Basis of Presentation
The accompanying unaudited financial statements and related
notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial
statements and with the rules and regulations under Regulation S-X of the Securities and Exchange Commission for Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by accounting principles generally accepted in the United States
for complete financial statements presentation. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for interim
financial statements have been included. These financial statements should be read in conjunction with the financial
statements of the Company together with the Companys management discussion and analysis in Item 2 of this report and in
the Companys Form 10-K for the year ended June 30, 2011. Interim results are not necessarily indicative of the
results for a full year.
Consolidated Financial Statements
The accompanying consolidated financial statements include
all of the accounts of the Company and its subsidiary. As of July 6, 2010, the Company sold its interest in the subsidiary, Gaming,
deconsolidated the entity (Note 10) and the balance sheet as of June 30, 2011 is not consolidated. On December 14, 2011,
the Company formed a wholly owned subsidiary, Rotate Black, OK, LLC. (OKL), and the balance sheet as of March 31, 2012 is consolidated.
The Company records adjustments to noncontrolling interest
for the allocable portion of income or loss that the noncontrolling interest holders are entitled based upon their portion of certain
of the subsidiaries that they own. Distributions to holders of noncontrolling interests are adjusted to the respective noncontrolling
interest holders balance.
The Company suspends allocation of losses to noncontrolling
interest holders when the noncontrolling interest balance for a particular noncontrolling interest holder is reduced to zero. Any
excess loss above the noncontrolling interest holders balance is not charged to noncontrolling interest as the noncontrolling
interest holders have no obligation to fund such losses.
Investments in 50% or less owned entities without controlling
influence by the Company are accounted for using the equity method. Under the equity method, the Company recognizes its ownership
share of the income and losses of the equity entity.
All significant intercompany accounts and transactions have
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Certain amounts for prior periods have been reclassified to
conform to 2012 financial statement presentation.
The Company considers the carrying amounts of financial instruments,
including cash, accounts payable and accrued expenses to approximate their fair values because of their relatively short maturities.
Property and Equipment
Property and equipment are recorded at cost and depreciated
over their estimated useful lives using the straight-line method.
Maintenance and repairs are charged to operating expenses
as they are incurred. Improvements and betterments, which extend the lives of the assets, are capitalized. The cost and accumulated
depreciation of assets retired or otherwise disposed of are relieved from the appropriate accounts and any profit or loss on the
sale or disposition of such assets is credited or charged to income.
Contract Rights and Intangible Assets
Contract rights and intangible assets are valued at cost and,
if there is a finite life, will be amortized over their estimated useful lives of each asset as determined by management. Amortization
will commence upon the placement of individual assets into service and the initial determination of the lives assigned to each.
The Company expects this to occur for the Contract Rights upon the effective date of the Development Agreement. Contract Rights
were valued based upon managements forecast of expected future net cash flows, with revenues based on projected revenues
under the Development and Management Agreements. As of June 30, 2010, the Contract Rights had not commenced amortization
and were sold as part of Gaming on July 6, 2010 (Note 10).
The Company will evaluate the carrying value of the intangible
assets for impairment at least annually or upon the occurrence of an event, which may indicate that the carrying amount may be
greater than its fair value. If impaired, the Company will write-down such impairment. In addition, the useful life of the intangible
assets will be evaluated by management at least annually or upon the occurrence of an event which may indicate that the useful
life may have been definitive and the Company would have commenced amortization over such useful life.
Revenue is recognized when evidence of an arrangement exists,
pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred.
Development advances are the funds advanced by the Company
for necessary costs in advance of the facility loan for the Seneca Nation, which include expenses for legal, engineering and architectural
fees and have been capitalized. A development fee of 2.5% of total development costs was accrued by the Company for services rendered
pursuant to the Development Agreement and is in addition to the amounts advanced to cover the development costs.
The development advances and the development fee had been
deferred and were sold as part of Gaming (Note 10).
Management fees earned under contract to operate and manage
casino projects are recognized pursuant to terms of the agreement.
Intra-entity transactions for revenue and expenses earned
in connection with an equity investment are eliminated in accordance with guidance in ASC 323-10-35-5.
The Company recognizes compensation expense for all share-based
payment awards made to employees, directors and others based on the estimated fair values on the date of the grant. Common stock
equivalents are valued using the Black-Scholes Option-Pricing Model using the market price of our common stock on the date of valuation,
an expected dividend yield of zero, the remaining period or maturity date of the common stock equivalent and the expected volatility
of our common stock.
The Company determines the fair value of the share-based compensation
awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever
is more reliably measureable. If the fair value of the equity instruments issued is used, it is measured using the stock price
and other measurement assumptions as of the earlier of either the date at which a commitment for performance to earn the equity
instrument is reached or the date the performance is complete.
The Company recognizes compensation expense for stock awards
with service conditions on a straight-line basis over the requisite service period, which is included in operations.
Basic and Diluted Net Income (Loss) per Common Share
Basic net income (loss) per share (EPS) is calculated by dividing
net income (loss) available to common stockholders (numerator) by the weighted-average number of common shares outstanding during
each period (denominator). Diluted loss per share gives effect to all dilutive common shares outstanding using the treasury stock
method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Although
there were common stock equivalents outstanding as of March 31, 2012 and June 30, 2011, they were not included in the calculation
of earnings per shares because their inclusion would have been considered anti-dilutive. As of March 31, 2012 and June
30, 2011, there were 1,900,000 and 2,021,333, respectively, total common stock equivalents.
Basic loss per share has been retroactively restated to reflect
the reverse stock split (Note 16).
Deferred income taxes have been provided for temporary differences
between financial statement and income tax reporting under the liability method, using expected tax rates and laws that are expected
to be in effect when the differences are expected to reverse. A valuation allowance is provided when realization is not considered
more likely than not.
The Companys policy is to classify income tax assessments,
if any, for interest in interest expense and for penalties in general and administrative expenses.
Rent expense is recognized on the straight-line basis over
the term of the lease.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) 2011-08: Intangibles-Goodwill and Other (Topic 350) Testing Goodwill for
Impairment. The amendments in this update are intended to reduce complexity and costs by allowing the reporting
entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate
the fair value of a reporting unit. The update includes examples of events and circumstances that an entity should consider
in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. ASU
2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early
adoption is permitted for annual and interim goodwill impairment tests performed as of a date prior to September 15, 2011 if the
entitys financial statements for the most recent annual or interim period have not yet been issued. Adoption
of ASU 2011-08 is not expected to have a significant impact on the Companys financial statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement
(Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The
new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair
value between accounting principles generally accepted in the United States (GAAP) and International Financial Reporting Standards
(IFRS). While many of the amendments to GAAP are not expected to have a significant effect on practice, the new guidance
changes some fair value measurement principles and disclosure requirements. Adoption of ASU 2011-04 is effective for
annual periods beginning after December 15, 2011 and is not expected to have a significant impact on the Company's financial statements.
Management does not believe that any recently issued, but
not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.