UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 20182019
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from__________ to __________
Commission File Number1-15517
Nevada Gold & Casinos, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 88-0142032 | |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
Suite | ||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number including area code: (702) 685-1000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for any shorter period that the registrant was required to file the reports), and (2) has been subject to those filing requirements for the past 90 days.x Yes¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).
x Yes¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨ | Accelerated filer¨ | Non-accelerated filer | Smaller Reporting Companyx |
Emerging growth company¨ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 17(a)(2)(B) of the Securities Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).
¨ Yesx No
The number of common shares, $0.12 par value per share, issued and outstanding, was 16,848,18217,765,772 as of March 1, 2018.2019.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Factors that May Affect Future Results
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
Certain information included in this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us or our representatives) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or other words or expressions of similar meaning, may identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. Forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations, intentions with respect to the financial condition, results of operations, future performance and the business of us, including statements relating to our business strategy and our current and future development plans. These statements may also involve other factors which are detailed in the “Risk Factors” and other sections of our Annual Report on Form 10-K for the year ended April 30, 20172018 and other filings with the Securities and Exchange Commission.
Although we believe that the assumptions underlying these forward-looking statements are reasonable, any or all of the forward-looking statements in this report and in any other public statements that are made may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this report will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this report or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission should be consulted.
1 |
Condensed Consolidated Balance Sheets
January 31, | April 30, | |||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,598,633 | $ | 10,631,903 | ||||
Restricted cash | 2,058,849 | 1,994,312 | ||||||
Accounts receivable, net of allowances | 362,770 | 808,484 | ||||||
Prepaid expenses | 1,669,377 | 1,209,507 | ||||||
Notes receivable, current portion | 35,205 | 383,093 | ||||||
Inventory and other current assets | 444,319 | 423,113 | ||||||
Total current assets | 13,169,153 | 15,450,412 | ||||||
Real estate held for sale | 750,000 | 750,000 | ||||||
Goodwill | 16,923,588 | 16,923,588 | ||||||
Intangible assets, net of accumulated amortization | 3,708,355 | 4,107,328 | ||||||
Property and equipment, net of accumulated depreciation | 13,261,285 | 13,958,715 | ||||||
Deferred tax asset | 838,974 | 1,557,470 | ||||||
Other assets | 167,097 | 70,000 | ||||||
Total assets | $ | 48,818,452 | $ | 52,817,513 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 1,470,127 | $ | 1,303,571 | ||||
Accrued payroll and related | 1,407,486 | 1,925,592 | ||||||
Accrued player's club points and progressive jackpots | 2,301,566 | 2,348,068 | ||||||
Total current liabilities | 5,179,179 | 5,577,231 | ||||||
Long-term debt | 9,134,370 | 12,061,411 | ||||||
Other long-term liabilities | 633,340 | 667,110 | ||||||
Total liabilities | 14,946,889 | 18,305,752 | ||||||
Stockholders' equity: | ||||||||
Common stock, $0.12 par value per share; 50,000,000 shares authorized; 18,715,985 and 18,627,167 shares issued and 16,848,182 and 17,547,665 shares outstanding at January 31, 2018, and April 30, 2017, respectively | 2,245,927 | 2,235,269 | ||||||
Additional paid-in capital | 27,542,449 | 27,449,319 | ||||||
Retained earnings | 13,277,119 | 12,320,814 | ||||||
Treasury stock, 1,867,803 and 1,079,502 shares at January 31, 2018, and April 30, 2017, respectively, at cost | (9,193,932 | ) | (7,493,641 | ) | ||||
Total stockholders' equity | 33,871,563 | 34,511,761 | ||||||
Total liabilities and stockholders' equity | $ | 48,818,452 | $ | 52,817,513 |
January 31, | April 30, | |||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 17,087,917 | $ | 9,508,931 | ||||
Restricted cash | 3,218,463 | 2,369,063 | ||||||
Accounts receivable, net of allowances | 670,425 | 345,403 | ||||||
Prepaid expenses | 790,547 | 1,058,726 | ||||||
Inventory and other current assets | 355,813 | 341,299 | ||||||
Assets held for sale | - | 607,180 | ||||||
Total current assets | 22,123,165 | 14,230,602 | ||||||
Real estate held for sale | 750,000 | 750,000 | ||||||
Goodwill | 14,092,154 | 14,092,154 | ||||||
Intangible assets, net of accumulated amortization | 2,230,548 | 2,289,485 | ||||||
Property and equipment, net of accumulated depreciation | 3,060,119 | 3,254,367 | ||||||
Deferred tax asset | 604,012 | 704,044 | ||||||
Assets held for sale | - | 13,597,772 | ||||||
Other assets | 70,000 | 204,672 | ||||||
Total assets | $ | 42,929,998 | $ | 49,123,096 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 1,661,782 | $ | 1,350,263 | ||||
Accrued payroll and related | 1,402,010 | 1,810,626 | ||||||
Accrued player's club points and progressive jackpots | 2,491,328 | 2,273,655 | ||||||
Liabilities held for sale | - | 902,720 | ||||||
Total current liabilities | 5,555,120 | 6,337,264 | ||||||
Long-term debt | - | 7,895,240 | ||||||
Other long-term liabilities | 594,249 | 637,207 | ||||||
Total liabilities | 6,149,369 | 14,869,711 | ||||||
Stockholders' equity: | ||||||||
Common stock, $0.12 par value per share; 50,000,000 shares authorized; 18,743,185 and 18,715,985 shares issued and 17,765,772 and 16,848,182 shares outstanding at January 31, 2019, and April 30, 2018, respectively. | 2,356,037 | 2,245,927 | ||||||
Additional paid-in capital | 29,643,178 | 27,557,151 | ||||||
Retained earnings | 13,975,346 | 13,644,239 | ||||||
Treasury stock, 1,867,803 shares at January 31, 2019, and April 30, 2018, at cost. | (9,193,932 | ) | (9,193,932 | ) | ||||
Total stockholders' equity | 36,780,629 | 34,253,385 | ||||||
Total liabilities and stockholders' equity | $ | 42,929,998 | $ | 49,123,096 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2 |
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
January 31, | January 31, | January 31, | January 31, | January 31, | January 31, | January 31, | January 31, | |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Casino | $ | 15,822,508 | $ | 15,714,538 | $ | 49,595,806 | $ | 48,231,536 | $ | 11,547,379 | $ | 12,551,816 | $ | 35,051,766 | $ | 40,009,065 | ||||||||||||||||
Food and beverage | 3,399,975 | 3,383,641 | 9,817,883 | 10,014,949 | 2,665,342 | 2,606,619 | 7,675,267 | 7,437,154 | ||||||||||||||||||||||||
Other | 480,802 | 534,011 | 1,484,566 | 1,622,271 | 351,656 | 377,115 | 1,071,966 | 1,176,126 | ||||||||||||||||||||||||
Gross revenues | 19,703,285 | 19,632,190 | 60,898,255 | 59,868,756 | 14,564,377 | 15,535,550 | 43,798,999 | 48,622,345 | ||||||||||||||||||||||||
Less promotional allowances | (1,605,069 | ) | (1,722,078 | ) | (4,831,292 | ) | (5,251,980 | ) | - | (1,052,821 | ) | - | (3,117,506 | ) | ||||||||||||||||||
Net revenues | 18,098,216 | 17,910,112 | 56,066,963 | 54,616,776 | 14,564,377 | 14,482,729 | 43,798,999 | 45,504,839 | ||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||
Casino | 8,631,595 | 8,550,102 | 27,697,584 | 27,180,611 | 5,342,905 | 7,012,292 | 16,684,984 | 22,704,066 | ||||||||||||||||||||||||
Food and beverage | 1,766,663 | 1,573,445 | 5,011,269 | 4,588,060 | 2,345,769 | 1,358,684 | 6,793,978 | 3,892,854 | ||||||||||||||||||||||||
Other | 51,467 | 46,321 | 156,841 | 153,055 | 57,038 | 24,816 | 170,858 | 74,767 | ||||||||||||||||||||||||
Marketing and administrative | 5,378,939 | 5,149,807 | 15,961,424 | 15,583,962 | 4,396,277 | 4,234,480 | 13,265,222 | 12,951,058 | ||||||||||||||||||||||||
Facility | 518,234 | 547,123 | 1,502,303 | 1,627,828 | 430,201 | 456,918 | 1,315,761 | 1,338,499 | ||||||||||||||||||||||||
Corporate | 578,370 | 627,553 | 1,909,731 | 2,148,422 | 1,630,561 | 578,370 | 4,261,090 | 1,909,731 | ||||||||||||||||||||||||
Depreciation and amortization | 538,907 | 756,606 | 1,848,490 | 2,306,628 | 112,537 | 198,522 | 357,193 | 761,111 | ||||||||||||||||||||||||
Loss on disposal of assets | 308 | 42,574 | 5,773 | 56,490 | ||||||||||||||||||||||||||||
Impairment of goodwill | - | 1,101,471 | - | 1,101,471 | ||||||||||||||||||||||||||||
Loss (gain) on sale of assets | - | 308 | (34,356 | ) | 5,773 | |||||||||||||||||||||||||||
Total operating expenses | 17,464,483 | 18,395,002 | 54,093,415 | 54,746,527 | 14,315,288 | 13,864,390 | 42,814,730 | 43,637,859 | ||||||||||||||||||||||||
Operating income (loss) | 633,733 | (484,890 | ) | 1,973,548 | (129,751 | ) | ||||||||||||||||||||||||||
Operating income | 249,089 | 618,339 | 984,269 | 1,866,980 | ||||||||||||||||||||||||||||
Non-operating income (expenses): | ||||||||||||||||||||||||||||||||
Interest income | 10,749 | 19,149 | 37,424 | 65,241 | 8,438 | 10,749 | 25,313 | 37,424 | ||||||||||||||||||||||||
Interest expense and amortization of loan issue costs | (145,280 | ) | (207,626 | ) | (469,615 | ) | (582,014 | ) | (132,335 | ) | (145,280 | ) | (340,778 | ) | (469,615 | ) | ||||||||||||||||
Change in swap fair value | 91,986 | 180,059 | 133,444 | 226,520 | (69,892 | ) | 91,986 | (60,872 | ) | 133,444 | ||||||||||||||||||||||
Income (loss) before income tax expense | 591,188 | (493,308 | ) | 1,674,801 | (420,004 | ) | ||||||||||||||||||||||||||
Income from continuing operations before income tax expense | 55,300 | 575,794 | 607,932 | 1,568,233 | ||||||||||||||||||||||||||||
Income tax expense | (397,861 | ) | (189,738 | ) | (718,496 | ) | (212,592 | ) | (12,419 | ) | (553,899 | ) | (134,538 | ) | (847,176 | ) | ||||||||||||||||
Net income (loss) | $ | 193,327 | $ | (683,046 | ) | $ | 956,305 | $ | (632,596 | ) | ||||||||||||||||||||||
Income from continuing operations | 42,881 | 21,895 | 473,394 | 721,057 | ||||||||||||||||||||||||||||
(Loss) income from discontinued operations, net of taxes | (163,594 | ) | 171,432 | (106,862 | ) | 235,248 | ||||||||||||||||||||||||||
Net (loss) income | $ | (120,713 | ) | $ | 193,327 | $ | 366,532 | $ | 956,305 | |||||||||||||||||||||||
Per share information: | ||||||||||||||||||||||||||||||||
Net income (loss) per common share - basic | $ | 0.01 | $ | (0.04 | ) | $ | 0.06 | $ | (0.04 | ) | ||||||||||||||||||||||
Net income (loss) per common share - diluted | $ | 0.01 | $ | (0.04 | ) | $ | 0.05 | $ | (0.04 | ) | ||||||||||||||||||||||
Income from continuing operations per common share - basic and diluted | $ | - | $ | - | $ | 0.03 | $ | 0.04 | ||||||||||||||||||||||||
(Loss) income from discontinued operations per common share - basic and diluted | $ | (0.01 | ) | $ | 0.01 | $ | (0.01 | ) | $ | 0.01 | ||||||||||||||||||||||
Net (loss) income per common share - basic | $ | (0.01 | ) | $ | 0.01 | $ | 0.02 | $ | 0.06 | |||||||||||||||||||||||
Net (loss) income per common share - diluted | $ | (0.01 | ) | $ | 0.01 | $ | 0.02 | $ | 0.05 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended | ||||||||
January 31, | January 31, | |||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 956,305 | $ | (632,596 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,848,490 | 2,306,628 | ||||||
Stock compensation | 89,438 | 117,393 | ||||||
Amortization of deferred loan issuance costs | 72,960 | 69,608 | ||||||
Change in deferred rent | 6,076 | 30,899 | ||||||
Impairment of goodwill | - | 1,101,471 | ||||||
Changes to restricted cash | (64,537 | ) | (288,519 | ) | ||||
Change in swap fair value | (133,444 | ) | (226,520 | ) | ||||
Loss on disposal of assets | 5,773 | 56,490 | ||||||
Changes in deferred income taxes | 718,496 | 212,592 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables and other assets | (35,362 | ) | 171,101 | |||||
Accounts payable and accrued liabilities | (398,052 | ) | (969,001 | ) | ||||
Net cash provided by operating activities | 3,066,143 | 1,949,546 | ||||||
Cash flows from investing activities: | ||||||||
Collections on notes receivable | 347,888 | 605,058 | ||||||
Purchase of property and equipment | (759,860 | ) | (942,933 | ) | ||||
Capitalized licensing costs refunded | - | 24,946 | ||||||
Deposit refunded | (3,500 | ) | - | |||||
Proceeds from the sale of assets | 2,000 | 500 | ||||||
Net cash used in investing activities | (413,472 | ) | (312,429 | ) | ||||
Cash flows from financing activities: | ||||||||
Purchase of treasury stock | (1,700,291 | ) | (476,816 | ) | ||||
Repayment of credit facilities | (3,700,000 | ) | (3,172,777 | ) | ||||
Proceeds from credit facilities | 700,000 | - | ||||||
Cash proceeds from exercise of stock options | 14,350 | 13,040 | ||||||
Net cash used in financing activities | (4,685,941 | ) | (3,636,553 | ) | ||||
Net decrease in cash and cash equivalents | (2,033,270 | ) | (1,999,436 | ) | ||||
Cash and cash equivalents at beginning of period | 10,631,903 | 11,583,107 | ||||||
Cash and cash equivalents at end of period | $ | 8,598,633 | $ | 9,583,671 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for interest | $ | 401,350 | $ | 528,532 |
Nine Months Ended | ||||||||
January 31, | January 31, | |||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 366,532 | $ | 956,305 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Income (loss) from discontinued operations | 106,862 | (235,248 | ) | |||||
Depreciation and amortization | 357,193 | 761,111 | ||||||
Stock compensation | 35,553 | 79,739 | ||||||
Amortization of deferred loan issuance costs | 104,760 | 72,959 | ||||||
Change in deferred rent | (42,958 | ) | 6,076 | |||||
Change in swap fair value | 60,872 | (133,444 | ) | |||||
(Gain) loss on disposal of assets | (34,356 | ) | 5,773 | |||||
Changes in deferred income taxes | 100,032 | 718,496 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables and other assets | 112,942 | (15,338 | ) | |||||
Accounts payable and accrued liabilities | 109,987 | (387,653 | ) | |||||
Net cash provided by operating activities | 1,277,419 | 1,828,776 | ||||||
Cash flows from investing activities: | ||||||||
Collections on notes receivable | - | 347,888 | ||||||
Purchase of property and equipment | (171,300 | ) | (640,444 | ) | ||||
(Contribution to) distribution from discontinued operations | (61,669 | ) | 1,320,328 | |||||
Deposit refunded | - | (3,500 | ) | |||||
Proceeds from the sale of assets | 13,143,373 | 2,000 | ||||||
Net cash provided by investing activities | 12,910,404 | 1,026,272 | ||||||
Cash flows from financing activities: | ||||||||
Purchase of treasury stock | - | (1,700,291 | ) | |||||
Repayment of credit facilities | (8,000,000 | ) | (3,700,000 | ) | ||||
Proceeds from credit facilities | - | 700,000 | ||||||
Interest rate swap termination | 73,800 | - | ||||||
Stock issuance proceeds, net of issuance costss | 2,154,744 | - | ||||||
Cash proceeds from exercise of stock options | - | 14,350 | ||||||
Net cash used in financing activities | (5,771,456 | ) | (4,685,941 | ) | ||||
Cash flows from discontinued operations: | ||||||||
Cash flows provided by operating activities | 136,993 | 1,301,905 | ||||||
Cash flows used in investing activities | (186,643 | ) | (119,417 | ) | ||||
Cash flows provided by (used in) financing activities | 61,669 | (1,320,328 | ) | |||||
Net cash provided by (used in) discontinued operations | 12,019 | (137,840 | ) | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 8,428,386 | (1,968,733 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 11,877,994 | 12,626,215 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 20,306,380 | $ | 10,657,482 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for interest | $ | 186,549 | $ | 401,350 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
The interim financial information included herein is unaudited. However, the accompanying condensed consolidated financial statements include all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly our condensed consolidated balance sheets at January 31, 20182019 and April 30, 2017,2018, condensed consolidated statements of operations for the three and nine months ended January 31, 20182019 and 2017,2018, and condensed consolidated statements of cash flows for the nine months ended January 31, 20182019 and 2017.2018. Although we believe the disclosures in these financial statements are adequate to make the interim information presented not misleading, certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted in this Form 10-Q pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended April 30, 20172018 and the notes thereto included in our Annual Report on Form 10-K. The results of operations for the three and nine months ended January 31, 20182019 are not necessarily indicative of the results expected for the full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period and disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad debts, investments, intangible assets and goodwill, property, plant and equipment, income taxes, employment benefits and contingent liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Certain reclassifications have been made to conform prior year financial information to the current period presentation. Those reclassifications did not impact operating income, net income, working capital or stockholders’ equity. As of July 27, 2018, Club Fortune met the requirements for presentation as assets held for sale and discontinued operations under generally accepted accounting principles (see Note 13). Club Fortune was sold on December 31, 2018. Accordingly, the operations of Club Fortune have been classified as discontinued operations.
Note 2. CriticalSignificant Accounting Policies
Revenue Recognition
We recordOn May 1, 2018, we adopted Accounting Standards Codification Topic 606,Revenue from Contracts with Customers (“ASC 606”) using a modified retrospective approach. See Note 2, “New Accounting Pronouncements and Legislation Issued,” for a discussion of the new revenue standard and its impact on our unaudited Condensed Consolidated Financial Statements. Prior to the adoption of ASC 606, complimentary revenues from casino operations. The retail value ofpertaining to food and beverage and other services furnished to guests without charge iswere included in gross revenuerevenues and deducted as promotional allowances. Netexcluded from net revenues do not include the retail amount of food, beverage and other items provided gratuitously to customers. These amounts are included inthrough promotional allowances in the accompanying condensed consolidated statementsunaudited Condensed Consolidated Statements of operations. We recordOperations. Subsequent to the redemptionadoption of couponsASC 606, complimentary revenues are included in food and pointsbeverage, and other revenues, as appropriate, in the unaudited Condensed Consolidated Statements of Operations. Complimentary other revenues, whether provided as nondiscretionary complimentaries or discretionary complimentaries, were as follows for cash as a reduction of revenue. The estimated retail value of providing such promotional allowances is as follows:continuing operations:
Three Months Ended | Nine Months Ended | |||||||||||||||
January 31, 2018 | January 31, 2017 | January 31, 2018 | January 31, 2017 | |||||||||||||
Food and beverage | $ | 1,539,018 | $ | 1,665,085 | $ | 4,632,274 | $ | 5,078,683 | ||||||||
Other | 66,051 | 56,993 | 199,018 | 173,297 | ||||||||||||
Promotional allowances | $ | 1,605,069 | $ | 1,722,078 | $ | 4,831,292 | $ | 5,251,980 |
Three Months Ended | Nine Months Ended | |||||||||||||||
January 31, 2019 | January 31, 2018 | January 31, 2019 | January 31, 2018 | |||||||||||||
Food and beverage | $ | 992,595 | $ | 1,012,407 | $ | 2,863,087 | $ | 2,991,976 | ||||||||
Other | 40,995 | 40,414 | 122,552 | 125,530 | ||||||||||||
Total complimentries | $ | 1,033,590 | $ | 1,052,821 | $ | 2,985,639 | $ | 3,117,506 |
The estimated cost of providing such complimentary services that is included in casino expense in the condensed consolidated statements of operations was as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
January 31, 2018 | January 31, 2017 | January 31, 2018 | January 31, 2017 | |||||||||||||
Food and beverage | $ | 1,425,074 | $ | 1,508,443 | $ | 4,354,491 | $ | 4,646,134 | ||||||||
Other | 58,940 | 48,609 | 186,648 | 159,824 | ||||||||||||
Total cost of complimentary services | $ | 1,484,014 | $ | 1,557,052 | $ | 4,541,139 | $ | 4,805,958 |
Fair Value
U.S. generally accepted accounting principles defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are as follows:
5 |
Level 1 – Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Other inputs that are observable directly or indirectly such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs for which there is little or no market data and for which we make our own assumptions about how market participants would price the assets and liabilities.
The following describes the valuation methodologies used by us to measure fair value:
Real estate held for sale is recorded at fair value less selling costs.
Goodwill and indefinite lived intangible assets are recorded at carrying value and tested for impairment annually, or more frequently, using projections of discounted future cash flows.
Interest rate swaps are adjusted on a recurring basis pursuant to accounting standards for fair value measurements. We categorize our interest rate swap as Level 2 for fair value measurement.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are primarily notes receivable, cash and cash equivalents, accounts receivable and payable, and long term debt. Management performs periodic evaluations of the collectability of these notes and accounts receivable. Our cash deposits are held with large, well-known financial institutions, and, at times, such deposits may be in excess of the federally insured limit. The recorded value of cash, accounts receivable and payable, approximate fair value based on their short term nature; the recorded value of long term debt approximates fair value as interest rates approximate current market rates.
New Accounting Pronouncements and Legislation Issued
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company is currently evaluating the impact this guidance will have on its financial position and results of operations.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers, which introduced a new accounting standard forrelated to revenue recognition, which requires entities to recognizeASC 606. Under ASC 606, recognition of revenue occurs when it transfersa customer obtains control of promised goods or services to customers, in an amount that reflects the consideration to which the entity expects to be entitledreceive in exchange for those goods or services. The new standard supersedes the existing accounting guidance for revenue recognition, including industry-specific guidance, and amends certain accounting guidance for recognition of gains and losses on the transfer of non-financial assets. For public companies,In addition, the new guidance isrevenue standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. In July 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers - Deferral of the Effective Date, which deferred the implementation of ASC 606 to be effective for annual reporting periods (including interim periods within those periods)fiscal years beginning after December 15, 2017.
The Company plans to adopt this standard using the full retrospective method inadopted ASC 606 during the first quarter 2019 using the modified retrospective approach to all contracts as of fiscal 2019. Thisthe date of initial application, which was May 1, 2018. Adoption of the new revenue standard will affectprincipally affected (1) how we measure the Company’s accounting policy in relationliability associated with our loyalty program and (2) the classification and, as it related to the non-discretionarymeasurement of revenues and expenses between gaming; food and beverage; and retail, and other. The modified retrospective approach required the Company to recognize the impact of adopting ASC 606 as a cumulative effect adjustment to our beginning retained earnings, which was a decrease of $35,425 as of May 1, 2018. The cumulative effect adjustment related exclusively to re-measuring the liability associated with the loyalty program transactions. Based onfrom a clarification fromcost approach to an approach that reflects the FASB, complementary revenue represents a consideration payable to a customer and therefore is to be treated as a deduction to revenue at the timeestimated stand alone selling price (SSP) of the transactionreward credits and atcertain tier benefits. In addition, the price of the complementary being offered. The Company expects the majority of such amounts will offset casino revenues. The standard also changes the presentation of promotional allowances to be shown as a direct reduction of gross revenues instead of being presented as a separate line on the Statement of Operations. The Company also expects the accounting for our player program to be impacted, with possible changes to the timing and/or classification of certain transactions within revenues and between revenues and operating expenses as we transition from the immediate revenue/cost accrual model to the deferred revenue model. Additionally,modified retrospective approach required the Company expectsto provide disclosures describing the estimated costs of providing promotional allowances will no longer be allocated primarily to casino expenses. The quantitative effects of these changes have not yet been determined and are still being analyzed.financial statement line items impacted by the new revenue standard (see below).
6 |
Prior to the adoption of ASC 606, we determined our liability for loyalty reward credits based on the estimated costs of goods and services to be provided and estimated redemption rates. Upon adoption of ASC 606, points awarded under our loyalty program constitute a material right and, as such, represent a performance obligation associated with the gaming contracts. Therefore, ASC 606 required us to allocate the revenues associated with the players’ activity between gaming revenue and the estimated SSP of the reward credits.
In addition to the above, prior to the adoption of ASC 606, complimentary revenues pertaining to food and beverage and retail were included in gross revenues and excluded from net revenues through promotional allowances in the unaudited Condensed Consolidated Statements of Operations and the estimated costs of providing such complimentary goods and services were included as gaming expenses in the unaudited Condensed Consolidated Statements of Operations. However, subsequent to the adoption of ASC 606, food and beverage, and other services furnished to our guests on a complimentary basis is measured at the estimated SSP and included as revenues within food and beverage and other as appropriate, in the unaudited Condensed Consolidated Statements of Operations, with a corresponding decrease in casino revenues. Additionally, subsequent to the adoption of ASC 606, the costs of providing such complimentary goods and services is included as expenses within food and beverage and other as appropriate, in the unaudited Condensed Consolidated Statements of Operations.
The amount by which each line item in continuing operations in our unaudited Condensed Consolidated Statement of Operations for the three and nine months ended January 2017,31, 2019 was affected by the new revenue standard as compared with the accounting guidance that was in effect before the change was as follows:
For the three months ended January 31, 2019 | ||||||||||||
As Reported - With Adoption of ASC 606 | As Adjusted - Without Adoption of ASC 606 | Effect of Accounting Change Increase/(Decrease) | ||||||||||
Revenues: | ||||||||||||
Casino | $ | 11,547,379 | $ | 12,580,969 | $ | (1,033,590 | ) | |||||
Food and beverage | 2,665,342 | 2,665,342 | - | |||||||||
Other | 351,656 | 351,656 | - | |||||||||
Gross revenues | 14,564,377 | 15,597,967 | (1,033,590 | ) | ||||||||
Less promotional allowances | - | (1,033,590 | ) | 1,033,590 | ||||||||
Net revenues | 14,564,377 | 14,564,377 | - | |||||||||
Expenses: | ||||||||||||
Casino | 5,342,905 | 6,215,934 | (873,029 | ) | ||||||||
Food and beverage | 2,345,769 | 1,503,539 | 842,230 | |||||||||
Other | 57,038 | 26,239 | 30,799 | |||||||||
Marketing and administrative | 4,396,277 | 4,396,277 | - | |||||||||
Facility | 430,201 | 430,201 | - | |||||||||
Corporate | 1,630,561 | 1,630,561 | - | |||||||||
Depreciation and amortization | 112,537 | 112,537 | - | |||||||||
Total operating expenses | 14,315,288 | 14,315,288 | - | |||||||||
Operating income | $ | 249,089 | $ | 249,089 | $ | - | ||||||
Net income from continuing operations | $ | 42,881 | $ | 42,881 | $ | - |
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For the nine months ended January 31, 2019 | ||||||||||||
As Reported - With Adoption of ASC 606 | As Adjusted - Without Adoption of ASC 606 | Effect of Accounting Change Increase/(Decrease) | ||||||||||
Revenues: | ||||||||||||
Casino | $ | 35,051,766 | $ | 38,033,727 | $ | (2,981,961 | ) | |||||
Food and beverage | 7,675,267 | 7,675,267 | - | |||||||||
Other | 1,071,966 | 1,071,966 | - | |||||||||
Gross revenues | 43,798,999 | 46,780,960 | (2,981,961 | ) | ||||||||
Less promotional allowances | - | (2,985,639 | ) | 2,985,639 | ||||||||
Net revenues | 43,798,999 | 43,795,321 | 3,678 | |||||||||
Expenses: | ||||||||||||
Casino | 16,684,984 | 19,193,189 | (2,508,205 | ) | ||||||||
Food and beverage | 6,793,978 | 4,375,020 | 2,418,958 | |||||||||
Other | 170,858 | 77,933 | 92,925 | |||||||||
Marketing and administrative | 13,265,222 | 13,265,222 | - | |||||||||
Facility | 1,315,761 | 1,315,761 | - | |||||||||
Corporate | 4,261,090 | 4,261,090 | - | |||||||||
Depreciation and amortization | 357,193 | 357,193 | - | |||||||||
Gain on sale of assets | (34,356 | ) | (34,356 | ) | - | |||||||
Total operating expenses | 42,814,730 | 42,811,052 | 3,678 | |||||||||
Operating income | $ | 984,269 | $ | 984,269 | $ | - | ||||||
Net income from continuing operations | $ | 473,394 | $ | 473,394 | $ | - |
Restricted Cash
In November 2016, the FASB issued Accounting Standards UpdateASU No. 2017-04 ("2016-18, Statement of Cash Flows - Restricted Cash (Topic 230), which amends the existing guidance relating to the disclosure of restricted cash and restricted cash equivalents on the statement of cash flows. The ASU 2017-04") "Intangibles - Goodwillrequires that amounts generally described as restricted cash or restricted cash equivalents should be included with cash and Other (Topic 350): Simplifyingcash equivalents when reconciling the Accounting for Goodwill Impairment." ASU 2017-04 removesbeginning-of-period and end-of-period total amounts shown on the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amountstatement of goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning after 15 December 2019, and early adoption is permitted.cash flows. The Company adopted this guidance on May 1, 2018 on a retrospective basis and the updated disclosures are reflected for the periods presented in the second quarterCondensed Consolidated Statements of fiscalCash Flows. For the nine months ended January 31, 2018, with no material impact on its financial position or resultsthe change in restricted cash of operations.($64,537) was previously reported within net cash provided by operating activities.
A variety of proposed or otherwise potential accounting guidance is currently under study by standard-setting organizations and certain regulatory agencies. Due to the tentative and preliminary nature of such proposed accounting guidance, the Company has not yet determined the effect, if any, that the implementation of such proposed accounting guidance would have on its consolidated financial statements.
Note 3.Restricted Cash
As of January 31, 20182019 and April 30, 2017,2018, we maintained $2,058,849$2,485,843 and $1,994,312,$2,369,063, respectively, in restricted cash, which consists of player-supported jackpot funds for our Washington operations.
Note 4.Notes Receivable
G Investments, LLC
As of January 31, 2018 and April 30, 2017,2019, we had a note receivablealso have restricted cash of $35,205 and $383,093, respectively, with no valuation allowance, due from G Investments, LLC resulting from$732,620 held in escrow as required by the sale of the Colorado Grande Casino on May 25, 2012. The initial amount was $2,300,000, requiring $40,000 monthly payments, bearing interest at 6% per annum through the amended maturity date of February of 2018, and is secured with the assets of the Colorado Grande Casino, pledge of membership interest in G Investments, LLC (“GI”), and a personal guaranty by GI’s principal. This note receivable was paid as of February 2018.agreement to sell Club Fortune casino.
Note 5.4. Goodwill and Intangible Assets
In connection with our acquisitions of the Washington mini-casinos on May 12, 2009, July 23, 2010 and July 18, 2011, the South Dakota slot route on January 27, 2012, and the Club Fortune Casino in Nevada on December 1, 2015, we have goodwill and intangible assets of $20,631,943,$16,322,702, net of amortization for intangible assets with finite lives. Goodwill represents the excess of the purchase price over the fair market value of net assets acquired.
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The change in the carrying amount of goodwill and other intangible assets for the nine months ended January 31, 2018,2019, is as follows:
Total |
Goodwill | Other Intangibles, net | ||||||||||
Balance as of April 30, 2017 | $ | 21,030,916 | $ | 16,923,588 | $ | 4,107,328 | ||||||
Current year amortization | (398,973 | ) | - | (398,973 | ) | |||||||
Balance as of January 31, 2018 | $ | 20,631,943 | $ | 16,923,588 | $ | 3,708,355 |
Total |
Goodwill | Other | ||||||||||
Balance as of April 30, 2018 | $ | 16,381,639 | $ | 14,092,154 | $ | 2,289,485 | ||||||
Write off Club Fortune registration | (43,956 | ) | - | (43,956 | ) | |||||||
Current year amortization | (14,981 | ) | - | (14,981 | ) | |||||||
Balance as of January 31, 2019 | $ | 16,322,702 | $ | 14,092,154 | $ | 2,230,548 |
Goodwill and net intangibles assets by segment as of January 31, 2018,1, 2019, are as follows:
Total | Goodwill | Other Intangibles, net | Total | Goodwill | Other Intangibles, net | |||||||||||||||||||
Washington | $ | 15,984,117 | $ | 14,092,154 | $ | 1,891,963 | $ | 15,954,154 | $ | 14,092,154 | $ | 1,862,000 | ||||||||||||
South Dakota | 157,143 | - | 157,143 | |||||||||||||||||||||
Nevada | 4,078,179 | 2,831,434 | 1,246,745 | |||||||||||||||||||||
Corporate | 412,504 | - | 412,504 | 368,548 | - | 368,548 | ||||||||||||||||||
Total | $ | 20,631,943 | $ | 16,923,588 | $ | 3,708,355 | $ | 16,322,702 | $ | 14,092,154 | $ | 2,230,548 |
Intangible assets are generally amortized on a straight line basis over the useful lives of the assets. State gaming registration and trade names are not amortizable. A summary of intangible assets and accumulated amortization as of January 31, 2018,2019, are as follows:
Gross Carrying Amount |
Accumulated Amortization | Net | ||||||||||
Customer relationships | $ | 8,673,321 | $ | (7,920,025 | ) | $ | 753,296 | |||||
Non-compete agreements | 1,379,000 | (1,348,445 | ) | 30,555 | ||||||||
State gaming registration | 412,504 | - | 412,504 | |||||||||
Trade names | 2,512,000 | - | 2,512,000 | |||||||||
Total | $ | 12,976,825 | $ | (9,268,470 | ) | $ | 3,708,355 |
Goodwill represents the excess of the purchase price over the fair market value of net assets acquired. Goodwill for our Nevada operations was $2.8 million as of January 31, 2018. In the third quarter of 2018, due to continued lower than expected results for our Nevada reporting unit, we determined sufficient indication existed to require performance of an interim goodwill impairment analysis for the Nevada reporting unit. The Company performed a preliminary impairment assessment of goodwill associated with the Nevada operations as of January 31, 2018. The fair value calculation includes multiple assumptions and estimates, including the projected cash flows and discount rates. Changes in these assumptions and estimates could result in goodwill impairment that could materially adversely impact our financial position or results of operations. Based on the preliminary impairment assessment performed, no impairment charge was required.
The remaining weighted average useful life of acquired intangibles is 3.7 years for customer relationships and 0.8 years for non-compete agreements. The estimated future annual amortization of intangible assets, which excludes trade names and state gaming registration, is as follows:
Period | Amount | |||
February 2018-January 2019 | $ | 334,803 | ||
February 2019-January 2020 | 117,143 | |||
February 2020-January 2021 | 117,143 | |||
February 2021-January 2022 | 117,143 | |||
Thereafter | 97,619 | |||
Total | $ | 783,851 |
Gross Carrying Amount |
Accumulated Amortization | Net | ||||||||||
Customer relationships | $ | 6,753,321 | $ | (6,753,321 | ) | $ | - | |||||
Non-compete agreements | 1,018,000 | (1,018,000 | ) | - | ||||||||
State gaming registration | 368,548 | - | 368,548 | |||||||||
Trade names | 1,862,000 | - | 1,862,000 | |||||||||
Total | $ | 10,001,869 | $ | (7,771,321 | ) | $ | 2,230,548 |
Note 6.5. Property and Equipment
Property and equipment at January 31, 20182019 and April 30, 2017,2018, consist of the following:
Estimated | ||||||||||
January 31, | April 30, | Service Life | ||||||||
2018 | 2017 | in Years | ||||||||
Building and improvements | $ | 7,803,486 | $ | 7,762,201 | 15-39 | |||||
Gaming equipment | 5,478,794 | 5,300,898 | 3-5 | |||||||
Furniture and office equipment | 4,750,979 | 4,506,639 | 3-7 | |||||||
Land and improvements | 2,387,750 | 2,387,750 | n/a | |||||||
Leasehold improvements | 1,749,130 | 1,556,824 | 7-20 | |||||||
Construction in progress | 114,727 | 80,023 | ||||||||
22,284,866 | 21,594,335 | |||||||||
Less accumulated depreciation | (9,023,581 | ) | (7,635,620 | ) | ||||||
Property and equipment, net | $ | 13,261,285 | $ | 13,958,715 |
Estimated | ||||||||||||
January 31, | April 30, | Service Life | ||||||||||
2019 | 2018 | in Years | ||||||||||
Building and improvements | $ | 1,661,367 | $ | 1,653,534 | 15-39 | |||||||
Gaming equipment | 2,400,815 | 2,391,596 | 3-5 | |||||||||
Furniture and office equipment | 3,579,016 | 3,500,778 | 3-7 | |||||||||
Land and improvements | 87,750 | 87,750 | n/a | |||||||||
Leasehold improvements | 1,718,835 | 1,711,641 | 7-20 | |||||||||
Construction in progress | 88,539 | 57,916 | ||||||||||
9,536,322 | 9,403,215 | |||||||||||
Less accumulated depreciation | (6,476,203 | ) | (6,148,848 | ) | ||||||||
Property and equipment, net | $ | 3,060,119 | $ | 3,254,367 |
Note 7.6. Long-Term Debt
Our long-term financing obligations are as follows:
January 31, | April 30, | |||||||
2019 | 2018 | |||||||
$23.0 million reducing revolving credit agreement, LIBOR plus an Applicable Margin, $625,000 quarterly reductions beginning January 31, 2016 through November 30, 2020, and the remaining principal due on the maturity date of November 30, 2020, net of accumulated debt issuance costs of $0 and $104,760 at January 31, 2019 and April 30, 2018, respectively. | $ | - | $ | 7,895,240 | ||||
Total long-term financing obligations | $ | - | $ | 7,895,240 |
9 |
January 31, | April 30, | |||||||
2018 | 2017 | |||||||
$23.0 million reducing revolving credit agreement, LIBOR plus an Applicable Margin, $625,000 quarterly reductions beginning January 31, 2016 through November 30, 2020, and the remaining principal due on the maturity date of November 30, 2020, net of accumulated debt issuance costs of $165,630 and $238,589 at January 31, 2018 and April 30, 2017, respectively. | $ | 9,134,370 | $ | 12,061,411 | ||||
Less: current portion | - | - | ||||||
Total long-term financing obligations | $ | 9,134,370 | $ | 12,061,411 |
On November 30, 2015, the Company amended its existing credit agreement with Mutual of Omaha Bank to increase the lending commitment to $23 million. The Amended and Restated Credit Agreement (“Credit Facility”) matures on November 30, 2020, and is secured by liens on substantially allCompany used a portion of the real and personal propertyproceeds from the sale of the Company and its subsidiaries. The interest rate on the borrowing is based on LIBOR plus an Applicable Margin, determined quarterly beginning April 1, 2016, based on the total leverage ratio for the trailing twelve months. The interest rate on the balance as of January 31, 2018, is 4.05%. In addition, the Company was requiredClub Fortune to fix the interest rate on at least 50% of the credit facility through a swap agreement.
As of January 31, 2018, principal reductions due on the Credit Facility are as follows:
February 1, 2018 – January 31, 2019 | $ | - | ||
February 1, 2019 – January 31, 2020 | - | |||
February 1, 2020 – November 30, 2020 | 9,300,000 | |||
Total payments | 9,300,000 | |||
Unamortized debt discount | (165,630 | ) | ||
Total long-term debt | $ | 9,134,370 |
The unamortized debt discount above consists of debt costs paid directly to the lender. The discount is amortized using the effective interest method over the period of the Credit Facility through interest expense.
During the quarter, we paid $1.3 million to reducepay off the outstanding balance of the Credit Facility. As of January 31, 2018, we have $8.0 million available to borrow per the Credit Agreement.
The Credit Facility contains customary covenants for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance ofprincipal under the Company’s assetscredit agreement with Mutual of Omaha Bank on December 31, 2018. The remaining loan issuance costs were written off and covenants restricting our ability to merge, transfer ownership, incur additional indebtedness, encumber assetsappear in Interest expense and make certain investments. The Credit Facility also contains covenants requiringamortization of loan issue costs in the Company to maintain certain financial ratios including a maximum total leverage ratiocondensed consolidated statements of 2.75 to 1.00 from February 1, 2017 through January 31, 2018, and 2.50 to 1.00 from February 1, 2018 until maturity; and lease adjusted fixed charge coverage ratio of no less than 1.15 to 1.00. We are in compliance with the covenant requirements of the Credit Facility as of January 31, 2018.operations.
Note 8.7. Interest Rate Swap
We arewere required by the Credit Facility to have a secured interest rate swap for at least 50% of the Credit Facility commitment. On December 28, 2015, the Company entered into a swap transaction with Mutual of Omaha Bank (“MOOB”), which hashad a calculation period as of the tenth day of each month through the maturity date of the Credit Facility. As of January 31, 2018, the Company had one outstanding interest rate swap with MOOB with a notional amount of $8,687,500 at a swap rate of 1.77%, which as of January 31, 2018, effectively converts $8,687,500 of our floating-rate debt to a synthetic fixed rate of 4.27%. Under the terms of the swap agreement, the Company payspaid a fixed rate of 1.77% and receivesa received variable rate based on one-month LIBOR as of the first day of each floating-rate calculation period. UnderThe Company terminated its rate swap as part of the International Swap Dealers Association, Inc. (“ISDA”) confirmation, the floating index as of JanuaryDecember 31, 2018 is set at 1.55%.loan repayment.
The Company did not designate the interest rate swap as a cash flow hedge and the interest rate swap did not qualify for hedge accounting under ASC Topic 815. Changes in our interest rate swap fair value are recorded in our condensed consolidated statements of operations. Each quarter, the Company receives fair value statements from the counterparty, MOOB. The fair value of the interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As a result of our evaluation and cancellation of our interest rate swap, as of January 31, 2018,2019, we recorded a $91,986$69,892 and $133,444 increase$60,872 decrease in our interest rate swap fair value for the three and nine months ended January 31, 2018, respectively.2019. As of January 31, 2018 and April 30, 2017,2018, our interest rate swap fair value is a $97,097$0 and $134,672 asset, and $36,346 liability, respectively, which is included in other assets as of January 31, 20182019 and other long-term liabilities as of April 30, 20172018 on the condensed consolidated balance sheets.
Note 9.8. Equity Transactions and Stock Option Plan
We have obligations under our 2009 Equity Incentive Plan (the “2009 Plan”). On April 14, 2009, our shareholders approved the 2009 Plan providing for the granting of awards to our directors, officers, employees and independent contractors. The number of common stock shares reserved for issuance under the 2009 Plan is 1,750,000 shares. The 2009 Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has complete discretion under the plan regarding the vesting and service requirements, exercise price and other conditions. Under the 2009 Plan, the Committee is authorized to grant the following types of awards:
· | Stock Options including Incentive Stock Options (“ISO”), |
· | Options not intended to qualify as ISOs, |
· | Stock Appreciation Rights, and |
· | Restricted Stock Grants. |
Our practice has been to issue new or treasury shares upon the exercise of stock options. Stock option rights granted under the 2009 Plan generally have 5 or 10 year terms and vest in two or three equal annual installments, with some options grants providing for immediate vesting for a portion of the grant.
In October of 2017,During the Committee granted 26,430 shares ofquarter ended January 31, 2019, there were no stock to the board of directors as $10,000 per director in annual compensation paid in the form of a stock grant with immediate vesting. The Committee also granted 57,000 shares of restricted stock in October 2017 to certain management to vest over three years.grants or forfeitures. As of January 31, 2018,2019, there was $135,278were 38,000 unvested stock grants at a weighted average $2.27 value per share, as well as $71,883 of unamortized compensation cost related to stock grants, which is expected to be recognized over approximately 2.81.7 years. A summary of stock grant activity under our share-based payment plan for the nine months ended January 31, 2018 is presented below:
For the Nine Months Ended January 31, 2018 | ||||||||
Grants | Shares | Weighted Average Grant Date Value (per share) | ||||||
Unvested at beginning of year | 20,400 | $ | 1.98 | |||||
Issued | 83,430 | $ | 2.27 | |||||
Vested | (34,630 | ) | $ | 2.19 | ||||
Forfeited | - | |||||||
Unvested at end of year | 69,200 | $ | 2.23 |
10 |
A summary of stock option activity under our share-based payment plan for the ninethree months ended January 31, 20182019 is presented below:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Options | Price | Term (Year) | Value | |||||||||||||
Outstanding at April 30, 2017 | 693,500 | $ | 1.10 | |||||||||||||
Granted | - | |||||||||||||||
Exercised | (17,500 | ) | $ | 0.82 | ||||||||||||
Forfeited or expired | - | |||||||||||||||
Outstanding at January 31, 2018 | 676,000 | $ | 1.10 | 4.5 | $ | 1,065,760 | ||||||||||
Exercisable at January 31, 2018 | 676,000 | $ | 1.10 | 4.5 | $ | 1,065,760 | ||||||||||
Available for grant at January 31, 2018 | 507,611 |
Options | Weighted Average Excersice Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at April 30, 2018 | 676,000 | $ | 1.10 | |||||||||||||
Granted | - | |||||||||||||||
Exercised | - | |||||||||||||||
Forfeited or expired | - | |||||||||||||||
Outstanding at January 31, 2019 | 676,000 | $ | 1.10 | 3.5 | $ | 923,800 | ||||||||||
Exercisable at January 31, 2019 | 676,000 | $ | 1.10 | 3.5 | $ | 923,800 | ||||||||||
Available for grant at January 31, 2019 | 507,611 |
Compensation cost for stock options granted is based on the fair value of each award, measured by applying the Black-Scholes model. As of January 31, 2018,2019, there was no unamortized compensation cost related to stock options.
On November 29, 2018, in order to facilitate and avoid delays associated with obtaining the approvals of the Washington State Gambling Commission required in order to consummate the merger with Maverick Casinos, the Company issued and sold to Maverick Casinos 890,390 shares of its common stock representing 5.0% of the outstanding shares of common stock of the Company, in a private placement, for $2.42 per share, the closing market price for shares of the Company’s common stock on the last trading day prior to the issuance, for an aggregate purchase price of $2,154,744, paid in cash. The shares are held in escrow pending the merger. See Note 14 Merger Agreement.
Treasury Stock
In July 2016, our board of directors approved a $2.0 million stock repurchase program to purchase our common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements, loan covenants and other factors. The repurchase plan does not obligate the Company to acquire any specified number or value of common stock. During the three months ended January 31, 2018,2019, the Company did not repurchase any shares. During the nine months ended January 31, 2018, the Company repurchased 788,301 shares at a weighted average price of $2.16 per share, costing $1,701,597 (including commissions). As of January 31, 2018,2019, $1.7 million remains available under the share repurchase authorization.
Warrants
On November 7, 2011, we closed on the sale of 2,625,652 shares of our common stock to certain investors through a registered direct offering. In addition, for each share of our common stock purchased by an investor, we issued to such investor a warrant to purchase 0.75 shares of our common stock. The warrants had an exercise price of $2.18 per share and were exercisable for five years from the initial exercise date. During the first week of May 2017, warrants were exercised in cashless transactions and the Company issued 36,689 shares as a result. The remaining warrants expired on May 7, 2017.
Note 10.9. Computation of Earnings Per Share
The following is presented as a reconciliation of the numerators and denominators of basic and diluted earnings per share computations:
Three Months Ended | Nine Months Ended | |||||||||||||||
January 31, | January 31, | January 31, | January 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net income from continuing operations | $ | 42,881 | $ | 21,895 | $ | 473,394 | $ | 721,057 | ||||||||
Net (loss) income from discontinued operations | $ | (163,594 | ) | $ | 171,432 | $ | (106,862 | ) | $ | 235,248 | ||||||
Net (loss) income | $ | (120,713 | ) | $ | 193,327 | $ | 366,532 | $ | 956,305 | |||||||
Denominator: | ||||||||||||||||
Basic weighted average number of common shares outstanding | 17,485,106 | 16,829,581 | 17,060,903 | 17,029,822 | ||||||||||||
Dilutive effect of common stock options | 368,727 | 378,560 | 354,095 | 364,870 | ||||||||||||
Diluted weighted average number of common shares outstanding | 17,853,833 | 17,208,141 | 17,414,998 | 17,394,692 | ||||||||||||
Per share information: | ||||||||||||||||
Income from continuing operations per common share - basic and diluted | $ | 0.00 | $ | 0.00 | $ | 0.03 | $ | 0.04 | ||||||||
(Loss) income from discontinued operations per common share - basic and diluted | $ | (0.01 | ) | $ | 0.01 | $ | (0.01 | ) | $ | 0.01 | ||||||
Net (loss) income per common share - basic | $ | (0.01 | ) | $ | 0.01 | $ | 0.02 | $ | 0.06 | |||||||
Net (loss) income per common share - diluted | $ | (0.01 | ) | $ | 0.01 | $ | 0.02 | $ | 0.05 |
Three Months Ended | Nine Months Ended | |||||||||||||||
January 31, | January 31, | January 31, | January 31, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Basic and Diluted: | ||||||||||||||||
Net income (loss) available to common shareholders | $ | 193,327 | $ | (683,046 | ) | $ | 956,305 | $ | (632,596 | ) | ||||||
Denominator: | ||||||||||||||||
Basic weighted average number of common shares outstanding | 16,829,581 | 17,648,165 | 17,029,822 | 17,723,382 | ||||||||||||
Dilutive effect of common stock options and warrants | 378,560 | - | 364,870 | - | ||||||||||||
Diluted weighted average number of common shares outstanding | 17,208,141 | 17,648,165 | 17,394,692 | 17,723,382 | ||||||||||||
Net income (loss) per common share - basic | $ | 0.01 | $ | (0.04 | ) | $ | 0.06 | $ | (0.04 | ) | ||||||
Net income (loss) per common share - diluted | $ | 0.01 | $ | (0.04 | ) | $ | 0.05 | $ | (0.04 | ) |
11 |
Note 11.10. Commitments and Contingencies
We are party to contracts in the ordinary course of business, including leases for real property and operating leases for equipment.
The expected remaining future annual minimum lease payments as of January 31, 2018,2019, are as follows:
Period | Total | Total | ||||||
February 2018 - January 2019 | $ | 3,183,540 | ||||||
February 2019 - January 2020 | 2,665,971 | $ | 3,239,199 | |||||
February 2020 - January 2021 | 2,538,021 | 3,270,147 | ||||||
February 2021 - January 2022 | 1,920,858 | 2,669,607 | ||||||
February 2022 - January 2023 | 1,083,481 | |||||||
Thereafter | 437,258 | 891,765 | ||||||
$ | 10,745,648 | $ | 11,154,199 |
We continue to pursue additional development opportunities that may require, individually and in the aggregate, significant commitments of capital, extensions of credit, up-front payments to third parties and guarantees by us of third-party debt.
We indemnified our officers and directors for certain events or occurrences while the director or officer is or was serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however, we have a Directors and Officers Liability Insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid, provided that such insurance policy provides coverage.
Note 12.11. Income Taxes
For the three months ended January 31, 2019 and 2018, our effective tax rates from continuing operations were 22% and 96%, respectively. For the nine months ended January 31, 2019 and 2018, our effective tax rates from continuing operations were 22% and 54%, respectively. The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017. The Tax Act reduces the US federal corporate tax rate from 35% to 21%. At January 31,2018, we have not completed our accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances. For any amounts we have not been able to make a reasonable estimate, we will continue to account for those items based on our existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law. The Company provisionally remeasured its net deferred tax liabilities to incorporate the future lower corporate tax rate resulting in a $291 thousand reduction to net deferred tax assets.
Given the significance of the legislation, the U.S. Securities and Exchange Commission (the "SEC") staff issued Staff Accounting Bulletin ("SAB") No. 118 (SAB 118), which allows registrants to record provisional amounts during a onePrior year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed. SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Act.
Several provisions of the Tax Act have significant impact on our U.S. tax attributes, generally consisting of credits, loss carry-forwards, and reserved notes. Although we have made a reasonable estimate of the gross amounts of the attributes disclosed, the Company is continuing to analyze certain aspects of the Tax Act and is refining its calculations which could potentially affect the measurements of these balances or potentially give rise to new deferred tax amounts. Other significant provisions that are not yet effective, but may impact income taxes in future years, include: limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income and a limitation of net operating losses generated after December 31, 2017 to 80 percent of taxable income.
For the three months ended January 31, 2018 and 2017, our effective tax rates (exclusive of discrete items) were 19% and -38%, respectively. For the nine months ended January 31, 2018 and 2017, our effective tax rates were 28% and -51%, respectively.affected by the revaluing of deferred items at the new rate. The difference between the federal statutory rate of approximately 29.7% (composed of 34% through December of 2017 and 21% thereafter) and the 2018 fiscal yearcurrent quarter to date’s effective tax rate is primarily due to utilization of general business credits. The difference between the 2017 federal statutory rate of 34.0% and the 2017 fiscal year to date effective tax rate was primarily due to the non-deductible goodwill impairment.nondeductible expenses.
At January 31, 2018,2019, we have $0.8$0.6 million in net deferred tax assets, which is primarily a result of the $6.3 million (gross, not tax effected) amount in receivables that have been fully reserved for book purposes.net operating losses. We believe that it is more-likely-than-not that the deferred tax assets will be realized prior to any expiration and therefore we have not applied a valuation allowance on our deferred tax assets.
We filed income tax returns in the United States federal jurisdiction. No jurisdiction is currently examining our tax filings for any tax years. All of the Company’s tax positions are considered more likely than not to be sustained upon an IRS examination.
Note 13.12. Segment Reporting
We have three business segments: (i) Washington, (ii) South Dakota and (iii) Nevada, as well as the Company’s corporate location. ForOn June 30, 2018, the three months ended January 31,Company sold its South Dakota route operations. Also, as of July 27, 2018, the Nevada reportable segment met the requirements to be classified as a discontinued operation. As a result, the operations of Nevada have been excluded from the segment reporting below. See Note 13 for information related to the Nevada segment. The Washington segment consists of the Washington mini-casinos, the South Dakota segment consistsconsisted of our slot route operation in South Dakota, the Nevada segment consists of Club Fortune casino and the Corporate column includes the vacant land in Colorado and its taxes and maintenance expenses. The Corporate column also includesexpenses, corporate-related items, results of insignificant operations, and income and expenses not allocated to other reportable segments.
Summarized financial information for our reportable segments from continuing operations is shown in the following table:
12 |
For the Three Months Ended, January 31, 2019 | ||||||||||||||||
Washington | South Dakota | Corporate | Total | |||||||||||||
Net revenues | $ | 14,564,377 | $ | - | $ | - | $ | 14,564,377 | ||||||||
Casino and food and beverage expense | 7,688,674 | - | - | 7,688,674 | ||||||||||||
Marketing, administrative and corporate | 4,395,723 | - | 1,631,115 | 6,026,838 | ||||||||||||
Facility and other expenses | 487,239 | - | - | 487,239 | ||||||||||||
Depreciation and amortization | 107,065 | - | 5,472 | 112,537 | ||||||||||||
Operating income (loss) | 1,885,675 | - | (1,636,586 | ) | 249,089 |
Summarized financial information for our reportable segments is shown in the following table:
For the Three Months Ended, January 31, 2018 | ||||||||||||||||
Washington | South Dakota | Corporate | Total | |||||||||||||
Net revenues | $ | 13,314,264 | $ | 1,168,465 | $ | - | $ | 14,482,729 | ||||||||
Casino and food and beverage expense | 7,239,816 | 1,131,160 | - | 8,370,976 | ||||||||||||
Marketing, administrative and corporate | 4,099,481 | 134,999 | 578,370 | 4,812,850 | ||||||||||||
Facility and other expenses | 458,938 | 22,796 | - | 481,734 | ||||||||||||
Depreciation and amortization | 119,007 | 72,980 | 6,535 | 198,522 | ||||||||||||
Operating income (loss) | 1,396,947 | (193,703 | ) | (584,905 | ) | 618,339 |
For the Nine Months Ended, January 31, 2019 | ||||||||||||||||
Washington | South Dakota | Corporate | Total | |||||||||||||
Net revenues | $ | 42,970,445 | $ | 828,554 | $ | - | $ | 43,798,999 | ||||||||
Casino and food and beverage expense | 22,540,802 | 938,160 | - | 23,478,962 | ||||||||||||
Marketing, administrative and corporate | 13,133,387 | 131,280 | 4,261,645 | 17,526,312 | ||||||||||||
Facility and other expenses | 1,469,896 | 16,723 | - | 1,486,619 | ||||||||||||
Depreciation and amortization | 339,437 | - | 17,756 | 357,193 | ||||||||||||
Operating income (loss) | 5,486,149 | (199,917 | ) | (4,301,963 | ) | 984,269 |
For the Nine Months Ended, January 31, 2018 | ||||||||||||||||
Washington | South Dakota | Corporate | Total | |||||||||||||
Net revenues | $ | 40,263,535 | $ | 5,241,304 | $ | - | $ | 45,504,839 | ||||||||
Casino and food and beverage expense | 21,942,455 | 4,654,465 | - | 26,596,920 | ||||||||||||
Marketing, administrative and corporate | 12,582,737 | 368,321 | 1,909,731 | 14,860,789 | ||||||||||||
Facility and other expenses | 1,345,352 | 67,914 | - | 1,413,266 | ||||||||||||
Depreciation and amortization | 465,886 | 275,345 | 19,880 | 761,111 | ||||||||||||
Operating income (loss) | 3,921,445 | (124,854 | ) | (1,929,611 | ) | 1,866,980 |
Segment assets at January 31, 2019 were: Washington $29,713,693; Corporate $13,216,305. Segment assets at January 31, 2018 were: Washington $27,352,824; South Dakota $1,549,392; Corporate $3,793,289.
As of, and for the Three Months Ended, January 31, 2018 | ||||||||||||||||||||
Washington | South Dakota | Nevada | Corporate | Total | ||||||||||||||||
Net revenues | $ | 13,619,494 | $ | 1,168,465 | $ | 3,310,257 | $ | - | $ | 18,098,216 | ||||||||||
Casino and food and beverage expense | 7,239,816 | 1,131,160 | 2,027,282 | - | 10,398,258 | |||||||||||||||
Marketing, administrative and corporate expense | 4,404,711 | 134,999 | 839,229 | 578,370 | 5,957,309 | |||||||||||||||
Facility and other expenses | 458,938 | 22,796 | 87,967 | - | 569,701 | |||||||||||||||
Depreciation and amortization | 119,007 | 72,980 | 340,385 | 6,535 | 538,907 | |||||||||||||||
Operating income (loss) | 1,396,948 | (193,704 | ) | 15,394 | (584,905 | ) | 633,733 | |||||||||||||
Assets | 27,352,823 | 1,549,392 | 16,122,948 | 3,793,289 | 48,818,452 | |||||||||||||||
Purchase of property and equipment | 150,582 | - | 41,248 | 2,425 | 194,255 |
As of, and for the Three Months Ended, January 31, 2017 | ||||||||||||||||||||
Washington | South Dakota | Nevada | Corporate | Total | ||||||||||||||||
Net revenues | $ | 13,235,038 | $ | 1,152,186 | $ | 3,522,888 | $ | - | $ | 17,910,112 | ||||||||||
Casino and food and beverage expense | 7,020,786 | 1,135,935 | 1,966,826 | - | 10,123,547 | |||||||||||||||
Marketing, administrative and corporate expense | 4,158,224 | 99,131 | 892,452 | 627,553 | 5,777,360 | |||||||||||||||
Facility and other expenses | 477,781 | 28,265 | 87,398 | - | 593,444 | |||||||||||||||
Depreciation and amortization | 231,294 | 139,416 | 379,223 | 6,673 | 756,606 | |||||||||||||||
Operating income (loss) | 1,344,849 | (1,352,047 | ) | 156,533 | (634,225 | ) | (484,890 | ) | ||||||||||||
Assets | 27,181,165 | 1,927,133 | 17,314,523 | 6,089,108 | 52,511,929 | |||||||||||||||
Purchase of property and equipment | 84,631 | 5,413 | 30,012 | - | 120,056 |
Note 13.Discontinued Operations
As of, and for the Nine Months Ended, January 31, 2018 | ||||||||||||||||||||
Washington | South Dakota | Nevada | Corporate | Total | ||||||||||||||||
Net revenues | $ | 40,711,936 | $ | 5,241,304 | $ | 10,113,723 | $ | - | $ | 56,066,963 | ||||||||||
Casino and food and beverage expense | 21,942,456 | 4,654,465 | 6,111,932 | - | 32,708,853 | |||||||||||||||
Marketing, administrative and corporate expense | 13,031,138 | 368,321 | 2,561,965 | 1,909,731 | 17,871,155 | |||||||||||||||
Facility and other expenses | 1,345,352 | 67,914 | 245,878 | - | 1,659,144 | |||||||||||||||
Depreciation and amortization | 465,885 | 275,345 | 1,087,380 | 19,880 | 1,848,490 | |||||||||||||||
Operating income (loss) | 3,921,445 | (124,854 | ) | 106,568 | (1,929,611 | ) | 1,973,548 | |||||||||||||
Assets | 27,352,823 | 1,549,392 | 16,122,948 | 3,793,289 | 48,818,452 | |||||||||||||||
Purchase of property and equipment | 508,423 | 107,033 | 119,417 | 24,987 | 759,860 |
As of, and for the Nine Months Ended, January 31, 2017 | ||||||||||||||||||||
Washington | South Dakota | Nevada | Corporate | Total | ||||||||||||||||
Net revenues | $ | 39,499,325 | $ | 5,301,417 | $ | 9,816,034 | $ | - | $ | 54,616,776 | ||||||||||
Casino and food and beverage expense | 21,241,276 | 4,671,422 | 5,855,973 | - | 31,768,671 | |||||||||||||||
Marketing, administrative and corporate expense | 12,319,376 | 335,111 | 2,929,475 | 2,148,422 | 17,732,384 | |||||||||||||||
Facility and other expenses | 1,438,721 | 97,875 | 244,287 | - | 1,780,883 | |||||||||||||||
Depreciation and amortization | 717,917 | 452,073 | 1,117,885 | 18,753 | 2,306,628 | |||||||||||||||
Operating income (loss) | 3,779,722 | (1,365,215 | ) | (377,083 | ) | (2,167,175 | ) | (129,751 | ) | |||||||||||
Assets | 27,181,165 | 1,927,133 | 17,314,523 | 6,089,108 | 52,511,929 | |||||||||||||||
Purchase of property and equipment | 323,731 | 26,876 | 537,138 | 55,188 | 942,933 |
On June 27, 2018, the Company entered into a definitive agreement to sell its Club Fortune casino property in Henderson, Nevada, for $14.6 million, subject to certain adjustments, including a working capital adjustment. The property was sold on December 31, 2018.
13 |
As of July 27, 2018, Club Fortune met the requirements for presentation as assets held for sale and discontinued operation under generally accepted accounting principles. As a result of Club Fortune meeting the criteria to be classified as held for sale, the Company recorded a goodwill impairment of $115,128 and a loss on reclassification as held for sale of $84,872 in the first quarter of fiscal 2019 which primarily represented the estimated cost to sell Club Fortune. In the quarter ended January 31, 2019, the Company recorded a $472,866 loss on the sale of Club Fortune. The operations of Club Fortune have been classified as discontinued operations and as assets held for sale for all periods presented.
The results of discontinued operations are summarized as follows:
Three months ended | Nine months ended | |||||||||||||||
January 31, | January 31, | January 31, | January 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Gross revenues | $ | 2,289,969 | $ | 3,862,505 | $ | 8,750,437 | $ | 11,827,509 | ||||||||
Less promotional allowances | - | (552,248 | ) | - | (1,713,786 | ) | ||||||||||
Net revenues | 2,289,969 | 3,310,257 | 8,750,437 | 10,113,723 | ||||||||||||
Casino and food and beverage expense | 1,331,637 | 2,027,281 | 5,456,195 | 6,111,932 | ||||||||||||
Marketing and administrative | 644,731 | 839,229 | 2,305,831 | 2,561,965 | ||||||||||||
Facility and other expenses | 52,544 | 87,968 | 236,513 | 245,878 | ||||||||||||
Depreciation and amortization | - | 340,385 | 220,531 | 1,087,380 | ||||||||||||
Goodwill impairment | - | - | 115,128 | - | ||||||||||||
Loss on reclassification as held for sale | - | - | 84,872 | - | ||||||||||||
Loss on sale of assets | 472,866 | - | 472,735 | - | ||||||||||||
Income tax benefit | (48,215 | ) | (156,038 | ) | (34,506 | ) | (128,680 | ) | ||||||||
(Loss) income from discontinued operations, net of taxes | $ | (163,594 | ) | $ | 171,432 | $ | (106,862 | ) | $ | 235,248 |
The assets and liabilities held for sale related to Club Fortune were as follows:
January 31, | April 30, | |||||||
2019 | 2018 | |||||||
Assets: | ||||||||
Accounts receivable, net | $ | - | $ | 140,370 | ||||
Prepaid expenses and other assets | - | 377,811 | ||||||
Inventory | - | 88,998 | ||||||
Goodwill | - | 2,831,434 | ||||||
Intangible assets, net | - | 1,208,294 | ||||||
Property and equipment, net | - | 9,558,045 | ||||||
Total assets held for sale | $ | - | $ | 14,204,952 | ||||
Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | - | $ | 345,231 | ||||
Accrued payroll and related | - | 238,688 | ||||||
Accrued player’s club points and progressive jackpots | - | 318,801 | ||||||
Total liabilities held for sale | $ | - | $ | 902,720 |
On June 30, 2018, the Company sold its South Dakota route operations. The sale included all fixtures, equipment, trade names, and operating agreements used in connection with the business, but excluded necessary operating cash used in the business. Because this sale did not represent a strategic shift that would have a major effect on the Company’s operations, the sale was recorded as a sale of assets and not as discontinued operations.
14 |
Note 14.Merger Agreement
On September 18, 2018, the Company announced the signing of a merger agreement with Maverick Casinos, LLC (“Maverick”). Under the terms of the merger agreement, Maverick will acquire all of the outstanding shares of the Company’s common stock for $2.50 per share in cash, with merger consideration automatically increasing $0.01 per share for each full month beyond February 1, 2019. The transaction will result in the Company becoming a private company.
The transaction was approved by a majority of the shareholders of Nevada Gold at our special shareholders’ meeting on February 22, 2019 but is still subject to the approval of applicable gaming authorities. The transaction is not subject to a financing condition. The companies are contemplating extending the merger closing deadline past the initial April 15, 2019 deadline, if necessary, for an additional 90 days. The companies expect the transaction to close in the second calendar quarter of 2019.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis (“MD&A”) should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report for the year ended April 30, 2017,2018, filed on Form 10-K with the SEC on July 27, 2017.26, 2018.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements. We prepare these financial statements in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments. On an on-going basis, we evaluate our estimates; however, actual results may differ from these estimates under different assumptions or conditions. There have been no material changes or developments in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies and Estimates as disclosed in our Annual Report for the year ended April 30, 2017,2018, filed on Form 10-K with the SEC on July 27, 2017.26, 2018.
Executive Overview
We were formed in 1977 and, since 1994, have primarily been a gaming company involved in financing, developing, owning and operating gaming properties. Our gaming facility operations are located in the United States of America (“U.S.”), specifically in the states of Nevada, Washington state and South Dakota. Our business strategy will continue to focus on owning and operating gaming establishments. If we are successful, our future revenues, costs and profitability can be expected to increase. However, there is no guarantee that we will be successfulpreviously in implementing our business strategy in the future and, as such, no guarantee that our future revenues, costs and profitability will increase.
Nevada. Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. Additionally, our operating results may be affected by, among other things, overall economic conditions affecting the disposable income of our guests, weather conditions affecting our properties, achieving and maintaining cost efficiencies, competitive factors, gaming tax increases and other regulatory changes, the commencement of new gaming operations and construction at existing facilities. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of future periods’ results.
Items Impacting Income from Continuing Operations
Discontinued Operations -As of July 27, 2018, Club Fortune met the requirements for presentation as assets held for sale and discontinued operation under generally accepted accounting principles. Accordingly, the operations of Club Fortune have been classified as discontinued operations and as assets held for sale for all periods presented. The Club Fortune sale closed on December 31, 2018.
COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 20182019 AND JANUARY 31, 20172018
Net revenues. Net revenues were $18.1$14.6 million for the three months ended January 31, 2018,2019, and $17.9$14.5 million for the same period ended January 31, 2017.2018. The $0.2$0.1 million increase is primarily due to a $0.3$1.3 million or 30%, increase in pokercasino revenue due to one of our Washington properties being converted into an all-poker card room, and a $0.1 million, or 4%, increase in food revenue also at our Washington properties as a result of a higher hold percentage and increased poker revenues, partially offset by $0.2a $1.2 million or 8%, decrease in slotcasino revenue at Club Fortune compared to last year due to a decrease in hold percentage.our South Dakota’s revenues remained relatively steady compared to the prior year’s quarter despite having 42 fewer slot machines due to the closure of a property where our slot route had machines on August 29, 2017.Dakota operations because it was sold June 30, 2018.
Total operating expenses. Total operating expenses were $17.5$14.3 million for the three months ended January 31, 2018,2019, compared to $18.4$13.9 million infor the same period ended January 31, 2017.2018. Excluding South Dakota had an impairment expenseand comparing before the impact of $1.1the revenue recognition changes (see Note 2), total operating expenses increased by $1.8 million in thefor this quarter compared to prior year.year’s quarter ended January 31. Casino expenses increased $0.1$0.3 million or 1%, primarily resulting from Washington’sdue to the increased minimum wage increase.and gaming taxes associated with increased revenue at our Washington properties. Food and beverage expenses in Washington increased $0.2by $0.1 million or 12%, alsoprimarily due to Washington’sthe minimum wage increase and food specials at Club Fortune.increase. Marketing and administrative expenses increased $0.2$0.3 million due to additional poker expensesincreased marketing and promotions at one of our Washington properties. DepreciationCorporate expenses increased $1.1 million primarily due to sale related professional fees. Excluding South Dakota, depreciation and amortization, expenses decreased $0.2 million due to Washington’s $0.1 million decrease from prior year as certain customer relationship intangibles are now fully amortized, and South Dakota’s $0.1 million decrease from prior year as certain assets became fully depreciated. Corporate, as well as facility and other expenses remained relatively steady when compared to the same period last year.
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Non-operating income (expense).Total non-operating expense increased $34,127$0.2 million for the three months ended January 31, 2018,2019, compared to the same period ended January 31, 2017,2018, primarily due to the increase inlosses associated with the swap fair value in the prior year offset by a reduction in interest expense in the current year.early retirement of debt.
Income taxes. For the three months ended January 31, 20182019 and 2017,2018, our effective tax rates (exclusive of discrete items) were 19%22% and -38%96%, respectively. The difference between the current and prior year’s quarterly federal effective tax rate is because last year’s statutory rate was 34% until the non-deductible goodwill impairment inTax Cuts and Jobs Act was enacted December 22, 2017. Prior year effective tax rates were affected by the period ended January 31, 2017.revaluing of deferred items at the new rate.
COMPARISON OF THE NINE MONTHS ENDED JANUARY 31, 20182019 AND JANUARY 31, 20172018
Net revenues. Net revenues were $56.1$43.8 million for the nine months ended January 31, 2018,2019, and $54.6$45.5 million for the same period ended January 31, 2017.2018. The increase$1.7 million decrease is primarily due to a $4.4 million decrease in casino revenue at our Washington properties where we hadSouth Dakota operations because it was sold June 30, 2018, partially offset by a $1.0$2.5 million or 3%,combined increase infrom table game revenue due to an increase in both play andgames hold percentage and poker revenues and a $0.3$0.2 million or 10%, increase in poker revenue. We also had a $0.3 million, or 3%, increase in netfood and beverage revenue at Club Fortune compared to last year due to an increase in cash slot play. South Dakota’s revenues remained relatively steady compared to the prior year.our Washington properties.
Total operating expenses. Total operating expenses were $54.1$42.8 million for the nine months ended January 31, 2018,2019, compared to $54.7$43.6 million in the same period ended January 31, 2017.2018. Excluding South Dakota had an impairment expenseand comparing before the impact of $1.1 million in the prior year. Casinorevenue recognition changes (see Note 2), total operating expenses increased $0.5by $3.5 million or 2%, when compared to the same period last yearyear. Casino expenses increased $0.2 million primarily due to Washington’s minimum wage increase.the increased taxes associated with increased revenue at our Washington properties. Food and beverage expenses increased $0.4$0.5 million or 9%, also due to Washington’s minimum wage and an increase in cost of goods sold associated with Washington’s $0.2 million increase in food and food specials at Club Fortune.beverage revenue. Marketing and administrative expenses increased $0.4$0.6 million due to additional poker promotional expensesincreased marketing and promotions at one of our Washington properties. Corporate expense decreased $0.2increased $2.4 million primarily due to Club Fortune acquisition expenses incurred last year. Depreciationsale related professional fees. Excluding South Dakota, depreciation and amortization decreased by $0.5$0.1 million due toas certain Washington customer relationship intangibles that are now fully amortized and certain South Dakota assets that are now fully depreciated.amortized. Facility and other expenses remained relatively steady when compared to the same period last year.
Non-operating income (expense).Total non-operating expense remained relatively steadyincreased $0.1 million for the nine months ended January 31, 2018, as2019, compared to the nine monthssame period ended JanuaryOctober 31, 2017.2018, primarily due to the losses associated with the early retirement of debt.
Income taxes. For the nine months ended January 31, 20182019 and 2017,2018, our effective tax rates (exclusive of discrete items) were 28%22% and -51%54%, respectively. The difference between the federal statutory rate of approximately 29.7% (composed of 34.0% through December of 2017current and 21% thereafter) and the 2018 fiscal year to date’sprior year’s effective tax rate is primarily due to utilization of general business credits. The difference betweenbecause last year’s statutory rate was 34% until the 2018Tax Cuts and the 2017 fiscalJobs Act was enacted December 22, 2017. Prior year to date effective tax rate is primarily due torates were affected by the non-deductible goodwill impairment inrevaluing of deferred items at the prior year.new rate.
Non-GAAP Financial Measures
The term “adjusted EBITDA” is used by us in presentations, quarterly earnings calls, and other instances as appropriate. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, change in swap fair value, goodwill and other long-lived asset impairment charges, write-offs of project development costs, acquisition costs, sale related expenses, litigation charges, non-cash stock grants, non-cash employee stock purchase plan discounts, amortization of deferred rent, net income or loss from assets held for sale, and net losses/gains from asset dispositions. Adjusted EBITDA is presented because it is a required component of financial ratios reported by us to our lenders, and it is also frequently used by securities analysts, investors, and other interested parties, in addition to and not in lieu of GAAP results, to compare to the performance of other companies that also publicize this information.
Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or any other measure of performance derived in accordance with GAAP.
The following tables show adjusted EBITDA by operating unit:
Adjusted EBITDA | ||||||||||||||||||||
For the three months ended: | Washington | South Dakota | Nevada | Corporate | Total | |||||||||||||||
January 31, 2018 | $ | 1,528,113 | $ | (120,490 | ) | $ | 357,969 | $ | (569,857 | ) | $ | 1,195,735 | ||||||||
January 31, 2017 | $ | 1,588,979 | $ | (111,145 | ) | $ | 576,213 | $ | (627,553 | ) | $ | 1,426,494 |
Adjusted EBITDA | ||||||||||||||||||||
For the nine months ended: | Washington | South Dakota | Nevada | Corporate | Total | |||||||||||||||
January 31, 2018 | $ | 4,407,456 | $ | 150,604 | $ | 1,203,646 | $ | (1,838,381 | ) | $ | 3,923,325 | |||||||||
January 31, 2017 | $ | 4,536,212 | $ | 197,010 | $ | 786,299 | $ | (1,922,491 | ) | $ | 3,597,030 |
Net income (loss) reconciliation to Adjusted EBITDA:
For the three months ended | ||||||||
January 31, 2018 | January 31, 2017 | |||||||
Net income (loss) | $ | 193,327 | $ | (683,046 | ) | |||
Adjustments: | ||||||||
Net interest expense and change in swap fair value | 42,545 | 8,418 | ||||||
Income tax expense | 397,861 | 189,738 | ||||||
Depreciation and amortization | 538,907 | 756,606 | ||||||
Stock compensation | 14,760 | 1,787 | ||||||
Loss on disposal of assets | 308 | 42,574 | ||||||
Impairment of goodwill | - | 1,101,471 | ||||||
Amortization of deferred rent | 8,027 | 8,946 | ||||||
Adjusted EBITDA | $ | 1,195,735 | $ | 1,426,494 |
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For the nine months ended | ||||||||
January 31, 2018 | January 31, 2017 | |||||||
Net income (loss) | $ | 956,305 | $ | (632,596 | ) | |||
Adjustments: | ||||||||
Net interest expense and change in swap fair value | 298,747 | 290,253 | ||||||
Income tax expense | 718,496 | 212,592 | ||||||
Depreciation and amortization | 1,848,490 | 2,306,628 | ||||||
Acquisition expenses | - | 113,900 | ||||||
Stock compensation | 89,438 | 117,393 | ||||||
Loss on disposal of assets | 5,773 | 56,490 | ||||||
Impairment of goodwill | - | 1,101,471 | ||||||
Amortization of deferred rent | 6,076 | 30,899 | ||||||
Adjusted EBITDA | $ | 3,923,325 | $ | 3,597,030 |
The following tables show adjusted EBITDA from continuing operations by operating unit:
Adjusted EBITDA | ||||||||||||||||
For the three months ended: | Washington | South Dakota | Corporate | Total | ||||||||||||
January 31, 2019 | $ | 1,985,307 | $ | - | $ | (676,316 | ) | $ | 1,308,990 | |||||||
January 31, 2018 | $ | 1,528,114 | $ | (120,490 | ) | $ | (569,857 | ) | $ | 837,767 |
Adjusted EBITDA | ||||||||||||||||
For the nine months ended: | Washington | South Dakota | Corporate | Total | ||||||||||||
January 31, 2019 | $ | 5,793,417 | $ | (257,609 | ) | $ | (2,092,004 | ) | $ | 3,443,804 | ||||||
January 31, 2018 | $ | 4,407,456 | $ | 150,604 | $ | (1,838,381 | ) | $ | 2,719,679 |
Net income reconciliation to Adjusted EBITDA from continuing operations:
For the three months ended | ||||||||
January 31, 2019 | January 31, 2018 | |||||||
Net income from continuing operations | $ | 42,881 | $ | 21,895 | ||||
Adjustments: | ||||||||
Net interest expense and change in swap fair value | 193,789 | 42,545 | ||||||
Income tax expense | 12,419 | 553,899 | ||||||
Depreciation and amortization | 112,537 | 198,522 | ||||||
Sale related expenses | 946,286 | - | ||||||
Loss on sale of assets | - | 308 | ||||||
Stock compensation | 10,781 | 12,570 | ||||||
Amortization of deferred rent | (9,703 | ) | 8,028 | |||||
Adjusted EBITDA from continuing operations | $ | 1,308,990 | $ | 837,767 |
For the nine months ended | ||||||||
January 31, 2019 | January 31, 2018 | |||||||
Net income from continuing operations | $ | 473,394 | $ | 721,057 | ||||
Adjustments: | ||||||||
Net interest expense and change in swap fair value | 376,337 | 298,747 | ||||||
Income tax expense | 134,538 | 847,176 | ||||||
Depreciation and amortization | 357,193 | 761,111 | ||||||
Sale related expenses | 2,144,103 | - | ||||||
(Gain) loss on sale of assets | (34,356 | ) | 5,773 | |||||
Stock compensation | 35,553 | 79,739 | ||||||
Amortization of deferred rent | (42,958 | ) | 6,076 | |||||
Adjusted EBITDA from continuing operations | $ | 3,443,804 | $ | 2,719,679 |
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Adjusted EBITDA from discontinued operations was $262,517 and $357,969 for the three months ended January 31, 2019 and 2018, respectively, and $757,738 and $1,203,646 for the nine months ended January 31, 2019 and 2018, respectively.
Liquidity and Capital Resources
Historical Cash Flows
The following table sets forth our consolidated net cash provided by (used in) operating, investing and financing activities for continuing operations for the nine months ended January 31, 20182019 and 2017:2018:
Nine Months Ended | ||||||||
January 31, | January 31, | |||||||
2018 | 2017 | |||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 3,066,143 | $ | 1,949,546 | ||||
Investing activities | $ | (413,472 | ) | $ | (312,429 | ) | ||
Financing activities | $ | (4,685,941 | ) | $ | (3,636,553 | ) |
Nine Months Ended | ||||||||
January 31, | January 31, | |||||||
2019 | 2018 | |||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 1,277,419 | $ | 1,828,776 | ||||
Investing activities | $ | 12,910,404 | $ | 1,026,272 | ||||
Financing activities | $ | (5,771,456 | ) | $ | (4,685,941 | ) |
Operating activities. Net cash provided by operating activities during the nine months ended January 31, 2018, increased2019, decreased by $1.1$0.6 million over the comparable period in the prior fiscal year. The decrease primarily resulted from sale related expenses included in corporate expenses in the Condensed Consolidated Statement of Operations, partially offset by increased operating cash flow primarily resulted from the $0.5 million increase in net income, adjusted for non-cash expenses of depreciation and amortization, impairment expense and income tax, as well as the $0.6 million change in working capital.our Washington properties.
Investing activities. Net cash used inprovided from investing activities during the nine months ended January 31, 2018,2019, increased by $0.1$11.9 million compared to the prior fiscal year primarily due to a $0.3the $13.1 million decrease in collections on notes receivable,of proceeds from the sale of Club Fortune, partially offset by a decrease in purchase of property and equipment.the distributions from Club Fortune during the period.
Financing activities. Net cash used in financing activities during the nine months ended January 31, 2018,2019, increased $1.0$1.1 million over the comparable period incompared to the prior fiscal year. The increase mainly resulted from the $1.2$8.0 million increase inrepayment of the credit facility during the period, partially offset by $2.2 million of stock issuance proceeds, and prior year’s $1.7 million purchase of treasury stock.stock and $3.0 million net repayment of credit facilities.
Future Sources and Uses of Cash
We expect that our future liquidity and capital requirements will be affected by:by cash flow from operations and working capital requirements.
In July 2016, our board of directors approved a $2.0 million stock repurchase program to purchase our common stock in the open market or in privately negotiated transactions from time to time, subject to market conditions, applicable legal requirements, loan covenants and other factors. The repurchase plan does not obligate the Company to acquire any specified number or value of common stock. On July 12, 2017, the board of directors authorized an additional $2.0 million for future stock purchases, either in the open market or in private transactions. During the threenine months ended January 31, 2018,2019, the Company did not repurchase any shares. During the nine months ended January 31, 2018, the Company repurchased 788,301 shares at a weighted average price of $2.16 per share, costing $1,701,597 (including commissions). As of January 31, 2018,2019, $1.7 million remains available under the share repurchase authorization.
AsThe Company used a portion of Januarythe proceeds from the sale of Club Fortune to pay off the outstanding principal under the Company’s credit agreement with Mutual of Omaha Bank on December 31, 2018, we have $8.0 million available to borrow per the Credit Agreement. Principal reductions due on the Credit Facility are as follows:2018.
February 1, 2018 – January 31, 2019 | $ | - | ||
February 1, 2019 – January 31, 2020 | - | |||
February 1, 2020 – November 30, 2020 | 9,300,000 | |||
Total payments | 9,300,000 | |||
Unamortized debt discount | (165,630 | ) | ||
Total long-term debt | $ | 9,134,370 |
On January 31, 2018,2019, excluding restricted cash of $2,058,849,$3,218,463, we had cash and cash equivalents of $8,598,633.$17,087,917. The restricted cash consists of funds for player supported jackpots for our Washington operations.operations and cash held in escrow as required by the agreement to sell Club Fortune casino.
Washington state increased the state minimum wage from $11.00$11.50 in the prior year to $11.50$12.00 per hour effective January 1, 2018.2019. The minimum wage is scheduled to increase to $12.00 in 2019, $13.50 in 2020 and would thereafter be indexed to inflation. The company estimatesWe estimate the January increase could impact itsour Washington payroll expense by $0.5 million annually before offsetting changes planned to mitigate the impact of the minimum wage increase.
Our condensed consolidated financial statements have been prepared assuming that we will have adequate availability of cash resources to satisfy our liabilities in the normal course of business. We have made arrangements to ensure that we have sufficient working capital to fund our obligations as they come due. We believe that funds from operations will provide sufficient working capital for us to meet our obligations as they come due; however, there can be no assurance that we will be successful. Should cash resources not be sufficient to meet our current obligations as they come due repay or refinance our long-term debt, and acquire operations that generate positive cash flow, we would be required to curtail our activities and maintain, or grow, at a pace that cash resources could support.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
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Item4. Controls and Procedures
Disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our President and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.
In accordance with Rules 13a-15 and 15d-15 of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our President and CFO, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. As a result of our evaluation, we concluded that our disclosure controls and procedures were effective as of January 31, 2018.2019.
Changes in internal controls over financial reporting. There have not been any changes in our control over financial reporting during the three months ended January 31, 20182019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not currently involved
Six putative class action complaints have been filed in any material legal proceedings.connection with the proposed Merger: (i) on December 4, 2018, Cindy Fuller filed a lawsuit captioned Cindy Fuller, individually and on behalf of all others similarly situated, against the Company and members of the Board of Directors in the United States District Court for the Southern District of New York; (ii) on December 6, 2018, William Kikendall filed a lawsuit captioned William Kikendall, on behalf of himself and all others similarly situated, v. Nevada Gold & Casinos, Inc., et al., Case No. 2:18-cv-2323 No., against the Company and members of the Board of Directors in the United States District Court for the District of Nevada; (iii) on December 7, 2018, George Assad filed a lawsuit captioned George Assad, on behalf of himself and all others similarly situated, v. Nevada Gold & Casinos, Inc., et al., Case No. A-18-785749-C, against the Company and members of the Board of Directors in the District Court of the State of Nevada in Clark County, Nevada (the “Assad State Action”); (iv) on December 13, 2018, Joseph Conlon filed a lawsuit captioned Joseph Conlon v. Nevada Gold & Casinos, Inc., et al., Case No. A-18-785991-C, against the Company and members of the Board of Directors in the District Court of the State of Nevada in Clark County, Nevada; (v) on January 3, 2019, Peter D’Arcy filed a lawsuit captioned Peter D’Arcy, on behalf of himself and all others similarly situated, v. Nevada Gold & Casinos, Inc., et al., Case No. 2:19-cv-00025-GMN-CWH, against the Company and members of the Board of Directors in the United States District Court for the District of Nevada – Las Vegas Division; and (vi) on January 3, 2019, George Assad filed a lawsuit captioned George Assad, individually and on behalf of all others similarly situated, v. Nevada Gold & Casinos, Inc., et al., Case No. A 2:19-cv-00026-JCM-CWH, against the Company and members of the Board of Directors in the United States District Court for the District of Nevada.
In general, the complaints assert claims against the Company and the Board of Directors alleging, among other things, that the defendants failed to make adequate disclosures in the preliminary proxy statement filed by the Company with the SEC on December 3, 2018, in connection with the proposed Merger, either in violation of the Exchange Act or in violation of fiduciary duties owed by the Company’s directors and/or the Company to the Company’s stockholders. The Assad State Action also alleges that the members of the Board of Directors breached their fiduciary duties to the plaintiff and the other public stockholders of the Company in approving the Merger Agreement and that the Company aided and abetted such breaches of the fiduciary duties of the members of the Board of Directors. All six actions seek, among other relief, to enjoin the Merger (or, in the alternative, an award of rescissory damages in the event that the Merger is completed), and an award for the costs of the actions, including attorneys’ and expert fees.
On February 14, 2019 the Company entered into a settlement agreement with all of the plaintiffs in full satisfaction of the claims upon payment of $ 250,000.
There have been no material changes in our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2017,2018, filed with the SEC on July 27, 2017.26, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
19 |
See the Index to Exhibits following the signature page hereto for a list of the exhibits filed pursuant to Item 601 of Regulation S-K
INDEX TO EXHIBITS
_________________
* Filed herewith.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: March 19, 201818, 2019
Nevada Gold & Casinos, Inc. | |||
By: | /s/ James D. Meier | ||
James D. Meier | |||
Chief Financial Officer | |||
(Principal Financial Officer) |
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