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v2.4.0.6
8. Investment in RBMS
9 Months Ended
Mar. 31, 2012
Notes to Financial Statements  
8. Investment in RBMS

Upon formation of RBMS and the commencement of the management agreement, the Company, RBL and an officer of the Company owned an aggregate 46.6% of the voting interests of RBMS and the remaining units were sold to outside investors. The Company has accounted for its investment in RBMS on the equity method in accordance with ASC 810-10; as it does not meet all the requirements of a variable interest entity to consolidate; the outside equity investors are not protected from the losses of the entity nor are they guaranteed a return by the legal entity; the outside equity investors expected residual returns are not capped by any arrangements or documents with other holders;  and the percent of ownership will be diluted by future financing of RBMS. 

 

In connection with the proposed terms of the funding of the Gulfport Casino Hotel Project (Note 7), holders of Class A Units of RBMS have agreed to convert their units into B Units to facilitate the financing of the Gulfport project.  Upon closing, the equity investor will own 60,000 B Units out of 100,000 authorized and 70,588 outstanding, or 85% of RBMS. In addition, upon closing, RBMS will issue 29,412 warrants at an exercise price of $0.01, to all other investors based on pre-negotiated percentages. Assuming all warrants are exercised, the equity investor will be diluted to a 60% ownership. The Company will own at closing, B units and warrants that represent approximately 10% of the fully diluted RBMS shares. Closing is anticipated to be on or before December 15, 2012.

 

As of March 31, 2012 and June 30, 2011, the condensed balance sheet of RBMS was as follows:

 

    3/31/12     6/30/11  
    (Unaudited)     (Unaudited)  
Prepaid expenses   $ 6,233     $ 7,500  
Development costs     2,319,140       1,912,125  
                 
Total Assets   $ 2,325,373     $ 1,919,625  
                 
Current liabilities   $ 731,313     $ 405,583  
Due to RBI                
Members’ equity     1,594,060       1,514,042  
                 
Total Liabilities and                
   Members’ Equity   $ 2,325,373     $ 1,919,625  

 

As of March 31, 2012 and June 30, 2011, the condensed income statement of RBMS was as follows:

 

    Nine Months Ended 3/31/12    

Twelve Months Ended

6/30/11

 
    (Unaudited)     (Unaudited)  
Revenue   $ -     $ -  
Management fees     -       970,000  
General & Administrative                
    Expenses     723,286        179,994  
Lease fees     55,070        70,000  
                 
Total Expenses     778,356        1,219,994  
                 
Net Loss   $ (778,356)     $ (1,219,994 )

 

For the year ended June 30, 2011, intra-entity management expense of $452,020 is included in the condensed income statement of RBMS and is eliminated in the financial statement presentation against the management income recorded by the Company.

 

 

As of June 30, 2011, the Company paid expenses of $435,036 in cash and $189,000 in stock on behalf of RBMS as a capital contribution and recorded an equity investment of $624,036.  The Company reduced its investment in RBMS by $568,517, 46.6% of the loss of the entity.

 

As of March 31, 2012, the Company sold $375,000 in additional equity in RBMS; paid $818,375 in expenses and issued 200,000 shares of common stock valued at $40,000 on behalf of RBMS. For the three and nine months ended March 31, 2012, the Company reduced its investment in RBMS by recording expense of $129,082 and  $362,713, respectively, 46.6% of the loss of the equity entity.

 

Ground Lease

 

Effective October 20, 2010, RBMS entered into a ground lease for the nine and a half acre site for the Gulfport Project.  The Preliminary Term, as defined, remains in effect until the earliest of the ninth month following the effective date or the date gaming operations begin on the leased property.  During the Preliminary Term, rent shall be equal to $20,000, per month with no payment required until the earlier of the date the Lessee commences construction on the premises or February 1, 2011. If RBMS does not receive approval to proceed with the development of the casino from the Mississippi Gaming Commission on or prior to March 1, 2011, then the lease terminates with no obligations due.

 

Due to delays, the lease was amended on October 21, 2011 for a term through October 31, 2069, with a fee payable of $25,000 to enter into the amended and restated lease and $50,000 as the initial base rent payment.  After the commencement of gaming operations, RBMS will pay an annual minimum base rent of $600,000, as defined. On March 13, 2012 this ground lease was amended and extends the date for RBMS to obtain approval to proceed to April 30, 2012.  In consideration of this extension, RBMS agreed to pay a fee of $50,000. An additional extension was entered into May 1, 2012 extending the approval date to August 31, 2012 and RBMS agreed to pay a fee for the extension of $20,000 for two thirty-day periods and $35,000 for each month thereafter.

 

On April 9, 2012, the Mississippi Gaming Commission granted to RBMS approval as a legal gaming site for a 9.5 acre site located in Gulfport Mississippi, however, on May 17, 2012 the Commission denied the application to proceed with construction of the casino resort.

 

On August 16, 2012, the Commission voted to grant RBMS approval to proceed with the Gulfport Project.