UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal period ended December 31, 2003
[ ] 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 0-8927
NEVADA GOLD & CASINOS, INC.
(Name of issuer in its charter)
Nevada 88-0142032
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
3040 Post Oak Blvd.
Suite 675 Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713) 621-2245
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
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) [ ] Yes [X] No
The number of common shares outstanding was 11,994,652 as of February 17,
2004.
The Registrant hereby amends the following items, financial statements,
exhibits, or other portions of this Quarterly Report on Form 10Q/A for the Three
and Nine Months Ended December 31, 2003 and December 31, 2002 as set forth in
the attached pages and described in more detail in Note 2 to the consolidated
financial statements.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 (RESTATED) AND
MARCH 31, 2003 ...................................................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED DECEMBER 31, 2003 (RESTATED) AND 2002 .................................. 4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED DECEMBER 31, 2003 (RESTATED) AND 2002 .................................. 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED DECEMBER 31, 2003 (RESTATED) AND 2002 .................................. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................ 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 29
ITEM 4. CONTROLS AND PROCEDURES................................................................ 29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ..................................................................... 30
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................. 30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................................ 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................... 30
ITEM 5. OTHER INFORMATION...................................................................... 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................... 31
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2003 2003
------------ -------------
(Restated) (Audited)
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,409,181 $ 3,968,146
Notes receivable 1,200,000 -
Accounts receivable 608,252 187,882
Income tax refundable 1,500,000 -
Other receivable 79,898 2,125
------------ -------------
TOTAL CURRENT ASSETS 5,797,331 4,158,153
------------ -------------
Joint ventures in equity investees:
Isle of Capri-Black Hawk, L.L.C 14,411,761 8,633,782
Route 66 Casinos, L.L.C., net 1,385,252 789,473
Restaurant Connections International, Inc. - -
Sunrise Land and Minerals Corporation, land development 371,750 371,750
Investment in development projects:
Dry Creek Casino, L.L.C., credit enhancement fee 1,216,580 3,065,281
Gold Mountain Development, L.L.C., land development 3,272,287 659,897
Goldfield Resources, Inc., mining interest 480,812 480,812
Note receivable from Dry Creek Rancheria 10,000,000 28,334,437
Note receivable from affiliates, net of current portion 4,115,122 6,150,552
Note receivable - other - 3,339,060
Deferred loan issue costs, net 357,152 1,544,433
Other assets 891,779 236,416
Furniture, fixtures, and equipment, net of accumulated depreciation of
$165,381 and $130,653 at December 31, 2003 and March 31, 2003, respectively 47,485 43,399
------------ -------------
TOTAL ASSETS $ 42,347,311 $ 57,807,445
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,081,535 $ 882,388
Accrued interest payable - 314,829
Deferred income tax liability 2,574,270 388,113
Accrued states income taxes 300,000 -
Current portion of long term debt - 1,932,072
------------ -------------
TOTAL CURRENT LIABILITIES 3,955,805 3,517,402
------------ -------------
LONG TERM LIABILITIES
Deferred income 208,333 1,014,729
Notes payable, net of current portion and discount 10,985,958 34,207,276
------------ -------------
TOTAL LONG TERM LIABILITIES 11,194,291 35,222,005
------------ -------------
TOTAL LIABILITIES 15,150,096 38,739,407
------------ -------------
MINORITY INTEREST - DRY CREEK CASINO, L.L.C 280,301 360,450
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $0.12 par value, 20,000,000 shares authorized, 11,969,652 and
11,149,772 shares issued and outstanding at December 31, 2003 and March 31,
2003, respectively 1,436,358 1,337,973
Additional paid in capital 17,457,395 15,201,794
Retained earnings 8,403,470 2,737,399
Accumulated other comprehensive loss (380,309) (569,578)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 26,916,914 18,707,588
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,347,311 $ 57,807,445
The accompanying notes are an integral part of these consolidated financial
statements.
3
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
-------------------------------
2003 2002
------------ ------------
(Restated)
REVENUES
Gaming Assets Participations:
Dry Creek Casino, L.L.C $ 867,718 $ -
Other income:
Interest income 1,795,659 875,418
Royalty income 16,903 13,500
Miscellaneous income - 10,155
------------ ------------
TOTAL REVENUES 2,680,280 899,073
------------ ------------
EXPENSES
General and administrative 295,602 145,867
Interest expense 747,775 716,824
Salaries 333,263 251,083
Legal and professional fees 239,720 327,028
Amortization of deferred loan issue cost 967,124 153,215
Other 50,789 26,281
------------ ------------
TOTAL EXPENSES 2,634,273 1,620,298
------------ ------------
EQUITY IN EARNINGS OF ISLE OF CAPRI-BLACK HAWK 2,457,760 2,385,455
EQUITY IN EARNINGS OF ROUTE 66 CASINOS, L.L.C 418,351 25,974
MINORITY INTERESTS - DRY CREEK CASINO, L.L.C (127,156) (19,102)
------------ ------------
Income before income tax provision 2,794,962 1,671,102
Federal income tax provision - deferred (986,675) (589,836)
------------ ------------
NET INCOME $ 1,808,287 $ 1,081,266
============ ============
PER SHARE INFORMATION
Net income per common share - basic $ 0.16 $ 0.10
============ ============
Net income per common share - diluted $ 0.12 $ 0.08
============ ============
Basic weighted average number of
common shares outstanding 11,660,023 11,078,731
============ ============
Fully diluted weighted average number of
common shares outstanding 15,189,664 15,550,993
============ ============
4
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
December 31,
-------------------------------
2003 2002
------------ ------------
(Restated)
REVENUES
Gaming Assets Participations:
Dry Creek Casino, L.L.C $ 2,576,926 $ -
Other income:
Interest income 4,348,959 1,870,221
Gain on land sales - 589,916
Royalty income 45,537 36,500
Miscellaneous income 34,975 39,207
------------ ------------
TOTAL REVENUES 7,006,397 2,535,844
------------ ------------
EXPENSES
General and administrative 667,028 385,477
Interest expense 2,809,681 1,623,891
Salaries 893,418 690,527
Legal and professional fees 1,082,037 529,900
Amortization of deferred loan issue cost 960,084 432,397
Write-off of capitalized development cost 23,403 238,437
Other 119,675 94,668
------------ ------------
TOTAL EXPENSES 6,555,326 3,995,297
------------ ------------
EQUITY IN EARNINGS OF ISLE OF CAPRI-BLACK HAWK 7,948,208 7,295,732
EQUITY IN EARNINGS OF ROUTE 66 CASINOS, L.L.C 636,625 61,301
MINORITY INTERESTS - DRY CREEK CASINO, L.L.C (396,080) (73,475)
------------ ------------
Income before income tax provision 8,639,824 5,824,105
Federal income tax provision - deferred (2,973,753) (1,697,933)
------------ ------------
NET INCOME $ 5,666,071 $ 4,126,172
============ ============
PER SHARE INFORMATION
Net income per common share - basic $ 0.50 $ 0.38
============ ============
Net income per common share - diluted $ 0.39 $ 0.29
============ ============
Basic weighted average number of
common shares outstanding 11,361,669 10,919,171
============ ============
Fully diluted weighted average number of
common shares outstanding 15,403,212 15,352,104
============ ============
5
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31,
-------------------------------
2003 2002
------------ ------------
(Restated)
CASH FLOWS - OPERATING ACTIVITIES:
Net income $ 5,666,071 $ 4,126,172
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 16,950 23,894
Options issued to consultants 77,500 -
Warrants issued and amortization of beneficial conversion
and costs associated with notes payable 1,189,261 623,521
Amortization of capitalized development cost 164,227 -
Amortization of deferred income (975,494) (65,636)
Gain on sales of land - (589,916)
Write-off of capitalized development cost 23,403 238,437
Equity in earnings of Isle of Capri-Black Hawk (7,948,208) (7,295,732)
Cash distribution from Isle of Capri-Black Hawk 2,457,000 4,488,000
Equity in earnings of Route 66 Casinos, L.L.C. (636,625) (61,301)
Deferred income tax expense 2,973,753 1,697,933
Minority interest - Dry Creek Casino, L.L.C. 396,080 73,475
Changes in operating assets and liabilities:
Receivables and other assets (2,817,983) (1,711,067)
Accounts payable and accrued liabilities 154,858 779,153
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 740,793 2,326,933
------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Net proceeds from the sales of land - 3,611,200
Purchases of real estate and assets held for development (1,042,808) (1,030,133)
Purchase of furniture, fixtures and equipment (21,036) (17,889)
Advances on note receivable - Dry Creek Rancheria (4,089,855) (17,500,409)
Collections of note receivable - Dry Creek Rancheria 22,558,684 --
Advances on note receivable - other -- (32,129)
Collections of note receivable - other 3,339,060 --
Advances on note receivable - affiliate (64,570) (4,688,927)
Collections on note receivable - affiliate 900,000 5,721,216
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,579,475 (13,937,071)
------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Proceeds from debt - 12,888,086
Deferred loan issue costs (244,587) (394,913)
Acquisition and retirement of common stock - (402,820)
Dry Creek Casino, L.L.C. capital contribution 75,000 5,250
Common stock issued for cash 457,320 384,120
Cash distribution to minority partners (551,229) -
Payments on debt (23,615,737) (16,866)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (23,879,233) 12,462,857
------------ ------------
Net increase (decrease) in cash (1,558,965) 852,719
Beginning cash balance 3,968,146 1,021,913
------------ ------------
Ending cash balance $ 2,409,181 $ 1,874,632
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 3,085,010 $ 1,523,586
Cash paid for income taxes $ 1,500,000 $ -
6
NEVADA GOLD & CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS
We are primarily a developer of gaming properties.
Isle of Capri Black Hawk, L.L.C.
We are a 43% non-operating owner of Isle of Capri Black Hawk, L.L.C.
("IC-BH") with Isle of Capri Casinos, Inc. ("Isle"). In April 2003, IC-BH
completed the acquisition of the Colorado Central Station Casino and Colorado
Grande Casino for $84 million. Also, to replace its existing credit facility,
IC-BH entered into a new $210.7 million senior secured credit facility to
provide financing for the acquisition of the casinos and for expansion. IC-BH
now owns and operates three casinos in Colorado (referred to collectively as the
"Casinos"). Isle manages the Casinos under an agreement for a fee based upon a
percentage of the casino's revenues and operating profit. IC-BH's gaming
properties are:
- the Isle of Capri - Black Hawk Casino and hotel located in Black
Hawk, Colorado;
- the Colorado Central Station Casino located in Black Hawk, Colorado;
and
- the Colorado Grande Casino located in Cripple Creek, Colorado.
The Isle of Capri - Black Hawk Casino has a 101,000-square-foot floor
plate, and is strategically located at the entrance to Black Hawk. The Casino
features 1,123 slot machines, 14 table games, three restaurants, an event
center, and a 1,100-space covered parking garage. A 237-room hotel is on top of
the casino.
Colorado Central Station Casino is located across from the Isle of Capri -
Black Hawk Casino. Colorado Central Station casino has a total facility area of
46,250 square feet, features 754 gaming machines, 15 table games, a full service
restaurant, a buffet, two casino bars, and 700 parking spaces.
Colorado Grande Casino is located at a primary intersection, near the
center of the Cripple Creek market. Colorado Grande Casino's gaming area totals
3,125 square feet and offers 219 gaming machines. Colorado Grande Casino does
not offer table play.
In January 2004, a $95 million construction project commenced to expand
and connect the Isle of Capri - Black Hawk and the Colorado Central Station
casino and hotel properties scheduled for completion in December 2005.
Dry Creek Casino, L.L.C.
Dry Creek Casino, L.L.C. of which we own 69%, was formed to assist the Dry
Creek Rancheria Band of Pomo Indians ("tribe") with the development and
financing of its River Rock Casino located approximately 75 miles north of the
San Francisco Bay area, in Sonoma County, California. The casino features 1,600
slot machines, 16 table games, and two restaurants. As of December 31, 2003, we
had a note receivable of $10 million from Dry Creek Casino, L.L.C, which loaned
such funds to the River Rock Casino, and we guaranteed equipment financing and
operating leases of approximately $1 million. Under the development and loan
agreement, Dry Creek Casino, L.L.C. began earning 20% of River Rock Casino's
earnings before taxes (if any), depreciation, and amortization ("credit
enhancement fees") for five years, starting June 1, 2003 and ending on May 31,
2008.
In November 2003, the River Rock Entertainment Authority borrowed $200
million to repay a majority of the tribe's indebtedness, to fund the completion
of three parking structures and related infrastructure improvements, and to fund
the settlement of litigation involving the tribe. In connection therewith, the
River Rock Casino (i) reduced the $32.6 of indebtedness owed to the Dry Creek
Casino, L.L.C. to $10 million, and the Dry Creek Casino, L.L.C. reduced the
$31.1 of indebtedness owed to us to $10 million, (ii) paid the accrued credit
enhancement fee through October 2003 to the Dry Creek Casino, L.L.C. in the
amount of $2.2 million, and (iii) paid accrued interest through November 7, 2003
to the Dry Creek Casino, L.L.C. in the amount of $1.1 million. As part of River
Rock Casino's repayment of indebtedness, our guarantees with respect to River
Rock Casino's indebtedness were reduced from $13.3 million to $1 million as of
December 31, 2003. The $10 million loan from the Dry Creek Casino, L.L.C. to the
River Rock Casino has been amended with interest payable monthly at a rate of 9%
per annum and will
7
mature upon the earlier of (i) the completion of the River Rock Casino parking
structures, if such loan proceeds are not needed to fund parking structures
(anticipated to occur in late 2004), or (ii) if the amount of such loan is
needed to complete such construction, the balance of the loan will be repaid
from River Rock Casino's excess cash flow, (anticipated to begin in 2005). An
identical loan agreement was entered into between us and the Dry Creek Casino,
L.L.C. Certain of the debt proceeds were used by the River Rock Casino to settle
its litigation with a prior developer which resulted in settlement of the
related lawsuit filed by such prior developer against us and the Dry Creek
Casino, L.L.C.
Route 66 Casinos, L.L.C.
Route 66 Casinos, L.L.C. ("Route 66"), of which we are a 51% owner, was
formed to assist the Laguna Development Corporation (the "LDC"), a federally
chartered corporation which is wholly-owned by the Pueblo of Laguna tribe with
the design and development of a casino located in New Mexico ("Route 66
Casino"). In exchange for its service, Route 66 has the exclusive right to lease
gaming equipment to the LDC for a period of five years for the Route 66 Casino.
On September 4, 2003, the Route 66 Casino opened. The gaming equipment
agreements include a five-year contract for 1,250 gaming devices to be placed in
the Route 66 Casino, a one-year contract for 100 gaming devices in LDC's Rio
Puerco temporary casino, and a contract that runs through February 2004 for 45
gaming devices in LDC's existing Dancing Eagle Casino. We are currently in
arbitration and litigation with the other member of Route 66 as discussed in
Part II, Item 1. To date, we have received no cash distributions for the
venture. Amounts have been recorded based on financial information made
available to us. Upon settlement of our arbitration and litigation with the
other member, the amounts accrued as both income and expense may differ
substantially thus requiring an adjustment to the estimated amounts currently
recorded. These adjustments may be material to the financial statements.
Other Assets
We and/or our subsidiaries own interests in undeveloped real estate,
restaurant franchises, and gold mining claims.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements included herein have been prepared by us, without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the results for the interim periods on
a basis consistent with the annual audited consolidated financial statements.
All such adjustments are of a normal recurring nature. The results of operations
for the interim periods are not necessarily indicative of the results to be
expected for an entire year. Certain information, accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although we believe that all disclosures
are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with our audited consolidated financial
statements included in our Annual Report on Form 10-K for the year ended March
31, 2004.
CHANGES IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS - We have determined
that our investment in Route 66 Casinos, L.L.C. should be accounted for using
the equity method because our venture partner continues to control the operating
activities of the venture, even though such is, in the opinion of management, a
breach of the operating agreement. This accounting treatment will continue until
a final resolution of the dispute is reached. Accordingly, amounts previously
recorded as Route 66 Casinos, L.L.C - revenues, Route 66 Casinos, L.L.C. -
expenses, and minority interest - Route 66 Casinos, L.L.C. have been netted and
recorded as equity in earnings of Route 66, Casinos, L.L.C. and certain balance
sheet accounts have been netted and recorded as investment in Route 66 Casinos,
L.L.C.
Also, during the year ended March 31, 2004, and subsequent to the issuance
of the Company's financial statements as of March 31, 2003, it was determined
that the beneficial conversion feature of the Company's convertible credit
facility and certain warrants and options had not been appropriately valued and
accounted for. The following describes the appropriate accounting and the
changes made to the Company's financial statements as of and for the three
months ended December 31, 2003.
Credit Facility Conversion Feature and Certain Warrants. In the fiscal
year ended March 31, 1999, the Company entered into a $7 million credit
facility, which was amended in the fiscal year ended March 31, 2002 to increase
the facility to $13 million (the "Credit Facility"). A portion of the principal
balance of the Credit Facility
8
was convertible into common stock from time to time at the option of the holder.
The intrinsic value of the conversion feature of the Credit Facility normally is
characterized as a beneficial conversion feature. The Company determined the
value of the beneficial conversion feature of cumulative drawdowns under the
Credit Facility to be an aggregate of $1.4 million and was recorded as an
adjustment to additional paid in capital. Principal of the Credit Facility was
drawn down beginning in the fiscal year ended March 31, 1999 and continuing
through the fiscal year ended March 31, 2002. Accordingly, the Company
discounted the balance of the Credit Facility as of the date of each drawdown
and are amortizing the beneficial conversion feature associated with each
drawdown from the date of each drawdown to the maturity date of the Credit
Facility.
In the fiscal years ended March 31, 2000, March 31, 2001 and March 31,
2002 multiple warrants were issued to a financial advisor instrumental in
securing the Credit Facility (collectively, the "Warrants"). Each Warrant was
immediately vested and exercisable upon issuance. The Company ascribed an
estimated fair value of the Warrants in the aggregate amount of $1.7 million and
was recorded as an adjustment to additional paid in capital. Accordingly, the
Company capitalized deferred loan issue costs as of the date of issuance of each
Warrant and such costs are being amortized from the date of each issuance to the
maturity date of the Credit Facility.
It was also determined that, in the calculation of the diluted weighted
average number of common shares outstanding, certain convertibility restrictions
imposed by the Credit Facility on the lender and certain exercise restrictions
imposed on the Warrants had been interpreted as more restrictive than they
actually were, resulting in an overstatement of diluted earnings per share
beginning in the fiscal year ended March 31, 2000.
Accordingly, the accompanying consolidated statements of operations and
cash flows for three and nine months ended December 31, 2003 and the
consolidated balance sheet as of December 31, 2003 has been restated from
amounts previously reported to correct the accounting for these transactions.
The Company has recorded a beneficial conversion feature (debt discount)
associated with its Credit Facility and deferred loan issue costs associated
with the Warrants. Amortization of the debt discount is being accounted for
using the effective interest method and is being charged to interest expense.
The deferred loan issue costs are being amortized over the life of the Credit
Facility on a straight line basis and are being charged to amortization of
deferred loan issue cost expenses.
For the three and nine months ended December 31, 2003, interest expense
increased by $442,561 and $229,177, respectively, due to the amortization of the
debt discount. For the same periods, deferred loan cost expense increased
(decreased) by $151,771 and $(4,218), respectively. The increase during the
three months ended December 31, 2003 is due to the amortization of deferred loan
costs. The decrease during the nine months ended December 31, 2003 is due to the
amortization of deferred loan costs expense of $151,771 and $265,339 for the
three and nine months ended December 31, 2003 offset by the reversal of $269,557
of deferred loan cost expense recorded during the three month period ended
September 30, 2003 related to warrants forfeited during that period. For the
three and nine month periods ended December 31, 2003, the federal income tax
provision increased (decreased) by $(51,601) and $1,434, respectively, related
to the tax effect of the amortization of deferred loan issue costs.
Certain Options and Warrants. In the fiscal years ending March 31, 2000,
March 31, 2001 and March 31, 2002, certain options and warrants were issued to
other advisors and consultants (collectively, the "Options"). The Options were
immediately vested and exercisable. The Company ascribed a fair value for the
Options in the aggregate amount of $910,000 and was recorded as an adjustment to
additional paid in capital. Costs related to these Options were expensed in the
period granted.
Certain Tax Benefits. The Company determined that certain tax benefits
associated with the exercise of common stock options and warrants that occurred
during the three and nine months ended December 31, 2003 were not considered. As
a result, the amount of the deferred tax liability was overstated and the amount
of additional paid in capital and total stockholders' equity was understated as
of December 31, 2003 by $1.9 million.
9
The impact of the restatement is summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
2003 2003 2003 2003
----------- ---------- ----------- ----------
(AS REPORTED) (RESTATED) (AS REPORTED) (RESTATED)
STATEMENT OF OPERATIONS
Route 66 Casinos, L.L.C. -
Revenues $ 2,100,738 $ - $ 3,217,899 $ -
Interest expense 605,214 747,775 2,580,504 2,809,681
Amortization of deferred
loan issue costs 815,353 967,124 964,302 960,084
Route 66 Casinos, L.L.C. -
expenses 1,280,443 - 1,969,615 -
Total expenses 3,620,384 2,634,273 8,299,982 6,555,326
Equity in Earnings of Route 66
Casinos, L.L.C - 418,351 - 636,625
Minority interests - Route 66
Casinos, L.L.C 401,944 - 611,659 -
Federal income tax provision 1,038,276 986,675 2,972,319 2,973,753
Net income 2,051,018 1,808,287 5,892,464 5,666,071
Net income per common
share - basic $ 0.18 $ 0.16 $ 0.52 $ 0.50
Net income per common
share - diluted $ 0.15 $ 0.12 $ 0.45 $ 0.39
Basic weighed average
Number of common shares
outstanding 11,660,023 11,660,023 11,361,669 11,361,669
Diluted weighed average
Number of common shares
outstanding 13,544,169 15,189,664 13,168,115 15,403,212
DECEMBER 31,
----------------------------
2003 2003
---- ----
(as reported) (restated)
BALANCE SHEET
Deferred loan issue costs $ 118,311 $ 357,152
Investment in Route 66 Casinos,
L.L.C 1,249,352 1,385,252
Total assets 41,891,981 42,347,311
Deferred tax liability 3,654,246 2,574,270
Note payable, net of current
portion and discount 11,233,170 10,985,958
Minority Interest - Route 66
Casinos, L.L.C 1,283,511 -
Additional paid in capital 12,043,602 17,457,395
Retained earnings 10,804,709 8,403,470
Total stockholders' equity 23,904,360 26,916,914
Total liabilities and
stockholders' equity 41,891,981 42,347,311
10
All footnotes, where applicable, have been adjusted to conform to this
restatement.
BASIS OF PRESENTATION - These financial statements are consolidated for
all majority owned subsidiaries for all periods presented. Affiliated companies
in which we do not have a controlling interest or for which control is expected
to be temporary are accounted for using the equity method. All significant
intercompany transactions and balances have been eliminated in the financial
statements.
CASH AND CASH EQUIVALENTS - Interest-bearing deposits and other
investments, with original maturities of three months or less from the date of
purchase, are considered cash and cash equivalents.
EQUITY METHOD OF ACCOUNTING - Our investments in IC-BH, RCI, Route 66
Casinos, L.L.C. and Sunrise Land and Mineral Corporation are accounted for using
the equity method of accounting because the investment gives us the ability to
exercise significant influence, but not control, over the investees. Significant
influence is generally deemed to exist where we have an ownership interest in
the investee of between 20% and 50%, although other factors such as the degree
of ultimate control, representation on the investee's Board of Directors or
similar oversight body are considered in determining whether the equity method
of accounting is appropriate. Although we have an ownership interest of 51% in
Route 66 Casinos, L.L.C., we account for the investment in Route 66 Casinos,
L.L.C. using the equity method because the operating activities of the joint
venture are currently controlled by the minority venturer. We record our equity
in the income or losses of our investees using the same reporting periods
presented herein, except we report our equity in income or losses three months
in arrears for RCI and one month in advance for IC-BH, based upon their
respective fiscal year ends. Sunrise holds approximately 240 acres of land in
California and has no operating activities, thus there has been no equity in
earnings or losses recorded during the three and nine month periods ended
December 31, 2003 and 2002. Deferred tax assets or liabilities are recorded for
allocated earnings or losses of our equity investments that are not currently
reportable or deductible for federal income tax purposes.
IMPAIRMENT OF EQUITY INVESTEES - The Company reviews its investments in
equity investees for impairment whenever events or changes in circumstances
indicate that the carrying amount of the investment may not be recoverable.
Generally our equity investees are evaluated periodically by determining an
estimate of fair value derived from an analysis of undiscounted net cash flow,
replacement cost or market comparison, before interest, and if required the
Company will recognize an impairment loss equal to the difference between its
carrying amount and its estimated fair value. If impairment is recognized, the
reduced carrying amount of the asset will be accounted for as its new cost.
Should an impairment occur, the carrying value of our investment in an equity
investee would not be recorded below zero unless there are guaranteed
obligations of the investee or is otherwise committed to provide further
financial support. The process of evaluating for impairment requires estimates
as to future events and conditions, which are subject to varying market and
economic factors, such as reoccurring losses, permanent devaluation of the
underlying long-term assets and intangibles held by the equity investee and
softening industry trends that appear to be irreversible. Therefore, it is
reasonably possible that a change in estimate resulting from judgments as to
future events could occur which would affect the recorded amounts. As of
December 31, 2003 management believes that no impairment exists based upon
periodic reviews. No impairment losses have been recorded for the three and nine
months ended December 31, 2003 and 2002.
REAL ESTATE HELD FOR DEVELOPMENT - Real estate held for development
consists of undeveloped land located in and around Black Hawk, Colorado and
Nevada County, California. We have capitalized related interest and certain
direct costs of pre-development. Property held for development is carried at the
lower of cost or net realizable value.
CAPITALIZED DEVELOPMENT COSTS - Development costs are recorded on the cost
basis. The costs are amortized over their estimated useful life upon the
execution of a development contract. When accumulated costs on a specific
project exceed the net realizable value of such project or the project is
abandoned, the costs are charged to expense.
FURNITURE, FIXTURES, AND EQUIPMENT - We depreciate furniture, fixtures,
and equipment over their estimated useful lives, ranging from two to seven
years, using the straight-line method. Expenditures for furniture, fixtures, and
equipment are capitalized at cost. When items are retired or otherwise disposed
of, a gain or (loss) is recorded for the difference between net book value and
proceeds realized on the property. Ordinary maintenance and repairs are charged
to expense, and replacements and improvements are capitalized.
DEFERRED LOAN COSTS - Deferred loan costs are comprised of direct costs of
securing financing by the Company. These costs are amortized to expense on a
straight line basis over the underlying life of the debt instrument. At December
31, 2003, deferred loan costs were $2.5 million, net of accumulated amortization
of $2.1 million.
REVENUE RECOGNITION - We record credit enhancement fee income on the
accrual basis as earned. The dates on which credit enhancement fee income is
actually collected is on the 15th day of each following month. It is also
dependent upon the cash flow from River Rock Casino's operation. As of December
31, 2003, there was no delinquency in credit enhancement fee income. We record
revenues from interest income on notes receivable on the accrual basis as
earned. The dates on which interest income is actually collected is dependent
upon the terms of the particular note receivable agreement, and may not
correspond to the date such interest income is recorded. We record royalty
income on the accrual basis as earned. The dates on which royalty income is
actually collected is dependent upon the terms of the contract, and may not
correspond to the date such royalty income is recorded. The amounts of royalty
income that we may earn is dependent upon a Consumer Price Index which may
increase or decrease our royalty income each fiscal year. As of December 31,
2003, there was no delinquency in royalty income.
INCOME TAXES - The asset and liability approach is used 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.
EARNINGS PER SHARE DATA - Basic earnings per common share amounts are
calculated using the average number of common shares outstanding during each
period. Diluted earnings per share assumes the exercise of all stock options
having exercise prices less than the average market price of the common stock
using the "treasury stock method" and for convertible debt securities using the
"if converted method".
STOCK-BASED COMPENSATION - We have adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 - "Accounting for Stock Based
Compensation", as amended by FASB No. 148, "Accounting for Stock Based
Compensation - Transition Disclosures - An Amendment to FASB No. 123". Under
SFAS No. 123, we are
11
permitted to either record expenses for stock options and other employee
compensation plans based on their fair value at the date of grant or to continue
to apply our current accounting policy under Accounting Principles Board,
("APB") Opinion No. 25 "Accounting for Stock Issued to Employees," and recognize
compensation expense, if any, based on the intrinsic value of the equity
instrument at the measurement date. We elected to continue following APB No. 25
and when required to provide the pro forma provisions of SFAS No. 123.
USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. We are
currently in arbitration and litigation with the other member of Route 66 as
discussed in Part II, Item 1. As a result, information presented in our
consolidated financial statements related to Route 66 has been estimated by us.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews its investments in
land development projects for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable in accordance with Statement of Financial Accounting Standards No.
144 ("SFAS No. 144"), "Accounting for the Impairment and Disposal of Long-Lived
Assets". If the carrying amount of the asset, including any intangible assets
associated with that asset, exceeds its estimated undiscounted net cash flow,
before interest, the Company will recognize an impairment loss equal to the
difference between its carrying amount and its estimated fair value. If
impairment is recognized, the reduced carrying amount of the asset will be
accounted for as its new cost. For a depreciable asset, the new cost will be
depreciated over the asset's remaining useful life. Generally, fair values are
estimated using discounted cash flow, replacement cost or market comparison
analyses. As of December 31, 2003, management believes that no impairment exists
based upon periodic reviews. No impairment losses have been recorded for the
three and nine months ended December 31, 2003 and 2002.
CONCENTRATION OF RISK - We are dependent to a large extent upon IC-BH for
our earnings and cash flows from operations. Accordingly, we will be subject to
greater risks than a geographically diversified gaming operation, including, but
not limited to, risks related to local economic and competitive conditions,
complications caused by weather or road closure, road construction on primary
access routes, changes in local and state governmental laws and regulations
(including changes in laws and regulations affecting gaming operations and
taxes) and natural and other disasters.
Any decline in the number of visitors to the Black Hawk Market, a downturn
in the overall economy of the area served by the Black Hawk Market, a decrease
in gaming activities in the Black Hawk Market or an increase in competition
could have a material adverse effect on us.
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.
SUBSTANTIAL LEVERAGE - In April 2003, IC-BH entered into a $210.7 million
senior secured credit facility, which replaced its prior credit facility. The
degree to which IC-BH is leveraged could have important consequences including,
but not limited to, the following: (a) its increased vulnerability to adverse
general economic and industry conditions; (b) the dedication of a substantial
portion of its operating cash flow to the payment of principal and interest of
indebtedness, thereby reducing the funds available for operations and further
development of IC-BH; and (c) its impaired ability to obtain additional
financing for future working capital, capital expenditures, acquisitions or
other general corporate purposes. To date, cash flow from the Isle of Capri -
Black Hawk Casino's operations has been sufficient to pay its debt obligations.
At December 31, 2003, we were leveraged with $11.2 million in corporate
debt and lease guarantees of approximately $1 million for the River Rock Casino.
We also have guaranteed debt of $552,000 for an affiliated company that may
mature during the next fiscal year. To date, cash distributions from IC-BH and
loan repayments from affiliates have been sufficient to satisfy our current debt
obligations. Also, the Dry Creek Casino, L.L.C. began earning credit enhancement
fees from River Rock Casino for five years, starting in June 2003. However, if
the River Rock Casino is closed as a result of such risks as litigation,
governmental inquiries or other reasons beyond our control, or if we are
required to perform on our outstanding guarantees, we may have insufficient cash
flow to satisfy our obligations without raising additional financing. There is
no assurance that we will be able to obtain additional financing if required,
the failure of which could have a material effect on our operations.
COMPREHENSIVE INCOME - Comprehensive income is a board concept of an
enterprise's financial performance that includes all changes in equity during a
period that arise from transaction and economic events from nonowner sources.
Comprehensive income is net income plus "other comprehensive income," which
consists of revenues, expenses, gains and losses that do not affect net income
under accounting principles generally accepted in the United States. Other
comprehensive income for us consists of adjustments to interest rate swaps, net
of tax.
Comprehensive income consisted of the following:
12
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
2003 2002
-----------------------------
Net income $ 1,808,287 $ 1,081,266
Change in fair value of interest rate swaps (17,847) (85,489)
----------- -----------
Comprehensive income $ 1,790,440 $ 995,777
=========== ===========
NINE MONTHS ENDED
DECEMBER 31,
-----------------------------
2003 2002
-----------------------------
Net income $ 5,666,071 $ 4,126,172
Change in fair value of interest rate swaps 189,269 (466,430)
----------- -----------
Comprehensive income $ 5,855,340 $ 3,659,742
=========== ===========
The accumulated comprehensive loss reflected on the balance sheet at
December 31, 2003 and March 31, 2003 consisted solely of the adjustments to
interest rate swaps, net of tax.
RECENT ACCOUNTING PRONOUNCEMENTS - In May 2003, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 150, "Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
clarifies the accounting for certain financial instruments with characteristics
of both liabilities and equity and requires that those instruments be classified
as liabilities in statements of financial position. Previously, many of those
financial instruments were classified as equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. We do not believe that the adoption of SFAS No. 150 will have a
significant impact on our financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement is effective for contracts entered into or modified after June 30,
2003. We did not participate in any applicable activities as of and for the
quarter ended December 31, 2003.
In January 2003, the FASB issued Financial Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." In general, a variable interest
entity is a corporation, partnership, trust, or any other legal entity used for
business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The consolidation requirements of FIN No. 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply to all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. We did not
participate in any applicable activities as of and for the quarter ended
December 31, 2003.
NOTE 3. ISLE OF CAPRI - BLACK HAWK, L.L.C.
We are a 43% non-operating owner of IC-BH which now owns and operates
three casinos in Colorado. Financing for the Isle of Capri - Black Hawk Casino
was initially provided by the IC-BH debt offering of $75 million in 13% First
Mortgage Notes. In December 2001, IC-BH refinanced the $75 million with a new
$90 million
13
credit facility that included two $40 million term loans that were due in five
years and a $10 million line of credit. The average interest on the credit
facility was 6% to 7%. In the fourth quarter of fiscal 2002, IC-BH entered into
interest rate swap agreement that effectively converted $40 million of its
floating rate debt to a fixed-rate basis for the following three years.
In April 2003, in connection with IC-BH's acquisition of the Colorado
Central Station Casino and Colorado Grande Casino from IGT for $84 million,
IC-BH's $90 million senior secured credit facility was increased to $210.7
million to provide financing for the acquisition of the new casinos and for
expansion. The weighted average effective interest rate of total debt
outstanding under the IC-BH's senior secured credit facility at October 26, 2003
was 5.9%.
In January 2004, a $95 million construction project commenced to expand
and connect the Isle of Capri - Black Hawk and the Colorado Central Station
casino and hotel properties scheduled for completion in December 2005.
Our 43% ownership of the IC-BH is accounted for using the equity method of
accounting. Our investment in IC-BH is stated at cost, adjusted for our equity
in the undistributed earnings or losses of the project. IC-BH's undistributed
earnings allocable to us through January 25, 2004 (IC-BH's nine month ended)
totaled $7.9 million which has been included in our statement of operations for
the three months ended December 31, 2003. During the nine months ended December
31, 2003, we received cash distributions of $2.5 million from IC-BH and our
basis in the project through January 25, 2004 is $14,411,761.
14
The following is a summary of condensed financial information pertaining to
IC-BH as of January 25, 2004 and for the nine months ended January 25, 2004:
ISLE OF CAPRI BLACK HAWK, L.L.C.
BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
January 25,
2004
----------
ASSETS
Current assets:
Cash and cash equivalents $ 30,809
Short-term investments 5
Accounts receivable - other 843
Accounts receivable - related parties 31
Deferred income taxes 414
Inventories 604
Prepaid expenses 1,544
----------
TOTAL CURRENT ASSETS 34,250
Property and equipment, net 157,756
Deferred financing costs, net of accumulated amortization 2,762
Restricted cash 48
Goodwill and other intangible assets 35,427
Prepaid deposits and other 417
----------
TOTAL ASSETS $ 230,660
==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 11,786
Accounts payable - trade 1,496
Accounts payable - related parties 2,634
Accrued liabilities:
Interest 1,238
Payroll and related expenses 5,537
Property, gaming and other taxes 5,551
Income taxes 246
Progressive jackpot and slot club awards 3,560
Deferred income tax 142
Other 887
----------
TOTAL CURRENT LIABILITIES 33,077
Long-term debt, less current maturities 151,278
Other liabilities 1,340
Deferred income taxes 328
----------
TOTAL LONG-TERM LIABILITIES 152,946
----------
TOTAL LIABILITIES 186,023
Members' equity:
Members' equity 45,977
Accumulated other comprehensive loss (1,340)
----------
TOTAL MEMBERS' EQUITY 44,637
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 230,660
==========
15
ISLE OF CAPRI BLACK HAWK, L.L.C.
INCOME STATEMENT (UNAUDITED)
(IN THOUSANDS)
Nine Months Ended Nine Months Ended
January 25, 2004 January 26, 2003
---------------- ----------------
Gross revenues $ 151,837 $ 95,513
Total operating expenses 117,984 70,247
---------------- -----------------
Operating income 33,853 25,266
Interest expense, net (8,455) (4,350)
Depreciation and amortization (6,412) (3,949)
---------------- -----------------
Income before income taxes 18,986 16,967
Income tax provision (applicable to two subsidiaries) (502) -
---------------- -----------------
Net income $ 18,484 $ 16,967
================ ==================
The difference in carrying value of our investment in IC-BH and our equity
interest in IC-BH is primarily related to the fact that we originally
contributed appreciated property which was recorded by IC-BH at fair market
value while we continued to carry the property at its original cost basis.
During IC-BH's quarter ended January 25, 2004, IC-BH recorded an other
comprehensive loss of $62,886 related to the interest rate swap transaction. Our
share of the other comprehensive loss was $17,847, net of income taxes of
$9,914.
NOTE 4. NOTES RECEIVABLE
NOTES RECEIVABLE - DRY CREEK RANCHERIA - At December 31, 2003, Dry Creek
Casino, L.L.C. had a note receivable of $10 million from the Dry Creek Rancheria
Band of Pomo Indians for its River Rock Casinos. In November 2003, the River
Rock Entertainment Authority borrowed $200 million to repay a majority of the
tribe's indebtedness, to fund the completion of three parking structures and
related infrastructure improvements, and to fund the settlement of litigation
involving the tribe. In connection therewith, the River Rock Casino reduced the
$32.6 of indebtedness owed to the Dry Creek Casino, L.L.C. to $10 million, and
the Dry Creek Casino, L.L.C. reduced the $31.1 of indebtedness owed to us to $10
million. The $10 million loan from the Dry Creek Casino, L.L.C. to the River
Rock Casino has been amended with interest payable monthly at a rate of 9% per
annum and will mature upon the earlier of (i) the completion of the River Rock
Casino parking structures, if such loan proceeds are not needed to fund the
parking structures (anticipated to occur in late 2004), or (ii) if the amount of
such loan is needed to complete such construction, the balance of the loan will
be repaid from River Rock Casino's excess cash flow (anticipated to begin in
2005).
NOTES RECEIVABLE - AFFILIATES - Clay County Holdings ("CCH") is our
largest shareholder, beneficially owning 21% of our total outstanding common
stock. The President of CCH is a son-in-law of our CEO. We currently have the
option to acquire common stock of Service Interactive ("SI"). At December 31,
2003, CCH owed us $2.6 million which amount bears interest at 12% per annum, and
is payable in a minimum amount of $150,000 plus accrued interest per quarter
until paid in full. At December 31, 2003, SI owed us $2.6
16
million which amount bears interest at 12% per annum, and is payable by in a
minimum amount of $150,000 plus accrued interest per quarter until paid in full.
Both notes are collateralized by a lien on our shares owned by CCH having $16.4
million of market equity value as of December 31, 2003. The outstanding balances
of notes receivable from CCH and SI were reduced by $150,000 and $150,000,
respectively, during the quarter ended December 31, 2003.
NOTE 5. LONG-TERM DEBT
$13 MILLION CREDIT FACILITY - At December 31, 2003, we had a $13 million
long-term credit facility bearing interest at 11% per annum, payable monthly,
with principal maturing on December 24, 2005. The credit facility is secured by
our interest in the IC-BH Casino. Up to 54% of the credit facility is
convertible into shares of our restricted common stock at the rate of $3.00 per
share or 85% of the closing market price at the date of conversion, whichever is
less. This conversion is limited during a twelve month period to an amount not
to exceed 4.99% of our then total issued and outstanding stock. In November,
2003, approximately $1.8 million of principal and accrued interest was converted
into 594,167 shares of our common stock at the price of $3.00 per share reducing
our borrowings to $11.2 million.
Because the credit facility can be converted into the Company's common
stock at the lower of an exchange rate of $3.00 per share or 85% of the closing
market price of the Company's common stock at conversion, there existed a
beneficial conversion to holder of the credit facility when the credit facility
was originally executed. Accordingly, a beneficial conversion amount totaling
$1,392,157 was been recorded as a debt discount. During the quarters ended
December 31, 2003 and 2002, amortization of the debt discount was $142,561, and
$63,708, respectively. During the nine months ended December 31, 2003 and 2002,
amortization of the debt discount was $229,177, and $191,124, respectively. The
total of the unamortized debt discount at December 31, 2003 and March 31, 2003
was $247,212 and $476,388, respectively.
$23 MILLION CREDIT FACILITY - This credit facility was used to satisfy the
$23 million commitment Dry Creek Casino, L.L.C. made to the River Rock Casino.
In November 2003, we fully repaid the $23 million under this credit facility by
using the loan repayment we received from the Dry Creek Casino, L.L.C.
NOTE 6. FEDERAL AND STATES INCOME TAXES
We have recorded a net deferred tax liability in connection with tax
credit and net operating loss carry forwards, compensation expense in connection
with stock options, and for allocated earnings of our equity investments not
currently taxable for federal income tax purposes.
NOTE 7. EQUITY
During the nine months ended December 31, 2003, we granted options to
purchase 260,000 shares of our common stock for directors, employees, and third
party consultants as compensation for services provided. We have recorded
$77,500 as consultant expenses related to options granted to a consultant based
on the estimated fair value of the options on the date of grant. Had
compensation costs for all options issued been determined based on the fair
value at the grant date consistent with the provisions of SFAS No. 123, net
income and net income per share would have decreased to the pro forma amounts
indicated below:
17
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------- --------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income - as reported $ 1,808,287 $ 1,081,266 $ 5,666,071 $ 4,126,172
Less: total stock-based compensation
expense determined under fair value based
method for all awards granted to employees
and directors, net of related income tax effect - - (555,311) -
------------- ------------- ------------- -------------
Net income - pro forma $ 1,808,287 $ 1,081,266 $ 5,110,760 $ 4,126,172
------------- ------------- ------------- -------------
Net income per share - as reported
Basic $ 0.16 $ 0.10 $ 0.50 $ 0.38
Diluted $ 0.12 $ 0.08 $ 0.39 $ 0.29
Net income per share - pro forma
Basic $ 0.16 $ 0.10 $ 0.45 $ 0.38
Diluted $ 0.12 $ 0.08 $ 0.35 $ 0.29
The following is presented as a reconciliation of the numerators and
denominators of basic and diluted earnings per share ("EPS") computations, in
accordance with SFAS No. 128.
THREE MONTHS ENDED DECEMBER 31, 2003
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIC EPS
Income available to common stockholders $1,808,287 11,660,023 $ 0.16
EFFECT OF DILUTIVE SECURITIES
Common stock options and warrants - 2,019,995 (0.03)
Convertible debt 81,620 1,509,646 (0.01)
---------- ---------- --------
FULLY DILUTED EPS
Income available to common stockholders $1,889,907 15,189,664 $ 0.12
========== ========== ========
THREE MONTHS ENDED DECEMBER 31, 2002
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIC EPS
Income available to common stockholders $1,081,266 11,078,731 $ 0.10
EFFECT OF DILUTIVE SECURITIES
Common stock options and warrants - 2,179,001 (0.02)
Convertible debt 125,894 2,293,261 -
---------- ---------- --------
DILUTED EPS
Income available to common stockholders $1,207,160 15,550,993 $ 0.08
========== ========== ========
NINE MONTHS ENDED DECEMBER 31, 2003
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIC EPS
Income available to common stockholders $5,666,071 11,361,669 $ 0.50
EFFECT OF DILUTIVE SECURITIES
Common stock options and warrants - 2,325,606 (0.09)
Convertible debt 277,312 1,715,937 (0.02)
---------- ---------- --------
FULLY DILUTED EPS
Income available to common stockholders $5,943,383 15,403,212 $ 0.39
========== ========== ========
18
NINE MONTHS ENDED DECEMBER 31, 2002
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
BASIC EPS
Income available to common stockholders $4,126,172 10,919,171 $ 0.38
EFFECT OF DILUTIVE SECURITIES
Common stock options and warrants - 2,139,672 (0.06)
Convertible debt 376,315 2,293,261 (0.03)
---------- ---------- --------
DILUTED EPS
Income available to common stockholders $4,502,487 15,352,104 $ 0.29
========== ========== ========
As discussed in Note 5, our convertible debt security is subject to an
option to convert a portion of principal and accrued interest into our common
stock. In accordance with SFAS No. 128, the effects of applying the if-converted
method for the three and nine months ended December 31, 2003 and 2002 results in
this convertible debt security being dilutive.
NOTE 8. SEGMENT REPORTING
We primarily operate in the gaming segment. The gaming segment consists of
IC-BH, Dry Creek Casino, L.L.C. and Route 66 Casinos, L.L.C.
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2003
------------------------------------------------------
Gaming Other Totals
----------- ----------- -----------
Revenue $ 2,495,004 $ 185,276 $ 2,680,280
Segment profit (loss) 2,914,970 (120,008) 2,794,962
Segment assets 28,593,523 4,124,849 32,718,372
Investment in Isle of Capri Black Hawk
L.L.C. 14,411,761 - 14,411,761
Investment in Route 66 Casinos, L.L.C. 1,385,252 - 1,385,252
Interest expense 747,775 - 747,775
Interest income 1,627,286 168,373 1,795,659
Equity in earnings of Isle 2,457,760 - 2,457,760
of Capri Black Hawk, L.L.C.
Equity in earnings of Route
66 Casinos, L.L.C. 418,351 - 418,351
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 2002
------------------------------------------------------
Gaming Other Totals
----------- ----------- -----------
Revenue $ 885,573 $ 13,500 $ 899,073
Segment profit (loss) 1,828,232 (157,130) 1,671,102
Segment assets 31,476,908 3,838,681 35,315,589
Investment in Isle of Capri Black Hawk
L.L.C. 7,547,286 - 7,547,286
19
Investment in Route 66 Casinos, L.L.C. 763,499 - 763,499
Interest expense 716,824 716,824
Interest income 637,854 237,564 875,418
Equity in earnings of Isle 2,385,455 - 2,385,455
of Capri Black Hawk, L.L.C.
Equity in earnings of Route
66 Casinos, L.L.C. 25,975 - 25,975
AS OF AND FOR THE NINE MONTHS ENDED DECEMBER 31, 2003
------------------------------------------------------
Gaming Other Totals
----------- ----------- -----------
Revenue $ 6,309,364 $ 697,033 $ 7,006,397
Segment profit (loss) 8,936,734 (296,910) 8,639,824
Segment assets 28,593,523 4,124,849 32,718,372
Investment in Isle of Capri Black Hawk
L.L.C. 14,411,761 - 14,411,761
Investment in Route 66 Casinos, L.L.C. 1,385,252 - 1,385,252
Interest expense 2,809,681 - 2,809,681
Interest income 3,732,438 616,521 4,348,959
Equity in earnings of Isle 7,948,208 - 7,948,208
of Capri Black Hawk, L.L.C.
Equity in earnings of Route
66 Casinos, L.L.C. 636,625 - 636,625
AS OF AND FOR THE NINE MONTHS ENDED DECEMBER 31, 2002
------------------------------------------------------
Gaming Other Totals
----------- ----------- -----------
Revenue $ 1,905,927 $ 629,917 $ 2,535,844
Segment profit (loss) 5,692.013 132,092 5,824,105
Segment assets 31,476,908 3,838,681 35,315,589
Investment in Isle of Capri Black Hawk
L.L.C. 7,547,286 - 7,547,286
Investment in Route 66 Casinos, L.L.C. 763,499 - 763,499
Interest expense 1,623,891 1,623,891
Interest income 1,145,068 725,153 1,870,221
Equity in earnings of Isle 7,295,732 - 7,295,732
of Capri Black Hawk, L.L.C.
Equity in earnings of Route
66 Casinos, L.L.C. 61,301 - 61,301
Reconciliations of reportable segment assets to our consolidated totals are as
follows:
DECEMBER 31,
-----------------------------
2003 2002
----------- -----------
Assets
Total assets for reportable segments $32,718,372 $35,315,589
20
Cash not allocated to segments 2,409,181 1,874,632
Notes receivable not allocated to segments 5,315,122 6,451,443
Furniture, fixtures, & equipment not allocated to segments 47,485 51,110
Other assets not allocated to segments 1,857,151 1,726,505
----------- -----------
Total assets $42,347,311 $45,419,279
=========== ===========
NOTE 9. COMMITMENTS AND CONTINGENCIES
As of December 31, 2003, we have a total of $1 million in guarantees on
equipment financing and operating leases for the River Rock Casino. In the event
of the River Rock Casino's nonperformance under the terms of the equipment
financing and operating lease, our maximum potential future payments under these
guarantees will be equal to the carrying amount of the liabilities. Assuming
normal operations, we expect that our guarantees for the River Rock Casino will
expire or be released within two years.
During the quarter ended December 31, 2003, our guarantees on debt of SI
for the performance of the payment obligations was $552,000. In the event of
SI's nonperformance under the terms of the obligation, our maximum potential
future payments under these guarantees will be equal to the carrying amount of
the liabilities.
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 10. SUBSEQUENT EVENTS
The holder of our $13 million convertible loan agreement (the "Credit
Facility") commenced an arbitration proceeding against us in Harris County,
Texas. The terms of the Credit Facility provide the holder with the right to
convert up to $7,020,000 of this facility into 2,340,000 shares. In June 2002,
the holder agreed that it would restrict its conversions of the Credit Facility
to a number of shares not to exceed 4.99% of the outstanding shares of our
common stock during any one-year period. In the arbitration, the holder is
attempting to withdraw this prior agreement with respect to the 4.99%
restriction. We are currently in settlement negotiations with the holder, and
believe that we will be able to resolve this matter. However, if we are unable
to settle the matter, and if the holder is successful in arbitration, it may be
entitled to convert $7,020,000 of the Credit Facility into 2,340,000 shares of
our common stock. If we are unable to settle the matter, we intend to vigorously
defend our position in arbitration.
In December 1999, we issued a warrant to purchase 1,166,666 at an exercise
price of $3.00 per share to a third-party in connection with certain services
being rendered to the company. In June 2002, this third party agreed to restrict
his exercise of the warrant to a number of shares not to exceed 4.99% of the
outstanding shares of our common stock during any one-year period. Although to
date no legal or arbitration proceeding has been commenced, the third party has
notified us that he does not believe his agreement with respect to the 4.99%
restriction is enforceable. We believe that the 4.99% limitation is enforceable
and intend to vigorously defend any claim to the contrary. We are currently in
settlement negotiations with the holder, and believe that we will be able to
resolve this matter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our results of operations and financial
position should be read in conjunction with the financial statements and notes
pertaining to them that appear elsewhere in this Form 10-Q/A. Management is of
the opinion that inflation and changing prices, including foreign exchange
fluctuations, will have little, if any, effect on our financial position or
results of our operations.
The information in this discussion contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements are based upon current expectations that involve risks
and uncertainties. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. For example,
words such as, "may," "will," "should," "estimates," "predicts," "potential,"
"continue," "strategy," "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements. Our actual results and the timing of certain events
21
may differ significantly from the results discussed in the forward-looking
statement. Factors that might cause or contribute to such a discrepancy include,
but are not limited to the risks discussed in our other SEC filings, including
those in our annual report on Form 10-K for the year ended March 31, 2004. These
forward-looking statements speak only as of the date hereof. We expressly
disclaim any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement are based.
Changes in previously issued financial statements
We have determined that our investment in Route 66 Casinos, L.L.C. should
be accounted for using the equity method because our venture partner continues
to control the operating activities of the venture, even though such is, in the
opinion of management, a breach of the operating agreement. This accounting
treatment will continue until a final resolution of the dispute is reached.
Accordingly, amounts previously recorded as Route 66 Casinos, L.L.C - revenues,
Route 66 Casinos, L.L.C. - expenses, and minority interest - Route 66 Casinos,
L.L.C. have been netted and recorded as equity in earnings of Route 66, Casinos,
L.L.C. and certain balance sheet accounts have been netted and recorded as
investment in Route 66 Casinos, L.L.C.
Also, during the year ended March 31, 2004, and subsequent to the issuance
of the Company's financial statements as of March 31, 2003, it was determined
that the beneficial conversion feature of the Company's convertible credit
facility and certain warrants and options had not been appropriately valued and
accounted for. The following describes the appropriate accounting and the
changes made to the Company's financial statements as of and for the three
months ended December 31, 2003.
Credit Facility Conversion Feature and Certain Warrants. In the fiscal
year ended March 31, 1999, the Company entered into a $7 million credit
facility, which was amended in the fiscal year ended March 31, 2002 to increase
the facility to $13 million (the "Credit Facility"). A portion of the principal
balance of the Credit Facility was convertible into common stock from time to
time at the option of the holder. The intrinsic value of the conversion feature
of the Credit Facility normally is characterized as a beneficial conversion
feature. The Company determined the value of the beneficial conversion feature
of cumulative drawdowns under the Credit Facility to be an aggregate of $1.4
million and was recorded as an adjustment to additional paid in capital.
Principal of the Credit Facility was drawn down beginning in the fiscal year
ended March 31, 1999 and continuing through the fiscal year ended March 31,
2002. Accordingly, the Company discounted the balance of the Credit Facility as
of the date of each drawdown and are amortizing the beneficial conversion
feature associated with each drawdown from the date of each drawdown to the
maturity date of the Credit Facility.
In the fiscal years ended March 31, 2000, March 31, 2001 and March 31,
2002 multiple warrants were issued to a financial advisor instrumental in
securing the Credit Facility (collectively, the "Warrants"). Each Warrant was
immediately vested and exercisable upon issuance. The Company ascribed an
estimated fair value of the Warrants in the aggregate amount of $1.7 million and
was recorded as an adjustment to additional paid in capital. Accordingly, the
Company capitalized deferred loan issue costs as of the date of issuance of each
Warrant and such costs are being amortized from the date of each issuance to the
maturity date of the Credit Facility.
It was also determined that, in the calculation of the diluted weighted
average number of common shares outstanding, certain convertibility restrictions
imposed by the Credit Facility on the lender and certain exercise restrictions
imposed on the Warrants had been interpreted as more restrictive than they
actually were, resulting in an overstatement of diluted earnings per share
beginning in the fiscal year ended March 31, 2000.
Accordingly, the accompanying consolidated statements of operations and
cash flows for three and nine months ended December 31, 2003 and the
consolidated balance sheet as of December 31, 2003 has been restated from
amounts previously reported to correct the accounting for these transactions.
The Company has recorded a beneficial conversion feature (debt discount)
associated with its Credit Facility and deferred loan issue costs associated
with the Warrants. Amortization of the debt discount is being accounted for
using the effective interest method and is being charged to interest expense.
The deferred loan issue costs are being amortized over the life of the Credit
Facility on a straight line basis and are being charged to amortization of
deferred loan issue cost expenses.
For the three and nine months ended December 31, 2003, interest expense
increased by $442,561 and $229,177, respectively, due to the amortization of the
debt discount. For the same periods, deferred loan cost expense increased
(decreased) by $151,771 and $(4,218), respectively. The increase during the
three months ended December 31, 2003 is due to the amortization of deferred loan
costs. The decrease during the nine months ended December 31, 2003 is due to the
amortization of deferred loan costs expense of $151,771 and $265,339 for the
three
22
and nine months ended December 31, 2003 offset by the reversal of $269,557 of
deferred loan cost expense recorded during the three month period ended
September 30, 2003 related to warrants forfeited during that period. For the
three and nine month periods ended December 31, 2003, the federal income tax
provision increased (decreased) by $(51,601) and $1,434, respectively, related
to the tax effect of the amortization of deferred loan issue costs.
Certain Options and Warrants. In the fiscal years ending March 31, 2000,
March 31, 2001 and March 31, 2002, certain options and warrants were issued to
other advisors and consultants (collectively, the "Options"). The Options were
immediately vested and exercisable. The Company ascribed a fair value for the
Options in the aggregate amount of $910,000 and was an adjustment to additional
paid in capital. Costs related to these Options were expensed in the period
granted.
Certain Tax Benefits. The Company determined that certain tax benefits
associated with the exercise of common stock options and warrants that occurred
during the three and nine months ended December 31, 2003 were not considered. As
a result, the amount of the deferred tax liability was overstated and the amount
of additional paid in capital and total stockholders' equity was understated as
of December 31, 2003 by $1.9 million.
Critical Accounting Policies
In December 2001, the SEC requested that companies discuss their most
"critical accounting policies" in the Management's Discussion and Analysis
section of their reports. The SEC indicated that a "critical accounting policy"
is one that is important to the portrayal of a company's financial condition and
operating results and requires management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effects of matters that are inherently uncertain.
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations are
discussed throughout this section where such policies affect our reported and
expected financial results.
Use of Estimates
Our preparation of this report requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities, and that
affect the disclosure of contingent assets and liabilities. There is no
assurance that actual results will not differ from those estimates and
assumptions.
Equity Method of Accounting
Our investments in IC-BH, RCI, Route 66 Casinos, L.L.C. and Sunrise Land
and Mineral Corporation are accounted for using the equity method of accounting
because the investment gives us the ability to exercise significant influence,
but not control, over the investees. Significant influence is generally deemed
to exist where we have an ownership interest in the investee of between 20% and
50%, although other factors such as the degree of ultimate control,
representation on the investee's Board of Directors or similar oversight body
are considered in determining whether the equity method of accounting is
appropriate. Although we have an ownership interest of 51% in Route 66 Casinos,
L.L.C., we account for the investment in Route 66 Casinos, L.L.C. using the
equity method because the operating activities of the joint venture are
currently controlled by the minority venturer. We record our equity in the
income or losses of our investees using the same reporting periods presented
herein, except we report our equity in income or losses three months in arrears
for RCI and one month in advance for IC-BH, based upon their respective fiscal
year ends. Sunrise holds approximately 240 acres of land in California and has
no operating activities, thus there has been no equity in earnings or losses
recorded during the three and nine month periods ended December 31, 2003 and
2002. Deferred tax assets or liabilities are recorded for allocated earnings or
losses of our equity investments that are not currently reportable or deductible
for federal income tax purposes.
Revenue Recognition
We record credit enhancement fee income on the accrual basis as earned.
The dates on which credit enhancement fee income is actually collected is on the
15th day of each following month. It is also dependent upon the cash flow from
River Rock Casino's operation. As of December 31, 2003, there was no delinquency
in credit enhancement fee income. We record revenues from interest income on
notes receivable on the accrual basis as earned. The dates on which interest
income is actually collected is dependent upon the terms of the particular note
receivable agreement, and may not correspond to the date such interest income is
recorded. We record royalty income on the accrual basis as earned. The dates on
which royalty income is actually collected is dependent upon the terms of the
contract, and may not correspond to the date such royalty income is recorded.
The amounts of royalty income that we may earn is dependent upon a Consumer
Price Index which may increase or decrease our royalty income each fiscal year.
As of December 31, 2003, there was no delinquency in royalty income.
Income Taxes
23
Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." An asset and liability approach is used 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.
General
We are primarily a developer of gaming properties. We reported net income
of $1.8 million for the quarter ended December 31, 2003 compared to net income
of $1.1 million for the quarter ended December 31, 2002.
Our 43% ownership of the IC-BH is accounted for using the equity method of
accounting. Our investment in the joint venture is stated at cost, adjusted for
our equity in the undistributed earnings or losses of the project. During the
quarter ended December 31, 2003, our allocable income from IC-BH through January
25, 2004, IC-BH's quarter end, totaled $2.5 million, compared to $2.4 million
for the same period in fiscal 2003. During the current quarter, we received a
cash distribution of $996,000 from IC-BH and our basis in the project through
January 25, 2004 is $14.4 million.
Our ownership of RCI is accounted for using the equity method of
accounting. Our investment in RCI is stated at cost, adjusted for our equity in
the undistributed earnings or losses of RCI. Our portion of RCI's undistributed
loss through September 30, 2003 totaled $55,000. In accordance with the equity
method of accounting, our investment account balance was reduced to zero and the
remaining allocated loss of $928,000 is not reflected in our financial
statements.
During the quarter ended September 30, 2003, Sunrise entered into a
business combination with a third party in which Sunrise received certain mining
interests. We hold 50% of Sunrise's equity interest. Our investment in Sunrise
is accounted for using the equity method of accounting and is stated at cost of
$372,000, adjusted for our equity in its undistributed earnings or losses.
We own majority interests in Dry Creek Casino, L.L.C. of 69%. For
financial reporting purposes, the assets, liabilities, and earnings of the
partnership are included in our consolidated financial statements. The interests
of the other members of the entity have been recorded as minority interests
totaling $280,000 at December 31, 2003.
We have made loans to the Dry Creek Casino, L.L.C., which has in turn made
loans to the River Rock Casino. We will be repaid these loans as the Dry Creek
Casino, L.L.C. is repaid. Excluding the repayments on these loans, as a member
of the Dry Creek Casino, L.L.C., we will also receive credit enhancement fees
from the River Rock Casino and is equal to 20% of River Rock Casino's earnings
before taxes (if any), depreciation and amortization for a period of five years
starting June 1, 2003 and ending May 31, 2008.
Property held for development consists of undeveloped acreage and
improvements located in and around Black Hawk, Colorado, and Nevada County,
California. We have capitalized certain direct costs of pre-development
activities together with capitalized interest. Property held for development is
carried at the lower of cost or net realizable value.
River Rock Casino Debt Refinancing
In November 2003, the River Rock Entertainment Authority borrowed $200
million to repay a majority of the tribe's indebtedness, to fund the completion
of three parking structures and related infrastructure improvements, and to fund
the settlement of litigation involving the tribe. In connection therewith, the
River Rock Casino reduced the indebtedness owed to the Dry Creek Casino, L.L.C.,
the Dry Creek Casino, L.L.C. reduced the indebtedness owed to us to $10 million,
and our guarantees with respect to River Rock Casino's indebtedness were reduced
to $1 million as of December 31, 2003. The $10 million loan from the Dry Creek
Casino, L.L.C. to the River Rock Casino has been amended with interest payable
monthly at a rate of 9% per annum and will mature upon the earlier of (i) the
completion of the River Rock Casino parking structures, if such loan proceeds
are not needed to fund parking structures (anticipated to occur in late 2004),
or (ii) if the amount of such loan is needed to complete such construction, the
balance of the loan will be repaid from River Rock Casino's excess cash flow
(anticipated to begin in 2005). An identical loan agreement was entered into
between us and the Dry Creek Casino, L.L.C.
Results of Operations
24
Comparison of the quarter ended December 31, 2003 and 2002
REVENUES. Revenues increased 198%, or $1.8 million, to $2.7 million for
the quarter ended December 31, 2003 compared to $899,000 for the three months
ended December 31, 2002. Our revenue primarily consists of the following income
streams:
Gaming Assets Participations
DRY CREEK CASINO, L.L.C. Starting in June 2003, the Dry Creek Casino,
L.L.C. began earning a credit enhancement fee from River Rock Casino equal to
20% of River Rock Casino's earnings before taxes (if any), depreciation and
amortization. During the quarter ended December 31, 2003, the credit enhancement
fee income was $868,000.
Other Revenues
INTEREST INCOME. Our interest income consists primarily of interest due on
loans we have made in connection with the River Rock Casino project. Interest
income increased 105%, or $920,000 to $1.8 million for the quarter ended
December 31, 2003 compared to $875,000 for the three months ended December 31,
2002. The increase is attributable to the recognition of $1 million of
unamortized finance fee related to River Rock Casino's $22.6 million principal
repayment. Since a majority of our loans have been repaid, our interest income
in the future will significantly decrease in connection with this project.
ROYALTY INCOME. Royalty income increased 25% to $17,000 for the quarter
ended December 31, 2003 compared to $14,000 for the three months ended December
31, 2002. This income is derived solely from our mining agreement with Romarco
Nevada, Inc. Based on our agreement with Romarco, we anticipate receiving
$58,000 during fiscal 2004. However, our agreement with Romarco is terminable at
any time; therefore, there is no assurance we will receive these revenues in the
future.
EQUITY IN EARNINGS OF ISLE OF CAPRI BLACK HAWK. Equity in earnings of
IC-BH increased 3% to $2.5 million for the quarter ended December 31, 2003
compared to $ 2.4 million for the quarter ended December 31, 2002. The increase
is primarily attributable to an increase in pre-tax income from IC-BH due to
higher gaming revenue.
EQUITY IN EARNINGS OF ROUTE 66 CASINOS, L.L.C. Equity in earnings of Route
66 Casinos, L.L.C. increased 1,511% or $392,000, to $418,000 for the quarter
ended December 31, 2003 compared to $26,000 for the quarter ended December 31,
2002. The increase is primarily related to estimated rental revenues from gaming
equipment lease with the Route 66 Casino's permanent facility which opened on
September 4, 2003. We are in litigation and arbitration with our co-member on
this project, and as such, we have estimated these amounts.
TOTAL EXPENSES. Total expenses increased 63%, or $1.0 million to $2.6
million for the quarter ended December 31, 2003, compared to $1.6 million for
the quarter ended December 31, 2002. The increase primarily resulted from an
increase in general and administrative expenses, salaries, legal and
professional fees and amortization of deferred loan issue cost. These items are
discussed below:
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 103%, or $150,000, to $296,000 for the quarter ended December 31, 2003
compared to $146,000 in the quarter ended December 31, 2002. The increase is
primarily related to general corporate administrative cost such as office
supplies and travel costs.
INTEREST EXPENSE. Interest expense increased 4%, or $31,000, to $748,000
for the quarter ended December 31, 2003, compared to $717,000 for the quarter
ended December 31, 2002 due to a higher average period balance on our $23
million credit facility. Our overall debt was significantly reduced during the
quarter ended December 31, 2003, and accordingly, we believe our interest
expense will significantly decrease in the future.
SALARIES. Salaries increased 33%, or $82,000, to $333,000 for the quarter
ended December 31, 2003, compared to $251,000 in the quarter ended December 31,
2002 related to increases in salaries and number of personnel.
25
LEGAL AND PROFESSIONAL FEES. Legal and professional fees decreased 27%, or
$87,000, to $240,000 for the quarter ended December 31, 2003, compared to
$327,000 in the quarter ended December 31, 2002 and is primarily attributable
to lower consulting fees for general corporate matters.
AMORTIZATION OF DEFERRED LOAN ISSUE COST. Amortization of deferred loan
issue cost increased $814,000, to $967,000 for the quarter ended December 31,
2003, compared to $153,000 in the quarter ended December 31, 2002. The increase
is primarily attributable to the recognition of $770,000 of deferred loan issue
cost related to the repayment of our $23 million credit facility in November
2003.
NET INCOME. Income before federal and state income tax provision increased
67% or $1.1 million to $2.8 million for the quarter ended December 31, 2003 as
compared to $1.7 million for the three months ended December 31, 2002. This
increase is primarily the result of increases in equity in earnings of IC-BH and
gaming asset participations. Net income increased 67% or $727,000 to $1.8
million for the quarter ended December 31, 2003 as compared to net income of
$1.1 million in the quarter ended December 31, 2002. This increase is primarily
the result of increases equity in earnings of IC-BH, and gaming asset
participations. The effective tax rate for both quarters ended December 31, 2003
and December 31, 2002 was 35%.
Comparison of the nine months ended December 31, 2003 and 2002
REVENUES. Revenues increased 176%, or $4.5 million, to $7.0 million for
the nine months ended December 31, 2003 compared to $2.5 million for the nine
months ended December 31, 2002. Our revenue primarily consists of the following
income streams:
Gaming Assets Participations
DRY CREEK CASINO, L.L.C. Starting in June 2003, the Dry Creek Casino,
L.L.C. began earning a credit enhancement fee from River Rock Casino equal to
20% of River Rock Casino's earnings before taxes (if any), depreciation and
amortization. During the nine months ended December 31, 2003, the credit
enhancement fee income was $2.6 million.
Other Revenues
INTEREST INCOME. Our interest income consists primarily of interest due on
loans we have made in connection with the River Rock Casino project. Interest
income increased 133%, or $2.5 million, to $4.3 million for the nine months
ended December 31, 2003 compared to $1.9 million for the nine months ended
December 31, 2002. The majority of the increase is attributable to the increase
in the loans made in connection with the River Rock Casino project over the
comparable nine months of the prior year and the recognition of $1 million of
unamortized finance fee related to River Rock Casino's $22.6 million principal
repayment. Since a majority of our loans have been repaid, our interest income
in the future will significantly decrease in connection with this project.
ROYALTY INCOME. Royalty income increased 25% to $46,000 for the nine
months ended December 31, 2003 compared to $37,000 for the nine months ended
December 31, 2002. This income is derived solely from our mining agreement with
Romarco Nevada, Inc. Based on our agreement with Romarco, we anticipate
receiving $58,000 during fiscal 2004. However, our agreement with Romarco is
terminable at any time, and as such there is no assurance we will receive these
revenues in the future.
EQUITY IN EARNINGS OF ISLE OF CAPRI BLACK HAWK. Equity in earnings of
IC-BH increased 9% to $7.9 million for the nine months ended December 31, 2003
compared to $7.3 million for the nine months ended December 31, 2002. The
increase is primarily attributable to an increase in pre-tax income from IC-BH.
EQUITY IN EARNINGS OF ROUTE 66 CASINOS, L.L.C. Equity in earnings of Route
66 Casinos, L.L.C. increased 939%, or $575,000, to $637,000 for the nine months
ended December 31, 2003 compared to $61,000 for the nine months ended December
31, 2002. The increase is primarily related to estimated rental revenues from
gaming equipment lease with the Route 66 Casino's permanent facility which
opened on September 4, 2003. We are in litigation and arbitration with our
co-member on this project, and as such, we have estimated these amounts.
26
TOTAL EXPENSES. Total expenses increased 64%, or $2.6 million, to $6.6
million for the nine months ended December 31, 2003, compared to $4.0 million
for the nine months ended December 31, 2002. The increase is due primarily to an
increase in general and administrative expenses, interest expense, other
expense, salaries, legal and professional fees, and amortization of development
cost. These items are discussed below:
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 73%, or $282,000, to $667,000 for the nine months ended December 31,
2003, compared to $385,000 for the nine months ended December 31, 2002. The
increase is primarily attributable to general corporate administrative cost.
INTEREST EXPENSE. Interest expense increased 73%, or $1.2 million, to $2.8
million for the nine months ended December 31, 2003, compared to $1.6 million in
the nine months ended December, 2002 related to additional borrowings from our
credit facility during the fiscal year ended March 31, 2003. In November 2003,
we repaid our $23 million credit facility, and accordingly, our interest expense
will significantly decrease in the future.
SALARIES. Salaries increased 29%, or $203,000, to $893,000 for the nine
months ended December 31, 2003, compared to $690,000 in the nine months ended
December 31, 2002 related to increase in salaries and number of personnel.
LEGAL AND PROFESSIONAL FEES. Legal and professional fees increased 104%,
or $552,000, to $1.1 million for the nine months ended December 31, 2003,
compared to $530,000 in the nine months ended December, 2002 primarily related
to increased fees related to disputes, further discussed at Part 2, Item I.
AMORTIZATION OF DEFERRED LOAN ISSUE COST. Amortization of deferred loan
issue cost increased $528,000, to $960,000 for the nine months ended December
31, 2003, compared to $432,000 in the nine months ended December 31, 2002. The
increase is primarily attributable to the recognition of $770,000 of deferred
loan issue cost related to the repayment of our $23 million credit facility in
November 2003.
NET INCOME. Income before federal and states income tax provision
increased 39%, or $2.8 million, to $8.6 million for the nine months ended
December 31, 2003, compared to $5.8 million for the nine months ended December
31, 2002. This increase is primarily the result of increases in equity in
earnings of IC-BH, gaming asset participations. Net income increased 37%, or
$1.5 million, to $5.7 million for the nine months ended December 31, 2003
compared to net income of $4.1 million for the nine months ended December 31,
2002. This increase is primarily the result of increases equity in earnings of
IC-BH, gaming asset participations, and federal income tax. The effective tax
rate for the nine months ended December 31, 2003 was 34% compared to 29% for the
nine months ended December 31, 2002. Such increase in the effective tax rate
related to tax benefits of $421,735 from IC-BH for fiscal year ended April 25,
1999 which was recognized in the months ended December 31, 2002.
Liquidity and Capital Resources
OPERATING ACTIVITIES. Net cash provided by operating activities during the
nine months ended December 31, 2003, amounted to $741,000 a decrease of $1.5
million, over the $2.3 million of net cash provided by operating activities
during the nine months ended December 31, 2002. The decrease was primarily
related to a decrease in cash distributions from IC-BH and an increase in the
amount of our tax payments. These amounts were partially offset by the credit
enhancement fees we received from the River Rock Casino. More specifically, as
compared to the prior period, during the nine months ended December 31, 2003,
our cash distributions from IC-BH decreased by $2 million as s result of IC-BH
utilizing excess cash flow to pay down debt. We expect that this strategy will
continue for the foreseeable future. We made a $1.5 million of federal income
tax payment during the nine months ended December 31, 2003, as opposed to making
no payments during the comparable prior period. To offset these amounts, we
received $2.2 million of credit enhancement fee income earned through October
2003 from River Rock Casino.
INVESTING ACTIVITIES. Net cash provided by investing activities during the
nine months ended December 31, 2003, amounted to $21.6 million, an increase of
$35.5 million, over the $13.9 million of net cash used in investing activities
in the nine months ended December 31, 2002. The increase is primarily related to
the net collection of $18.5 million of our outstanding loans in connection with
the River Rock Casino and collection of $3.3 million of other
27
notes receivable.
FINANCING ACTIVITIES. Net cash used by financing activities during the
nine months ended December 31, 2003, amounted to $23.9 million, a decrease of
$36.3 million, over $12.5 million of net cash provided by financing activities
in the nine months ended December 31, 2002. The decrease was primarily related
to the $23.6 million of reduction on our corporate debt during the nine months
ended December 31, 2003 and due to borrowings of $12.9 million during the nine
months ended December 31, 2002 for which there was no such borrowings during the
nine months ended December 31, 2003.
As December 31, 2003, we had cash available of $2.4 million. We had drawn
down on our entire $13 million long-term credit facility that bears interest at
11% per annum, payable monthly, with principal maturing during December 2005.
This credit facility is secured by our interest in IC-BH Casino. We have also
repaid our $23 million credit facility, which is no longer available to us. The
repayment of our $23 million credit facility substantially repaid all of our
current portion of long term debt, as well as a substantial portion of long term
note payable.
During the next twelve months, we expect to receive cash distributions
from IC-BH of approximately $4 million based on our current estimates, and loan
repayments of $1.2 million from affiliate companies. In addition, the Dry Creek
Casino, L.L.C. will be receiving its credit enhancement fee from River Rock
Casino, provided the casino is in compliance with its debt covenants with
respect to its $200 million debt financing. We no longer have any funds
available to us from our existing credit facility or other external financing
sources, and accordingly, we will be depending on the monies received from
IC-BH, the credit enhancement fee to be paid to the Dry Creek Casino, L.L.C.,
and loan repayments from affiliate companies to fund our operations for the next
twelve months.
At December 31, 2003, we are leveraged with $11.2 million in corporate
debt and lease guarantees of approximately $1 million for the River Rock Casino
project. We also have guaranteed debt of $502,000 of an affiliated company that
may mature during the next fiscal year. To date, cash distributions from IC-BH
and loan repayments and credit enhancement fees from the River Rock Casino have
been sufficient to satisfy our current obligations. However, if the River Rock
Casino is closed resulting from litigation, governmental inquiries or other
reasons beyond our control, if we are required to perform on our outstanding
guarantees, or if the debt covenants ratios of the River Rock Casino debt
financing preclude the payment to us of our credit enhancement fee or
outstanding loans to River Rock Casino, we may have insufficient cash flow to
satisfy our obligations without raising additional financing. There is no
assurance that we will be able to obtain additional financing if required to
fund working capital needs or debt repayment obligations, the failure of which
could have a material effect on our operations.
Recent Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 150, "Accounting for Certain Instruments with Characteristics of Both
Liabilities and Equity." SFAS No. 150 clarifies the accounting for certain
financial instruments with characteristics of both liabilities and equity and
requires that those instruments be classified as liabilities in statements of
financial position. Previously, many of those financial instruments were
classified as equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. We do not
believe that the adoption of SFAS No. 150 will have a significant impact on our
financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement is effective for contracts entered into or modified after June 30,
2003. We did not participate in any applicable activities as of and for the
quarter ended December 31, 2003.
In January 2003, the FASB issued Financial Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." In general, a variable interest
entity is a corporation, partnership, trust, or any other legal entity used for
business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the investors in the entity do
28
not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The consolidation requirements apply to older
entities in the first fiscal year or interim period beginning after June 15,
2003. Certain of the disclosure requirements apply to all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. We did not participate in any applicable activities as of and
for the quarter ended December 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from credit
risk concentrations. We do not believe we are subject to material interest rate
risk or foreign currency risk.
We have utilized the majority of our credit facilities to make loans to
Dry Creek Casino, L.L.C., which has made loans to the River Rock Casino. If the
River Rock Casino is unable to make its debt payments to the Dry Creek Casino,
L.L.C. for any reason, the Dry Creek Casino L.L.C. will be unable to make its
required debt repayment to us, which will affect our ability to repay our credit
facility. As discussed in Item 2 above, if the River Rock Casino is closed for
any reason, we may have difficulty meeting our short-term and long-term
obligations. We currently believe that this is our primary credit risk.
As our credit facilities are fixed interest rate instruments, an interest
rate change would not have any impact on our operations. Our interest in RCI is
dependent on RCI's valuation, which is subject to the value of the Real, the
Brazilian currency, which has been subject to rapid fluctuations. However, we do
not believe the results of RCI's operations have a material effect on our
financial operations.
ITEM 4. CONTROLS AND PROCEDURES
In accordance with the Exchange Act, we carried out an evaluation, under
the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2003 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 Securities and Exchange Commission's rules and forms.
There has been no change in our internal controls over financial reporting that
occurred during the three months ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 2002, we were sued in case 2002-22278, Corporate Strategies, Inc.,
vs. Nevada Gold & Casinos, Inc., in the 189th Judicial District Court of Harris
County, Texas. Corporate Strategies, Inc. seeks damages and other relief for
alleged breach of a consulting agreement entered into during December 1997.
Discovery is ongoing. We are vigorously defending the suit and have asserted
counterclaims, as well as cross-claims against the individual actors within
Corporate Strategies (Harold Finstad, Arthur Porcari, Stephen Porcari, and
Martin R. Nathan). Our counter and cross-claims seek rescission and damages. The
claims against and between us and Nathan have been referred to binding
arbitration in accordance with the parties' agreement. We are actively pursuing
our claims in arbitration. Nathan has filed a separate counter-claim against the
Company in the arbitration proceedings, seeking damages for an alleged contract
between him and the Company.
In September 2002, we asserted a claim for damages, specific performance
and other relief against American Heritage, Inc. (d/b/a The Gillmann Group), a
member with us in Route 66 Casinos, L.L.C. Route 66 Casinos, L.L.C. was formed
to develop gaming facilities on lands of the Pueblo of Laguna, 11 miles west of
Albuquerque, New Mexico. In October 2002, we instituted suit in Harris County,
Texas District Court, case 2002-51378, Nevada Gold & Casinos, Inc. v. American
Heritage, Inc. d/b/a The Gillman Group, and Frederick Gillman. Subsequently, The
Gillmann Group and its principal sought a declaratory judgment and damages in
the District Court of Clark County, Nevada, case A457315, American Heritage,
Inc., and Fred Gillmann v. Nevada Gold & Casinos, Inc. and Route 66 Casinos,
L.L.C. in the District Court, Clark County, Nevada. That litigation has been
stayed, and the Texas lawsuit is currently scheduled for trial in the first
quarter of 2004.
The holder of our $13 million convertible loan agreement (the "Credit
Facility") commenced an arbitration proceeding against us in Harris County,
Texas. The terms of the Credit Facility provide the holder with the right to
convert up to $7,020,000 of this facility into 2,340,000 shares. In June 2002,
the holder agreed that it would restrict its conversions of the Credit Facility
to a number of shares not to exceed 4.99% of the outstanding shares of our
common stock during any one-year period. In the arbitration, the holder is
attempting to withdraw this prior agreement with respect to the 4.99%
restriction. We are currently in settlement negotiations with the holder, and
believe that we will be able to resolve this matter. However, if we are unable
to settle the matter, and if the holder is successful in arbitration, it may be
entitled to convert $7,020,000 of the Credit Facility into 2,340,000 shares of
our common stock. If we are unable to settle the matter, we intend to vigorously
defend our position in arbitration.
In December 1999, we issued a warrant to purchase 1,166,666 at an exercise
price of $3 per share to a third-party in connection with certain services being
rendered to the company. In June 2002, this third party agreed to restrict his
exercise of the warrant to a number of shares not to exceed 4.99% of the
outstanding shares of our common stock during any one-year period. Although to
date no legal or arbitration proceeding has been commenced, the third party has
notified us that he does not believe his agreement with respect to the 4.99%
restriction is enforceable. We believe that the 4.99% limitation is enforceable
and intend to vigorously defend any claim to the contrary. We are currently in
settlement negotiations with the holder, and believe that we will be able to
resolve this matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended December 31, 2003, we issued 594,167 shares
of common stock upon the conversion of a portion of our $13 million credit
facility at a conversion price of $3.00 per share. The holder of the credit
facility is an accredited investor, and the transaction was completed pursuant
to Regulation D of the Securities Act of 1933. No commission was paid in
connection with the transaction. The recipient of the securities represented its
intention to acquire the securities for investment only and not with a view to
any distribution thereof, and appropriate legends were affixed to the share
certificate issued in the transaction.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
30
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of this report:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 3.1 Amended and Restated Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed
previously as Appendix A to the company's definitive proxy statement filed on Schedule
14A on July 30, 2001)
Exhibit 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)
Exhibit 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)
Exhibit 10.1 Amended and Restated Operating Agreement of Isle of Capri Blackhawk L.L.C. (filed
previously as Exhibit 10.3 to the company's Form 10-QSB, filed November 14, 1997)
Exhibit 10.2 Members Agreement dated July 29, 1997 by and between Casino America of Colorado, Inc.,
Casino America, Inc., Blackhawk Gold, Ltd., and Nevada Gold & Casinos, Inc. (filed
previously as Exhibit 10.4 to the company's Form 10-QSB, filed November 14, 1997)
Exhibit 10.3 License Agreement dated July 29, 1997 by and between Casino America, Inc. and Isle of
Capri Black Hawk L.L.C. (filed previously as Exhibit 10.5 to the company's Form 10-QSB,
filed November 14, 1997)
Exhibit 10.4 Nevada Gold & Casinos, Inc. 1999 Stock Option Plan (filed previously as Exhibit 10.1 to
the company's Form S-8/A, file no. 333-79867)
Exhibit 10.5 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)
Exhibit 31.1(*) Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange
Act.
Exhibit 31.2(*) Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange
Act.
Exhibit 32.1(*) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.2(*) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(*) filed herewith
31
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Nevada Gold & Casinos, Inc.
By: /s/ Christopher Domijan
-------------------------------------------------
Christopher Domijan, Chief Financial Officer
Date: August 5, 2004
32
EXHIBIT INDEX
Exhibit 3.1 Amended and Restated Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed
previously as Appendix A to the company's definitive proxy statement filed on Schedule
14A on July 30, 2001)
Exhibit 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)
Exhibit 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)
Exhibit 10.1 Amended and Restated Operating Agreement of Isle of Capri Blackhawk L.L.C. (filed
previously as Exhibit 10.3 to the company's Form 10-QSB, filed November 14, 1997)
Exhibit 10.2 Members Agreement dated July 29, 1997 by and between Casino America of Colorado, Inc.,
Casino America, Inc., Blackhawk Gold, Ltd., and Nevada Gold & Casinos, Inc. (filed
previously as Exhibit 10.4 to the company's Form 10-QSB, filed November 14, 1997)
Exhibit 10.3 License Agreement dated July 29, 1997 by and between Casino America, Inc. and Isle of
Capri Black Hawk L.L.C. (filed previously as Exhibit 10.5 to the company's Form 10-QSB,
filed November 14, 1997)
Exhibit 10.4 Nevada Gold & Casinos, Inc. 1999 Stock Option Plan (filed previously as Exhibit 10.1 to
the company's Form S-8/A, file no. 333-79867)
Exhibit 10.5 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)
Exhibit 31.1(*) Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange
Act.
Exhibit 31.2(*) Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange
Act.
Exhibit 32.1(*) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit 32.2(*) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(*) filed herewith