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

FORM 10-K

x
 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
for fiscal year ended April 29, 2007
 
 
or
o
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
for the transition period from               to              

Commission File No. 001-15517
Nevada Gold & Casinos, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
88-0142032
(State or other jurisdiction of Incorporation or organization)
(IRS Employer Identification No.)
 
 
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o Yes x No

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o    Accelerated filer x  Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
o Yes x No
 
 
As of October 29, 2006 the aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price per share of $5.39, as reported on the American Stock Exchange, was $58,401,631. 

As of June 29, 2007, the registrant had 12,939,130 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s 2007 Annual Meeting of Stockholders to be filed pursuant to Regulation 14 A within 120 days after the registrant’s fiscal year end of April 29, 2007 are incorporated by reference into Part III of this report.
 
 
NEVADA GOLD & CASINOS, INC.
TABLE OF CONTENTS

 
 
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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.
 
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Part I
 
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 and developing Native American owned gaming projects.

Commercial Gaming Projects.

We own a 43% interest in Isle of Capri - Black Hawk, LLC ("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.

We own and operate the Colorado Grande Casino in Cripple Creek, Colorado.

From November 2005 through June 14, 2007 we held an equity investment in American Racing and Entertainment, L.L.C. (“American Racing”) which was formed to pursue racing and gaming opportunities in the State of New York. In addition, we had an agreement with American Racing to manage the two racing and gaming facilities owned by American Racing. In April 2007, we entered into a Letter Agreement for the sale of our interest in American Racing to two of our joint venture partners. The sale was completed on June 14, 2007. Our ownership percentage was initially 50% and was reduced over time to 22.8% at the date of the sale.

Native American Owned Projects.

As of May 2007, we own a 40% interest in Buena Vista Development Company, LLC (“Buena Vista Development”) which is developing a casino for a Native American tribe in Amador County, California.

We have assisted in the development and financing, through majority owned subsidiaries, of a casino for a Native American tribe in Sonoma County, California. On March 2, 2007, the subsidiary received a payment of approximately $11.35 million pursuant to a buy-out option in the development agreement with the Tribe. Our share of the proceeds were approximately $8.1 million.

We have entered into agreements for the development of a multi-phase casino project and consulting contract upon completion, for a Native American tribe in Pauma Valley, California. However, on March 23, 2007, we received a letter from the Tribe stating that it wished to terminate its existing contractual relationship with us and on July 2, 2007, the National Indian Gaming Commission (“NIGC”) informed us and the Tribe that the agreements previously entered into require approval by the NIGC. We are currently negotiating with the Tribe for a mutually acceptable settlement of the outstanding issues.
 
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 14 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:

 
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enhancing the return from, and the value of, the gaming properties in which we own interests or have development or management contracts;
 
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acquiring or developing additional commercial gaming properties;
 
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assisting in finding financing, developing and/or managing of, or providing consulting services to, Native American gaming projects.

Commercial Casino Projects

Isle of Capri Black Hawk, L.L.C

We own 43% of IC-BH which owns two casinos in Black Hawk, Colorado. Isle of Capri Casinos, Inc. (ISLE:NASDAQ) (“Isle”)

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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 1,378 slot machines, 18 table games, 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 four 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 778 slot machines, 15 table games, a 162-room hotel and 1,200 parking spaces. The property also offers guests three dining options.

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.

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. 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. In addition, the Ameristar Mountain High Casino completed an expansion of its gaming floor and parking garage and has recently begun building a 536 room hotel which is projected to be opened in 2008. The Ameristar Mountain High Casino is 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 195 slot machines, no table games, a restaurant and 44 parking spaces. We invested 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.

American Racing and Entertainment, L.L.C.

On June 14, 2007 we sold our interest in American Racing to our partners and our management contract terminated as of such date. The following is a background discussion of the project.

American Racing owns Tioga Downs, in Nichols, New York and Vernon Downs, located in Vernon, New York. We acquired a 50% interest in American Racing in November 2005. An additional member was admitted to American Racing in March, 2006 and our interest was reduced to 40%. During fiscal 2007, the Company elected to discontinue making additional capital contributions to American Racing due to a lack of liquidity to meet the cash call commitments. As a result, our ownership percentage in American Racing declined from 40% to 22.8% during the year.

On June 14, 2007, we sold our 22.8% membership interest in American Racing to our partners, Southern Tier Acquisition II LLC and Oneida Entertainment LLC. The Company will receive three payments totaling $4.3 million for its membership interest: $2.1 million cash was received upon closing, $1.1 million will be received in June 2008 and $1.1 million in June 2009. The transaction also included the July 12, 2007 release of a certificate of deposit of approximately $1.1 million previously pledged by us on behalf of American Racing. In connection with the sale, we have terminated our Management Agreements with Tioga Downs and Vernon Downs and received approximately $110,000 in management fees due. In addition, we were indemnified by the purchasers in connection with the guarantees of approximately $11 million of debt or any other obligations of American Racing. Our percentage of

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the financial results of American Racing will continue to be reflected as part of equity in earnings of unconsolidated subsidiaries through June 14, 2007.

Construction of approximately $34.0 million redevelopment of Tioga Downs Racetrack was completed in June 2006. Tioga Downs Racetrack opened its harness racing and simulcast operations on June 9, 2006 and opened a video lottery terminal facility offering approximately 750 video lottery terminal machines (“VLTs”) to its gaming and racing customers on July 4, 2006. A newly-constructed 90,000 square-foot grandstand houses a 19,000 square-foot VLT floor.

Tioga Downs Racetrack is located in Nichols, New York and is located 30 miles west of Binghamton and 120 miles west of its sister property, Vernon Downs. Tioga Downs draws its customer base from a local population (within 75 miles) of approximately 2 million adults. Tioga Downs is the regional track for four of the six off-track betting “OTB” centers (Catskills, Suffolk, Nassau and New York City) with New York City being one of the largest OTB markets in the country. Tioga Downs nearest competitors are Finger Lakes which is located approximately 75 miles away, Monticello which is located approximately 125 miles away, Batavia Downs which is located approximately 135 miles away and Pocono Downs, located in Pennsylvania, which is located approximately 100 miles away.

Vernon Downs includes a harness track, 175-all suite hotel and 34,000 square-foot gaming facility offering approximately 780 VLT machines to its customers. Racing operations commenced at Vernon Downs on September 5, 2006 and its video gaming operations began on October 26, 2006.

Vernon Downs Racetrack is located in Vernon, New York. The Vernon Downs Racetrack is located 18 miles west of Utica and 38 miles east of Syracuse, along Highway 365 near the Erie Canal. Vernon Downs draws its customers primarily from the Syracuse, Rochester, Albany and Utica markets. Competition is limited almost exclusively to the Turning Stone Casino, which is located approximately 5 miles away in Verona, New York.

We operated both facilities for which we earned management fees based on the revenues and cash flows of each facility.  

Native American Casino Projects

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 equity investment of approximately $200,000. Casino Development & Management Company, LLC 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 multi-level parking facility with approximately 3,600 parking spaces. Under the Development Agreement, Buena Vista Development is entitled to receive a development fee equal to 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%. At April 29, 2007, we owned a 35% interest in Buena Vista Development. On May 5, 2007, our interest increased to 40%.

We cannot predict when, if ever, the casino will open because its construction may be delayed or prevented for a number of reasons, including 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 approximately 45 miles northwest of Sacramento and Thunder Valley Casino located a few miles northeast of Sacramento and the proposed Shingle Springs Casinos to be located just east of Sacramento on Highway 50.

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

On March 23, 2007, we received a letter from the La Jolla Band of Luiseno Mission Indians (Tribe”) stating that it wished to terminate its existing contractual relationship with the Company. Also, on July 2, 2007, the NIGC informed us and the Tribe that the agreements previously entered into with the Tribe required NIGC approval. The parties are negotiating a mutual settlement of the outstanding issues. No assurances can be given that we will be able to negotiate a mutually acceptable agreement with the Tribe. The following is a background discussion of the project.

In August 2004, we (through our wholly owned subsidiary, Gold River, L.L.C.) entered into a Development Agreement with the Tribe, a federally recognized Indian tribe, pursuant to which we agreed to assist the tribe in developing and constructing a multi-phase gaming facility. A Management Agreement with the tribe was signed in June 2005 for the first phase pursuant to which we would provide management services for the gaming facility. The Development Agreement was found by the NIGC to require modification. As a result, both parties agreed to terminate the Development Agreement and as of July 30, 2006, signed a Development Consulting Services Agreement, a Pre-Opening Consulting Services Agreement and, a Post-Opening Consulting Services Agreement, collectively referred to as “Transaction Documents.” On July 2, 2007, the NIGC informed us and the Tribe that based on the content of the Transaction Documents, the NIGC is required to approve these agreements

The multi-phase project was planned to be developed on the La Jolla Indian Reservation in Pauma Valley, California. The first phase would include the construction of a casino with approximately 349 slot machines, 12 table games, dining facilities and parking. Subsequent phases may include an expanded casino, a hotel, RV-park, additional restaurants and other entertainment venues. We agreed to advance certain pre-development expenses of the first phase of the project up to $1.5 million. Under the Transaction Documents we agreed to assist the Tribe in obtaining third party financing for the project.

We cannot predict when, if ever, the casino will open or what the ultimate outcome of our negotiation will be for a number of reasons, including additional regulatory processes and failure to obtain financing for the project.

The La Jolla Casino would be 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, Casino Pauma, The Pala Casino, Valley View Casino, and Pechanga Resort & Casino. These casinos are larger, have established customers and are closer to the Temecula and San Diego markets 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.

Other Projects

River Rock Casino; Sonoma County, California

Effective March 2, 2007, the Company no longer has an interest in this project. From August 2001, we owned a 69% interest in Dry Creek Casino, L.L.C. (“DCC”). DCC 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. 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”). Under the Development Agreement, DCC earned a credit enhancement fee equal to 20% of River Rock Casino’s earnings before taxes, depreciation and amortization. On January 31, 2007, the RREA exercised a buy-out option contained in the Development Agreement. Pursuant to the buy-out option, RREA had the option to pay 17 equal monthly installments beginning February 15, 2007. On March 2, 2007 RREA and the members of DCC agreed to a cash settlement of $11,350,000 in lieu of the monthly installments. Our share of the settlement was approximately $8.1 million.

Route 66 Casino; Albuquerque, New Mexico

The Company is involved in litigation with its joint venture partner, as discussed in Item 3. To date, we have received no cash distributions from the 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. See also Notes 5 and 18 to the accompanying Consolidated Financial Statements for a discussion of our accounting for our investment in this joint venture and the status of the ongoing dispute with our joint venture partner.

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Muscogee (Creek) Nation Casino; Tulsa, Oklahoma

On December 8, 2006, we received a $2.2 million payment for fees due under our development agreement with the Muscogee Nation - Tulsa. This payment was in excess of our capitalized development costs of $1.9 million. As a result of this transaction, we mutually and amicably agreed to end our relationship with the Muscogee Nation - Tulsa.

Regulation 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 million, 2% over $2 million up to and including $4 million, 4% over $4 million up to and including $5 million, 11% over $5 million up to and including $10 million, 16% over $10 million up to and including $15 million and 20% on adjusted gross gaming proceeds in excess of $15 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 to immediately 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,

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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.

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 of these provisions 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.

New York

As of June 14, 2007, we are no longer engaged in business activities in the State of New York.

The gaming industry in New York is regulated by the New York State Racing and Wagering Board (the "R&W Board") and the New York State Division of the Lottery ("Lottery Division").

The R&W Board regulates all aspects of the conduct of horse racing and pari-mutuel wagering and approves annual licenses for racetracks, both thoroughbred and harness. The R&W Board also issues annual simulcast licenses to the racetracks. It is the R&W Board's responsibility to ensure the honesty and integrity of all horse races conducted in New York. All racing participants including jockeys, drivers, owners, trainers, grooms, track management, agents, concessionaires and others who work at New York State racetracks must be licensed by the R&W Board each year. The licensing process involves a complete criminal background check, including a review of the applicant's experience, if any, in other states, and an assessment of the applicant's character and fitness.

In October 2001, New York State passed legislation authorizing the Lottery Division to license the operation of video lottery gaming at eligible racetracks in New York State. The legislation permits local communities which have racetracks not expressly identified in the legislation to pass local laws authorizing video lottery gaming at racetracks in their communities. Vernon Downs Racetrack is specifically named as an eligible racetrack in the legislation and Tioga County has passed a local law which allows Tioga Downs Racetrack to engage in video lottery gaming. In April, 2005, New York State amended the legislation to provide an increase to the vendor fee to be paid to each video lottery terminal operator and also permit a marketing allowance for each such facility.

In May 2005, the New York State Court of Appeals upheld the constitutionality of video lottery terminals ("VLTs"). VLTs are electronic gaming devices that allow patrons to play electronic versions of various lottery games of chance and are similar in appearance and feel to traditional slot machines. The Lottery Commission is authorized to license eligible racetracks to install VLTs. Each of the VLTs is owned by the State of New York and the State purchases, installs and maintains the VLTs at the racetracks. The racetracks receive a vendor fee of 32% of the first fifty million of revenue from the VLTs, 29% of the next one hundred million and 26% thereafter. Money for purses and breeding funds would then come out of the racetrack's portion of the VLT proceeds, subject to separate agreements which must be reached between the tracks, the horsemen, and the breeders. Racetracks may also receive reimbursement for marketing and promotional costs pursuant to a marketing plan approved in advance by the Lottery Commission, from a vendor's marketing allowance of 8% on the first $100 million of revenues generated and 5% thereafter.

The Lottery Division regulates the licensing of the various participants in video lottery gaming, including the racetracks that are eligible under the enabling legislation to operate video lottery gaming, and their employees, as well as gaming and non-gaming vendors that will supply goods and services to the racetracks. Licensing procedures include financial disclosure and, in some instances, background investigations for principals and key employees. The racetracks are required to submit business plans for approval by the Lottery Division prior to licensing, and to establish a set of internal control procedures pursuant to guidelines provided by the Lottery Division. The agents are required to submit periodic financial reports and undertake other financial controls. Annually, the agents are required to submit a marketing plan for approval by the Lottery Division. The marketing plan will identify those marketing or promotion costs which may be reimbursed from the marketing allowance permitted by the legislation. The Lottery Division also regulates the conduct and operation of video lottery gaming. Movement of the terminals is closely regulated, and surveillance and security systems are established at each facility.

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The legislation authorizing VLTs at eligible racetracks expires on December 31, 2014, unless it is reauthorized by the New York legislature.

Native American Gaming

Although it is currently seeking new agreements, the Company does not operate gaming facilities on behalf of any Native American tribe nor is it receiving compensation pursuant to any consulting, financing or advisory agreements.

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 NIGC, 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 La Jolla tribe has entered into the 1999 form of tribal-state compact with the State and has not amended the tribal-state compact. 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.

We previously received the appropriate licenses from the tribal gaming authorities to participate in the development, financing and/or equipping of the La Jolla Casino and have applied for renewal and are awaiting confirmation. 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 La Jolla Casino or the Buena Vista Casino. The possession of a valid license from the La Jolla Tribe is an ongoing condition of our agreements with that tribe. 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 NIGC will not approve a management contract if anyone with a direct or indirect financial

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interest in, or having management responsibility for, a management contract (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.

Buena Vista Development’s development agreement with the Buena Vista Tribe, and each of our consulting agreements with the La Jolla Tribe were submitted to the NIGC, with a request for a determination that each agreement was not subject to IGRA's requirements for management contracts. We received confirmations from the NIGC that these development agreements were not subject to IGRA's requirements for management contracts.

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 submitted the Development Agreement with Buena Vista Development to the NIGC’s office of general counsel with a request for such a determination, and received a favorable determination which found that the Development Agreement did not grant any “proprietary interest” to Buena Vista Development.  The La Jolla tribe submitted the consulting agreements for La Jolla to the NIGC’s office of general counsel with a request for such a determination. The NIGC has informed us and the Tribe that based on the content of the DCSA and the POCSA, the NIGC is not required to approve these agreements. The NIGC has not given their comments regarding the Post-CSA. No assurance can be given that the Post-CSA will be approved, or be required to be approved, by the NIGC.

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 Assets

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, L.L.C., we own approximately 260 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 260 acres. We have scheduled a public auction to be held on August 2, 2007 to dispose of this property. The Company is considering a recommendation from the auctioneer to reset the auction date to September 18, 2007 to permit completion of a survey of the property and allow prospects to review the development potential of the site.

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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. On November 16, 2006, Pan-Nevada Gold Corporation, not a related party or affiliated company, exercised their rights to purchase Sunrise’s interest in mining claims in Churchill County, Nevada. Sunrise received $50,000 at the time the option was granted, an additional $200,000 when the option was exercised and a $200,000 note was issued at the same time. The note was paid in full on June 13, 2007. At April 29, 2007, we reduced our investment by $125,000 based on our impairment analysis of the asset. Sunrise is pursuing a sale or other disposition of its remaining assets.

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. Goldfield is pursuing a sale or other disposition of its assets.

Restaurant Connections International, Inc. We are a founding shareholder of Restaurant Connections International, Inc. (“RCI”), and currently own a 34% interest in RCI. RCI owns the sole Pizza Hut franchise in Sao Paulo, Brazil, giving RCI ownership and operation of 17 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. These restaurant companies have significantly greater financial and other resources that could adversely affect RCI’s operations.

Employees

As of April 29, 2007, we employed 104 people.

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 1A.
Risk Factors

The following is a description of what we consider our key challenges and risks:
 
Indebtedness could adversely affect our financial health.

On January 19, 2006, we entered into a $55 million revolving credit facility which allows us to borrow up to $55 million at any time prior to September 30, 2008, which is the maturity date for the credit facility. At July 10, 2006, we fully drew down on this credit facility. On June 18 and July 16, 2007, respectively, we repaid $2.2 million and $0.95 million of the Credit Facility. On June 26, 2007, we drew down $1.0 million from the Credit Facility. As of July 27, 2007 we have $2.15 million available to draw from the Credit Facility.

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As of April 29, 2007, we have guarantees of approximately $11 million relating to debts owed by American Racing and Entertainment. On June 14, 2007 we sold our membership interest in American Racing & Entertainment and have been indemnified by the purchasers in connection with the guarantees.

We also have guaranteed approximately $21,000 for an affiliated company that may require us to make such payment during the next two fiscal years.

As of April 29, 2007, we had approximately $57 million of indebtedness outstanding, which includes $55 million of debt on the Credit Facility. Our substantial indebtedness could have important consequences and significant effects on our business and future operations. For example, it could:

 
·
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
 
 
·
limit our ability to fund future working capital, capital expenditures and other general operating requirements;
 
 
·
place us at a competitive disadvantage compared to our competitors that have less debt or greater resources; and
 
 
·
limit our ability to borrow additional funds.
 
The occurrence of any one of these events or conditions could have a material adverse effect on our business, financial condition, results of operations, prospects, ability to service or otherwise satisfy our obligations under the Credit Facility or our other debt obligations.
 
IC-BH's Senior Secured Credit Facility provides for a $50 million revolving credit facility maturing the earlier of October 24, 2010 or such date the term loan facility is repaid in full and a $190 million term loan maturing on October 24, 2011. 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.
 
We will require a significant amount of cash to service our indebtedness and fund our gaming operations. Our ability to generate cash depends on many factors beyond our control.
 
Our ability to make payments on and refinance our debt, including the Credit Facility, and to fund our gaming operations, will depend on our ability to generate cash flow from our gaming operations and borrow or refinance a minimum of $57 million by September 30, 2008. Our ability to generate sufficient cash flow to satisfy our debt obligations will depend on our future operating performance that is subject to many economic, competitive, regulatory and business factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt obligations, we will need to refinance or restructure our debt, sell assets, reduce or delay capital investments or seek to raise additional capital. These measures may not be available to us or, if available, they may not be sufficient to enable us to satisfy our obligations under the Credit Facility and may restrict our ability to pay operating expenses. If our cash flow is insufficient and we are unable to implement one or more of these alternatives, we may not be able to service our debt obligations or fund our gaming operations.
 
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. We could be prevented from completing our current casino development projects or pursuing future development projects due to changes in the laws,

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regulations and ordinances (including tribal or local laws) that apply to gaming facilities or the inability of us or our key personnel, significant shareholders or joint venture partners to obtain or retain gaming regulatory licenses.

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 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.

The rapidly changing political and regulatory environment governing the gaming industry (including gaming operations which are conducted on Indian land) makes it impossible for us to accurately predict the effects that an adoption of or changes in the gaming laws, regulations and ordinances will have on us. However, the failure of us, or any of our key personnel, significant shareholders or joint venture partners, to obtain or retain required gaming regulatory licenses could prevent us from expanding into new markets, prohibit us from generating revenues in certain jurisdictions, and subject us to sanctions and fines.

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.

We could fail to monetize recorded assets and/or incur substantial liabilities if pending material litigation is resolved unfavorably.

Route 66 Casinos

1. 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, LLC. 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 Amended and Restated Operating Agreement of Route 66 Casinos, LLC, governed the relationship of the parties relating to the Route 66 Casinos gaming operation. Pursuant to this agreement, we were to receive 51% of the net revenue received by Route 66 Casinos from the gaming operation. We also loaned The Gillmann Group the amount of $250,000, which has been repaid to us.

We initiated arbitration proceedings pursuant to the Route 66 Casinos Operating Agreement; however, The Gillmann Group and Mr. Gillmann refused to participate on the basis that they believed the operating agreement was 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)) (the "Texas Litigation"), initially seeking to recover payment pursuant to the promissory note. We 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.

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 sought judicial dissolution of Route 66 Casinos, LLC and sought a declaratory judgment that the operating agreement was 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.

On April 13, 2006, following a trial on the merits, the jury returned its verdict in the Texas Litigation. The jury found that (1) Nevada Gold and American Heritage intended to be bound by the Amended and Restated Operating Agreement (the "Contract"); (2) American Heritage breached the Contract; (3) the breach by American Heritage was not excused; (4) Nevada Gold did not

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fraudulently induce American Heritage to enter into the Contract; (5) American Heritage returned to Nevada Gold everything of value that American Heritage received from Nevada Gold under the Contract; (6) Nevada Gold suffered damages of approximately $8.3 million as a result of the breach by American Heritage; and (7) Fred Gillmann, who is the President and sole shareholder of American Heritage, is personally responsible for the conduct of American Heritage.

Following the jury's verdict, Nevada Gold and the Defendants filed competing motions for the entry of judgment by the Court. On October 25, 2006, the Court entered judgment. The Court found American Heritage liable to Nevada Gold for $9,165,079 (reflecting the jury’s verdict, plus prejudgment interest), but held that Nevada Gold take nothing from Fred Gillmann. American Heritage has appealed the judgment against it to the Court of Appeals for the First District, Houston, Texas (the “Appeals Court”) and Nevada Gold has appealed the Court’s judgment to the Appeals Court that Nevada Gold take nothing from Fred Gillmann personally notwithstanding the jury’s verdict.

2. On July 23, 2007, the Company filed a lawsuit in the State District Court, Harris County Texas, 189th Judicial District against American Heritage and Frederick C. Gillmann (Nevada Gold & Casinos, Inc. vs. American Heritage, Inc. and Frederick C. Gillmann).

In this case which is related to the Texas Litigation described above, the Company is pursuing claims against the defendants pursuant to the Texas Uniform Fraudulent Transfers Act for alleged fraudulent transfers that the Company alleges the defendants made in order to make American Heritage judgment proof and to deprive the Company of the ability to enforce the judgment it obtained in the case described above. The Company is in the process of serving its original petition on the defendants.

We believe there is substantial evidence to support the allegations in the compliant and we intend to vigorously pursue this matter although it is not possible to render an opinion concerning the likely outcome at this time.

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 us 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 we 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 more than $50 million in damages and unspecified punitive damages. Rinaldo also seeks a preliminary and permanent injunction barring us and the other defendants from engaging in further acts of alleged interference. On October 29, 2004, Rinaldo filed its First Amended Complaint. We demurred to Rinaldo's First Amended Complaint, and, at a hearing on January 5, 2005, the Court orally sustained our 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, we 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, to which Torkelson and Derry demurred again. On August 4, 2005, the court sustained their demurrer without leave to amend, dismissing them in their personal capacities from the case. Subsequently, Rinaldo voluntarily dismissed Torkelson and Derry in their business capacities, leaving Nevada Gold as the only remaining defendant.

In November 2005, Nevada Gold moved for summary judgment against Rinaldo, and the Court ruled on that motion on February 21, 2006. The Court dismissed all of Rinaldo's claims for tortious interference with contract, holding that the development contract on which Rinaldo had based those claims was invalid as a matter of law. The Court also dismissed Rinaldo's claim for damages under the California unfair competition statute. After the ruling, only Rinaldo's claims for tortious interference with prospective economic relations, civil conspiracy, and injunctive relief under the unfair competition statute remained.

We subsequently moved for summary judgment seeking to dispose of Rinaldo’s remaining claims, and the Court granted our motion. The Court’s ruling disposed of the entire case in our favor. Rinaldo has appealed the dismissal of its case and the parties are actively engaged in the appellate process. We believe the claims against us to be without merit and we intend to vigorously and appropriately defend the claims asserted in this matter.

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

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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 and the 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 completed, or that the budget for these projects will not be exceeded, or that we will have the continuing support of the tribal community.

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 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 contract terminations could have a material adverse effect on our results of operations and financial condition if new business opportunities or new contracts are not realized.

We made 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 made loans to tribes or other third parties for the purpose of exploring gaming or development opportunities that became available to us. Proceeds of such loans were 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.

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.

A deterioration of our relationship with an Indian tribe could cause delays in the completion of a casino development project with that Indian tribe or even force us to abandon a casino development project altogether and prevent or significantly impede recovery of our investment therein.

Maintaining good personal and professional relationships with Indian tribes and their officials is critical to our proposed and future Indian - related gaming activities. As sovereign nations, Indian tribes establish their own governmental systems under which tribal officials or bodies representing an Indian tribe may be replaced by appointment or election or become subject to policy changes. Replacements of Indian tribe officials or administrations, changes in policies to which an Indian tribe is subject, or other factors that may lead to the deterioration of our relationship with an Indian tribe may cause delays in the completion of a development project with that Indian tribe or prevent the project's completion altogether, which may have an adverse effect on the results of our operations.

If the NIGC elects to modify the terms of our contracts with Indian tribes or void such contracts altogether, or if an Indian tribe terminates its contract with us or fails to cooperate in making NIGC-mandated modifications to its contract, our revenues from contracts may be reduced or eliminated.

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The NIGC has the power to require modifications to Indian contracts under certain circumstances or to void such contracts or ancillary agreements including loan agreements if the management/consulting company fails to obtain required approvals or to comply with applicable laws and regulations. The NIGC has the right to review each contract and has the authority to reduce the term of a contract or the fee or otherwise require modification of the contract, which could have an adverse effect on us. On July 2, 2007, the NIGC informed us and the Tribe that based on the content of the currently proposed Transaction Documents, the NIGC is required to approve these agreements. No assurance can be given that the Transaction Documents will be approved by the NIGC. The NICG may require our contract with La Jolla to be modified prior to receiving approval. If an Indian tribe, because of a deterioration of our relationship with them or otherwise, terminates its contract with us prior to approval of the contract by NIGC or refuses to cooperate in making NIGC-required modifications of the contract, our revenues from such contract may be reduced or eliminated.

If our key personnel leave us, our business could 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 officer 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 employment agreements with our Chief Executive Officer, President/Chief Operating Office, Senior Vice President/General Counsel/Chief Compliance Officer, and our Senior Vice President/Chief Financial Officer.

Item 1B.
Unresolved Staff Comments

None.

Item 2.
Description of Properties
 
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. We lease 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. On July 7, 2005, we exercised the option to extend the lease to January 2021. In addition, 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 260 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 260 acres. We have scheduled a public auction to be held on August 2, 2007 to dispose of this property. The Company is considering a recommendation from the auctioneer to reset the auction date to September 18, 2007 to permit completion of the survey and allow prospects to review the development potential of the site.

Sunrise Land and Mineral. We own a 50% interest in 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. On November 16, 2006, Pan-Nevada Gold Corporation, not a related party or affiliated company, exercised their rights to purchase Sunrise’s interest in mining claims in Churchill County, Nevada. Sunrise received $50,000 at the time the option was granted, an additional $200,000 when the option was exercised and a $200,000 note was issued at the same time. The note was paid in full on June 13, 2007. At April 29, 2007, we reduced our investment by $125,000 based on our impairment analysis of the asset. Sunrise is pursuing a sale or other disposition of its remaining assets.

Goldfield Resources, Inc. Our wholly-owned subsidiary, 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, 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. Goldfield is pursuing a sale or other disposition of its assets.

Office Lease. We currently lease approximately 16,400 square feet of office space in Houston, Texas. The total monthly rental for this office space is currently $26,000. We are actively seeking alternatives to reduce the square footage, monthly rent and, the length of the lease to approximately one-half of our existing lease.

 
Legal Proceedings

The information set forth under Note 18 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Report, is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see the section entitled “Risk Factors” in Item 1A of the Report.

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 April 29, 2007.
 
Part II

Market For Registrant’s Common Equity, 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 Year Ended
  
 
  
April 29, 2007
  
April 30, 2006
  
 
  
High
  
Low
  
High
  
Low
  
 
  
 
  
 
  
 
  
 
  
First Quarter
  
$
9.60
 
$
5.80
  
$
12.69
  
$
10.00
  
Second Quarter
    
6.77
   
4.60
   
11.31
    
10.33
  
Third Quarter
    
5.50
   
2.70
   
10.80
    
10.29
  
Fourth Quarter
    
3.33
   
1.62
   
10.80
    
9.08
  

Holders of Common Stock

As of July 2, 2007, we had approximately 4,983 shareholders of record.

Dividends

We have not paid any dividends during the last two fiscal years and our current policy 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 April 29, 2007 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
    
880,000
  
$
8.50
    
856,099
  
Equity Compensation Plans Not Approved by Security Holders
    
—
  
$
—
    
—
  
Total
    
880,000
  
$
8.50
    
856,099
  

Recent Sales of Unregistered Securities
 
Not applicable.

Issuer Purchases of Equity Securities

During the fourth quarter ended April 29, 2007, we made no repurchases of our common stock. We previously approved the repurchase of up to 200,000 shares of our common stock in the open market in September 2002 and June 2003. In fiscal year 2005, we announced an increase of 500,000 shares to our stock buyback program. In fiscal year 2006, we announced another increase of 900,000 shares to our stock buyback program. Under this program, we repurchased 54,200, 942,000 and 604,900 shares of our common stock for an average price of $8.03, $10.38 and $10.93 per share during fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005, respectively, of which 604,900 shares were retired.

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Selected Financial Data

The selected consolidated financial data presented below as of the end of and for fiscal years 2007, 2006, 2005, 2004 and 2003 have been derived from our consolidated financial statements. 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
  
   
April 29, 2007
      
April 30, 2006
      
March 31, 2005
      
March 31, 2004
      
March 31, 2003
      
Statement of Operations Data:
                                               
Total net revenues
  
$
12,327,620
   
(a
)
$
13,149,221
   
(b
)
$
5,728,519
       
$
3,740,451
       
$
102,326
       
Total operating expenses before write-offs
    
15,492,727
         
14,233,353
   
(b
)
  
5,064,776
         
3,516,056
         
2,217,409
       
Write-off of notes receivable related to Native
                                                             
American gaming projects
    
3,235,297
         
1,574,452
         
120,000
         
—
         
—
       
Impairment of equity investment
    
125,000
         
—
         
—
         
—
         
—
       
Write-off of project development costs
    
495,982
         
286,653
         
180,850
         
245,356
         
238,437
       
                                                               
Operating income (loss)
    
(7,021,386
)
        
(2,945,237
)
        
362,893
         
(20,961
)
        
(2,353,520
)
      
Non-operating income expenses:
                                                              
Earnings (loss) from unconsolidated affiliates
    
(3,405,539
)
        
6,917,818
         
7,648,802
         
11,243,466
         
9,538,081
       
Gain on sale of marketable securities and assets
    
42,226
         
167,948
         
34,672
         
—
         
589,916
       
Gain on termination of development contract
    
245,499
         
—
         
—
         
—
         
—
       
Gain on termination of development agreement
    
10,801,076
   
(a
)
  
—
         
—
         
—
         
—
       
Interest income (expense), net
    
(3,553,052
)
        
(2,248,550
)
        
(367,460
)
        
677,118
         
(97,853
)
      
Minority interest
    
(4,301,050
)
  
(a
)
  
(1,308,867
)
        
(837,849
)
        
(561,697
)
        
(53,323
)
      
Net income (loss) before income tax expense
   
(7,192,226
)
        
583,112
         
6,841,058
         
11,337,926
         
7,623,301
       
Income tax expense
                                                              
Current
    
170,347
         
—
          
—
          
—
          
—
        
Deferred and change in valuation allowance
    
1,592,827
         
211,251
         
2,682,794
         
3,813,870
         
2,298,373
       
     
1,763,174
         
211,251
         
2,682,794
         
3,813,870
         
2,298,373
       
Net income (loss)
  
$
(8,955,400
)
      
$
371,861
       
$
4,158,264
       
$
7,524,056
       
$
5,324,928
       
Per Share Data:
                                                              
Net income (loss) per common share - basic
  
$
(0.69
)
      
$
0.03
        
$
0.33
        
$
0.65
        
$
0.49
        
Net income (loss) per common share - diluted
  
$
(0.69
)
      
$
0.03
        
$
0.29
        
$
0.51
        
$
0.37
        
                                                               
Balance Sheet Data
                                                              
Total assets
  
$
80,031,346
       
$
88,143,090
   
(c
)
$
45,330,514
   
(e
)
$
45,951,057
   
(f
)
$
57,807,445
   
(g
)
Total debt
  
$
57,087,549
       
$
60,466,660
   
(c
)
$
12,950,272
   
(e
)
$
11,029,266
   
(f
)
$
36,139,348
   
(h
)
Stockholders' equity
  
$
15,641,286
       
$
24,883,190
   
(d
)
$
30,851,193
       
$
30,799,320
       
$
18,707,588
       
 
(a)
Total net revenues reflect decreased credit enhancement fees due to the buy out of the Development and Loan Agreement between the River Rock Entertainment Authority and Dry Creek Casino, L.L.C.

(b)
We purchased the Colorado Grande Casino on April 25, 2005 and its revenues and expenses are included in the consolidated amounts since that date. In addition, operating expenses in fiscal 2006 include a $1.1 million increase in legal fees as a result of various matters in litigation.

(c)
During fiscal year 2006, we made a total of $10.2 million in equity investments and $18.3 million in loans in connection with several gaming projects and also acquired the Colorado Grande for $6.5 million along with $2 million in capital improvements to the Colorado Grande. A majority of our investments were financed through our $55 million credit facility.

(d)
During fiscal year 2006, we repurchased 942,000 shares of our common stock for $9.8 million and a $3.2 million convertible note was converted into 1,106,488 shares of our common stock.

(e)
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.

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

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

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

(i)
Includes $4.5 million of deferred tax valuation allowance recorded as income tax expense in the fourth quarter of fiscal year 2007, of which $3.0 million pertains to fiscal year 2007 and $1.5 million relates to prior years.

 
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.
 
Critical Accounting Policies and Estimates

Our critical accounting policies and estimates 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 3 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 fiscal 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 within Note 5 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.

Change in Fiscal Year

On June 6, 2005, we changed our fiscal year to end on the last Sunday in April rather than March 31. This fiscal year creates more comparability of our quarterly operations, by generally having an equal number of weeks (13) and weekend days (26) in each fiscal quarter. Periodically, this system necessitates a 53-week year. Fiscal year 2006 was a 53-week year which commenced on April 25, 2005 and ended on April 30, 2006. We believe that the twelve months ended March 31, 2005 provides a meaningful comparison to the twelve months ended April 29, 2007 and April 30, 2006. There are no factors of which we are aware, seasonal or otherwise, that would impact the comparability of information or trends, if results for the twelve months ended April 24, 2005 were presented in lieu of results for the twelve months ended March 31, 2005. References in this discussion to fiscal 2007 and 2006 represent the twelve months ended April 29, 2007 and April 30, 2006, respectively. References to fiscal 2005 represent the twelve months ended March 31, 2005.

Equity Method of Accounting

Our investments in IC-BH, American Racing, RCI, Buena Vista Development, 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 one month in arrears for RCI and American Racing (which have a calendar fiscal year), and one month in arrears for Buena Vista Development and Sunrise (which have a fiscal year end of March 31). 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 utilized the equity method of accounting for our 51% interest in Route 66 Casinos because the operating activities of the joint venture were controlled by the minority venturer. As disclosed in Note 18 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 was appropriate and concluded that the equity method best reflected the underlying nature of our investment. The operating agreement provides that all material decisions of the joint venture are made by

-19-

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 were able to reasonably estimate the revenues and expenses of the venture through our second quarter of fiscal year 2006 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.

Through the second fiscal quarter of 2006, we estimated our share of operational activities of Route 66 Casinos and recorded such amounts using the equity method of accounting (See “Equity Method of Accounting”) because we did not receive revenue and expense information from the venture as a consequence of ongoing litigation (See Note 18 to our Consolidated Financial Statements). Effective October 1, 2005, we discontinued the recording of any estimated earnings due to the sale and the termination of the equipment leases. The estimated revenues recorded prior to October 1, 2005 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 and the ultimate conclusion of the litigation may vary materially and adversely 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 amortized capitalized development costs of DCC, over the contractual five-year term of the credit enhancement fee contract. Each quarter, we recognized 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 believed this method was appropriate because it matched income and expenses over the term of the contract. We also reviewed 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 were appropriate. On January 31, 2007, the River Rock Entertainment Authority (“RREA”) exercised a buy-out option contained in the Development Agreement with DCC. Pursuant to the buy-out option, RREA had the option to pay 17 equal monthly installments beginning February 15, 2007. On March 2, 2007 RREA and the members of DCC agreed to a cash settlement of the buy-out option of $11,350,000 in lieu of the monthly installments. The remaining balance of unamortized capitalized costs was written off during the fourth quarter of fiscal 2007 in conjunction with the buy-out. 

Goodwill and Other Intangibles

In connection with our acquisition of the Colorado Grande casino, at April 29, 2007, we have goodwill with an indefinite useful life of $5.5 million, representing 6.8% of total assets. Statement of Financial Accounting Standards ("SFAS") No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), requires that goodwill and intangible assets with indefinite useful lives be tested for impairment annually, or more frequently if an event occurs or circumstances change that may reduce the fair value of our goodwill below its carrying value. We completed an impairment test as required under SFAS No. 142 in the fourth quarter of fiscal year 2007 and determined that the goodwill was not impaired. For properties with goodwill with indefinite lives, this test requires the comparison of the implied fair value of each property to its carrying value. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions and represent our best estimates of the cash flows expected to result from the use of the assets and their eventual disposition. Changes in estimates or application of alternative assumptions and definitions could produce significantly different results.
 
Asset and Investment Impairments

We apply the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and Accounting

-20-

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. Based upon this policy we reduced our investment in Sunrise Land & Minerals Corporation by $125,000 as of April 29, 2007.

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 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 6 to our Consolidated Financial Statements.

We review on a quarterly basis each of our notes receivable to evaluate whether the collection of such 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 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 depending upon the term of the contracts or note receivable agreements. Interest income related to notes receivable is recorded when earned and its collectibility is reasonably certain. 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.

The retail value of food and beverage and other services furnished to guests without charge is included in gross revenue and deducted as promotional allowances. Net revenues do not include the retail amount of food, beverage and other items provided gratuitously to customers. The Company records the redemption of coupons and points for cash as a reduction of revenue. These amounts are included in promotional allowances in the accompanying consolidated statements of operations. The estimated cost of providing such complimentary services that is included in casino expense in the accompanying consolidated statements of operations was as follows:
 
   
Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
Food and beverage
  
$
609,938
  
$
923,841
  
Other
    
16,479
    
22,012
  
Total cost of complimentary services
  
$
626,417
  
$
945,853
  
 
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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. Deferred tax assets are reduced 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. If the potential loss is justified to be probable and estimable, we will provide for the exposure. If the actual loss from a contingency differs from management’s estimate, operating results could be impacted. As of April 29, 2007, 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 and developing Native American owned gaming projects. Our gaming facility operations are located in the United States of America (“U.S.”), specifically in the state of Colorado. On June 14, 2007, we sold our membership interest in our gaming facilities in New York. Historically, we have relied upon our equity investment in IC-BH for the majority of our earnings and cash flow. In December 2005, IC-BH completed a $94.0 million capital expansion for IC-BH’s Colorado properties adding approximately 350 slot machines, 160 hotel rooms, a new 1,000 parking structure 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 owned 69% of and consolidated DCC. River Rock Casino completed the construction of a parking garage in December 2004 which increased their parking capacity from approximately 500 spaces to 1,642 spaces which will accommodate up to approximately 2,100 customer vehicles when operated by a valet service during peak demand periods. On January 31, 2007, the River Rock Entertainment Authority (“RREA”) exercised a buy-out option contained in the Development Agreement. Pursuant to the buy-out option, RREA had the option to pay 17 equal monthly installments beginning February 15, 2007. On March 2, 2007 RREA and the members of DCC agreed to a cash settlement of $11,350,000 in lieu of the monthly installments. Our share of the settlement was approximately $8.1 million which is included in gain on termination of development and loan agreement. DCC distributed the proceeds to its members in March 2007. Accordingly, we no longer receive credit enhancement fees from RREA. 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. In addition, we initially owned a 40% interest in American Racing, which developed racing facilities which offer harness racing and VLTs to its gaming customers. Our interest decreased throughout fiscal 2007 to 22.8% by the end of the year due to lack of liquidity to meet certain cash call commitments. 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/profitability can be expected to increase. Our net revenues were $12.3 million, $13.1 million and $5.7 million for fiscal years 2007, 2006 and 2005, respectively.
 
We hold investments in various unconsolidated affiliates which are accounted for using the equity method of accounting. 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 April 29, 2007, the amount of consolidated retained earnings which represents undistributed earnings from our unconsolidated affiliates is approximately $25 million. Our net ownership interest, investments in and earnings (losses) from our unconsolidated affiliates are as follows (see Note 5 to our Consolidated Financial Statements):

-22-
 
                 
Earnings (Loss)
  
     
Net Ownership Interest
    
Investment
    
Fiscal Year Ended
  
Unconsolidated affiliates:
    
April 29, 2007
    
April 30, 2006
    
April 29, 2007
    
April 30, 2006
    
April 29, 2007
    
April 30, 2006
    
March 31, 2005
  
     
(Percent)
                                
Isle of Capri - Black Hawk, L.L.C. (1)
    
43
    
43
  
$
22,306,025
  
$
21,146,365
  
$
3,728,960
 
$
6,517,318
 
$
5,888,031
 
Route 66 Casinos, L.L.C. (2)
    
51
    
51
    
4,509,183
    
4,509,183
    
—
    
874,707
   
1,811,914
 
American Racing and Entertainment,
                                            
L.L.C. (1) (3)
    
23
    
40
    
8,215,042
    
9,480,506
   
(7,275,464
)
  
(519,494
)
  
—
  
Buena Vista Development Company,
                                            
L.L.C. (4)
    
35
    
25
    
171,169
    
176,753
   
(5,584
)
  
(13,047
)
  
—
  
Sunrise Land and Mineral Corporation(5)
    
50
    
50
    
400,489
    
378,940
    
146,549
   
58,334
   
(51,143
)
Restaurant Connections International,
                                           
Inc. (6)
    
34
    
34
    
—
    
—
    
—
    
—
    
—
  
Total investments in unconsolidated affiliates
              
$
35,601,908
 
$
35,691,747
                            
                                                         
Total earnings (loss) from unconsolidated affiliates
                          
$
(3,405,539
)
$
6,917,818
 
$
7,648,802
 
                                           
(1)
Separate financial statements for this entity are included herein.
(2)
Equity method of accounting is utilized despite our ownership interest being greater than 50%. Effective with Route 66 Casinos’ calendar quarter ended September 30, 2005, we discontinued the recording of any estimated earnings due to the sale and the termination of the equipment leases.
(3)
Represents our equity investment in a racing and gaming development project. On June 14, 2007, we sold our membership to two of our partners.
(4)
This is an investment in a gaming development project. At May 5, 2007, our ownership interest increased to 40%.
(5)
Represents our equity investment in a real estate investment and development project. This asset is held for sale and has been presented accordingly on the balance sheet as of April 29, 2007.
(6)
Investment in RCI was reduced to zero in fiscal year 2000. This asset is held for sale as of April 29, 2007.
 
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 5 to the Consolidated Financial Statements):
 
   
Net Ownership Interest
  
Capitalized Development Costs
  
Development Projects:
  
April 29, 2007
  
April 30, 2006
  
April 29, 2007
  
April 30, 2006 
  
   
(Percent)
          
                 
Dry Creek Casino, L.L.C. (1)
    
69
    
69
  
$
682,632
  
$
1,156,318
  
Gold Mountain Development, L.L.C. (2)
    
100
    
100
    
3,367,098
   
3,357,795
 
Goldfield Resources, Inc. (3)
    
100
    
100
    
480,812
   
480,812
 
Nevada Gold (Tulsa), Inc. (4)
    
100
    
100
    
1,783,295
   
1,326,536
 
Other (5)
                
562,690
   
480,176
 
Total investments– development projects
              
$
6,876,527
  
$
6,801,637
  
                         
(1)
Capitalized development costs of the River Rock Casino project. In March 2007, DCC agreed to a cash buyout of the credit enhancement fee agreement. As a result of this transaction, DCC ended its relationship with the RREA.
(2)
Acquisition and development costs incurred for 260 acres of real property in the vicinity of Black Hawk, Colorado. This property is scheduled to be auctioned on August 2, 2007. As a result, it has been reflected as such as of April 29, 2007. See discussion below.
(3)
Acquisition cost incurred for 9,000 acres of mining claims in fiscal year 1999. This asset is for sale and has been reflected as such as of April 29, 2007.
(4)
Development cost incurred for Muscogee (Creek) Nation gaming project On December 8, 2006 we received a $2.2 million payment for fees due under our development agreement with the Muscogee Nation - Tulsa. This payment was in excess of our capitalized development costs of $1.9 million. As a result of this transaction, we mutually and amicably agreed to end our relationship with the Muscogee Nation - Tulsa.
(5)
Development cost incurred for other development projects.
 
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Consolidated Results of Operations
 
The following table sets forth our consolidated results of operations for the fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005:
 
   
Fiscal Year Ended
  
   
 April 29,
  
April 30,
  
March 31,
  
   
 2007
  
2006
  
2005
  
Revenues:
                 
Casino
  
$
6,253,491
 
$
5,653,340
 
$
—
  
Food and beverage
    
1,295,157
   
1,471,816
   
—
  
Other
    
153,305
    
126,078
    
67,610
  
Credit enhancement fee
    
5,920,125
    
7,348,651
    
5,660,909
  
Gross revenues
    
13,622,078
    
14,599,885
    
5,728,519
  
Less promotional allowances
    
(1,294,458
)
  
(1,450,664
)
  
—
 
Net revenues
    
12,327,620
    
13,149,221
    
5,728,519
  
Operating expenses:
                    
Casino
    
1,655,837
   
2,566,306
   
—
 
Food and beverage
    
721,360
   
863,703
   
—
 
Marketing and administrative
    
3,094,554
   
1,935,257
   
—
 
Facility
    
323,906
   
276,304
   
—
 
Corporate expense
    
7,203,198
   
5,778,507
   
4,223,019
 
Legal expenses
    
1,489,967
   
1,668,311
   
609,278
 
Depreciation and amortization
    
918,609
   
1,018,699
   
169,133
 
Write-off of notes receviable related to Native American
                    
gaming projects and other notes receivable
    
3,235,297
   
1,574,452
   
120,000
 
Impairment of equity investment
    
125,000
   
—
   
—
 
Write-off of project development cost
    
495,982
   
286,653
   
180,850
 
Other
    
85,296
   
126,266
   
63,346
 
Total operating expenses
    
19,349,006
   
16,094,458
   
5,365,626
 
Operating income (loss)
    
(7,021,386
)
  
(2,945,237
)
  
362,893
 
Non-operating income (expenses):
                    
Earnings from unconsolidated affiliates
    
(3,405,539
)
  
6,917,818
   
7,648,802
 
Gain on sale of marketable securities and assets
    
42,226
   
167,948
   
34,672
 
Gain on termination of development contract
    
245,499
   
—
   
—
 
Gain on termination of development and loan agreement
    
10,801,076
   
—
   
—
 
Interest income (expense), net
    
(3,553,052
)
  
(2,248,550
)
  
(367,460
)
Minority interest
    
(4,301,050
)
  
(1,308,867
)
  
(837,849
)
Income (loss) before income tax expense
    
(7,192,226
)
  
583,112
   
6,841,058
 
Income tax expense
                    
Current
    
170,347
   
211,251
   
2,682,794
 
Deferred and change in valuation allowance
    
1,592,827
   
—
   
—
 
Total income tax expense
    
1,763,174
   
211,251
   
2,682,794
 
Net income (loss)
  
$
(8,955,400
)
$
371,861
 
$
4,158,264
 
                     
Per share information:
                    
Net income (loss) per common share - basic
  
$
(0.69
)
$
0.03
 
$
0.33
 
Net income (loss) per common share - diluted
  
$
(0.69
)
$
0.03
 
$
0.29
 
                     
Basic weighted average number of shares
                   
outstanding
    
12,937,222
    
12,975,697
    
12,788,269
 
                   
Diluted weighted average number of shares
                   
outstanding
    
12,937,222
    
13,243,750
    
14,672,777
 
                   
COMPARISON OF FISCAL YEARS ENDED APRIL 29, 2007 AND APRIL 30, 2006

Net revenues. Net revenues for fiscal year 2007 decreased 6.2%, or $0.8 million, to $12.3 million compared to fiscal year 2006. In fiscal year 2007, credit enhancement fees decreased $1.4 million, or 19.4%, to $5.9 million compared to $7.3 million for fiscal year 2006 as a result of River Rock Casino’s higher revenues and improved operating margins associated with the additional parking

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available with the new parking garage offset by the cash buy-out of the credit enhancement agreement in March 2007 resulting in no credit enhancement fees in the fourth quarter of 2007. On April 25, 2005, we acquired Colorado Grande Casino from IC-BH. In fiscal year 2007 the Colorado Grande contributed a total of $7.5 million in gross revenues from its casino operations compared to $7.1 for fiscal year 2006. After the promotional allowance, net revenues from its casino operations for fiscal year 2007 were $6.3 million compared to $5.7 million for fiscal year 2006.

Total operating expenses. Total operating expenses for fiscal year 2007 increased 20.2%, or $3.3 million, to $19.3 million compared to fiscal year 2006. Of the increase, $0.2 million is attributable to casino operations from the Colorado Grande Casino-Cripple Creek. We experienced $1.4 million or 24.7% more corporate expense primarily due to $0.2 million of stock option expense and $1.1 million of severance pay as part of our efforts to reduce staff and future operating expenses. Legal expenses for fiscal year 2007 decreased 11%, or $0.2 million, to $1.5 million compared to fiscal year 2006. The decrease is primarily due to hiring in-house general counsel in an effort to prepare legal documents internally. As a result of our impairment analysis of assets as of April 29, 2007, we wrote down our equity investments by $0.1 million. Write-off of project development cost for fiscal year 2007 increased 73%, or $0.2 million to $0.5 million compared to fiscal year 2006. Also, write-off of notes receivable primarily related to a Native American gaming project which we are no longer pursuing increased 105% or $1.7 million to $3.2 million compared to fiscal year 2006. Depreciation and amortization expense decreased 9.8%, or $0.1 million compared to fiscal year 2006. The decrease is primarily due to the cash buyout noted above.

Earnings from unconsolidated affiliates. Earnings from unconsolidated affiliates for fiscal year 2007 decreased 149%, or $10.3 million, to a loss of $3.4 million compared to fiscal year 2006. Earnings from IC-BH decreased 42.8%, or $2.8 million compared to fiscal year 2006. IC-BH’s net revenues decreased 4.4%, or $7.1 million for fiscal year 2007 compared to fiscal year 2006. This decrease was primarily due to a decrease in revenues resulting from increased competition. However, such decrease was offset by a $2.1 million or 1.5% decrease in operating expenses. IC-BH also had a $2.3 million increase in interest expense, net. Earnings from Sunrise were $147,000 for fiscal year 2007 compared to $58,000 for fiscal year 2006. During fiscal year 2007 we recorded losses from American Racing of $7.3 million compared to losses of $0.5 million during fiscal year 2006. We acquired American Racing in the second half of fiscal year 2006. The increased losses at American Racing are primarily attributable pre-opening and start-up expenses related to the Tioga Downs and Vernon Downs projects. In addition, we recorded a loss from Buena Vista Development of $5,600.  

Interest expense, net. Interest expense, net consists of a net balance of interest expense and amortization of loan issue cost, offset by interest income. Interest expense for fiscal year 2007 increased 33%, or $1.3 million, to $5.3 million compared to fiscal year 2006. The increase is primarily due to a higher weighted average debt balance. Interest income for fiscal year 2007 increased 13%, or $0.3 million, to $2.3 million compared to fiscal year 2006. The increase is primarily due to a higher weighted average notes receivable balance and improved cash management. Amortization of loan issue cost was $602,000 and $348,000 for fiscal years 2007 and 2006, respectively.

Other non-operating income and expenses. During fiscal year 2007, we recorded a $10.8 million gain related to the termination of our development and loan agreement with the River Rock Casino, a $250,000 gain related to the termination of our development agreement with Muscogee Nation-Tulsa, and $42,200 of gains on sale of marketable securities and assets compared to gains of $168,000 in fiscal year 2006.

Net (loss)/income. Fiscal year 2007 reflects a net loss of $9.0 million compared to net income of $372,000 for fiscal year 2006. The decrease of $9.3 million is primarily related to the $1.7 million increase in write-off of notes and related investment in a Native American gaming project, a $10.3 million decrease in earnings from unconsolidated subsidiaries, $1.1 million of severance costs and a $1.3 million additional net interest expense, offset by $0.3 million improvement of casino operating results, $11.0 million of gains on termination of development agreements, offset by $1.4 million reduction of credit enhancement fees and a $3.0 million increased payment to minority interest holders, $0.2 million of reduced legal expense, and $1.6 million increased income taxes due to establishing a $4.5 million deferred tax valuation allowance. The effective tax rate for fiscal years 2007 and 2006 was 25% and 36%, respectively.

COMPARISON OF FISCAL YEARS ENDED APRIL 30, 2006 AND MARCH 31, 2005

Net revenues. Net revenues for fiscal year 2006 increased 130%, or $7.4 million, to $13.1 million compared to fiscal year 2005. In fiscal year 2006, credit enhancement fees increased $1.7 million, or 30%, to $7.3 million compared to $5.7 million for fiscal year 2005 as a result of River Rock Casino’s higher revenues and improved operating margins associated with the additional parking available with the new parking garage. On April 25, 2005, we acquired Colorado Grande Casino from IC-BH. The Colorado Grande contributed a total of $7.1 million in gross revenues from its casino operations. After the promotional allowance, net revenues from its casino operations were $5.7 million.

Total operating expenses. Total operating expenses for fiscal year 2006 increased 200%, or $10.7 million, to $16.1 million compared to fiscal year 2005. Of the increase, $5.6 million is primarily the result of the inclusion of the casino operations, food and beverage, marketing and advertising, and facility expenses from the Colorado Grande Casino-Cripple Creek. We also experienced $1.6 million

-25-

of higher corporate expense due to our pursuit of additional gaming opportunities, expanded casino operations and increased overhead costs related to business expansion and transformation to a casino operator. Legal expenses for fiscal year 2006 increased 174%, or $1.1 million, to $1.7 million compared to fiscal year 2005. The increase is primarily due to the higher legal expenses related to our litigation. Write-off of project development cost for fiscal year 2006 increased 59%, or $106,000 to $287,000 compared to fiscal year 2005. Also, we recorded a $1.6 million write-off of notes receivable related to Native American gaming projects which we are no longer pursuing. Depreciation and amortization expense increased 502%, or $850,000, compared to fiscal year 2005. The increase is primarily due to the increase of depreciation expenses associated with the additional gaming equipment, computer equipment, and the new accounting system purchased in fiscal year 2006.

Earnings from unconsolidated affiliates. Earnings from unconsolidated affiliates for fiscal year 2006 decreased 10%, or $731,000, to $6.9 million compared to fiscal year 2005. Earnings from IC-BH increased 11%, or $629,000 compared to fiscal year 2005. IC-BH’s net revenues increased 17%, or $23.0 million for fiscal year 2006 compared to fiscal year 2005. This increase was primarily due to an increase in revenues resulting from the completion of the $94 million expansion at Isle of Capri Casino-Black Hawk and Colorado Central Station Casino. However, such increase was offset by a $19.5 million increase in operating expenses and a $3.0 million increase in interest expenses, net, along with a $2.1 million loss on early extinguishment of debt related to the refinancing of $240.0 million debt in October 2005. In addition, a gain of $1.6 million was recorded to reflect changes in the fair value of interest rate swap agreements not designated as hedging instruments. In November, 2005 the Gillmann Group, without our knowledge or consent, sold to the LDC the gaming devices and other equipment and property leased to the LDC and received $21.0 million, less certain adjustments. The equipment leases were terminated in connection with the transaction. Therefore, effective with Route 66 Casinos’ calendar quarter ended September 30, 2005, we discontinued the recording of any estimated earnings related to Route 66 Casinos due to the termination of the equipment leases, which lowered our earnings from unconsolidated affiliates by approximately $937,000 compared to fiscal year 2005. Earnings from Sunrise were $58,000 for fiscal year 2006 compared to a loss of $51,000 for fiscal year 2005. During the second half of fiscal year 2006, we recorded a loss from American Racing of $519,000 which is primarily attributable to preopening expenses related to the Tioga Downs project. In addition, during fiscal 2006 we recorded a loss from Buena Vista Development of $13,000.  

Interest expense, net. Interest expense, net consists of a net balance of interest expense and amortization of loan issue cost, offset by interest income. Interest expense for fiscal year 2006 increased 131%, or $2.3 million, to $4.0 million compared to fiscal year 2005. The increase is primarily due to a higher weighted average debt balance. Interest income for fiscal year 2006 increased 23%, or $391,000, to $2.1 million compared to fiscal year 2005. The increase is primarily due to a higher weighted average notes receivable balance. Amortization of loan issue cost was $348,000 and $328,000 for fiscal years 2006 and 2005, respectively.

Other non-operating income and expenses. During fiscal year 2006, we recorded $168,000 of gains on sales of marketable securities and assets compared to $35,000 in fiscal year 2005.

Net income. Net income was $372,000 and $4.2 million for fiscal years 2006 and 2005, respectively. The decrease of $3.8 million is primarily related to the discontinuation of recording earnings from Route 66, an increase in interest expense, net, an increase in depreciation and amortization, higher overall corporate expenses, and higher casino operating and marketing expenses as a percentage of casino revenue related to repositioning the Colorado Grande Casino after the $2.0 million renovation project completed at the end of the second quarter and higher legal costs related to litigation. The effective tax rates for fiscal years 2006 and 2005 were 36% and 39%, 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 fiscal years 2007, 2006 and 2005:
               
   
Fiscal Year Ended
  
 
  
April 29, 2007
  
April 30, 2006
  
March 31, 2005
  
Cash provided by (used in):
  
 
  
 
  
 
  
Operating activities
  
$
(3,983,075
)
$
343,835
  
$
6,827,350
  
Investing activities
  
$
10,952,596
  
$
(31,315,234
)
$
3,482,364
  
Financing activities
  
$
(8,462,115
)
$
32,378,856
  
$
(9,992,150
)
 
Operating activities. Net cash used in operating activities during fiscal year 2007 increased $4.3 million compared to fiscal year 2006 mainly due to increased operating losses of $9.3 million, offset by $8.1 million, net, of proceeds from the cash buy-out by River

-26-

Rock Casino noted above, increased write-off of notes receivable of $1.3 million, increased deferred income tax expense of $1.4 million and a $0.7 million decrease of tax distributions from IC-BH. During fiscal year 2007 we received $2.2 million of tax distributions from IC-BH. All of our tax distributions from IC-BH were used to pay down the $5.9 million note payable to IC-BH related to the purchase of the Colorado Grande Casino. We anticipate this note payable will be repaid in full in the second quarter of fiscal year 2008.

Investing activities. Net cash provided by investing activities during fiscal year 2007 increased to $11.0 million compared to $31.3 million usage during fiscal year 2006. The $42.3 million increase is primarily due to in fiscal year 2007 Dry Creek Casino, L.L.C. (“DCC”) received approximately $11.4 million from the River Rock Entertainment Authority (“RREA”) as a result of RREA and DCC agreeing to a cash buyout of the Development and Loan Agreement, we also received $2.2 million from the Muscogee Nation-Tulsa for termination of our development agreement with the Tribe, these receipts were offset by advancing an additional $1.4 million to American Racing and investing $1.1 million in a certificate of deposit pledged as collateral for a bank line for American Racing. In fiscal year 2006 we invested $15 million in Buena Vista Development, in the form of a $14.8 million note receivable and a $189,000 equity investment, a $10.2 million equity investment in American Racing, and $3.5 million of loans made to other gaming projects. In fiscal 2006 we also used $0.6 million as down payment to purchase the Colorado Grande Casino in addition to $2.8 million for capital improvements and the purchase of a new accounting system and computer equipment for the casino. In fiscal year 2006 we received a $0.9 million loan repayment from one of our Indian gaming projects, when interim financing was obtained by the Tribe.

Financing activities. Net cash used in financing activities was $8.5 million for fiscal year 2007 compared to $32.4 million net cash provided by financing activities for fiscal year 2006. During fiscal year 2007 we repaid $6.4 of our term loans compared to $2.7 in fiscal year 2006, we borrowed $3.0 million from our $55 million credit facility as compared to $47.6 million in fiscal 2006 when we funded several investing activities. In fiscal 2007 we paid $0.1 million of deferred loan issuance costs compare to fiscal 2006 when we paid $1.2 million. In fiscal 2006 we repurchased 942,000 shares of our common stock in the open market, at a total purchase price of $9.8 million as compared to fiscal 2007 when we paid $0.4 million to repurchase our common stock. In fiscal 2007 we distributed $4.6 million to the minority interest owners of DCC compared to $1.4 million in fiscal year 2006. We repaid $2.0 million on the $5.9 million note to IC-BH leaving the balance of $1.3 million as of April 29, 2007.

Future Sources and Uses of Cash

We expect that our future liquidity and capital requirements will be affected by:
 
-
disposition of non-gaming related assets;
-
debt service requirements;
-
capital requirements related to future acquisitions;
-
obtaining funds via long-term subordinated debt instruments; and
-
working capital requirements.
 
At April 29, 2007, outstanding indebtedness under our revolving credit facility was $55.0 million with total indebtedness of $57.1 million. Historically, 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 are now using our quarterly distributions from IC-BH for the repayment of interest and principal due on this note which will continue until it is repaid in full. At April 29, 2007, the balance of the note payable to IC-BH was $1.3 million which we expect will be paid in full in the second quarter of fiscal year 2008. Due to the Company having net operating tax losses, upon repayment of the note payable to IC-BH the quarterly tax distributions will be available to pay operating expenses and service a portion of our debt.

In March 2007, we received approximately $8.1 million for our portion of a cash buy-out of future credit enhancement fees as a result of the River Rock Entertainment Authority exercising their rights under the agreement. As a result, we will receive no additional

-27-

credit enhancement fees from River Rock Casino in the future. Revenue and cash flow, compared to prior quarters, is expected to decrease by approximately $2.0 million quarterly over the remaining term of the agreement as a result of this transaction. The fact that we will no longer receive payments from the River Rock Casino will have a significant impact on our future cash flow. We used $3.3 million of these proceeds to repay a note which was due in March 2007.

On June 14, 2007, we sold our membership interest in American Racing and Entertainment. We received $2.1 million cash and two notes for $1.1 million each. The notes bear interest of 5% and are due in April 2008 and 2009, respectively. On June 18, 2007, we used the proceeds from the sale of American Racing to repay $2.2 million of our $55 million Credit Facility (“Credit Facility”). In addition to the cash received from the sale of American Racing, certificates of deposit of approximately $1.1 million pledged as collateral for a bank line of credit for American Racing was released to us on July 13, 2007. We used $950,000 of the certificates of deposit proceeds to pay down the Credit Facility. On June 26, 2007, we drew down $1.0 million from the Credit Facility. We currently have $2.15 million available to draw from the Credit Facility. The Credit Facility matures September 30, 2008. In addition, in conjunction with the sale agreement we were indemnified by the purchasers in connection with the guarantees of approximately $11 million of debt or any other obligations of American Racing.

In November 2006, we examined our corporate overhead. As a result, we have implemented several cost saving measures that will save approximately $2.0 million of general and administrative expenses annually. These measures included the elimination of two senior level positions and a number of corporate staff positions which resulted in a 50% reduction in our corporate full time equivalents, reduction of consulting contracts, and a 10% salary reduction for senior executives for the second half of fiscal year 2007. A $1.1 million severance expense associated with the reduction of corporate positions is reflected in fiscal year 2007. The 10% salary reduction for the remaining senior executives was lifted effective the beginning of fiscal year 2008.

On May 24, 2007, we announced that we entered into a commitment letter agreement for a term loan facility in the maximum amount of $15 million (the “Loan Facility”). The commitment letter will terminate on the second anniversary of the issuance and any amounts drawn shall be payable in full three years from the date such funds are drawn. The Loan Facility will be structured as an acquisition line to be drawn for a to-be-determined acquisition or acquisitions acceptable to the Company and the lender, based on standard legal and financial due diligence and will be guaranteed on a senior secured basis by all the Company’s affiliates that are not borrowers under the Loan Facility.

We are currently having discussions with various interested parties to dispose of our non-gaming related assets. We have set a date of August 2, 2007, to auction the 260 acres in Black Hawk, CO. Our plan is to divest of such assets and use the proceeds to pay operating expenses or debt or, reinvest the funds in acquisition opportunities where we will have a majority equity position and long term management contracts.

On April 29, 2007, excluding restricted cash of $1.1 million, we had cash and cash equivalents of $2.8 million. The restricted cash consists of certificates of deposit that matured in July 2007.

We are highly leveraged and our consolidated financial statements have been prepared assuming that we will have adequate availability of cash resources to satisfy our liabilities in the normal course of business. We have made, and are in the process of making, arrangements to ensure that we have sufficient working capital to fund our obligations as they come due. These potential funding transactions include divesting of non-core assets and obtaining long-term financing and other sources of funds from our current credit facility lender and other recognized lenders. We believe that some or all of these sources of funds will be funded in a timely manner and will provide sufficient working capital for us to meet our obligations as they come due; however, there can be no assurance that we will be successful in divesting of the non-core assets or achieving the desired level of working capital at terms that are favorable to us. Should cash resources not be sufficient to meet our current obligations as they come due, repay or refinance our credit facility due on September 30, 2008 and, acquire operations that generate positive cash flow, we would be required to curtail our activities and grow at a pace that cash resources could support which may require a restructuring of our debt or selling core assets of the Company.

Indebtedness

On January 19, 2006, we entered into an amended $55.0 million revolving credit facility (“Credit Facility”) with our lender that replaced a $40.0 million revolving 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 September 30, 2008.

The Credit Facility allows us to draw up to $55.0 million (less outstanding indebtedness under the Convertible Note) at any time prior to September 30, 2008. The Credit Facility is secured by substantially all of our assets including our interest in IC-BH. As of April 29, 2007, we had $55.0 million in outstanding debt under the Credit Facility. On June 18 and July 16, 2007 we repaid $2.2 million and $0.95 million, respectively, of the Credit Facility. On June 26, 2007, we drew down $1.0 million from the Credit Facility. As of July 23, 2007 we have $2.15 million available to draw from the Credit Facility.
 
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In March 2007, we repaid our $3.3 million Note Payable.

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 of which $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 about 7.4%. The note will mature on April 25, 2008. Our future quarterly distributions from IC-BH will be used for 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. At April 29, 2007, the balance of this note payable was $1.3 million. In June a quarterly distribution of $960,000 was made from IC-BH and applied to the outstanding note balance. We anticipate that the note will be paid in full during the second quarter of fiscal year 2008.

During the fourth quarter of fiscal 2007 we paid a total of $4.1 million of debt. At April 29, 2007, we had approximately $57.1 million in total outstanding indebtedness. Since the end of fiscal 2007 we have paid an additional $3.3 million, net, of debt. As of July 17, 2007, we had approximately $53.8 million in total outstanding indebtedness.

Off-Balance Sheet Arrangements

As of April 29, 2007, we have guaranteed approximately $11 million of mortgage debt of a subsidiary of American Racing. The debt matures on March 31, 2008. On June 14, 2007 we sold our membership interest in American Racing and related entities and were indemnified by the purchasers in connection with the guarantee.

In addition, we have certain off-balance sheet arrangements that may affect our financial condition, liquidity and results of operations, including a guarantee of $21,000 of indebtedness of an affiliate.

In the event of nonperformance by American Racing, under the terms of the obligation, our maximum potential future payment under the guarantee will be equal to half of the loan amount owed by American Racing. As of April 29, 2007, our maximum potential future payment under this guarantee was approximately $11 million.

Contractual Obligations

The following table sets forth estimates of our contractual obligations as of April 29, 2007 to make future payments in fiscal year 2008 through fiscal year 2012 and thereafter:
 
           
Fiscal Year
  
Estimated Contractual Obligations:    
Total
    
2008
    
2009
    
2010
    
2011
    
2012
    
Thereafter
  
Long-term debt (1)
  
$
57,087,549
  
$
2,066,518
  
$
55,007,949
  
$
8,567
 
$
4,515
  
$
—
  
$
—
  
Estimated interest payments (2)
    
5,506,590
    
4,725,324
    
780,470
    
685
    
111
    
—
    
—
  
Operating lease commitments (3)
    
6,991,803
    
674,869
    
714,572
    
716,844
    
719,115
    
666,403
    
3,500,000
  
Other commitments(3)
    
142,096
    
142,096
    
—
    
—
    
—
    
—
    
—
  
Total
  
$
69,728,038
  
$
7,608,807
  
$
56,502,991
  
$
726,096
  
$
723,741
  
$
666,403
  
$
3,500,000
  
                                             
(1)
See Note 7 to our Consolidated Financial Statements in this Annual Report.
(2)
Estimated interest payments are based on the outstanding balance of our debt as of April 29, 2007.
(3)
See Note 17 to our Consolidated Financial Statement in this Annual Report.

Recent Accounting Pronouncements

Accounting for Uncertainty in Income Taxes
 
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement 109” ("FIN 48"), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. FIN 48 provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” of being sustained if the position were to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is greater than 50 percent likely of being recognized upon ultimate settlement with the taxing authority, is recorded. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.

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Fair Value Measurements
 
In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. However, for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 (the Company’s fiscal 2009), and interim periods within those years. The Company will assess the effect of this pronouncement on its financial statements, but at this time, no material effect is expected.

Fair Value Option for Financial Assets and Liabilities
 
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 (the Company’s fiscal 2009). The Company will assess the effect of this pronouncement on its financial statements, but at this time, no material effect is expected.

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.

Approximately 96% of our borrowings are at fixed interest rates; thus an interest rate change would not have a significant 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 Index to Consolidated Financial Statements.

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

None.

Item 9A.
Controls and Procedures 
 
(a) Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. As described below under Management’s Annual Report on Internal Control over Financial Reporting, our CEO and CFO have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; provided, that we were required to seek relief under Rule 12b-25 in connection with the filing of this Annual Report on Form 10-K due to a delay in receiving final audited financial information from our material equity investee.

Pannell Kerr Forster of Texas, P.C.’s audit report, dated July 27, 2007, expressed an unqualified opinion on our consolidated financial statements and its assessment of Management’s Annual Report on Internal Control over Financial Reporting is included herein.

(b) Management’s Annual Report on Internal Control over Financial Reporting. Management, including the CEO and CFO, has the responsibility for establishing and maintaining adequate internal control over financial reporting, as defined in the Exchange Act, Rule 13a-15(f). 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 influenced by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate or insufficient because of changes in operating conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the ordinary course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with GAAP, such that there is a more than remote likelihood that a misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Management assessed internal control over financial reporting of the Company and subsidiaries as of April 29, 2007. The Company’s management conducted its assessment in accordance with the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management has concluded that the internal control over financial reporting was effective as of April 29, 2007.
 
-30-

Pannell Kerr Forster of Texas, P.C., the independent registered public accounting firm who also audited the Company’s consolidated financial statements, has issued its own attestation report on management’s assessment of the effectiveness of internal control over financial reporting as of April 29, 2007, which is filed herewith.
 
 
(c)
Changes in Internal Control Over Financial Reporting

Material weaknesses noted in our Form 10-K for the year ended April 30, 2006 and each of our quarterly filings since that date are listed below.
 
 The financial reporting process resulted in incomplete accounting disclosure for i) fixed assets, ii) debt maturities, iii) pro formas for a business acquisition; iv) earnings per share and v) related parties that, although not material on an individual basis, when considered in the aggregate were deemed to be a material weakness.

· In conjunction with the preparation for the April 30, 2006 consolidated financial statement audit, the final resolution of the allocation of the purchase price of the Colorado Grande Casino to deferred tax assets was not initially completed. Management completed its assessment and the tax asset is properly recorded as of April 30, 2006.
 
Management has enhanced specific internal controls within the financial reporting processes that have mitigated these identified material weaknesses. There were no other changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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 our officers, other executive officers and directors are required to be disclosed pursuant to applicable rules and regulations of the Securities and Exchange Commission will also be posted on 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 2007 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 2007 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 2007 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.
 
-31-

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 2007 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 2007 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 April 29, 2007 and April 30 2006.
Consolidated Statements of Operations for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 2005.
Consolidated Statements of Stockholders’ Equity for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 2005.
Consolidated Statements of Cash Flows for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 2005.
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 29, 2007 and April 30, 2006
Consolidated Statements of Income for fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005
Consolidated Statements of Members' Equity for fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005
Consolidated Statements of Cash Flows for fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005
Notes to Consolidated Financial Statements
 
Consolidated Financial Statements of American Racing and Entertainment, LLC and Subsidiaries
Independent Auditors’ Report
Consolidated Balance Sheet as of December 31, 2006
Consolidated Statement of Operations for the year ended December 31, 2006
Consolidated Statement of Changes in Equity for the year ended December 31, 2006
Consolidated Statement of Cash Flows for the year ended December 31, 2006
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.
 
-32-
 
(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)
3.1A
Amended and Restated Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed previously as Exhibit A to the company's definitive proxy statement filed on Schedule 14A on July 30, 2001)
3.1B
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.
3.1C
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)
3.1.D
Amended and Restated Bylaws of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 3.2 to Form 8-K filed July 27, 2007)
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 (+)
Second Amended and Restated Nevada Gold & Casinos, Inc. 1999 Stock Option Plan (filed previously as Exhibit 4.6 to the company’s Form S-8, file no. 333-126027)
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)
10.9
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.
10.13 (+)
Employment Agreement by and between Nevada Gold & Casinos, Inc., and Jon A. Arnesen, dated as of August 31, 2005 (filed previously as Exhibit 10.13 to the Company's Form 10-Q/A, filed December 16, 2005)
10.14 (+)
Resignation Agreement by and between Nevada Gold & Casinos, Inc., and Christopher C. Domijan, dated as of September 6, 2005 (filed previously as Exhibit 10.14 to the Company's Form 10-Q/A, filed December 16, 2005)
10.15
Amended and Restated Credit Facility dated January 19, 2006 (portions of this exhibit have been omitted 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 10.15 to the Company's Form 8-K, filed January 25, 2006)
10.16 (**)
Form of Guarantee of Credit Facility among Nevada Gold and Casinos, Inc.; each of Black Hawk Gold, LTD, Gold River, LLC, Nevada Gold BVR, LLC, and Nevada Gold NY, Inc., and the Lender signing as a party thereto (portions of this exhibit have been omitted 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 10.16 to Form 10-Q filed March 3, 2006)
10.17 (**)
January 2006 Security Agreement dated January 19, 2006, by and between Nevada Gold & Casinos, Inc. , its wholly-owned subsidiary, Black Hawk Gold, Ltd., and the Lender listed as a party thereto (portions of this exhibit have been omitted 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 10.17 to Form 10-Q filed March 3, 2006)
10.18 (**)
Commercial Pledge Agreement dated January 19, 2006, among Nevada Gold & Casinos, Inc., Black Hawk Gold, LTD, and the Lender listed as a party thereto (portions of this exhibit have been omitted 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 10.18 to Form 10-Q filed March 3, 2006).
10.19 (**)
Commercial Pledge Agreement dated January 19, 2006, among Nevada Gold & Casinos, Inc., Nevada Gold BVR, and the Lender listed as a party thereto (portions of this exhibit have been omitted 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 10.19 to Form 10-Q filed March 3, 2006).
10.20 (**)
Commercial Pledge Agreement dated January 19, 2006 among Nevada Gold & Casinos, Inc., Gold River, LLC, and the Lender listed as a party thereto (portions of this exhibit have been omitted 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 10.20 to Form 10-Q filed March 3, 2006).  

-33-
 
10.21 (**)
Commercial Pledge Agreement dated January 19, 2006, among Nevada Gold & Casinos, Inc., Nevada Gold NY, Inc., and the Lender listed as a party thereto (portions of this exhibit have been omitted 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 10.21 to Form 10-Q filed March 3, 2006).
10.22 (+)
Employment Agreement dated December 7, 2005, by and between Alan J. Greenstein and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.22 to Form 10-Q filed March 3, 2006)
10.23 
Amended and Restated Operating Agreement of American Racing and Entertainment, L.L.C. dated effective as of March 1 2006, by and between Nevada Gold NY, Inc., Track Power, Inc. and Southern Tier Acquisition II LLC (filed previously as Exhibit 10.23 to Form 10-Q filed March 3, 2006).
10.24
Unconditional and Continuing Guaranty Agreement dated May 1, 2006, by Jeffrey Gural and Nevada Gold & Casinos, Inc., to and for the benefit of All Capital, LLC (previously filed as Exhibit 10.24 to Form 8-K filed May 5, 2006).
10.25
Unconditional and Continuing Guaranty Agreement dated May 1, 2006, by Jeffrey Gural and Nevada Gold & Casinos, Inc., to and for the benefit of Vestin Mortgage, Inc. (previously filed as Exhibit 10.25 to Form 8-K filed May 5, 2006).
10.27 (+)
Employment Agreement between Nevada Gold & Casinos, Inc. and Robert B. Sturges dated November 27, 2006 (filed previously as Exhibit 27 to Form 10-Q filed December 15, 2006)
10.28 (+)
Employment Agreement between Nevada Gold & Casinos, Inc and James J. Kohn dated October 24, 2006 (filed previously as Exhibit 10.28 to Form 10-Q filed March 9, 2007)
10.29 (+)
Employment Agreement between Nevada Gold & Casinos, Inc. and Ernest E. East dated December 29, 2006 (filed previously as Exhibit 10.29 to Form 10-Q filed March 9, 2007)
10.30 (+)
Separation Agreement and Release between Nevada Gold & Casinos, Inc. and H. Thomas Winn (filed previously as Exhibit 10.1 to Form 8-K filed July 9, 2007)
10.31
Mutual Release between River Rock Entertainment Authority and Dry Creek Casino, LLC (filed previously as Exhibit 10.1 to Form 8-K filed March 5, 2007)
10.32
Financing Commitment Letter between D.B. Zwirn Special Opportunities Fund, LP and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.1 to Form 8-K filed May 29, 2007)
10.33
Purchase and Sale Agreement among Nevada Gold & Casinos, Inc. Nevada Gold NY, Inc., Southern Tier Acquisition, LLC and Oneida Entertainment LLC (filed previously as Exhibit 10.1 to Form 8-K filed June 21, 2007)
14
Code of Ethics (filed previously as Exhibit 14 to Form 10-K filed July 14, 2004)
99.1
Mortgage Note, dated as of March 30, 2006, between Tioga Downs Racetrack, LLC, and RCG Longview II, L.P. (previously filed as Exhibit 99.1 to Form 8-K filed April 5, 2006)
99.2
Mortgage, dated as of March 30, 2006, between Tioga Downs Racetrack, LLC, and RCG Longview II, L.P. (previously filed as Exhibit 99.2 to Form 8-K filed April 5, 2006)
99.3
Assignment of Income and Revenue, dated as of March 30, 2006, between Tioga Downs Racetrack, LLC, and RCG Longview II, L.P. (previously filed as Exhibit 99.3 to Form 8-K filed April 5, 2006)
99.4
Secured Promissory Note, dated as of May 2, 2006, between Mid-State Raceway, Inc. and Mid-State Development Corporation, and Vestin Mortgage, Inc. (previously filed as Exhibit 99.4 to Form 8-K filed May 5, 2006)
99.5
Secured Promissory Note, dated as of May 1, 2006, between Mid-State Raceway, Inc. and Mid-State Development Corporation, and All Capital, LLC. (previously filed as Exhibit 99.5 to Form 8-K filed May 5, 2006)
99.6
Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated May 1, 2006 between Mid-State Raceway, Inc. and Mid-State Development Corporation, as Mortgagor and Vestin Mortgage, Inc. and All Capital, LLC, as Mortgagees (previously filed as Exhibit 99.6 to Form 8-K filed May 5, 2006)
   
+
Management contract or compensatory plan, or arrangement
*
Filed herewith
**
Portions of these exhibits have been omitted pursuant to a request for confidential treatment.

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

(c)
None.
 
-34-
 
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/ James J. Kohn
 
James J. Kohn
 
Chief Financial Officer
 
 
 
Date: July 30, 2007

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/ JOSEPH A. JULIANO
  
Chairman of the Board of Directors
  
July 30, 2007
Joseph A. Juliano        
         
/s/ PAUL J. BURKETT
  
Director
  
July 30, 2007
Paul J. Burkett        
         
/s/ WILLIAM G. JAYROE
  
Director
  
July 30, 2007
William G. Jayroe        
         
/s/ H. THOMAS WINN
  
Director
  
July 30, 2007
H. Thomas Winn        
         
/s/ FRANCIS M. RICCI
  
Director
  
July 30, 2007
Francis M. Ricci        
         
/s/ WAYNE H. WHITE
  
Director
  
July 30, 2007
Wayne H. White        
         
/s/ JOHN M. GALLAWAY
  
Director
  
July 30, 2007
John M. Gallaway        
         
/s/ ROBERT B. STURGES
  
Director and Chief Executive Officer
  
July 30, 2007
Robert B. Sturges   (principal executive officer)    
         
/s/ JAMES J. KOHN
  
SVP and Chief Financial Officer
  
July 30, 2007
James J. Kohn   (principal financial officer and principal accounting officer)    

 
Index to Consolidated Financial Statements
Consolidated Financial Statements of Nevada Gold & Casinos, Inc.

 
Page
 
  
Report of Independent Registered Public Accounting Firm
37
Consolidated Balance Sheets as of April 29, 2007 and April 30, 2006
39
Consolidated Statements of Operations for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 2005
40
Consolidated Statements of Stockholders’ Equity for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 2005
41
Consolidated Statements of Cash Flows for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 2005
42
Notes to Consolidated Financial Statements
43
 
Consolidated Financial Statements of Isle of Capri Black Hawk, L.L.C.

Report of Independent Registered Public Accounting Firm
69
Consolidated Balance Sheets as of April 29, 2007 and April 30, 2006
70
Consolidated Statements of Income for fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005
71
Consolidated Statements of Members' Equity for fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005
72
Consolidated Statements of Cash Flows for fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005
73
Notes to Consolidated Financial Statements
74
 
Consolidated Financial Statements of American Racing and Entertainment, LLC and Subsidiaries

Independent Auditors’ Report
89
Consolidated Balance Sheet as of December 31, 2006
90
Consolidated Statement of Operations for the year ended December 31, 2006
92
Consolidated Statement of Changes in Equity for the year ended December 31, 2006
93
Consolidated Statement of Cash Flows for the year ended December 31 ,2006
94
Notes to Consolidated Financial Statements
96

 
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 April 29, 2007 and April 30, 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 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 April 29, 2007 and April 30, 2006 and the results of their operations and their cash flows for fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24 day period ended April 24, 2005 in conformity with U.S. generally accepted accounting principles.
 
 As referred to in Note 1, the Company has adopted Staff Accounting Bulletin No. 108 “Considering the Effects of Prior Period Misstatements when Quantifying Misstatements in Current Year Financial Statements” and Statement of Financial Accounting Standards No. 123(R) “Share Based Payment.”

We have also 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 April 29, 2007 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 27, 2007 expressed an unqualified opinion on management’s assessment and on the effectiveness of internal control over financial reporting.
 
/s/ Pannell Kerr Forster of Texas, P.C.
 
Houston, Texas
July 27, 2007
 
-37-
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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 April 29, 2007, 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.

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 April 29, 2007, 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 April 29, 2007, 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 April 29, 2007 and April 30, 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005 and the 24-day period ended April 24, 2005 of the Company and our report dated July 27, 2007 expressed an unqualified opinion thereon.
 
/s/ Pannell Kerr Forster of Texas, P.C.
 
Houston, Texas
July 27, 2007

-38-

Nevada Gold & Casinos, Inc.
Consolidated Balance Sheets
 
   
April 29,
  
April 30,
  
April 24,
  
   
2007
  
2006
  
2005
  
ASSETS      
        
Current assets:
                 
Cash and cash equivalents
  
$
2,803,560
 
$
4,296,154
 
$
2,888,697
  
Restricted cash
    
1,050,000
   
—
       
Accounts receivable
    
397,145
   
1,287,982
   
1,513,870
  
Accounts receivable - affilates
    
124,685
   
152,194
       
Prepaid expenses
    
474,933
   
234,381
       
Notes receivable - development projects, current portion
    
1,357,904
   
—
       
Other current assets
    
55,055
   
194,151
   
436,751
  
Total current assets
    
6,263,282
   
6,164,862
   
4,839,318
 
                     
Investments in unconsolidated affiliates
    
35,201,419
   
35,691,747
   
21,646,041
  
Investments in unconsolidated affiliates held for sale
    
400,489
   
—
       
Investments in development projects
    
323,202
   
6,876,527
   
6,816,697
  
Investments in development projects held for sale
    
3,914,765
   
—
       
Notes receivable - affiliates
    
3,521,066
   
3,637,099
   
2,777,136
  
Notes receivable - development projects, net of current portion
    
18,012,737
   
22,667,272
   
6,973,813
  
Goodwill
    
5,462,918
   
5,462,918
   
—
  
Property and equipment, net of accumulated depreciation
                    
of $1,281,191 and $622,876 at April 29, 2007 and April
                    
30, 2006, respectively
    
2,063,026
   
2,580,093
   
108,797
  
Deferred tax asset
    
—
   
1,460,722
   
566,468
  
Other assets
    
4,868,442
   
3,601,850
   
559,364
  
Total assets
  
$
80,031,346
 
$
88,143,090
 
$
44,287,634
 
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY         
                    
Current liabilities:
                    
Accounts payable and accrued liabilities
  
$
1,540,781
  
$
1,550,405
  
$
1,019,594
  
Accrued interest payable
    
21,211
   
41,737
    
84,830
  
Other accrued liabilities
    
378,937
   
358,159
    
—
  
Guaranty liabilities
    
4,610,000
   
—
       
Long-term debt, current portion
    
2,066,518
    
3,779,345
    
6,589,999
  
Total current liabilities
    
8,617,447
    
5,729,646
    
7,694,423
  
                     
Long-term debt, net of current portion and discount
    
55,021,031
    
56,687,315
    
6,366,428
  
Deferred income
    
8,591
    
406,632
    
200,565
  
Other liabilities
    
742,991
    
157,633
    
—
  
Total liabilities
    
64,390,060
    
62,981,226
    
14,261,416
  
                     
Commitments and contingencies
    
—
    
—
    
—
  
                     
Minority interest
    
—
    
278,674
    
406,304
  
                     
Stockholders' equity:
                    
Common stock, $0.12 par value per share; 25,000,000
                    
shares authorized; 13,935,330 and 13,912,330 shares
                    
issued and 12,939,130 and 12,970,330 shares outstanding
                    
at April 29, 2007 and April 30, 2006, respectively
    
1,672,240
    
1,669,479
    
1,530,624
  
Additional paid-in capital
    
18,484,448
    
18,122,632
    
14,817,101
  
Retained earnings
    
5,694,088
    
14,873,589
    
14,501,728
  
Treasury stock, 996,200 and 942,000 shares at April 29, 2007 and April 30, 2006, respectively, at cost
    
(10,216,950
)
  
(9,781,669
)
  
—
 
Accumulated other comprehensive income (loss)
    
7,460
   
(841
)
  
83,749
  
Total stockholders' equity
    
15,641,286
    
24,883,190
    
30,933,202
  
Total liabilities and stockholders' equity
  
$
80,031,346
  
$
88,143,090
  
$
45,600,922
  
                   
                   
The accompanying notes are an integral part of these consolidated financial statements.

-39-
 
Nevada Gold & Casinos, Inc.
Consolidated Statements of Operations
 
   
Fiscal Year Ended
  
24 Days Ended
  
   
 April 29,
  
April 30,
  
March 31,
  
April 24,
  
   
2007
  
2006
  
2005
  
2005
  
Revenues:
                      
Casino
  
$
6,253,491
 
$
5,653,340
 
$
-
 
$
-
 
Food and beverage
    
1,295,157
   
1,471,816
   
-
   
-
 
Other
    
153,305
    
126,078
    
67,610
    
4,507
  
Credit enhancement fee
    
5,920,125
    
7,348,651
    
5,660,909
    
702,305
  
Gross revenues
    
13,622,078
    
14,599,885
    
5,728,519
    
706,812
  
Less promotional allowances
    
(1,294,458
)
  
(1,450,664
)
  
-
   
-
 
Net revenues
    
12,327,620
    
13,149,221
    
5,728,519
    
706,812
  
                           
Operating expenses:
                          
Casino
    
1,655,837
   
2,566,306
   
-
   
-
 
Food and beverage
    
721,360
   
863,703
   
-
   
-
 
Marketing and administrative
    
3,094,554
   
1,935,257
   
-
   
-
 
Facility
    
323,906
   
276,304
   
-
   
-
 
Corporate expense
    
7,203,198
   
5,778,507
   
4,223,019
   
302,086
 
Legal expenses
    
1,489,967
   
1,668,311
   
609,278
   
106,896
 
Depreciation and amortization
    
918,609
   
1,018,699
   
169,135
   
18,509
 
Write-off of notes receivable related to Native American gaming projects and other notes receivable
    
3,235,297
   
1,574,452
   
120,000
   
-
 
Impairment of equity investment
    
125,000
   
-
   
-
   
-
 
Write-off of project development cost
    
495,982
   
286,653
   
180,850
   
-
 
Other
    
85,296
   
126,266
   
63,344
   
345
 
Total operating expenses
    
19,349,006
   
16,094,458
   
5,365,626
   
427,836
 
Operating income (loss)
    
(7,021,386
)
  
(2,945,237
)
  
362,893
   
278,976
 
Non-operating income (expenses):
                          
Earnings (loss) from unconsolidated affiliates
    
(3,405,539
)
  
6,917,818
   
7,648,802
   
-
 
Gain on sale of marketable securities and assets
    
42,226
   
167,948
   
34,672
   
-
 
Gain on termination of development contract
    
245,499
   
-
   
-
   
-
 
Gain on termination of development and loan agreement
    
10,801,076
   
-
   
-
   
-
 
Interest income (expense), net
    
(3,553,052
)
  
(2,248,550
)
  
(367,460
)
  
(38,733
)
Minority interest
    
(4,301,050
)
  
(1,308,867
)
  
(837,849
)
  
(106,420
)
Income (loss) before income tax expense
    
(7,192,226
)
  
583,112
   
6,841,058
   
133,823
 
Income tax expense
                          
Current
    
170,347
   
-
   
-
   
-
 
Deferred and change in valuation allowance
    
1,592,827
   
211,251
   
2,682,794
   
51,814
 
Total income tax expense
    
1,763,174
   
211,251
   
2,682,794
   
51,814
 
Net income (loss)
  
$
(8,955,400
)
$
371,861
 
$
4,158,264
 
$
82,009
 
                           
Per share information:
                          
Net income (loss) per common share - basic
  
$
(0.69
)
$
0.03
 
$
0.33
 
$
0.01
 
Net income (loss) per common share - diluted
  
$
(0.69
)
$
0.03
 
$
0.29
 
$
0.01
 
                           
Basic weighted average number of shares outstanding
    
12,937,222
    
12,975,697
    
12,788,269
   
12,755,203
 
Diluted weighted average number of shares outstanding
    
12,937,222
    
13,243,750
    
14,672,777
   
14,247,762
 
                           
                           
The accompanying notes are an integral part of these consolidated financial statements.

 
Nevada Gold & Casinos, Inc.
Consolidated Statements of Stockholders' Equity
 
                             
Accumulated
              
                 
Additional
          
Other
          
Total
  
     
Common Stock
    
Paid-in
    
Retained
    
Comprehensive
    
Treasury
    
Stockholders'
  
     
Shares
    
Amount
    
Capital
    
Earnings
    
Income (loss)
    
Stock
    
Equity
  
Balance at March 31, 2004
    
12,279,352
 
$
1,473,522
 
$
19,256,200
 
$
10,261,455
 
$
(191,857
)
$
—
  
$
30,799,320
 
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
 
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
   
—
 
Exercise of stock options
    
780,751
   
93,690
   
2,504,772
   
—
   
—
   
—
   
2,598,462
 
Exercise of stock options on cashless basis
    
801,917
   
96,230
   
(96,230
)
  
—
   
—
   
—
   
—
 
Options issued for consulting expenses
    
—
   
—
   
201,402
   
—
   
—
   
—
   
201,402
 
Tax benefit associated with option and warrant exercises
    
—
   
—
   
5,972,094
   
—
   
—
   
—
   
5,972,094
 
Balance at March 31, 2005
    
12,755,203
   
1,530,624
   
14,817,101
   
14,419,719
   
83,749
   
—
    
30,851,193
 
Comprehensive income:
                                            
Net income
    
—
   
—
   
—
   
82,009
   
—
   
—
   
82,009
 
Other comprehensive income on interest rate swap, net of tax
    
—
   
—
   
—
   
—
   
—
   
—
   
—
 
Comprehensive income
    
—
   
—
   
—
   
—
   
—
   
—
   
82,009
 
Balance at April 24, 2005
    
12,755,203
    
1,530,624
    
14,817,101
    
14,501,728
    
83,749
    
—
    
30,933,202
  
Comprehensive income:
                                            
Net income
    
—
   
—
   
—
   
371,861
   
—
   
—
   
371,861
 
Other comprehensive income on interest rate swap, net of tax benefit
    
—
   
—
   
—
   
—
   
(83,749
)
  
—
   
(83,749
)
Unrealized loss on securities available for sale, net of tax benefit
    
—
   
—
   
—
   
—
   
(841
)
  
—
   
(841
)
Comprehensive income
    
—
   
—
   
—
   
—
   
—
   
—
   
287,271
 
Purchase of treasury stock (942,000 shares),  at cost
    
—
   
—
   
—
   
—
   
—
   
(9,781,669
)
  
(9,781,669
)
Stock issued for debt conversion, net of issuing cost
    
1,106,488
   
132,779
   
3,087,160
   
—
   
—
   
—
   
3,219,939
 
Exercise of stock options
    
22,500
   
2,700
   
59,000
   
—
   
—
   
—
   
61,700
 
Exercise of stock options on cashless basis
    
28,139
   
3,376
   
(3,376
)
  
—
   
—
   
—
   
—
 
Tax benefit associated with option and warrant exercises
    
—
   
—
   
162,747
   
—
   
—
   
—
   
162,747
 
Balance at April 30, 2006
    
13,912,330
   
1,669,479
   
18,122,632
   
14,873,589
   
(841
)
  
(9,781,669
)
  
24,883,190
 
                                             
Comprehensive loss:
                                            
Net loss
    
—
   
—
   
—
   
(8,955,400
)
  
—
   
—
   
(8,955,400
)
Adjustment for sale of securities
    
—
   
—
   
—
   
—
   
841
   
—
   
841
 
Unrealized gain on securities available for sale, net of tax benefit
    
—
   
—
   
—
   
—
   
7,460
   
—
   
7,460
 
Comprehensive loss
                                        
(8,947,099
)
Adoption of accounting pronouncement, net of taxes
    
—
   
—
   
—
   
(224,101
)
  
—
   
—
   
(224,101
)
Purchase of treasury stock (54,200 shares), at cost
    
—
   
—
   
—
   
—
   
—
   
(435,281
)
  
(435,281
)
Restricted stock issued to consultant
    
15,000
   
1,800
   
95,950
   
—
   
—
   
—
   
97,750
 
Exercise of stock options
    
8,000
   
961
   
21,040
   
—
   
—
   
—
   
22,001
 
Stock based compensation
    
—
   
—
   
241,189
   
—
   
—
   
—
   
241,189
 
Tax benefit associated with option exercises
    
—
   
—
   
3,637
   
—
   
—
   
—
   
3,637
 
Balance at April 29, 2007
  
$
13,935,330
 
$
1,672,240
 
$
18,484,448
 
$
5,694,088
 
$
7,460
 
$
(10,216,950
)
$
15,641,286
 
                                             
                                             
The accompanying notes are an integral part of these consolidated financial statements.
 
-41-
 
Nevada Gold & Casinos, Inc.
Consolidated Statements of Cash Flows
 
   
Fiscal Year Ended
  
24 days Ended
  
   
April 29,
  
April 30,
  
March 31,
  
April 24,
  
   
2007
  
2006
  
 2005
  
2005
  
Cash flows from operating activities:
                      
Net income (loss)
  
$
(8,955,400
)
$
371,861
 
$
4,158,264
 
$
82,009
 
Adjustments to reconcile net income (loss) to net cash
                          
provided by (used in) operating activities:
                          
Depreciation
    
773,375
   
548,644
   
41,969
   
3,842
 
Amortization of capitalized development costs
    
145,234
   
470,055
   
127,166
   
14,667
 
Write-off of notes receivable
   
2,912,614
   
1,574,452
   
120,000
   
—
 
Write-off of project development costs
    
495,982
   
286,653
   
180,850
   
—
 
Impairment of equity investment
    
125,000
   
—
   
—
   
—
 
Amortization of deferred income
    
—
   
—
   
(145,833
)
  
—
 
Warrants and options issued, beneficial conversion and
                         
amortization of deferred loan issuance costs
    
601,980
   
394,854
   
677,452
   
15,399
 
Gain on sale of marketable securities and assets
    
(42,226
)
  
(167,948
)
  
(34,672
)
  
—
 
Gain on termination of development contracts
    
(11,046,575
)
  
—
   
—
   
—
 
Shared-based payments
    
338,939
   
—
   
—
   
—
 
Minority interest
    
4,301,050
   
1,308,867
   
837,849
   
106,420
 
Distributions from unconsolidated affiliates
    
2,215,000
   
2,914,000
   
4,344,000
   
—
 
(Earnings) loss from unconsolidated affiliates
    
3,405,539
   
(6,917,818
)
  
(7,648,802
)
  
—
 
Deferred income tax expense
    
1,594,559
   
211,251
   
2,682,794
   
51,814
 
Income tax refund
    
—
   
113,288
   
2,396,712
   
—
 
Changes in operating assets and liabilities:
                          
Receivables and other assets
    
(1,026,090
)
  
(1,975,867
)
  
(934,324
)
  
(865,454
)
Accounts payable and accrued liabilities
    
177,944
   
1,211,543
   
23,925
   
75,824
 
Net cash provided by (used in) operating activities
    
(3,983,075
)
  
343,835
   
6,827,350
   
(515,479
)
Cash flows from investing activities:
                          
Purchases of real estate and assets held for development
    
(566,122
)
  
(664,430
)
  
(1,442,283
)
  
(28,439
)
Equity investment in unconsolidated affiliates
    
—
   
(10,189,800
)
  
—
   
—
 
Purchase of property and equipment
    
(314,514
)
  
(2,790,905
)
  
(71,765
)
  
(2,090
)
Purchase of marketable securities
    
—
   
(813,199
)
  
(37,635
)
  
—
 
Net proceeds from sale of fixed assets
    
53,050
   
—
   
—
   
—
 
Net proceeds from sale of marketable securities and assets
    
180,132
   
839,679
   
72,307
   
—
 
Net proceeds from termination of development contracts
    
13,550,000
   
—
   
—
   
—
 
Acquisition of Colorado Grande
    
—
   
(638,705
)
  
—
   
—
 
Advances on notes receivable
   
(116,722
)
  
(18,339,303
)
  
(6,100,710
)
  
(421,490
)
Collections of notes receivable
   
500,739
   
941,392
   
10,000,000
   
10,000
 
Advances on notes receivable - affiliates
    
(1,600,000
)
  
(23,975
)
  
(137,550
)
  
—
 
Collections of notes receivable - affiliates
    
316,033
   
364,012
   
1,200,000
   
—
 
Investment in restricted cash
    
(1,050,000
)
  
—
   
—
   
—
 
Net cash provided by (used in) investing activities
    
10,952,596
   
(31,315,234
)
  
3,482,364
   
(442,019
)
Cash flows from financing activities:
                          
Repayment on term loans
    
(6,379,111
)
  
(2,744,216
)
  
(3,272,500
)
  
—
 
Borrowing (repayment) on credit facilities, net
    
3,000,000
   
47,584,328
   
(1,500,000
)
  
—
 
Deferred loan issuance costs
    
(90,000
)
  
(1,205,265
)
  
(417,472
)
  
—
 
Acquisition of common stock
    
(435,281
)
  
(9,781,669
)
  
(6,608,955
)
  
—
 
Cash proceeds from exercise of stock options and warrants
    
22,001
   
61,700
   
2,598,462
   
—
 
Issuing cost related to debt conversion to equity
    
—
   
(99,525
)
  
—
   
—
 
Cash distribution to minority interest owners
    
(4,579,724
)
  
(1,436,497
)
  
(791,685
)
  
—
 
Net cash provided by (used in) financing activities
    
(8,462,115
)
  
32,378,856
   
(9,992,150
)
  
—
 
                           
Net increase (decrease) in cash and cash equivalents
    
(1,492,594
)
  
1,407,457
   
317,564
   
(957,498
)
Cash and cash equivalents at beginning of period
    
4,296,154
   
2,888,697
   
3,528,631
   
3,846,195
 
Cash and cash equivalents at end of period
  
$
2,803,560
 
$
4,296,154
 
$
3,846,195
 
$
2,888,697
 
                           
Supplemental cash flow information:
                          
Cash paid for interest
  
$
5,217,576
 
$
3,908,321
 
$
1,552,283
 
$
—
 
Income tax payments
  
$
170,346
 
$
—
 
$
—
 
$
—
 
                           
Non-cash financing activities:
                          
Note payable issued for the purchase of Colorado Grande Casino
  
$
—
 
$
5,900,000
 
$
—
 
$
—
 
Debt conversion to equity
  
$
—
 
$
3,317,499
 
$
—
 
$
—
 
Treasury stock purchased by the issuance of a note payable
  
$
—
 
$
—
 
$
6,545,000
 
$
—
 
Retirement of treasury stock
  
$
—
 
$
—
 
$
13,153,955
 
$
—
 
Note receivable converted into equity investment in American Racing
  
$
1,400,000
 
$
—
 
$
—
 
$
—
 
Record fair value of guaranty liabilities
  
$
4,610,000
 
$
—
 
$
—
 
$
—
 
Advance from revolving credit facility for repayment of convertible note
  
$
—
 
$
—
 
$
7,915,671
 
$
—
 
                           
                           
The accompanying notes are an integral part of these consolidated financial statements.

-42-
 
Nevada Gold & Casinos, Inc.
Notes to Consolidated Financial Statements

Note 1. Background and Basis of Presentation

Background

Nevada Gold & Casinos, Inc. (the “Company”), a Nevada corporation, was formed in 1977 and since 1994, has primarily been a gaming company involved in both commercial gaming projects and 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 and New York. Our business strategy will continue to focus on gaming projects.

Basis of Presentation  

Our consolidated financial statements include the accounts of all majority-owned and controlled subsidiaries after the elimination of all significant intercompany accounts and transactions. Additionally, our financial statements for prior periods include reclassifications that were made to conform to the current year presentation. Those reclassifications did not impact working capital, total assets, total liabilities, our reported net income or stockholders’ equity.
 
Adoption of New Accounting Pronouncement

During fiscal year 2007, the Isle of Capri Black Hawk, L.L.C. (“ICBH”) determined that it had not been appropriately accounting for escalating rent payments as it relates to one of its land leases. As a result, the rent expense and corresponding liability balance was understated by cumulative $727,000 through fiscal 2006. The error was immaterial to prior period financial statements. As a result, ICBH elected to apply the provisions of Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”), and correct this error through a cumulative effect adjustment to members’ equity as of May 1, 2006. The adjustment to correct the error on the books of ICBH increased other long-term obligations by $727,000, increased deferred tax assets by $276,000 and decreased members’ equity by $451,000.

Management of ICBH also determined that the Company had erroneously claimed $529,000 of deductions on its fiscal 2003 and 2004 Federal and Colorado consolidated income tax returns. The correction of this error results in a reduction of the Company’s net operating loss deferred tax asset of $200,000 with an offsetting increase in deferred tax expense. It was also determined that as of the end of fiscal 2006, the ICBH deferred tax asset and liability balances had been calculated using erroneous tax rates. ICBH corrected this error resulting in a reduction of their net deferred tax asset by $173,000 with an offsetting increase in deferred tax expense. The cumulative effect on ICBH’s members’ equity through the end of fiscal 2006 as it relates to tax accounting was $373,000.

The Company has accounted for its 43% impact of these adjustments by recording an adjustment of $354,300, $224,101 net of taxes, to our investment in the ICBH as of April 29, 2007 and as a corresponding adjustment within the statement of stockholders’ equity as a reduction of opening retained earnings for the year ended April 29, 2007 as permitted by SAB No. 108 (See Note 5).

In addition, the Company has adopted Financial Accounting Standards Board No. 123(R) “Share Based Payment” (see Notes 3 and 10).

Note 2.  Change in Fiscal Year

On June 6, 2005, we changed our fiscal year to end on the last Sunday in April rather than March 31. This fiscal year creates more comparability of our quarterly operations, by generally having an equal number of weeks (13) and weekend days (26) in each fiscal quarter. Periodically, this system necessitates a 53-week year. Fiscal year 2006 was a 53-week year which commenced on April 25, 2005 and ended on April 30, 2006. We believe that the twelve months ended March 31, 2005 provides a meaningful comparison to the twelve months ended April 29, 2007 and April 30, 2006. References in this discussion to fiscal 2007 and 2006 represent the twelve

-43-

months ended April 29, 2007 and April 30, 2006, respectively. References to fiscal 2005 represents the twelve months ended March 31, 2005.

Note 3. Summary of Significant Accounting Policies 

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 Note 5 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, American Racing, RCI, Buena Vista Development, 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 one month in arrears for RCI and American Racing (which have a calendar fiscal year), and one month in arrears for Buena Vista Development and Sunrise (which have a fiscal year end of March 31). 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 utilized the equity method of accounting for our 51% interest in Route 66 Casinos because the operating activities of the joint venture were controlled by the minority venturer. As disclosed in Note 18 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 was appropriate and concluded that the equity method best reflected 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 were able to reasonably estimate the revenues and expenses of the venture through our second quarter of fiscal year 2006 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.

Through the second fiscal quarter of 2006, we estimated our share of operational activities of Route 66 Casinos and recorded such amounts using the equity method of accounting (See “Equity Method of Accounting”) because we did not receive revenue and expense information from the venture as a consequence of ongoing litigation (See Note 18 to our Consolidated Financial Statements). Effective October 1, 2005, we discontinued the recording of any estimated earnings due to the sale and the termination of the equipment leases. The estimated revenues recorded prior to October 1, 2005 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 and the ultimate conclusion of the litigation may vary materially and adversely from our estimates.

Cash and Cash Equivalents 

We consider short-term investments with an original maturity of less than three months to be cash equivalents.

-44-

We maintain cash accounts in major U.S. financial institutions. The terms of these deposits are on demand to minimize risk. The balances of these accounts occasionally exceed the federally insured limits, although no losses have been incurred in connection with such cash balances.
     
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 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 6 to our Consolidated Financial Statements.

We review on a quarterly basis each of our notes receivable to evaluate whether the collection of such 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 no longer economically feasible then the note receivable would be written down to its estimated fair value.

Capitalized Development Cost

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.

Mining Properties and Claims

We capitalize costs of acquiring and developing mineral claims until the properties are placed into production. These costs include the costs to acquire and improve the claims, including land-related improvements, such as roads. We carry these costs on our books at the lower of our basis in the claims, or the net realizable value of the mineral reserves contained in the claims. Mining properties are recorded at their acquisition price. Upon commencement of production, costs are amortized on a units-of-production basis.

Real Estate Held for Development

Real estate held for development consists of undeveloped land located in and around Black Hawk, Colorado, and Nevada County, California and related development costs and capitalized interest. Property held for development is carried at the lower of cost or net realizable value.

Property and Equipment

Expenditures for furniture, fixtures, and equipment are capitalized at cost. We depreciate furniture, fixtures, and equipment over their respective estimated useful lives, ranging from two to seven years, using the straight-line method. When items are retired or otherwise disposed of, a gain or loss is recorded for the difference between net book value and proceeds realized. Ordinary maintenance and repairs are charged to earnings, and replacements and betterments are capitalized.

-45-

Property and equipment at April 29, 2007 and April 30, 2006 consist of the following:
  
             
Estimated
  
             
Service Life
  
   
2007
  
2006
  
in Years
  
Leasehold improvements
  
$
499,557
 
$
476,119
   
7-25
  
Gaming equipment
    
1,752,225
   
1,668,380
   
3-5
  
Furniture and office equipment
    
1,050,435
   
949,830
   
3-7
  
Capital projects in process
    
-
   
66,640
       
Land
    
42,000
   
42,000
       
     
3,344,217
   
3,202,969
       
Less accumulated depreciation
    
(1,281,191
)
  
(622,876
)
      
Property and equipment, net
  
$
2,063,026
 
$
2,580,093
       
                   
Deferred Loan Issuance Costs

Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized over the expected terms of the related debt agreements and are included in other assets on our consolidated balance sheets.

Goodwill and Other Intangible Assets

In connection with our acquisition of the Colorado Grande Casino, at April 29, 2007, we have goodwill with an indefinite useful life of $5.5 million, representing 6.8% of total assets. Statement of Financial Accounting Standards ("SFAS") No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), requires that goodwill and intangible assets with indefinite useful lives be tested for impairment annually, or more frequently if an event occurs or circumstances change that may reduce the fair value of our goodwill below its carrying value. We completed an impairment test as required under SFAS No. 142 in the fourth quarter of fiscal year 2007 and determined that the goodwill was not impaired. For properties with goodwill with indefinite lives, this test requires the comparison of the implied fair value of each property to its carrying value. The implied fair value includes estimates of future cash flows that are based on reasonable and supportable assumptions and represent our best estimates of the cash flows expected to result from the use of the assets and their eventual disposition. Changes in estimates or application of alternative assumptions and definitions could produce significantly different results.

Slot Club Awards

We reward our slot customers for their loyalty based on the dollar amount of play on slot machines. We accrue for these slot club awards based on an estimate of the value of the outstanding awards utilizing the age and prior history of redemptions. Future events such as a change in our marketing strategy or new competition could result in a change in the value of the awards.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense related primarily to our casino operations and for the years ended April 29, 2007 and April 30, 2006 was approximately $375,000 and $233,000, respectively.

Marketable Securities Available for Sale

Marketable securities consist of shares of publicly traded securities held by us. The marketable securities available for sale are primarily equity securities which we buy with the intention of holding as a long-term investment. These securities are carried at fair value with changes in fair value recorded in other comprehensive income in the stockholders’ equity section of our consolidated balance sheet. As of April 29, 2007 we had marketable equity securities available for sale at fair market value of $15,000. Unrealized gain (loss) of $7,460 and $(841) was recorded in the stockholders’ equity section for the years ended April 29, 2007 and April 30, 2006, respectively. In addition, in fiscal years 2007 and 2006, respectively, we realized $47,382 and $167,948 of gains on sales of equity securities classified as marketable securities available for sale.

Asset and Investment Impairments

We apply the provisions of 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

-46-

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. As a result, we reduced our carrying value of our equity investments as of April 29, 2007 by $125,000.

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 depending upon the term of the contracts or note receivable agreements. Interest income related to notes receivable is recorded when earned and its collectibility is reasonably certain. 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.

The retail value of food and beverage and other services furnished to guests without charge is included in gross revenue and deducted as promotional allowances. Net revenues do not include the retail amount of food, beverage and other items provided gratuitously to customers. The Company records the redemption of coupons and points for cash as a reduction of revenue. These amounts are included in promotional allowances in the accompanying consolidated statements of operations. The estimated cost of providing such complimentary services that is included in casino expense in the accompanying consolidated statements of operations was as follows:
 
   
Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
Food and beverage
  
$
609,938
  
$
923,841
  
Other
    
16,479
    
22,012
  
Total cost of complimentary services
  
$
626,417
  
$
945,853
  
 
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. As a result of this policy, in fiscal year 2007 we recorded a $4.5 million deferred tax asset valuation allowance which equaled our deferred tax asset balance as of April 29, 2007. 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.

We maintain a tax accrual policy to record both regular and alternative minimum taxes for companies included in our consolidated federal and state income tax returns. The policy provides, among other things, that (i) each company in a taxable income position will accrue a current expense equivalent to its federal and state income taxes, and (ii) each company in a tax loss position will accrue a benefit to the extent its deductions, including general business credits, can be utilized in the consolidated returns. We pay all consolidated U.S. federal and state income taxes directly to the appropriate taxing jurisdictions and, under a separate tax billing agreement, we may bill or refund our subsidiaries for their portion of these income tax payments.

Fair value of financial instruments

The recorded amounts of cash, accounts receivable, notes receivable, accounts payable, accrued liabilities, notes payable and debt, as presented in the financial statements, approximate fair value because of the short-term maturity of these instruments.

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Guarantees

Guarantees are accounted for in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. (“FIN”) 45,“Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 establishes disclosure and liability-recognition requirements for direct and indirect debt guarantees with specified characteristics.

Comprehensive income

We follow the provisions of SFAS No. 130, “Reporting Comprehensive Income.” SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components. SFAS No. 130 requires that all items that are required to be recognized as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In accordance with the provisions of SFAS No. 130, we have presented the components of comprehensive income below net income on the face of the consolidated statements of stockholders’ equity.

Stock-Based Compensation 

Effective May 1, 2006, the Company adopted FASB Statement No. 123(R), “Share-based Payment” (“SFAS No. 123(R)”). Prior to the adoption of SFAS No. 123(R), the Company utilized the intrinsic value method under APB Opinion No. 25, “Accounting for Stock Issued to Employee.” As permitted by SFAS No. 123(R), the Company has adopted the requirements of No. 123(R) using the modified prospective method. In accordance with the modified prospective method of adoption, the financial statement amounts for periods prior to May 1, 2006 have not been restated to reflect the fair value method of recognizing compensation cost.

Earnings Per Share

Earnings per share are accounted for in accordance with the provisions of SFAS No. 128, “Earnings Per Share,” which requires the presentation of basic and diluted earnings per share on the consolidated statement of operations. Basic earnings per common share amounts are calculated using the weighted average number of common shares outstanding during each period. Diluted earnings per share assumes the exercise of all stock options having exercise prices less than the average market price of the common stock using the “treasury stock method” and for convertible debt securities using the “if converted method” (See Note 11).

Accrued Litigation Liability

We assess our exposure to loss contingencies including legal matters. If the potential loss is justified to be probable and estimable, we will provide for the exposure. If the actual loss from a contingency differs from management’s estimate, operating results could be impacted. As of April 29, 2007, we did not record any accrued litigation liability. 

New Accounting Pronouncements Issued But Not Yet Adopted

As of April 29, 2007, there were several accounting standards and interpretations that had not yet been adopted by us. Below is a discussion of significant standards that may impact us.

Accounting for Uncertainty in Income Taxes
 
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement 109 ("FIN 48"), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. FIN 48 provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is “more-likely-than-not” of being sustained if the position were to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the “more-likely-than-not” threshold, the largest amount of tax benefit that is greater than 50 percent likely of being recognized upon ultimate settlement with the taxing authority, is recorded. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.
 
Fair Value Measurements 
 
In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. However, for some entities,

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the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 (the Company’s fiscal 2009), and interim periods within those years. The Company will assess the effect of this pronouncement on its financial statements, but at this time, no material effect is expected.

Fair Value Option for Financial Assets and Liabilities

 In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 (the Company’s fiscal 2009). The Company will assess the effect of this pronouncement on its financial statements, but at this time, no material effect is expected.

Note 4. Restricted Cash

At April 29, 2007, we held a $1,050,000 Certificate of Deposit as a pledge to secure a $1 million operating line of credit for American Racing and Entertainment, LLC. The Certificate of Deposit matures on July 12, 2007 at which date the principal and interest will be returned to us in accordance with the Purchase and Sale Agreement between us and the buyers of our interest in American Racing (See Note 20).

Note 5. Investments in Unconsolidated Affiliates and Investments in Development Projects

We hold investments in various unconsolidated affiliates which are accounted for using the equity method of accounting. 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 April 29, 2007, the amount of consolidated retained earnings which represents undistributed earnings from our unconsolidated affiliates is approximately $25 million. Our net ownership interest, investments in and earnings (losses) from our unconsolidated affiliates are as follows:
 
                             
Earnings (Loss)
  
     
Net Ownership Interest
    
Investment
    
Fiscal Year Ended
  
Unconsolidated affiliates:
    
April 29, 2007
    
April 30, 2006
    
April 29, 2007
    
April 30, 2006
    
April 29, 2007
    
April 30, 2006
    
March 31, 2005
  
     
(Percent)
                                
Isle of Capri - Black Hawk, L.L.C. (1)
    
43
    
43
  
$
22,306,025
  
$
21,146,365
  
$
3,728,960
 
$
6,517,318
 
$
5,888,031
 
Route 66 Casinos, L.L.C. (2)
    
51
    
51
    
4,509,183
    
4,509,183
    
—
    
874,707
   
1,811,914
 
American Racing and Entertainment,
                                            
L.L.C. (1) (3)
    
23
    
40
    
8,215,042
    
9,480,506
   
(7,275,464
)
  
(519,494
)
  
—
 
Buena Vista Development Company,
                                            
L.L.C. (4)
    
35
    
25
    
171,169
    
176,753
   
(5,584
)
  
(13,047
)
  
—
 
Sunrise Land and Mineral Corporation(5)
    
50
    
50
    
400,489
    
378,940
    
146,549
   
58,334
   
(51,143
)
Restaurant Connections International,
                                           
Inc. (6)
    
34
    
34
    
—
    
—
    
—
   
—
   
—
 
Total investments in unconsolidated affiliates
              
$
35,601,908
 
$
35,691,747
                    
                                                       
Total earnings (loss) from unconsolidated affiliates
                          
$
(3,405,539
)
$
6,917,818
 
$
7,648,802
 
                                             
(1)
Separate financial statements for this entity are included herein.
(2)
Equity method of accounting is utilized despite our ownership interest being greater than 50%. Effective with Route 66 Casinos’ calendar quarter ended September 30, 2005, we discontinued the recording of any estimated earnings due to the sale and the termination of the equipment leases.
(3)
Represents our equity investment in a racing and gaming development project. On June 14, 2007, we sold our membership to two of our partners.
(4)
This is an investment in a gaming development project. At May 5, 2007, our ownership interest increased to 40%.
(5)
Represents our equity investment in a real estate investment and development project. This asset is held of sale and has been presented accordingly on the balance sheet as of April 29, 2007.
(6)
Investment in RCI was reduced to zero in fiscal year 2000. This asset is held for sale as of April 29, 2007.

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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:
 
   
Net Ownership Interest
  
Capitalized Development Costs
  
Development Projects:
  
April 29, 2007
  
April 30, 2006
  
April 29, 2007
  
April 30, 2006
  
   
(Percent)
          
                 
Dry Creek Casino, L.L.C. (1)
    
69
    
69
  
$
-
  
$
682,632
  
Gold Mountain Development, L.L.C. (2)
    
100
    
100
    
3,433,953
    
3,367,098
 
Goldfield Resources, Inc. (3)
    
100
    
100
    
480,812
    
480,812
 
Nevada Gold (Tulsa), Inc. (4)
    
100
    
100
    
-
    
1,783,295
 
Other (5)
                
323,202
    
562,690
 
Total investments– development projects
              
$
4,237,967
  
$
6,876,527
  
                           
(1)
Capitalized development costs of the River Rock Casino project. In March 2007, Dry Creek Casino, L.L.C. (“DCC”) agreed to a cash buyout of the credit enhancement fee agreement. As a result of this transaction, DCC ended its relationship with the River Rock Entertainment Authority.
(2)
Acquisition and development costs incurred for 260 acres of real property in the vicinity of Black Hawk, Colorado. See discussion below.
(3)
Acquisition cost incurred for 9,000 acres of mining claims in fiscal year 1999.
(4)
Development cost incurred for Muscogee (Creek) Nation gaming project. On December 8, 2006 we received a $2.2 million payment for fees due under our development agreement with the Muscogee Nation - Tulsa. This payment was in excess of our capitalized development costs of $1.9 million. As a result of this transaction, we mutually and amicably agreed to end our relationship with the Muscogee Nation - Tulsa.
(5)
Development cost incurred for other development projects.

Investments in Unconsolidated Affiliates

Isle of Capri - Black Hawk, L.L.C.

We are a 43% non-operating owner of Isle of Capri-Black Hawk, L.L.C. (“IC-BH”). Isle of Capri Casinos, Inc. (“Isle”) is the 57% operating owner. We use the equity method of accounting to account for our investment in IC-BH. Our investment is stated at cost, adjusted for our equity in the undistributed earnings or losses of the project and for distributions we receive. Our earnings from IC-BH totaled $3,728,960, $6,517,318 and $5,888,031 for fiscal years 2007, 2006 and 2005, respectively. In the fourth quarter of fiscal year 2007, IC-BH restated the opening balance of retained earnings which impacted our investment in IC-BH by $354,300 (see Note 1). In the third quarter of fiscal year 2006, IC-BH recorded a $2,109,927 loss on extinguishment of debt. Our share of the loss was $907,269. During fiscal years 2007, 2006 and 2005, we received tax distributions of $2,215,000, $2,914,000 and $4,344,000, respectively. Our investment in IC-BH was $22,306,025 and $21,146,365 as of April 29, 2007 and April 30, 2006, respectively. Our share of equity of IC-BH is approximately $27.8 million which is approximately $5.5 million in excess of our cost reflected on our Consolidated Financial Statements. This excess is caused by the basis difference in the land we contributed to this joint venture when it was originally formed.

As of April 29, 2007, IC-BH owned and operated two casinos in the state of Colorado. Isle operates the casinos pursuant to a management agreement with IC-BH for a management fee based upon a percentage of the revenues and operating profits of the casinos. As of April 29, 2007, IC-BH's casino properties are:

Isle of Capri-Black Hawk and Colorado Central Station

The Isle of Capri - Black Hawk Casino commenced operations in December 1998 and Colorado Central Station was acquired from International Game Technology, Inc. in fiscal year 2004. On October 24, 2005, IC-BH entered into a $240 million Second Amended and Restated Credit Agreement. The credit agreement, which amended and restated the previous credit agreement in its entirety, provides for a $50 million revolving credit facility maturing the earlier of October 24, 2010 or such date the term loan facility is repaid in full and a $190 million term loan maturing on October 24, 2011 The weighted average effective interest rate of total debt outstanding under the Senior Secured Credit Facility at April 29, 2007 was 6.81%. In addition, IC-BH has interest rate swap agreements with a notional value of $80.0 million or 39.3% of its variable rate term loan outstanding under the Senior Secured Credit Facility as of April 2007. IC-BH uses interest rate swap agreements to reduce the impact of interest rate changes on future interest expense. For fiscal years 2007, 2006 and 2005, we have included $0, $(83,749) and $275,606, respectively, as accumulated other comprehensive income (loss) in our statement of stockholders’ equity for these interest rate swap agreements.

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Summarized financial information for the year ended April 29, 2007 for Isle of Capri - Black Hawk is presented below:

   
Year Ended
  
   
April 29, 2007
  
 
(in thousands)
  
Total Assets
  
$
286,624
  
Total Liabilities
    
223,415
  
         
Gross Revenue
  
$
196,373
  
Total Expenses
    
190,034
  
Income tax benefit
    
2,333
  
Net income
  
$
8,672
  

Route 66 Casinos, L.L.C.

We are a 51% non-operating owner of Route 66 Casinos, L.L.C. (“Route 66 Casinos”). American Heritage, Inc., d/b/a The Gillmann Group (“The Gillmann Group”) is the 49% operating owner. We use the equity method of accounting to account for our investment in Route 66 Casinos. Our investment is stated at cost, adjusted for our undistributed earnings or losses of the project since inception. For the reasons set forth in the last paragraph of this section, “Route 66 Casinos, L.L.C.”, we did not record earnings from Route 66 Casinos for all of fiscal year 2007 or the second half of fiscal year 2006. Our earnings from Route 66 Casinos totaled $0, $874,707 and $1,811,914 for fiscal years 2007, 2006 and 2005, respectively. During fiscal years 2007, 2006 and 2005, we did not receive any cash distributions from Route 66 Casinos. Our investment in Route 66 Casinos was $4,509,183 as of April 29, 2007 and April 30, 2006.

We utilized the equity method of accounting for our 51% interest in Route 66 Casinos because the operating activities of the joint venture were controlled by the minority venture partner, The Gillmann Group. As disclosed in Note 18, we are involved in pending legal proceedings with The Gillmann Group. The Gillmann Group had asserted that the operating agreement governing the venture was void and unenforceable. We have assessed whether this circumstance indicates utilization of the cost method of accounting for this investment is appropriate and have concluded that the equity method best reflects the underlying nature of our investment. The operating agreement provided that all material decisions of the joint venture are made by the members, including us, on a unanimous basis. We believed the operating agreement to be binding and enforceable on the venture and our joint venture partner and, therefore, concluded that we had significant influence over the affairs of the venture. We also believed that we were able to reasonably estimate the revenues and expenses of the venture through September 30, 2006 to the extent necessary to apply the equity method of accounting, as described in more detail below.

We estimated our share of operational activities of Route 66 Casinos and recorded such amounts using the equity method of accounting because we did not receive revenue and expense information from Route 66 Casinos as a result of ongoing litigation. The estimated revenues were 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 Route 66 Casino. Estimated expenses were comprised of previously negotiated debt service payments on the 1,250 gaming devices supplied to Route 66 Casino, the supply of parts for the repair of these gaming devices and a monthly overhead fee to The Gillmann Group. The direct expenses related to the debt service of the gaming devices and The Gillmann Group’s monthly overhead fee was a stable cost with little variable activity. We believe the net profits determined from the estimated revenues and expenses are reasonable; however, actual financial results and the ultimate conclusion of the litigation may vary materially and adversely from our estimates.

The Gillmann Group had three gaming equipment leases with the Laguna Development Corporation (“LDC”), a federally chartered corporation wholly-owned by the Pueblo of Laguna, the second largest pueblo in New Mexico. Effective May 23, 2002, also the effective date of the joint venture agreement, The Gillmann Group agreed to assign these three gaming equipment leases to Route 66 Casinos which in turn leased the gaming equipment devices under the leases to Route 66 Casino owned and operated by the LDC. Route 66 Casinos estimated it would receive on average approximately 16% of gross revenue from the gaming devices subject to the leases over the five-year period commencing in fiscal year 2004.

We learned, through discovery in the litigation, that in November 2005 the Gillmann Group, without our knowledge or consent, sold to the LDC the gaming devices and other equipment and property leased to the LDC and received $21.0 million, less certain adjustments. According to testimony taken on February 4, 2006, after loans on the gaming devices were paid off, the Gillman Group received the net amount of approximately $12.0 million. The equipment leases were terminated in connection with the transaction. Therefore, effective October 1, 2005, we discontinued the recording of any estimated earnings related to Route 66 Casinos due to the sale and the termination of the equipment leases.

 
American Racing and Entertainment, L.L.C.

American Racing and Entertainment, L.L.C. (“American Racing”) was formed to pursue racing and gaming opportunities in the State of New York. American Racing owns Tioga Downs, in Nichols, New York and Vernon Downs, located in Vernon, New York. We acquired a 50% interest in American Racing in November 2005. An additional member was admitted to American Racing in March, 2006 and our interest was reduced to 40%. During fiscal 2007, the Company elected to discontinue making additional capital contributing to American Racing. As a result, our ownership percentage in American Racing declined from 40% to 22.8% during the fiscal year.

We use the equity method of accounting to account for our investment in American Racing. Our investment is stated at cost, adjusted for our equity in the undistributed earnings or losses of the project and for distributions we receive. Our loss from American Racing was $7,275,464 for fiscal year 2007 and $519,494 for fiscal year 2006 which is primarily due to pre-opening and start-up expenses related to Tioga Downs Racetrack and Vernon Downs Racetrack. Our investment in American Racing was $8,215,042 as of April 29, 2007, which includes a $4,610,000 reserve for guaranty liabilities, and $9,480,506 as of April 30, 2006.

We operated both facilities for which we earned management fees based on the revenues and cash flows of each facility. On April 18, 2007, we entered into a Letter Agreement for the sale of our interest in American Racing to two of our joint venture partners (See Note 20).

Summarized financial information for the year ended December 31, 2006 for American Racing is presented below:

   
Year Ended
  
 
  
December 31, 2006
  
 
(in thousands)
  
Total Assets
  
$
103,259
  
Total Liabilities
    
90,863
  
         
Gross Revenue
  
$
35,722
  
Total Expenses
    
54,263
  
Minority Interest
    
91
  
Income tax benefit
    
2,141
  
Net loss
  
$
(16,491
)
 
Sunrise Land and Mineral Corporation

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. On November 16, 2006, Pan-Nevada Gold Corporation, not a related party or affiliated company, exercised their rights to purchase Sunrise’s interest in mining claims in Churchill County, Nevada. Sunrise received $50,000 at the time the option was granted, an additional $200,000 when the option was exercised and a $200,000 note was issued at the same time. The note was paid in full on June 13, 2007. Sunrise holds investment real estate for long-term appreciation. Our investment is stated at cost, adjusted for our equity in the undistributed earnings or losses of Sunrise. Our earnings (loss) from Sunrise totaled $146,549, $58,334 and $(51,143) for fiscal years 2007, 2006 and 2005, respectively. Our investment in Sunrise is accounted for using the equity method of accounting under APB No. 18. At April 29, 2007, we reduced our investment by $125,000 based on our impairment analysis of the asset. Our investment in Sunrise was $400,489 and $378,940 as of April 29, 2007 and April 30, 2006, respectively. This asset is held for sale and has been presented accordingly in our balance sheet as of April 29, 2007.

Restaurant Connections International, Inc.

We are a founding shareholder of RCI, and currently own a 34% 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, Brazil. RCI is attempting to sell its business or other disposition of RCI.

Our 34% ownership of RCI is being accounted for using the equity method of accounting. Our investment in RCI is stated at cost, adjusted for our undistributed earnings or losses of RCI. RCI's earnings allocable to us for fiscal year 2007 totaled $240,596 which has not been included in our statement of operations for fiscal year 2007. In accordance with the equity method of accounting, our investment account balance was reduced to zero in fiscal year 2000 and the remaining allocated loss of $738,816 incurred since April 1, 2000 has not been reflected in our financial statements, since we have no further funding obligations with respect to RCI, nor do we guarantee any of their obligations. Our investment in RCI will remain zero until such time that our allocated losses have been

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recovered at which time we will resume accounting for this investment using the equity method. This asset is held for sale and has been presented accordingly in our balance sheet as of April 29, 2007.

Investments in Development Projects

Dry Creek Casino, L.L.C.

From August 2001 we owned a 69% interest in Dry Creek Casino, L.L.C. (“DCC”). DCC 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. 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”). Under the Development Agreement, DCC earned a credit enhancement fee equal to 20% of River Rock Casino’s earnings before taxes, depreciation and amortization. We consolidated DCC, and the remaining 31% interest in DCC that we did not own was reported as minority interest. Credit enhancement fee income was $5,920,125, $7,348,651 and $5,660,909 for fiscal years 2007, 2006 and 2005, respectively.

The casino features 1,600 slot machines, 16 table games, 3 Poker tables, two restaurants and three parking structures accommodating approximately 1,642 customer vehicles or up to approximately 2,100 customer vehicles when operated by a valet service company during peak demand periods.

On January 31, 2007, the RREA exercised a buy-out option contained in the Development Agreement. Pursuant to the buy-out option, RREA had the option to pay 17 equal monthly installments beginning February 15, 2007. On March 2, 2007 RREA and the members of DCC agreed to a cash settlement of $11,350,000 in lieu of the monthly installments. Our net share of the settlement was approximately $8.1 million.

We amortized capitalized development costs of DCC, included in the investment column in the table at the beginning of this note, over the five-year term of the credit enhancement fee under the development and loan agreement. Each quarter, we recognized 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. The remaining balance of capitalized development costs was expensed during the fourth quarter of fiscal 2007 as a result of the cash settlement of the buy-out option noted above. We believe this method was appropriate because it matched income and expenses over the term of the contract. In fiscal year 2006, we revised our estimated amount of credit enhancement fees over the remaining term of the contract. As a result of the revision, we recorded a charge of $320,307. Our capitalized development costs were $0 and $682,632 as of April 29, 2007 and April 30, 2006, respectively. Amortization of capitalized development costs was $145,233, $460,306 and $107,846 for fiscal years 2007, 2006 and 2005, respectively.

Gold Mountain Development, L.L.C.

Through our wholly-owned subsidiary, Gold Mountain Development, L.L.C. (“Gold Mountain”), we own approximately 260 acres of real property in the vicinity of Black Hawk, Colorado which is located in an Environmental Protection Agency National Priorities list area. 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 260 acres. We have scheduled a public auction to be held on August 2, 2007 to dispose of this property and therefore have reflected it as an asset “held for sale”. Our capitalized development costs were $3,433,953 and $3,367,098 as of April 29, 2007 and April 30, 2006, respectively. During fiscal year 2007 and 2006, we capitalized development costs of $66,855 and $9,303, respectively. No interest was capitalized in fiscal year 2007 and 2006. This asset is held for sale and has been presented accordingly in our balance sheet as of April 29, 2007.

Goldfield Resources, Inc.

In June 1998, Goldfield Resources, Inc. (“Goldfield”), was organized as our wholly-owned subsidiary. We approved the transfer of our land and Bureau of Land Management mining claims in the State of Nevada, totaling approximately 9,000 acres, to Goldfield in exchange for all of the shares of common stock of Goldfield. Goldfield is not directly involved in mining operations. In August 1998, Goldfield 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.

Prior to August 1, 2003, under the terms of our lease with Metallic, Metallic has been making an advance royalty payment of $4,500 per month. Effective August 1, 2003, the monthly payment is subject to adjustments based on changes in the Consumer Price Index using the August 1, 1998, effective date as the base year. All advance royalty payments are to be credited to the production royalty payable under the lease.

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Metallic has agreed to pay a production royalty of 5% of all “Ore” and “Product” as defined by the lease, with all credits and offsets as provided by the lease, and Metallic may repurchase up to one percentage point of the royalty for $2,500,000. Metallic has the right to terminate the lease agreement at any time by giving us written notice. If Metallic terminates the lease, we retain as liquidated damages all advance royalty and other payments made by Metallic. Royalty income was $67,610, $68,737 and $67,610 for fiscal years 2007, 2006 and 2005, respectively. Our capitalized development costs were $480,812 as of April 29, 2007 and April 30, 2006.

Nevada Gold (Tulsa), Inc.

On December 23, 2003, we, through our wholly owned subsidiary, Nevada Gold Tulsa, Inc. (“Tulsa”), entered into Development and Management Agreements with the Muscogee (Creek) Nation (the “Nation”), a federally recognized Indian tribe, pursuant to which we were obligated to assist the Nation in developing and operating a multi-phase gaming and entertainment project to be located in southern Tulsa, Oklahoma. The project was to 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 was to 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. During the third quarter of fiscal 2007, the Nation decided to develop and operate the gaming and entertainment project without our assistance. On December 8, 2006, we received a $2.2 million payment for fees due under our development agreement with the Nation. This payment was in excess of our capitalized development costs of $1.9 million. As a result of this transaction, we mutually and amicably agreed to end our relationship with the Nation. Our capitalized development costs were $0 and $1,783,295 as of April 29, 2007 and April 30, 2006, respectively.
 
Note 6. Notes Receivable 

Notes Receivable - Development Projects

From time to time, we make advances to third parties related to the development of gaming/entertainment projects. We make these advances after undertaking extensive due diligence. In our due diligence for tribal loans we determine whether a tribe is federally recognized, has land in trust, and has a compact with the state. If the tribe meets all three of these criteria, the economic analysis supports the investment, and we have a binding agreement with the tribe, then we make the advances. In certain cases the tribe might not be federally recognized, or have land in trust and we then evaluate with our Native American regulatory consultants the merits and likelihood that federal recognition will be achieved by the tribe or that land could be placed in trust, and how long each process would take. In our due diligence for non-Native American projects, we review the economic feasibility of the project and the resulting risks associated with completing the project.

On a quarterly basis, we review 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 no longer economically feasible, the note receivable will be written down to its estimated fair value. During the second quarter of fiscal year 2007, we wrote off $3.2 million of notes receivable and related interest from the Muscogee Nation of Florida based on such a review. During the fourth quarter of fiscal year 2006, we wrote off $1.6 million of notes receivable related to Native American gaming projects for the same reasons.

At April 29, 2007, we had notes receivable of $19.4 million related to the development of gaming/entertainment projects. Through our wholly-owned subsidiary, Nevada Gold BVR, L.L.C., we own a 40% (35% as of April 29, 2007) interest in Buena Vista Development and have a $14.8 million note receivable from Buena Vista Development. This note bears interest at a rate of prime plus 1%. In addition, $3.2 million is represented by notes receivable from Big City Capital, LLC, a third party. The notes bear interest at a rate of 10% and are payable on or before ten years from the date of the notes, with earlier repayment required out of cash flow from operation of such gaming/entertainment project. The notes receivable are guaranteed by an individual independent of us.

In addition to these two notes we also made a loan to the La Jolla Band Indian tribe which has an outstanding balance of $1.4 million at April 29, 2007. This note bears an interest rate of 8.5% per annum with a maturity date based on the earlier of August 9, 2007 or the receipt of permanent project financing.

During fiscal year 2007, we received a $2.2 million payment for fees due under our development agreement with Muscogee Nation-Tulsa. This payment was in excess of our capitalized development costs of $1.9 million, see Note 5. As a result of this transaction, we mutually and amicably agreed to end our relationship with Muscogee Nation-Tulsa. During fiscal year 2006, we received a repayment of a $0.9 million note receivable from the Muscogee (Creek) Nation, as it obtained interim financing for its gaming project.
 
The repayment of these loans and accrued interest will be largely dependent upon the ability to obtain financing at each development project and/or the performance of each development project.

-54-
 
Notes Receivable - Affiliates

Clay County Holdings, Inc.

At April 29, 2007, we had a note receivable of $1,741,621 from Clay County Holdings, Inc. ("CCH"). The note bears interest at 12% per annum. The note was modified effective April 30, 2006 to provide for a maturity date of April 30, 2009. As part of the modification, no principal or interest payments are due until July 31, 2007, at which time principal payments of $150,000, plus accrued interest, are due on a quarterly basis, with additional payments due at the time any payments are received by CCH on a note receivable it holds from Restaurant Connections International. The note is additionally secured by a pledge of the net equity of common stock of the Company owned by CCH. The stock is subject to margin calls. In management’s opinion, as of April 29, 2007, the collateral is adequate to repay the note.

Service Interactive, Inc.

At April 29, 2007, we had a note receivable of $1,779,445 from Service Interactive, Inc. ("SI"). The note bears interest of 12% per annum. The note was modified effective April 30, 2006 to provide for a maturity date of April 30, 2009. As part of the modification, no principal or interest payments are due until July 31, 2007, at which time principal payments of $150,000, plus accrued interest, are due on a quarterly basis, with additional payments due at the time any payments are received by CCH on a note receivable it holds from Restaurant Connections International. The note is additionally secured by a pledge of the net equity of common stock of the Company owned by CCH. The stock is subject to margin calls. At the time of the extension of credit by us to SI, SI was a related party because we had the option to acquire common stock of SI and our former director was involved in SI. In management’s opinion, as of April 29, 2007, the collateral is adequate to repay the note.

Note 7. Long-Term Debt 

Long-Term Financing Obligations

Our long-term financing obligations for the fiscal years ended April 29, 2007 and April 30, 2006 are as follows:
 
   
April 29,
  
April 30,
  
   
2007
  
2006
  
         
$55 million Revolving Credit Facility, 8.5%, maturing June 2008
  
$
55,000,000
  
$
52,000,000
  
$3.3 million Note Payable, 11% interest, maturing June 2008
    
—
   
3,272,500
 
$5.9 million Note Payable, LIBOR plus 450 basis points (8.37%
              
at April 29, 2007) interest, quarterly payment equal to distribution
             
from IC-BH until it is paid in full
    
1,272,672
   
3,283,907
 
$2 million Note Payable, LIBOR plus 425 basis points (8.12% at
             
April 29, 2007) interest, monthly principal payments of
             
$100,000 with final payment due in January 2008
    
786,484
   
1,875,000
 
Auto Loan, 7.5% interest, amortizing for 60 months with final
             
payment due in October 2010
    
28,393
   
35,253
 
Total
    
57,087,549
   
60,466,660
 
Less: current maturities
    
(2,066,518
)
  
(3,779,345
)
Long-term debt, less current maturities
  
$
55,021,031
  
$
56,687,315
  
               
On January 19, 2006, we entered into an amended $55.0 million revolving credit facility (“Credit Facility”) with our lender. Principal advances under the Credit Facility bear interest at 8.5% per annum. The Credit Facility matures on September 30, 2008.

The Credit Facility is secured by our interest in IC-BH and substantially all of our other assets. In addition, we granted to the lender certain pledges and security interests in and to all of our interests in the equity securities of our subsidiaries. Amounts borrowed under the Credit Facility are guaranteed on a joint and several basis by certain of our wholly owned subsidiaries, Black Hawk Gold, Ltd., Gold River, LLC, Nevada Gold BVR, LLC and Nevada Gold NY, Inc. Such guarantees are full and unconditional. The subsidiary guarantors also granted certain pledges and security interests in certain of their assets.

We pay to our lender a commitment fee of 0.25% per annum on any unused portion under the $55.0 million Credit Facility. During fiscal year 2007 and 2006, we paid our lender commitment fees of $1,192 and $31,418, respectively. Also, we pay a financial advisor a finder’s fee equal to 3% of the principal advanced to us up to an aggregate principal advance of $55.0 million. Our deferred loan issue costs were $711,060 and $1,223,041 as of April 29, 2007 and April 30, 2006, respectively. Amortization of deferred loan issue costs was $601,980, $348,359 and $327,544 for fiscal years 2007, 2006 and 2005, respectively. Both commitment fees and amortization of loan issue costs were charged to interest expense.

During fiscal year 2006, the remaining $3.3 million principal balance of a $13 million convertible note was converted into 1,106,488 shares of our common stock. 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 1,041,523 shares of our common stock with an exercise

-55-

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 a rate of 7.5% per annum. Principal payments in the amount of $3.27 million were due on each of April 1, 2005 and April 1, 2006 (which due date was extended to June 30, 2008). 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 $3.27 million principal amount which was originally due on April 1, 2005. In July 2006, the terms of the note for the remaining $3.27 million principal amount were modified. The interest rate on this note payable increased from 8.5% to 11%. On December 18, 2006, the lender of the note payable exercised his right to demand payment by March 18, 2007. As a result, we repaid the note and outstanding interest in March 2007.

On January 31, 2006, we obtained $2 million in financing to fund the capital improvements at the Colorado Grande Casino. The interest rate on this note is LIBOR rate plus 4.25%. In December 2006 we modified the note and made a $400,000 principal payment. As a result, effective January 2007, principal payments of $100,000 plus accrued interest is paid monthly. The note is secured by the equipment, fixtures and leasehold improvements of the Colorado Grande Casino.

The aggregate principal payments due on total long-term debt over the next five fiscal years and thereafter are as follows:

Fiscal Year
     
2008
  
$
2,066,518
  
2009
    
55,007,949
  
2010
    
8,567
  
2011
    
4,515
  
2012
    
0
  
   
$
57,087,549
  
         
Note 8.   Acquisition

On April 25, 2005, as part of our strategy to become a casino operator, Nevada Gold & Casinos, Inc., through a wholly-owned subsidiary (CGC Holdings, L.L.C.) acquired all of the shares of Colorado Grande Enterprises, Inc., which owns the Colorado Grande Casino located in Cripple Creek, Colorado, from IC-BH for $6.5 million. Consideration was paid with cash of $600,000 and a note payable issued to IC-BH totaling $5.9 million. The transaction was recorded using the purchase method of accounting and the results of operations of the Colorado Grande Casino have been consolidated with our results of operations beginning with fiscal year 2006. The transaction was the result of arms-length negotiations between the parties. We also had $38,705 in legal and professional fees associated with the purchase which were capitalized as part of the total purchase price. The purchase price allocation is as follows:
 
Current assets
  
$
1,525,045
  
Property and equipment
    
188,000
  
Goodwill
    
5,462,918
  
Deferred tax assets
    
887,787
  
Current liabilities
    
(1,525,045
)
Total acquisition cost allocated
  
$
6,538,705
  
 
      
The following table presents unaudited pro forma results of operations for the fiscal year ended March 31, 2005, had the acquisition of the Colorado Grande been made as of April 1, 2004:
 
Net revenues
  
$
12,744,519
  
Net income
  
$
5,499,899
  
Diluted earnings per share
  
$
0.39
  
 
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The unaudited pro forma amounts are not necessarily indicative of the results that would have occurred if the acquisitions had been completed on the date indicated.
 
Note 9. Income Taxes 

We have adopted SFAS No. 109,“Accounting for Income Taxes.” Under SFAS No. 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of all assets and liabilities, measured by using the enacted statutory tax rates.

SFAS No. 109 also provides for the recording of a deferred tax asset for net operating loss carryforwards (“NOLs”). For fiscal year ended April 29, 2007, we had NOLs amounting to $13,695,581. The NOLs expire as follows:
 
Fiscal Year
        
2024
  
$
21,085
  
2025
    
5,188,466
 
2026
    
14,260
 
2027
    
8,732,292
 
   
$
13,956,103
  
         
The NOLs are subject to certain limitations under the Internal Revenue Code. We have a deferred tax asset as a result of the future tax benefit attributable to NOLs, determined by applying the enacted statutory rate of 34.0%. We have recorded a deferred tax asset in connection with tax credit carryforwards and for compensation expense in connection with the issuance of stock options, and we have recorded a deferred tax liability for allocated earnings of our equity investments that are not currently taxable for federal income tax purposes. Based upon our estimate of utilization of our deferred tax asset, we have recorded a deferred tax asset valuation allowance equal to the net deferred tax asset as of April 29, 2007.

Deferred tax assets and liabilities at April 29, 2007 and April 30, 2006 are comprised of the following:
 
Deferred tax assets:
  
April 29, 2007
  
April 30, 2006
  
Net operating loss carryforwards
  
$
4,919,567
  
$
1,793,222
 
Fixed assets
    
585,702
    
588,150
 
Tax credit carryforwards
    
359,345
    
188,998
 
Stock options
    
170,052
    
67,875
 
Other
    
322,993
    
54,805
 
Total deferred tax assets
    
6,357,659
    
2,693,050
  
Deferred tax liabilities:
              
Equity in allocated earnings of equity investments
    
(1,783,213
)
  
(1,112,439
)
Other
    
(122,132
)
  
(119,889
)
Total deferred tax liabilities
    
(1,905,345
)
  
(1,232,328
)
Net deferred tax assets before valuation allowance
    
4,452,314
   
1,460,722
 
Valuation allowance
    
(4,452,314
)
  
-
 
Net deferred tax assets
  
$
-
 
$
1,460,722
 
 
 
Reconciliations between the statutory federal income tax expense rate of 34% and our effective income tax rate as a percentage of income before income tax (expense) benefit is as follows:
 
   
Fiscal Year Ended
  
24 days Ended
  
   
April 29, 2007
  
April 30, 2006
  
March 31, 2005
  
April 24, 2005
  
   
Percent
  
Dollars
  
Percent
  
Dollars 
  
Percent 
  
Dollars
  
Percent
  
Dollars 
  
                                   
Income tax expense (benefit) at statutory federal rate
    
(34.0
) 
$
(2,445,357
)
  
34.0
 
$
198,258
    
34.0
 
$
2,325,960
    
34.0
 
$
45,500
  
State taxes
    
(2.5
)   
(177,706
)
  
1.7
   
10,192
   
1.7
   
119,572
   
1.7
   
2,339
 
                                                   
Permanent differences:
                                                  
Amortization of beneficial
               
3.0
   
17,603
   
0.8
   
53,088
   
1.6
   
2,200
 
conversion feature of note payable
    
—
   
—
                                     
Adjustment to prior year’s taxes
    
—
   
—
   
0.9
   
5,082
   
2.2
   
149,772
   
—
   
—
 
Tax credit carryforwards
    
—
   
—
   
(6.3
)
  
(36,734
)
  
—
   
—
   
—
   
—
 
Other
    
(0.9
)   
(66,078
)
  
2.9
   
16,850
   
0.5
   
34,402
   
1.3
   
1,775
 
Change in valuation allowance
    
61.9
 
  
4,452,315
   
—
   
—
   
—
   
—
   
—
   
—
 
Effective income tax rate
    
24.5
 
$
1,763,174
    
36.2
 
$
211,251
    
39.2
 
$
2,682,794
    
38.6
 
$
51,814
  
                                                   
Note 10.  Equity Transactions, Stock Option Plan and Warrants 

Adoption of SFAS 123(R)

At April 29, 2007, we have a share-based compensation plan, which is described below.  Prior to May 1, 2006, we accounted for the plan under the recognition and measurement provisions of Accounting Principles Board ("APB") Opinion No. 25, “Accounting for Stock Issued to Employees” ("APB No. 25"), and related interpretations, as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” ("SFAS No. 123"). No share-based employee compensation cost related to stock options was recognized in our Consolidated Statements of Operations prior to May 1, 2006, as all options granted under the plan had an exercise price equal to or more than the market value of the underlying common stock on the date of grant.
    
Effective May 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), using the modified prospective transition method. Under this transition method, share-based compensation cost recognized during the year ended April 29, 2007 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of May 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) compensation cost for all share-based payments granted subsequent to May 1, 2006, based on the grant date fair value estimated using the Black-Scholes option pricing model. We recognize compensation expense for stock option awards and time-based restricted stock awards on a straight-line basis over the requisite service period of the award (or to an employee's eligible retirement date, if earlier). Performance-based restricted stock awards are recognized as compensation expense based on the fair value of our common stock on the date of grant, the number of shares ultimately expected to vest and the vesting period. Total share-based compensation expense included in our Consolidated Statements of Operations for the year ended April 29, 2007 was $241,189.

As a result of adopting SFAS No. 123(R) on May 1, 2006, for the year ended April 29, 2007 our loss before income taxes and our net loss were higher by $241,189 than if we had continued to account for share-based compensation under APB No. 25. Basic and diluted earnings per share for the year ended April 29, 2007 are $0.01 and $0.01 lower, respectively, than if the Company had continued to account for share-based compensation under APB No. 25.
 
Prior to the adoption of SFAS No. 123(R), we presented all tax benefits from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS No. 123(R) requires that cash flows resulting from the benefits of tax deductions in excess of recognized compensation cost be classified as financing cash flows.
 
Information about our share-based plans

Our 1999 Stock Option Plan, as amended (the “Stock Option Plan”), is discretionary and provides for the granting of awards, including options for the purchase of our common stock and for the issuance of stock appreciation rights, restricted and/or unrestricted common stock and performance stock awards to our directors, officers, employees and independent contractors. The number of shares of common stock reserved for issuance under the Stock Option Plan is 3,250,000 shares, and at April 29, 2007, 856,099 shares were available for grant. The plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has discretion under the plan regarding the vesting and service requirements, exercise price and other conditions, in all cases subject to certain limits, including:

 
•
 
The incentive stock option plan allows for the issuance of up to 3.25 million shares, and
 
      
 
•
 
For stock options, the exercise price of the award must be equal to or be more than the fair market value of the stock on the date of grant, and the maximum term of such an award is ten years
     
-58-
 
To date, the Committee has only awarded stock options and restricted stock under the plan. Our practice has been to issue new shares upon the exercise of stock options. Stock option rights granted prior to fiscal year 2006 under the plan generally have 5-year terms and are fully vested and exercisable immediately. Subsequent option rights granted generally have 3, 5 or 10 year terms and are exercisable in three or five equal annual installments, with some options grants providing for immediate vesting for a portion of the grant.

A summary of activity under the Company’s share-based payment plans for the year ended April 29, 2007 is presented below:
 
           
Weighted
      
       
Weighted
  
Average
      
       
Average
  
Remaining
  
Aggregate
  
       
Exercise
  
Contractual
  
Intrinsic
  
   
Shares
  
Price
  
Term (Year)
  
Value
  
Outstanding at May 1, 2006
    
1,121,800
 
$
8.88
              
Granted
   
156,000
   
4.38
             
Exercised
   
(8,000
)
  
2.75
             
Forfeited or expired
   
(389,800
)
  
7.90
             
Outstanding at April 29, 2007
    
880,000
 
$
8.50
    
3.1
 
$
—
  
                           
Exercisable at April 29, 2007
    
721,500
 
$
8.87
    
2.2
 
$
—
  
                           
The weighted-average grant-date fair value of options granted during the years ended April 29, 2007, April 30, 2006 and March 31, 2005 was $1.89, $ 4.41 and $8.15, respectively. The total intrinsic value of stock options and warrants exercised during the years ended April 29, 2007, April 30, 2006 and March 31, 2005 was $16,287, $449,227 and $15,228,691 respectively. The total income tax benefits from stock options exercised during the years ended April 29, 2007, April 30, 2006 and March 31, 2005 were $3,637, $162,747 and $5,972,094 respectively. As of April 29, 2007, there was a total of $359,011 of unamortized compensation cost related to stock options, which cost is expected to be recognized over a weighted-average period of 2.0 years.

Compensation cost for stock options was based on the fair value of each award, measured by applying the Black-Scholes model on the date of grant, using the following weighted-average assumptions:
 
   
Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
March 31, 2005
  
                  
Expected volatility
   
71.4
%
  
63.0
%
  
56.0
%
Expected term (years)
    
2.5
   
2.5
   
2.0
 
Expected dividend yield
   
—
    
—
    
—
  
Risk-free interest rate
   
4.50
%
  
4.50
%
  
3.75
%
Forfeiture rate
   
—
    
—
    
—
  

Expected volatility is based on historical volatility on the Company’s stock. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for US Treasury instruments with maturities matching the relevant expected term of the award.
 
-59-

Significant option and warrant groups outstanding at April 29, 2007, and related weighted average exercise price and weighted average remaining contractual life information is as follows:
 
               
Weighted
  
               
Average
  
           
Weighted
  
Remaining
  
   
Options
  
Options
  
Average
  
Contractual
  
Grant Date
  
Outstanding
  
Exercisable
  
Exercise Price
  
Life (Years)
  
                   
March 2003
    
270,000
    
270,000
  
$
6.30
    
0.9
  
September 2003
    
198,000
    
198,000
  
$
10.59
    
1.4
  
February 2004
    
50,000
    
50,000
  
$
14.19
    
1.8
  
September 2004
    
106,000
    
106,000
  
$
11.40
    
2.4
  
August 2005
    
100,000
    
40,000
  
$
10.79
    
3.3
  
October 2006
    
100,000
    
40,000
  
$
4.87
    
9.5
  
December 2006
    
26,000
    
7,500
  
$
3.79
    
9.5
  
January 2007
    
30,000
    
10,000
  
$
3.24
    
9.7
  
Total
    
880,000
    
721,500
              
 
The following table provides pro forma net income and net income per share had the Company applied the fair value method of SFAS No. 123 for the years ended April 30, 2006 and March 31, 2005:
 
 
 
Fiscal Year Ended
  
 
 
April 30, 2006
  
March 31, 2005
  
Net income - as reported
  
$
371,861
  
$
4,158,264
  
Less: total stock-based employee
            
compensation expense determined
              
under fair value based , net of
            
related tax effect
    
(86,085
)
  
(386,078
)
Net income - pro forma
  
$
285,776
  
$
3,772,186
  
               
Basic earnings per share:
              
As reported
  
$
0.03
  
$
0.33
  
Pro forma
  
$
0.03
  
$
0.29
  
               
Diluted earnings per share
              
As reported
  
$
0.02
  
$
0.29
  
Pro forma
  
$
0.02
  
$
0.27
  
 
Restricted Stock Grants

During the year ended April 29, 2007, we issued 15,000 shares of our restricted common stock to a financial consulting firm for their consulting services on a contract entered in June 2006. We terminated the contract in September 2006. The 15,000 shares of restricted stock vested immediately and were recognized as a consulting expense based on the fair value of our common stock on the dates of issuance. The total expenses recorded were $97,750.

A summary of the activity of the Company's restricted stock is presented in the following table.
 
   
Year Ended April 29, 2007
  
 
Shares
  
Weighted Average Grant Date Fair Value
  
           
Nonvested - May 1, 2006
    
—
  
$
—
  
Granted
    
15,000
   
6.52
 
Vested
    
15,000
   
6.52
 
Nonvested - April 29, 2007
    
—
  
$
—
  
               
Non-employee Options

During fiscal year 2005, we granted options to purchase 70,000 shares of our common stock to consultants for services rendered. These options vested immediately upon issuance. In connection with the issuance of these options, we recorded $201,402 in consulting expenses based on the options' estimated fair value on the date of grant using the Black Scholes option pricing model.

-60-
 
Treasury Stock

We previously approved the repurchase of up to 200,000 shares of our common stock in the open market in September 2002 and June 2003. In fiscal year 2005, we announced an increase of 500,000 shares to our stock buyback program. In fiscal year 2006, we announced another increase of 900,000 shares to our stock buyback program. Under this program, we repurchased 54,200, 942,000 and 604,900 shares of our common stock for an average price of $8.03, $10.38 and $10.93 per share during the fiscal years ended April 29, 2007, April 30, 2006 and March 31, 2005, respectively. During fiscal year 2005, 604,900 shares were retired. Furthermore, as referred to in Note 7 in fiscal year 2005, we purchased 501,917 shares upon the exercise of warrants which were retired.

Conversion of Note Payable

During fiscal year 2006, the remaining $3.3 million principal balance of the $13 million convertible note was converted into 1,106,488 shares of our common stock.

Note 11. Earnings Per Share

The following is presented as a reconciliation of the numerators and denominators of basic and diluted earnings per share computations, in accordance with SFAS No. 128:
 
 
  
Fiscal Year Ended 
  
24 Days Ended
  
 
  
April 29,
2007 
  
April 30,
2006 
  
March 31,
2005
  
April 24,
2005
  
Numerator:
  
 
  
 
  
 
  
 
  
Basic:
  
 
  
 
  
 
  
 
  
Net income (loss) available to common stockholders
  
$
(8,955,400
)
$
371,861
  
$
4,158,264
  
$
82,009
  
Diluted:
                  
Net income (loss) available to common stockholders
  
$
(8,955,400
)
$
371,861
  
$
4,158,264
  
$
82,009
  
Add: interest on convertible debt
    
—
    
—
  
$
157,760
  
$
10,471
  
Net income (loss) available to common stockholders
  
$
(8,955,400
)
$
371,861
  
$
4,316,024
  
$
92,480
  
Denominator:
                  
Basic weighted average number of common shares
                  
Outstanding
    
12,937,222
    
12,975,697
    
12,788,269
    
12,755,203
  
Dilutive effect of common stock options and warrants
    
—
    
268,053
    
749,501
    
386,726
  
Dilutive effect of convertible debt
    
—
    
—
    
1,135,007
    
1,105,833
  
Diluted weighted average number of common shares
                  
Outstanding
    
12,937,222
    
13,243,750
    
14,672,777
    
14,247,762
  
Earnings (loss) per share:
                  
Net income (loss) per common share - basic
  
$
(0.69
)
$
0.03
  
$
0.33
  
$
0.01
  
Net income (loss) per common share - diluted
  
$
(0.69
)
$
0.03
  
$
0.29
  
$
0.01
  

As discussed in Note 7, we had a convertible debt agreement of which the holder had the option to convert all or a portion of principal and accrued interest into our common stock. In accordance with SFAS No. 128, the effects of applying the if-converted method for fiscal years 2005 and the 24-day period ended April 24, 2005 results in this convertible debt security being dilutive.  Additionally, for fiscal years 2007, 2006 and 2005, potential dilutive common shares issuable under options, warrants and convertible debt of 880,000, 957,488 and 170,000 were not included in the calculation of diluted earnings per share as they were anti-dilutive.

Note 12.  Deferred Income 

For fiscal years 2007, 2006 and 2005, we recorded $153,859, $206,067 and $178,835, respectively, of deferred income related to finance fees and interest income from loans made for development projects. Deferred income is amortized over the terms of the loans and is reported in the consolidated statements of operations as interest income. During fiscal years 2007, 2006 and 2005, we recognized $19,380, $8,821 and $145,833, respectively, as interest income. During fiscal year 2007, deferred interest income related to the Muscogee Nation-Florida gaming and entertainment project of $532,520 was recorded as expense due to management electing to no longer persue this Indian gaming project (See Note 6). At April 29, 2007 and April 30, 2006, $8,591 and $406,632, respectively,

-61-

of deferred income had not been recognized and is included on the consolidated balance sheets.

Note 13.  Other Assets 

Other assets consisted of the following at April 29, 2007 and April 30, 2006:

 
  
April 29,
2007
  
April 30,
2006
  
 
  
 
  
 
  
Accrued interest receivable
  
$
4,157,381
  
$
2,378,809
  
Deferred loan issue cost
    
711,061
    
1,223,041
  
Other assets
  
$
4,868,442
  
$
3,601,850
  

-62-

Note 14.  Segment Reporting 

We operate in two major business segments (i) gaming and (ii) other. The gaming segment consists of the Colorado Grande Casino, IC-BH, DCC, Route 66 Casinos, American Racing and Buena Vista Development.

Summarized financial information for our reportable segments is shown in the following table. The “Other” column includes corporate-related items, results of insignificant operations, and segment profit (loss) and income and expenses not allocated to reportable segments.
 
   
As of and for the Fiscal Year Ended
April 29, 2007
  
   
Gaming
  
Other
  
Totals
  
                  
Gross revenues
  
$
13,554,468
  
$
67,610
  
$
13,622,078
  
Segment profit (loss)
    
(6,346,386
)
  
(675,000
)
  
(7,021,386
)
Segment assets
    
67,799,249
    
4,857,471
    
72,656,720
  
Equity investment:
                    
Isle of Capri-Black Hawk, L.L.C.
    
22,306,025
    
—
    
22,306,025
  
Route 66 Casinos, L.L.C.
    
4,509,183
    
—
    
4,509,183
  
American Racing and Entertainment, L.L.C.
    
8,215,042
    
—
    
8,215,042
  
Buena Vista Development Company, L.L.C.
    
171,169
    
—
    
171,169
  
Sunrise Land and Mineral Corporation
    
—
   
400,489
    
400,489
  
Depreciation and amortization
    
909,279
   
9,330
    
918,609
 
Additions to property and equipment
    
314,514
   
—
    
314,514
 
Interest expense
    
5,894,001
   
—
   
5,894,001
 
Interest income
    
1,827,064
   
513,886
   
2,340,950
 
Income tax expense
    
1,594,741
   
168,433
   
1,763,174
 
Earnings from Isle of Capri-Black Hawk, L.L.C.
    
3,728,960
   
—
   
3,728,960
 
Earnings from Route 66 Casinos, L.L.C.
    
—
   
—
   
—
 
Loss from American Racing and Entertainment, L.L.C.
    
(7,275,464
)
  
—
   
(7,275,464
)
Loss from Buena Vista Development, L.L.C.
    
(5,584
)
  
—
   
(5,584
)
Earnings from Sunrise Land and Mineral Corporation
    
—
   
146,549
   
146,549
 
 
   
As of and for the Fiscal Year Ended April 30, 2006
  
   
Gaming
  
Other
  
Totals
  
                  
Gross revenues
  
$
14,531,148
  
$
68,737
 
$
14,599,885
 
Segment profit (loss)
    
1,059,003
    
(475,891
)
  
583,112
 
Segment assets
    
73,151,474
    
5,597,641
   
78,749,115
 
Equity investment:
                    
Isle of Capri-Black Hawk, L.L.C.
    
21,146,365
    
—
   
21,146,365
 
Route 66 Casinos, L.L.C.
    
4,509,183
    
—
   
4,509,183
 
American Racing and Entertainment, L.L.C.
    
9,480,506
   
—
   
9,480,506
 
Buena Vista Development Company, L.L.C.
    
176,753
   
—
   
176,753
 
Sunrise Land and Mineral Corporation
    
—
    
378,940
   
378,940
 
Depreciation and amortization
    
1,012,813
    
5,886
   
1,018,699
 
Addition to property and equipment
    
2,790,905
    
—
   
2,790,905
 
Interest expense
    
4,322,962
   
—
   
4,322,962
 
Interest income
    
1,594,945
   
479,467
   
2,074,412
 
Income tax  expense (benefit)
    
383,658
 
  
(172,407
)  
211,251
 
Earnings from Isle of Capri-Black Hawk, L.L.C.
    
6,517,318
    
—
   
6,517,318
 
Earnings from Route 66 Casinos, L.L.C.
    
874,707
    
—
   
874,707
 
Loss from American Racing and Entertainment, L.L.C.
    
(519,494
)
  
—
   
(519,494
)
Loss from Buena Vista Development, L.L.C.
    
(13,047
)
  
—
   
(13,047
)
Earnings from Sunrise Land and Mineral Corporation
    
—
    
58,334
   
58,334
 
 
   
As of and for the Fiscal Year Ended March 31, 2005
  
   
Gaming
  
Other
  
Totals
  
                
Gross revenues
  
$
5,660,909
  
$
67,610
 
$
5,728,519
 
Segment profit (loss)
    
7,203,873
    
(362,815
)
  
6,841,058
 
Segment assets
    
32,122,882
    
4,542,182
   
36,665,064
 
Equity investment:
                    
Isle of Capri-Black Hawk, L.L.C.
    
17,681,299
    
—
   
17,681,299
 
Route 66 Casinos, L.L.C.
    
3,645,423
    
—
   
3,645,423
 
Sunrise Land and Mineral Corporation
    
—
    
320,607
   
320,607
 
Depreciation and amortization  
164,633
     4,500     169,133  
Additions to property and equipment
   
71,765
    
—
    
71,765
  
Interest expense
    
2,050,523
    
—
   
2,050,523
 
Interest income
    
1,084,762
    
598,301
   
1,683,063
 
Income tax expense (benefit)
    
2,825,076
    
(142,282
)
  
2,682,794
  
Earnings from Isle of Capri-Black Hawk, L.L.C.
    
5,888,031
    
—
   
5,888,031
 
Earnings from Route 66 Casinos, L.L.C.
    
1,811,914
    
—
   
1,811,914
 
Loss from Sunrise Land and Minerial Corporation
    
—
   
(51,143
)
  
(51,143
)
 
 
 
Reconciliation of reportable segment assets to our consolidated totals is as follows:
  
 
   
April 29,
  
April 30,
  
   
2007
  
2006
  
           
Total assets for reportable segments
  
$
72,656,720
  
$
78,749,115
  
Cash not allocated to segments
    
3,853,560
    
4,296,154
  
Notes receivable not allocated to segments
    
3,521,066
    
3,637,099
  
Other assets not allocated to segments
    
0
    
1,460,722
  
Total assets
  
$
80,031,346
  
$
88,143,090
  
 
Note 15.  401(k) Plan 

We have a 401(k) plan under which employees 21 years of age or older qualify for participation. Participants are permitted to make contributions to the plan on a pre-tax salary reduction basis in accordance with the provisions of Section 401(k) of the Internal Revenue Code. All such contributions are immediately vested and nonforfeitable. Under the provisions of the plan, we may make discretionary matching contributions of 100% of employee contributions up to 3% of employees' compensation and 50% of up to the next 2% of employees' compensation. Employees vest in Company contributions immediately. Our discretionary contributions for fiscal years 2007, 2006 and 2005, were $82,694, $33,797 and $33,535, respectively. 

Note 16. Related Party Transactions 

We have outstanding notes receivable from each of CCH and SI. (See Note 6 for a detailed description of these notes receivable.) CCH is a shareholder, beneficially owning approximately 5% of our total outstanding common stock as of April 29, 2007. We also guaranteed $21,000 of loans payable by SI to third parties. At the time of the original extension of credit to SI and the guarantee of its debt, SI was a related party because of the involvement of a former director of the Company in SI. At April 29, 2007, we owed $70,611 to Sunrise, of which we own 50%. In addition, we have outstanding accounts receivable from certain affiliates and related parties totaling $145,490, of which $92,396 was owed to us by American Racing and $53,093 at April 29, 2007 and $104,197 at April 30, 2006, respectively, related to advances and reimbursable expenses.

The Company's Board of Directors has previously approved these related party transactions. Effective June 16, 2004, the Company is required to obtain pre-approval from the Audit Committee (comprised of independent directors) of the Company's Board of Directors for any related party transactions.

Note 17.  Commitments and Contingencies 

We rent office space in Houston, Texas, under a non-cancelable operating lease which expires on February 29, 2012. Also, 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. We lease 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 an option to renew for fifteen years with the final option period concluding January 31, 2021. On July 7, 2005, we exercised the option to extend the lease to January 2021.

The expected remaining future annual minimum lease payments as of April 29, 2007 are as follows:

Fiscal Years
  
Corporate Office
Lease Payment
  
Colorado Grande Building Lease Payment
  
Total
Lease Payment
  
 
  
 
  
 
  
 
  
2008
  
$
312,869
  
$
362,000
  
$
674,869
  
2009
    
314,572
    
400,000
    
714,572
  
2010
    
316,844
    
400,000
    
716,844
  
2011
    
319,115
    
400,000
    
719,115
  
2012
    
266,403
    
400,000
    
666,403
  
Thereafter
    
—
    
3,500,000
    
3,500,000
  
 
  
$
1,529,803
  
$
5,462,000
  
$
6,991,803
  

Rent expense for our corporate office for fiscal years 2007, 2006 and 2005 was $312,123, $217,193 and $63,606, respectively. Rent expense for Colorado Grande’s casino building was $299,322 and $412,639 for fiscal years 2007 and 2006, respectively.

-64-

As discussed in Note 16, we have also guaranteed debt of $21,000 to third parties on behalf of SI for the performance of the repayment obligations. In the event of SI's nonperformance under the terms of the obligations, our maximum potential future payments under these guarantees will be equal to the carrying amount of the liabilities.

We continue to pursue additional development opportunities that may require, individually and in the aggregate, significant commitments of capital, extensions of credit, up-front payments to third parties and guarantees by the Company of third-party debt. At April 29, 2007, we have outstanding commitments to extend credit related to development opportunities in the aggregate amount of $142,096.

We may guarantee all or part of the debt incurred by Indian tribes, with which we have entered into contracts, to fund development of casinos on the Indian lands. The La Jolla Development Agreement requires us to use commercially reasonable efforts to assist the La Jolla Band in obtaining one or more sources of financing for its casino project. Currently, it appears that third-party financing will be available for this project. However, there can be no assurance that third-party financing will be available for this project.

As of the end of fiscal year 2007, we guaranteed approximately $11 million of debt for American Racing. On June 14, 2007, we sold our entire membership interest in American Racing to our partners, Southern Tier Acquisition II LLC and Oneida Entertainment LLC. As a result, we were indemnified by the purchasers in connection with the guarantees of debt or any other obligations of American Racing.

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

Note 18. Legal Proceedings 

Route 66 Casinos

1.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, LLC. 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 Amended and Restated Operating Agreement of Route 66 Casinos, LLC, governed the relationship of the parties relating to the Route 66 Casinos gaming operation. Pursuant to this agreement, we were to receive 51% of the net revenue received by Route 66 Casinos from the gaming operation. We also loaned The Gillmann Group the amount of $250,000, which has been repaid to us.

We initiated arbitration proceedings pursuant to the Route 66 Casinos Operating Agreement; however, The Gillmann Group and Mr. Gillmann refused to participate on the basis that they believed the operating agreement was 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)) (the "Texas Litigation"), initially seeking to recover payment pursuant to the promissory note. We 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.

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 sought judicial dissolution of Route 66 Casinos, LLC and sought a declaratory judgment that the operating agreement was 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.

On April 13, 2006, following a trial on the merits, the jury returned its verdict in the Texas Litigation. The jury found that (1) Nevada Gold and American Heritage intended to be bound by the Amended and Restated Operating Agreement (the "Contract"); (2) American Heritage breached the Contract; (3) the breach by American Heritage was not excused; (4) Nevada Gold did not fraudulently induce American Heritage to enter into the Contract; (5) American Heritage returned to Nevada Gold everything of value that American Heritage received from Nevada Gold under the Contract; (6) Nevada Gold suffered damages of approximately $8.3 million as a result of the breach by American Heritage; and (7) Fred Gillmann, who is the President and sole shareholder of American Heritage, is personally responsible for the conduct of American Heritage.

-65-
 
Following the jury's verdict, Nevada Gold and the Defendants filed competing motions for the entry of judgment by the Court. On October 25, 2006, the Court entered judgment. The Court found American Heritage liable to Nevada Gold for $9,165,079 (reflecting the jury’s verdict, plus prejudgment interest), but held that Nevada Gold take nothing from Fred Gillmann. American Heritage has appealed the judgment against it to the Court of Appeals for the First District, Houston, Texas (the “Appeals Court”) and Nevada Gold has appealed the Court’s judgment to the Appeals Court that Nevada Gold take nothing from Fred Gillmann personally notwithstanding the jury’s verdict.

2.On July 23, 2007, the Company filed a lawsuit in the State District Court, Harris County Texas, 189th Judicial District against American Heritage and Frederick C. Gillmann (Nevada Gold & Casinos, Inc. vs. American Heritage, Inc. and Frederick C. Gillmann).

In this case which is related to the Texas Litigation described above, the Company’s pursing claims against the defendants pursuant to the Texas Uniform Fraudulent Transfers Act for alleged fraudulent transfers that the Company alleges the defendants made in order to make American Heritage judgment proof and to deprive the Company of the ability to enforce the judgment it obtained in the case described above. The Company is in the process of serving its original petition on the defendants.

We believe there is substantial evidence to support the allegations in the compliant and we intend to vigorously pursue this matter although it is not possible to render an opinion concerning the likely outcome at this time.

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 us 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 we 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 more than $50 million in damages and unspecified punitive damages. Rinaldo also seeks a preliminary and permanent injunction barring us and the other defendants from engaging in further acts of alleged interference. On October 29, 2004, Rinaldo filed its First Amended Complaint. We demurred to Rinaldo's First Amended Complaint, and, at a hearing on January 5, 2005, the Court orally sustained our 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, we 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, to which Torkelson and Derry demurred again. On August 4, 2005, the court sustained their demurrer without leave to amend, dismissing them in their personal capacities from the case. Subsequently, Rinaldo voluntarily dismissed Torkelson and Derry in their business capacities, leaving Nevada Gold as the only remaining defendant.

In November 2005, Nevada Gold moved for summary judgment against Rinaldo, and the Court ruled on that motion on February 21, 2006. The Court dismissed all of Rinaldo's claims for tortious interference with contract, holding that the development contract on which Rinaldo had based those claims was invalid as a matter of law. The Court also dismissed Rinaldo's claim for damages under the California unfair competition statute. After the ruling, only Rinaldo's claims for tortious interference with prospective economic relations, civil conspiracy, and injunctive relief under the unfair competition statute remained.

We subsequently moved for summary judgment seeking to dispose of Rinaldo’s remaining claims, and the Court granted our motion. The Court’s ruling disposed of the entire case in our favor. Rinaldo has appealed the dismissal of its case and the parties are actively engaged in the appellate process. We believe the claims against us to be without merit and we intend to vigorously and appropriately defend the claims asserted in this matter.

-66-
 
Note 19.  Interest Income (Expense), net

Interest income (expense), net, consisted of the following for the fiscal years ended:

   
April 29,
  
April 30,
  
March 31,
  
 
2007
  
2006
  
2005
  
Interest income-third party
  
$
2,340,950
  
$
2,074,412
  
$
1,683,063
  
Interest expense
    
(5,292,021
)
  
(3,974,603
)
  
(1,722,979
)
Amortization of loan issue costs
    
( 601,981
)
  
( 348,359
)
  
( 327,544
)
Interest income (expense), net
  
$
(3,553,052
)
$
(2,248,550
)
$
( 367,460
)

Note 20.  Subsequent Events 

On April 18, 2007, we entered into a Letter Agreement for the sale of our interest in American Racing to two of our joint venture partners. On June 14, 2007, we sold our 22.8% membership interest in American Racing to our partners, Southern Tier Acquisition II LLC and Oneida Entertainment LLC. The Company will receive three payments totaling $4.3 million for its membership interest: $2.1 million cash was received upon closing, $1.1 million will be received in April 2008 and $1.1 million in April 2009. The transaction also includes the July 12, 2007 release of a certificate of deposit of approximately $1.1 million currently pledged by us on behalf of American Racing. In connection with the sale, we have terminated our Management Agreements with Tioga Downs and Vernon Downs and received approximately $110,000 in management fees due. In addition, we were indemnified by the purchasers in connection with the guarantee of approximately $11 million of debt or any other obligations of American Racing. Our percentage of the financial results of American Racing will continue to be reflected as part of equity in earnings of unconsolidated subsidiaries through June 14, 2007.

On June 27, 2007, our former Chairman of the Board of Directors and CEO, entered into a Separation Agreement & Release (“Separation”) with the Company which he had been negotiating with our Board of Directors since mid-April 2007. In return for executing the Separation, he will continue to receive compensation equal to the base compensation to which he would have been entitled for 18 months. In addition, the Company will reimburse him for his benefits under COBRA during the same period and the Company awarded him non-qualified stock options to purchase 200,000 shares of the Company’s common stock at the closing price as of July 6, 2007 ($2.01). The options will vest at the rate of 25% per year for four years and will expire five years from the date of grant. At April 29, 2007, the Company recorded a severance accrual of $863,439.
 
On July 30, 2007, the Company and the lender of our $55 million Credit Facility amended the Credit Facility to extend the maturity date from June 30, 2008 to September 30, 2008. No other changes were made to the Credit Facility or related documents.
 
Note 21. Quarterly Financial Information (Unaudited) 

The following table sets forth certain quarterly financial information for each of the fiscal quarters during the years ended April 29, 2007 and April 30, 2006.
 
            
 Net income
        
           
Income
  
(loss)
      
Diluted
  
        
Earnings from
 
(loss) before
  
 applicable
     
earnings (loss)
 
   
Net
  
unconsolidated
 
 tax benefit
 
to common
     
per common
  
 
revenues
  
affiliates
  
(expense)
  
stockholders
      
share(c)
  
Consolidated Statements of Operations:
  
(in thousands, except per share amounts)
  
Fiscal Year Ended April 29, 2007
                               
Quarter ended July 30, 2006
  
$
3,492
 
$
(815
)
$
(2,826
)
$
(1,835
)
      
$
(0.14
)
Quarter ended October 29, 2006 (a)
    
4,094
   
(1,585
)
  
(5,983
)
  
(3,774
)
        
(0.29
)
Quarter ended January 28, 2007
    
3,764
   
(1,412
)
  
(2,335
)
  
(1,490
)
        
(0.12
)
Quarter ended April 29, 2007 (b)
    
978
   
406
   
3,952
   
(1,856
)
  
(e
)
  
(0.14
)
                                       
Fiscal Year Ended April 30, 2006
                                      
Quarter ended July 24, 2005
  
$
3,746
 
$
2,746
 
$
2,750
 
$
1,751
       
$
0.13
 
Quarter ended October 23, 2005
    
3,301
   
2,513
   
1,756
   
1,121
         
0.08
 
Quarter ended January 22, 2006
    
2,921
   
428
   
(1,231
)
  
(765
)
        
(0.06
)
Quarter ended April 30, 2006 (d)
    
3,181
   
1,231
   
(2,692
)
  
(1,735
)
        
(0.13
)
                                     
(a)
During the second quarter of fiscal 2007, we wrote off a $3.4 million note receivable and related interest from the Muscogee Nation of Florida based on our impairment review of assets. We also wrote off the related investment of $0.4 million.
(b)
In the fourth quarter of fiscal 2007, the River Rock Casino notified us of its intention to exercise the buy-out option pursuant to the development and loan agreement with us. In lieu of monthly cash payments over the remaining term of the contract, the Company received a lump-sum cash payment of $8.1 million (net of minority interests) that was included in termination of development and loan agreement. Revenue and cash flow, compared to prior quarters, is expected to decrease by approximately $2.0 million quarterly over the remaining term of the agreement as a result of this transaction.
(c)
Because income per share amounts are calculated using the weighted average number of common and dilutive common equivalent shares outstanding during each quarter, the sum of the per share amounts for the four quarters may not equal the total income per share amounts for the year.
(d)
The fourth fiscal quarter of 2006 contained 14 weeks.
(e)
In the fourth quarter of fiscal 2007, we recorded a $4.5 million deferred tax valuation allowance to income tax expense.
 
-67-
 
Isle of Capri Black Hawk, L.L.C.

Consolidated Financial Statements

For the Fiscal Years Ended April 29, 2007, April 30, 2006 and April 24, 2005



Contents

Report of Independent Registered Public Accounting Firm
69
   
Consolidated Financial Statements
  
   
Consolidated Balance Sheets, April 29, 2007 and April 30, 2006
70
Consolidated Statements of Income, Fiscal Years Ended April 29, 2007, April 30, 2006 and April 24, 2005
71
Consolidated Statements of Members’ Equity, Fiscal Years Ended April 29, 2007, April 30, 2006 and April 24, 2005
72
Consolidated Statements of Cash Flows, Fiscal Years Ended April 29, 2007, April 30, 2006 and April 24, 2005
73
Notes to Consolidated Financial Statements
74
 
 
-68-
 
Report of Independent Registered Public Accounting Firm

The Members of
Isle of Capri Black Hawk, L.L.C.


We have audited the accompanying consolidated balance sheets of the Isle of Capri Black Hawk, L.L.C. (the Company) as of April 29, 2007 and April 30, 2006, and the related consolidated statements of income, members’ equity, and cash flows for the fiscal years ended April 29, 2007, April 30, 2006 and April 24, 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 auditing 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Isle of Capri Black Hawk, L.L.C. at April 29, 2007 and April 30, 2006 and the consolidated results of its operations and its cash flows for the fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, on May 1, 2006 the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, and the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.


/s/ERNST & YOUNG, LLP

St. Louis, Missouri
July 27, 2007
-69-
 
Isle of Capri Black Hawk, L.L.C.
 
Consolidated Balance Sheets
(Dollars in thousands)
  
   
April 29, 2007
 
April 30, 2006
  
Assets
          
Current assets:
          
Cash and cash equivalents
  
$
14,829
  
$
15,245
  
Accounts receivable - trade, net
    
493
   
516
 
Accounts receivable - member
    
53
   
72
 
Deferred income taxes
    
295
   
346
 
Inventories
    
1,160
   
911
 
Note receivable - member
    
1,273
   
2,215
 
Prepaid expenses and other
    
680
   
884
 
Total current assets
    
18,783
   
20,189
 
Property and equipment, net
    
232,771
   
240,294
 
Other assets:
              
Note receivable - member
    
-
   
1,069
 
Deferred financing costs, net of accumulated
             
amortization of $437 and $146
    
1,312
   
1,603
 
Goodwill
    
14,665
   
14,665
 
Other intangible assets
    
12,200
   
12,200
 
Prepaid deposits and other
    
858
   
1,915
 
Deferred income taxes
    
6,035
   
3,749
 
Total assets
  
$
286,624
  
$
295,684
  
Liabilities and members' equity
              
Current liabilities:
              
Current maturities of long-term debt
  
$
2,033
  
$
2,025
  
Accounts payable - trade
    
2,023
   
5,968
 
Accounts payable - member
    
3,153
   
4,357
 
Accrued liabilities:
              
Interest
    
1,721
   
2,110
 
Payroll and related expenses
    
4,285
   
4,388
 
Property, gaming and other taxes
    
4,240
   
4,595
 
Progressive jackpot and slot club awards
    
2,437
   
2,944
 
Other
    
735
   
900
 
Total current liabilities
    
20,627
   
27,287
 
               
Long-term debt, less current maturities
    
201,865
   
208,098
 
Other long-term liabilities
    
923
   
-
 
               
Members' equity:
              
Casino America of Colorado, Inc.
    
35,382
   
33,610
 
Blackhawk Gold, Ltd.
    
27,849
   
26,689
 
Accumulated other comprehensive loss
    
(22
)
  
-
 
Total members' equity
    
63,209
   
60,299
 
Total liabilities and members' equity
  
$
286,624
  
$
295,684
  
 
See accompanying notes.
 
Isle of Capri Black Hawk, L.L.C.

Consolidated Statements of Income
(Dollars in thousands)
 
   
Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
 April 24, 2005
  
Revenues
               
Casino
  
$
166,760
  
$
177,585
  
$
152,674
  
Rooms
    
9,855
   
6,649
   
5,665
 
Food, beverage and other
    
19,758
   
21,098
   
18,328
 
Gross revenues
    
196,373
   
205,332
   
176,667
 
Less promotional allowances
    
41,619
   
43,504
   
38,079
 
Net revenues
    
154,754
   
161,828
   
#138,588
 
                     
Operating expenses
                    
Casino
    
24,588
   
25,621
   
23,188
 
Gaming taxes
    
32,234
   
34,240
   
29,125
 
Rooms
    
2,155
   
1,628
   
1,546
 
Food, beverage and other
    
3,402
   
4,911
   
3,730
 
Facilities
    
7,967
   
8,540
   
7,438
 
Marketing and administrative
    
39,647
   
38,492
   
33,864
 
Management fees
    
6,817
   
7,439
   
6,374
 
Depreciation
   
15,833
   
13,850
   
9,936
 
Total operating expenses
    
132,643
   
134,721
   
115,201
 
                     
Operating income
    
22,111
   
27,107
   
23,387
 
                     
Interest expense
    
(14,953
)
  
(12,859
)
  
(9,461
)
Interest income
    
216
   
437
   
71
 
Other income (expense)
    
(1,035
)
  
1,585
   
-
 
Loss on early extinguishment of debt
    
-
   
(2,110
)
  
-
 
 
                    
Income from continuing operations
                    
before income tax
    
6,339
   
14,160
   
13,997
 
Income tax benefit
    
2,333
   
1,213
   
2,642
 
Income from continuing operations
    
8,672
   
15,373
   
16,639
 
Loss from discontinued operations
                    
(including goodwill impairment of $3,960
                    
in 2005), net of income tax benefit of
                    
$0 and $186 in fiscal 2006 and 2005
    
-
   
(216
)
  
(2,946
)
Net income
  
$
8,672
  
$
15,157
  
$
13,693
  
 
See accompanying notes.
 
 
Isle of Capri Black Hawk, L.L.C.

Consolidated Statements of Members’ Equity
(Dollars in thousands)
 
   

Casino America of Colorado, Inc.
 
Blackhawk Gold, Ltd.
 
Accumulated Other Comprehensive Loss(Income)
 
Total Members' Equity
  
Balance, April 25, 2004
  
$
26,786
  
$
21,541
  
$
(676
)
$
47,651
  
Net income
    
7,805
   
5,888
   
-
   
13,693
 
Unrealized gain on interest
rate swap contract
    
-
   
-
   
998
   
998
 
Comprehensive income
                      
14,691
 
Members' distributions
    
(5,758
)
  
(4,344
)
  
-
   
(10,102
)
Balance, April 24, 2005
    
28,833
   
23,085
   
322
   
52,240
 
Net income
    
8,639
   
6,518
   
-
   
15,157
 
Reclassification of realized gain
                          
on interest rate swap contract
 to other income
    
-
   
-
   
(322
)
  
(322
)
Comprehensive income
                      
14,835
 
Members' distributions
    
(3,862
)
  
(2,914
)
  
-
   
(6,776
)
Balance, April 30, 2006
    
33,610
   
26,689
   
-
   
60,299
 
Net income
   
4,943
   
3,729
         
8,672
 
Reclassification of unrealized loss
                         
on interest rate swap contract
   
-
   
-
   
(22
)
  
(22
)
Comprehensive income
                     
8,650
 
Stock compensation expense
   
234
   
-
   
-
   
234
 
Cummulative effect of new accounting
                         
pronouncement (Note 1)
    
(470
)
  
(354
)
  
-
   
(824
)
Members' distributions
   
(2,935
)
  
(2,215
)
  
-
   
(5,150
)
Balance, April 29, 2007
  
$
35,382
  
$
27,849
  
$
(22
)
$
63,209
  
 
See accompanying notes.
 
-72-
 
Isle of Capri Black Hawk, L.L.C.

Consolidated Statements of Cash Flows
(Dollars in thousands)

   
Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
April 24, 2005
  
Operating activities
              
Net income
 
$
8,672
  
$
15,157
  
$
13,693
  
Adjustments to reconcile net income to net cash provided
                   
by operating activities:
                    
Depreciation  
    
15,833
   
13,850
   
10,340
 
Amortization of deferred financing costs 
    
291
   
633
   
974
 
Deferred income taxes 
    
(2,333
)
  
(1,075
)
  
(3,116
)
(Gain) loss on derivative instruments 
    
1,035
   
(1,585
)
  
-
 
Stock compensation expense 
    
234
   
-
   
-
 
Loss on early extinguishment of debt 
    
-
   
2,110
   
-
 
Goodwill impairment charge 
    
-
   
-
   
3,958
 
Changes in operating assets and liabilities, net of  
                    
effect of acquisitions: 
                    
 Accounts receivable
    
21
   
(249
)
  
195
 
 Prepaid expenses and other assets
    
(247
)
  
(198
)
  
133
 
 Accounts receivable and payable - member
    
(1,186
)
  
1,859
   
(44
)
 Accounts payable and accrued liabilities
    
(5,267
)
  
(11,861
)
  
2,069
 
Net cash provided by operating activities
    
17,053
   
18,641
   
28,202
 
                     
Investing activities
                    
Purchases of property and equipment, net
    
(8,309
)
  
(33,999
)
  
(56,600
)
(Increase) decrease in restricted cash
    
-
   
(2
)
  
43
 
Net cash used in investing activities
    
(8,309
)
  
(34,001
)
  
(56,557
)
                     
Financing activities
                    
Proceeds from debt
    
-
   
27,475
   
-
 
Proceeds from line of credit
    
9,800
   
31,600
   
26,000
 
Principal payments on debt
    
(2,025
)
  
(1,892
)
  
(1,853
)
Principal payments on line of credit
    
(14,000
)
  
(37,000
)
  
-
 
Deferred financing costs
    
-
   
(1,749
)
  
-
 
Distributions to members
    
(2,935
)
  
(3,862
)
  
(10,102
)
Net cash (used in) provided by financing activities
    
(9,160
)
  
14,572
   
14,045
 
                     
Net decrease in cash and cash equivalents
    
(416
)
  
(788
)
  
(14,310
)
Cash and cash equivalents at beginning of year
    
15,245
   
16,033
   
30,343
 
Cash and cash equivalents at end of year
  
$
14,829
  
$
15,245
  
$
16,033
  
                     
Supplemental disclosure of cash flow information
                    
Cash payments for interest
  
$
15,023
  
$
12,745
  
$
9,323
  
Cash payments for income taxes, net of refunds
  
$
-
  
$
(218
)
$
(160
)
                     
Supplemental schedule of noncash investing and financing activities:
                    
Construction costs funded through accounts payable
  
$
25
  
$
1,974
  
$
12,390
  
                     
Supplemental schedule of noncash financing activities
                    
Reduction of note receivable - member in lieu of cash distribution
  
$
 2,215  
$
 2,914  
$
 -  
 
See accompanying notes.
 
-73-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements
(Dollars in thousands)
 
1. Summary of Significant Accounting Policies

Basis of Presentation

Isle of Capri Black Hawk, L.L.C. (“the Company” or the “Isle-Black Hawk”), a Colorado limited liability company, operates two casino entertainment facilities in Black Hawk, Colorado. During fiscal 2005, the Company discontinued operations at its third casino entertainment facility in Cripple Creek, Colorado, as more fully described in Note 12. The Company is owned by Casino America of Colorado, Inc., a wholly owned subsidiary of Isle of Capri Casinos, Inc., and Blackhawk Gold, Ltd., a wholly owned subsidiary of Nevada Gold & Casinos, Inc.

The rights and obligations of Casino America of Colorado, Inc. and Blackhawk Gold, Ltd. are governed in part by the Amended and Restated Operating Agreement of the Company (the “Agreement”), dated April 22, 2003. The Agreement provides that the Company will continue until December 31, 2096, or until such date that dissolution may occur. Pursuant to the Agreement, Casino America of Colorado, Inc. contributed cash, land purchase rights and development costs and Blackhawk Gold, Ltd. contributed land to the Company.

On July 29, 1997, Casino America of Colorado, Inc., and Blackhawk Gold, Ltd., entered into a members’ agreement which addressed the development of the Isle-Black Hawk, management of the Company, additional capital contributions, and other matters. Casino America of Colorado, Inc. has an ownership interest in the Company of 57% and Blackhawk Gold, Ltd. has an ownership interest in the Company of 43%. Profits and losses of the Company are allocated in proportion to ownership interests. The Isle-Black Hawk’s original casino commenced operation in December 1998.

On April 22, 2003, the Company acquired CCSC/Blackhawk, Inc. (the “Colorado Central Station”) and Colorado Grande Enterprises, Inc. (the “Colorado Grande”) through its wholly owned subsidiary, IC Holdings Colorado, Inc. The Colorado Central Station operation consists of a land-based casino in Black Hawk, Colorado. On April 25, 2005, the Company sold its interest in Colorado Grande to CGC Holdings LLC, a subsidiary of Nevada Gold & Casinos, Inc.

Fiscal Year-End

The Company’s fiscal year ends on the last Sunday of April. This fiscal year creates more comparability of the Company’s quarterly operations, by generally having an equal number of weeks (13) and weekend days (26) in each quarter. Periodically, this system necessitates a 53-week year as it did in fiscal 2006.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of Isle of Capri Black Hawk, L.L.C. and its subsidiaries, Isle of Capri Black Hawk Capital Corp., IOC - Black Hawk Distribution Company, L.L.C. and IC Holdings Colorado, Inc. IC Holdings Colorado, Inc. has two subsidiaries - CCSC/Blackhawk, Inc. and Colorado Grande Enterprises, Inc through April 25, 2005. On April 25, 2005, the Company sold its interest in Colorado Grande to CGC Holdings LLC, a subsidiary of Nevada Gold & Casinos, Inc. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications of prior year amounts have been made to conform to the 2007 presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and to make disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

-74-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
1. Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company was required by state regulations to maintain a minimum operating cash balance of approximately $4.9 million and $1.7 million at April 29, 2007 and April 30, 2006, respectively.

Inventories

Inventories generally consist of food and beverage and retail merchandise, and are stated at the lower of cost or market. Cost is determined by the weighted average method.

Property and Equipment

Property and equipment are stated at cost, except for land contributed by Blackhawk Gold, Ltd., which was recorded at appraised value on the date of contribution. The Company capitalizes the cost of purchases of property and equipment and capitalizes the cost of improvements to property and equipment that increases the value or extends the useful lives of the assets. Costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in the determination of income.

Depreciation is computed using the straight-line method over the following estimated useful lives of the assets:
 
 
Years
Slot machines, software and computers
3
Furniture, fixtures and equipment
5-10
Leasehold improvements
Lesser of life of lease or estimated useful life
Buildings and improvements
39.5
 
Capitalized Interest

The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted-average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or development activity is suspended for more than a brief period.

Operating Leases 

The Company leases land on which the Colorado Central Station hotel and parking garage is located as well as an additional parcel of land utilized for parking under operating leases.  Some leases entered into by the Company include options under which the Company may extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. The Company recognizes rent expense for each lease on the straight line basis, aggregating all future minimum rent payments including any predetermined fixed escalations of the minimum rentals, and allocating such amounts ratably over the period from the date the Company takes possession of the leased premises until the end of the lease term.

-75-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
1. Summary of Significant Accounting Policies (continued)

Other long-term liabilities consist of the aggregate difference between rent expense recorded on the straight line basis and amounts paid under the leases. One of the Company’s leases requires contingent rentals based on the change in the Metro Denver/Boulder annual CPI index with a maximum adjustment of 3% per year.  The Company records expense for contingent rentals during the period in which the rent is adjusted.

Deferred Financing Costs

The costs of issuing long-term debt are capitalized and amortized using the effective interest method over the term of the related debt.

Goodwill and Other Intangible Assets

Goodwill, representing the excess of the cost over the net identifiable tangible and intangible assets of acquired businesses, is stated at cost. Other intangible assets represent the value of trademarks acquired. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (“SFAS 142”) requires that these assets be reviewed for impairment at least annually. Based on its annual review completed in the fourth fiscal quarter, the Company believes that, as of April 29, 2007, there were no impairments of its goodwill and other intangible assets. Additionally, the Company intends to continue to evaluate intangible assets that are not being amortized, at least annually, to determine whether events and circumstances continue to support an indefinite useful life. If these assets are subsequently determined to have a finite useful life, they will be tested for impairment, and then amortized prospectively over the estimated remaining useful lives and accounted for in the same manner as other intangible assets that are subject to amortization.

Long-Lived Assets

The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 requires impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based

on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of April 29, 2007, there were no impairments of its long-lived assets.

Derivative Instruments and Hedging Activities

Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) requires the Company to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The Company utilizes derivative financial instruments to manage interest rate risk associated with variable rate borrowings. Derivative financial instruments are intended to reduce the Company’s exposure to interest rate risk. The Company accounts for changes in the fair value of a derivative instrument depending on the intended use of the derivative and the resulting designation, which is established at the inception of a derivative. SFAS 133 requires that a company formally document, at the inception of a hedge, the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge, including identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged, the method used to assess effectiveness and the method that will be used to measure hedge ineffectiveness of derivative instruments that

-76-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
1. Summary of Significant Accounting Policies (continued)

receive hedge accounting treatment. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is to be assessed quarterly based on the total change in the derivatives’ fair value. During the fiscal year ended April 29, 2007 and April 30, 2006, the Company used interest rate derivatives which were not designated as hedging instruments under SFAS 133. Therefore, all fair market valuation gains and losses attributed to the interest rate derivatives are recognized in other income (expense) within the consolidated statements of income.

Revenue Recognition

In accordance with gaming industry practice, the Company recognizes casino revenues as the net win from gaming activities. Casino revenues also are net of accruals for anticipated payouts of progressive slot jackpots and certain table games. Revenues from hotel, food, beverage, entertainment, and the gift shop are recognized at the time the related service or sale is performed or made.

Promotional Allowances

The retail value of accommodations, food and beverage and other services furnished to guests without charge is included in gross revenues and then deducted as promotional allowances to arrive at net revenues included in the accompanying consolidated statements of income. The Company also records the redemption of coupons and points for cash as a promotional allowance. These amounts are included in the accompanying consolidated statements of income as follows:
 
 

   
 Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
April 24, 2005
  
Rooms
  
$
5,284
  
$
3,504
  
$
2,604
  
Food and beverage
    
12,429
   
12,527
   
11,418
 
Other
    
1,044
   
1,356
   
1,035
 
Customer loyalty programs
    
22,862
   
26,117
   
23,022
 
Total promotional allowances
  
$
41,619
  
$
43,504
  
$
38,079
  
 
The estimated cost of providing such complimentary services that is included in casino expense in the accompanying consolidated statements of income was as follows:

       
Fiscal Year Ended
      
   
April 29, 2007
  
April 30, 2006
  
April 24, 2005
  
               
Rooms
  
$
2,507
  
$
1,813
  
$
1,232
  
Food and beverage
    
11,317
   
11,350
   
10,100
 
Other
    
458
   
388
   
298
 
Total cost of complimentary services
  
$
14,282
  
$
13,551
  
$
11,630
  
 
Slot Club Awards

The Company provides slot patrons with rewards based on the dollar amount of play on slot machines. A liability has been established based on an estimate of the value of these outstanding rewards, utilizing the age and prior history of redemptions.

-77-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
1. Summary of Significant Accounting Policies (continued)

Advertising

Advertising costs are expensed the first time such advertisement appears. Total advertising costs (including direct mail marketing) were $3,559, $4,712 and $3,355 for fiscal 2007, 2006 and 2005, respectively, with $3,559, $4,712 and $3,099 of those amounts included in income from continuing operations in fiscal 2007, 2006, and 2005, respectively.

Income Taxes

The Company records an income tax provision for federal and state income taxes regarding IC Holdings Colorado, Inc. and Colorado Central Station, both C Corporations.

No provision for federal or state income taxes is recorded for the Company, as the Company is taxed as a partnership and the income taxes are the responsibility of the respective individual members.

Income tax expense is determined under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between the financial statement and income tax basis of accounting using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a provision for current and deferred income taxes on a separate return basis.

Certain Risks and Uncertainties

The Company’s operations are dependent on the continued licensing or qualification of the Company. Such licensing and qualification are reviewed periodically by the gaming authorities in the State of Colorado.

The Company receives a significant amount of its revenue from patrons within 50 miles of the properties. If economic conditions in these areas were to decline materially or additional casino licenses were awarded in these locations, the Company’s results of operations could be materially affected.

Adoption of New Accounting Pronouncements

Allocation of Share-Based Payment Expense

Isle of Capri Casinos, Inc. has three stock-based compensation plans, the 1992 Stock Option Plan, the 1993 Stock Option Plan, and the 2000 Stock Option Plan. The plans provide for the issuance of incentive stock options and nonqualified options of Isle of Capri Casinos, Inc. stock which have a maximum term of 10 years and are, generally, exercisable in yearly installments of 20% commencing one year after the date of grant. Additionally, under Isle of Capri Casinos, Inc.’s Deferred Bonus Plan, non-vested stock is issued to eligible officers and employees.

Effective May 1, 2006, Isle of Capri Casinos, Inc. adopted the FASB Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), using the modified prospective method, thus, results for the periods prior to May 1, 2006 have not been restated in relation to the adoption of SFAS 123(R). As required under SFAS 123(R), Isle of Capri Casinos, Inc. recognized stock compensation expense during the fiscal year ended April 29, 2007 of which $234 was allocated to the Company based on where the team members who received the option were employed. This amount was recorded in marketing and administrative expense in the accompanying consolidated statements of income with the offset to Casino America of Colorado, Inc. member’s equity within the consolidated balance sheets.

-78-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
1. Summary of Significant Accounting Policies (continued)

For periods prior to May 1, 2006, Isle of Capri Casinos, Inc. applied the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion 25 and related interpretations in accounting for the Isle of Capri Casinos, Inc.’s three stock-based employee compensation plans. No stock-based employee compensation expense was reflected in net income of the Company related to stock option grants as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Adoption of Staff Accounting Bulletin No. 108

During fiscal year 2007, the Company determined that it had not been appropriately accounting for escalating rent payments relating to one of its land leases. As a result, the rent expense and corresponding liability balance was understated by a cumulative $727 through April 30, 2006. The error was immaterial to prior period financial statements. As a result, the Company elected to apply the provisions of Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, (“SAB 108”) and correct this error through a cumulative effect adjustment to members’ equity as of May 1, 2006. The adjustment to correct the error increased other long term obligations by $727, increased deferred tax assets $276 and decreased members’ equity $451.

It was also determined that Colorado Central Station had erroneously claimed $529 of deductions on its fiscal 2003 and 2004 Federal and Colorado consolidated income tax returns. The correction of this error results in a reduction of the Colorado Central Station’s net operating loss deferred tax asset of $200 with an offsetting increase in deferred tax expense. It was also determined that as of April 30, 2006, the Colorado Central Station’s deferred tax asset and liability balances had been calculated using erroneous tax rates. The correction of this error results in a reduction of the Company’s net deferred tax asset of $173 with an offsetting increase in deferred tax expense. The cumulative effect on members’ equity through April 30, 2006 as it relates to tax accounting was $373. These errors were immaterial to prior period financial statements. As a result, the Company elected to apply the provisions of SAB 108 and correct these errors through a cumulative effect adjustment to members’ equity as of May 1, 2006.

New Accounting Pronouncements
 
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that a company recognize the impact of a tax position in its financial statements if that position is more likely than not to be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 become effective in the first quarter of fiscal 2008, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening members’ equity. The Company is currently evaluating the impact, if any, of adopting FIN 48 on its financial statements and such impact cannot be reasonably estimated at this time.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), to define fair value and establish a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and to expand disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. Prior to SFAS 157, there were different definitions of fair value and limited guidance for applying those definitions in GAAP. A single definition of fair value, together with a framework for measuring fair value, should result in increased consistency and comparability in fair value measurements. The expanded disclosures about the use of fair value to measure assets and liabilities should provide users of financial statements with better information

-79-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
1. Summary of Significant Accounting Policies (continued)

about the extent to which fair value is used to measure recognized assets and liabilities, the inputs used to develop the measurements and the effect of certain measurements on earnings (or changes in net assets) for the period. SFAS 157 becomes effective in the first quarter of fiscal 2008. Early adoption is permitted. The Company is currently evaluating the impact, if any, of adopting SFAS 157 on its financial statements and such impact cannot be reasonably estimated at this time.

2. Property and Equipment

Property and equipment consists of the following:

   
April 29, 2007
  
April 30, 2006
  
Land and land improvements
  
$
45,026
  
$
45,044
  
Buildings and improvements
    
191,210
   
188,901
 
Furniture, fixtures and equipment
    
56,161
   
51,809
 
Construction in progress
    
525
   
2,237
 
Total property and equipment
    
292,922
   
287,991
 
Less accumulated depreciation
    
60,151
   
47,697
 
Property and equipment, net
  
$
232,771
  
$
240,294
  
 
Capitalized interest was $0, $1,554 and $1,402 for the fiscal years ended April 29, 2007, April 30, 2006 and April 24, 2005, respectively.

3. Goodwill

In fiscal 2005, the Company recorded an impairment charge related to goodwill for the Colorado Grande-Cripple Creek property, representing the difference between the Colorado Grande-Cripple Creek carrying values of $9,842 and their estimated fair values of $5,882. The estimated fair value was based on the estimated sales price, as further detailed in Note 12. The impairment charge is included in loss from discontinued operations on the consolidated statements of income.

The changes in the carrying amount of goodwill are as follows:

Balance at April 25, 2004
  
$
21,523
  
Impairment of Colorado Grande - Cripple Creek
    
(3,960
)
Balance at April 24, 2005
  
$
17,563
  
Sale of Colorado Grande - Cripple Creek
    
(2,898
)
Balance at April 30, 2006 and April 29, 2007
  
$
14,665
  
 
4. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value:

Cash and cash equivalents - The carrying amounts approximate fair value because of the short maturity of these instruments.


-80-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
4. Fair Value of Financial Instruments (continued)

Notes receivable - The carrying amounts approximate fair value because of the short maturity of these instruments.

Derivatives - The fair value of the interest rate swap agreements represents the estimated amount the Company would have to pay or receive from the counterparty if the Company were to terminate the interest rate swap agreements.

Long-term debt - The fair value of the Company’s long-term debt is estimated based on the discounted cash flow of future payments utilizing current rates available to the Company for debt of similar remaining maturities. Debt obligations with a short remaining maturity are valued at the carrying amount.

The fair values of the Company’s financial instruments approximate its carrying value.

5. Self-Insurance Liabilities

In fiscal 2005, Isle of Capri Casinos, Inc. and its subsidiaries, including the Company, established a captive insurance company, Capri Insurance Company (“the Captive”). Prior to the establishment of the Captive, the Company was self insured for workers’ compensation and general liability insurance up to $300 and $1,000 per claim, respectively, and the Company had insurance coverage in place for claims made in excess of these stop loss limits. During fiscal 2005, the Company transferred open reserved claims to the Captive, in the amount of $1,686, and paid a transfer premium to the Captive for this amount. The Captive underwrites the self-insured portion of the workers’ compensation and general liability claims and charges an annual insurance premium to the Company for first layer claims exposure up to the $300 and $1,000 stop-loss amounts, respectively for workers’ compensation and general liability. The Company paid the Captive $2,034 and $1,851 related to premiums for the fiscal years ended April 29, 2007 and April 30, 2006, respectively.

The Company’s employee-related health care benefits program continues to be self-funded up to $500 per claim. Claims in excess of this maximum amount are fully insured through a stop-loss insurance policy. The Company’s estimate of liabilities for unpaid claims and incurred but not reported claims totaled $1,529 and $1,183 at April 29, 2007 and April 30, 2006, respectively, and are included in accrued liabilities - payroll and related expenses in the accompanying consolidated balance sheets. The Company bases its accrual on claims filed and estimates of claims incurred but not reported. While the total cost of claims incurred depends on future developments, in management’s opinion, recorded reserves are adequate to cover payments on future claims.

-81-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
6. Long-Term Debt 

Long-term debt consists of the following:

   
April 29,
  
April 30,
  
   
2007
  
2006
  
Senior Secured Credit Facility:
          
Variable rate term loan Tranche C
  
$
187,150
  
$
189,050
  
Revolver
    
16,400
   
20,600
 
Black Hawk Business Improvement Special Assessment
             
Bonds District (BID Bonds)
   
348
   
473
 
     
203,898
   
210,123
 
Less current maturities
    
2,033
   
2,025
 
Long-term debt
  
$
201,865
  
$
208,098
  
 
Senior Secured Credit Facility

On October 24, 2005, the Company entered into a $240.0 million Second Amended and Restated Credit Agreement (“Credit Agreement”). The Credit Agreement, which amends and restates the Company’s existing credit agreement in its entirety, provides for a $50.0 million revolving credit facility maturing the earlier of October 24, 2010 or such date as the term loan facility is repaid in full and a $190.0 million term loan facility maturing on October 24, 2011. At the Company and the lead arranger’s mutual discretion, the Company may increase the size of the revolver and/or term loan facility in an aggregate amount up to $25.0 million subject to certain conditions. The term loans are payable in quarterly principal installments of $475 beginning on December 30, 2005 through September 30, 2010 and $45,125 beginning December 30, 2010 through September 30, 2011.

The revolving loans bear interest at the Company’s option at (1) the higher of 0.5% in excess of the federal funds effective rate plus an applicable margin up to 1.25% or the rate that the lead arranger announces from time to time as its prime lending rate plus an applicable margin up to 1.25% or (2) a rate tied to a LIBOR rate plus an applicable margin up to 2.25%. Interest is paid at varying dates but at least quarterly.

The term loan bears interest at the Company’s option at (1) the higher of 0.5% in excess of the federal funds effective rate plus an applicable base rate margin of 1.0% or the rate that the lead arranger announces from time to time as its prime lending rate plus an applicable base rate margin of 1.0% or (2) a rate tied to a LIBOR rate plus an applicable margin of 2.0%. Interest is paid quarterly.

The weighted average effective interest rate of total debt outstanding under the Senior Secured Credit Facility at April 29, 2007 and April 30, 2006 was 6.79% and 6.51%, respectively. The Company is required to pay a commitment fee of 0.5% of the unused portion of the revolving loan.

Pursuant to the refinancing in October 2005, the Company recognized a loss on early extinguishment of debt of $2.1 million due to the write-off of previously deferred financing costs related to its existing senior secured credit facility. The costs of $1.7 million associated with the new senior secured credit facility have been deferred and are being amortized over the term of the new facility.

-82-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
6. Long-Term Debt (continued)

As of April 29, 2007, the Company had $33.6 million of net availability under its revolving loan.

The Senior Secured Credit Facility provides for certain covenants, including those of a financial nature. The Company was in compliance with these covenants as of April 29, 2007. The Senior Secured Credit Facility is secured by liens on the Company’s assets.

Effective January 26, 2007, the Company executed a First Amendment to the Second Amended and Restated Credit Agreement amending certain covenant requirements for the third and fourth fiscal quarters ended April 29, 2007.

Effective July 20, 2007, the Company executed a Second Amendment to the Second Amended and Restated Credit Agreement to adjust certain financial covenants for the remainder of the term of the agreement.

Interest Rate Swap Agreements

The Company has interest rate swap agreements with an aggregate notional value of $80.0 million or 39.3% of its variable rate term loan outstanding under the Company’s Senior Secured Credit Facility as of April 29, 2007. The swap agreements effectively convert portions of the variable rate debt to a fixed-rate basis until the fourth fiscal quarter of 2008. For the fiscal years ended April 29, 2007 and April 30, 2006, the Company recorded a (gain) loss of $1.0 million and ($1.6) million, respectively in other income (expense) within the accompanying consolidated statements of income related to the change in fair market value of the undesignated swap agreements.

The fair value of the estimated interest differential between the applicable future variable rates and the interest rate swap contracts not designated as hedging instruments, expressed in present value terms, totaled $528 and $1.6 million as of April 29, 2007 and April 30, 2006, respectively. Based on the maturity dates of the contracts, these amounts are included in non current prepaid deposit and other assets in the accompanying consolidated balance sheets.

As of April 29, 2007, the three-month LIBOR rate, the variable interest rate, was 5.13%. The swap agreements effectively converted $20.0 million notional value to 3.799% fixed rate, $10.0 million notional value to 3.823% fixed rate, $10.0 million notional value to 3.760% fixed rate, $10.0 million value to 3.962% fixed rate, $10.0 million notional value to 3.985% fixed rate, $10.0 million notional value to 3.970% fixed rate and $10.0 million notional value to 4.030% fixed rate. Each of the rates is before the addition of the applicable spread of 2.00% as of April 29, 2007. With the addition of the applicable spread, the total interest rate for the debt related to the $20.0 million and each of the $10.0 million notional value swap agreements is 5.799%, 5.823%, 5.760%, 5.962%, 5.985%, 5.970% and 6.030%, respectively.

Other

In July 1998, the Black Hawk Business Improvement District (the “BID”), issued $2.9 million in 6.0% bonds due on December 1, 2009. The proceeds from the sale of the bonds were used to fund road and utility improvements in the Special Improvement District 1997-1 (the “SID”) of which the Company is a member. The costs of the improvements were $2.2 million, with the excess proceeds being returned to the bondholders by the BID. The Company is responsible for 50% of the $2.2 million plus interest. In April 2000, the Company made the first of 20 semiannual payments of $0.1 million in the form of special property tax assessments levied on the improvement project. This amount is calculated by amortizing $1.1 million or 50% of the net bond proceeds, over 20 periods at an interest rate of 6.25%. The difference

-83-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
6. Long-Term Debt (continued)

between the bond rate of 6.0% and the 6.25% that was assessed is to cover administrative costs of the BID related to the issuance.

Future maturities of long-term debt as of April 29, 2007 are as follows:

For the Fiscal Year Ending
      
2008
  
$
2,033
  
2009
    
2,041
 
2010
    
1,974
 
2011
    
107,600
 
2012
    
90,250
 
Thereafter
    
-
 
Total
  
$
203,898
  
7. Commitments

Future minimum payments under noncancelable operating leases with initial terms of one year or more consisted of the following at April 29, 2007:

For the Fiscal Year Ending April 29, 2007
      
2008
  
$
2,478
  
2009
    
2,515
 
2010
    
2,469
 
2011
    
2,525
 
2012
    
2,583
 
Thereafter
    
141,338
 
Total minimum lease payments
  
$
153,908
  
 
Total rent expense was $4,760, including contingent rentals of $48, in fiscal 2007; $4,213, including contingent rentals of $21, in fiscal 2006; and $4,761, including contingent rentals of $0, in fiscal 2005. Of these amounts, $4,760, $4,213 and $4,238 were included in income from continuing operations for fiscal 2007, fiscal 2006 and fiscal 2005, respectively.

During fiscal 2007, the Company determined that it had not been appropriately accounting for escalating rent payments for one of its land leases. Rent on the Company’s upper lot lease for a parcel of land utilized for parking increases 20% at the end of each 10 year renewal period and the lease should have been accounted for on a straight-line basis over the lease term. This error was corrected through a cumulative effect adjustment to members’ equity as of May 1, 2006, as discussed in Note 1. The Company also leases the land where the Colorado Central Station hotel and parking garage is located. Rent on this lease is subject to an annual adjustment based on the change in the Metro Denver/Boulder annual CPI index with a maximum adjustment of 3% per year. The land lease is subject to renewal every five years at the discretion of the Company. According to the terms of the lease, there is no purchase option available at the end of the renewal periods defined above and all leasehold improvements remaining on the property become custody of the lessor. As future increases are considered contingent rent, they will not be recorded until the CPI changes.

-84-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
8. Income Taxes

The income tax (benefit) provision for IC Holdings Colorado, Inc. and Colorado Central Station is comprised of the following:

   
Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
April 24, 2005
  
               
Current
  
$
-
  
$
(138
)
$
286
  
Deferred
    
(2,333
)
  
(1,075
)
  
(2,928
)
   
$
(2,333
)
$
(1,213
)
$
(2,642
)
 
A reconciliation of the income tax (benefit) provision for IC Holdings Colorado, Inc. and Colorado Central Station is comprised of the following:
 
   
Fiscal Year Ended April 29, 2007
  
   
April 29, 2007
    
April 30, 2006
    
April 24, 2005
  
Statutory tax (benefit) provision
 
$
(2,141
)
$
(1,118
)
$
(2,404
)
Effect of:
                
State taxes
    
(183
)
  
(95
)
  
(264
)
Other:
                    
Political contributions
    
18
   
-
   
-
 
Fines
    
(25
)
  
6
   
26
 
Other
    
(2
)
  
(6
)
  
-
 
Income tax benefit (provision)
                    
from continuing operations
  
$
(2,333
)
$
(1,213
)
$
(2,642
)
 
-85-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)
 
8. Income Taxes (continued)

Significant components of the IC Holdings Colorado, Inc. and Colorado Central Station net deferred federal and state income tax assets are as follows:
 
   
Fiscal Year Ended
  
   
April 29, 2007
  
April 30, 2006
  
Deferred tax assets:
          
Accrued expenses
  
$
656
  
$
374
  
Net operating losses
    
7,866
   
5,930
 
Capital loss carryforward
    
1,576
   
1,576
 
Other
    
114
   
83
 
Subtotal
  
$
10,212
  
$
7,963
  
Valuation allowance
    
(1,576
)
  
(1,576
)
Total deferred tax assets
  
$
8,636
  
$
6,387
  
               
Deferred tax liabilities:
              
Property and equipment
  
$
2,284
  
$
2,277
  
Other
    
22
   
15
 
Total deferred tax liabilities
  
$
2,306
  
$
2,292
  
               
Net deferred tax asset
  
$
6,330
  
$
4,095
  
               
Net current deferred tax asset
  
$
295
  
$
346
  
Net non-current deferred tax asset
    
6,035
   
3,749
 
Net deferred tax asset
  
$
6,330
  
$
4,095
  
 
IC Holdings Colorado, Inc. and Colorado Central Station have federal and state net operating losses of approximately $20,651 and $21,210 as of April 29, 2007 and April 30, 2006, respectively. These carryforwards expire between 2025 and 2028, and can only be utilized to offset income of IC Holdings Colorado, Inc. and Colorado Central Station. No valuation allowance has been established for these assets as the Company believes that it is more likely than not that the losses will be utilized before their applicable expiration.

IC Holdings Colorado, Inc. and Colorado Central Station have a capital loss carryforward of approximately $4,146 as of April 29, 2007 and April 30, 2006 and relating to the sale of Colorado Grande. This carryforward expires in 2011 and can only be utilized to offset capital gain income of IC Holdings Colorado, Inc. and Colorado Central Station. A $1,576 valuation allowance has been established against this asset as the Company does not believe it will recognize the capital gain prior to expiration of the carryforward period.

9. Litigation

The Company is subject to certain claims and lawsuits that have been filed in the normal course of business. Management does not believe these pending claims and litigation will have a material effect on the consolidated cash flows, financial position, or operations of the Company.

-86-
 
Isle of Capri Black Hawk, L.L.C.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands)

 
10. Employee Benefit Plans

401(k) Plan

The Company participates in a 401(k) plan sponsored by Isle of Capri Casinos, Inc., covering substantially all of its employees. The Company’s contribution expense related to this plan was $150, $280 and $265 in fiscal 2007, 2006 and 2005, respectively. The Company’s contribution is based on a percentage of employee contributions and may include an additional discretionary amount.

11. Related Party Transactions

The Company has a management agreement with Isle of Capri Casinos, Inc. Under the agreement, Isle of Capri Casinos, Inc. manages the casinos of the Company in exchange for a fee. The management fee is equal to 2% of revenues, as defined, plus 10% of operating income, but not to exceed 4% of revenues, as defined. The Company expensed management fees of $6,817, $7,439, and $6,374 in fiscal years 2007, 2006 and 2005, respectively.

12. Discontinued Operations

On April 25, 2005, the Company and Colorado Grande executed a Stock Purchase Agreement with a subsidiary of Nevada Gold & Casinos, Inc. to sell all outstanding shares of the common stock of Colorado Grande to a subsidiary of Nevada Gold & Casinos, Inc., a related party. The aggregate estimated sales price agreed to was $6,500 payable:
 
(a.) $600 in cash upon closing and
 
(b.) $5,900 promissory note secured by the stock of Colorado Grande and Nevada Gold & Casinos, Inc.’s future membership distributions from the Company until the note has been fully repaid. The note receivable carries a balance of $1,273 and $3,284 as of April 29, 2007 and April 30, 2006, respectively
 
The estimated sales price was adjusted down $216 in fiscal 2006, the difference between actual working capital and the target working capital (as defined by the Sales Agreement) on the closing date. The adjustment was reflected as a loss from discontinued operations in the fiscal 2006 consolidated statements of income.
 
Discontinued operations relate to those of the Colorado Grande casino, located in Cripple Creek, Colorado. Results of operations of the Colorado Grande casino are included in the consolidated statements of income as discontinued operations.
 
Revenue, loss from discontinued operations before income taxes and loss from discontinued operations are summarized as follows:

 
 
Fiscal Year Ended
  
   
April 30, 2006
  
April 24, 2005
  
Net revenues
  
$
-
  
$
7,016
  
               
Loss from discontinued operations
              
before income taxes
  
$
(216
)
$
(3,132
)
               
Loss from discontinued operations
  
$
(216
)
$
(2,946
)
 
-87-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

CONTENTS
 
 
Page
   
INDEPENDENT AUDITORS’ REPORT
89
   
CONSOLIDATED FINANCIAL STATEMENTS
  
   
Balance Sheet
90
Statement of Operations
92
Statement of Changes in Equity
93
Statement of Cash Flows
94
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
96

-88-
 
INDEPENDENT AUDITORS’ REPORT


To the Board of Directors of
American Racing and Entertainment, LLC and Subsidiaries

We have audited the accompanying consolidated balance sheet of American Racing and Entertainment, LLC and Subsidiaries (the “Company”) as of December 31, 2006, and the related consolidated statements of operations, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. We also conducted our audit as of and for the year ended December 31, 2006 in accordance with the auditing 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, the Company had a working capital deficiency of $19,887,011 at December 31, 2006. The Company also realized a net loss of $16,491,292 for the year ended December 31, 2006. The Company’s loss from operations and its working capital deficiency raised substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Racing and Entertainment, LLC and Subsidiaries as of December 31, 2006, and the consolidated results of its operations, and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Marcum & Kliegman LLP
 

May 4, 2007
Melville, NY
 
-89-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES
       
CONSOLIDATED BALANCE SHEET
       
December 31, 2006
 
ASSETS
  
           
CURRENT ASSETS
          
Cash and cash equivalents
  
$
3,672,084
        
Restricted cash
    
2,780,805
       
Accounts receivable, net of allowance for doubtful
             
accounts of $103,661
    
955,414
       
Inventories
    
173,735
       
Prepaid expenses and other current assets
    
1,286,867
       
             
Total Current Assets
        
$
8,868,905
  
               
PROPERTY AND EQUIPMENT, net
          
72,411,903
  
             
OTHER ASSETS
              
Intangible assets
    
20,855,661
       
Deferred finance costs, net
    
1,122,923
       
               
Total Other Assets
          
21,978,584
 
               
TOTAL ASSETS
        
$
103,259,392
  
               
 
The accompanying notes are an integral part of the consolidated financial statements.

 
-90-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES
       
CONSOLIDATED BALANCE SHEET
       
 
December 31, 2006
 
LIABILITIES AND EQUITY
  
           
CURRENT LIABILITIES
          
Notes payable
  
$
16,008,080
        
Notes payable - related party
    
4,550,000
       
Accounts payable and accrued expenses
    
7,012,813
       
Accrued gaming liability
    
638,625
       
Capital leases
    
50,173
       
Other current liabilities
    
496,225
       
               
Total Current Liabilities
        
$
28,755,916
  
               
OTHER LIABILITIES
              
Notes payable
    
51,300,000
       
Deferred income taxes
    
10,415,018
       
Capital leases, less current portion
    
346,503
       
Other long-term liabilities
    
45,859
       
             
Total Other Liabilities
          
62,107,380
 
               
TOTAL LIABILITIES
          
90,863,296
 
               
MINORITY INTEREST
          
91,190
 
               
COMMITMENTS AND CONTINGENCIES
              
               
EQUITY
          
12,304,906
 
               
TOTAL LIABILITIES AND EQUITY
        
$
103,259,392
  
 
The accompanying notes are an integral part of the consolidated financial statements.

 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES
       
CONSOLIDATED STATEMENT OF OPERATIONS
       
 For the Year Ended December 31, 2006
 
REVENUES
          
Gaming
  
$
28,062,716
        
Racing
    
3,036,658
       
Food and beverage
    
3,243,876
       
Lodging
    
879,975
       
Other
    
499,378
       
               
GROSS REVENUES
        
$
35,722,603
  
               
Less: promotional allowances
          
(1,261,905
)
               
TOTAL REVENUES
          
34,460,698
 
               
OPERATING EXPENSES
              
Gaming
    
19,082,647
       
Racing
    
5,171,968
       
Food and beverage
    
1,629,061
       
Lodging
    
225,208
       
Other
    
68,024
       
Selling, general and administrative
    
12,321,856
       
Depreciation and amortization
   
1,540,868
       
Pre-opening and start-up expenses
    
8,103,986
       
               
TOTAL OPERATING EXPENSE
          
48,143,618
 
               
LOSS FROM OPERATIONS
          
(13,682,920
)
               
OTHER INCOME (EXPENSE)
              
Interest income
    
2,055
       
Capitalized interest
    
748,482
       
Interest expense
    
(5,537,962
)
      
Other
   
(70,542
)
      
Minority interest
    
(91,190
)
      
             
TOTAL OTHER EXPENSE, NET
          
(4,949,157
)
               
LOSS BEFORE INCOME TAXES
          
(18,632,077
)
               
BENEFIT FROM INCOME TAXES
          
2,140,785
 
               
NET LOSS
        
$
(16,491,292
)
 
The accompanying notes are an integral part of the consolidated financial statements.
 
-92-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
         
 For the Year Ended December 31, 2006
 
   
Number of
  
Members'
  
Shares
  
Common
  
   
Units
  
Equity
  
Outstanding
  
Stock
  
                 
BALANCE - January 1, 2006
    
180,137
 
$
17,781,198
    
—
 
$
—
  
                           
Net Loss
    
—
   
(16,491,292
)
  
—
   
—
 
                           
Issuance of common stock-no par value
    
—
   
—
   
400
   
—
 
                           
Membership unit offering costs
    
—
   
(485,000
)
  
—
   
—
 
                           
Members' contributions
    
115,000
   
11,500,000
   
—
   
—
 
                           
BALANCE - December 31, 2006
    
295,137
 
$
12,304,906
    
400
 
$
—
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
-93-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES
       
CONSOLIDATED STATEMENT OF CASH FLOWS
       
For the Year Ended December 31, 2006
 
CASH FLOWS FROM OPERATING ACTIVITIES
          
Net loss
        
$
(16,491,292
)
Adjustments to reconcile net loss to net cash used in
             
operating activities:
              
Depreciation
  
$
1,540,868
        
Amortization of deferred finance fees
    
781,373
       
Deferred income taxes
    
(2,140,785
)
      
Bad debt expense
    
103,661
       
Minority interest
    
91,190
       
Changes in operating assets and liabilities, net of effects
             
of acquisitions:
              
Accounts receivable
    
(961,886
)
      
Inventories
    
(145,407
)
      
Prepaid expenses and other current assets
    
(843,291
)
      
Accounts payable and accrued expenses
    
(949,676
)
      
Accrued gaming liability
    
638,625
       
Other current liabilities
    
(274,069
)
      
Other long term liabilities
    
45,859
       
               
TOTAL ADJUSTMENTS
          
(2,113,538
)
               
NET CASH USED IN OPERATING ACTIVITIES
          
(18,604,830
)
               
CASH FLOWS FROM INVESTING ACTIVITIES
              
Cash paid for acquisitions, net of cash acquired
    
(9,390,964
)
      
Purchases of property, plant and equipment
   
(29,553,827
)
      
Restricted Cash
    
19,195
       
               
NET CASH USED IN INVESTING ACTIVITIES
        
$
(38,925,596
)
 
The accompanying notes are an integral part of the consolidated financial statements.

-94-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES
       
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
       
 For the Year Ended December 31, 2006
 
CASH FLOWS FROM FINANCING ACTIVITIES
          
Members' contributions
  
$
16,775,020
        
Payment of deferred finance costs
    
(1,904,296
)
      
Proceeds from note payable, related party
    
4,322,539
       
Proceeds from the issuance of notes payable
    
42,407,015
       
Repayment of notes payable
    
(469,554
)
      
               
NET CASH PROVIDED BY FINANCING
              
ACTIVITIES
        
$
61,130,724
  
               
NET INCREASE IN CASH AND CASH EQUIVALENTS
          
3,600,298
 
               
CASH AND CASH EQUIVALENTS - Beginning
          
71,786
 
               
CASH AND CASH EQUIVALENTS - Ending
        
$
3,672,084
  
               
SUPPLEMENTAL CASH FLOW INFORMATION
              
Cash paid for interest (net of capitalized interest of $748,482)
        
$
3,972,984
  
               
               
Non-cash investing and financing activities:
              
Fair value of assets acquired
  
$
60,512,286
        
Liabilities assumed
    
(45,070,945
)
      
Less: cash paid prior year
    
(5,848,536
)
      
Less: cash acquired
    
(201,841
)
      
               
NET CASH PAID
        
$
9,390,964
  
               
Capital lease obligations
        
$
397,000
  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
-95-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 - Organization and Operations

Description of Partnership Organization and Operations
American Racing and Entertainment, LLC (“American Racing”) was organized pursuant to the Limited Liability Company Law of New York State on September 12, 2005 and was a development stage company at December 31, 2005. American Racing owns Tioga Downs Racetrack, LLC (“Tioga Downs”) (100%) and Vernon Downs Acquisition, LLC (“VDA”) (90%). VDA owns Mid-State, Raceway, Inc. (“MSR”) (100%), which owns Mid-State Development Corporation (“MSD”) (100%), collectively referred to as “Vernon Downs.” Operations at both Tioga Downs and Vernon Downs primarily consist of live and simulcast pari-mutual racing, video gaming, food and beverage, and lodging. As of December 31, 2006 American Racing was owned by Nevada Gold NY, Inc. (34%) a wholly owned subsidiary of Nevada Gold & Casinos, Inc. (AMEX:UWN) (Nevada Gold); Oneida Entertainment, LLC (“Oneida”) (31%); Southern Tier Acquisition II, LLC (“Southern Tier”) (25%); and TrackPower, Inc. (NASDAQ:TPWR) (“TrackPower”) (10%). American Racing and its subsidiaries are collectively referred to as “the Company.”

In May 2006, Nevada Gold - Tioga Downs, Inc. (“NG-TD”) and Nevada Gold - Vernon Downs, Inc. (“NG-VD”), New York Corporations and wholly owned subsidiaries of Nevada Gold, were formed to hold the New York State harness horse racing licenses for Tioga Downs and Vernon Downs, as well as manage those properties for the Company. NG-TD and NG-VD have been fully consolidated in the Company’s Consolidated Financial Statements as Variable Interest Entities (Note 4).

Management Plans and Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business, and do not reflect adjustments that might result if the Company were unable to continue as a going concern. The Company has incurred a net loss of $16,491,292. As of December 31, 2006, the Company also had a net working capital deficit of $19,887,011. The net working capital deficit is primarily attributable to the Company’s future obligations to its vendors and debt obligations. Realization of the Company’s assets, however, is dependent on the continued operations of the Company and the future success of such operations. There can be no assurances that the Company will be able to reverse its operating loss or cash flow deficiency, or that the Company will be able to satisfy its future obligations. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management Plans and Going Concern, continued
The Company believes that it has access to sources of working capital that are sufficient to fund operations for the year ended December 31, 2007. The Company believes that any significant capital requirements associated with development of its projects or the need for operating capital to fund losses will be met by additional capital contributions by its members as well as acquiring debt if needed. There can be no assurance, however, that the Company will be successful in raising additional capital.

NOTE 2 - Significant Accounting Policies

Principles of Consolidation
The consolidated financial statements include the accounts of all majority-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. The Company has a variable interest in entities that have been appropriately reflected in the consolidated financial statements or otherwise disclosed in the notes thereto. These variable interest entities are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) “Consolidation of Variable Interest Entities.”

Basis of Accounting
The consolidated financial statements of the Company are prepared using the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when incurred. The basis of accounting conforms with generally accepted accounting principles in the United States of America. The Company’s year end is December 31.

-96-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - Significant Accounting Policies, continued

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates include the valuation and recoverability of long-lived assets and indefinite-lived intangibles including the values assigned to acquired intangible assets, income taxes and accruals. Actual results could differ from those estimates.

Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, bank deposits, demand deposits and certificates of deposit with original maturity dates of three months or less from the date of purchase. The carrying amounts of cash and cash equivalents are their fair values due to their short maturities and the ability to quickly liquidate the deposits as needed. All income generated from cash and cash equivalents are recorded as interest income.

The Company maintains significant cash balance with various financial institutions, which are not covered by Federal Deposit Insurance Corporation. The Company mitigates its risk by investing in or through major financial institutions. The Company has not incurred any losses associated with these accounts and believes that it is not exposed to any significant credit risk on cash at this time. At December 31, 2006, in accordance with the New York State Lottery Rules and Regulations approximately $750,000 was held at each Video Gaming Machine (“VGM”) facility as operating cash-on-hand.

Restricted Cash
Under New York State Racing, Pari-Mutual Wagering and Breeding Law, the Company is obliged to withhold a certain percentage of certain types of wagers towards the establishment of a pool of money, the use of which is restricted to the funding of approved capital improvements. Periodically during the year, the Company petitions the Racing and Wagering Board to certify that the noted expenditures are eligible for reimbursement from the capital improvement fund. The balances in these accounts were approximately $37,000 at December 31, 2006.

The New York law governing VGM operations provides for revenues to be retained by the VGM operator to be used as reimbursement of marketing expenses incurred by the VGM operator. The amount of revenues directed toward this reimbursement is deposited in a bank account under the control of the New York State Lottery and the VGM operator. The funds are transferred from this account to the operator upon the approval of and by the Lottery officials of the reimbursement requests submitted by the operator. The balance in this account was approximately $1,167,368 at December 31, 2006. (See advertising and marketing costs policy for further discussion).

The Company has restricted cash of approximately $477,000 in connection with the Horsemens agreement (Note 16).

The Company also has restricted cash of approximately $1,100,000 in connection with acquisition of Vernon Downs (Note 3). The Company was required by the bankruptcy court to withhold cash for the settlement of claims associated with the bankruptcy.

Accounts Receivable
Accounts receivable are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their carrying amount, which approximates fair value.

In the normal course of business, the Company settles wagers for other racetracks and is potentially exposed to credit risk. The Company has not experienced significant losses regarding the settlement of wagers. These wagers are included in accounts receivable.

-97-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - Significant Accounting Policies, continued

Revenue and Expense Recognition
The Company recognizes revenues at the end of each day’s operation. Revenue from pari-mutual wagering is earned from live harness racing and simulcast signals from other tracks, before deductions of such related expenses as purses, stakes and awards. Revenue from the VGM operations is the difference between the amount wagered by patrons and the amount paid out to patrons and is referred to as the net win, which is reflected included in the financial statements as gaming revenue. The Company reports incentives related to VGM play and points earned in loyalty programs as a reduction of gaming revenue. The Company also recognizes revenue from food and beverage, retail, lodging, and other ancillary sources at the end of each day’s operation.

Operating costs include (i) the amounts paid to the New York State Lottery for the State's share of the net win, (ii) amounts due to the Horsemen and Breeder's for their share of the net win and (iii) amounts paid for harness racing purses, stakes and awards. Also included in operating costs are the costs associated with the sale of food, beverage and other miscellaneous items offset by the marketing allowance from the New York State Lottery.

Gaming Revenues and Promotional Allowances
The Company generates revenue principally from VGM’s and pari-mutual wagering in accordance with industry guidance. Gaming and racing revenue is the net win from gaming activities (the difference between gaming wins and losses). These revenues are net of incentive discounts to patrons and accruals for anticipated payouts of VGM jackpots. A VGM is an electronic gaming device which allows a patron to play electronic versions of various lottery games of chance for the New York State Lottery and is similar in appearance to a traditional slot machine. Horse racing revenues consist of (i) wagering on live races; (ii) simulcast import and export fees from wagering at various harness and thoroughbred racetracks across the country; (iii) revenue allocations, as prescribed by law, from betting activity at New York State Off Track Betting facilities; and (iv) program and racing form sales. The Company also generates revenue from food and beverage, retail merchandise, and the retail value of lodging that is provided to customers on a complimentary basis. A corresponding amount of $1,261,905 was deducted as promotional allowances.

Incentive Programs
The Company has a point’s loyalty player’s club program called "Winners Circle.” The program allows guests to earn points based on the volume of their VGM and pari-mutuel wagering activity. Points earned by guests are recorded as an expense in the period they are earned. The Company estimates the amount of points which will be redeemed and records the estimated redemption value of those points as a reduction from revenue in promotional allowances. The factors included in this estimation process include an overall redemption rate, the cost of awards to be offered and the mix of cash, goods and services for which the points will be redeemed. The Company uses historical data to estimate these amounts. The liability recorded for unredeemed points was $290,422 at December 31, 2006 and is included in accounts payable and accrued expenses in the accompanying consolidated financial statements.

Inventories
Inventories consist of food and beverage, retail merchandise and operating supplies, and are stated at the lower of cost or market. Cost is determined primarily by the average cost method for food and beverage and supplies and the retail inventory or specific identification methods for retail merchandise.

Property and Equipment
Land is recorded at historical cost and is not depreciated. Buildings, building improvements, land improvements, furniture, fixtures and equipment are recorded at historical cost less accumulated depreciation. These assets are depreciated using the straight-line method over the estimated useful lives.

Leasehold improvements are recorded at historical cost and depreciated over the term of the lease or their estimated useful lives, whichever is shorter. The assets’ residual values and remaining useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. Additions, improvements and major renewals are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in current income.

-98-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - Significant Accounting Policies, continued

Property and Equipment, continued

Interest costs incurred for the construction of any qualifying asset are capitalized at the Company’s weighted average borrowing rate during the period of time that is required to complete and prepare the asset for its intended use. Interest capitalized for the year ended December 31, 2006 was $748,482 and is being amortized over the life of the related asset.

Intangible Assets
The Company's intangible assets are recognized at historical cost less accumulated amortization. The Company has racing licenses that have been determined to have an indefinite life. Indefinite-lived intangibles are not amortized and are tested for impairment on an annual basis or when events and circumstances exist requiring impairment testing.

Deferred Financing Costs, Net
Deferred financing costs are capitalized and amortized to interest expense on the straight-line basis (which approximates the effective interest method) over the term of related agreements unless circumstances warrant a more appropriate life that more closely approximates the effective interest method.

Impairment of Long-Lived Assets
The Company regularly assesses all of its long-lived assets for impairment when events or circumstances indicate their carrying amounts may not be recoverable. This is accomplished by comparing the expected undiscounted future cash flows of the assets with the respective carrying amount as of the date of assessment. Should aggregate future undiscounted cash flows be less than the carrying value, a write-down would be required, measured as the difference between the carrying value and the fair value of the asset. Fair value is estimated either through independent valuation or as the present value of expected future cash flows.

Financial Instruments
The determination of fair value of financial instruments, consisting of cash and cash equivalents, accounts receivable, obligations under accounts payable, accrued expenses, and debt instruments is based on interest rates available to the Company and comparisons to quoted market prices for the same or similar issues. At December 31, 2006, the fair value of these financial instruments approximated carrying value.

Advertising and Marketing Costs
The Company expenses advertising costs when incurred. Advertising expense of $1,523,838 was included in the selling, general and administrative expense. The New York State Lottery reimburses the Company advertising and marketing costs up to 8% of VGM revenues, which equated to $2,245,017 for the year ended December 31, 2006. Unencumbered reimbursements from The New York State Lottery during the year ended December 31, 2006 were $943,893. Additionally, $1,167,368 was held as restricted cash as of December 31, 2006 with the remaining amount owed to the Company of $133,756 (see Note 5) which is included in accounts receivable as of December 31, 2006.

Pre-Opening and Start-Up Expenses
The Company accounts for costs incurred during the pre-opening and start-up phases of operations in accordance with Statement of Position 98-5, “Reporting on the Costs of Start-up Activities.” Pre-opening and start-up costs, including organizational costs, are expensed as incurred. Costs included in pre-opening and start-up expenses include payroll, outside services and other expenses related to new or start-up operations and new customer initiatives.

Pre-opening and start-up expenses were recorded through June 2006 for costs associated with Tioga Downs and through October 2006 for costs associated with Vernon Downs.

Income Taxes
The Company has elected to be as a partnership under the provision of Section 704 of the Internal Revenue Code. Under such election, the Company’s members are taxed separately on their proportionate share of the Company’s taxable income. Accordingly, no provision for income taxes has been provided for these members.

-99-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - Significant Accounting Policies, continued

Income Taxes, continued

MSR, MSD, NG-TD and NG-VD are subject to Federal and State income taxes. The Company accounts for income taxes under Statement of Financial Accounting Standard (SFAS) No. 109, “Accounting for Income Taxes,” whereby deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are determined based on differences between financial statement carrying amounts of existing assets and their respective tax basis using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

As indicated in Note 13, the Company has provided a valuation allowance on its net operating loss and tax credit carryforwards to the extent that realization of such benefits is more likely than not to occur.

The Company’s income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities. The Company is not currently the subject of an income tax audit and has not been notified of any pending audits.

Business Combination
The provision of SFAS No. 141 “Business Combinations” establishes that standard is used to account for acquisitions made by the Company. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill.

Minority Interest
American Racing owns 90% of VDA and accordingly consolidates this entity including minority interest. As per the ownership agreement, the minority’s interest will remain at 10% and they will share proportionately in the gains and losses of VDA. Since the minority interest in the net assets of VDA has been reduced to zero, the minority’s interest in current years losses has not been recorded. Furthermore, the minority’s interest in any future profits will not be recognized until the aggregate of such profits equals the aggregate unrecognized losses.

New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” SFAS No. 123(R) requires recognition of expense for equity-based compensation programs, including stock options and stock appreciation rights, effective January 1, 2006. Expense is to be measured based on the grant-date fair value of the equity instruments being issued. As of December 31, 2006 the Company had no such equity - based compensation programs.

In March 2006 the FASB ratified the consensuses reached in EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)” (“EITF 06-3”). The EITF reached a consensus that the scope of the Issue includes any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, and may include, but is not limited to, sales, use, value added, and some excise taxes. The presentation of taxes within the scope of this Issue on either a gross or a net basis is an accounting policy decision that should be disclosed. Furthermore, for taxes reported on a gross basis, a company should disclose the aggregate amount of those taxes in interim and annual financial statements for each period for which an income statement is presented if that amount is significant. The disclosures required under this consensus should be applied retrospectively to interim and annual financial statements for all periods presented, if those amounts are significant. The Company will adopt EITF 06-3 on January 1, 2007. The Company does not anticipate that the adoption will have a significant impact on its consolidated financial position or results of operations.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which will become effective for the Company on January 1, 2007 and is to be applied to all open tax years as of the date of effectiveness. The Interpretation prescribes a recognition threshold and a measurement

-100-
 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 2 - Significant Accounting Policies, continued

New Accounting Pronouncements, continued

attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company is in the process of evaluating the impact of the application of the interpretation to its consolidated financial statements and is currently not yet in a position to determine such effects.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS No. 157) which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, but it does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS No. 157 could impact fair values assigned to assets and liabilities in any future acquisition. The Company does not anticipate that the adoption will have a significant impact on its consolidated financial position or results of operations.

In September 2006, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No 108 (“SAB 108”) which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 becomes effective in fiscal 2007. Adoption of SAB 108 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS No. 159 expands the use of fair value measurement by permitting entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective beginning the first fiscal year that begins after November 15, 2007. The Company does not expect application of SFAS No. 159 to have a material affect on its consolidated financial statements.

NOTE 3 - Acquisitions

On May 1, 2006 VDA substantially acquired all of the outstanding capital shares of MSR and MSD, collectively referred to as Mid-State, the owners of Vernon Downs Raceway. Mid-State filed for bankruptcy protection on August 11, 2004, under a Plan of Reorganization (the Plan) pursuant to the provisions of Chapter 11 of the United States Bankruptcy Code. However, certain shareholders of Mid-State that are suitable for licensing under the New York racing and lottery regulations have the option to acquire up to 10% of VDA for a nominal purchase price. Certain shareholders have requested their 10% of VDA be transferred to them. A hearing was scheduled in February 2007 to complete this transfer, however it was postponed and no date has been rescheduled.

In connection with the consummation of the Plan, VDA issued two notes (i) one in the amount of $24,500,000 payable to Vestin Mortgage, Inc. (“Vestin”) and (ii) the other in the amount of $3,065,784 to All Capital, LLC (“Capital”). These notes were issued in full settlement of the claims submitted by Vestin and Capital in the Vernon Downs Chapter 11 bankruptcy (Note 11c and d).

The acquisition has been accounted for using the purchase method of accounting. Revenues and expenses of Mid-State have been included in the accompanying financial statements beginning May 1, 2006. The allocation of the purchase price to the acquired assets and liabilities is based primarily on the estimates of fair value made by a third party valuation firm. The amount of liabilities assumed contains estimates of amounts that will be awarded to certain creditors in the bankruptcy, and may be prospectively revised if the amount recorded differs from the amount the Company is ultimately ordered to pay by the bankruptcy court.

In accordance with the purchase agreement, the Company may pay up to an additional $2,350,000 as additional purchase price which are contingent upon revenues generated by the VGMs at Vernon Downs in the first 24 months of operations. This represents the maximum amount payable to All Vernon Acquisition, LLC. A liability for this contingency has not been

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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 3 - Acquisitions, continued

recorded in the Company’s consolidated financial statements as the outcome of this contingency cannot be reasonably determined.

The allocation of purchase price reflected in the December 31, 2006 balance sheet is preliminary. The initial purchase price allocations, including the amount of bankruptcy liabilities, any contingent payments required per above and environmental remediation liabilities incurred (see note 15), may be adjusted within one year of the purchase date for changes in the estimates of the fair value of assets acquired and liabilities assumed. Management does not believe the amount of any such differences will be material in the relationship to the overall purchase price or the financial position of the Company.

The fair value of the assets acquired and liabilities assumed arising from the acquisition were as follows:

   
Fair Value
  
Assets Acquired:
      
Cash and cash equivalents
  
$
201,841
  
Restricted cash
    
2,800,000
  
Current assets
    
303,156
  
Deferred tax assets
    
4,434,643
  
Property and equipment
    
31,771,990
  
Intangible assets
   
20,855,661
  
Other assets
   
144,995
  
Total Assets Acquired
    
60,512,286
  
 
        
Liabilities Assumed
        
Accounts payable and accrued liabilities
    
(2,050,621
)
Notes payable
    
(25,259,584
)
Other liabilities
    
(770,294
)
Deferred taxes
    
(16,990,446
)
Total Liabilities Assumed
    
(45,070,945
)
         
Net Assets Acquired
   
15,441,341
  
         
Less: Cash and cash equivalents in acquired subsidiary
    
(201,841
)
Cash Out Flow
 
$
15,239,500
  

Deferred tax liabilities were recorded to reflect the differences in the book basis and the tax basis of certain tangible and intangible assets, which were recorded at fair market. The racing license acquired through the acquisition of Vernon Downs has been determined to have a value of $20,855,661 as well as having an indefinite life.

The Company acquired Mid-State in order to expand its core operations in VGMs and harness horseracing, as well as add hotel operations. The Company believes it will provide an increase in its customer base thus creating a larger market share in New York State and surrounding areas as well as providing the opportunity to increase revenues. Due to operations commencing in the latter half of 2006, Vernon Downs generated revenue of $10,444,903 and a loss of $7,204,410 to the Company from May 1, 2006 to December 31, 2006. The amount of gross profit could not be obtained after integration of the sales, services and support functions with its parent, American Racing. Vernon Downs previously did not operate VGMs, and the harness horse racing has not been in operation since 2004. Only the hotel was in operation at the time of the acquisition.

NOTE 4 - Consolidation of Variable Interest Entities

NG-TD and NG-VD, New York Corporations and wholly owned subsidiaries of Nevada Gold, were formed to hold the New York State harness horse racing licenses for Tioga Downs and Vernon Downs, respectively as well as manage those properties for the Company. The Company evaluated whether NG-TD and NG-VD should be treated as variable interest entities (“VIEs”)

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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 4 - Consolidation of Variable Interest Entities, continued

subject to consolidation during the applicable reporting period under FIN 46(R).  The Company determined that it is the primary beneficiary of NG-TD and NG-VD. Therefore NG-TD and NG-VD will be treated as VIEs and will be consolidated in the Company’s financial statements for the year ended December 31, 2006 for the following reason:

The Company does not own any shares, therefore has no voting or similar rights to make decisions regarding the activities of NG-TD and NG-VD. Upon incorporation of NG-TD and NG-VD, the Company provided substantially all financing activities. The Company funds any cash needs and is obligated to absorb all expected losses associated with racing activities as well as the right to receive any future profits.
 
On May 18, 2006 NG-TD and NG-VD were incorporated. These companies are responsible for the operations of the harness horse racing of Tioga Downs and Vernon Downs.

NOTE 5 - Accounts Receivable, Net

Accounts receivable consisted of the following at December 31, 2006:

Trade receivables
  
$
815,473
  
VGM marketing reimbursement
    
133,756
  
Other receivables
    
109,846
  
     
1,059,075
  
Less: allowance for doubtful accounts
   
(103,661
)
         
Accounts Receivable, net
  
$
955,414
  

NOTE 6 - Inventories

At December 31, 2006, the inventory balance was $173,735 and was classified into two major categories, $50,584 of food and beverage and $123,151 of retail merchandise.

NOTE 7 - Property and Equipment

Property and equipment consisted of the following at December 31, 2006:

   
 
Amount
  
Depreciation
Period
  
Land
  
$
996,189
        
Land improvements
    
5,042,954
    
10 years
  
Building and improvement
    
58,184,097
    
40 years
  
Furniture, fixtures and equipment
    
9,449,533
    
3-12 years
  
Construction-in-progress
    
279,998
        
     
73,952,771
        
Less: Accumulated depreciation
    
(1,540,868
)
      
               
Property and equipment, net
  
$
72,411,903
        

Depreciation expense was $1,540,868 for the year ended December 31, 2006.

Land improvements at December 31, 2006 primarily consist of horsetracks, a water tower, asphalt paving, landscaping, site utilities and parking areas.

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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 7 - Property and Equipment, continued

Construction-in-progress at December 31, 2006 primarily consisted of improvement projects at the facilities as well as information technology enhancements. The Company capitalized approximately $748,482 of interest costs during the year ended December 31, 2006. At December 31, 2006 construction-in-progress primarily consisted of the construction activities related to Vernon Downs.

NOTE 8 - Intangible Assets

The Company acquired a racing license and determined it to have a fair value of $20,855,661 as well as an indefinite life and will not be amortized since such license can and is expected to be renewed by management indefinitely. Since cash flows resulting from this racing license is expected to continue indefinitely, management has determined this intangible asset to have an indefinite life.

There was no amortization expense for the year ended December 31, 2006, and assuming no changes in the Company’s intangible assets there is no amortization expense projected for such intangibles over the next five (5) years.

NOTE 9 - Deferred Finance Costs, Net

At December 31, 2006 the deferred finance costs of $1,904,296 consisted of loan issuance costs related to the financing of Vernon Downs. These costs are being amortized on a straight line basis (which approximates the effective interest method) over a weighted-average amortization period of approximately five years. At December 31, 2006 amortization expense and the related accumulated amortization was $781,373.

NOTE 10 - Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following at December 31, 2006:

Trade payables
  
$
5,326,654
  
Unredeemed point liability
    
290,422
  
Horse racing purse liability (see Note 16)
    
435,196
  
Other payables and accrued expenses
   
960,541
  
   
$
7,012,813
  

NOTE 11 - Notes Payable and Long-Term Debt

Non-related party notes payable
Notes payable and long-term debt consisted of the following at December 31, 2006:

a) Prime (8.25% at December 31, 2006) revolving credit facilities with interest due monthly, principal due June 12, 2007
  
$
1,276,864
  
         
b) 13.0% development loan with interest payments due monthly, principal due May 25, 2012
    
18,500,000
  
         
c) 9.0% note payable with interest payments due monthly, principal due March 31, 2007
    
22,800,000
  
         
d) 9.0% note payable with interest payments due monthly, principal due March 31, 2007
    
3,012,684
  
         
e) 12.0% senior note with interest payments due monthly, principal due April 1, 2007
    
20,000,000
  

 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 11 - Notes Payable and Long-Term Debt, continued

Non-related party notes payable, continued

f) Prime (8.25% at December 31, 2006) revolving credit facility with interest due monthly, principal due December 31, 2007
    
989,500
  
         
g) 10% note payable, due on January 31, 2009, with monthly installments of $18,615, including interest
    
581,694
  
         
h) 7.25% note payable, due on March 26, 2007, with monthly installments of $46,682, including interest
    
140,046
  
         
i) 14.95% note payable, due on May 14, 2009, with monthly installments of $617, including interest
    
7,292
  
     
67,308,080
  
         
Less: current maturities
   
(16,008,080
)
Long-Term Debt
  
$
51,300,000
  

a)
On June 12, 2006, the Company entered into two revolving credit facilities for $950,000 and $1,100,000 with a bank, which is available for general corporate purposes and to fund horse racing purses, respectively. These credit facilities make available to the Company $2,050,000 of committed borrowings and expires on June 12, 2007. The $1,100,000 credit line is personally guaranteed by a principle owner of Southern Tier. The $950,000 revolving credit facility is guaranteed by Nevada Gold.

b)
On May 26, 2006, Company the obtained an $18,500,000 development loan to fund pre-opening expenses from various financial intuitions through Oneida, the collateral agent. The development loan is evidenced by a promissory note issued by the Company in favor of financial intuitions. The Company paid a 3.0% commitment fee for the development loan. The development loan is secured by: (i) second mortgages on the Company’s racetracks, (ii) the promissory notes of the members of the Company and (iii) a second lien on primarily all tangible and intangible assets of the Company. The Company was required to provide financial statements within 90 days of year end, they were in default as of December 31, 2006, but they have obtained a waiver.

c-d)
The Vestin and Capital notes payable were assumed in connection with the acquisition of Vernon Downs (Note 3). These notes payable originally matured on September 30, 2006, which was extended until March 31, 2007. Subsequent to year-end, the Company exercised its right to extend payment of the principal by paying a fee of $250,000 and $26,500 to the holders of the Vestin and the Capital notes, respectively (see Note 10). Member distributions are restricted until these notes are paid in full.

The Vestin and Capital notes payable are secured on a pro-rata share of their combined debt and without preference basis by a first priority mortgage and lien an all real personal property owned by Vernon Downs. Principal and interest may become immediately due and payable in the event of default under the agreements. A principle owner of the Southern Tier has guaranteed 100% of the notes payable. Nevada Gold has agreed to reimburse the principle owner of Southern Tier 50% of any payments made in accordance with this agreement.

On March 13, 2007, the Vestin note was extended until March 31, 2008 and on March 30, 2007, the Capital note was repaid (see Note 16).

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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 11 - Notes Payable and Long-Term Debt, continued

Non-related party notes payable, continued

e)
On March 30, 2006, the Company obtained a $20,000,000 bridge loan from RCG Longview II, LLC. The bridge loan was evidenced by a promissory note from the Company. The bridge loan is secured by a mortgage interest on Tioga Downs racetrack as well as an assignment of income and revenue from Tioga Downs. The Company paid a 2.0% commitment fee and is required to pay a 1.0% exit fee on the principal. The principle owner of Southern Tier has guaranteed the principal, interest and other expense payable under the bridge loan documents. The Company amended and restated their operating agreement requiring the other members to reimburse Southern Tier, limited to their percentage of ownership, any payments Southern Tier makes under the bridge loan agreement.

On April 1, 2007, a principle owner of Southern Tier agreed to personally pay $10 million in principal on the RCG Longview II, LLC note and it was extended until April 1, 2009 (see Note 16).

 
f)
On November 15, 2006, the Company entered into a revolving credit for $1,000,000 with a bank, which is available for general corporate purposes. The credit facility makes available to the Company $1,000,000 of committed borrowing and expires on December 31, 2007. The credit line is personally guaranteed by a principle owner of Southern Tier.

Non-related party notes payable, continued
 
g)
In January 2006, the Company obtained a loan of $822,853 from Bally’s Gaming equipment. The loan is collateralized by the Bally’s software which has a net book value of $ 696,375 at December 31, 2006. The Company is currently in default on this loan.

These agreements contain various covenants, which among other things require the maintenance of limits as to other borrowing and purchases of fixed assets. In addition, a default under certain covenants in such agreements could result in the acceleration of the Company’s payment obligations under such agreements, as the case may be, and, under certain circumstances, in cross-defaults under other debt obligations. These defaults may have a negative effect on the Company’s liquidity.

Related party notes payable
During 2006 the Company entered into various loan agreements with its members and a principle owner of Southern Tier. The loans have interest rates that range between 8.25% and 15.0% annually on the original principal to be paid monthly. At December 31, 2006, the outstanding amount of these loans was $4,550,000. The loans have principal maturity due dates in 2007. (See Note 16)

Principal payments
Total principal obligations on the Company’s notes payable and related party notes payable are as follows for the year ending December 31, 2006:

For the Year Ended
December 31
  
 
Amount
  
2007
  
$
20,558,080
(1)
2008
    
22,800,000
  
2009
    
10,000,000
  
2010
    
—
  
2011
    
—
  
Thereafter
    
18,500,000
  
Total
  
$
71,858,080
  
 
(1)
includes $4,550,000 due to a related party

 
AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 12 - Capital Leases

During 2006, the Company obtained equipment under capital leases with various interest rates of approximately 6% per annum. Assets and liabilities under capital leases are recorded at the lower of the present values of the minimum lease payments or the fair values of the assets. The leased equipment is included in property equipment and is depreciated over its estimated useful lives.

Future annual minimum payments under these leases are:

       
2007
  
$
70,532
  
2008
    
70,532
  
2009
    
70,532
  
2010
    
70,532
  
2011
    
70,532
  
Thereafter
    
100,147
  
Total minimum lease payments
    
452,807
  
Less amounts representing interest
    
56,131
  
Total capital lease obligation
    
396,676
  
Less current portion
    
50,173
  
Capital lease obligation, less current portion
  
$
346,503
  

The capitalized lease obligation is collateralized by equipment that has a cost of approximately $397,000 and accumulated depreciation of approximately $14,000 at December 31, 2006.
 
NOTE 13 - Members' Distributions

No distribution to members’ will be made until the member loans as well as the Vestin and Capital loans are paid in full. Distributions to the members’ will be made based on ownership with the exception that Southern Tier and TrackPower having a preferred distribution which allows them “first distributes” status on a 50/50 basis until each of them has received distributions totaling $2,500,000.

NOTE 14 - Income Taxes

The benefit from income taxes consisted of the following:

Federal:
      
Current
  
$
—
  
Deferred
    
(1,724,937
)
         
State:
        
Current
   
—
  
Deferred
    
(415,848
)
Total Taxes
  
$
(2,140,785
)


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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 14 - Income Taxes, continued

The components of deferred tax assets and liabilities consisted of the following at December 31, 2006:

Deferred Tax Assets:
      
Bad debt reserve
  
$
40,607
  
Net operating loss and other carryforwards
    
5,493,334
  
Pre-opening and start-up expenses
    
2,357,858
  
Valuation allowance
    
(1,506,000
)
         
Deferred Tax Assets
    
6,385,799
  
         
Deferred Tax Liabilities:
        
Gaming and racing licenses
    
(8,133,708
)
Depreciation and amortization
    
(8,667,109
)
         
Deferred Tax Liabilities
    
(16,800,817
)
         
Total Net Deferred Tax Liabilities
  
$
(10,415,018
)

The difference between the statutory rate and the effective rate is determined as follows:

Tax provision at Federal statutory rate
    
(34.00
)%
State income taxes net of Federal benefit
    
(4.99
)
Valuation allowance
    
16.07
  
Effect of LLC losses taxed directly to members
    
11.34
  
Other
    
0.08
  
Total Rate
    
(11.50
)%

A valuation allowance is provided for deferred tax assets if management believes that it is more likely than not that these items will either expire before the Company is able to realize their benefit or that future deductibility is uncertain. The Company has evaluated and recognized deferred tax assets to the extent that it is more likely than not that they will be realized. At December 31, 2006, the Company has a net operating loss credit carryforward of $14,085,471.

A portion of the tax net operating losses are subject to limitations of Internal Revenue Code Section 382. This section provides limitations on the availability of net operating losses to offset current taxable income if significant ownership changes have occurred for Federal tax purposes. At December 31, 2006, the Company maintained a valuation allowance of $1,506,000 against the net operating loss credit carryforwards that expire in 2021 and a portion of its start up expenses. The Company provides a valuation allowance for these credit and loss carryforwards because it does not consider realization of such assets to be more likely than not.

NOTE 15 - Related Party Transactions

NG-TD and NG-VD have contracts with the Company to provide management services for operation of the facilities. NG-TD and NG-VD earn fees based on revenues and other financial performance measures. The management fees charged were $91,190 for the year ended December 31, 2006 and the associated accounts payable to NG-TD and NG-VD were $91,190 at December 31, 2006 which may not represent an arms length transaction.

Approximately $500,000 was paid to Nevada Gold during the year ended December 31, 2006 for various services rendered on behalf of the Company.

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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 15 - Related Party Transactions, continued

Oneida Entertainment Holdings Inc. a related party to Oneida is the collateral agent for the $18,500,000 development loan (see Note 11).

A board member of TrackPower is also the owner of the parent company of Audio Video Systems Group Company (AVSG). During the year ended December 31, 2006 the Company purchased $850,984 of audio and video equipment, and services for its facilities from AVSG. The Company owed $86,874 to Audio Video Systems Group Company at December 31, 2006.

NOTE 16 - Commitments and Contingencies

Legal Matters
The Company, from time to time, is involved in legal proceedings involving claims against the Company, which are handled and defended in the ordinary course of business. While the resolution of such litigation could have a material effect on earnings and cash flows in the year of resolution, the Company believes that such claims would not have a material adverse effect on the financial condition of the Company’s consolidated financial condition or results of operations if determined against the Company.

Three Article 78 proceedings were filed by Catskill Off-Track Betting Corporation (Catskill OTB) against the New York State Racing and Wagering Board (NYSRWB) naming Tioga Downs as additional respondents.

The first proceeding seeks to invalidate the simulcast racing license granted by the New York Racing and Wagering Board to Tioga Downs. The NYSRWB and Tioga Downs have answered raising a statue of limitations defense and believes this defense will be successful and the matter will be dismissed.

The second proceeding challenges the Freedom of Information Law response by the NYSRWB concerning a feasibility study prepared for Tioga Downs for presentation to the NYSRWB for licensing purposes. The Company believes that the decision by the board not to release the report will be sustained. However, if not sustained and the report is released, it will have no financial impact upon the Company.

The third proceeding challenges the NYSRWB’s decision to amend the plan of operations of the Catskill OTB over the objections of the Catskill OTB requiring them to display the signal from races held at Tioga Downs. The display of Tioga Downs signal by Catskill OTB is mandated by the New York State law. At this time the Company believes that the decision by the NYSRWB will be upheld.

Environmental Matters
During 2006 the Company learned of the pendency of a New York State Department of Environmental Conservation (DEC) file and investigation that pre-dates the present owner’s management of the property. The Vernon Downs Oil Spill Matter Under Navigation Law Article 12 reveals that before 1998 the former owner kept and maintained two underground storage tanks that contained gasoline on the property. These tanks were decommissioned in 1997-1998 at which time it was discovered that gasoline had contaminated the site. The DEC opened an investigation and ordered the owners to develop a plan for remediation at the site.

Environmental Matters, continued
Initial steps were undertaken by the previous owners to comply with the DEC order, but the progress was slow and largely inconclusive, except to identify some contamination had occurred. Since the purchase of the property the Company has acted diligently in formulating a “clean-up plan,” and in February 2007 the clean-up plan was submitted for approval to the DEC.

At this time active remediation is unnecessary because the contaminated area is both tightly contained and well defined. The clean-up plan will involve quarterly monitoring and testing of the contaminated site for at least one year with the ultimate goal to clean up the site and obtain a DEC certification as to that fact.

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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 16 - Commitments and Contingencies, continued

Article 12 of the Navigation Law and case law there under deems the property owner strictly liable for the cost of investigation and clean up. The Company is doing so expeditiously, and in full cooperation and consultation with the DEC. The forgoing efforts and action by the Company demonstrates to the DEC and the State of New York that it is not recalcitrant and is fully cooperative. Taking into consideration the Company’s efforts and actions and the fact that the Company was not the owner of the property when the contamination occurred should result in a finding that the statutory, mandatory penalties are inappropriate in this case. If the State of New York was to assert that the Company is liable for the penalties, the claim would be vigorously contested. The Company considers it unlikely that the State of New York will assert that the Company is liable for the penalties.

It is the Company’s policy to accrue expenses for environmental contingencies when it is probable that liability has been incurred and the amount of loss can be reasonably estimated. Any reserves established for environmental contingencies would be exclusive of claims against insurers or others and would generally not be discounted. At December 31, 2006, the Company had recorded no reserves for this environmental contingency because this matter is in the early stages and no determination can be made at this time as to its final outcome, nor can its materiality be accurately ascertained.

Central New York Harness Horsemens Association and the Southern Tier Harness Horsemens Association:
The Company has an agreement with a local harness horsemen association at each property. As a condition of these agreements, the Company is obligated to share with the association a percentage of revenue generated from VGM net win, live and simulcast handle and revenue, and OTB commissions. Amounts due under such obligations at December 31, 2006 amounted to $440,000 (see Note 10).

Operating leases
At December 31, 2006, non-cancelable future minimum payments under significant operating leases for various office equipment consist of the following:

For the Year Ended
December 31
  
 
Amount
  
2007
  
$
59,311
  
2008
    
59,311
  
2009
    
59,311
  
2010
    
57,229
  
2011
    
29,546
  
Thereafter
    
—
  
Total Minimum Lease Payments
  
$
264,708
  

The Company owns its facilities and incurred no rental expense for the year ended December 31, 2006.

NOTE 17 - Subsequent Events

On January 3, 2007, Oneida loaned the Company $2,250,000 for the $4,000,000 December 28, 2006 capital call at 15% interest due in 30 days.

On January 18, 2007, the remaining $3,000,000 plus interest due to Oneida for an October 20, 2006 capital call became due. Southern Tier provided its pro-rata portion of the call, in the amount of $777,740. Nevada Gold elected not to participate in the capital call. TrackPower provided its pro-rata portion of the call less interest in the amount of $300,000. This capital call transaction resulted in the following new partnership percentages: Oneida (35.39%), Nevada Gold (29.66%), Southern Tier (25%), and TrackPower (9.95%).

On January 27, the $2,250,000 due to Oneida from the January 3, 2007 loan and the $750,000 due to Southern Tier from a December 29, 2007 loan, both as advances on the December 28, 2006 $4,000,000 capital call became due. Southern Tier provided its pro-rata remaining portion of the call, in the amount of $250,000, less interest. Nevada Gold and TrackPower

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AMERICAN RACING AND ENTERTAINMENT, LLC
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 17 - Subsequent Events, continued

elected not to participate in the capital call. Oneida elected to fund those members’ contributions in addition to its own, providing $750,000 less interest. This capital call transaction resulted in the following new partnership percentages: Oneida (41.54%), Nevada Gold (25.05%), Southern Tier (25%), and TrackPower (8.41%).

In January 2007, $500,000 was released to the Company from the Vernon Downs restricted cash claims account.

On March 1, 2007, the Company requested a capital call from its members in the amount of $2,500,000. The call became due and payable on March 30, 2007.

On March 13, 2007, Oneida and Southern Tier paid Vestin $1,140,000 on behalf of the Company. This payment extended the Vestin note (Note 11c) for one additional year, resulting in a new principal due date of March 31, 2008, with interest payments due monthly at 12.0% until that date.

On March 30, 2007, the March 1, 2007 $2,500,000 capital call became due. Southern Tier provided its pro-rata portion of the call, in the amount of $625,000 (less the $500,000 March 13, 2007 loan plus interest). Two members, Nevada Gold and TrackPower elected not to participate in the capital call. Oneida elected to fund those members’ contributions in addition to its own, providing $1,875,000 (less the $700,000 March 13, 2007 loan plus interest). This capital call transaction resulted in the following new partnership percentages: Oneida (44.59%), Southern Tier (25%), Nevada Gold (22.77%) and TrackPower (7.64%).

On March 30, 2007, a principal owner of Southern Tier repaid the Capital note (Note 11d) in the amount of $3,012,684 and paid $3,000,000 principal on the Vestin note (Note 11c), both on behalf of, and as a loan to, the Company. This $6,012,684 loan, plus $16,048 in legal fees is due from the other members at their prorata amount, and the notes evidencing the loans have not been finalized.

On April 1, 2007, the $20,000,000 promissory note to RCG Longview II, LLC (Note 11e) came due, at which time a 1% exit fee was due. A principal owner of Southern Tier agreed to pay $10,000,000 in principal on the note and a $100,000 fee for the prorata portion exited. The other members are required to reimburse Southern Tier for their prorate amount. The payment on the remaining principal on the note, $10,000,000, was extended from April 1, 2007 to April 1, 2009.

On April 4, 2007, the Company received $150,000 from Vestin relating to the $1,140,000 extension payment on March 13, 2007. The refund was due to the subsequent March 30, 2007 $3,000,000 principal payment on the Vestin note.

On April 23, 2007, Nevada Gold announced that it entered into a Letter Agreement with Southern Tier and Oneida for the sale of its 22.77% membership interest in the Company.

In connection with the sale, the Company will terminate its management agreement with Nevada Gold. Consideration for the sale includes a payment of management fees owed to Nevada Gold of $110,073, a payment of $2,100,000 to Nevada Gold immediately upon the transfer of its interest in the Company, payments of $1.1 million after each of the first and second years of the transaction and the immediate release of a certificate of deposit of approximately $1,100,000 million currently pledged by Nevada Gold on behalf of the Company. The transaction also includes mutual releases from all claims and obligations arising out of the ownership of the Company and the operation of the racing facilities. The transaction is subject to the approval of the New York Racing and Wagering Board and the New York State Lottery and the waiver of a right of first refusal held by a minority owner to purchase a portion of the Nevada Gold ownership interest. The parties have agreed to execute a more formal agreement within thirty days, but in no case later than May 30, 2007.
 
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