UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended October 31, 2017

 

¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from_______________________ to ___________________________

 

Commission File Number 1-15517

 

 

Nevada Gold & Casinos, Inc.

 

(Exact name of registrant as specified in its charter)

 

Nevada		88-0142032
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

 

133 E. Warm Springs Road
Suite 102
Las Vegas, Nevada		89119
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number including area code:

(702) 685-1000

 

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 any shorter period that the registrant was required to file the reports), and (2) has been subject to those filing requirements for the past 90 days. x Yes ¨ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).

x Yes ¨ No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

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

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 17(a)(2)(B) of the Securities Act. ¨ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).   

¨ Yes   x No

 

The number of common shares, $0.12 par value per share, issued and outstanding, was 16,834,182 as of December 1, 2017.

 

 

TABLE OF CONTENTS

 

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets – October 31, 2017 (unaudited) and April 30, 2017	2
	Condensed Consolidated Statements of Operations – Three and six months ended October 31, 2017 (unaudited) and October 31, 2016 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows – Six months ended October 31, 2017 (unaudited) and October 31, 2016 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17
Item 4.	Controls and Procedures	17
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

  

 

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-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us or our 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 us, including statements relating to our business strategy and our current and future development plans. These statements may also involve other factors which are detailed in the “Risk Factors” and other sections of our Annual Report on Form 10-K for the year ended April 30, 2017 and other filings with the Securities and Exchange Commission.

 

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 will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this report or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission should be consulted.

 

  

Part I. Financial Information

Item 1. Financial Statements

Nevada Gold & Casinos, Inc.

Condensed Consolidated Balance Sheets

 

		October 31,				April 30,
		2017				2017
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	9,559,370			$	10,631,903
Restricted cash			2,043,806				1,994,312
Accounts receivable, net of allowances			398,102				808,484
Prepaid expenses			1,614,893				1,209,507
Notes receivable, current portion			191,757				383,093
Inventory and other current assets			437,951				423,113
Total current assets			14,245,879				15,450,412
Real estate held for sale			750,000				750,000
Goodwill			16,923,588				16,923,588
Intangible assets, net of accumulated amortization			3,801,074				4,107,328
Property and equipment, net of accumulated depreciation			13,513,526				13,958,715
Deferred tax asset			1,236,835				1,557,470
Other assets			75,111				70,000
Total assets		$	50,546,013			$	52,817,513
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	1,432,529			$	1,303,571
Accrued payroll and related			2,196,353				1,925,592
Accrued player's club points and progressive jackpots			2,246,233				2,348,068
Total current liabilities			5,875,115				5,577,231
Long-term debt			10,410,310				12,061,411
Other long-term liabilities			625,312				667,110
Total liabilities			16,910,737				18,305,752
Stockholders' equity:
Common stock, $0.12 par value per share; 50,000,000 shares authorized; 18,693,175 and 18,627,167 shares issued and 16,825,372 and 17,547,665 shares outstanding at October 31, 2017, and April 30, 2017, respectively			2,243,189				2,235,269
Additional paid-in capital			27,502,227				27,449,319
Retained earnings			13,083,792				12,320,814
Treasury stock, 1,867,803 and 1,079,502 shares at October 31, 2017 and April 30, 2017, respectively, at cost			(9,193,932	)			(7,493,641	)
Total stockholders' equity			33,635,276				34,511,761
Total liabilities and stockholders' equity		$	50,546,013			$	52,817,513

  

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

 

 

Nevada Gold & Casinos, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

		Three Months Ended								Six Months Ended
		October 31,				October 31,				October 31,				October 31,
		2017				2016				2017				2016
Revenues:
Casino		$	17,366,692			$	16,346,495			$	33,773,298			$	32,516,998
Food and beverage			3,258,684				3,329,915				6,417,908				6,631,308
Other			488,360				547,545				1,003,765				1,088,260
Gross revenues			21,113,736				20,223,955				41,194,971				40,236,566
Less promotional allowances			(1,633,513	)			(1,747,069	)			(3,226,224	)			(3,529,902	)
Net revenues			19,480,223				18,476,886				37,968,747				36,706,664
Expenses:
Casino			9,650,614				9,442,917				19,065,548				18,630,015
Food and beverage			1,664,613				1,482,778				3,245,061				3,015,120
Other			51,922				51,786				105,359				106,724
Marketing and administrative			5,295,763				5,163,876				10,582,485				10,434,156
Facility			518,255				547,370				984,069				1,080,705
Corporate			691,976				724,136				1,331,361				1,520,869
Depreciation and amortization			598,148				773,510				1,309,584				1,550,022
Loss on disposal of assets			5,465				5,546				5,465				13,916
Total operating expenses			18,476,756				18,191,919				36,628,932				36,351,527
Operating income			1,003,467				284,967				1,339,815				355,137
Non-operating income (expenses):
Interest income			14,211				23,124				26,675				46,092
Interest expense and amortization of loan issue costs			(163,820	)			(184,403	)			(324,335	)			(374,387	)
Change in swap fair value			45,422				97,176				41,458				46,462
Income before income tax expense			899,280				220,864				1,083,613				73,304
Income tax expense			(260,303	)			(70,842	)			(320,635	)			(22,854	)
Net income		$	638,977			$	150,022			$	762,978			$	50,450
Per share information:
Net income per common share - basic and diluted		$	0.04			$	0.01			$	0.04			$	0.00

 

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

 

  

Nevada Gold & Casinos, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

		Six Months Ended
		October 31,				October 31,
		2017				2016
Cash flows from operating activities:
Net income		$	762,978			$	50,450
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,309,584				1,550,022
Stock compensation			74,678				119,128
Amortization of deferred loan issuance costs			48,898				43,459
Change in deferred rent			(1,952	)			21,955
Changes to restricted cash			(49,494	)			(85,160	)
Change in swap fair value			(41,458	)			(46,462	)
Loss on disposal of assets			5,465				13,916
Changes in deferred income taxes			320,635				22,854
Changes in operating assets and liabilities:
Receivables and other assets			(9,842	)			(115,892	)
Accounts payable and accrued liabilities			277,885				(598,264	)
Net cash provided by operating activities			2,697,377				976,006
Cash flows from investing activities:
Collections on notes receivable			191,336				480,640
Purchase of property and equipment			(565,605	)			(822,877	)
Capitalized licensing costs refunded			-				24,946
Deposit refunded			(3,500	)			-
Proceeds from the sale of assets			2,000				-
Net cash used in investing activities			(375,769	)			(317,291	)
Cash flows from financing activities:
Purchase of treasury stock			(1,700,291	)			(344,372	)
Repayment of credit facilities			(2,400,000	)			(1,672,777	)
Proceeds from credit facilities			700,000				-
Cash proceeds from exercise of stock options			6,150				13,040
Net cash used in financing activities			(3,394,141	)			(2,004,109	)
Net decrease in cash and cash equivalents			(1,072,533	)			(1,345,394	)
Cash and cash equivalents at beginning of period			10,631,903				11,583,107
Cash and cash equivalents at end of period		$	9,559,370			$	10,237,713
Supplemental cash flow information:
Cash paid for interest		$	275,862			$	348,669

 

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

 

 

Nevada Gold & Casinos, Inc.

 

Notes to Condensed Consolidated Financial Statements

 

Note 1.   Basis of Presentation

 

The interim financial information included herein is unaudited. However, the accompanying condensed consolidated financial statements include all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly our condensed consolidated balance sheets at October 31, 2017 and April 30, 2017, condensed consolidated statements of operations for the three and six months ended October 31, 2017 and 2016, and condensed consolidated statements of cash flows for the six months ended October 31, 2017 and 2016. Although we believe the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended April 30, 2017 and the notes thereto included in our Annual Report on Form 10-K. The results of operations for the three and six months ended October 31, 2017 are not necessarily indicative of the results expected for the full year.

 

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

 

Certain reclassifications have been made to conform prior year financial information to the current period presentation. Those reclassifications did not impact operating income, net income, working capital or stockholders’ equity.

 

Note 2.  Critical Accounting Policies

 

Revenue Recognition

 

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

 

		Three Months Ended								Six Months Ended
		October 31, 2017				October 31, 2016				October 31, 2017				October 31, 2016
Food and beverage		$	1,566,112			$	1,692,025			$	3,093,257			$	3,413,598
Other			67,401				55,044				132,967				116,304
Promotional allowances		$	1,633,513			$	1,747,069			$	3,226,224			$	3,529,902

 

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

 

		Three Months Ended								Six Months Ended
		October 31, 2017				October 31, 2016				October 31, 2017				October 31, 2016
Food and beverage		$	1,447,070			$	1,600,587			$	2,929,417			$	3,137,705
Other			64,349				53,004				127,708				111,249
Total cost of complimentary services		$	1,511,419			$	1,653,591			$	3,057,125			$	3,248,954

 

Fair Value

 

U.S. generally accepted accounting principles defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are as follows:

 

  

Level 1 – Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2 – Other inputs that are observable directly or indirectly such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 – Unobservable inputs for which there is little or no market data and for which we make our own assumptions about how market participants would price the assets and liabilities.

 

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

 

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

 

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

 

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

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject us to concentrations of credit risk are primarily notes receivable, cash and cash equivalents, accounts receivable and payable, and long term debt. Management performs periodic evaluations of the collectability of these notes and accounts receivable. Our cash deposits are held with large, well-known financial institutions, and, at times, such deposits may be in excess of the federally insured limit. The recorded value of cash, accounts receivable and payable, approximate fair value based on their short term nature; the recorded value of long term debt approximates fair value as interest rates approximate current market rates.

 

New Accounting Pronouncements and Legislation Issued

 

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

 

In May 2014, the FASB issued a new accounting standard for revenue recognition which requires entities to recognize revenue when it transfers promised goods or services to customers, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard supersedes the existing accounting guidance for revenue recognition, including industry-specific guidance, and amends certain accounting guidance for recognition of gains and losses on the transfer of non-financial assets. For public companies, the new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017. The Company plans to adopt this standard in the first quarter of fiscal 2019. This standard will affect the Company’s accounting policy in relation to the non-discretionary loyalty program transactions. Based on a clarification from the FASB, complementary revenue represents a consideration payable to a customer and therefore is to be treated as a deduction to revenue at the time of the transaction and at the price of the complementary being offered. The Company expects the majority of such amounts will offset casino revenues. The standard also changes the presentation of promotional allowances to be shown as a direct reduction of gross revenues instead of being presented as a separate line on the Statement of Operations. The Company also expects the accounting for our player program to be impacted, with possible changes to the timing and/or classification of certain transactions within revenues and between revenues and operating expenses as we transition from the immediate revenue/cost accrual model to the deferred revenue model. The quantitative effects of these changes have not yet been determined and are still being analyzed. The Company is currently evaluating the impact this guidance will have on its financial position and results of operations, and has not yet determined which adoption method it will elect.

 

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

 

  

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

 

Note 3.   Restricted Cash

 

As of October 31, 2017 and April 30, 2017, we maintained $2,043,806 and $1,994,312, respectively, in restricted cash, which consists of player-supported jackpot funds for our Washington operations.

 

Note 4.   Notes Receivable

 

G Investments, LLC

 

As of October 31, 2017 and April 30, 2017, we had a note receivable of $191,757 and $383,093, respectively, with no valuation allowance, due from G Investments, LLC resulting from the sale of the Colorado Grande Casino on May 25, 2012. The initial amount was $2,300,000, requiring $40,000 monthly payments, bearing interest at 6% per annum through the amended maturity date of February of 2018, and is secured with the assets of the Colorado Grande Casino, pledge of membership interest in G Investments, LLC (“GI”), and a personal guaranty by GI’s principal.

 

Note 5.   Goodwill and Intangible Assets

 

In connection with our acquisitions of the Washington mini-casinos on May 12, 2009, July 23, 2010 and July 18, 2011, the South Dakota slot route on January 27, 2012, and the Club Fortune Casino in Nevada on December 1, 2015, we have goodwill and intangible assets of $20,724,660, net of amortization for intangible assets with finite lives.

 

The change in the carrying amount of goodwill and other intangible assets for the six months ended October 31, 2017, is as follows:

 

		Total				Goodwill				Other Intangibles, net
Balance as of April 30, 2017		$	21,030,916			$	16,923,588			$	4,107,328
Current year amortization			(306,254	)			-				(306,254	)
Balance as of October 31, 2017		$	20,724,662			$	16,923,588			$	3,801,074

 

Goodwill and net intangibles assets by segment as of October 31, 2017, are as follows:

 

		Total				Goodwill				Other Intangibles, net
Washington		$	15,999,097			$	14,092,154			$	1,906,943
South Dakota			196,429				-				196,429
Nevada			4,116,632				2,831,434				1,285,198
Corporate			412,504				-				412,504
Total		$	20,724,662			$	16,923,588			$	3,801,074

 

Intangible assets are generally amortized on a straight line basis over the useful lives of the assets. State gaming registration and trade names are not amortizable. A summary of intangible assets and accumulated amortization as of October 31, 2017, are as follows:

 

		Gross Carrying Amount				Accumulated Amortization				Net
Customer relationships		$	8,673,321			$	(7,836,473	)		$	836,848
Non-compete agreements			1,379,000				(1,339,278	)			39,722
State gaming registration			412,504				-				412,504
Trade names			2,512,000				-				2,512,000
Total		$	12,976,825			$	(9,175,751	)		$	3,801,074

 

  

The remaining weighted average useful life of acquired intangibles is 3.8 years for customer relationships and 1.1 years for non-compete agreements. The estimated future annual amortization of intangible assets, which excludes trade names and state gaming registration, is as follows:

 

Period		Amount
November 2017-October 2018		$	355,896
November 2018-October 2019			159,484
November 2019-October 2020			117,143
November 2020-October 2021			117,143
Thereafter			126,904
Total		$	876,570

 

Note 6.   Property and Equipment 

 

Property and equipment at October 31, 2017 and April 30, 2017, consist of the following:

 

										Estimated
		October 31,				April 30,				Service Life
		2017				2017				in Years
Leasehold improvements		$	1,686,673			$	1,556,824			7-20
Gaming equipment			5,450,022				5,300,898			3-5
Furniture and office equipment			4,653,591				4,506,639			3-7
Building and improvements			7,786,338				7,762,201			15-30
Land			2,387,750				2,387,750
Construction in progress			142,066				80,023
			22,106,440				21,594,335
Less accumulated depreciation			(8,592,914	)			(7,635,620	)
Property and equipment, net		$	13,513,526			$	13,958,715

 

Note 7.   Long-Term Debt  

 

Our long-term financing obligations are as follows:

 

		October 31,				April 30,
		2017				2017
$23.0 million reducing revolving credit agreement, LIBOR plus an Applicable Margin, $625,000 quarterly reductions beginning January 31, 2016 through November 30, 2020, and the remaining principal due on the maturity date of November 30, 2020.		$	10,410,310			$	12,061,411
Less: current portion			-				-
Total long-term financing obligations		$	10,410,310			$	12,061,411

 

On November 30, 2015, the Company amended its existing credit agreement with Mutual of Omaha Bank to increase the lending commitment to $23 million.  The Amended and Restated Credit Agreement (“Credit Facility”) matures on November 30, 2020, and is secured by liens on substantially all of the real and personal property of the Company and its subsidiaries. The interest rate on the borrowing is based on LIBOR plus an Applicable Margin, determined quarterly beginning April 1, 2016, based on the total leverage ratio for the trailing twelve months. The interest rate on the balance as of October 31, 2017, is 3.74%. In addition, the Company was required to fix the interest rate on at least 50% of the credit facility through a swap agreement.

 

As of October 31, 2017, principal reductions due on the Credit Facility are as follows:

 

November 1, 2017 – October 31, 2018		$	-
November 1, 2018 – October 31, 2019			-
November 1, 2019 – October 31, 2020			-
November 1, 2020 – November 30, 2020			10,600,000
Total payments			10,600,000
Unamortized debt discount			(189,690	)
Total long-term debt		$	10,410,310

 

  

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

 

During the quarter, we paid $1.7 million to reduce the outstanding balance of the Credit Facility. As of October 31, 2017, we have $7.3 million available to borrow per the Credit Agreement.

 

The Credit Facility contains customary covenants for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance of the Company’s assets and covenants restricting our ability to merge, transfer ownership, incur additional indebtedness, encumber assets and make certain investments.  The Credit Facility also contains covenants requiring the Company to maintain certain financial ratios including a maximum total leverage ratio ranging from 3.00 to 1.00 through January 31, 2017, 2.75 to 1.00 from February 1, 2017 through January 31, 2018, and 2.50 to 1.00 from February 1, 2018 until maturity; and lease adjusted fixed charge coverage ratio of no less than 1.15 to 1.00. We are in compliance with the covenant requirements of the Credit Facility as of October 31, 2017.

 

Note 8.   Interest Rate Swap

 

We are required by the Credit Facility to have a secured interest rate swap for at least 50% of the Credit Facility commitment. On December 28, 2015, the Company entered into a swap transaction with Mutual of Omaha Bank (“MOOB”), which has a calculation period as of the tenth day of each month through the maturity date of the Credit Facility. As of October 31, 2017, the Company had one outstanding interest rate swap with MOOB with a notional amount of $9,000,000 at a swap rate of 1.77%, which as of October 31, 2017, effectively converts $9,000,000 of our floating-rate debt to a synthetic fixed rate of 4.27%. Under the terms of the swap agreement, the Company pays a fixed rate of 1.77% and receives variable rate based on one-month LIBOR as of the first day of each floating-rate calculation period. Under the International Swap Dealers Association, Inc. (“ISDA”) confirmation, the floating index as of October 31, 2017 is set at 1.235%.

 

The Company did not designate the interest rate swap as a cash flow hedge and the interest rate swap did not qualify for hedge accounting under ASC Topic 815. Changes in our interest rate swap fair value are recorded in our condensed consolidated statements of operations. Each quarter, the Company receives fair value statements from the counterparty, MOOB. The fair value of the interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As a result of our evaluation of our interest rate swap as of October 31, 2017, we recorded a $45,422 and $41,458 increase in our interest rate swap fair value for the three and six months ended October 31, 2017, respectively. As of October 31, 2017 and April 30, 2017, our interest rate swap fair value is a $5,111 asset and $36,346 liability, respectively, which is included in other assets as of October 31, 2017 and other long-term liabilities as of April 30, 2017 on the condensed consolidated balance sheets.

 

Note 9.   Equity Transactions and Stock Option Plans

 

We have obligations under two employee stock plans: (1) the 2009 Equity Incentive Plan (the “2009 Plan”), and (2) the 2010 Employee Stock Purchase Plan, as amended (the “2010 Plan”).

 

The 2009 Plan

 

On April 14, 2009, our shareholders approved the 2009 Plan providing for the granting of awards to our directors, officers, employees and independent contractors. The number of common stock shares reserved for issuance under the 2009 Plan is 1,750,000 shares. The 2009 Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has complete discretion under the plan regarding the vesting and service requirements, exercise price and other conditions. Under the 2009 Plan, the Committee is authorized to grant the following types of awards:

 

·

Stock Options including Incentive Stock Options (“ISO”),

·

Options not intended to qualify as ISOs,

·

Stock Appreciation Rights, and

·

Restricted Stock Grants.

 

Our practice has been to issue new or treasury shares upon the exercise of stock options. Stock option rights granted under the 2009 Plan generally have 5 or 10 year terms and vest in two or three equal annual installments, with some options grants providing for immediate vesting for a portion of the grant.

 

  

In October of 2017, the Committee granted 26,430 shares of stock to the board of directors as $10,000 per director in annual compensation paid in the form of a stock grant with immediate vesting. The Committee also granted 57,000 shares of restricted stock in October 2017 to certain management to vest over three years. As of October 31, 2017, there was $150,038 of unamortized compensation cost related to stock grants, which is expected to be recognized over approximately 3.0 years. A summary of stock grant activity under our share-based payment plan for the six months ended October 31, 2017 is presented below: 

 

For the Six Months Ended October 31, 2017
Grants		Shares				Weighted Average Grant Date Value  (per share)
Unvested at beginning of year			20,400			$	1.98
Issued			83,430			$	2.27
Vested			(34,630	)		$	2.19
Forfeited			-
Unvested at end of year			69,200			$	2.23

 

A summary of stock option activity under our share-based payment plan for the six months ended October 31, 2017 is presented below:

 

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
		Options				Price				Term (Year)				Value
Outstanding at April 30, 2017			693,500			$	1.10
Granted			-
Exercised			(7,500	)		$	0.82
Forfeited or expired			-
Outstanding at October 31, 2017			686,000			$	1.10				4.8			$	727,640
Exercisable at October 31, 2017			686,000			$	1.10				4.8			$	727,640
Available for grant at October 31, 2017			507,611

 

Compensation cost for stock options granted is based on the fair value of each award, measured by applying the Black-Scholes model. As of October 31, 2017, there was no unamortized compensation cost related to stock options.

 

Treasury Stock

 

In July 2016, our board of directors approved a $2.0 million stock repurchase program to purchase our common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements, loan covenants and other factors. The repurchase plan does not obligate the Company to acquire any specified number or value of common stock. During the three months ended October 31, 2017, the Company repurchased 32,657 shares at a weighted average price of $2.32 per share, costing $76,963 (including commissions). During the six months ended October 31, 2017, the Company repurchased 788,301 shares at a weighted average price of $2.16 per share, costing $1,701,597 (including commissions). As of October 31, 2017, $1.7 million remains available under the share repurchase authorization.

 

Warrants

 

On November 7, 2011, we closed on the sale of 2,625,652 shares of our common stock to certain investors through a registered direct offering. In addition, for each share of our common stock purchased by an investor, we issued to such investor a warrant to purchase 0.75 shares of our common stock. The warrants had an exercise price of $2.18 per share and were exercisable for five years from the initial exercise date. During the first week of May 2017, warrants were exercised in cashless transactions and the Company issued 36,689 shares as a result. The remaining warrants expired on May 7, 2017.

 

  

Note 10.   Computation of Earnings Per Share

 

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

 

		Three Months Ended								Six Months Ended
		October 31,				October 31,				October 31,				October 31,
		2017				2016				2017				2016
Numerator:
Basic and Diluted:
Net income available to common shareholders		$	638,977			$	150,022			$	762,978			$	50,450
Denominator:
Basic weighted average number of common shares outstanding			16,831,048				17,770,013				17,125,734				17,765,367
Dilutive effect of common stock options and warrants			364,894				292,842				362,137				297,036
Diluted weighted average number of common shares outstanding			17,195,942				18,062,855				17,487,871				18,062,403
Net income per common share - basic and diluted		$	0.04			$	0.01			$	0.04			$	0.00

 

Note 11.   Commitments and Contingencies  

 

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

 

The expected remaining future annual minimum lease payments as of October 31, 2017, are as follows:

 

Period		Total
November 2017-October 2018		$	3,139,160
November 2018-October 2019			2,838,539
November 2019-October 2020			2,520,787
November 2020-October 2021			2,248,294
Thereafter			935,630
		$	11,682,410

 

We continue to pursue additional development opportunities that may require, individually and in the aggregate, significant commitments of capital, extensions of credit, up-front payments to third parties and guarantees by us of third-party debt.

 

We indemnified our officers and directors for certain events or occurrences while the director or officer is or was serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have a Directors and Officers Liability Insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid, provided that such insurance policy provides coverage.

 

Note 12.   Income Taxes 

 

For the three months ended October 31, 2017 and 2016, our effective tax rates were 29% and 32%, respectively. For the six months ended October 31, 2017 and 2016, our effective tax rates were 30% and 31%, respectively.  The difference between the federal statutory rate of 34% and the 2018 fiscal year to date’s effective tax rate is primarily due to utilization of general business credits.

 

At October 31, 2017, we have $1.2 million in net deferred tax assets, which is primarily a result of the $6.3 million (gross, not tax effected) amount in receivables that have been fully reserved for book purposes. We believe that it is more-likely-than-not that the deferred tax assets will be realized prior to any expiration and therefore we have not applied a valuation allowance on our deferred tax assets.

 

We filed income tax returns in the United States federal jurisdiction. No jurisdiction is currently examining our tax filings for any tax years. All of the Company’s tax positions are considered more likely than not to be sustained upon an IRS examination.

 

Note 13.   Segment Reporting  

 

We have three business segments: (i) Washington, (ii) South Dakota and (iii) Nevada, as well as the Company’s corporate location. For the three months ended October 31, 2017, the Washington segment consists of the Washington mini-casinos, the South Dakota segment consists of our slot route operation in South Dakota, the Nevada segment consists of Club Fortune casino and the Corporate column includes the vacant land in Colorado and its taxes and maintenance expenses. The Corporate column also includes corporate-related items, results of insignificant operations, and income and expenses not allocated to other reportable segments.

 

  

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

 

		As of, and for the Three Months Ended, October 31, 2017
		Washington				South Dakota				Nevada				Corporate				Total
Net revenues		$	13,902,500			$	2,199,901			$	3,377,822			$	-			$	19,480,223
Casino and food and beverage expense			7,389,151				1,878,215				2,047,861				-				11,315,227
Marketing, administrative and corporate expense			4,320,397				118,972				856,394				691,976				5,987,739
Facility and other expenses			463,510				22,371				84,296				-				570,177
Depreciation and amortization			113,897				104,080				373,498				6,673				598,148
Operating income (loss)			1,609,959				76,384				15,773				(698,649	)			1,003,467
Assets			27,898,267				1,830,836				16,461,792				4,355,118				50,546,013
Purchase of property and equipment			251,426				-				46,546				10,026				307,998

 

		As of, and for the Three Months Ended, October 31, 2016
		Washington				South Dakota				Nevada				Corporate				Total
Net revenues		$	13,194,471			$	2,220,368			$	3,062,047			$	-			$	18,476,886
Casino and food and beverage expense			7,082,474				1,859,135				1,984,086				-				10,925,695
Marketing, administrative and corporate expense			4,115,482				114,710				933,684				724,136				5,888,012
Facility and other expenses			486,482				33,658				79,016				-				599,156
Depreciation and amortization			231,443				156,444				379,780				5,843				773,510
Operating income (loss)			1,278,380				56,127				(319,561	)			(729,979	)			284,967
Assets			27,524,144				3,254,896				18,255,491				6,310,327				55,344,858
Purchase of property and equipment			49,582				21,463				89,561				7,154				167,760

 

  

		As of, and for the Six Months Ended, October 31, 2017
		Washington				South Dakota				Nevada				Corporate				Total
Net revenues		$	27,092,442			$	4,072,839			$	6,803,466			$	-			$	37,968,747
Casino and food and beverage expense			14,702,652				3,523,306				4,084,651				-				22,310,609
Marketing, administrative and corporate expense			8,626,427				233,322				1,722,736				1,331,361				11,913,846
Facility and other expenses			886,400				45,118				157,910				-				1,089,428
Depreciation and amortization			346,879				202,365				746,995				13,345				1,309,584
Operating income (loss)			2,524,498				68,849				91,174				(1,344,706	)			1,339,815
Assets			27,898,267				1,830,836				16,461,792				4,355,118				50,546,013
Purchase of property and equipment			357,840				107,033				78,170				22,562				565,605

 

		As of, and for the Six Months Ended, October 31, 2016
		Washington				South Dakota				Nevada				Corporate				Total
Net revenues		$	26,264,288			$	4,149,231			$	6,293,145			$	-			$	36,706,664
Casino and food and beverage expense			14,220,502				3,535,487				3,889,146				-				21,645,135
Marketing, administrative and corporate expense			8,161,153				235,980				2,037,023				1,520,869				11,955,025
Facility and other expenses			960,930				69,610				156,889				-				1,187,429
Depreciation and amortization			486,623				312,657				738,662				12,080				1,550,022
Operating income (loss)			2,434,870				(13,168	)			(533,616	)			(1,532,949	)			355,137
Assets			27,524,144				3,254,896				18,255,491				6,310,327				55,344,858
Purchase of property and equipment			239,100				21,463				507,126				55,188				822,877

 

Item 2.   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 condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report for the year ended April 30, 2017, filed on Form 10-K with the SEC on July 27, 2017.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements. We prepare these financial statements in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. 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. On an on-going basis, we evaluate our estimates; however, actual results may differ from these estimates under different assumptions or conditions. There have been no material changes or developments in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies and Estimates as disclosed in our Annual Report for the year ended April 30, 2017, filed on Form 10-K with the SEC on July 27, 2017.

 

Executive Overview

 

We were formed in 1977 and, since 1994, have primarily been a gaming company involved in financing, developing, owning and operating gaming properties. Our gaming facility operations are located in the United States of America (“U.S.”), specifically in the states of Nevada, Washington and South Dakota. Our business strategy will continue to focus on owning and operating gaming establishments. If we are successful, our future revenues, costs and profitability can be expected to increase. However, there is no guarantee that we will be successful in implementing our business strategy in the future and, as such, no guarantee that our future revenues, costs and profitability will increase.

 

  

Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. Additionally, our operating results may be affected by, among other things, overall economic conditions affecting the disposable income of our guests, weather conditions affecting our properties, achieving and maintaining cost efficiencies, competitive factors, gaming tax increases and other regulatory changes, the commencement of new gaming operations and construction at existing facilities. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of future periods’ results.

 

COMPARISON OF THE THREE MONTHS ENDED OCTOBER 31, 2017 AND OCTOBER 31, 2016

 

Net revenues. Net revenues were $19.5 million for the three months ended October 31, 2017, and $18.5 million for the same period ended October 31, 2016. The increase is primarily due to the $0.7 million, or 7%, increase in table game revenue at our Washington properties due to an increase in both play and hold percentage, and a $0.3 million, or 11%, increase in casino revenue at Club Fortune compared to last year when we were impacted by road construction. Also, by consolidating four of our Washington property’s poker play to a single property, total poker revenue increased 7% over the prior year’s quarter. South Dakota’s revenues remained relatively steady compared to the prior year’s quarter despite having an average 32 fewer slot machines due to the August 29, 2017 closure of a property where our slot route had machines.

 

Total operating expenses. Total operating expenses were $18.5 million for the three months ended October 31, 2017, compared to $18.2 million in the same period ended October 31, 2016. Casino expenses increased $0.2 million, or 2%, primarily resulting from Washington’s minimum wage increase. Food and beverage expenses increased $0.2 million, or 12%, also due to Washington’s minimum wage increase and food specials at Club Fortune. Depreciation and amortization expenses decreased $0.2 million due to Washington’s $0.1 million decrease from prior year as certain customer relationship intangibles are now fully amortized, and South Dakota’s $0.1 million decrease from prior year as certain assets became fully depreciated. Marketing and administrative, corporate, as well as facility and other expenses remained relatively steady when compared to the same period last year.

 

Non-operating income (expense). Total non-operating expense increased $40,084 for the three months ended October 31, 2017, compared to the same period ended October 31, 2016, primarily due to the increase in the swap fair value.

 

Income taxes. For the three months ended October 31, 2017 and 2016, our effective tax rates were 29% and 32%, respectively.  The difference between the federal statutory rate of 34% and the 2018 fiscal year to date’s effective tax rate is primarily due to general business credits.

 

COMPARISON OF THE SIX MONTHS ENDED OCTOBER 31, 2017 AND OCTOBER 31, 2016

 

Net revenues. Net revenues were $38.0 million for the six months ended October 31, 2017, and $36.7 million for the same period ended October 31, 2016. The increase is due to the $0.8 million, or 3%, increase in net revenue at our Washington properties due to an increase in both play and hold percentage, and a $0.5 million, or 8%, increase in net revenue at Club Fortune compared to last year when we were impacted by road construction and restaurant renovations. South Dakota revenues decreased $0.1 million compared to the same period last year as a result of fewer machines in operation due to repairs, renovations and a property closure in the current year.

 

Total operating expenses. Total operating expenses were $36.6 million for the six months ended October 31, 2017, compared to $36.4 million in the same period ended October 31, 2016. Casino expenses increased $0.4 million, or 2%, when compared to the same period last year primarily due to Washington’s minimum wage increase. Food and beverage expenses increased $0.2 million, or 8%, also due to Washington’s minimum wage increase and food specials at Club Fortune. Corporate expense decreased $0.2 million primarily due to Club Fortune acquisition expenses incurred last year. Depreciation and amortization decreased by $0.2 million due to certain Washington customer relationship intangibles that are now fully amortized and certain South Dakota assets that are now fully depreciated. Facility and other expenses remained relatively steady when compared to the same period last year.

 

Non-operating income (expense). Total non-operating expense remained relatively steady for the six months ended October 31, 2017, as compared to the six months ended October 31, 2016.

 

Income taxes. For the six months ended October 31, 2017 and 2016, our effective tax rates were 30% and 31%, respectively.  The difference between the federal statutory rate of 34% and the current year’s effective tax rate is primarily due to general business credits.

 

  

Non-GAAP Financial Measures

 

The term “adjusted EBITDA” is used by us in presentations, quarterly earnings calls, and other instances as appropriate. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, change in swap fair value, goodwill and other long-lived asset impairment charges, write-offs of project development costs, acquisition costs, litigation charges, non-cash stock grants, non-cash employee stock purchase plan discounts, amortization of deferred rent, net income or loss from assets held for sale, and net losses/gains from asset dispositions. Adjusted EBITDA is presented because it is a required component of financial ratios reported by us to our lenders, and it is also frequently used by securities analysts, investors, and other interested parties, in addition to and not in lieu of GAAP results, to compare to the performance of other companies that also publicize this information.

 

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

 

The following tables show adjusted EBITDA by operating unit:

 

		Adjusted EBITDA
For the three months ended:		Washington				South Dakota				Nevada				Corporate				Total
October 31, 2017		$	1,729,313			$	180,342			$	393,026			$	(629,138	)		$	1,673,543
October 31, 2016		$	1,521,273			$	212,866			$	65,261			$	(640,779	)		$	1,158,621

 

		Adjusted EBITDA
For the six months ended:		Washington				South Dakota				Nevada				Corporate				Total
October 31, 2017		$	2,879,343			$	271,093			$	845,678			$	(1,268,524	)		$	2,727,590
October 31, 2016		$	2,950,755			$	308,155			$	210,086			$	(1,294,938	)		$	2,174,058

 

Net income reconciliation to Adjusted EBITDA:

 

		For the three months ended
		October 31, 2017				October 31, 2016
Net income		$	638,977			$	150,022
Adjustments:
Net interest expense and change in swap fair value			104,187				64,103
Income tax expense			260,303				70,842
Depreciation and amortization			598,148				773,510
Stock compensation			69,138				85,143
Loss on sale of assets			5,465				5,546
Amortization of deferred rent			(2,675	)			9,455
Adjusted EBITDA		$	1,673,543			$	1,158,621

 

  

		For the six months ended
		October 31, 2017				October 31, 2016
Net income		$	762,978			$	50,450
Adjustments:
Net interest expense and change in swap fair value			256,202				281,833
Income tax expense			320,635				22,854
Depreciation and amortization			1,309,584				1,550,022
Acquisition expenses			-				113,900
Stock compensation			74,678				119,128
Loss on sale of assets			5,465				13,916
Amortization of deferred rent			(1,952	)			21,955
Adjusted EBITDA		$	2,727,590			$	2,174,058

 

Liquidity and Capital Resources

 

Historical Cash Flows

 

The following table sets forth our consolidated net cash provided by (used in) operating, investing and financing activities for the six months ended October 31, 2017 and 2016:

 

		Six Months Ended
		October 31, 2017				October 31, 2016
Net cash provided by (used in):
Operating activities		$	2,697,377			$	976,006
Investing activities		$	(375,769	)		$	(317,291	)
Financing activities		$	(3,394,141	)		$	(2,004,109	)

 

Operating activities. Net cash provided by operating activities during the six months ended October 31, 2017, increased by $1.7 million over the comparable period in the prior fiscal year. The increased operating cash flow primarily resulted from the $0.7 million increase in operating income before depreciation and amortization and a decrease in working capital (excluding cash).

 

Investing activities. Net cash used in investing activities during the six months ended October 31, 2017, increased by $0.1 million compared to the prior fiscal year primarily due to a $0.3 million decrease in collections on notes receivable, partially offset by a decrease in purchase of property and equipment.

 

Financing activities. Net cash used in financing activities during the six months ended October 31, 2017, increased $1.4 million over the comparable period in the prior fiscal year. The increase mainly resulted from the $1.4 million increase in the purchase of treasury stock.

 

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 operations;

- treasury stock purchases;

- working capital requirements;

- obtaining debt financing; and

- debt service requirements.

 

In July 2016, our board of directors approved a $2.0 million stock repurchase program to purchase our common stock in the open market or in privately negotiated transactions from time to time, subject to market conditions, applicable legal requirements, loan covenants and other factors. The repurchase plan does not obligate the Company to acquire any specified number or value of common stock. On July 12, 2017, the board of directors authorized an additional $2.0 million for future stock purchases, either in the open market or in private transactions. During the three months ended October 31, 2017, the Company repurchased 32,657 shares at a weighted average price of $2.32 per share, costing $76,963 (including commissions). During the six months ended October 31, 2017, the Company repurchased 788,301 shares at a weighted average price of $2.16 per share, costing $1,701,597 (including commissions).

 

  

As of October 31, 2017, we have $7.3 million available to borrow per the Credit Agreement. Principal reductions due on the Credit Facility are as follows:

 

November 1, 2017 – October 31, 2018		$	-
November 1, 2018 – October 31, 2019			-
November 1, 2019 – October 31, 2020			-
November 1, 2020 – November 30, 2020			10,600,000
Total payments			10,600,000
Unamortized debt discount			(189,690	)
Total long-term debt		$	10,410,310

 

On October 31, 2017, excluding restricted cash of $2,043,806, we had cash and cash equivalents of $9,559,370. The restricted cash consists of funds for player supported jackpots for our Washington operations.

 

Washington state increased the state minimum wage to $11.00 per hour effective January 1, 2017. The minimum wage is scheduled to increase to $11.50 in 2018, $12.00 in 2019, $13.50 in 2020 and would thereafter be indexed to inflation. The company estimates the passage of the proposal impacted its Washington payroll expense by $0.4 million in this second quarter. However, due to implementing several changes to mitigate the overall financial impact of this change, Washington’s second quarter payroll increased over prior year by only $0.3 million.

 

Our condensed consolidated financial statements have been prepared assuming that we will have adequate availability of cash resources to satisfy our liabilities in the normal course of business. We have made arrangements to ensure that we have sufficient working capital to fund our obligations as they come due. We believe that funds from operations will provide sufficient working capital for us to meet our obligations as they come due; however, there can be no assurance that we will be successful. Should cash resources not be sufficient to meet our current obligations as they come due, repay or refinance our long-term debt, and acquire operations that generate positive cash flow, we would be required to curtail our activities and maintain, or grow, at a pace that cash resources could support.

 

Off-Balance Sheet Arrangements

 

None.

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 

Item 4.   Controls and Procedures

 

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 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 President and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

 

In accordance with Rules 13a-15 and 15d-15 of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our President and CFO, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. As a result of our evaluation, we concluded that our disclosure controls and procedures were effective as of October 31, 2017.

 

Changes in internal controls over financial reporting. There have not been any changes in our control over financial reporting during the three months ended October 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II. Other Information

 

Item 1.   Legal Proceedings

 

We are not currently involved in any material legal proceedings.

 

  

Item 1A. Risk Factors

 

There have been no material changes in our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2017, filed with the SEC on July 27, 2017.

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.   Defaults Upon Senior Securities

 

None.

 

Item 4.   Mine Safety Disclosures

 

Not applicable.

 

Item 5.   Other Information

 

None.

 

Item 6.   Exhibits

 

See the Index to Exhibits following the signature page hereto for a list of the exhibits filed pursuant to Item 601 of Regulation S-K

 

INDEX TO EXHIBITS

 

EXHIBIT NUMBER		DESCRIPTION
10.1		First Amendment to Asset Purchase Agreement between Colorado Grande Enterprises, Inc., as seller, and G Investments, LLC, as purchaser (filed previously as Exhibits 10.1 to the Company’s Form 8-K filed May 29, 2012).
10.2		Credit Agreement dated December 10, 2013 by and among Mutual of Omaha Bank, as the Lender, Nevada Gold & Casinos, Inc., as parent, and Restricted Subsidiaries, as borrower (filed previously as Exhibits 10.9 to the Company’s Form 10-Q filed December 23, 2013).
10.3		Amended and Restated Credit Agreement dated November 30, 2015 by and among Mutual of Omaha Bank, as the Lender, Nevada Gold & Casinos, Inc., as parent, and Restricted Subsidiaries, as borrower (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed December 3, 2015).
10.4		Asset Purchase Agreement between Gaming Ventures of Las Vegas, Inc., as seller, and Nevada Gold & Casinos LV, LLC, as buyer (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed May 22, 2015).
10.5		First Amendment to Option Agreement dated April 22, 2016 between the Company and Clear Creek Development Company (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed April 25, 2016).
31.1(*)		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2(*)		Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(*)		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(*)		Certification Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS(*)		XBRL Instance Document
101.SCH(*)		XBRL Taxonomy Schema
101.CAL(*)		XBRL Taxonomy Calculation Linkbase
101.DEF(*)		XBRL Taxonomy Definition Linkbase
101.LAB(*)		XBRL Taxonomy Label Linkbase
101.PRE(*)		XBRL Taxonomy Presentation Linkbase

 

* Filed herewith.

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

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: December 14, 2017

  

	Nevada Gold & Casinos, Inc.
	By:	/s/ James D. Meier
	James D. Meier Chief Financial Officer (Principal Financial Officer)