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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

________________

FORM 10-K

Nevada Gold & Casinos, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
88-0142032
(State or other jurisdiction of
(IRS Employer Identification No.)
Incorporation or organization)
 
   
3040 Post Oak Blvd., Suite 675, Houston, Texas
77056
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code: (713) 621-2245

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered
   
Common stock, $0.12 par value
American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). x Yes o No

As of September 30, 2004, the aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price per share of $12.02, as reported on the American Stock Exchange, was $115,716,227.

As of June 9, 2005, the registrant had 13,262,603 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the registrant’s 2005 Annual Meeting of Stockholders to be filed pursuant to Regulation 14 A within 120 days after the registrant’s fiscal year end of March 31, 2005 are incorporated by reference into Part III of this report.
 



 
NEVADA GOLD & CASINOS, INC.
TABLE OF CONTENTS

 
 
Page 
     
PART I
   
     
3
15
16
17
 
 
PART II
 
 
     
17
18
18
27
27
27
27
29
   
PART III
 
 
   
 
29
29
29
30
30
   
PART IV
 
   
30
 
2

 
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-K and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its 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 the Company, including statements relating to our business strategy and our current and future development plans.
 
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, such as the competitive environment and government regulation, will be important in determining the Company’s 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 the Company’s subsequent reports filed with the Securities and Exchange Commission should be consulted.

Part I
 
Item 1.
Description of Business
 
Overview
 
Nevada Gold & Casinos, Inc., a Nevada corporation, was formed in 1977 and, since 1994 has been primarily a gaming company involved in financing, developing, owning and operating commercial gaming projects and financing, developing and managing Native American owned gaming projects.

Commercial Gaming Projects.

We own a 43% interest in Isle of Capri - Black Hawk, L.L.C. ("IC-BH") which owns and operates two commercial casino properties in Black Hawk, Colorado - the Isle of Capri-Black Hawk Casino and Colorado Central Station Casino.

On April 25, 2005, we purchased the Colorado Grande Casino in Cripple Creek, Colorado from IC-BH and we wholly own and operate that casino.

Native American Owned Projects.

We have assisted in the development and financing, through majority owned subsidiaries, of two casinos for Native American tribes, one in Sonoma County, California and one near Albuquerque, New Mexico.

We are currently developing, and will manage upon completion, two casinos for Native American tribes, one in Tulsa, Oklahoma and one in Pauma Valley, California.
 
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We own a 20% interest in a company which is developing a casino for a Native American tribe in Amador County, California.
 
We also have real estate interests in Colorado, California, and Nevada. We report our operations in two segments - gaming projects and other assets. For a summary of financial information concerning these two segments, please refer to the information provided in Note 9 to our Consolidated Financial Statements.

Objective and Strategies

Our primary business objective is to increase long-term returns to shareholders through appreciation in the value of our common shares. To achieve this objective, we intend to grow our assets and our earnings by following three business strategies:

 
·
enhancing the return from, and the value of, the gaming properties in which we own interests or have development or management contracts.

 
·
participating in the financing, development and/or management of at least one new Native American gaming project per year.

 
·
acquiring or developing additional commercial gaming properties.

Commercial Casino Projects

Black Hawk, Colorado

We own 43% of IC-BH which owns two casinos in Black Hawk, Colorado. Isle of Capri Casinos, Inc. (“Isle”) owns the remaining 57% of IC-BH. Isle operates the casinos under a management agreement with IC-BH for a management fee based upon a percentage of the revenues and operating profit of the casinos. In April, 2005, we purchased the Colorado Grande casino located in Cripple Creek, Colorado from IC-BH. IC-BH’s current gaming properties are:

The Isle of Capri-Black Hawk Casino

The Isle of Capri-Black Hawk Casino, which commenced operations in December 1998, is located on an approximately 10-acre site and is one of the first gaming facilities reached by customers arriving from Denver via Highway 119. The property currently consists of a casino with approximately 1,330 slot machines, 2 Black Jack pits with a total of 21 tables, a 238-room hotel and 1,100 parking spaces in an attached parking garage. The Isle of Capri-Black Hawk Casino also offers customers a wide variety of non-gaming amenities, including three dining facilities and a 4,000 square foot event center that can be used for meetings and entertainment.

The Colorado Central Station Casino-Black Hawk

The Colorado Central Station-Black Hawk, is located across the intersection of Main Street and Mill Street from the Isle of Capri-Black Hawk. The property currently consists of a casino with approximately 800 slot machines, a poker room with 10 tables and a Black Jack pit with 6 tables. The property also offers guests two dining options.

In January 2004, IC-BH commenced an approximately $94.0 million construction project in Black Hawk to significantly increase covered parking of the Isle of Capri-Black Hawk and the Colorado Central Station-Black Hawk, expand the gaming space, add approximately 350 slot machines (for a total of approximately 2,250 slot machines upon completion), 160 hotel rooms and a 200-seat restaurant, and connect the two properties by means of a skywalk. Construction of 600 new parking spaces and the expansion of both casinos was completed in February 2005. This completed the most disruptive phase of the expansion project in Black Hawk. IC-BH expects to open 600 additional parking spaces, the skywalk connecting the properties and the restaurant by the end of June 2005. Completion of the hotel is scheduled for Spring of 2006. Additionally, as part of the $94.0 million expansion, IC-BH will fund and construct public improvements, which include extending Main Street to connect directly to Colorado Route 119 approximately one half mile closer to Denver. This will provide customers direct access to our Black Hawk casinos and parking garages at the first two traffic lights into Black Hawk. Substantial completion of the public improvements was originally planned for Summer 2005, but the road construction has been temporarily delayed and is currently expected to be completed in calendar year 2006.
 
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The Black Hawk gaming market consists of the cities of Black Hawk and Central City, which are located approximately 40 miles west of Denver and approximately 16 miles from Interstate 70, the main east-west artery from Denver. In November 2004, a new 8.4 mile four-lane road connecting Interstate 70 directly to Central City was completed. This new highway provides additional access to the Black Hawk/ Central City market. Although this road allows customers to directly access Central City from Interstate 70, we believe that most customers will continue to frequent Black Hawk casinos because of their superior amenities.

Customers of the Black Hawk gaming market primarily drive from within a 100-mile radius of Black Hawk and Central City, which includes the major population centers of Denver, Boulder, Fort Collins, and Golden, Colorado, and Cheyenne, Wyoming. The Black Hawk gaming market is primarily characterized by numerous privately and publicly-owned gaming facilities. However, the primary competitors are the larger gaming facilities located in Black Hawk, particularly those with a considerable number of on-site parking spaces, with established brand names and existing reputations in the local market. Our primary competitors are Mountain High Casino, Riviera Black Hawk, Mardi Gras, Fortune Valley Hotel & Casino, Canyon Casino, Fitzgerald’s Black Hawk, and The Lodge Casino, each of which also offers on-site parking. The closest competitor to our Black Hawk casinos is the Riviera, which is located at the intersection of Mill and Main Streets across from the Isle of Capri casino. The Mountain High Casino was acquired by Ameristar Casinos in December 2004. Ameristar announced a $150 million capital expansion which includes a 32-story 400 room hotel, an event center, an entertainment pavilion and multi-use facility, an expansion of their parking garage of 800 spaces, and an addition of 500 new slot machines, bringing their total to 1,500. We anticipate that, upon completion of the expansion, the Mountain High Casino will be our primary competitor in Black Hawk.

The Colorado Grande Casino-Cripple Creek

On April 25, 2005 we acquired the Colorado Grande Casino located in Cripple Creek, Colorado, from IC-BH for $6.5 million. The Colorado Grande Casino is located at a primary intersection, near the center of the Cripple Creek market. The property currently consists of a casino with approximately 220 slot machines, no table games, a restaurant and 44 parking spaces. We intend to invest approximately $2.0 million to upgrade the facility and purchase new gaming equipment in order to maximize the earnings potential of the property.

Cripple Creek is 40 miles west of Colorado Springs, Colorado, which is 65 miles south of Denver, Colorado. We believe that the Cripple Creek market attracts customers primarily from Colorado Springs, Fort Carson and smaller areas south of Denver.

Native American Casino Projects

River Rock Casino; Sonoma County, California

Dry Creek Casino, L.L.C. (“DCC”), of which we own 69%, was formed in 2001 to assist the Dry Creek Rancheria Band of Pomo Indians of California with the development and financing of its River Rock Casino located approximately 75 miles north of San Francisco, in Sonoma County, California. The River Rock Entertainment Authority (the “RREA”) was formed as an unincorporated governmental instrumentality of the tribe to own and operate the River Rock Casino. The casino features 1,600 slot machines, 24 table games, two restaurants and three new parking structures accommodating approximately 1,735 customer vehicles or up to approximately 2,100 customer vehicles when operated by a valet service company during peak demand periods. DCC entered into a Development and Loan Agreement with the tribe in August 2001, which has been amended from time to time (as amended to date, the “Development Agreement”). We advanced $33.0 million to DCC, and DCC in turn advanced $33.0 million to the RREA for the development and construction of the Casino, pursuant to the Development Agreement. The $33.0 million receivable from DCC (and DCC's receivable from the RREA) had been reduced to $10.0 million in November 2003, and was paid in full during the fourth quarter of fiscal year 2005. DCC has no further obligations to advance funds to the RREA under the Development Agreement. Under the Development Agreement, DCC earns a credit enhancement fee equal to 20% of River Rock Casino’s earnings before taxes, depreciation and amortization. The credit enhancement fee is payable to us for a period of five years, starting June 1, 2003 and ending on May 31, 2008. The RREA has the right to terminate the Development Agreement by exercising a buy-out option on or after June 1, 2006. If exercised, the RREA is obligated to pay an amount determined by multiplying the number of months remaining in the 5-year term by 100% of the average monthly credit enhancement fee earned during the 12-month period immediately preceding the month the buy-out option is exercised (the "Base Period"), plus any percentage (not exceeding 20%) by which gross revenues for the Base Period increased over the prior 12-month period. The buy-out fee must be paid in equal monthly installments of principal plus interest at the rate of 12% per annum, on the 15th day of each month over a period equal to the remaining term of the Development Agreement.

River Rock Casino is accessible by car to nearly all the residents of the San Francisco Bay area, including those within Sonoma, Marin, Mendocino, Napa, San Mateo, Contra Costa, San Francisco, Alameda and Lake counties. Its primary market thus includes the major Bay area metropolitan cities of San Francisco and Oakland, and the smaller cities of San Rafael, Berkeley, Santa Rosa and Petaluma. River Rock Casino also benefits from the large number of visitors to the world-renowned wineries of Sonoma and Napa counties.
 
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The gaming facility is conveniently located approximately three miles from Highway 101, a four-lane highway that serves as a main thoroughfare between Southern California and Oregon. Highway 101 travels directly through the San Francisco Bay Area, through major cities in the area like San Francisco, Santa Rosa, San Rafael and Petaluma. River Rock Casino’s prominent location, on the eastern hillside of the Alexander Valley facing Highway 101, is visible to vehicles traveling in both directions on the highway. The River Rock Casino faces or will face competition from existing and proposed Indian gaming facilities in the surrounding area and elsewhere in California and with casino gaming in Nevada and elsewhere, including gaming facilities that could be located closer to the San Francisco Bay area than River Rock’s gaming facility. The closest existing competitors are the Hopland Sho-Ka-Wah casino, located approximately 35 miles north of the River Rock Casino, the Konocti Vista Casino, located approximately 45 miles northeast of the River Rock Casino and Cache Creek Indian Casino and Bingo, located approximately 40 miles east of the River Rock Casino. River Rock also competes with card rooms located in the surrounding area, other forms of gaming that are legal in California, including on and off-track wagering and the California State Lottery, as well as with non-gaming leisure activities, and the availability of such alternative gaming and non-gaming activities may increase in the future.

Route 66 Casino; Albuquerque, New Mexico

On May 23, 2002, we entered into a joint venture, Route 66 Casinos, L.L.C. ("Route 66 Casinos") with American Heritage, Inc., d/b/a The Gillmann Group (“The Gillmann Group”) that is 51% owned by us and 49% by The Gillmann Group. The Gillmann Group had several contracts with the Laguna Development Corporation (“LDC”), a federally chartered corporation wholly-owned by the Pueblo of Laguna, the second largest pueblo in New Mexico. The Gillmann Group agreed to assign these contracts to Route 66 Casinos.

The contracts included a Development and Construction Agreement, as well as three gaming lease equipment agreements. Under the Development and Construction Agreement, The Gillmann Group was to consult on the development and operation of a temporary casino and a permanent casino in Rio Puerco, New Mexico and provide or arrange for financing of the temporary and permanent casinos. As compensation for the consulting services, LDC entered into gaming lease equipment agreements with The Gillmann Group. Route 66 Casinos expects to receive on average approximately 16% of gross revenue from the gaming devices subject to the leases over a five-year period which commenced in September 2003. We are currently involved in a dispute with The Gillmann Group as discussed in Item 3. To date, we have received no cash distributions from Route 66 Casinos venture. Our portion of the earnings of the Route 66 Casinos venture have been estimated and recorded based on available financial information. We are vigorously pursuing our rights under the joint venture agreement.

The Route 66-themed casino opened in September 2003 and is located 11 miles west of Albuquerque adjacent to I-40 and includes 1,250 slot machines, and multiple food, beverage and retail outlets and paved parking for trucks and automobiles.

The Route 66 Casino competes with other Indian casinos in the greater Albuquerque area. There are several casinos within 50 miles of Route 66 Casino, including the Sky City Casino, Casino Sandia, Isleta Casino & Resort, Santa Ana Star Casino, San Felipe Casino Hollywood, and The Downs at Albuquerque.

Muscogee (Creek) Nation Casino; Tulsa, Oklahoma

In December 2003, we (through our wholly owned subsidiary, Nevada Gold Tulsa, Inc.) entered into Development and Management Agreements with the Muscogee (Creek) Nation, a federally recognized Indian tribe, pursuant to which we will assist the tribe in developing and managing a multi-phase gaming and entertainment project to be located in southern Tulsa, Oklahoma. The Management Agreement is subject to the approval of the National Indian Gaming Commission ("NIGC") prior to it becoming effective. The Development Agreement provides for a fee to us of $2.2 million upon completion of the gaming entertainment complex; however, if the Management Agreement is approved by the NIGC, we will not receive any fees under the Development Agreement, but will instead receive fees solely from the Management Agreement as described below. The term of the Management Agreement is for 60 months, and provides for the payment of a monthly management fee, starting after the opening of the gaming entertainment complex, equal to 12% of monthly net income of the project less principal payments on project debt based on a 10 year amortization period.
 
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The project will be developed on and around the site of the existing Creek Nation Casino located on the Mackey Sand Bar in South Tulsa. The first phase will include the construction of a state-of-the-art gaming center featuring approximately 3,300 gaming machines, table games, multiple food venues and a multi-level parking facility with approximately 950 spaces, as well as 1,050 spaces of surface parking. Retail stores, restaurants, hotel, conference facility and other entertainment venues are planned for subsequent phases. The total cost of Phase I of the project will be approximately $110.0 million. We are assisting the tribe in arranging financing and in designing, constructing, equipping and opening the gaming entertainment complex, and upon opening (and subject to the approval of the Management Agreement by the NIGC) will manage the complex for the tribe. The first phase of development is expected to be completed by December 2006, but there can be no assurance that it will be completed by that date.

We have agreed to provide a pre-development loan in the amount of $1.0 million to the tribe to pay for certain project costs incurred prior to the tribe obtaining project financing. Approximately $767,000 is outstanding as of May 31, 2005. The loan is repayable on or before June 30, 2005. Construction of the project will require third party financing. Currently, it appears that third party financing will be available to the tribe for the entire project cost.

We cannot predict when, if ever, the casino will open because its construction may be delayed or prevented for a number of reasons, including possible additional regulatory processes.

We cannot predict the future performance of the casino. There are two existing casinos in the Tulsa area that will compete with Muscogee (Creek) Nation's casino. The Cherokee Casino in Catoosa, Oklahoma is located 15 miles to the east of downtown Tulsa. The Osage Nation Million Dollar Elm Casino in Sand Springs is located 7 miles west of Tulsa. There are over 80 casinos located throughout the state of Oklahoma. However, most of these casinos are very small facilities, usually with less than 100 gaming devices, and for Tulsa residents, there will be minimal reasons to travel to one of the smaller gaming facilities outside of the city.

Buena Vista Rancheria of Me-Wuk Indians; Ione, Amador County, California

On May 4, 2005, we, through our wholly owned subsidiary, Nevada Gold BVR, L.L.C., acquired a 20% interest in Buena Vista Development Company, LLC ("Buena Vista Development") in exchange for an approximately $14.8 million loan and an approximately $200,000 equity investment. Casino Development & Management Company is the manager and the only other owner of Buena Vista Development. We have no obligation to make any further equity contributions or loans to Buena Vista Development.

In December 2004 Buena Vista Development entered into a Development Agreement with the Buena Vista Rancheria of Me-Wuk Indians for the development of a casino on the tribal lands located near the city of Ione in Amador County, California. Ione is approximately 40 miles southeast of Sacramento and approximately 40 miles northeast of Stockton. The multi-level casino is expected to accommodate approximately 2,000 slot machines, 80 gaming tables, restaurant and dining facilities, a retail shop and an approximately 3,600 space multi-level parking garage. Under the Development Agreement, Buena Vista Development is entitled to receive a development fee equal to approximately 25% of the net income from the casino for a term of seven years after the casino opens.

The terms of our loan to Buena Vista Development provide for interest at the rate of prime plus 1%, with payments to be made from any third party permanent financing for the casino project or the first revenues received by Buena Vista Development under the Development Agreement. The loan is prepayable at any time without a penalty. Our initial 20% ownership interest in Buena Vista Development will increase by five percentage points at the end of every 6-month period that the loan remains outstanding, up to a maximum of an additional 20%, for a total of 40%.

The Development Agreement was signed by the newly recognized chairperson of the tribe in connection with the settlement of litigation between that chairperson and the person previously recognized by the Bureau of Indian Affairs as the leader of the tribe. The Development Agreement provides for the tribe to repay from future casino revenues more than $20.0 million previously loaned by Buena Vista Development to the new chairperson, as well as other significant amounts Buena Vista Development is expected to advance to the tribe before third party permanent financing is obtained for the casino. Buena Vista Development has also indemnified the new chairperson and the formerly recognized tribal leader from certain claims that have been asserted by a party with whom the former leader had executed various documents related to the development, financing and management of the casino.

In 2004 the tribe entered into a federally-approved amendment to its gaming compact with the State of California, which requires that before construction of the project can begin, the tribe must evaluate the project’s off-reservation environmental impacts and enter into an agreement with Amador County addressing mitigation of those impacts. In April 2005 Amador County sued the federal government claiming that the compact amendment is not valid and that gaming at the proposed casino site is not legal. We believe that these claims are without merit; this lawsuit, however, could delay the project and affect Amador County's willingness to negotiate the required agreement with the tribe. If the tribe and Amador County cannot reach agreement, the compact amendment provides for binding arbitration of the impasse.
 
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We cannot predict when, if ever, the casino will open because its construction may be delayed or prevented for a number of reasons, including possible litigation involving the tribe’s prior developer, required environmental impact mitigation, and possible additional regulatory processes. Also, construction of the project will require third party financing, which the tribe presently expects to be provided through an investment banking firm it has engaged.

We cannot predict the future performance of the casino. We expect the casino’s primary market to include Sacramento and Stockton, California. In this market, the casino will most directly compete with the Jackson Rancheria casino located in Jackson, California, approximately 10 miles from the proposed Buena Vista casino, the Cache Creek casino located about approximately 45 miles northwest of Sacramento and Thunder Valley Casino located a few miles northeast of Sacramento. The Shingle Springs Casino, proposed to be located just east of Sacramento on Highway 50, has yet to receive all regulatory approvals.

La Jolla Band of Luiseno Mission Indians; Pauma Valley, California

In August 2004, we (through our wholly owned subsidiary, Gold River, L.L.C.) entered into a Development Agreement with the La Jolla Band of Luiseno Mission Indians, a federally recognized Indian tribe, pursuant to which we will assist the tribe in developing and constructing a multi-phase gaming facility. A Management Agreement with the tribe for the first phase has been finalized pursuant to which we will provide management services for the gaming facility. The Management Agreement is subject to the approval of the National Indian Gaming Commission and is for a term of five years after the opening of the casino (with a two year renewal option). As compensation for our management services we will receive 23% of total net revenue from the gaming facility. We will also receive a 2% development fee on the total project costs of each phase.

The multi-phase project will be developed on the 9,998 acre La Jolla Indian Reservation in Pauma Valley, California. The first phase will include the construction of a casino with 349 slot machines, 12 table games, dining facilities, parking and possibly a hotel. Subsequent phases may include an expanded casino, a hotel, RV-park, additional restaurants and other entertainment venues. We have agreed to advance certain pre-development expenses of the first phase of the project up to $1.5 million, pursuant to a budget to be agreed upon by us and the La Jolla Band. The total budget for all project costs for the first phase (including pre-development expenses advanced by us) will not exceed $25.0 million. The Development Agreement requires us to use commercially reasonable efforts to assist the La Jolla Band in obtaining one or more sources of additional financing for the project. If necessary to obtain third party financing, we have agreed to act as guarantor of up to 100% of the financing. Currently, it appears that third-party financing will be available for this project, with a limited guarantee by us. However, there can be no assurance that third-party financing will be available for this project. The Development Agreement provides that to the extent the La Jolla Band is unable to obtain financing from third parties, we will be required to provide financing of the project, up to $25.0 million.

We cannot predict when, if ever, the casino will open because its construction may be delayed or prevented for a number of reasons, including possible additional regulatory processes.

We cannot predict the future performance of the casino. The La Jolla Casino is located in the heart of Pauma Valley, California which is approximately 28 miles east of Temecula, California and 65 miles north of San Diego, California. This southern California casino market has experienced significant growth with five major Native American casinos within 25 miles of the proposed La Jolla Casino. They include Harrah’s Rincon Casino with approximately 1,500 machines and 30 table games, Casino Pauma with approximately 800 machines, The Pala Casino with approximately 2,250 machines and 85 table games, Valley View Casino with approximately 1,200 machines, and Pechanga Resort & Casino with approximately 2,000 machines and 126 table games. These casinos are larger, have established customers and are closer to the Temecula and San Diego market than the proposed La Jolla casino and most gaming customers will have to drive by those casinos before they arrive at La Jolla. The greater San Diego region also includes the Cahuilla Creek Casino, Casino Morongo, San Manuel Indian Bingo & Casino, Barona, Viejas, Sycuan, and Golden Acorn casinos which are also competitors to the La Jolla casino. As this market continues to mature, La Jolla can expect increased competition from these casinos in its market area.
 
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Regulations and Licensing

Colorado
 
The ownership and operation of gaming facilities in Colorado are subject to extensive state and local regulations. No gaming may be conducted in Colorado unless licenses are obtained from the Colorado Limited Gaming Control Commission (the “Gaming Commission”). In addition, the State of Colorado created the Division of Gaming (the “CDG”) within its Department of Revenue to license, implement, regulate, and supervise the conduct of limited stakes gaming. The Director of the CDG (“CDG Director”), under the supervision of the Gaming Commission, has been granted broad powers to ensure compliance with the laws and regulations. The Gaming Commission, CDG and CDG Director that have responsibility for regulation of gaming are collectively referred to as the “Colorado Gaming Authorities.”

The laws, regulations, and supervisory procedures of the Colorado Gaming Authorities seek to maintain public confidence and trust that licensed limited gaming is conducted honestly and competitively, that the rights of the creditors of licensees are protected, and that gaming is free from criminal and corruptive elements. The Colorado Gaming Authorities’ stated policy is that public confidence and trust can be maintained only by strict regulation of all persons, locations, practices, associations, and activities related to the operation of the licensed gaming establishments and the manufacture and distribution of gaming devices and equipment.

The Gaming Commission is empowered to issue five types of gaming and related licenses. Our Colorado casinos require a retail gaming license, which must be renewed each year, and the Colorado Commission has broad discretion to revoke, suspend, condition, limit, or restrict the licensee at any time. Under Colorado gaming regulations, no person or entity can have an ownership interest in more than three retail licenses, and our business opportunities will be limited accordingly. The Colorado Casinos’ licenses are renewable annually, subject to continued compliance with gaming regulations. The failure or inability of the Isle of Capri-Black Hawk, Colorado Central Station-Black Hawk or Colorado Grande-Cripple Creek (the "Colorado Casinos"), or the failure or inability of others associated with any of the Colorado Casinos, including us and Isle of Capri, to maintain necessary gaming licenses or approvals would have a material adverse effect on our operations.

Each Colorado Casino must meet specified architectural requirements, fire safety standards and standards for access for disabled persons. Each Colorado Casino also must not exceed specified gaming square footage limits as a total of each floor and the full building. Each Colorado Casino may operate only between 8:00 a.m. and 2:00 a.m., and may permit only individuals 21 or older to gamble in the casino. It may permit slot machines, blackjack and poker, with a maximum single bet of $5.00. No Colorado Casino may provide credit to its gaming patrons.

The Colorado Constitution permits a gaming tax of up to 40% on adjusted gross gaming proceeds, and authorizes the Gaming Commission to change the rate annually. The current gaming tax rate is 0.25% on adjusted gross gaming proceeds of up to and including $2.0 million, 2% over $2.0 million up to and including $4.0 million, 4% over $4.0 million up to and including $5.0 million, 11% over $5.0 million up to and including $10.0 million, 16% over $10.0 million up to and including $15.0 million and 20% on adjusted gross gaming proceeds in excess of $15.0 million.

Colorado law requires that every officer, director or stockholder holding either a 5% or greater interest or controlling interest of a publicly traded corporation or owners of an applicant or licensee, shall be a person of good moral character and submit to a full background investigation conducted by the Gaming Commission. The Gaming Commission may require any person having an interest in a license or a licensee to undergo a full background investigation and pay the cost of investigation in the same manner as an applicant. Persons found unsuitable by the Gaming Commission may be required immediately to terminate any interest in, association or agreement with, or relationship to a licensee. A finding of unsuitability with respect to any officer, director, employee, associate, lender or beneficial owner of a licensee or applicant may also jeopardize the licensee’s license or applicant’s license application. Licenses may be conditioned upon termination of any relationship with unsuitable persons.

The rules impose certain additional restrictions and reporting and filing requirements on publicly traded entities holding gaming licenses in Colorado. A licensee or affiliated company or any controlling person of a licensee or affiliated company, which commences a public offering of voting securities, must notify the Gaming Commission, with regard to a public offering to be registered with the Securities and Exchange Commission ("SEC"), no later than ten business days after the initial filing of a registration statement with the SEC, or, with regard to any other type of public offering, no later than ten business days prior to the public use or distribution of any offering document, if: 1) the licensee, affiliated company or a controlling person thereof, intending to issue the voting securities is not a publicly traded corporation; or 2) if the licensee, affiliated company or controlling person thereof, intending to issue the voting securities is a publicly traded corporation, and if the proceeds of the offering, in whole or in part, are intended to be used: a) to pay for construction of gaming facilities in Colorado to be owned and operated by the licensee; b) to acquire any direct or indirect interest in gaming facilities in Colorado; c) to finance the operation by the licensee of gaming facilities in Colorado; or d) to retire or extend obligations incurred for one or more of the purposes set forth in subsections a, b, or c above.
 
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We may not issue any voting securities except in accordance with the provisions of the Colorado Limited Gaming Act and the regulations promulgated thereunder. The issuance of any voting securities in violation will be void and the voting securities will be deemed not to be issued and outstanding. No voting securities may be transferred, except in accordance with the provisions of the Colorado Limited Gaming Act and the regulations promulgated thereunder. Any transfer in violation will be void. If the Colorado Limited Gaming Control Commission at any time determines that a holder of our voting securities is unsuitable to hold the securities, then we may, within sixty (60) days after the finding of unsuitability, purchase the voting securities of the unsuitable person at the lesser of (a) the cash equivalent of such person’s investment, or (b) the current market price as of the date of the finding of unsuitability, unless such voting securities are transferred to a suitable person within sixty (60) days after the finding of unsuitability. Until our voting securities are owned by persons found by the Commission to be suitable to own them, (a) we are not permitted to pay any dividends or interest with regard to the voting securities, (b) the holder of such voting securities will not be entitled to vote and the voting securities will not for any purposes be included in the voting securities entitled to vote, and (c) we may not pay any remuneration in any form to the holder of the voting securities, except in exchange for the voting securities.

Native American Gaming 

The terms and conditions of management contracts and the operation of all gaming, including casinos, on Native American land in the United States are subject to the Indian Gaming Regulatory Act of 1988 (“IGRA”), which is administered by the National Indian Gaming Commission (“NIGC”), the gaming regulatory agencies of tribal governments, and if provided for in a tribal-state compact, the gaming regulatory agencies of state governments. IGRA is subject to interpretation by both the NIGC and courts, as well as future legislative actions.

IGRA establishes three classes of tribal gaming-Class I, Class II and Class III. Class I gaming includes all traditional or social games solely for prizes of minimal value played by a tribe in connection with celebrations or ceremonies. Class II gaming includes games such as bingo, pull-tabs, punchboards, instant bingo and non-banked card games (those that are not played against the house), such as poker. Class III gaming is other forms of gaming, including banked table games such as blackjack, craps and roulette, and gaming machines such as slots, video poker, lotteries and pari-mutuel wagering.

Class I gaming on Indian lands is within the exclusive jurisdiction of Indian tribes and is not subject to federal regulation under IGRA. Class II gaming is permitted on Indian lands if the state in which the Indian lands lie permits that gaming, for any purpose by any person, organization or entity and if certain other requirements are met. IGRA prohibits all forms of Class III gaming unless the tribe has entered into a written agreement with the state that specifically authorizes the types of Class III gaming the tribe may offer (a “tribal-state compact”). These compacts often provide for, among other things, the manner and extent to which the state will conduct background investigations and certify the suitability of the manager, its officers, directors, and key employees to conduct gaming on Native American lands.

Under the form of tribal-state compact first signed by the State of California and certain California tribes in 1999, each tribe is allowed to operate up to 350 Class III slot machines without licenses from the state. This form of compact allows tribes to operate up to an additional 1,650 Class III slot machines by obtaining licenses for the devices from the state. Under these tribal-state compacts, there is a state-wide limitation on the aggregate number of Class III slot machine licenses that are available to tribes who have entered into these tribal-state compacts, and few, if any additional licenses are presently available. Some tribes have entered into new tribal-state compacts or amendments to the 1999 form of tribal-state compact that allow them to operate an unlimited number of Class III slot machines without the need for obtaining additional licenses, subject to the payment of additional fees to the state, including in the most recent cases, fees based on a percentage of slot “net win.” The Dry Creek Rancheria (River Rock Casino) and the La Jolla tribe have each entered into the 1999 form of tribal-state compact with the State and have not amended these tribal-state compacts. The River Rock Casino currently holds 1,250 Class III slot machines licenses, which together with the 350 Class III slot machines it may operate without licenses, allows it to operate up to a total of 1,600 Class III slot machines. The La Jolla Tribe intends to operate up to 349 Class III slot machines at its facility in phase one of its project. The Buena Vista Tribe has entered into an amended tribal-state compact with the State of California which will allow it to operate an unlimited number of Class III slot machines, in accordance with provisions contained in the compact.

The Route 66 Casino, through its tribal-state compact with the State of New Mexico, currently provides Class III gaming in accordance with provisions contained in the compact.

The Muscogee (Creek) Nation has entered into a tribal-state compact with the State of Oklahoma which permits it to operate an unlimited number of Class III slot machines, in accordance with provisions contained in the compact.
 
10


We have received the appropriate licenses from the tribal gaming authorities to participate in the development, financing and/or equipping of the River Rock Casino, the Route 66 Casino, the La Jolla Casino and the Muscogee (Creek) Nation Casino.  Buena Vista Development has been issued the appropriate licenses from the Buena Vista tribal gaming authority to participate in the development and financing of its casino and has received preliminary approval from the tribe of our suitability as an owner of Buena Vista Development. In California, licensing and registration requirements for tribal financing sources are governed by compacts between the tribes and the State of California. Pursuant to the compacts relating to the River Rock Casino, La Jolla Casino and Buena Vista Casino, applications have been made to the State by us (or Buena Vista Development for the Buena Vista Casino) for a determination that we are suitable for licensing as a tribal financing source. If the State of California determines that any person would be unsuitable for licensure in a tribal casino, then the tribal gaming authority must revoke any license that has been issued to that person.

Native American tribes are sovereign with their own governmental systems, which have primary regulatory authority over gaming on land within the tribes’ jurisdiction. Therefore, persons engaged in gaming activities, including us, are subject to the provisions of tribal ordinances and regulations on gaming. These ordinances are subject to review by the NIGC under certain standards established by IGRA. The NIGC may determine that some or all of the ordinances require amendment, and that additional requirements, including additional licensing requirements, may be imposed on us. We have received no such notification regarding the River Rock Casino, the Route 66 Casino, the Muscogee (Creek) Nation Casino, the La Jolla Casino or the Buena Vista Casino. The possession of valid licenses from the tribes are ongoing conditions of our agreements with the tribes. The possession of a valid license from Buena Vista Rancheria of Me-Wuk Indians is an ongoing condition of Buena Vista Development's agreements with that tribe.

IGRA requires NIGC approval of management contracts for Class II and Class III gaming, as well as the review of all agreements collateral to the management contracts. The management agreement for the La Jolla casino has not yet been submitted to the NIGC. The management contract relating to the casino for the Muscogee (Creek) Nation has been submitted to the NIGC for review and approval, but it has not yet been approved.

The NIGC will not approve a management contract if anyone with a direct or indirect financial interest in, or having management responsibility for, a management contract (including the directors and the top ten shareholders of the management company) (i) is an elected member of the Indian tribal government that owns the facility purchasing or leasing the games, (ii) has been or is convicted of a felony gaming offense; (iii) has knowingly and willfully provided materially false information to the NIGC or the tribe, (iv) has refused to respond to questions from the NIGC; or (v) is a person whose prior history, reputation and associations pose a threat to the public interest or to effective gaming regulation and control, or create or enhance the chance of unsuitable activities in gaming or the business and financial arrangements incidental thereto. In addition, the NIGC will not approve a management contract if (a) the management company or any of its agents have attempted to unduly influence any decision or process of tribal government relating to gaming,(b) the management company has materially breached the terms of the management contract or the tribe's gaming ordinance, or (c) a trustee, exercising common skill and diligence, would not approve such management contract.

A management contract can be approved only after NIGC determines that the contract provides, among other things, for (i) adequate accounting procedures and verifiable financial reports, which must be furnished to the tribe; (ii) tribal access to the daily operations of the gaming enterprise, including the right to verify daily gross revenues and income; (iii) minimum guaranteed payments to the tribe, which must have priority over the retirement of development and construction costs; and (iv) a ceiling on the repayment of such development and construction costs; and (v) a contract term not exceeding five years and a management fee not exceeding 30% of profits; provided that the NIGC may approve up to a seven year term and a management fee not to exceed 40% of profits if NIGC is satisfied that the capital investment required and income projections for the gaming operation require the additional term and fee.

In the past few years, the NIGC’s office of general counsel has issued a number of opinions concluding that contracts with non-managers violated IGRA’s requirements that a tribe must have the "sole proprietary interest" in its gaming operations. Generally, these opinions have been rendered where the non-manager received a percentage of the casino's revenues as compensation for the contractor’s services, and where the general counsel’s office determined that the compensation was disproportionately large in comparison to the value of the services provided or the risks assumed by the contractor. Where a contractor’s compensation is based on a percentage of a tribal casino’s revenues, tribes or the contractors commonly submit these non-management contracts to the NIGC for a determination that the contracts are not management contracts and do not grant any "proprietary interest" in the tribe's gaming operations.  The Buena Vista Tribe has submitted the Development Agreement with Buena Vista Development to the NIGC’s office of general counsel with a request for such a determination, but has not yet received a response.  The La Jolla tribe intends to likewise submit the development agreement for La Jolla to the NIGC’s office of general counsel with a request for such a determination.     We do not believe that either the Buena Vista development agreement or the La Jolla development agreement constitutes a management agreement because no management will occur under those development agreements.  In addition, we do not believe that a proprietary interest is granted in the tribes’ gaming operations by either of these development agreements.  There is no assurance, however, that the NIGC will concur in our belief.  If one of these agreements actually constitutes a management agreement, that entire agreement would be void unless the NIGC approves the agreement. If one of these agreements grants a proprietary interest in the tribe's gaming operations, the compensation terms of that agreement might be unenforceable, and in a worst case, the entire contract might be void.
 
11


Each of our development agreements with the Dry Creek Rancheria (River Rock Casino) and the Muscogee Nation were submitted to the NIGC, with a request for a determination that each development agreement was not subject to IGRA's requirements for management contracts. We received confirmations from the NIGC that the development agreements were not subject to IGRA's requirements for management contracts.

General Gaming Regulations in Other Jurisdictions 

If we become involved in gaming operations in any other jurisdictions, such gaming operations will subject us and certain of our officers, directors, key employees, stockholders and other affiliates to strict legal and regulatory requirements, including mandatory licensing and approval requirements, suitability requirements, and ongoing regulatory oversight with respect to such gaming operations. There can be no assurance that we will obtain all of the necessary licenses, approvals and findings of suitability or that our officers, directors, key employees, other affiliates and certain other stockholders will satisfy the suitability requirements in one or more jurisdictions, or that such licenses, approvals and findings of suitability, if obtained, will not be revoked, limited, suspended or not renewed in the future.

Failure by the Company to obtain, or the loss or suspension of, any necessary licenses, approval or findings of suitability would prevent us from conducting gaming operations in such jurisdiction and possibly in other jurisdictions.

Other Business Activities

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, L.L.C., we own approximately 240 acres of real property in the vicinity of Black Hawk, Colorado. In November 2004, the Central City Business Improvement District completed the construction of a new 8.4 mile four-lane road connecting Interstate 70 to Central City, Colorado. The new road is adjacent to a portion of our 240 acres.

Sunrise Land and Mineral. We own a 50% interest in Sunrise Land and Mineral Corporation, (“Sunrise”). Sunrise owns approximately 300 acres of land in Nevada County, California (including all surface, mineral, water, air, and timber rights), two mining leases consisting of approximately 8,600 acres in White Pine County, Nevada, one mining lease of approximately 6,700 acres in White Pine County, Nevada, and one mining lease of approximately 1,000 acres in Churchill County, Nevada. The 300 acres serves as collateral for our note receivable of $226,000 from Sunrise.

Goldfield Resources, Inc. Our wholly-owned subsidiary, Goldfield Resources, Inc. (“Goldfield”), holds mining claims totaling approximately 9,000 acres in the State of Nevada. Goldfield is not directly involved in mining operations. Goldfield has secured a mining lease for its properties with Metallic Goldfield, Inc. (“Metallic”), and retains a royalty interest under the lease. This lease permits Goldfield to benefit financially from successful mining operations without incurring the significant labor and machinery costs of operating mining projects. Gold mining operations must be conducted in accordance with state and federal rules and regulations. Under the lease agreement, Metallic is primarily responsible for all regulatory compliance. However, Metallic’s failure to comply with any of the applicable rules or regulations could create potential liability for Goldfield.

Restaurant Connections International, Inc. We are a founding shareholder of Restaurant Connections International, Inc. (“RCI”), and currently own approximately 30% interest in RCI. RCI owns the sole Pizza Hut franchise in Sao Paulo, Brazil, giving RCI ownership and operation of 16 Pizza Hut restaurants in Sao Paulo. RCI is pursuing a sale or other disposition of its assets, and RCI has retained an investment banker to assist RCI in these efforts. Other global fast food restaurants have entered the Brazilian marketplace and are general competitors of RCI. McDonald’s has established a presence in Sao Paulo and in other areas of Brazil. This restaurant company has significantly greater financial and other resources that could adversely affect RCI’s operations.

Employees

As of March 31, 2005, we employed 25 people.
 
12

 
Risk Related to Our Business
 
An investment in our common stock involves a high degree of risk. You should consider the risks described below and the other information contained in this annual report carefully before deciding to invest in the Company.

We face significant competition from other gaming operations that could have a material adverse effect on our future operations.

There is intense competition among companies in the gaming industry, many of which have significantly greater resources than we do. We, and the Native American operations which we are involved in, compete with numerous casinos of varying quality and size in market areas where our properties are located. The gaming business is characterized by competitors that vary considerably by their size, quality of facilities, number of operations, brand identities, marketing and growth strategies, financial strength and capabilities, level of amenities, management talent and geographic diversity. In most markets, we compete directly with other casino facilities in the immediate and surrounding market areas. If our competitors operate more successfully, if competitors' properties are enhanced or expanded, or if additional casinos are established in and around locations in which we conduct business, we may lose market share. The expansion of casino gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers could have a significant adverse effect on our business, financial condition and results of operations.

We are subject to extensive governmental gaming regulation that could adversely affect us.

The gaming industry is highly regulated and we must maintain our licenses in order to continue our operations. Each of our gaming operations is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Certain jurisdictions, however, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require access to and periodic reports concerning the gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. Regulatory authorities have broad powers with respect to the licensing of casino operations and may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines and take other actions, any one of which could have a significant adverse effect on our business, financial condition and results of operations.

Our business is subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our results of operations and financial condition.

We cannot ensure that we will be able to comply with or conduct business in accordance with applicable regulations.

Indebtedness could adversely affect our financial health.

IC-BH's Senior Secured Credit Facility provides for a $40.0 million revolving credit facility and a $165.0 million term loan (see Note 3 to our Financial Statements). The degree to which IC-BH is leveraged could have important consequences including, but not limited to, the following: (a) its increased vulnerability to adverse general economic and industry conditions; (b) the dedication of a substantial portion of its operating cash flow to the payment of principal and interest of indebtedness, thereby reducing the funds available for operations and further development of IC-BH; and (c) its impaired ability to obtain additional financing for future working capital, capital expenditures, acquisitions or other general corporate purposes. To date, cash flow from the operations of IC-BH’s Colorado casinos has been sufficient to pay its maturing debt obligations.

On June 29, 2004, we entered into a $40.0 million revolving credit facility which allows us to borrow up to $40.0 million (less any other indebtedness owed by us to such lender) at any time prior to June 30, 2008, which is the maturity date for the credit facility. At June 1, 2005, we had $33.6 million in outstanding indebtedness and operating lease guarantees of approximately $128,000 for the River Rock Casino. We also have guaranteed debt of approximately $100,000 for an affiliated company that may mature during the next two fiscal years. We have agreed, under certain circumstances if financing would not otherwise be available, to provide a guarantee of up to $25.0 million of third party financing for the La Jolla casino project.

To date, cash distributions from IC-BH, distributions from DCC of our portion of the credit enhancement fees from River Rock Casino and loan repayments from affiliates have been sufficient to satisfy our current debt obligations and working capital needs. However, on April 25, 2005 we executed a three year $5.9 million promissory note with IC-BH in connection with the purchase of 100% of the Colorado Grande Casino and our future quarterly tax distributions from IC-BH will now go towards the repayment of the interest and principal due on this $5.9 million note until it is repaid. We will be relying solely on distributions from DCC and affiliate loan repayments to satisfy our current debt obligations and working capital needs. We will need to borrow funds under the revolving credit facility if we have insufficient cash flow to satisfy our obligations and working capital needs.
 
13


There are significant risks in the development and management of commercial and Native American Casinos that could adversely affect our financial results.

The development and management of casinos require the satisfaction of various conditions, many of which are beyond our control. The failure to satisfy any of such conditions may significantly delay the completion of a project or prevent a project's completion altogether.

The opening of each of the proposed Native American facilities will be contingent upon, among other things, the receipt of all regulatory licenses, permits, approvals and authorizations, the completion of construction, hiring and training of sufficient personnel. The scope of the approvals to construct and open these casinos is extensive, and the failure to obtain such approvals could prevent or delay the completion of construction or opening of all or part of such casinos.

No assurance can be given that development activities will begin or will be competed, or that the budget for these projects will not be exceeded.

In addition, the regulatory approvals necessary for the construction and operation of casinos are often challenged in litigation brought by government entities, citizens groups and other organizations and individuals. Such litigation can significantly delay the construction and opening of casinos.

Major construction projects entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference, and unanticipated cost increases. Delays or difficulties in obtaining any of the requisite licenses, permits, allocations and authorizations from regulatory authorities could increase the total cost, delay or prevent the construction or opening of any of these planned casino developments. In addition, once developed, no assurances can be given that we will be able to manage these casinos on a profitable basis or to attract a sufficient number of guests, gaming customers and other visitors to make the various operations profitable.

With each project, we are subject to the risk that our investment may be lost if the project cannot obtain adequate financing to complete development and open the casino successfully. In some cases, we may be forced to provide more financing than originally planned in order to complete development, increasing the risk to us.

The terms of our current management contracts provide that such contracts may be terminated under certain circumstances, including without limitation, upon the failure to obtain NIGC approval for the project and the loss of requisite gaming licenses. Any management contract terminations could have a material adverse effect on our results of operations and financial conditions if new business opportunities or new management contracts are not realized.

We make limited recourse loans in connection with exploring gaming or other development opportunities some of which may not be repaid.

From time to time, in our ordinary course of business, we make loans to tribes or other third parties for the purpose of exploring gaming or development opportunities that become available to us. Proceeds of such loans are typically used for due diligence investigations of such opportunities or to provide assistance to tribes or other third parties in evaluating their abilities to pursue such opportunities. If we determine to pursue such opportunities, then we may make additional loans for the construction, development, equipment and operations of the projects.

Our primary recourse for collection of this indebtedness from a tribe or other third party is typically limited to revenues, if any, from the project operations. In addition, in the case of contracts with tribes, money damages for breach or wrongful termination of a contract is typically limited to revenues, if any, from gaming operations. If any of the development projects are not ultimately pursued or available to us, then any loans to tribes or third parties made for the purpose of exploring those opportunities are likely not to be repaid.
 
14


If our key personnel leave us, our business will be adversely affected.

Our success is largely dependent upon the efforts and skills of our key executive officers. The loss of the services of any key executive officers could have a material adverse effect on us. There can be no assurance that we would be able to attract and hire suitable replacements in the event of any such loss of services. We currently have no employment agreements with any of our key executive officers.

Available Information

We make available on our website (www.nevadagold.com) under “Investor Relations - SEC Filings”, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file such material with the Securities and Exchange Commission.

Item 2.
Description of Properties
 
Isle of Capri Black Hawk Casino. IC-BH (of which we own 43%) owns approximately 10.1 acres of land in Black Hawk, Colorado for use in connection with the Isle of Capri-Black Hawk casino. This land is pledged as collateral for the IC-BH $205.0 million Senior Secured Credit Facility.

Colorado Central Station Casino-Black Hawk. IC-BH owns and leases approximately 7.1 acres of land in Black Hawk, Colorado, for use in connection with the Colorado Central Station casino. IC-BH leases additional parcels of land adjoining the Colorado Central Station casino for parking. This lease is for an initial term of ten years with options to renew for nine additional terms of ten years each with the final option period concluding June 1, 2094. Annual rent is $480,000 and renewals are subject to 20% rent increases over the rate of the previous term. IC-BH also entered into a lease for additional parking. This lease is for an initial term of nine years with options to renew for eighteen additional terms of five years each with the final option period concluding June 1, 2094. Annual rent is currently $1.7 million and is indexed to correspond to any rise or fall in the cost of living at one-year intervals beginning June 1, 1996, not to exceed 3% difference from the previous year’s rate. These interests are pledged against the IC-BH $205 million Senior Secured Credit Facility.

Colorado Grande Casino-Cripple Creek. We lease (through our wholly-owned subsidiary, Colorado Grande Enterprises, Inc.) a portion of a building in Cripple Creek, Colorado, and an adjacent parking lot, for use in connection with the Colorado Grande Casino facilities. IC-BH leases this property at an annual rent of the greater of $144,000 or 5% of Colorado Grande-Cripple Creek’s adjusted gross gaming revenues, as defined, with an annual cap of $400,000. This lease is for an initial term of sixteen years with a option to renew for fifteen years with the final option period concluding January 31, 2021. We own an additional parcel of land adjacent to the Colorado Grande, which is used for parking.

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, L.L.C., we own approximately 240 acres of real property in the vicinity of Black Hawk, Colorado. The property is located in an EPA National Priorities list area.

Sunrise Land and Mineral. We own a 50% interest in Sunrise Land and Mineral Corporation, (“Sunrise”). Sunrise owns approximately 300 acres of land in Nevada County, California (including all surface, mineral, water, air, and timber rights), two mining leases consisting of approximately 8,600 acres in White Pine County, Nevada, one mining lease of approximately 6,700 acres in White Pine County, Nevada, and one mining lease of approximately 1,000 acres in Churchill County, Nevada. The 300 acres serves as collateral for our note receivable of $226,000 from Sunrise.

Goldfield Resources, Inc. Our wholly-owned subsidiary, Goldfield Resources, Inc. (“Goldfield”), holds mining claims totaling approximately 9,000 acres in the State of Nevada. Goldfield is not directly involved in mining operations. Goldfield has secured a mining lease for its properties with Metallic Goldfield, Inc. (“Metallic”), and retains a royalty interest under the lease. This lease permits Goldfield to benefit financially from successful mining operations without incurring the significant labor and machinery costs of operating mining projects. Gold mining operations must be conducted in accordance with state and federal rules and regulations. Under the lease agreement, Metallic is primarily responsible for all regulatory compliance. However, Metallic’s failure to comply with any of the applicable rules or regulations could create potential liability for Goldfield.

Office Lease. We currently lease approximately 5,880 square feet of office space in Houston, Texas. The total monthly rental for office space is currently $9,600. We are expanding our existing facilities and upon completion (estimated to be June, 2005), our space will increase to 11,900 square feet and the monthly rental to $17,300. We have expanded our existing facilities to accommodate the growth in our business.
 
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Item 3.
Legal Proceedings

We and our subsidiaries are, from time to time, defendants in various lawsuits relating to routine matters incidental to our business. As with all litigation, no assurance can be provided as to the outcome of the following matters and litigation inherently involves significant costs. Following is a summary of key litigation impacting us and our subsidiaries.

Route 66 Casinos. On September 27, 2002, we filed a claim for arbitration, seeking damages, specific performance and other relief against American Heritage, Inc. (d/b/a The Gillmann Group), the other member in Route 66 Casinos. Route 66 Casinos was jointly formed by us and The Gillmann Group to assist the Pueblo of Laguna in the development and financing of gaming facilities on land located 11 miles west of Albuquerque, New Mexico. We and The Gillmann Group entered into several contracts arising from The Gillmann Group’s agreement to assist in the development and equipping of the Route 66 Casino. One such agreement, the Route 66 Casinos Operating Agreement, governed the relationship of the parties relating to the Route 66 Casinos gaming operation. Pursuant to this agreement, we are to receive 51% of the net revenue received by Route 66 Casinos from the gaming operation. This agreement, which was signed by both us and The Gillmann Group, contains an arbitration clause. We also loaned The Gillmann Group the amount of $250,000, which has been repaid to us.
 
In addition to the operating agreement, the parties also entered into a right of first refusal agreement, whereby The Gillmann Group agreed to offer us the right to partner on future gaming projects. We believe that The Gillmann Group and Mr. Gillmann have breached each of these agreements.
 
We initiated arbitration proceedings pursuant to the Route 66 Casinos Operating Agreement; however, The Gillmann Group and Mr. Gillmann refused to participate on the ground that they believe the operating agreement is invalid. We then filed a lawsuit in state district court on October 3, 2002, in Harris County, Texas (Nevada Gold & Casinos, Inc. v. American Heritage, Inc., et al. (No. 2002-51378)), initially seeking to recover payment pursuant to the promissory note. We have since amended our claims to include breach of contract, breach of fiduciary duty, fraud and other claims related to The Gillmann Group’s repudiation of the Route 66 Casinos Operating Agreement and right of first refusal agreement.
 
The Gillmann Group then filed a lawsuit in state district court on October 4, 2002, in Clark County, Nevada (American Heritage, Inc., et al. v. Nevada Gold & Casinos, Inc., et al. (No. A457315)). In its lawsuit, The Gillmann Group seeks judicial dissolution of Route 66 Casinos and seeks a declaratory judgment that the operating agreement is void based upon fraudulent misrepresentation. We immediately moved to compel arbitration, which was denied by the Nevada district court. We appealed this ruling to the Nevada Supreme Court, and the related lawsuit in Texas was stayed pending the outcome of the Nevada appeal.  On April 28, 2005 the Nevada Supreme Court ruled that the dispute was not subject to arbitration.  In response, the Texas court lifted the stay of proceedings and scheduled the case for trial in September 2005.

Rinaldo Corporation. On October 18, 2004, Rinaldo Corporation filed an action captioned Rinaldo Corporation vs. Nevada Gold & Casinos, Inc., Sierra Research and Consulting, LLC, Sheila L. Torkelson, Michael R. Derry (d/b/a Waste Not Tribal Services), and Does 1 Through 100, against the Company in the Superior Court of the State of California (No. S-1500-CV 253969 AEW).   According to the Complaint, Rinaldo Corporation (“Rinaldo”) and the Timbisha Shoshone Tribe of the Western Shoshone Nation entered into a Development Contract and Personal Property Lease on or about November 2, 2002, which obligates Rinaldo to (a) finance and provide technical assistance to the tribe in acquiring suitable real property and causing such land to be taken into trust by the United States; (b) design, construct and otherwise develop at its own expense the structure and related equipment to be used as the gaming facility; and (c) advance certain operating funds to the tribe while the gaming facility is being developed, constructed and brought into operation.  In the Complaint, Rinaldo claims that the Company and the other named defendants wrongfully interfered with the agreement between Rinaldo and the tribe.  Rinaldo alleges tortious interference with contract and prospective economic advantage, unfair competition and conspiracy and seeks up to $50 million in damages and unspecified punitive damages.  Rinaldo also seeks a preliminary and permanent injunction barring the Company and the other defendants from engaging in further acts of alleged interference.  On October 29, 2004, Rinaldo filed its First Amended Complaint.  The Company demurred to Rinaldo’s First Amended Complaint, and, at a hearing on January 5, 2005, the Court orally sustained Nevada Gold’s demurrer with respect to one cause of action (with leave for Rinaldo to amend), and denied it with respect to the others.  After Rinaldo amended, Nevada Gold answered, generally denying Rinaldo's allegations.  Meanwhile, defendants Torkelson and Derry filed separate demurrers, asserting that they were protected by the doctrine of sovereign immunity.  On May 11, 2005, the trial court sustained their demurrer, giving Rinaldo leave to amend.  In response, Rinaldo filed a Third Amended Complaint on June 1, 2005, the sufficiency of which has not yet been tested by demurrer.  Trial in this case is currently scheduled for December 2005.  We believe the claims against us to be without merit and we intend to vigorously and appropriately defend the claims asserted in this matter.
 
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Item 4.
Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of our fiscal year ended March 31, 2005.

Part II

Item 5.
Market For Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded on the American Stock Exchange under the symbol UWN. The following table sets forth the high and low sales prices per share of the common stock for the last two fiscal years.

 
 
Fiscal Years Ended
 
 
 
March 31, 2005
 
March 31, 2004
 
 
 
High
 
Low
 
High
 
Low
 
                   
First Quarter
 
$
21.45
 
$
12.10
 
$
 8.88
 
$
 6.08
 
Second Quarter
   
13.85
   
  9.55
   
11.45
   
 8.15
 
Third Quarter
   
12.85
   
10.05
   
13.09
   
 9.75
 
Fourth Quarter
   
15.24
   
11.71
   
19.20
   
10.36
 

Holders of Common Stock

As of May 27, 2005, we had approximately 1,780 shareholders of record.

Dividends

We have not paid any dividends during the last two fiscal years and the current policy of our board of directors is to retain earnings to provide for the growth of the Company. Consequently, no cash dividends are expected to be paid on our common stock in the foreseeable future.

Equity Compensation Plan

The following table gives information about our shares of common stock that may be issued upon the exercise of options, warrants, and rights under all of our existing equity compensation plans as of March 31, 2005, including the 1999 Stock Option Plan, as well as shares of our common stock that may be issued under individual compensation arrangements that were not approved by our stockholders (such grants, the “Non-Plan Grants”).

Plan Category
 
Number of Securities
To be Issued Upon
Exercise of Outstanding
Options, Warrants and
Rights
(A)
 
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(B)
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding Securities
Reflected in Column A)
(C)
 
               
Equity Compensation Plans Approved by Security Holders
   
1,138,200
 
$
8.58
   
685,549
 
Equity Compensation Plans Not Approved by Security Holders
   
           10,000 (1)
 
$
3.25
   
           -0-
 
Total
   
1,148,200
 
$
8.53
   
685,549
 

(1) In September 2000, in exchange for consulting services, we issued warrants to purchase 10,000 shares at an exercise price of $3.25 per share, expiring in March 2006.
 
17


Recent Sales of Unregistered Securities

During the fourth quarter of fiscal 2005, we did not sell or issue any equity securities that were not registered under the Securities Act.

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities in the fourth quarter of fiscal year 2005.

Item 6.
Selected Financial Data

The selected consolidated financial data presented below as of and for our fiscal years ended March 31, 2005, 2004, 2003, 2002 and 2001 have been derived from our consolidated financial statements which, except for the fiscal years ended March 31, 2002 and March 31, 2001, are contained elsewhere in this Annual Report. The selected consolidated financial data set forth below should be read together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements and Notes thereto and other financial and statistical information included elsewhere in this Annual Report.

   
Fiscal Year Ended March 31,
 
 
 
2005
2004
2003
2002
2001
                       
Statement of Operations Data:
                     
Total revenues
 
$
7,411,582
 
$
8,544,432
 
$
3,584,880
 
$
889,433
 
$
472,366
 
Total expenses
   
7,381,477
   
7,888,275
   
5,446,337
   
3,513,614
   
2,342,845
 
Minority interests
   
(837,849
)
 
(561,697
)
 
(53,323
)
 
(36,051
)
 
 
Earnings from unconsolidated affiliates
   
7,648,802
   
11,243,466
   
9,538,081
   
7,676,420
   
6,454,133
 
Loss on early extinguishment of debt
   
   
   
   
(2,910,570)(e
)
 
 
Net income before income tax (expense) benefit
   
6,841,058
   
11,337,926
   
7,623,301
   
2,105,618
   
4,583,654
 
Income tax (expense) benefit
   
(2,682,794
)
 
(3,813,870
)
 
(2,298,373
)
 
(515,510
)
 
784,655
 
Net income
 
$
4,158,264
 
$
7,524,056
 
$
5,324,928
 
$
1,590,108
 
$
5,368,309
 
Per Share Data (f):
                               
Net income
 
$
4,158,264
 
$
7,524,056
 
$
5,324,928
 
$
1,590,108
 
$
5,368,309
 
Preferred stock dividends accumulated
   
   
   
   
   
(41,866
)
Net income applicable to common shareholders
 
$
4,158,264
 
$
7,524,056
 
$
5,324,928
 
$
1,590,108
 
$
5,326,443
 
Net income per common share - basic
 
$
0.33
 
$
0.65
 
$
0.49
 
$
0.15
 
$
0.51
 
Net income per common share - diluted
 
$
0.29
 
$
0.51
 
$
0.37
 
$
0.13
 
$
0.42
 
 
                               
 
 
                             
Balance Sheet Data:
                               
Total assets
 
$
45,330,514
(a)
$
45,951,057
(b)
$
57,807,445
(c)
$
26,286,490
 
$
18,642,226
 
Total debt
   
12,950,272
(a)
 
11,029,266
(b)
 
36,139,348
(d)
 
12,926,547
   
7,016,865
 
Stockholders’ equity (f)
   
30,851,193
   
30,799,320
   
18,707,588
   
12,666,567
   
9,502,869
 

(a)
In the fourth quarter of fiscal year 2005, we received repayment of our $10.0 million note receivable from River Rock Casino and utilized proceeds to pay down our indebtedness.

(b)
We utilized the proceeds from the River Rock Casino loan repayment to pay down $23.6 million in indebtedness.

(c)
Includes notes receivable of approximately $28.0 million from Dry Creek Rancheria related to the River Rock Casino Project.

(d)
Includes approximately $23.0 million of indebtedness drawn on our credit facility to fund the River Rock Casino project.

(e)
We incurred a $2.9 million loss on early extinguishment of debt related to the refinancing of IC-BH's $75.0 million loan.

(f)
No cash dividends on common stock have been declared for the periods presented.
 
Item 7.
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 Consolidated Financial Statements and Notes thereto contained in Item 8 herein. Management is of the opinion that inflation and changing prices, including foreign exchange fluctuations, will have little, if any, effect on our consolidated financial position or results of our operations.
 
18


Critical Accounting Policies

Our critical accounting policies are those accounting policies that involve the use of complicated processes, assumptions, estimates and/or judgments in the preparation of our consolidated financial statements. An accounting estimate is an approximation made by management of a financial statement element, item or account in the consolidated financial statements. Accounting estimates in our historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require us to make assumptions about matters that are uncertain at the time the estimate is made. Additionally, different estimates that we could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of our consolidated financial condition or results of operations. 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. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Our significant accounting policies are discussed in Note 2 to our consolidated financial statements included in Item 8 of this report. We have discussed the development and selection of our critical accounting policies and related disclosures with the Audit Committee of the Board of Directors and have identified the following critical accounting policies for the current year.

Principles of Consolidation

We consolidate entities when we have the ability to control the operating and financial decisions and policies of that entity. The determination of our ability to control or exert significant influence over an entity involves the use of judgment. We apply the equity method of accounting where we can exert significant influence over, but do not control, the policies and decisions of an entity. See the Executive Overview below or Note 3 to our Consolidated Financial Statements for our equity method investments. We use the cost method of accounting where we are unable to exert significant influence over the entity.

Equity Method of Accounting

Our investments in IC-BH, RCI, Route 66 Casinos and Sunrise are accounted for using the equity method of accounting because the investment gives us the ability to exercise significant influence, but not control, over the investees. Significant influence is generally deemed to exist where we have an ownership interest in the investee of between 20% and 50%, although other factors such as the degree of ultimate control, representation on the investee’s Board of Directors or similar oversight body are considered in determining whether the equity method of accounting is appropriate. We record our equity in the income or losses of our investees using the same reporting periods as presented, except we report our equity in income or losses three months in arrears for RCI (which has a calendar fiscal year) and one month in advance for IC-BH (which has a fiscal year ending on the last Sunday in April). Deferred tax assets or liabilities are recorded for allocated earnings or losses of our equity investments that are not currently reportable or deductible for federal income tax purposes.

We utilize the equity method of accounting for our interest of 51% in Route 66 Casinos because the operating activities of the joint venture are currently controlled by the minority venturer. As disclosed in Note 13 to our Consolidated Financial Statements, we are involved in pending legal proceedings with the minority venturer in Route 66 Casinos in which the minority venturer has asserted that the operating agreement governing the venture is void and unenforceable. We have assessed whether this circumstance indicates utilization of the cost method of accounting for this investment and have concluded that the equity method best reflects the underlying nature of our investment. The operating agreement provides that all material decisions of the joint venture are made by the members, including us, on a unanimous basis. We believe the operating agreement to be binding and enforceable on the venture and our joint venture partner and, therefore, conclude that we have significant influence over the affairs of the venture. We also believe that we are able to reasonably estimate the revenues and expenses of the venture to the extent necessary to apply the equity method of accounting, as described in more detail below under the heading “Use of Estimates”.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenues and expenses during the reporting period. Actual results can, and often do, differ from those estimates.
 
19


We have estimated our share of operational activities of Route 66 Casinos and have recorded such amounts using the equity method of accounting (See “Equity Method of Accounting”) because we do not receive current revenue and expense information from the venture as a consequence of ongoing litigation (See Note 13 to our Consolidated Financial Statements). The estimated revenues are based on published net win numbers provided by the Route 66 Casino to the State of New Mexico Gaming Control Board for the 1,250 gaming devices leased to the casino by Route 66 Casinos. Estimated expenses are comprised of debt service payments on the 1,250 gaming devices supplied to the casino, the supply of parts for the repair of these gaming devices, and a monthly overhead fee to the other member of the Route 66 Casinos, that was initially agreed to by us and the other member. The direct expenses related to the debt service of the gaming devices and the other member's overhead are stable costs with little variable activity. We believe the net profits determined from the estimated revenues and expenses are reasonable; however, actual financial results may materially and adversely vary from our estimates.

Capitalized Development Costs

We capitalize certain third party legal, professional, and other miscellaneous fees directly related to the procurement, evaluation and establishment of contracts for development projects. Development costs are recorded on the cost basis and are amortized over the estimated economic term of the contract. We review each project on a quarterly basis to assess whether any changes to our estimates are appropriate. If accumulated costs of a specific project exceed the net realizable value of such project or the project is abandoned, the costs are charged to earnings.

We amortize capitalized development costs of DCC, over the five-year term of the credit enhancement fee contract. Each quarter, we recognize as expense a percentage of our capitalized development costs determined by dividing actual credit enhancement fees received for the quarter by estimated credit enhancement fees to be received over the five-year term of the contract. We believe this method is appropriate because it matches income and expenses over the term of the contract. We also review estimated credit enhancement fees to be received over the remaining term of the contract on a quarterly basis to assess whether any changes to our estimates are appropriate. As of June 14, 2005, we have not found it necessary to change the estimated amount of credit enhancement fees over the remaining term of the contract.

Asset and Investment Impairments

We apply the provisions of Statement of Financials Accounting Standards (“SFAS”) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", and Accounting Principles Board Opinion (“APB”) No. 18, "The Equity Method of Accounting for Investments in Common Stock," to account for asset and investment impairments. Under these standards, we evaluate an asset or investment for impairment when events or circumstances indicate that its carrying value may not be recovered. These events include market declines that are believed to be other than temporary, changes in the manner in which we intend to use a long-lived asset, decisions to sell an asset or investment and adverse changes in the legal or business environment such as adverse actions by regulators. When an event occurs, we evaluate the recoverability of our carrying value based on either (i) the long-lived asset’s ability to generate future cash flows on an undiscounted basis or (ii) the fair value of our investment in unconsolidated affiliates. If an impairment is indicated or if we decide to exit or sell a long-lived asset or group of assets, we adjust the carrying value of these assets downward, if necessary, to their estimated fair value, less costs to sell. Our fair value estimates are generally based on market data obtained through the sales process or an analysis of expected discounted cash flows. The magnitude of any impairments are impacted by a number of factors, including the nature of the assets to be sold and our established time frame for completing the sales, among other factors. We also reclassify the asset or assets as either held-for-sale or as discontinued operations, depending on, among other criteria, whether we will have any continuing involvement in the cash flows of those assets after they are sold.

Allowance for Doubtful Accounts 

We establish provisions for losses on accounts and notes receivable if we determine that we will not collect all or part of the outstanding balance. We regularly review collectibility and establish or adjust our allowance as necessary using the specific identification method. We make advances to Indian tribes and other third parties under executed promissory notes for project costs related to the development of gaming and entertainment properties. Due diligence is conducted by our management with the assistance of legal counsel prior to entering into arrangements with Indian tribes and other third parties to provide financing in connection with their efforts to secure and develop the properties. Repayment terms are largely dependent upon the operating performance of each opportunity for which the funds have been loaned. Interest income is not accrued until it is reasonably assured that the project will be completed and that there will be sufficient profits from the facility to cover the interest to be earned under the respective note. If projected cash flows are not sufficient to recover amounts due, the note is evaluated in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan,” to determine the appropriate discount to be recorded on the note for it to be considered a performing loan. If the note is performing, interest is recorded using the effective interest method based on the value of the discounted note balance. See Note 4 to our Consolidated Financial Statements.
 
20


We review on a quarterly basis each of our notes receivable to evaluate whether the collection of our note receivable is still probable. In our analysis, we review the economic feasibility and the current financial, legislative and development status of the project. If our analysis indicates that the project is still economically feasible, we will continue recording the note receivable as an asset. If our analysis indicates that the project is no longer economically feasible, then the note receivable would be written down to its estimated fair value.

Revenue Recognition

We record revenues from credit enhancement fees, interest on notes receivable and royalties on the accrual basis as earned. The dates on which payments are collected may vary dependent upon the term of the contracts or note receivable agreements. For certain notes receivable related to Indian gaming projects, interest income is not accrued until it is reasonably assured that the project will be completed and that there will be sufficient profits from the gaming facility to cover the interest to be earned under the respective notes. If the note is performing, interest is recorded using the effective interest method based on the value of the discounted note balance.

Income Taxes

Income taxes are accounted for in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires the use of an asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. We record current income taxes based on our current taxable income, and we provide for deferred income taxes to reflect estimated future tax payments and receipts. We account for tax credits under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. We reduce deferred tax assets by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances.

Accrued Litigation Liability

We assess our exposure to loss contingencies including legal matters and provide for an exposure if the potential loss is justified to be probable and estimable. If the actual loss from a contingency differs from management’s estimate, operating results could be impacted. As of March 31, 2005, we did not record any accrued litigation liability.

Executive Overview

We were formed in 1977 and since 1994, have primarily been a gaming company involved in financing, developing, owning and operating commercial gaming projects and financing, developing and managing Native American owned gaming projects. Our gaming facility operations are located in the United States of America (“U.S.”), specifically in the states of Colorado, California, Oklahoma and New Mexico. Historically, we have relied upon our equity investment in IC-BH for the majority of our earnings and cash flow. Currently, IC-BH is completing a $94.0 million capital expansion for IC-BH’s Colorado properties adding approximately 350 slot machines, 160 hotel rooms, and a new restaurant which should increase our future earnings from IC-BH. In fiscal year 2004, DCC began receiving a credit enhancement fee from the River Rock Casino. We own 69% of and consolidate DCC. River Rock Casino completed the construction of a parking garage in December 2004 which increased their parking capacity from approximately 500 spaces to 1,735 spaces which will accommodate up to approximately 2,100 customer vehicles when operated by a valet service company during peak demand periods. We believe River Rock Casino’s revenues will increase with these additional parking spaces which will in turn increase our credit enhancement fees. Accordingly, we believe that credit enhancement fees will become a larger contributor to our future revenues and earnings. We expect to receive credit enhancement fees through May 2008. On April 25, 2005 we acquired the Colorado Grande Casino from IC-BH and anticipate the casino will also add to our future revenues and earnings. Our business strategy will continue to focus on gaming projects but with a greater emphasis on owning and operating gaming establishments. If we are successful, both our future revenues and costs can be expected to increase. Our revenues were $7.4 million, $8.5 million and $3.6 million for fiscal years 2005, 2004 and 2003, respectively.
 
21

 
We hold investments in various unconsolidated affiliates which are accounted for using the equity method of accounting under APB No. 18. Our principal equity method investees are gaming facilities. Additionally, we have one equity method investee engaged in land development (Sunrise) and one equity investee (RCI) engaged in the operation of a restaurant franchise. As of March 31, 2005, the amount of consolidated retained earnings which represents undistributed earnings from our unconsolidated affiliates is $19,077,386. Our net ownership interest, investments in and earnings (losses) from our unconsolidated affiliates are as follows (see Note 3 to our Consolidated Financial Statements):
 
   
Net Ownership
Interest
 
Investment
 
Earnings (Loss)
 
Unconsolidated Affiliates:
 
2005
 
2004
 
2005
 
2004
 
2005
 
2004
 
2003
 
   
(Percent)
                     
Isle of Capri - Black Hawk L.L.C.
   
43.0
   
43.0
 
$
17,681,299
 
$
15,708,324
 
$
5,888,031
 
$
10,175,236
 
$
9,450,807
 
Route 66 Casinos, L.L.C. (1)
   
51.0
   
51.0
   
3,645,423
   
1,852,827
   
1,811,914
   
1,068,230
   
87,274
 
Sunrise Land and Mineral Corporation
   
50.0
   
50.0
   
320,607
   
371,750
   
(51,143
)
 
--
   
--
 
Restaurant Connections International, Inc.
   
30.0
   
30.0
   
--
   
--
   
--
   
--
   
--
 
Total investments in unconsolidated affiliates
               
$
21,647,329
 
$
17,932,901
                   
                                             
Total earnings from unconsolidated affiliates
                         
$
7,648,802
 
$
11,243,466
 
$
9,538,081
 
 
(1)
We have estimated our share of operational activities of Route 66 Casinos because we do not receive current revenue and expense information from the venture as a consequence of ongoing litigation (See Note 13 to the Consolidated Financial Statements).
 
We also hold investments in various development projects that we consolidate. Our net ownership interest and capitalized development costs in development projects are as follows (see Note 3 to the Consolidated Financial Statements):
 

   
Net Ownership
         
   
Interest
 
Capitalized Development Costs
 
Development Projects:
 
2005
 
2004
 
2005
 
2004
 
   
(Percent)
         
                   
Dry Creek Casino, L.L.C.
   
 69.0
   
 69.0
 
$
1,156,318
 
$
1,264,164
 
Gold Mountain Development, L.L.C.
   
100.0
   
100.0
   
3,357,795
   
3,342,206
 
Goldfield Resources, Inc.
   
100.0
   
100.0
   
  480,812
   
   480,812
 
Nevada Gold (Tulsa), Inc.
   
100.0
   
100.0
   
1,326,536
   
   744,617
 
Other
               
  480,176
   
    84,312
 
Total capitalized development costs
             
$
6,801,637
 
$
5,916,111
 
 
 
22

 
Consolidated Results of Operations

The following table sets forth our consolidated results of operations for each of the years in the three year period ended March 31, 2005:
 
   
Year Ended March 31,
 
   
2005
 
2004
 
2003
 
Revenues:
             
Credit enhancement fees
 
$
5,660,909
 
$
3,643,037
 
$
--
 
Interest income
   
1,683,063
   
4,803,981
   
2,892,638
 
Royalty income
   
67,610
   
62,439
   
50,000
 
Gain on land sale
   
--
   
--
   
589,916
 
Miscellaneous income
   
--
   
34,975
   
52,326
 
  Total
   
7,411,582
   
8,544,432
   
3,584,880
 
Expenses:
                   
General and administrative
   
1,258,122
   
822,444
   
503,845
 
Interest expense
   
1,722,979
   
3,095,077
   
2,436,117
 
Salaries and wages
   
2,105,425
   
1,078,008
   
920,175
 
Legal and professional fees
   
1,646,962
   
1,480,227
   
682,391
 
Amortization of deferred loan issuance costs
   
327,544
   
1,031,786
   
554,375
 
Write-off of capitalized development costs
   
180,850
   
245,356
   
238,437
 
Other
   
139,595
   
135,377
   
110,997
 
  Total
   
7,381,477
   
7,888,275
   
5,446,337
 
Operating income (loss)
   
30,105
   
656,157
   
(1,861,457
)
Minority interest
   
(837,849
)
 
(561,697
)
 
(53,323
)
Earnings from unconsolidated affiliates
   
7,648,802
   
11,243,466
   
9,538,081
 
Income before income tax expense
   
6,841,058
   
11,337,926
   
7,623,301
 
Income tax expense
   
(2,682,794
)
 
(3,813,870
)
 
(2,298,373
)
Net income
 
$
4,158,264
 
$
7,524,056
 
$
5,324,928
 
 
                   
Per share Information:
                   
Net income per common share - basic net income
 
$
0.33
 
$
0.65
 
$
0.49
 
Net income per common share - diluted net income
 
$
0.29
 
$
0.51
 
$
0.37
 
Basic weighted average number of shares outstanding
   
12,788,269
   
11,534,889
   
10,969,287
 
Diluted weighted average number of shares outstanding
   
14,672,777
   
15,425,427
   
15,555,956
 

COMPARISON OF THE FISCAL YEARS ENDED MARCH 31, 2005 AND MARCH 31, 2004

Revenues. Revenues decreased 13%, or $1.1 million, for fiscal year 2005 compared to fiscal year 2004. In fiscal year 2005, credit enhancement fees increased 55%, or $2.0 million, compared to fiscal year 2004 as a result of River Rock Casino’s higher revenues and improved operating margins during fiscal year 2005. Interest income decreased 65%, or $3.1 million, for fiscal year 2005 compared to fiscal year 2004. The decrease is primarily attributable to River Rock Casino’s payment of a $22.6 million note receivable to us in November 2003 which significantly reduced the weighted average outstanding balance of our notes receivable during fiscal year 2005 compared to fiscal year 2004.

Total expenses. Total expenses decreased 6%, or $507,000, for fiscal year 2005 compared to fiscal year 2004. Salary expenses increased 95%, or $1.0 million, and general and administrative expenses increased 53%, or $436,000. Both increases are primarily due to increased investment in corporate infrastructure to handle projected growth, including the addition of new personnel and the costs associated with those additional employees. We also incurred increased compliance costs related to requirements of the Sarbanes - Oxley Act of 2002. Interest expense in fiscal year 2005 decreased 44%, or $1.4 million, and amortization of deferred loan issue costs decreased $704,000, both attributable to our repayment of $23 million of our debt in fiscal year 2004. We wrote-off $181,000 of capitalized development costs that were incurred for a gaming project we evaluated for acquisition that was subsequently taken off the market. We also wrote-off a note receivable of $120,000 for a gaming project, based upon our decision to no longer pursue the project.

Earnings from unconsolidated affiliates. Earnings from unconsolidated affiliates decreased 32%, or $3.6 million, for fiscal year 2005 compared to fiscal year 2004. Earnings of IC-BH decreased 42% to $5.9 million due to a decrease in revenue caused by construction disruption at its Black Hawk properties. IC-BH’s $94.0 million expansion project at its Black Hawk properties resulted in traffic disruption and the closing of the front entrance of the casinos. The first phase of the expansion was completed by the end of fiscal year 2005, thereby ending the major construction. Earnings from IC-BH also decreased by $1.7 million related to an impairment charge resulting from our purchase of the Colorado Grande Casino from IC-BH for a purchase price of $6.5 million, which was less than the book value of the casino. Earnings from Route 66 Casinos increased 70%, or $743,000, as a result of a full year of operations of the permanent casino which opened in September 2003 with 1,250 slot machines. Prior to the opening of the permanent facility, there was a temporary casino with only 100 leased slot machines and another facility with 45 leased slot machines.
 
23


Net income. Net income decreased 45%, or $3.4 million, to $4.2 million for fiscal year 2005 compared to fiscal year 2004. The decrease is primarily related to decreased revenue from interest income and decreased earnings from IC-BH, and the increase in salaries and general and administrative expenses. The effective tax rate for the fiscal years 2005 and 2004 was 39% and 34%, respectively.

COMPARISON OF THE FISCAL YEARS ENDED MARCH 31, 2004 AND MARCH 31, 2003

Revenues. Revenues increased 138%, or $5.0 million, for fiscal year 2004, compared to fiscal year 2003. In June 2003, DCC began earning credit enhancement fees from River Rock Casino and credit enhancement fees of $3.6 million were earned in fiscal year 2004. Interest income increased 66%, or $1.9 million, because of the increase in the amount of notes receivable from the River Rock Casino project over the prior fiscal year and the recognition of $1.3 million of an unamortized finance fee related to River Rock Casino’s early prepayment of principal in the amount of $22.6 million during fiscal year 2004.

Total expenses. Total expenses increased 45%, or $2.4 million, for fiscal year 2004 compared to fiscal year 2003. Salaries increased 17%, or $158,000, general and administrative expenses increased 63%, or $319,000. Both increases are primarily due to increased investment in corporate infrastructure to handle projected growth, including the addition of new personnel and the costs associated with those additional employees. Interest expense increased 27%, or $659,000, because of a higher weighted average debt balance. Our overall debt was significantly reduced in November 2003 due to our early repayment of our $23.0 million credit facility. Legal and professional fees increased 117%, or $798,000. The increase is mainly due to increased legal fees related to the Route 66 Casinos dispute discussed in Part I, Item 3. Amortization of deferred loan issuance cost increased $477,000, to $1.0 million. The increase is primarily attributable to the recognition of $770,000 of deferred loan issuance cost related to our early repayment of our $23.0 million credit facility in November 2003, offset by $270,000 of amortization reversal during fiscal year 2004 attributable to the forfeiture of certain warrants. We wrote off $245,000 of capitalized development costs in fiscal year 2004 due to our decision to no longer pursue development of certain gaming projects.

Earnings from unconsolidated affiliates. Earnings from IC-BH increased 8%, or $724,000, due to an increase in gaming revenues related to the acquisition of the Colorado Central Station Casino and the Colorado Grande Casino in April 2003. Earnings from Route 66 Casinos increased 1,124% to $1,068,000. The Route 66 permanent casino opened in September 2003 with 1,250 slot machines. Prior to the opening of the permanent facility, there was a temporary casino with only 100 leased slot machines and another facility with 45 leased slot machines.

Net income. Net income increased 41%, or $2.2 million, for fiscal year 2004 compared to fiscal year 2003. This increase is primarily the result of increased earnings from IC-BH, increased interest income, and the commencement of credit enhancement fees from River Rock Casino. The effective tax rates for fiscal years 2004 and 2003 were 34% and 30%, 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 each of the years in the three year period ended March 31, 2005:

 
 
2005
 
2004
 
2003
 
Cash provided by (used in):
             
Operating activities
 
$
6,862,022
 
$
2,318,707
 
$
2,249,544
 
Investing activities
   
3,447,692
   
20,778,535
   
(21,659,411
)
Financing activities
   
(9,992,150
)
 
(23,536,757
)
 
22,356,100
 
 
24


Operating activities. Net cash provided by operating activities during fiscal year 2005 increased $4.5 million compared to fiscal year 2004 mainly due to higher credit enhancement fees from River Rock and an income tax refund. During fiscal year 2005, we received $5.3 million of credit enhancement fees from River Rock Casino, a $2.4 million income tax refund and $4.3 million in tax distributions from IC-BH. All of our future tax distributions from IC-BH will go towards the repayment of the $5.9 million note payable to IC-BH related to the purchase of the Colorado Grande Casino until it is repaid which we anticipate will occur in fiscal year 2007. In fiscal year 2005 we also had non-cash write-offs of a $120,000 note receivable and $181,000 of capitalized development costs related to projects which we are no longer pursuing, because they are no longer economically feasible.

Investing activities. Net cash provided by investing activities during the fiscal year end March 31, 2005 decreased by $17.3 million compared to fiscal year 2004. $16.0 million of the decrease was due to the decreased balance of our notes receivable. River Rock Casino had repaid $23.0 million in notes payable to us in fiscal year 2004 and $10.0 million in 2005. In addition to notes receivable collected from River Rock we collected $1.2 million in notes receivable from affiliates. Also, we made $6.1 million of advances on notes receivable in connection with development projects and spent $1.4 million in capitalized development costs.

Financing activities. Net cash used in financing activities during fiscal year 2005 decreased by $13.5 million from fiscal year 2004, mainly due to our repayment of $4.8 million on our debt in fiscal year 2005 compared to $23.6 million in debt repayments in fiscal year 2005. During fiscal year 2005, we repurchased 604,900 shares of our common stock in the open market, at a total purchase price of $6.6 million, and we received $2.6 million from the exercise of stock options and warrants.

Future Sources and Uses of Cash

We expect that our future liquidity and capital requirements will be affected by:

 
·
capital requirements related to existing and future development projects and acquisitions;

 
·
debt service requirements; and

 
·
working capital requirements.
 
At March 31, 2005, outstanding indebtedness under our credit facilities totaled $13.0 million. In addition, we have lease guarantees of approximately $213,115 relating to the River Rock Casino project and we have guaranteed debt of approximately $100,000 of an affiliated company. To date, tax distributions from IC-BH, distributions from DCC of our portion of the credit enhancement fees from River Rock Casino and loan repayments from affiliates have been sufficient to satisfy our current debt obligations and working capital needs. However, on April 25, 2005 we executed a three year $5.9 million promissory note payable to IC-BH in connection with the purchase of the Colorado Grande Casino, and we will apply our future quarterly tax distributions from IC-BH to the repayment of interest and principal due on this note until it is repaid. Until this note is repaid, which we expect will occur in fiscal year 2007, we will be relying solely on credit enhancement fees from the River Rock Casino and affiliate loan repayments to satisfy our current debt obligations and working capital needs. We will need to borrow funds under the revolving credit facility if we have insufficient cash flow to satisfy our obligations and working capital needs (see Indebtedness below).

On March 31, 2005, we had cash and cash equivalents of $3.8 million.

We currently expect funds generated from our operating activities, together with existing cash and cash equivalents, and availability of borrowings under our credit facility, will be adequate to fund our ongoing operating and debt service requirements.

Indebtedness

In June 2004, we amended the financing documents relating to our existing $13.0 million credit facility (“Convertible Note”) maturing December 31, 2005. The interest rate on the Convertible Note was amended from 11.0% to 7.5% per annum. Also in June 2004, we entered into a $40.0 million revolving credit facility ("Credit Facility") with the same lender. Principal advances under the Credit Facility bear interest at 8.5% per annum and the Credit Facility has a maturity date of June 30, 2008. During fiscal year 2005, we paid down the amount of indebtedness outstanding under the Convertible Note to approximately $3.3 million by utilizing proceeds received from draws of approximately $7.9 million under the Credit Facility.  The reduction of the Convertible Note to $3.3 million had the effect of reducing the shares into which the principal amount of debt is convertible from 1,739,166 shares to 1,105,833 shares.  In May 2005, the holder of our $3.3 million convertible note converted $1.8 million of principal into 600,000 shares of our common stock at a conversion price of $3.00 per share.
 
25


The Credit Facility allows us to draw up to $40.0 million (less outstanding indebtedness under the Convertible Note) at any time prior to June 30, 2008, which is the maturity date for the Credit Facility. The Convertible Note and Credit Facility are secured by our interest in IC-BH. As of March 31, 2005, we had approximately $9.7 million in outstanding debt under the Credit Facility, with approximately $30.3 million in availability. At June 1, 2005, we had approximately $33.6 million in outstanding indebtedness, with approximately $15.6 million in availability under the Credit Facility.

We acquired the Colorado Grande Casino (through the purchase of 100% of the stock of Colorado Grande Enterprises, Inc. from IC-BH) on April 25, 2005 for the purchase price of $6.5 million - $600,000 was paid in cash and a promissory note was issued to IC-BH for the remaining $5.9 million. Simple interest will accrue on the outstanding principal on the note at a rate equal to IC-BH's cost
of funds plus one percent (1%) per annum. IC-BH's cost of funds is variable, with the rate dependent on the rate under IC-BH's credit facility, which is currently LIBOR plus 350 basis points. The note will mature on April 25, 2008. Our future quarterly tax distributions from IC-BH will be applied to the repayment of the interest and principal due on our $5.9 million note until it is repaid. The note is secured by 100% of the stock in Colorado Grande Enterprises, Inc.

During fiscal year 2005, we resolved a dispute with a financial advisor who facilitated the procurement of the Convertible Note by allowing his cashless exercise of a warrant for 1,041,533 shares of our common stock with an exercise price of $3.00 per share. The implied cash value of the exercise of all of the warrants was $3,124,599. The implied cash value was exchanged for 239,616 shares of common stock at a fair market value of $13.04 per share, leaving a net issuance of 801,907 shares of common stock. We repurchased 501,917 of these shares at $13.04 per share, which was the quoted closing market price on the date of the transaction. We paid the purchase price by issuing a $6.5 million note, with interest at the rate of 7.5% per annum. Principal payments of $3.25 million are due on each of April 1, 2005 and April 1, 2006. The 501,917 shares of common stock repurchased were subsequently retired by us since there was no immediate plan to reissue these shares in the near term. The repurchase of the shares of common stock was at fair market value on the measurement date, which was June 10, 2004; thus no expense was recorded. In the fourth quarter of fiscal year 2005, we prepaid the $3.25 million principal payment which was originally due on April 1, 2005.

Off-Balance Sheet Arrangements

As of March 31, 2005, we have certain off-balance sheet arrangements that may affect our financial condition, liquidity and results of operations, including a guarantee of $100,000 of indebtedness of a related party, Service Interactive, Inc. (“SI”), and a guarantee of operating lease payments for River Rock Casino in the amount of $213,000 ($128,000 at June 1, 2005).

In the event of nonperformance by SI and River Rock Casino under the terms of the obligations, our maximum potential future payment under these guarantees will be equal to the carrying amount of the liabilities. As of March 31, 2005, our maximum potential future payment under these guarantees was $313,000 ($228,000 as of June 1, 2005).

Contractual Obligations

The following table sets forth estimates of our contractual obligations as of March 31, 2005 to make future payments in fiscal year 2006 through fiscal year 2010 and thereafter:

Estimated Contractual Obligations:
 
Total
 
2006
 
2007
 
2008
 
2009
 
2010
 
Thereafter
 
Long-term debt, including fixed-rate interest (1)
 
$
13,005,670
 
$
3,317,499
 
$
3,272,500
 
$
--
 
$
6,415,671
 
$
--
 
$
--
 
Estimated interest payments (2)
   
2,204,376
   
977,379
   
545,332
   
545,332
   
136,333
   
--
   
--
 
Operating lease commitments (3)
   
1,473,109
   
184,312
   
211,837
   
213,318
   
217,762
   
223,688
   
422,192
 
Other Commitments(3)
 
$
4,024,845
 
$
3,044,845
 
$
780,000
 
$
200,000
 
$
--
 
$
--
 
$
--
 
Total
 
$
20,708,000
 
$
7,524,035
 
$
4,809,669
 
$
958,650
 
$
6,769,766
 
$
223,688
 
$
422,192
 

(1)
See Note 5 to our Consolidated Financial Statements in this Annual Report.

(2)
Estimated interest payments are based on the outstanding balance of our debt as of March 31, 2005, which is $13.0 million. Additional borrowings have been made subsequent to March 31, 2005 and the outstanding balance of our debt as of June 1, 2005 is $33.6 million.

(3)
See Note 12 to our Consolidated Financial Statement in this Annual Report.
 
26


Recent Accounting Pronouncements

Accounting for Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, "Share-Based Payment". This standard requires that companies measure and record the fair value of their stock based compensation awards at fair value on the date they are granted to employees. This fair value is determined based on a variety of assumptions, including volatility rates, forfeiture rates and the option pricing model used (e.g. binomial or Black Scholes). These assumptions could significantly differ from those we currently utilize in determining the pro forma compensation expense included in our disclosures required under SFAS No. 123. This standard will also impact the manner in which we recognize the income tax impacts of our stock compensation programs in our financial statements. This standard is effective for the first interim period of fiscal years beginning after June 15, 2005 (the Company's fiscal year beginning May 1, 2006), at which time companies can select whether they will apply the standard retroactively by restating their historical financial statements or prospectively for new stock-based compensation arrangements and the unvested portion of existing arrangements. We are currently evaluating its impact on our consolidated financial statements.

Accounting Changes and Error Corrections

In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections - a Replacement of APB Opinion No. 20 and FASB Statement No. 3". SFAS 154 requires retrospective application to prior period financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also redefines "restatement" as the revising of previously issued financial statements to reflect the correction of an error. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk 

Market risk is the risk of loss arising from adverse changes in market rates and prices, including interest rates, foreign currency exchange rates, credit risk, commodity price and equity prices. Our primary exposure to market risk is credit risk concentrations. We do not believe we are subject to material interest risk or foreign currency risk.

Our credit facilities are fixed interest rate instruments and an interest rate change would not have any impact on our operations.

Item 8.
Financial Statements and Supplementary Data

The information required under Item 310(a) of Regulation S-K is included in this report as set forth in the “Index to Consolidated Financial Statements.” See F-1 for Index to Consolidated Financial Statements.

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.
Controls and Procedures 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. While our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions regardless of how remote. However, based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in timely alerting them to material information required to be included in our periodic SEC filings at the reasonable assurance level.
 
27


Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we include a report of management’s assessment of the design and effectiveness of our internal controls as part of this Annual Report on Form 10-K for the fiscal year ended March 31, 2005. Our independent registered public accounting firm also attested to, and reported on, management’s assessment of the effectiveness of internal control over financial reporting. Management’s report and the independent registered public accounting firm’s attestation report are located below. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
 
Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of the end of the most recent fiscal year, March 31, 2005, based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of the end of our most recent fiscal year, March 31, 2005.

Our management's assessment of the effectiveness of our internal control over financial reporting as of March 31, 2005 has been audited by Pannell Kerr Forster of Texas, P.C., an independent registered public accounting firm, as stated in its report which is included below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Nevada Gold & Casinos, Inc. and Subsidiaries:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Nevada Gold & Casinos, Inc. and Subsidiaries (the “Company”) maintained effective internal control over financial reporting as of March 31, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparing of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
 
28


Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of March 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2005, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of March 31, 2005 and March 31, 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2005, of the Company and our report dated June 14, 2005 expressed an unqualified opinion of those financial matters.
 
/s/ Pannell Kerr Forster of Texas, P.C.
 
Houston, Texas
June 14, 2005

Item 9B.
Other Information

None.

Part III

Item 10.
Directors and Executive Officers of Registrant

We have adopted a Code of Ethics that applies to directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Ethics is posted on our website at http://www.nevadagold.com, under Investor Relations - Investor Info. Changes to and waivers granted with respect to this Code of Ethics related to officers identified above, and other executive officers and directors of the Company that it is required to be disclosed pursuant to applicable rules and regulations of the Securities and Exchange Commission will also be posted on the our website and a Current Report on Form 8-K will be filed within 4 business days of the change or waiver.

The other information required by this item is incorporated by reference to our definitive proxy statement for our 2005 Annual Meeting to be filed with the Securities and Exchange Commission pursuant to regulation 14A within 120 days after the end of the fiscal year covered by this report.

Item 11.
Executive Compensation

The information required by this item is incorporated by reference to our definitive proxy statement for our 2005 Annual Meeting to be filed with the Securities and Exchange Commission pursuant to regulation 14A within 120 days after the end of the fiscal year covered by this report.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to our definitive proxy statement for our 2005 Annual Meeting to be filed with the Securities and Exchange Commission pursuant to regulation 14A within 120 days after the end of the fiscal year covered by this report.
 
29


Item 13.
Certain Relationships and Related Party Transactions 

The information required by this item is incorporated by reference to our definitive proxy statement for our 2005 Annual Meeting to be filed with the Securities and Exchange Commission pursuant to regulation 14A within 120 days after the end of the fiscal year covered by this report.

Item 14.
Principal Accountant Fees and Services 

The information required by this item is incorporated by reference to our definitive proxy statement for our 2005 Annual Meeting to be filed with the Securities and Exchange Commission pursuant to regulation 14A within 120 days after the end of the fiscal year covered by this report.

Part IV

Item 15.
Exhibits, Financial Statement Schedules 

(a) 1. Financial Statements.

Included in Part II of this Report:

Consolidated Financial Statements of Nevada Gold & Casinos, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2005 and 2004
Consolidated Statements of Operations for the fiscal years ended March 31, 2005, 2004 and 2003
Consolidated Statements of Stockholders’ Equity for the fiscal years ended March 31, 2005, 2004 and 2003
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2005, 2004 and 2003
Notes to Consolidated Financial Statements

Consolidated Financial Statements of Isle of Capri Black Hawk, L.L.C.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of April 24, 2005 and April 25, 2004
Consolidated Statements of Income for the fiscal years ended April 24, 2005, April 25, 2004 and April 27, 2003
Consolidated Statements of Members' Equity for the fiscal years ended April 24, 2005, April 25, 2004 and April 27, 2003
Consolidated Statements of Cash Flows for the fiscal years ended April 24, 2005, April 25, 2004 and April 27, 2003
Notes to Consolidated Financial Statements
 
        (a) 2. Financial Statement Schedules.

We have omitted all schedules because they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements.
 
30


(a) 3. Exhibits.

EXHIBIT
 
NUMBER
DESCRIPTION
2.1
Stock Purchase Agreement dated as of April 25, 2005 among Isle of Capri Black Hawk, L.L.C., IC Holdings Colorado, Inc., Colorado Grande Enterprise, Inc., and CGC Holdings, L.L.C.(filed previously as Exhibit 2.1 of to the Company’s Form 8-K, filed April 29, 2005)
3.2
Amended and Restated Bylaws of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 3.2 to the company’s From 10-QSB filed August 14, 2002)
3.3
Certificate of Amendment to the Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 4.2 to Form S-8 filed October 11, 2002.
3.4
Certificate of Amendment to the Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 3.3 to Form 10-Q filed November 9, 2004)
4.1
Common Stock Certificate of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 4.1 to the company’s Form S-8/A, file no. 333-79867)
4.5
Nevada Gold & Casinos, Inc. 1999 Stock Option Plan (filed previously as Exhibit 4.5 to the company’s Form S-8, file no. 333-100517)
10.1
Second Amended and Restated Operating Agreement of Isle of Capri Blackhawk L.L.C. (filed previously as Exhibit 10.1 to Form 10-K filed July 14, 2004)
10.2
First Amended and Restated Members Agreement dated April 22, 2003 by and between Casino America of Colorado, Inc., Casino America, Inc., Blackhawk Gold, Ltd., and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.2 to Form 10-K filed July 14, 2004)
10.3
License Agreement dated July 29, 1997 by and between Casino America, Inc. and Isle of Capri Black Hawk L.L.C. (filed previously as Exhibit 10.5 to the company’s Form 10-QSB, filed November 14, 1997)
10.4
Form of Indemnification Agreement between Nevada Gold & Casinos, Inc. and each officer and director (filed previously as Exhibit 10.5 to the company’s form 10-QSB, filed February 14, 2002)
10.5
Amended and Restated Nevada Gold & Casinos, Inc. 1999 Stock Option Plan (filed previously as Exhibit 4.5 to Form S-8 filed October 11, 2002)
10.6
Credit Facility dated June 28, 2004 by and between Nevada Gold & Casinos, Inc. and the Lender (portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.) (filed previously as Exhibit 10.6 to the company’s form 10-Q, filed February 10, 2005)
10.7
Amended and Restated Security Agreement dated June 28, 2004 by and among Nevada Gold & Casinos, Inc., Blackhawk Gold, Ltd. and the Lender (portions of this exhibit have been omitted pursuant to a request for confidential treatment and file separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24-b-2 under the Exchange Act.) (filed previously as Exhibit 10.7 to the company’s form 10-Q, filed February 10, 2005)
10.8
Amended and Restated Secured Promissory Note dated June 28, 2004 by and among Nevada Gold & Casinos, Inc. and the Lender (portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment in accordance with Rule 24b-2 under the Exchange Act.) (filed previously as Exhibit 10.8 to the company’s form 10-Q, filed February 10, 2005)
10.9
Investment Agreement dated April 21, 2005 by and among Casino Development & Management Company, LLC, Thomas C. Wilmot, Buena Vista Development Company, LLC and Nevada Gold BVR, L.L.C
10.10
Amended and Restated Operating Agreement dated April 21, 2005, by and between Casino Development & Management Company, LLC and Nevada Gold BVR, L.L.C.
10.11
Promissory Note dated May 4, 2005, in the amount of $14,810,200 executed by Buena Vista Development Company, LC as maker and payable to Nevada Gold BVR, L.L.C.
14
Code of Ethics (filed previously as Exhibit 14 to Form 10-K filed July 14, 2004)
21
List of Subsidiaries (filed previously as Exhibit 21 to Form 10-K filed July 14, 2004)
23.1
Consent of Pannell Kerr Forster of Texas, P.C.
23.2
Consent of Ernst & Young LLP
31.1
Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
31.2
Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act.
 
1

 
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)
Refer to 15(a) (3) above

(c)
None.

SIGNATURES

Pursuant to Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Nevada Gold & Casinos, Inc.
   
 
By:
/s/ H. Thomas Winn
 
H. Thomas Winn, Chairman of the Board,
 
President, and Chief Executive Officer
   
 
Date: June 21, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature
Title
Date
/s/ H. THOMAS WINN
 
H. Thomas Winn
 
 
Chairman, President and CEO
 
 
June 21, 2005
/s/ PAUL J. BURKETT
 
Paul J. Burkett
 
Director
 
 
June 21, 2005
/s/ WILLIAM G. JAYROE
 
William G. Jayroe
 
Director
 
June 21, 2005
/s/ JOSEPH A. JULIANO
 
Joseph A. Juliano
Director
 
June 21, 2005
/s/ FRANCIS M. RICCI
 
Francis M. Ricci
Director
 
June 21, 2005
/s/ WAYNE H. WHITE
 
Wayne H. White
Director
 
June 21, 2005
/s/ CHRISTOPHER C. DOMIJAN
 
Christopher C. Domijan
 
Chief Financial Officer and Chief Accounting Officer
 
June 21, 2005
 
2

 
Index to Consolidated Financial Statements


Consolidated Financial Statements of Nevada Gold & Casinos, Inc.

 
Page
   
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets as of March 31, 2005 and 2004
F-3
Consolidated Statements of Operations for the fiscal years ended March 31, 2005, 2004 and 2003
F-4
Consolidated Statements of Stockholders’ Equity for the fiscal years ended March 31, 2005, 2004 and 2003
F-5
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2005, 2004 and 2003
F-6
Notes to Consolidated Financial Statements
F-7
 
Consolidated Financial Statements of Isle of Capri Black Hawk, L.L.C.

Report of Independent Auditors
F-28
Consolidated Balance Sheets as of April 24, 2005 and April 25, 2004
F-29
Consolidated Statements of Income for the fiscal years ended April 24, 2005, April 25, 2004 and April 27, 2003
F-30
Consolidated Statements of Members' Equity for the fiscal years ended April 24, 2005, April 25, 2004 and April 27, 2003
F-31
Consolidated Statements of Cash Flows for the fiscal years ended April 24, 2005, April 25, 2004 and April 27, 2003
F-32
Notes to Consolidated Financial Statements
F-33
 
F-1

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Nevada Gold & Casinos, Inc.

We have audited the accompanying consolidated balance sheets of Nevada Gold & Casinos, Inc. and Subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three year period ended March 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nevada Gold & Casinos, Inc. and Subsidiaries as of March 31, 2005 and 2004 and the results of their operations and their cash flows for each of the years in the three year period ended March 31, 2005 in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Nevada Gold & Casinos, Inc.’s internal control over financial reporting as of March 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 14, 2005 expressed an unqualified opinion thereon.
 
/s/ Pannell Kerr Forster of Texas, P.C.
 
   
June 14, 2005
 
Houston, Texas
 
 
F-2


Nevada Gold & Casinos, Inc.
Consolidated Balance Sheets

 
 
March 31,
 
 
 
2005
 
2004
 
ASSETS
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
$
3,846,195
 
$
3,528,631
 
Accounts receivable
   
794,435
   
216,322
 
Notes receivable - affiliates, current portion
   
1,200,000
   
1,200,000
 
Income tax receivable
   
113,288
   
2,522,000
 
Other
   
227,303
   
79,272
 
Total current assets
   
6,181,221
   
7,546,225
 
               
Investments in unconsolidated affiliates
   
21,647,329
   
17,932,901
 
Investments in development projects
   
6,801,637
   
5,916,111
 
Notes receivable from Dry Creek Rancheria
   
--
   
10,000,000
 
Notes receivable - affiliates, net of current portion
   
2,777,136
   
3,839,586
 
Notes receivable - development projects
   
6,562,323
   
295,174
 
Furniture, fixtures and equipment, net of accumulated depreciation of $73,048 in 2005 and $124,609 in 2004
   
110,549
   
80,753
 
Deferred tax asset
   
618,282
   
--
 
Other
   
632,037
   
340,307
 
Total assets
 
$
45,330,514
 
$
45,951,057
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
         
Accounts payable and accrued liabilities
 
$
1,029,877
 
$
1,205,241
 
Accrued interest payable
   
20,453
   
--
 
Long-term debt, current portion
   
3,317,499
   
--
 
Deferred tax liability
   
--
   
2,517,678
 
Total current liabilities
   
4,367,829
   
3,722,919
 
               
Long-term debt, net of current portion and discount
   
9,632,773
   
11,029,266
 
Deferred income
   
178,835
   
145,833
 
Total liabilities
   
14,179,437
   
14,898,018
 
               
Commitments and Contingencies
   
--
   
--
 
               
Minority interest
   
299,884
   
253,719
 
               
Stockholders' equity:
         
Common stock, $0.12 par value per share; 25,000,000 and 20,000,000 shares authorized at March 31, 2005 and 2004 respectively; 12,755,203 and 12,279,352 shares issued and outstanding at March 31, 2005 and 2004, respectively
   
1,530,624
   
1,473,522
 
Additional paid-in capital
   
14,817,101
   
19,256,200
 
Retained earnings
   
14,419,719
   
10,261,455
 
Accumulated other comprehensive income (loss)
   
83,749
   
(191,857
)
Total stockholders' equity
   
30,851,193
   
30,799,320
 
Total liabilities and stockholders' equity
 
$
45,330,514
 
$
45,951,057
 

The accompanying notes are an integral part of these consolidated financial statements.
 
F-3

 
Nevada Gold & Casinos, Inc.
Consolidated Statements of Operations
 
   
 Year Ended March 31,
 
   
2005
 
2004
 
2003
 
Revenues:
             
Credit enhancement fees
 
$
5,660,909
 
$
3,643,037
 
$
--
 
Interest income
   
1,683,063
   
4,803,981
   
2,892,638
 
Royalty income
   
67,610
   
62,439
   
50,000
 
Gain on land sale
   
--
   
--
   
589,916
 
Miscellaneous income
   
--
   
34,975
   
52,326
 
  Total
   
7,411,582
   
8,544,432
   
3,584,880
 
Expenses:
                   
General and administrative
   
1,258,122
   
822,444
   
503,845
 
Interest expense
   
1,722,979
   
3,095,077
   
2,436,117
 
Salaries and wages
   
2,105,425
   
1,078,008
   
920,175
 
Legal and professional fees
   
1,646,962
   
1,480,227
   
682,391
 
Amortization of deferred loan issuance costs
   
327,544
   
1,031,786
   
554,375
 
Write-off of capitalized development costs
   
180,850
   
245,356
   
238,437
 
Other
   
139,595
   
135,377
   
110,997
 
  Total
   
7,381,477
   
7,888,275
   
5,446,337
 
Operating income (loss)
   
30,105
   
656,157
   
(1,861,457
)
Minority interest expense
   
(837,849
)
 
(561,697
)
 
(53,323
)
Earnings from unconsolidated affiliates
   
7,648,802
   
11,243,466
   
9,538,081
 
Income before income tax expense
   
6,841,058
   
11,337,926
   
7,623,301
 
Income tax expense
   
(2,682,794
)
 
(3,813,870
)
 
(2,298,373
)
Net income
 
$
4,158,264
 
$
7,524,056
 
$
5,324,928
 
 
                   
Per share Information:
                   
Net income per common share - basic
 
$
0.33
 
$
0.65
 
$
0.49
 
Net income per common share - diluted
 
$
0.29
 
$
0.51
 
$
0.37
 
Basic weighted average number of shares outstanding
   
12,788,269
   
11,534,889
   
10,969,287
 
Diluted weighted average number of shares outstanding
   
14,672,777
   
15,425,427
   
15,555,956
 

The accompanying notes are an integral part of these consolidated financial statements.
 
F-4


Nevada Gold & Casinos, Inc.
Consolidated Statements of Stockholders' Equity
 
               
Retained
 
Accumulated
         
           
Additional
 
Earnings
 
Other
     
Total
 
   
Common Stock
 
Paid-in
 
(Accumulated
 
Comprehensive
 
Treasury
 
Stockholders'
 
   
Shares
 
Amount
 
Capital
 
Deficit)
 
Income (Loss)
 
Stock
 
Equity
 
                               
Balance at March 31, 2002
   
10,664,184
 
$
1,279,702
 
$
14,076,500
 
$
(2,587,529
)
$
(102,106
)
$
-
 
$
12,666,567
 
Purchase of treasury stock (97,000 shares), at cost
   
--
   
--
   
--
   
--
   
--
   
(582,369
)
 
(582,369
)
Retirement of treasury stock
   
(97,000
)
 
(11,640
)
 
(570,729
)
 
--
   
--
   
582,369
   
--
 
Stock issued for cashless option exercises
   
318,088
   
38,171
   
(38,171
)
 
--
   
--
   
--
   
--
 
Exercise of stock options and warrants
   
264,500
   
31,740
   
614,437
   
--
   
--
   
--
   
646,177
 
Tax benefit of option and warrant exercises
   
--
   
--
   
1,057,757
   
--
   
--
   
--
   
1,057,757
 
Consultant option expense
   
--
   
--
   
62,000
   
--
   
--
   
--
   
62,000
 
Comprehensive income:
                             
Net income
   
--
   
--
   
--
   
5,324,928
   
--
   
--
   
5,324,928
 
Other comprehensive loss on interest rate swap, net of tax
   
--
   
--
   
--
   
--
   
(467,472
)
 
--
   
(467,472
)
Comprehensive income
   
--
   
--
   
--
   
--
   
--
   
--
   
4,857,456
 
Balance at March 31, 2003
   
11,149,772
   
1,337,973
   
15,201,794
   
2,737,399
   
(569,578
)
 
--
   
18,707,588
 
Forfeiture of stock options
   
--
   
--
   
(525,260
)
 
--
   
--
   
--
   
(525,260
)
Purchase of treasury stock (4,000 shares), at cost
   
--
   
--
   
--
   
--
   
--
   
(36,433
)
 
(36,433
)
Retirement of treasury stock
   
(4,000
)
 
(480
)
 
(35,953
)
 
--
   
--
   
36,433
   
--
 
Stock issued for note conversion
   
594,167
   
71,300
   
1,711,201
   
--
   
--
   
--
   
1,782,501
 
Stock issued for cashless option and warrant exercises
   
132,413
   
15,889
   
(15,889
)
 
--
   
--
   
--
   
--
 
Exercise of stock options
   
407,000
   
48,840
   
963,918
   
--
   
--
   
--
   
1,012,758
 
Tax benefit of option and warrant exercises
   
--
   
--
   
1,878,889
   
--
   
--
   
--
   
1,878,889
 
Consultant option expense
   
--
   
--
   
77,500
   
--
   
--
   
--
   
77,500
 
Comprehensive income:
                             
Net income
   
--
   
--
   
--
   
7,524,056
   
--
   
--
   
7,524,056
 
Other comprehensive income on interest rate swap, net of tax
   
--
   
--
   
--
   
--
   
377,721
   
--
   
377,721
 
Comprehensive income
   
--
   
--
   
--
   
--
   
--
   
--
   
7,901,777
 
Balance at March 31, 2004
   
12,279,352
   
1,473,522
   
19,256,200
   
10,261,455
   
(191,857
)
     
30,799,320
 
Purchase of treasury stock (1,106,817 shares), at cost
   
--
   
--
   
--
   
--
   
--
   
(13,153,955
)
 
(13,153,955
)
Retirement of treasury stock
   
(1,106,817
)
 
(132,818
)
 
(13,021,137
)
 
--
   
--
   
13,153,955
   
--
 
Stock issued for cashless option and warrant exercises
   
801,917
   
96,230
   
(96,230
)
 
--
   
--
   
--
   
--
 
Exercise of stock options and warrants
   
780,751
   
93,690
   
2,504,772
   
--
   
--
   
--
   
2,598,462
 
Tax benefit of option and warrant exercises
   
--
   
--
   
5,972,094
   
--
   
--
   
--
   
5,972,094
 
Consultant option expense
   
--
   
--
   
201,402
   
--
   
--
   
--
   
201,402
 
Comprehensive income:
                             
Net income
   
--
   
--
   
--
   
4,158,264
   
--
   
--
   
4,158,264
 
Other comprehensive income on interest rate swap, net of tax
   
--
   
--
   
--
   
--
   
275,606
   
--
   
275,606
 
Comprehensive income
   
--
   
--
   
--
   
--
   
--
   
--
   
4,433,870
 
Balance at March 31, 2005
   
12,755,203
 
$
1,530,624
 
$
14,817,101
 
$
14,419,719
 
$
83,749
 
$
--
 
$
30,851,193
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-5


Nevada Gold & Casinos, Inc.
Consolidated Statements of Cash Flows
 
     
 Year Ended March 31, 
   
 
 
2005
 
2004
 
2003
 
 
 
 
         
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
 
$
4,158,264
 
$
7,524,056
 
$
5,324,928
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation
   
41,969
   
23,672
   
31,605
 
Amortization of capitalized development costs
   
127,166
   
80,672
   
--
 
Write-off of note receivable
   
120,000
   
--
   
12,647
 
Write-off of project development costs
   
180,850
   
245,356
   
238,437
 
Amortization of deferred income
   
(145,833
)
 
(1,287,994
)
 
(118,529
)
Gain on sale of land
   
--
   
--
   
(589,916
)
Warrants and options issued, beneficial conversion and amortization of deferred loan issuance costs
   
677,452
   
1,381,771
   
850,807
 
Unearned finance fees
   
--
   
419,098
   
--
 
Minority interest expense
   
837,849
   
561,697
   
53,323
 
Distributions from unconsolidated affiliates
   
4,344,000
   
3,673,000
   
5,555,000
 
Earnings from unconsolidated affiliates
   
(7,648,802
)
 
(11,243,466
)
 
(9,538,081
)
Deferred income tax expense
   
2,682,794
   
3,813,870
   
2,298,373