significant gains or losses in 2010.

Net (loss) income. Fiscal year 2010 reflects a net loss of $4.8 million compared to a net loss of $4.2 million for fiscal year 2009. The increase of $0.6 million is primarily related to the $16.8 million increase in operating expenses offset by increased net revenues of $16.2 million, increased net interest expense of $0.3 million, the recording of a $0.4 million gain on sale of equity investments in 2009, offset by recording a $2.8 million tax benefit in 2010 compared to $2.0 million in 2009.   The effective tax rate for fiscal years 2010 and 2009 was (37.1%) and (32.1%), respectively.

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 fiscal years 2010 and 2009:

 
15

 
 
   
Fiscal Years Ended
 
   
April 30,
   
April 30,
 
   
2010
   
2009
 
Cash provided by (used in):
           
Operating activities
  $ 985,493     $ (5,507,059 )
Investing activities
  $ (11,318,508 )   $ 27,507,309  
Financing activities
  $ (345,793 )   $ (9,562,019 )
 
Operating activities.  Net cash provided by (used in) operating activities during fiscal year 2010 improved $6.5 million compared to fiscal year 2009 primarily due to operating income for the Colorado Grande improved by $0.2 million, while addition of the Washington casinos contributed operating income of $1.2 million.  The Corporate office, excluding non-cash stock option expense, improved by $0.7 million compared to fiscal 2009.  The net change of receivables and other assets and accrued liabilities of $3.9 million, which includes a $1.7 million income tax refund received in December 2009, compared to a $3.6 million income tax payment in fiscal year 2009.  These improvements were offset by increased net loss of $0.5 million mainly attributable to non-cash adjustments including a $4.3 million impairment of assets, an increase of stock option expense of $0.4 million, and recording a $2.8 million tax benefit compared to a $2.0 million tax benefit in fiscal year 2009.

Investing activities. Net cash provided by (used in) investing activities during fiscal year 2010 increased to $11.3 million compared to $27.5 million provided during fiscal year 2009. The $38.8 million change is primarily due to the $11.1 million net cash purchase of the Washington casinos, $0.6 million investment in the Colorado Grande expansion, a release of restricted cash of $0.7 million compared to the release of restricted cash of $7.0 million in 2009, and collection of notes receivable of $4.6 million and proceeds from the sale of our interest in BVR of $16 million.
 
Financing activities. Net cash used in financing activities was $0.3 million for fiscal year 2010 compared to $9.5 million net cash used in financing activities for fiscal year 2009. During fiscal year 2009, we repaid a net $9.6 million of our term loan compared to no significant debt repayments in 2010.  In addition, during fiscal year 2010 we acquired treasury stock at a cost of $0.2 million, and paid $0.2 million in loan issuance costs.

Future Sources and Uses of Cash

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

- capital requirements related to future acquisitions;
- cash flow from acquisitions;
- management contracts;
- working capital requirements;
- obtaining funds via long-term debt instruments;
- debt service requirements;  and
- disposition of non-gaming related assets.
 
At April 30, 2010, outstanding indebtedness was $10.0 million, of which $4.0 million is due May 2012 and the remaining $6.0 million is due June 2013. In addition to cash flow expected to be generated from the Colorado Grande Casino, we anticipate the recently acquired mini-casinos in Washington State, existing management contracts and the anticipated acquisition of additional mini-casinos in Washington will generate sufficient cash flows.
 
On December 15, 2008 the Company received $16 million in cash for our 40% ownership of BVD.  The cash and a $4 million receivable due no later than two years after the gaming/entertainment facility opens, paid in full the $14.8 million note receivable and accrued interest.

We are in the process of listing the 265 acres in Black Hawk, CO with a real estate broker. If the acreage is sold we will use the proceeds to pay operating expenses or debt or, reinvest the funds into acquisition opportunities.

On April 30, 2010, excluding restricted cash of $5.3 million, we had cash and cash equivalents of $3.2 million. The restricted cash consists of the $5.0 million Project Fund referred to above and $0.3 million of player supported jackpots (PSJ).
 
Our Consolidated Financial Statements have been prepared assuming that we will have adequate availability of cash resources to satisfy our liabilities in the normal course of business. We have made, and are in the process of making, arrangements to ensure that we have sufficient working capital to fund our obligations as they come due. These potential funding transactions include divesting of non-core assets and obtaining long-term financing. We believe that some or all of these sources of funds will be funded in a timely manner and will provide sufficient working capital for us to meet our obligations as they come due; however, there can be no assurance that we will be successful in divesting of the non-core assets or achieving the desired level of working capital at terms that are favorable to us. Should cash resources not be sufficient to meet our current obligations as they come due, repay or refinance our long-term debt and, acquire operations that generate positive cash flow, we would be required to curtail our activities and grow at a pace that cash resources could support which may require a restructuring of our debt or selling core assets of the Company.

 
16

 

Indebtedness

Effective July 7, 2009, we entered into a $6.0 million promissory note with our senior lender that replaced the $15.6 million loan agreement with the same lender. The principal bears interest at 10.0% per annum through June 30, 2010 then increases to 11% until the maturity date of June 30, 2013. The loan is secured by specific assets of the Company. As of April 30, 2010, we had $6.0 million in outstanding debt under the promissory note.   In May 2009, with the acquisition of the Washington mini-casinos, we added $4.0 million in debt.  The principal bears interest at 7% per annum, is paid quarterly, and has a maturity date of May 12, 2012.  The Company’s total indebtedness at April 30, 2010 is $10 million.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

The following table sets forth estimates of our contractual obligations as of April 30, 2010 to make future payments in fiscal year 2011 through fiscal year 2015 and thereafter:

         
Fiscal Year
       
Estimated Contractual Obligations:
 
Total
   
2011
   
2012
   
2013
   
2014
   
2015
   
Thereafter
 
Long-term debt (1)
  $ 10,000,000     $     $     $ 4,000,000     $ 6,000,000     $     $  
Estimated interest payments (2)
    2,648,280       930,000       940,000       668,280       110,000              
Operating lease commitments (3)
    9,431,986       715,986       416,000       400,000       400,000       400,000       7,100,000  
Total
  $ 22,080,266     $ 1,645,986     $ 1,356,000     $ 5,068,280     $ 6,510,000     $ 400,000     $ 7,100,000  

(1)
See Note 6 to our Consolidated Financial Statements in this Annual Report.
(2)
Estimated interest payments are based on the outstanding balance of our debt as of April 30, 2010.
(3)
See Note 15 to our Consolidated Financial Statement in this Annual Report.

New Accounting Pronouncements Issued

As of April 30, 2010, there are several new accounting standards and interpretations effective. Below is a discussion of significant standards that may impact us.

The Hierarchy of General Accepted Accounting Principles and The FASB Accounting Standard Codification and the Hierarchy of Generally Accepted Accounting Principles – replacement of FASB Statement No. 162
 
In the current fiscal year, Financial Accounting Standards Board (“FASB”) finalized the “FASB Accounting Standards Codification” (“Codification” or “ASC”), which is effective for periods ending on or after September 15, 2009.  Accordingly, we have implemented the ASC structure required by the FASB and any references to guidance issued by the FASB in these footnotes are to the ASC, in addition to other forms of standards.  The ASC does not change how we account for our transactions or the nature of the related disclosures made.
 
Noncontrolling Interests in Consolidated Financial Statements
 
In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51”, which is now codified under ASC Topic 810 (“ASC 810”).  ASC 810 establishes accounting and reporting standards with respect to the disclosure of a noncontrolling ownership interest in the statement of financial position within equity, the presentation of the share of consolidated net income attributable to the parent and noncontrolling interest on the consolidated statement of income, the accounting treatment of changes in a parent’s ownership interest while the parent retains a controlling interest and the accounting for the deconsolidation of a subsidiary.  ASC 810 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The Company currently has no noncontrolling ownership interests in consolidated subsidiaries and therefore is not impacted by ASC 810.
 
 
17

 

Disclosures About Derivative Instruments and Hedging Activities
 
In March 2008, the FASB issued SFAS No. 161, "Disclosures About Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS No. 161"), which is now codified under ASC Topic 815 (“ASC 815”) expands the disclosure requirements regarding an entity's derivative instruments and hedging activities, and is effective for the Company's fiscal year beginning May 1, 2009. ASC 815 relates specifically to disclosures, and does not have a material impact on the Company's consolidated financial statements.
 
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 minority interest. The determination of our ability to control or exert significant influence over an entity involves the use of judgment. We apply the equity method of accounting where we can exert significant influence over, but do not control, the policies and decisions of an entity. We use the cost method of accounting where we are unable to exert significant influence over the entity.
 
Consolidations
 
In December 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17, “Consolidations (Topic 810) — Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which codified the previously issued Statement of Financial Accounting Standards (“SFAS”) No. 167, “Amendments to FASB Interpretation No. 46R.” ASU 2009-17 changes the consolidation analysis for variable interest entities (“VIEs”) and requires a qualitative analysis to determine the primary beneficiary of the VIE.  The determination of the primary beneficiary of a VIE is based on whether the entity has the power to direct matters which most significantly impact the activities of the VIE and has the obligation to absorb losses, or the right to receive benefits, of the VIE which could potentially be significant to the VIE.  The ASU requires an ongoing reconsideration of the primary beneficiary and also amends the events triggering a reassessment of whether an entity is a VIE.  ASU 2009-17 requires additional disclosures for VIEs, including disclosures about a reporting entity’s involvement with VIEs, how a reporting entity’s involvement with a VIE affects the reporting entity’s financial statements, and significant judgments and assumptions made by the reporting entity to determine whether it must consolidate the VIE.  ASU 2009-17 is effective for us beginning May 1, 2010. Our adoption of ASU 2009-17 will not have a material effect on our financial statements.

Subsequent Events
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” which is codified in FASB ASC 855, “Subsequent Events” (“ASC 855”).  ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  We adopted ASC 855 in the second quarter of fiscal 2010 and evaluated all events or transactions through the date of this filing.

Business Combinations

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”, which is codified in ASC 805.  ASC 805 establishes principles and requirements to recognize the assets acquired and liabilities assumed in an acquisition transaction and determines what information to disclose to investors regarding the business combination.  ASC 805 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning after December 15, 2008.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 

Market risk is the risk of loss arising from adverse changes in market rates and prices, including interest rates, foreign currency exchange rates, credit risk, commodity price and equity prices. Our primary exposure to market risk is credit risk concentrations. We do not believe we are subject to material interest risk.

All of our borrowings are at fixed interest rates; thus an interest rate change would not have a significant impact on our operations.

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.

 
18

 

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.

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, the Company’s 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.

Management of the Company 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. The Company’s 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 generally accepted accounting principles. The Company’s 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 the assets of the Company;
  
 
2.
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
    
 
3.
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s 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 the Company’s internal control over financial reporting as of April 30, 2010.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Management has concluded that the internal control over financial reporting was effective as of April 30, 2010.

(c)           Changes in Internal Control Over Financial Reporting. 

There were no changes in our internal control over financial reporting during fiscal 2010 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 the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the temporary rules of the SEC that permit the Company to provide only Management’s report in this annual report.

 
19

 

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 4 business days of the change or waiver.

The other information required by this item is incorporated by reference to our definitive proxy statement for our 2010 Annual Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

Item 11.
Executive Compensation

The information required by this item is incorporated by reference to our definitive proxy statement for our 2010 Annual Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

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

The information required by this item is incorporated by reference to our definitive proxy statement for our 2010 Annual Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

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

The information required by this item is incorporated by reference to our definitive proxy statement for our 2010 Annual Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

Item 14.
Principal Accountant Fees and Services 

The information required by this item is incorporated by reference to our definitive proxy statement for our 2010 Annual Meeting to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

Part IV

Item 15.
Exhibits, Financial Statement Schedules 

(a) 1. Financial Statements.

Included in Part II 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, 2010 and April 30, 2009
Consolidated Statements of Operations for fiscal years ended April 30, 2010 and April 30, 2009
Consolidated Statements of Stockholders’ Equity for fiscal years ended April 30, 2010 and April 30, 2009
Consolidated Statements of Cash Flows for fiscal years ended April 30, 2010 and April 30, 2009
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.
 
 
20

 

(a)
3. 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)
     
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)
     
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)
     
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)
     
3.2
 
Amended and Restated Bylaws of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 3.2 to the Company’s From 10-QSB filed August 14, 2002)
     
3.3
 
Amended and Restated Bylaws of Nevada Gold & Casinos, Inc., effective July 24, 2007 (filed previously as Exhibit 3.2 to the Company’s From 8-K filed July 27, 2007)
     
4.1
 
Common Stock Certificate of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 4.1 to the Company’s Form S-8/A, file no. 333-79867)
     
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, file no. 333-126027)
     
4.3
 
Nevada Gold & Casinos, Inc.’s 2009 Equity Incentive Plan (filed previously as Exhibit 10.1 to the Company’s Form S-8, file no. 333-158576)
     
10.1
 
Stock Purchase Agreement dated as of April 25, 2005 among Isle of Capri Black Hawk, L.L.C., IC Holdings Colorado, Inc., Colorado Grande Enterprise, Inc., and CGC Holdings, L.L.C. (filed previously as Exhibit 2.1 to the Company’s Form 8-K filed April 29, 2005)
     
10.2
 
Purchase Agreement dated November 25, 2009 between Nevada Gold BVR, LLC and B.V. Oro, LLC (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed December 12, 2009)
     
10.3
 
Management Agreement dated November 10, 2009 between Nevada Gold & Casinos, Inc. and Oceans Casino Cruises, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed November 12, 2009)
     
10.4
 
Settlement Agreement and Release dated April 15, 2009 among Nevada Gold & Casinos, Inc., American Heritage, Inc. and Frederick C. Gillmann (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed April 16, 2009)
     
10.5
 
Asset Purchase Agreement dated March 12, 2010 among Crazy Moose Casino, Inc., Crazy Moose Casino II, Inc., Coyote Bob’s, Inc. and Gullwing III, LLC, as sellers, and NG Washington, LLC, as purchaser (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed March 13, 2010)
     
10.6 (**)
 
Amended and Restated Credit Facility dated January 19, 2006 (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act) (filed previously as Exhibit 10.15 to the Company's Form 8-K filed January 25, 2006)
     
10.7 (**)
 
Form of Guarantee of Credit Facility among Nevada Gold and Casinos, Inc., each of Black Hawk Gold, LTD, Gold River, LLC, Nevada Gold BVR, LLC, and Nevada Gold NY, Inc., and the Lender signing as a party thereto (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act) (filed previously as Exhibit 10.16 to the Company’s Form 10-Q filed March 3, 2006)
     
 
 
 
21

 

10.8 (**)
 
January 2006 Security Agreement dated January 19, 2006, by and between Nevada Gold & Casinos, Inc., its wholly-owned subsidiary, Black Hawk Gold, Ltd., and the Lender listed as a party thereto (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act) (filed previously as Exhibit 10.17 to the Company’s Form 10-Q filed March 3, 2006)
     
 
Commercial Pledge Agreement dated January 19, 2006, among Nevada Gold & Casinos, Inc., Black Hawk Gold, LTD, and the Lender listed as a party thereto (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act) (filed previously as Exhibit 10.18 to the Company’s Form 10-Q filed March 3, 2006)
     
10.10 (**)
 
Commercial Pledge Agreement dated January 19, 2006, among Nevada Gold & Casinos, Inc., Nevada Gold BVR, and the Lender listed as a party thereto (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act) (filed previously as Exhibit 10.19 to the Company’s Form 10-Q filed March 3, 2006)
     
10.11 (**)
 
Commercial Pledge Agreement dated January 19, 2006 among Nevada Gold & Casinos, Inc., Gold River, LLC, and the Lender listed as a party thereto (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act) (filed previously as Exhibit 10.20 to the Company’s Form 10-Q filed March 3, 2006)  
     
10.12 (**)
 
Commercial Pledge Agreement dated January 19, 2006, among Nevada Gold & Casinos, Inc., Nevada Gold NY, Inc., and the Lender listed as a party thereto (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act) (filed previously as Exhibit 10.21 to the Company’s Form 10-Q filed March 3, 2006)
     
10.13
 
Amendment to the Amended and Restated Credit Facility dated January 19, 2006 among Nevada Gold & Casinos, Inc., Black Hawk Gold, Ltd. and Louise H. Rogers dated July 30, 2007 (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 30, 2007)
     
10.14
 
Amendment to the Amended and Restated Credit Facility dated January 19, 2006 between Nevada Gold & Casinos, Inc. and Louise H. Rogers dated October 12, 2007 (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed October 15, 2007)
     
10.15
 
Amendment to the Amended and Restated Credit Facility dated January 19, 2006 between Nevada Gold & Casinos, Inc. and Louise H. Rogers dated December 20, 2007 (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed December 21, 2007)
     
10.16
 
Agreement Regarding Use of Proceeds of IC-BH Sale and Regarding Remaining Amount Due Under the Amended and Restated Credit Facility among Nevada Gold & Casinos, Inc., Black Hawk Gold, Ltd. and Louise H. Rogers dated November 13, 2007 (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed November 13, 2007)
     
10.17
 
Amendment to the January 2006 Security Agreement among Nevada Gold & Casinos, Inc., Black Hawk Gold, Ltd. and Louise H. Rogers dated November 13, 2007 (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed November 13, 2007)
     
10.18
 
Agreement Regarding Use of Proceeds from RCI/CCH Notes Receivable between Nevada Gold & Casinos, Inc. and Louise H. Rogers dated November 13, 2007 (filed previously as Exhibit 10.3 to the Company’s Form 8-K filed November 13, 2007)
     
10.19
 
Promissory Note issued by Nevada Gold & Casinos, Inc. to Louise H. Rogers dated November 13, 2007 (filed previously as Exhibit 10.4 to the Company’s Form 8-K filed November 13, 2007)
     
10.20
 
Agreement Regarding Loans effective March 1, 2009 between Nevada Gold & Casinos, Inc. and Louise H. Rogers (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed June 17, 2009)
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22

 
 
 
10.21
 
Amended and Restated Security Agreement effective March 1, 2009 between Nevada Gold & Casinos, Inc. and Louise H. Rogers (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed June 17, 2009)
     
10.22
 
Schedule of Collateral, Notes, Security Interests and Ownership Interests effective March 1, 2009 between Nevada Gold & Casinos, Inc. and Louise H. Rogers (filed previously as Exhibit 10.3 to the Company’s Form 8-K filed June 17, 2009)
     
10.23
 
Promissory Note issued by Nevada Gold & Casinos, Inc. to Louise H. Rogers effective March 1, 2009 (filed previously as Exhibit 10.4 to the Company’s Form 8-K filed June 17, 2009)
     
 
July 2009 Amended and Restated Security Agreement among Nevada Gold & Casinos, Inc., Gold Mountain Development, LLC, CGC Holdings, LLC, Colorado Grande Enterprises, Inc., Nevada Gold BVR, LLC and Louise H. Rogers dated July 7, 2009 (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 7, 2009)
     
10.25
 
Schedule of Collateral, Notes, Security Interests and Ownership Interests dated July 7, 2009 among Nevada Gold & Casinos, Inc., Gold Mountain Development, LLC, CGC Holdings, LLC, Colorado Grande Enterprises, Inc., Nevada Gold BVR, LLC and Louise H. Rogers dated July 7, 2009 (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed July 7, 2009)
     
10.26
 
Collateral Assignment of Notes, Contractual Rights, Security Interests, and Ownership Interests dated July 7, 2009 among Nevada Gold & Casinos, Inc., Gold Mountain Development, LLC, CGC Holdings, LLC, Colorado Grande Enterprises, Inc., Nevada Gold BVR, LLC and Louise H. Rogers dated July 7, 2009 (filed previously as Exhibit 10.3 to the Company’s Form 8-K filed July 7, 2009)
     
10.27
 
Promissory Note issued by Nevada Gold & Casinos, Inc. to the senior lender dated July 7, 2009 between Nevada Gold & Casinos, Inc. and Louise H. Rogers dated July 7, 2009 (filed previously as Exhibit 10.4 to the Company’s Form 8-K filed July 7, 2009)
     
10.28
 
Loan Guaranty Agreement dated July 7, 2009 among Nevada Gold & Casinos, Inc., Gold Mountain Development, LLC, CGC Holdings, LLC, Colorado Grande Enterprises, Inc., NG Washington, LLC, Nevada Gold BVR, LLC and Louise H. Rogers dated July 7, 2009 (filed previously as Exhibit 10.5 to the Company’s Form 8-K filed July 7, 2009)
     
10.29 (+)
 
Form of Indemnification Agreement between Nevada Gold & Casinos, Inc. and each officer and director (filed previously as Exhibit 10.5 to the Company’s Form 10-QSB, filed February 14, 2002)
     
10.30A (+)
 
Employment Agreement dated November 27, 2006 by and between Robert B. Sturges and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.27 to the Company’s Form 10-Q filed December 15, 2006)
     
10.30B (+)
 
Amendment to the Employment Agreement dated August 30, 2007 by and between Robert B. Sturges and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 99.1 to the Company’s Form 8-K filed August 31, 2007)
     
10.30C (+)
 
Amendment to the Employment Agreement dated October 30, 2007 by and between Robert B. Sturges and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 99.1 to the Company’s Form 8-K filed October 30, 2007)
     
10.30D (+)
 
Second Amendment to the Employment Agreement dated January 23, 2009 by and between Robert B. Sturges and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed January 24, 2009)
     
10.31A (+)
 
Employment Agreement dated October 24, 2006 by and between James J. Kohn and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.28 to the Company’s Form 10-Q filed March 9, 2007)
     
10.31B(+)
 
First Amendment to the Employment Agreement dated April 14, 2009 by and between James J. Kohn and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.24B to the Company’s Form 10-Q filed September 9, 2009)
     
10.32A (+)
 
Employment Agreement dated December 29, 2006 by and between Ernest E. East and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.28 to the Company’s Form 10-Q filed March 9, 2007)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23

 
 
     
10.32B (+)
 
First Amendment to the Employment Agreement dated April 14, 2009 by and between Ernest E. East and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.25B to the Company’s Form 10-Q filed September 9, 2009)
     
10.32C (+)
 
Second Amendment to Employment Agreement between Nevada Gold & Casinos, Inc. and Ernest E. East dated June 8, 2010 (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed June 8, 2010)
     
10.33
 
Asset Purchase Agreement dated April 14, 2010 between NG Washington II, LLC, as buyer, and Grant Thornton, Ltd, as receiver for Big Nevada, Inc., Gameco, Inc., Gaming Consultants, Inc., Gaming Management, Inc., Golden Nugget Tukwila, Inc., Hollydrift Gaming, Inc., Little Nevada, Inc., Mill Creek Gaming, Inc., Royal Casino Holdings, Inc., and Silver Dollar Mill Creek, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K/A filed April 23, 2010)
     
10.34
 
Amendment to the Asset Purchase Agreement dated April 14, 2010 between NG Washington II, LLC, as buyer, and Grant Thornton, Ltd, in its capacity as court-appointed receiver for Big Nevada, Inc., Gameco, Inc., Gaming Consultants, Inc., Gaming Management, Inc., Golden Nugget Tukwila, Inc., Hollydrift Gaming, Inc., Little Nevada, Inc., Mill Creek Gaming, Inc., Royal Casino Holdings, Inc. and Silver Dollar Mill Creek, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 28, 2010)
     
10.35
 
Credit Agreement dated July 23, 2010 between NG Washington II Holdings, LLC, as Borrower, and Fortress Credit Corp., as agent for the lenders (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 28, 2010)
     
10.36
 
Membership Interest Pledge Agreement dated July 23, 2010 between Nevada Gold & Casinos, Inc., as grantor, and Fortress Credit Corp., as agent for the lenders (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 28, 2010)
     
10.37
 
Pledge and Security Agreement dated July 23, 2010 among NG Washington II Holdings, LLC and NG Washington II, LLC, as grantors, and Fortress Credit Corp., as agent for the lenders (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 28, 2010)
     
10.38
 
Promissory Note dated July 23, 2010 issued by NG Washington II Holdings, LLC to Fortress Credit Funding II LP (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 28, 2010)
     
10.39
 
Promissory Note dated July 23, 2010 issued by NG Washington II Holdings, LLC to Fortress Credit Opportunities I LP (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 28, 2010)
     
10.40
 
Guaranty dated July 23, 2010 among NG Washington, LLC and NG Washington II, LLC, as guarantors, and Fortress Credit Corp., as agent for the lenders (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 28, 2010)
     
23.1(*)
 
Consent of Independent Registered Public Accounting Firm
     
31.1(*)
 
Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
     
31.2(*)
 
Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
     
32.1(*)
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2(*)
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
+
Management contract or compensatory plan, or arrangement.
*
Filed herewith.
**
Portions of these exhibits have been omitted pursuant to a request for confidential treatment.

 
 
 
 
 
24

 

SIGNATURES

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

 
Nevada Gold & Casinos, Inc.
   
 
By:
/s/ James J. Kohn
 
James J. Kohn
 
Chief Financial Officer
   
 
Date: July 27, 2010
 
 
25

 

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 27, 2010
         
/s/ WILLIAM G. JAYROE
       
William G. Jayroe
 
Director
 
July 27, 2010
         
/s/ FRANK CATANIA
       
Frank Catania
 
Director
 
July 27, 2010
         
/s/ FRANCIS M. RICCI
       
Francis M. Ricci
 
Director
 
July 27, 2010
         
/s/ WAYNE H. WHITE
       
Wayne H. White
 
Director
 
July 27, 2010
         
/s/ ROBERT B. STURGES
 
Director and Chief Executive Officer
   
Robert B. Sturges
 
(principal executive officer)
 
July 27, 2010
         
/s/ JAMES J. KOHN
 
EVP and Chief Financial Officer (principal
 
July 27, 2010
James J. Kohn
 
financial officer and principal accounting officer)
   
 
 
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, 2010 and April 30, 2009
 
29
Consolidated Statements of Operations for fiscal years ended April 30, 2010 and April 30, 2009
 
30
Consolidated Statements of Stockholders’ Equity for fiscal years ended April 30, 2010 and April 30, 2009
 
31
Consolidated Statements of Cash Flows for fiscal years ended April 30, 2010 and April 30, 2009
 
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.

We have audited the accompanying consolidated balance sheets of Nevada Gold & Casinos, Inc. and Subsidiaries as of April 30, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nevada Gold & Casinos, Inc. and Subsidiaries as of April 30, 2010 and 2009 and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Pannell Kerr Forster of Texas, P.C.
 
   
Houston, Texas
 
July 29, 2010
 
 
 
28

 
 
Nevada Gold & Casinos, Inc.
Consolidated Balance Sheets

   
April 30,
   
April 30,
 
   
2010
   
2009
 
             
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 3,155,736     $ 13,834,544  
Restricted cash
    5,266,938       6,000,000  
Accounts receivable
    66,822       12,342  
Prepaid expenses
    475,262       235,847  
Income tax receivable
    1,750,374       1,872,369  
Notes receivable, current portion
    -       1,100,000  
Other current assets
    155,796       46,444  
Total current assets
    10,870,928       23,101,546  
                 
Investments in development projects
    1,418,789       746,024  
Investments in development projects held for sale
    3,437,932       3,437,932  
Notes receivable - development projects, net of allowances
    1,700,000       1,700,000  
Goodwill
    10,243,362       5,462,918  
Identifiable intangible assets , net of accumulated amortization of $729,000 and $0 at April 30, 2010 and April 30, 2009, respectively
    5,101,800       -  
Property and equipment, net of accumulated depreciation of $2,978,679 and $2,408,595 at April 30, 2010 and April 30, 2009, respectively
    3,473,051       1,091,549  
Deferred tax asset
    1,848,419       599,797  
BVO receivable
    4,000,000       4,000,000  
Other assets, net of allowances
    376,938       1,915,220  
Total assets
  $ 42,471,219     $ 42,054,986  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 1,060,017     $ 846,062  
Accrued interest payable
    70,000        
Other accrued liabilities
    687,819       197,833  
Total current liabilities
    1,817,836       1,043,895  
                 
Long-term debt, net of current portion
    10,000,000       6,000,000  
Other liabilities
    30,944       44,487  
Total liabilities
    11,848,780       7,088,382  
                 
Commitments and contingencies
           
                 
Stockholders' equity:
               
Common stock, $0.12 par value per share; 50,000,000 shares authorized; 13,935,330 shares issued and 12,764,130 and 12,939,130 shares outstanding at April 30, 2010, and April 30, 2009, respectively
    1,672,240       1,672,240  
Additional paid-in capital
    19,859,966       19,297,560  
Retained earnings
    19,464,972       24,213,754  
Treasury stock,  1,171,200 and 996,200 shares at April 30, 2010 and April 30, 2009, respectively, at cost
    (10,369,200 )     (10,216,950 )
Accumulated other comprehensive loss
    (5,539 )      
Total stockholders' equity
    30,622,439       34,966,604  
Total liabilities and stockholders' equity
  $ 42,471,219     $ 42,054,986  

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

 
29

 

Nevada Gold & Casinos, Inc.
Consolidated Statements of Operations

   
Fiscal Years Ended
 
   
April 30,
   
April 30,
 
   
2010
   
2009
 
Revenues:
           
Casino
  $ 18,822,900     $ 5,356,885  
Food and beverage
    4,534,744       1,395,130  
Other
    865,264       49,366  
Management fees
    620,968       493,382  
Gross revenues
    24,843,876       7,294,763  
Less promotional allowances
    (2,817,888 )     (1,426,511 )
Net revenues
    22,025,988       5,868,252  
                 
Operating expenses:
               
Casino
    8,562,284       1,750,014  
Food and beverage
    2,851,635       614,779  
Marketing and administrative
    5,564,288       2,485,881  
Facility
    1,070,933       362,009  
Corporate expense
    4,216,475       4,366,670  
Legal expenses
    241,468       403,694  
Depreciation and amortization
    1,344,323       627,618  
Impairment of assets
    4,347,183       -  
Write-off of project development cost
    50,486       1,215,383  
Other
    476,395       145,018  
Total operating expenses
    28,725,470       11,971,066  
Operating loss
    (6,699,482 )     (6,102,814 )
Non-operating income (expenses):
               
Loss from unconsolidated affiliates
    -       (7,863 )
Gain on sale of equity investees
    16,511       403,388  
Interest income
    192,708       975,490  
Interest expense
    (866,034 )     (1,307,296 )
Amortization of loan issue costs
    (58,972 )     (128,266 )
Loss on extinguishment of debt
    (128,834 )     -  
Loss before income tax expense (benefit)
    (7,544,103 )     (6,167,361 )
Income tax benefit
               
Current
    (1,546,698 )     (2,265,155 )
Deferred and change in valuation allowance
    (1,248,623 )     285,930  
Total income tax benefit
    (2,795,321 )     (1,979,225 )
Net loss
  $ (4,748,782 )   $ (4,188,136 )
                 
Per share information:
               
Net loss per common share - basic
  $ (0.37 )   $ (0.32 )
Net loss per common share - diluted
  $ (0.37 )   $ (0.32 )
                 
Basic weighted average number of shares outstanding
    12,878,240       12,939,130  
Diluted weighted average number of shares outstanding
    12,878,240       12,939,130  

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

 
30

 

Nevada Gold & Casinos, Inc.
Consolidated Statements of Stockholders' Equity

                                 
Accumulated
       
               
Additional
               
Other
   
Total
 
   
Common Stock
   
Paid-in
   
Retained
   
Treasury
   
Comprehensive
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Stock
   
Income
   
Equity
 
Balance at April 27, 2008
    13,935,330     $ 1,672,240     $ 19,092,706     $ 28,401,890     $ (10,216,950 )   $ 9,460     $ 38,959,346  
Comprehensive income:
                                                    -  
Net loss
                      (4,188,136 )                 (4,188,136 )
Unrealized loss on securities available for sale, net of tax benefit
                                  (9,460 )     (9,460 )
Comprehensive loss
                                                    (4,197,596 )
Stock based compensation
                204,854                         204,854  
Balance at April 30, 2009
    13,935,330     $  1,672,240     $  19,297,560     $  24,213,754     $  (10,216,950 )   $  -     $  34,966,604  
Net loss
                      (4,748,782 )                 (4,748,782 )
Unrealized loss on securities available for sale, net of tax benefit
                                  (5,539 )     (5,539 )
Comprehensive loss
                                                  (4,754,321 )
Stock repurchased at cost
                                (152,250 )           (152,250 )
Stock based compensation
                562,406                         562,406  
Balance at April 30, 2010
    13,935,330     $  1,672,240     $  19,859,966     $  19,464,972     $  (10,369,200 )   $  (5,539 )   $  30,622,439  

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

 
31

 

Nevada Gold & Casinos, Inc.
Consolidated Statements of Cash Flows

   
Fiscal Years Ended
 
   
April 30,
   
April 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net loss
  $ (4,748,782 )   $ (4,188,136 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    1,344,323       627,618  
Stock based compensation
    562,406       204,854  
Write-off of project development costs
    50,486       1,215,383  
Impairment of assets
    4,347,183        
Amortization of deferred loan issuance costs
    58,972       128,266  
Gain on sale of equity investments, net
    (16,511 )     (403,388 )
Distributions from unconsolidated affiliates
    -       3,917  
Loss from unconsolidated affiliates
    -       7,863  
Loss on extinguishment of debt
    128,834        
Deferred income tax expense (benefit)
    (1,248,623 )     285,930  
Changes in operating assets and liabilities:
               
Receivables and other assets
    (307,536 )     1,043,587  
Accounts payable and accrued liabilities
    814,741       (4,432,953 )
Net cash provided by (used in) operating activities
    985,493       (5,507,059 )
Cash flows from investing activities:
               
Purchases of real estate and assets held for development
    (1,384,855 )     (803,499 )
Equity investment in unconsolidated affiliates
    -       (25,000 )
Purchase of property and equipment
    (11,766,715 )     (379,296 )
Net proceeds from sale of equity investments, marketable securities and assets securities and assets
    -       16,000,000  
Collections of notes receivable
    -       4,601,104  
Collections of notes receivable - affiliates
    1,100,000       1,100,000  
Release of restricted cash
    733,062       7,014,000  
Net cash provided by (used in) investing activities
    (11,318,508 )     27,507,309  
Cash flows from financing activities:
               
Repayment on term loans
    -       (9,550,000 )
Proceeds from short term loans
    150,000        
Repayment on short term loans
    (150,000 )      
Acquistion of treasury stock at cost
    (152,250 )      
Deferred loan issuance costs
    (180,000 )      
Payments on capital lease
    (13,543 )     (12,019 )
Net cash used in financing activities
    (345,793 )     (9,562,019 )
                 
Net increase (decrease) in cash and cash equivalents
    (10,678,808 )     12,438,231  
Cash and cash equivalents at beginning of period
    13,834,544       1,396,313  
Cash and cash equivalents at end of period
  $ 3,155,736     $ 13,834,544  
                 
Supplemental cash flow information:
               
Cash paid for interest
  $ 810,000     $ 1,416,164  
Income tax payments
  $ -     $ 3,638,421  
                 
Non-cash investing and financing activities:
               
Equity investment conversion to accounts receivable
  $ -     $ 1,035,000  
Non-cash purchase of property and equipment
  $ 4,000,000     $  
Unrealized loss on marketable securities
  $ (5,539 )   $ (9,460 )

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. (the “Company”), 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 (“U.S.”), specifically in the states of Colorado and Washington. Our business strategy will continue to focus on gaming projects.

Basis of Presentation  

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

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

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenues and expenses during the reporting period. Actual results can, and often do, differ from those estimates.
 
FairValue
 
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 defined 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 the Company makes its own assumptions about how market participants would price the assets and liabilities.
 
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 collectibility 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. See Note 5 to our Consolidated Financial Statements.

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

 
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Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily notes receivable, cash and cash equivilants, accounts receivable and payable, and long term debt. At April 30, 2010 and 2009, the Company had one note receivable outstanding. This note was issued in connection with a potential gaming project. Management performs periodic evaluations of the collectibility of this note. The Company’s cash deposits are held with large, well-known financial institutions, and, at times, such deposits may be in excess of the federally insured limit.  The recorded value of cash, accounts receivable and payable, approximate fair value based on their short term nature; the recorded value of long term debt approximates fair value as interest rates  approximate current market rates.

Capitalized Development Cost

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

Real Estate Held for Sale

Investments in development projects held for sale consists of undeveloped land located in and around Black Hawk, Colorado and related development costs and capitalized interest. Property held for sale is carried at the lower of cost or net realizable value.

Property and Equipment

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

Property and equipment at April 30, 2010 and April 30, 2009 consist of the following:

               
Estimated
 
   
April 30,
   
April 30,
   
Service Life
 
   
2010
   
2009
   
in Years
 
Leasehold improvements
  $ 872,754     $ 333,431      
7-25
 
Gaming equipment
    2,130,607       1,995,809      
3-5
 
Furniture and office equipment
    1,704,469       916,646      
3-7
 
Building and improvements
    1,612,250       -      
15-30
 
Land
    129,750       42,000          
Construction in Progress
    1,900       212,258          
      6,451,730       3,500,144          
Less accumulated depreciation
    (2,978,679 )     (2,408,595 )