The accompanying notes are
an integral part of these condensed consolidated financial statements.
The accompanying notes are
an integral part of these condensed consolidated financial statements.
The accompanying notes are
an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated
Financial Statements
Note 1.
Basis of Presentation
The interim financial information
included herein is unaudited. However, the accompanying condensed consolidated financial statements include all adjustments of
a normal recurring nature which, in the opinion of management, are necessary to present fairly our condensed consolidated balance
sheets at July 31, 2016 and April 30, 2016, condensed consolidated statements of operations for the three months ended July 31,
2016 and 2015, and condensed consolidated statements of cash flows for the three months ended July 31, 2016 and 2015. Although
we believe the disclosures in these financial statements are adequate to make the interim information presented not misleading,
certain information relating to our organization and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted in this Form
10-Q pursuant to Securities and Exchange Commission (“SEC”) rules and regulations. These financial statements should
be read in conjunction with the audited consolidated financial statements for the year ended April 30, 2016 and the notes thereto
included in our Annual Report on Form 10-K. The results of operations for the three months ended July 31, 2016 are not necessarily
indicative of the results expected for the full year.
The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period and disclosure of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to bad
debts, investments, intangible assets and goodwill, property, plant and equipment, income taxes, employment benefits and contingent
liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ from those estimates.
Certain reclassifications
have been made to conform prior year financial information to the current period presentation. Also, segment presentation of assets
eliminated the impact of intercompany balances. Those reclassifications did not impact operating or net income, working capital
or stockholders’ equity.
Note 2.
Critical Accounting Policies
Revenue Recognition
We record revenues from casino
operations on the accrual basis as earned. 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. We record the redemption of coupons and points for cash as a reduction
of revenue as they are earned. These amounts are included in promotional allowances in the accompanying condensed consolidated
statements of operations. The estimated cost of providing such complimentary services included in casino expense in the accompanying
condensed consolidated statements of operations was as follows:
|
|
Three Months Ended
|
|
|
|
July 31, 2016
|
|
|
July 31, 2015
|
|
Food and beverage
|
|
$
|
1,537,204
|
|
|
$
|
777,586
|
|
Other
|
|
|
58,245
|
|
|
|
669
|
|
Total cost of complimentary services
|
|
$
|
1,595,449
|
|
|
$
|
778,255
|
|
Fair Value
U.S. generally accepted accounting
principles defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure
of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three
different levels depending on the observability of the inputs employed in the measurement. The three levels are as follows:
Level 1 – Observable
inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.
Level 2 – Other inputs
that are observable directly or indirectly such as quoted prices in markets that are not active, or inputs which are observable,
either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 – Unobservable
inputs for which there is little or no market data and which we make our own assumptions about how market participants would price
the assets and liabilities.
The following describes the valuation
methodologies used by us to measure fair value:
Real estate held for sale
is recorded at fair value less selling costs.
Goodwill and indefinite
lived intangible assets are recorded at carrying value and tested for impairment annually, or more frequently, using projections
of discounted future cash flows.
Interest rate swaps are
adjusted on a recurring basis pursuant to accounting standards for fair value measurements. We categorize our interest rate swap
as Level 2 for fair value measurement.
Concentrations of Credit Risk
Financial instruments that
potentially subject us to concentrations of credit risk are primarily notes receivable, cash and cash equivalents, accounts receivable
and payable, and long term debt. Management performs periodic evaluations of the collectability of these notes and accounts receivable.
Our cash deposits are held with large, well-known financial institutions, and, at times, such deposits may be in excess of the
federally insured limit. The recorded value of cash, accounts receivable and payable, approximate fair value based on their short
term nature; the recorded value of long term debt approximates fair value as interest rates approximate current market rates.
New Accounting Pronouncements
and Legislation Issued
In February 2016, the Financial
Accounting Standards Board (“FASB”) issued amended accounting guidance that changes the accounting for leases and requires
expanded disclosures about leasing activities. Under the new guidance, lessees will be required to recognize a right-of-use asset
and a lease liability, measured on a discounted basis, at the commencement date for all leases with terms greater than twelve months.
Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with
the lessee accounting model and with the updated revenue recognition guidance issued in 2014. Lessees and lessors must apply a
modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements. The amended guidance is effective for annual reporting periods (including interim
periods within those periods) beginning after December 15, 2018, and early application is permitted. The Company is currently evaluating
the impact this guidance will have on its financial position and results of operations.
In May 2014, the FASB issued
a new accounting standard for revenue recognition which requires entities to recognize revenue when it transfers promised goods
or services to customers, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The new standard supersedes the existing accounting guidance for revenue recognition, including industry-specific
guidance, and amends certain accounting guidance for recognition of gains and losses on the transfer of non-financial assets. For
public companies, the new guidance is effective for annual reporting periods (including interim periods within those periods) beginning
after December 15, 2017. Early application is permitted for annual reporting periods beginning after December 15, 2016 (including
interim periods within those periods). Upon adoption, financial statement issuers may elect to apply the new standard either retrospectively
to each prior reporting period presented, or using a modified retrospective approach by recognizing the cumulative effect of initial
application and providing certain additional disclosures. The Company will adopt this guidance in the first quarter of 2018. The
Company is currently evaluating the impact this guidance will have on its financial position and results of operations, and has
not yet determined which adoption method it will elect.
A variety of proposed or otherwise
potential accounting guidance is currently under study by standard-setting organizations and certain regulatory agencies. Due to
the tentative and preliminary nature of such proposed accounting guidance, the Company has not yet determined the effect, if any,
that the implementation of such proposed accounting guidance would have on its condensed consolidated financial statements.
Note 3.
Restricted
Cash
As of July 31, 2016 and
April 30, 2016, we maintained $1,308,303 and $1,433,728, respectively, in restricted cash, which consists of player-supported jackpot
funds for our Washington operations.
Note 4.
Notes
Receivable
As of July 31, 2016 and April 30,
2016, we had net notes receivable of $907,585 and $1,109,069, respectively. 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 collectability is reasonably certain.
G Investments, LLC
Upon completion of the sale
of the Colorado Grande Casino on May 25, 2012, we recorded a $2,325,000 note receivable. This note bears interest at 6% per annum
through the maturity date of June 1, 2017 and is secured with all of the assets of the Colorado Grande Casino, pledge of membership
interest in G Investments, LLC (“GI”), and a personal guaranty by GI’s principal.
As of July 31, 2016,
the remaining principal and interest payments are scheduled to be made as follows:
|
·
|
Beginning August 1, 2016, nine monthly installments of principal and accrued interest of $40,000;
and
|
|
·
|
A final installment of $574,419 which is due on the maturity date of June 1, 2017.
|
Through July 31, 2016, GI has timely made required principal
and interest payments.
Note 5. Goodwill and Intangible
Assets
In connection with our acquisitions
of the Washington mini-casinos on May 12, 2009, July 23, 2010 and July 18, 2011, the South Dakota slot route on January 27, 2012,
and the Club Fortune Casino in Nevada on December 1, 2015 we have goodwill and intangible assets of $22,783,446, net of amortization
for intangible assets with finite lives.
The change in the carrying amount
of goodwill and other intangible assets for the three months ended July 31, 2016 is as follows:
|
|
Total
|
|
|
Goodwill
|
|
|
Other
Intangibles, net
|
|
Balance as of April 30, 2016
|
|
$
|
23,029,040
|
|
|
$
|
18,025,059
|
|
|
$
|
5,003,981
|
|
Current year amortization
|
|
|
(231,101
|
)
|
|
|
-
|
|
|
|
(231,101
|
)
|
Gaming licenses
|
|
|
(14,493
|
)
|
|
|
-
|
|
|
|
(14,493
|
)
|
Balance as of July 31, 2016
|
|
$
|
22,783,446
|
|
|
$
|
18,025,059
|
|
|
$
|
4,758,387
|
|
Goodwill and net intangibles assets
by segment as of July 31, 2016 are as follows:
|
|
Total
|
|
|
Goodwill
|
|
|
Other
Intangibles, net
|
|
Washington
|
|
$
|
16,557,267
|
|
|
$
|
14,092,154
|
|
|
$
|
2,465,113
|
|
South Dakota
|
|
|
1,494,327
|
|
|
|
1,101,471
|
|
|
|
392,856
|
|
Nevada
|
|
|
4,308,895
|
|
|
|
2,831,434
|
|
|
|
1,477,461
|
|
Corporate
|
|
|
422,957
|
|
|
|
-
|
|
|
|
422,957
|
|
Total
|
|
$
|
22,783,446
|
|
|
$
|
18,025,059
|
|
|
$
|
4,758,387
|
|
Intangible assets are generally amortized on a straight
line basis over the useful lives of the assets. State gaming registration and trade names are not amortizable. A summary of intangible
assets and accumulated amortization as of July 31, 2016 are as follows:
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer relationships
|
|
$
|
8,673,321
|
|
|
$
|
(6,935,447
|
)
|
|
$
|
1,737,874
|
|
Non-compete agreements
|
|
|
1,379,000
|
|
|
|
(1,293,444
|
)
|
|
|
85,556
|
|
State gaming registration
|
|
|
422,957
|
|
|
|
-
|
|
|
|
422,957
|
|
Trade names
|
|
|
2,512,000
|
|
|
|
-
|
|
|
|
2,512,000
|
|
Total
|
|
$
|
12,987,278
|
|
|
$
|
(8,228,891
|
)
|
|
$
|
4,758,387
|
|
A summary of intangible assets
and accumulated amortization as of April 30, 2016 are as follows:
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer relationships
|
|
$
|
8,673,321
|
|
|
$
|
(6,713,512
|
)
|
|
$
|
1,959,809
|
|
Non-compete agreements
|
|
|
1,379,000
|
|
|
|
(1,284,278
|
)
|
|
|
94,722
|
|
State gaming registration
|
|
|
437,450
|
|
|
|
-
|
|
|
|
437,450
|
|
Trade names
|
|
|
2,512,000
|
|
|
|
-
|
|
|
|
2,512,000
|
|
Total
|
|
$
|
13,001,771
|
|
|
$
|
(7,997,790
|
)
|
|
$
|
5,003,981
|
|
The weighted average useful lives
of acquired intangibles related to customer relationships is 7.0 years and non-compete agreements is 3.0 years. The estimated future
annual amortization of intangible assets, which excludes trade names and state gaming license, is as follows:
Period
|
|
Amount
|
|
August 2016-July 2017
|
|
$
|
854,141
|
|
August 2017-July 2018
|
|
|
370,877
|
|
August 2018-July 2019
|
|
|
207,937
|
|
August 2019-July 2020
|
|
|
117,143
|
|
August 2020-July 2021
|
|
|
117,143
|
|
Thereafter
|
|
|
156,189
|
|
Total
|
|
$
|
1,823,430
|
|
Note 6.
Property and Equipment
Property and equipment at July 31, 2016 and April 30, 2016 consist
of the following:
|
|
|
|
|
|
|
|
Estimated
|
|
|
July 31,
|
|
|
April 30,
|
|
|
Service Life
|
|
|
2016
|
|
|
2016
|
|
|
in Years
|
Leasehold improvements
|
|
$
|
1,545,494
|
|
|
$
|
1,439,720
|
|
|
7-20
|
Gaming equipment
|
|
|
5,340,371
|
|
|
|
5,247,574
|
|
|
3-5
|
Furniture and office equipment
|
|
|
4,403,649
|
|
|
|
4,190,901
|
|
|
3-7
|
Building and improvements
|
|
|
7,771,067
|
|
|
|
7,440,577
|
|
|
15-30
|
Land
|
|
|
2,387,750
|
|
|
|
2,387,750
|
|
|
|
Construction in progress
|
|
|
-
|
|
|
|
82,272
|
|
|
|
|
|
|
21,448,331
|
|
|
|
20,788,794
|
|
|
|
Less accumulated depreciation
|
|
|
(6,199,935
|
)
|
|
|
(5,641,733
|
)
|
|
|
Property and equipment, net
|
|
$
|
15,248,396
|
|
|
$
|
15,147,061
|
|
|
|
Note 7.
Long-Term Debt
Our long-term financing obligations are as follows:
|
|
July 31,
|
|
|
April 30,
|
|
|
|
2016
|
|
|
2016
|
|
$23.0 million reducing revolving credit agreement, LIBOR plus an Applicable Margin, $625,000 quarterly reductions beginning January 31, 2016 through November 30, 2020, and the remaining principal due on the maturity date of November 30, 2020.
|
|
$
|
16,231,215
|
|
|
$
|
16,839,148
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
Total long-term financing obligations
|
|
$
|
16,231,215
|
|
|
$
|
16,839,148
|
|
On November 30,
2015, the Company amended its existing credit agreement with Mutual of Omaha Bank to increase the lending commitment to $23 million.
The Amended and Restated Credit Agreement (“Credit Facility”) matures on November 30, 2020, and is secured by
liens on substantially all of the real and personal property of the Company and its subsidiaries. The interest rate on the borrowing
is based on LIBOR plus an Applicable Margin, determined quarterly beginning April 1, 2016, based on the total leverage ratio for
the trailing twelve months. The initial interest rate on the balance as of July 31, 2016, is 2.976%. In addition, the Company was
required to fix the interest rate on at least 50% of the credit facility through a swap agreement.
As of July 31, 2016,
principal reductions due on the Credit Facility are as follows:
August 1, 2016 – July 31, 2017
|
|
|
-
|
|
August 1, 2017 – July 31, 2018
|
|
$
|
490,000
|
|
August 1, 2018 – July 31, 2019
|
|
|
2,500,000
|
|
August 1, 2019 – July 31, 2020
|
|
|
2,500,000
|
|
August 1, 2020 – November 30, 2020
|
|
|
11,057,775
|
|
Total payments
|
|
|
16,547,775
|
|
Unamortized debt discount
|
|
|
(316,560
|
)
|
Total long-term debt
|
|
$
|
16,231,215
|
|
The unamortized debt discount above
consists of debt costs paid directly to the lender. The discount is amortized over the period of the Credit Facility through interest
expense.
During the current quarter,
we paid $0.6 million to reduce the outstanding balance of the Credit Facility. As of July 31, 2016, we have $4.5 million available
to borrow per the Credit Agreement.
The Credit Facility contains
customary covenants for a facility of this nature, including, but not limited to, covenants requiring the preservation and maintenance
of the Company’s assets and covenants restricting our ability to merge, transfer ownership, incur additional indebtedness,
encumber assets and make certain investments. The Credit Facility also contains covenants requiring the Company to maintain
certain financial ratios including a maximum total leverage ratio ranging from 3.00 to 1.00 through January 31, 2017, 2.75 to 1.00
from February 1, 2017 through January 31, 2018, and 2.50 to 1.00 from February 1, 2018 until maturity; and lease adjusted fixed
charge coverage ratio of no less than 1.15 to 1.00. We are in compliance with the covenant requirements of the Credit Facility
as of July 31, 2016.
Note 8.
Interest Rate Swap
We are required by the Credit
Facility to have a secured interest rate swap for at least 50% of the Credit Facility commitment. On December 28, 2015, the Company
entered into a swap transaction with Mutual of Omaha Bank (“MOOB”), which has a calculation period as of the tenth
day of each month through the maturity date of the Credit Facility. As of July 31, 2016, the Company had one outstanding interest
rate swap with MOOB with a notional amount of $10,562,500 at a swap rate of 1.77%, which as of July 31, 2016, effectively converts
$10,562,500 of our floating-rate debt to a synthetic fixed rate of 4.27%. Under the terms of the swap agreement, the Company pays
a fixed rate of 1.77% and receives variable rate based on one-month LIBOR as of the first day of each floating-rate calculation
period. Under the International Swap Dealers Association, Inc. (“ISDA”) confirmation, the floating index as of July
31, 2016 is set at 0.4758%.
The Company did not designate
the interest rate swap as a cash flow hedge and the interest rate swap did not qualify for hedge accounting under ASC Topic 815.
Changes in our interest rate swap fair value are recorded in our condensed consolidated statements of operations. Each quarter,
the Company receives fair value statements from the counterparty, MOOB. The fair value of the interest rate swap is determined
using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivative.
This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based
inputs, including forward interest rate curves. To comply with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures,
the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective
counterparty’s nonperformance risk in the fair value measurements. As a result of our evaluation of our interest rate swap
as of July 31, 2016, we recorded a $50,714 decrease in our interest rate swap fair value for the three months ended July 31, 2016.
As of July 31, 2016, our interest rate swap fair value is a $337,445 liability which is included in other long-term liabilities
on the condensed consolidated balance sheet.
Note 9.
Equity
Transactions and Stock Option Plans
We have obligations under two employee
stock plans: (1) the 2009 Equity Incentive Plan (the “2009 Plan”), and (2) the 2010 Employee Stock Purchase Plan, as
amended (the “2010 Plan”).
The 2009 Plan
On April 14, 2009, our shareholders
approved the 2009 Plan providing for the granting of awards to our directors, officers, employees and independent contractors.
The number of common stock shares reserved for issuance under the 2009 Plan is 1,750,000 shares. The 2009 Plan is administered
by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee has complete discretion under
the plan regarding the vesting and service requirements, exercise price and other conditions. Under the 2009 Plan, the Committee
is authorized to grant the following types of awards:
|
·
|
Stock Options including Incentive Stock Options (“ISO”),
|
|
·
|
Options not intended to qualify as ISOs,
|
|
·
|
Stock Appreciation Rights, and
|
|
·
|
Restricted Stock Grants.
|
Our practice has been to issue
new or treasury shares upon the exercise of stock options. Stock option rights granted under the 2009 Plan generally have 5 or
10 year terms and vest in two or three equal annual installments, with some options grants providing for immediate vesting for
a portion of the grant.
A summary of stock option activity
under our share-based payment plans for the nine months ended July 31, 2016 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term (Year)
|
|
|
Value
|
|
Outstanding at April 30, 2016
|
|
|
705,000
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,500
|
)
|
|
$
|
1.37
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2016
|
|
|
695,500
|
|
|
$
|
1.10
|
|
|
|
6.01
|
|
|
$
|
578,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at July 31, 2016
|
|
|
645,500
|
|
|
$
|
1.09
|
|
|
|
5.83
|
|
|
$
|
508,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at July 31, 2016
|
|
|
672,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2016, there was
a total of $13,356 of unamortized compensation cost related to stock options, which is expected to be recognized over a weighted-average
of approximately 0.3 years. Also, as of July 31, 2016, there was $8,510 of unamortized compensation cost related to stock
grants, which is expected to be recognized over approximately 1.3 years.
Compensation cost for stock options
granted is based on the fair value of each award, measured by applying the Black-Scholes model on the date of grant and using the
weighted-average assumptions of (i) expected volatility, (ii) expected term, (iii) expected dividend yield, (iv) risk-free interest
rate and (v) forfeiture rate. Expected volatility is based on historical volatility of our 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 U.S. Treasury instruments with maturities matching the relevant expected term of the
award.
The 2010 Plan
On October 11, 2010, our shareholders
approved the 2010 Plan which permitted all our eligible employees, including employees of certain of our subsidiaries, to purchase
shares of our common stock through payroll deductions at a purchase price not to be less than 90% of the fair market value of the
shares on each purchase date. There was a total of 500,000 shares available for issuance under the 2010 Plan. The 2010 Plan
had a term of 5 years and expired on January 1, 2016. Therefore, no further stock will be issued under the plan.
Note
10. Computation of Earnings Per Share
The following is presented as a reconciliation of the numerators and denominators of basic and diluted earnings
per share computations:
|
|
Three Months Ended
|
|
|
|
July 31,
2016
|
|
|
July 31,
2015
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
Net (loss) income available to common shareholders
|
|
$
|
(99,573
|
)
|
|
$
|
457,996
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding
|
|
|
17,789,063
|
|
|
|
16,416,737
|
|
Dilutive effect of common stock options and warrants
|
|
|
-
|
|
|
|
188,571
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of common shares outstanding
|
|
|
17,789,063
|
|
|
|
16,605,308
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
Net income per common share - diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
Note 11.
Commitments
and Contingencies
We are party to contracts in the ordinary
course of business, including leases for real property and operating leases for equipment.
The expected remaining future annual
minimum lease payments as of July 31, 2016 are as follows:
Period
|
|
Total
|
|
|
|
|
|
|
August 2016-July 2017
|
|
$
|
3,067,707
|
|
August 2017-July 2018
|
|
|
3,058,611
|
|
August 2018-July 2019
|
|
|
2,906,410
|
|
August 2019-July 2020
|
|
|
2,384,583
|
|
August 2020-July 2021
|
|
|
2,225,860
|
|
Thereafter
|
|
|
1,069,156
|
|
|
|
$
|
14,712,327
|
|
We continue to pursue additional development
opportunities that may require, individually and in the aggregate, significant commitments of capital, extensions of credit, up-front
payments to third parties and guarantees by us of third-party debt.
We indemnified our officers and directors
for certain events or occurrences while the director or officer is or was serving at our request in such capacity. The maximum
potential amount of future payments we could be required to make under these indemnification obligations is unlimited; however,
we have a Directors and Officers Liability Insurance policy that limits our exposure and enables us to recover a portion of any
future amounts paid, provided that such insurance policy provides coverage.
Note 12. Income Taxes
For the three months ended July 31, 2016, our effective tax rate of a benefit was 33%. For the three months
ended July 31, 2015, our effective income tax rate was 33%. The difference between the federal statutory rate of 34% and the current
quarter’s effective tax rate is primarily due to general business credits that decrease taxable income.
At July 31, 2016, we have
$2.4 million in net deferred tax assets, which is primarily a result of the $7.8 million in receivables that have been fully reserved
for book purposes. We believe that it is more-likely-than-not that the deferred tax assets will be realized prior to any expiration
and therefore we have not applied a valuation allowance on our deferred tax assets.
We filed income tax returns
in the United States federal jurisdiction. No jurisdiction is currently examining our tax filings for any tax years. All of the
Company’s tax positions are considered more likely than not to be sustained upon an IRS examination.
Note 13.
Segment
Reporting
We have three business segments:
(i) Washington, (ii) South Dakota and (iii) Nevada, as well as the Company’s corporate location. For the three months ended
July 31, 2016, the Washington segment consists of the Washington mini-casinos, the South Dakota segment consists of our slot route
operation in South Dakota, Nevada segment consists of Club Fortune casino and the Corporate column includes the vacant land in
Colorado and its taxes and maintenance expenses. The Corporate column also includes corporate-related items, results of insignificant
operations, and income and expenses not allocated to other reportable segments.
Summarized financial information for our reportable
segments is shown in the following table:
|
|
As of, and for the Three Months Ended, July 31, 2016
|
|
|
|
Washington
|
|
|
South
Dakota
|
|
|
Nevada
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
13,069,819
|
|
|
$
|
1,942,880
|
|
|
$
|
3,284,279
|
|
|
$
|
-
|
|
|
$
|
18,296,978
|
|
Casino and food and beverage expense
|
|
|
7,119,123
|
|
|
|
1,690,369
|
|
|
|
1,958,241
|
|
|
|
-
|
|
|
|
10,767,733
|
|
Marketing, administrative and corporate expense
|
|
|
4,045,668
|
|
|
|
121,270
|
|
|
|
1,103,340
|
|
|
|
796,733
|
|
|
|
6,067,011
|
|
Facility and other expenses
|
|
|
493,356
|
|
|
|
35,952
|
|
|
|
77,874
|
|
|
|
-
|
|
|
|
607,182
|
|
Depreciation and amortization
|
|
|
255,181
|
|
|
|
156,213
|
|
|
|
358,881
|
|
|
|
6,237
|
|
|
|
776,512
|
|
Operating income (loss)
|
|
|
1,156,490
|
|
|
|
(69,295
|
)
|
|
|
(214,056
|
)
|
|
|
(802,970
|
)
|
|
|
70,169
|
|
Assets
|
|
|
27,042,061
|
|
|
|
3,822,739
|
|
|
|
18,563,739
|
|
|
|
6,325,106
|
|
|
|
55,753,645
|
|
Purchase of property and equipment
|
|
|
189,518
|
|
|
|
-
|
|
|
|
417,565
|
|
|
|
48,034
|
|
|
|
655,117
|
|
|
|
As of, and for the Three Months Ended, July 31, 2015
|
|
|
|
Washington
|
|
|
South
Dakota
|
|
|
Nevada
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
13,763,744
|
|
|
$
|
2,179,030
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
15,942,774
|
|
Casino and food and beverage expense
|
|
|
7,401,080
|
|
|
|
1,907,590
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,308,670
|
|
Marketing, administrative and corporate expense
|
|
|
4,132,932
|
|
|
|
77,623
|
|
|
|
-
|
|
|
|
749,467
|
|
|
|
4,960,022
|
|
Facility and other expenses
|
|
|
505,162
|
|
|
|
35,991
|
|
|
|
-
|
|
|
|
-
|
|
|
|
541,153
|
|
Depreciation and amortization
|
|
|
356,178
|
|
|
|
151,520
|
|
|
|
-
|
|
|
|
3,096
|
|
|
|
510,794
|
|
Operating income (loss)
|
|
|
1,534,758
|
|
|
|
3,421
|
|
|
|
-
|
|
|
|
(752,563
|
)
|
|
|
785,616
|
|
Assets
|
|
|
28,574,019
|
|
|
|
5,272,605
|
|
|
|
-
|
|
|
|
9,556,773
|
|
|
|
43,403,397
|
|
Purchase of property and equipment
|
|
|
96,397
|
|
|
|
19,815
|
|
|
|
-
|
|
|
|
-
|
|
|
|
116,212
|
|