34

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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 24, 2008

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 Joseph A. Juliano		Chairman of the Board of Directors		July 24, 2008
/s/ WILLIAM J. SHERLOCK William J. Sherlock		Director		July 24, 2008
/s/ WILLIAM G. JAYROE William G. Jayroe		Director		July 24, 2008
/s/ H. THOMAS WINN H. Thomas Winn		Director		July 24, 2008
/s/ FRANCIS M. RICCI Francis M. Ricci		Director		July 24, 2008
/s/ WAYNE H. WHITE Wayne H. White		Director		July 24, 2008
/s/ ROBERT B. STURGES Robert B. Sturges		Director and Chief Executive Officer   (principal executive officer)		July 24, 2008
/s/ JAMES J. KOHN James J. Kohn		EVP and Chief Financial Officer (principal  financial officer and principal accounting  officer)		July 24, 2008

 

35

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Index to Consolidated Financial Statements

	Page
Consolidated Financial Statements of Nevada Gold & Casinos, Inc.
Report of Independent Registered Public Accounting Firm	37
Consolidated Balance Sheets as of April 27, 2008 and April 29, 2007	38
Consolidated Statements of Operations for fiscal years ended April 27, 2008, April 29, 2007 and April 30, 2006	39
Consolidated Statements of Stockholders’ Equity for fiscal years ended April 27, 2008, April 29, 2007 and April 30, 2006	40
Consolidated Statements of Cash Flows for fiscal years ended April 27, 2008, April 29, 2007 and April 30, 2006	41
Notes to Consolidated Financial Statements	42
Consolidated Financial Statements of Isle of Capri Black Hawk, L.L.C.
Report of Independent Registered Public Accounting Firm	65
Consolidated Balance Sheets as of January 27, 2008 and April 29, 2007	66
Consolidated Statements of Income for the fiscal years ended January 27, 2008, April 29, 2007 and April 30, 2006	67
Consolidated Statements of Members' Equity for the fiscal years ended January 27, 2008, April 29, 2007, and April 30, 2006	68
Consolidated Statements of Cash Flows for the fiscal years ended January 27, 2008, April 29, 2007 and April 30, 2006	69
Notes to Consolidated Financial Statements	70
Consolidated Financial Statements of American Racing and Entertainment, LLC and Subsidiaries
Independent Auditors’ Report	82
Consolidated Balance Sheet as of December 31, 2006	83
Consolidated Statement of Operations for the year ended December 31, 2006	85
Consolidated Statement of Changes in Equity for the year ended December 31, 2006	86
Consolidated Statement of Cash Flows for the year ended December 31 ,2006	87
Notes to Consolidated Financial Statements	89

 

36

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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 27, 2008 and April 29, 2007 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended April 27, 2008, April 29, 2007 and April 30, 2006. 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 27, 2008 and April 29, 2007 and the results of their operations and their cash flows for the years ended April 27, 2008, April 29, 2007 and April 30, 2006 in conformity with U.S. generally accepted accounting principles

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Nevada Gold & Casinos, Inc.’s internal control over financial reporting as of April 27, 2008, 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 23, 2008 expressed an adverse opinion on the Company's internal control over financial reporting.

As discussed in Note 3, the Company adopted FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” on April 30, 2007.

 

 

/s/ Pannell Kerr Forster of Texas, P.C.

Houston, Texas

July 23, 2008

 

37

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Nevada Gold & Casinos, Inc.

Consolidated Balance Sheets

		April 27,			April 29,
		2008			2007
ASSETS
Current assets:
Cash and cash equivalents		$	1,396,313		$	2,803,560
Restricted cash			13,014,000			1,050,000
Accounts receivable			2,313,593			397,145
Accounts receivable - affilates			57,359			124,685
Prepaid expenses			369,025			474,933
Notes receivable, current portion			1,100,000			—
Notes receivable - development projects, current portion			—			1,357,904
Other current assets			54,446			55,055
Total current assets			18,304,736			6,263,282
Investments in unconsolidated affiliates			154,969			35,201,419
Investments in unconsolidated affiliates held for sale			—			400,489
Investments in development projects			2,407,562			323,202
Investments in development projects held for sale			3,437,932			3,914,765
Notes receivable			1,100,000			—
Notes receivable - affiliates			3,521,066			3,521,066
Notes receivable - development projects, net of current portion			16,510,200			18,012,737
Goodwill			5,462,918			5,462,918
Property and equipment, net of accumulated depreciation
of $1,808,883 and $1,281,191 at April 27, 2008 and
April 29, 2007, respectively			1,327,275			2,063,026
Deferred tax asset			1,885,726			—
Other assets			6,780,317			4,868,442
Total assets		$	60,892,701		$	80,031,346
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	1,097,277		$	1,540,781
Accrued interest payable			115,027			21,211
Other accrued liabilities			203,071			378,937
Guaranty liabilities			—			4,610,000
Taxes payable			3,911,475			—
Long-term debt, current portion			—			2,066,518
Total current liabilities			5,326,850			8,617,447
Long-term debt, net of current portion and discount			15,550,000			55,021,031
Deferred income			—			8,591
Other liabilities			56,505			742,991
Total liabilities			20,933,355			64,390,060
Commitments and contingencies			—			—
Stockholders' equity:
Common stock, $0.12 par value per share; 50,000,000
shares authorized; 13,935,330 shares issued and
12,939,130 shares outstanding at April 27, 2008
and April 29, 2007, respectively			1,672,240			1,672,240
Additional paid-in capital			19,092,706			18,484,448
Retained earnings			29,401,890			5,694,088
Treasury stock, 996,200 shares at April 27, 2008 and April 29, 2007, respectively, at cost			(10,216,950	)		(10,216,950	)
Accumulated other comprehensive income			9,460			7,460
Total stockholders' equity			39,959,346			15,641,286
Total liabilities and stockholders' equity		$	60,892,701		$	80,031,346

 

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

38

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Nevada Gold & Casinos, Inc.

Consolidated Statements of Operations

		Fiscal Years Ended
		April 27,			April 29,			April 30,
		2008			2007			2006
Revenues:
Casino		$	6,636,652		$	6,253,491		$	5,653,340
Food and beverage			1,414,423			1,295,157			1,471,816
Other			101,203			153,305			126,078
Credit enhancement and management fees			40,174			6,651,304			7,348,651
Gross revenues			8,192,452			14,353,257			14,599,885
Less promotional allowances			(1,459,539	)		(1,294,458	)		(1,450,664	)
Net revenues			6,732,913			13,058,799			13,149,221
Operating expenses:
Casino			1,935,791			1,655,837			2,566,306
Food and beverage			674,961			721,360			863,703
Marketing and administrative			2,900,887			3,094,554			1,935,257
Facility			377,608			323,906			276,304
Corporate expense			5,001,190			7,203,198			5,778,507
Legal expenses			871,428			1,489,967			1,668,311
Depreciation and amortization			743,783			1,112,718			1,018,699
Write-off of notes receivable related to gaming projects			4,026,893			3,235,297			1,574,452
Impairment of equity investment			308,350			125,000			-
Write-off of project development cost			-			495,982			286,653
Other			67,439			85,296			126,266
Total operating expenses			16,908,330			19,543,115			16,094,458
Operating loss			(10,175,417	)		(6,484,316	)		(2,945,237	)
Non-operating income (expenses):
Earnings (loss) from unconsolidated affiliates			4,055,446			(3,405,539	)		6,917,818
Gain on sale of equity in investments and marketable securities			40,715,552			42,226			167,948
Gain on termination of development contract			-			245,499			-
Gain on termination of development and loan agreement			-			10,264,006			-
Interest expense, net			(2,620,983	)		(3,553,052	)		(2,248,550	)
Loss on extinguishment of debt			(203,160	)		-			-
Minority interest			-			(4,301,050	)		(1,308,867	)
Income (loss) before income tax expense			31,771,438			(7,192,226	)		583,112
Income tax expense
Current			9,949,362			170,347			-
Deferred and change in valuation allowance			(1,885,726	)		1,592,827			211,251
Total income tax expense			8,063,636			1,763,174			211,251
Net income (loss)		$	23,707,802		$	(8,955,400	)	$	371,861
Per share information:
Net income (loss) per common share - basic		$	1.83		$	(0.69	)	$	0.03
Net income (loss) per common share - diluted		$	1.83		$	(0.69	)	$	0.03
Basic weighted average number of shares outstanding			12,939,130			12,937,222			12,975,697
Diluted weighted average number of shares outstanding			12,945,151			12,937,222			13,243,750

 

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

39

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Nevada Gold & Casinos, Inc.

Consolidated Statements of Stockholders' Equity

 

																	Accumulated
								Additional									Other			Total
		Common Stock						Paid-in			Retained			Treasury			Comprehensive			Stockholders'
		Shares			Amount			Capital			Earnings			Stock			Income (loss)			Equity
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			(9,781,669	)		(841	)		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			(10,216,950	)		7,460			15,641,286
Comprehensive income:
Net Income			—			—			—			23,707,802			—			—			23,707,802
Unrealized gain on securities available
for sale, net of tax benefit			—			—			—			—			—			2,000			2,000
Comprehensive loss																					23,709,802
Stock options issued as severance									199,587			—			—			—			199,587
Stock based compensation			—			—			408,671			—			—			—			408,671
Balance at April 27, 2008			13,935,330		$	1,672,240		$	19,092,706		$	29,401,890		$	(10,216,950	)	$	9,460		$	39,959,346

 

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

 

40

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Nevada Gold & Casinos, Inc.

Consolidated Statements of Cash Flows

		Fiscal Years Ended
		April 27,			April 29,			April 30,
		2008			2007			2006
Cash flows from operating activities:
Net income (loss)		$	23,707,802		$	(8,955,400	)	$	371,861
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation			743,783			773,375			548,644
Amortization of capitalized development costs			—			339,342			470,055
Amortization - Stock Options			408,671			338,939			—
Write-off of notes receivable and accrued interest			4,044,693			2,912,614			1,574,452
(Gain on settlement) write-off of project development costs			(14,500	)		495,982			286,653
Impairment of equity investment			308,350			125,000			—
Warrants and options issued, beneficial conversion and
amortization of deferred loan issuance costs			764,329			601,980			394,854
Gain on sale of equity investments, marketable securities
and assets, net			(40,715,552	)		(42,226	)		(167,948	)
Gain on termination of development contracts			—			(10,509,505	)		—
Minority interest			—			4,301,050			1,308,867
Distributions from unconsolidated affiliates			2,555,000			2,215,000			2,914,000
(Earnings) loss from unconsolidated affiliates			(4,055,447	)		3,405,539			(6,917,818	)
Loss on extinguishment of debt			203,160			—			—
Deferred income tax expense			(1,885,726	)		1,594,559			211,251
Income tax refund			—			—			113,288
Changes in operating assets and liabilities:
Receivables and other assets			(1,604,249	)		(1,026,090	)		(1,975,867	)
Accounts payable and accrued liabilities			2,980,089			177,944			1,211,543
Net cash provided by (used in) operating activities			(12,559,597	)		(3,251,897	)		343,835
Cash flows from investing activities:
Purchases of real estate and assets held for development			(2,303,208	)		(566,122	)		(664,430	)
Advances on development projects held for sale			(3,979	)		—			—
Equity investment in unconsolidated affiliates			—			—			(10,189,800	)
Purchase of property and equipment			(154,520	)		(314,514	)		(2,790,905	)
Purchase of marketable securities			—			—			(813,199	)
Net proceeds from sale of fixed assets			30,533			53,050			—
Net proceeds from sale of equity investments, marketable securities and assets securities and assets			66,810,073			180,132			839,679
Net proceeds from sale of development projects			500,000			—			—
Net proceeds from termination of development contracts			—			12,818,822			—
Acquisition of Colorado Grande, net of cash acquired			—			—			(638,705	)
Advances on notes receivable			—			(116,722	)		(18,339,303	)
Collections of notes receivable			—			500,739			941,392
Advances on notes receivable - affiliates			—			(1,600,000	)		(23,975	)
Collections of notes receivable - affiliates			—			316,033			364,012
Investment in restricted cash			(11,950,000	)		(1,050,000	)		—
Investment in certificate of deposit			(14,000	)		—			—
Net cash provided by (used in) investing activities			52,914,899			10,221,418			(31,315,234	)
Cash flows from financing activities:
Repayment on term loans			(46,037,549	)		(6,379,111	)		(2,744,216	)
Proceeds from term loans			2,000,000			-			-
Borrowing on credit facilities, net			2,500,000			3,000,000			47,584,328
Deferred loan issuance costs			(225,000	)		(90,000	)		(1,205,265	)
Acquisition of common stock			—			(435,281	)		(9,781,669	)
Cash proceeds from exercise of stock options and warrants			—			22,001			61,700
Issuing cost related to debt conversion to equity			—			—			(99,525	)
Cash distribution to minority interest owners			—			(4,579,724	)		(1,436,497	)
Net cash provided by (used in) financing activities			(41,762,549	)		(8,462,115	)		32,378,856
Net increase (decrease) in cash and cash equivalents			(1,407,247	)		(1,492,594	)		1,407,457
Cash and cash equivalents at beginning of period			2,803,560			4,296,154			2,888,697
Cash and cash equivalents at end of period		$	1,396,313		$	2,803,560		$	4,296,154
Supplemental cash flow information:
Cash paid for interest		$	3,498,078		$	5,217,576		$	3,908,321
Income tax payments		$	6,037,916		$	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
Note receivable converted into equity investment in American Racing		$	—		$	1,400,000		$	—
Record fair value of guaranty liabilities		$	—		$	4,610,000		$	—
Equity investment conversion to accounts receivable		$	3,897,183		$	—		$	—
Extinguishment of guaranty with sale of American Racing		$	4,610,000		$	—		$	—
Stock options issued in settlement of severance obligation		$	199,587		$	—		$	—
Receivable issued to purchasers of unconsolidated affiliate		$	2,200,000		$	—		$	—
Unrealized gain (loss) on marketable securities		$	2,000		$	7,460		$	(841	)
Capital leases		$	68,004		$	—		$	—
Investment in unconsolidated affiliate exchanged for forgiveness
of accouts payable		$	284,000		$	—		$	—

 

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

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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 and California. 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.

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. References in this discussion to fiscal 2008, 2007 and 2006 represent the twelve months ended April 27, 2008 April 29, 2007 and April 30, 2006, respectively.

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 and record the portion we do not own as minority interest. 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 RCI, Buena Vista Development and Route 66 are accounted for using the equity method of accounting and our investments in IC-BH, American Racing, and Sunrise were 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. We were involved in legal proceedings with the minority venturer in Route 66 Casinos in which the minority venturer 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 was appropriate and concluded that the equity method best reflected the underlying nature of our investment. The operating agreement provided that all material decisions of the joint venture were 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."

42

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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.

Effective October 1, 2005, we discontinued the recording of any estimated earnings from our equity investment, Route 66, 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.

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 Statement of Financial Accounting Standards (“SFAS”) No 114, “Accounting by Creditors for Impairment of a Loan,” to determine the appropriate discount to be recorded on the note for it to be considered a performing loan. If the note is performing, interest is recorded using the effective interest method based on the value of the discounted note balance. See Note 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 previously capitalized costs of acquiring and developing mineral claims until the properties were placed into production. These costs include the costs to acquire and improve the claims, including land-related improvements, such as roads. We carried 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.

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Real Estate Held for Development

Real estate held for development consists of undeveloped land located in and around Black Hawk, Colorado 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.

		April 27,			April 29,			Service Life
		2008			2007			in Years
Leasehold improvements		$	333,431		$	499,557			7-25
Gaming equipment			1,852,038			1,752,225			3-5
Furniture and office equipment			908,689			1,050,435			3-7
Land			42,000			42,000
			3,136,158			3,344,217
Less accumulated depreciation			(1,808,883	)		(1,281,191	)
Property and equipment, net		$	1,327,275		$	2,063,026

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 on April 25, 2005, we have goodwill with an indefinite useful life of $5.5 million. Statement of Financial Accounting Standards 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 2008 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 27, 2008 and April 29, 2007 was approximately $206,000 and $375,000, 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 27, 2008 we had marketable equity securities available for sale at fair market value of $17,000. Unrealized gain (loss) of $2,000, $7,460 and $(841) was recorded in the stockholders’ equity section for the years ended April 27, 2008, April 29, 2007 and April 30, 2006 respectively. In addition, in fiscal years 2008, 2007 and 2006, respectively, we realized $0, $47,382 and $167,948 of gains on sales of equity securities classified as marketable securities available for sale.

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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 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.

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 27, 2008			Fiscal Year Ended April 29, 2007			Fiscal Year Ended April 30, 2006
Food and beverage		$	652,705		$	609,938		$	923,841
Other			8,616			16,479			22,012
Total cost of complimentary services		$	661,321		$	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.

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.

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We adopted the Financial Accounting Standards Board’s Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”), effective April, 30, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. The adoption of FIN 48 did not have a material effect on the Company’s consolidated financial position or results of operations. Should interest and penalty be incurred as a result of a review of our income tax returns we will record the interest and penalty in accordance with FIN 48.

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 maturity of these instruments.

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 SFAS 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 27, 2008, we did not record any accrued litigation liability.

New Accounting Pronouncements Issued But Not Yet Adopted

As of April 27, 2008, 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.

 

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 under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies other accounting pronouncements that require or permit fair value measurements. The FASB has 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 year 2009), and interim periods within those years. The Company will assess the effect of the implementation of this pronouncement on the financial statements, but at this time, no material effect is expected.

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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 year 2009). The Company will assess the effect of implementation of this pronouncement on its financial statements, but at this time, no material effect is expected.

Business Combinations

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) establishes principles and requirements to recognize the assets acquired and liabilities assumed in an acquisition transaction and determines what information to disclose to investors regarding the business combination. SFAS No. 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning after December 15, 2008.

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards with respect to the disclosure of a noncontrolling ownership interest in the statement of financial position within equity, the presentation of the share of consolidated net income attributable to the parent and noncontrolling interest on the consolidated statement of income, the accounting treatment of changes in a parent’s ownership interest while the parent retains a controlling interest and the accounting for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company currently has no noncontrolling ownership interests in consolidated subsidiaries and does not expect a material impact from SFAS No. 160 on its consolidated financial statements.

Note 4. Restricted Cash

As a result of our sale of the Isle of Capri-Black Hawk, L.L.C. (see Note 5) we agreed with our senior lender to segregate $13,000,000 into a Project Fund to be used for future acquisitions. In addition, we purchased a $14,000 certificate of deposit as collateral for an equivalent letter of credit we issued to our landlord related to our office lease. The letter of credit matured on March 15, 2008 and the certificate of deposit matured on May 15, 2008 and was released to us at maturity.

During fiscal year 2007, we pledged a $1,050,000 Certificate of Deposit to secure a $1 million operating line of credit for American Racing and Entertainment, LLC (“American Racing”). These funds were returned to us during fiscal year 2008 as part of our sale of our interest in American Racing when the underlying pledge obligation was released.

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. We have two equity investees (RCI and Buena Vista Development Company). During fiscal 2008, the Company divested itself of its other equity investments which were IC-BH, Route 66, American Racing and Sunrise. As of April 27, 2008, the amount of consolidated accumulated deficits which represents losses from our unconsolidated affiliates is approximately $1.4 million. Our net ownership interest, investments in and earnings (losses) from our unconsolidated affiliates are as follows:

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Unconsolidated affiliates:														Earnings (Loss)
		Net Ownership Interest						Investment						Fiscal Years Ended
		April 27, 2008			April 29, 2007			April 27, 2008			April 29, 2007			April 27, 2008			April 29, 2007			April 30, 2006
		(Percent)
Isle of Capri - Black Hawk, L.L.C. (1)			—			43		$	—		$	22,306,025		$	4,860,613		$	3,728,960		$	6,517,318
Route 66 Casinos, L.L.C. (2)			—			51			—			4,509,183			-			-			874,707
American Racing and Entertainment, L.L.C. (3)			—			16			—			8,215,042			(840,368	)		(7,275,464	)		(519,494	)
Buena Vista Development Company, L.L.C. (4)			40			35			154,969			171,169			(16,200	)		(5,584	)		(13,047	)
Sunrise Land and Mineral Corporation (5)			—			50			—			400,489			51,401			146,549			58,334
Restaurant Connections International, Inc. (6)			34			34			—			—			—			—			—
Total investments in unconsolidated affiliates								$	154,969		$	35,601,908
Total earnings (loss) from unconsolidated affiliates														$	4,055,446		$	(3,405,539	)	$	6,917,818

(1)

Separate financial statements for this entity are included herein. On January 27, 2008, we sold our ownership interest in IC-BH to the ISLE.

(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 ownership interest 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 was sold as of January 8, 2008

(6)

Investment in RCI was reduced to zero in fiscal year 2000. This asset is held for sale as of April 27, 2008. We increased our ownership interest to 56% effective May 16, 2008.

 

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:

Development Projects:		April 27, 2008			April 29, 2007			April 27, 2008			April 29, 2007
		(Percent)
Gold Mountain Development, L.L.C. (1)			100			100			3,437,932			3,433,953
Goldfield Resources, Inc. (2)			100			100			-			480,812
Nevada Gold Vicksburg, LLC (3)			100			-			2,191,899			-
Other (4)									215,663			323,202
Total investments– development projects								$	5,845,494		$	4,237,967

(1)

Acquisition and development costs incurred for 270 acres of real property in the vicinity of Black Hawk, Colorado. See discussion below.

(2)

Acquisition cost incurred for 9,000 acres of mining claims in fiscal year 1999. This was sold in October 2007.

(3)

Deposit and acquisition costs related to acquisition of Horizon Casino/Hotel in Vicksburg, Mississippi.

(4)

Development cost incurred for other development projects.

Investments in Unconsolidated Affiliates

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

As of January 27, 2008 we sold our 43% interest in this equity investee and no longer have an ownership interest in the Isle of Capri-Black Hawk, L.L.C. (“IC-BH”). We sold our ownership interest to our partner, Isle of Capri Casinos, Inc. (“Isle”), for $64.6 million in cash and recorded a $39.6 million gain. Isle is now the 100% operating owner. We used the equity method of accounting to account for our investment in IC-BH. Our investment was 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 $4,860,613, $3,728,960 and $6,517,318 for fiscal years 2008, 2007 and 2006, respectively. During fiscal years 2008, 2007 and 2006, we received tax distributions of $2,555,000, $2,215,000 and $2,914,000, respectively. Our investment in IC-BH was $0 and $22,306,025 as of April 27, 2008 and April 29, 2007, respectively.

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IC-BH owned and operated two casinos in the state of Colorado. Isle operated 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. IC-BH's casino properties were:

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. As of January 27, 2008, IC-BH had no outstanding interest rate swap agreements. IC-BH previously used interest rate swap agreements to reduce the impact of interest rate changes on future interest expense. For the period ended January 27, 2008 and fiscal years 2007 and 2006, we have included $0, $0 and $(83,749), respectively, as accumulated other comprehensive income (loss) in our statement of stockholders’ equity for these interest rate swap agreements.

Summarized financial information, as of and for the nine month period ended January 27, 2008, for Isle of Capri – Black Hawk is presented below:

		Period Ended
		January 27, 2008
		(in thousands)
Total Assets		$	280,807
Total Liabilities			212,090
Gross Revenue		$	141,685
Total Expenses			131,353
Income tax benefit			988
Net income		$	11,320

Route 66 Casinos, L.L.C.

We were 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”) was the 49% operating owner. We used the equity method of accounting to account for our investment in Route 66 Casinos. Our investment was 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 2008 or all of fiscal year 2007. Our earnings from Route 66 Casinos totaled $0, $0 and $874,707 for fiscal years 2008, 2007 and 2006, respectively. During fiscal years 2008, 2007 and 2006, we did not receive any cash distributions from Route 66 Casinos. We signed a Settlement Agreement with the Gillmann Group and related parties as of April 15, 2008 and ultimately sold our investment in Route 66 back to the Gillmann Group (See Note 18). As a result, our investment in Route 66 Casinos was $0 and $4,509,183 as of April 27, 2008 and April 29, 2007, respectively.

Through September 30, 2005, 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 were involved in legal proceedings with The Gillmann Group. The Gillmann Group had asserted that the operating agreement governing the venture was void and unenforceable. We had 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 reflected 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, 2005 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 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 were reasonable.

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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 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.

On June 14, 2007, we sold our 15.67% 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 was received in June 2008 and $1.1 million is due 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.

We operated both facilities for which we earned management fees based on the revenues and cash flows of each facility. In connection with the sale, we 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 $11.0 million of debt or any other obligations of American Racing. We were released from these guarantees as of March 31, 2008.

Our percentage of the financial results of American Racing has been reflected as part of equity in earnings of unconsolidated subsidiaries through June 14, 2007.

Sunrise Land and Mineral Corporation

On January 8, 2008, we sold our ownership interest to our partners in exchange for forgiveness of approximately $284,000 of debt we owed to Sunrise Land and Mineral Corporation. Equity in earnings recorded for fiscal year 2008 includes the period of April 30, 2007 through January 8, 2008.

Restaurant Connections International, Inc.

We are a founding shareholder of RCI, and owned a 34% interest in RCI as of April 27, 2008. 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. We increased our ownership interest to 56% as of May 15, 2008.

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 2008 totaled $121,600 which has not been included in our statement of operations for fiscal year 2008. 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 $617,200 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 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 27, 2008.

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Investments in Development Projects

Dry Creek Casino, L.L.C.

From August 2001 to January 2007, 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 $0, $5,920,125 and $7,348,651 for fiscal years 2008, 2007 and 2006, respectively.

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. We have no capitalized development costs for DCC as of April 27, 2008 and April 29, 2007, respectively. Amortization of capitalized development costs was $0, $145,234 and $470,055 for fiscal years 2008, 2007 and 2006, respectively.

Gold Mountain Development, L.L.C.

Through our wholly-owned subsidiary, Gold Mountain Development, L.L.C. (“Gold Mountain”), we own approximately 270 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 270 acres. We have listed this property with a real estate broker and therefore have reflected it as an asset that is held for sale. Our capitalized development costs were $3,437,932 and $3,433,953 as of April 27, 2008 and April 29, 2007, respectively. During fiscal year 2008 and 2007, we capitalized development costs of $3,979 and $66,855, respectively. No interest was capitalized in fiscal year 2008 or 2007. This asset is held for sale and has been presented accordingly in our balance sheet as of April 27, 2008.

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 was not directly involved in mining operations. In August 1998, Goldfield secured a mining lease for its properties with Metallic Goldfield, Inc. (“Metallic”), and retained a royalty interest under the lease. This lease permitted 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 had been making an advance royalty payment of $4,500 per month. Effective August 1, 2003, the monthly payment was 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 were credited to the production royalty payable under the lease.

We sold Goldfield to Metallic on October 18, 2007. As a result of the sale we recorded a gain of $19,000. Prior to sale of the asset, royalty income was $33,805, $67,610 and $68,737 for fiscal years 2008, 2007 and 2006, respectively. Our capitalized development costs were $0 and $480,812 as of April 27, 2008 and April 29, 2007, respectively.

 

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Note 6. Notes Receivable 

Notes Receivable

Southern Tier Acquisition II, LLC and Oneida Entertainment, LLC

On June 14, 2007, we sold our membership interest of American Racing to two of our former partners, Southern Tier Acquisition II, LLC (“Southern Tier”) and Oneida Entertainment , LLC (“Oneida”). At April 27, 2008, we had notes receivable of $1,100,000 from both Southern Tier and Oneida. The notes bear interest of 5% per annum. Principal payments of $550,000 are due on June 14, 2008 and June 14, 2009 from each party. Unpaid interest is payable in full on June 14, 2009.

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 third quarter of fiscal 2008, we determined that our ability to collect $859,000 of accrued interest and $1.5 million of the original $3.2 million notes receivable from Big City Capital, LLC (“Big City Capital”) had been impaired. As a result we wrote down the notes receivable to $1.7 million and we wrote off the accrued interest. During the fourth quarter of fiscal 2008, we determined that our ability to collect a $1.4 million note receivable and $0.5 million of related accrued interest from the La Jolla Band Indian tribe had been impaired and was written off as of April 27, 2008. In addition, 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.

At April 27, 2008, we had notes receivable of $16.5 million related to the development of gaming/entertainment projects. Through our wholly-owned subsidiary, Nevada Gold BVR, L.L.C., we own a 40% 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, a third party. The original 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. Nine hundred thousand ($900,000) of the Big City Capital notes receivable are guaranteed by an individual independent of us. During the third quarter of fiscal 2008, we established a $1.7 million impairment valuation allowance in regards to the Big City Capital notes receivable.

Fiscal Years		Corporate Office Lease Payment			Colorado Grande Building Lease Payment			Total Lease Payment
2009		$	80,300		$	344,875		$	425,175
2010			–			365,195			365,195
2011			–			379,803			379,803
2012			–			394,995			394,995
2013			–			400,000			400,000
Thereafter			–			7,900,000			7,900,000
		$	80,300		$	9,784,868		$	9,865,168

Rent expense for our corporate office for fiscal years 2008, 2007 and 2006 was $213,027, $312,123 and $217,193, respectively. Rent expense for Colorado Grande’s casino building was $344,875, $299,322 and $412,639 for fiscal years 2008, 2007 and 2006, respectively.

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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. .

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.

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

On April 15, 2008, the Company entered into a Settlement Agreement and Release (“Settlement Agreement”) with American Heritage, Inc. (“AHI”) and Frederick C. Gillmann (“Gillmann”). AHI and Gillmann are referred to collectively as the “AHI Parties”. The Settlement Agreement constitutes a full and final settlement of the Route 66 Casinos litigation subject to the performance of the AHI Parties.

Pursuant to the terms of the Settlement Agreement:

1.

The AHI Parties shall pay $1.0 million to the Company on May 1, 2008;

2.

The AHI Parties shall pay $1.3 million to the Company on May 31, 2008;

3.

The AHI Parties shall pay $2.3 million to the Company no later than April 15, 2010.

Contemporaneously with the execution of the Settlement Agreement, the AHI Parties assigned certain collateral as security for the payment obligations described above.

Also, contemporaneously with the execution of the Settlement Agreement, the AHI Parties executed an agreed final and non-appealable judgment in favor of the Company and against AHI and Gillmann, jointly and severally in the amount of $9,425,602 (the “Agreed Judgment”). The Company will not seek to enforce the Agreed Judgment unless and until the AHI Parties fail to perform any of their obligations under the Settlement Agreement.

As of June 30, 2008, the payment of $1.0 million due on May 1, 2008 and the payment of $1.3 million due on May 31, 2008 have been received.

Rinaldo Corporation

The Rinaldo Corporation claims against the Company had been previously dismissed by the trial court in Bakersfield, California. On February 15, 2008, the California Court of Appeals sustained the trial courts judgment dismissing Rinalso’s case. Rinaldo failed to submit a timely petition appealing the decision of the Court of Appeals to the California Supreme Court. As a result, the case is now permanently dismissed.

On May 12, 2008, the Company dismissed collection lawsuits against CCH and SI which combined totaled approximately $4.6 million. In exchange the Company was issued a promissory note from RCI in an amount equal to the combined principal and interest owed to the Company by CCH and SI. See Note 6 for additional discussion on the settlement.

Note 19.  Interest Expense, net

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

		April 27,			April 29,			April 30,
		2008			2007			2006
Interest income-third party		$	2,007,898		$	2,340,950		$	2,074,412
Interest expense			3,864,552			(5,292,021	)		(3,974,603	)
Amortization of loan issue costs			(764,329	)		(601,981	)		(348,359	)
Interest expense, net		$	(2,620,983	)	$	(3,553,052	)	$	( 2,248,550	)

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Note 20. Quarterly Financial Information (Unaudited) 

The following table sets forth certain quarterly financial information for each of the fiscal quarters during the years ended April 27, 2008 and April 29, 2007.

					Earnings			Income			Net income			Diluted
					(loss) from			(loss) before			(loss) applicable			earnings (loss)
					unconsolidated			tax benefit			to common			per common
		Net revenues			affiliates			(expense)			stockholders			share (c)
Consolidated Statements of Operations:		(in thousands, except per share amounts)
Fiscal Year ended April 27, 2008
Quarter ended July 29, 2007		$	1,980		$	1,190		$	580		$	542		$	0.04
Quarter ended October 28, 2007			1,864			1,954			(604	)		(604	)		(0.05	)
Quarter ended January 27, 2008			1,412			918			35,157	(e)		25,911			2.00
Quarter ended April 27, 2008			1,477			(7	)		(3,362	)		(2,141	)		(0.17	)
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)			1,709			407			3,952			(1,856	) (d)		(0.14	)

 

(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 gain on termination of development and loan agreement within the consolidated Statement of Operations. 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) In the fourth quarter of fiscal 2007, we recorded a $4.5 million deferred tax valuation allowance to income tax expense.

(e) In the third quarter of fiscal 2008, we sold our ownership interest in IC-BH and recorded a $39.6 million pre-tax gain.

Restatement of the financial statements for the quarterly period ended January 27, 2008

As a result of fiscal year end analysis of the income tax provision, a $1.0 million adjustment was required to be made to the third quarter tax provision. Accordingly, net income for the three and nine months ended January 27, 2009 decreased by $1.0 million to $25.9 million and $25.8 million, or $0.08 per basic and diluted share, respectively. Correspondingly, at January 27, 2008, income tax payable increased by $1.0 million to $9.3 million, deferred tax assets increased by $1.0 million to $1.1 million and total equity decreased by $1.0 million. Therefore, the third quarter net income and diluted earnings per common share previously reported in Form 10-Q has been revised and should not be relied upon as previously reported in the Form 10-Q dated January 27, 2008.

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

Consolidated Financial Statements

For the Nine Months Ended January 27, 2008 and

Fiscal Years Ended April 29, 2007 and April 30, 2006

Report of Independent Auditors	65
Consolidated Financial Statements
Consolidated Balance Sheets, January 27, 2008 and April 29, 2007	66
Consolidated Statements of Income, Nine Months Ended January 27, 2008, and Fiscal Years Ended April 29, 2007 and April 30, 2006	67
Consolidated Statements of Members’ Equity, Nine Months Ended January 27, 2008, and Fiscal Years Ended April 29, 2007 and April 30, 2006	68
Consolidated Statements of Cash Flows, Nine Months Ended January 27, 2008, and Fiscal Years Ended April 29, 2007 and April 30, 2006	69
Notes to Consolidated Financial Statements	70

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Report of Independent Registered Public Accounting Firm

The Members of

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