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ROTATE BLACK INC - 10-Q - : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

June 20, 2014

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, relating to our financial condition, profitability, liquidity, resources, business outlook, market forces, corporate strategies, contractual commitments, legal matters, capital requirements and other matters. We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements. When words and expressions such as: "believes," "expects," "anticipates," "estimates," "plans," "intends," "objectives," "goals," "aims," "projects," "forecasts," "possible," "seeks," "may," "could," "should," "might," "likely," "enable," "will likely result," "are expected to," "will continue," "is anticipated," "believes," "estimates," "projects" or similar words or expressions are used in this Form 10-Q, as well as statements containing phrases such as "in our view," "there can be no assurance," "although no assurance can be given," or "there is no way to anticipate with certainty," forward-looking statements are being made and these words or phrases or similar expressions should be interpreted as intended to identify these forward-looking statements.

In addition to the risks discussed in Item 1A "Risk Factors" of our Form 10-K, filed with the Securities and Exchange Commission on March 3, 2014, various other risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including the following factors:

? our growth strategies;



? our development and potential acquisition of new facilities;

? risks related to development and construction activities;

? anticipated trends in the gaming industries;

? patron demographics;



? general market and economic conditions;

? access to capital and credit, including our ability to

finance future business requirements;

? the availability of adequate levels of insurance;

? changes in federal, state, and local laws and

regulations, including environmental and gaming license

legislation and regulations;

? regulatory approvals;



? competitive environment; and

? risks, uncertainties and other factors described from

time to time in this and our other SEC filings and

reports. 27

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These statements are subject to risks and uncertainties beyond our reasonable control that could cause our actual business and results of operations to differ materially from those reflected in our forward-looking statements. Forward-looking statements are not guarantees of future performance. Our forward-looking statements are based on trends which we anticipate in our industry and our good faith estimate of the effect on these trends of such factors as industry capacity, product demand and product pricing. The inclusion of projections and other forward-looking statements should not be regarded a representation by us or any other person that we will realize our projections or that any of the forward-looking statements contained in this quarterly report will prove to be accurate.

We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements.

MANAGEMENT'S ANALYSIS OF BUSINESS

As used herein the terms "we", "us", "our," the "Registrant," and the "Company" means, Rotate Black, Inc., a Nevada corporation.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included in this report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

Gulfport Casino Hotel Project

The Company's primary focus is the development of a casino resort in Gulfport, Mississippi ("the Gulfport Project") under the Gulfport Project Management Agreement with the Company's affiliate, Rotate Black MS, LLC (RBMS), a Mississippi limited liability company.

On May 28, 2010, the Company, Rotate Black, LLC ("RBL"), an entity under common control with the Company, and an officer of the Company formed RBMS to own, develop and manage the operations of a dockside vessel-based casino in Gulfport, Mississippi. The initial strategy was to secure an existing gaming vessel, move the vessel to the Company's Gulfport site, and build land assets on that site to support the gaming vessel. Subsequently, the strategy was changed to developing an entirely land-based casino.

The Gulfport Project is being developed on approximately nine-and-a-half acres of the last gaming-eligible sites in Gulfport, Mississippi. The Gulfport Project is adjacent to the $625+ million redevelopment of the Marina, Port and downtown Gulfport areas.

Gulfport, the second largest city in Mississippi, is approximately 12 miles west of Biloxi. The Gulfport Project is expected to be a fourteen-month development project. Upon completion, the casino will feature 1,188 slot machines and 22 table games. The Gulfport Project's non-gaming amenities will include a four-star 205-room hotel, pool, spa, cabanas, steakhouse, buffet, snack bar and two feature bars.

The Company believes that various factors will drive the success of the Gulfport Project and its competitive position including favorable population demographics in the regional area, an established and stable existing gaming market, easy accessibility, and location as part of the renewed Gulfport Marina and Port areas.

The Gulfport Project will be located approximately 65 miles northeast from New Orleans, Louisiana; 70 miles south of Hattiesburg, Mississippi; 65 miles southwest from Mobile, Alabama; and, 105 miles from Pensacola, Florida. In total, the approximately five million people living within 150 miles generate approximately 17 million visits to the Gulf Coast market each year.

In addition, the project site is just south of downtown Gulfport, four miles from the Gulfport-Biloxi International Airport and adjacent to Mississippi's third busiest intersection with an estimated 34,000 cars passing by daily.

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Effective October 20, 2010, RBMS entered into a ground lease for the nine and a half acre site for the Gulfport Project. The Preliminary Term, as defined, remains in effect until the earliest of the ninth month following the effective date or the date gaming operations begin on the leased property. During the Preliminary Term, rent would be equal to $20,000, per month with no payment required until the earlier of the date the Lessee commences construction on the premises or February 1, 2011.

Due to delays in gaining approval by the Mississippi Gaming Commission, the Company paid fees to amend and extend the ground lease.

On December 30, 2012 the RBMS received its Approval to Proceed from the Mississippi Gaming Commission.

Upon the closing of the anticipated financing in connection with the Gulfport Project, the Company will pay to the lessor an aggregate of $1,902,156 in preliminary rent, interest and taxes under the ground lease. After the commencement of gaming operations, RBMS will pay an annual minimum base rent of $900,000 under the lease, as defined.

Rotate Black OK, LLC

On December 14, 2011, the Company formed a wholly-owned subsidiary, Rotate Black OK, LLC (OKL) and through the subsidiary, on December 12, 2011, the Company entered into an agreement to provide casino management services to an Oklahoma Native American Tribe Casino for a term of ninety days at $30,000, per month, inclusive of all personnel needed to provide the consulting services. The Company plans to leverage this agreement to generate additional Native American gaming consulting agreements. As of June 30, 2013, this contract was completed, there was no revenue for the year ended June 30, 2013 and the subsidiary is inactive

SlotOne, Inc.

On December 13, 2011, the Company formed a wholly-owned subsidiary, SlotOne, Inc., to provide slot machines on a participation basis in certain casino locations where the replacement of old equipment can enhance earnings for the gaming location and the Company. To date, the Company has secured a contract for the placement of equipment in 2014 as well as an approval of a lender to facilitate the financings of this operation.

Going Concern Status

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations and it has negative operating cash flow, which raises doubt about its ability to continue as a going concern. The Company sustained a net loss attributable to common shareholders of ($1,835,134) for the nine months ended March 31, 2014 and has an accumulated deficit as of March 31, 2014 of $33,349,300.

We intend to continue our planned capital expenditures to develop our gaming interests, as discussed, but we do not have sufficient realized revenues in order to finance these activities internally. As such, we intend to seek capital in order to fund our working capital and capital expenditure needs.

Although we recently obtained additional financing through convertible promissory notes and loans, we can provide no assurance that we will be able to obtain sufficient additional funds to develop our interests and alleviate doubt about our ability to continue as a going concern. We cannot be certain that additional funds, even if available, will be on acceptable terms. To the extent the Company raises additional funds by issuing equity or equity-linked securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. Furthermore, certain of our current creditors may be required to approve any such transaction and may require the issuance of securities convertible into equity of the Company that can result in significant dilution.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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Results of Operations

Three months ended March 31, 2014 compared to the three months ended March 31, 2013

Revenue

For the three months periods ended March 31, 2014 and 2013, we had revenues of $0 and $0 respectively. The Company is anticipating development fees associated with the Gulfport project.

Expenses

Our total expenses for the three months ended March 31, 2014, were ($672,873) as compared to $924,002 for the comparable prior year period. The decrease of $1,596,875, approximately 173%, can be attributed primarily to decreases in change in fair value of conversion feature, general and administrative expenses and accrued salary expense offset by increases in interest expense, stock-based compensation expense and amortization of the beneficial conversion feature, and change in fair market value of the conversion feature of convertible debt.

General and administrative expenses for the three months ended March 31, 2014, were $247,504 as compared to $344,468 for the prior year period. The decrease of $96,964, approximately 28%, is mainly attributable to decreases in legal and financing fees.

Change in fair value of conversion feature for the three months ended March, 2014 was ($1,751,149) as compared to $39,538 for the prior year period. The increase of $1,790,687, approximately 4,529%, is attributed to fluctuations in the common stock prices due the delay in closing the Gulfport project.

Our net income attributable to stockholders for the three months ended March 31, 2014, was $901,955 as compared to a net loss of $556,342 for the prior year period. The increase in income of $1,458,297, approximately 262%, can be attributed primarily to decreases in change in fair value of conversion feature, general and administrative expenses and accrued salary expense offset by increases in interest expense, stock-based compensation expense and amortization of the beneficial conversion feature, and change in fair market value of the conversion feature of convertible debt.

Nine months ended March 31, 2014 compared to the nine months ended March 31, 2013

Revenue

For the nine months periods ended March 31, 2014 and 2013, we had revenues of $0 and $0 respectively. The Company is anticipating commencing management fees associated with the Gulfport project.

Expenses

Our total expenses for the nine months ended March 31, 2014, were $2,368,084 as compared to $2,911,411 for the comparable prior year period. The decrease of $543,327, approximately 19%, can be attributed primarily to decreases in change in fair value of conversion feature, general and administrative expenses, accrued salary expense and stock-based compensation expense offset by increases in interest expense and amortization of the beneficial conversion feature, and change in fair market value of the conversion feature of convertible debt.

General and administrative expenses for the nine months ended March 31, 2014, were $383,941 as compared to $957,869 for the prior year period. The decrease of $573,928, approximately 60%, is mainly attributable to decreases in audit, consulting, legal and financing fees.

Change in fair value of conversion feature for the nine months ended March, 2014 was ($1,074,217) as compared to ($87,830) for the prior year period. The increase of $986,387, approximately 1,123%, is attributed to fluctuations in the common stock prices due the delay in closing the Gulfport project.

Our net loss attributable to stockholders for the nine months ended March 31, 2014, was $1,835,134 as compared to $,1,994,899 for the prior year period. The decrease in loss of $159,765, approximately 8%, can be attributed primarily to decreases in change in fair value of conversion feature, general and administrative expenses, accrued salary expense and stock-based compensation expense offset by increases in interest expense and amortization of the beneficial conversion feature, and change in fair market value of the conversion feature of convertible debt.

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Liquidity and Capital Resources

As of March 31, 2014, we had negative working capital of $17,519,503 compared to negative working capital of $15,251,960 as of June 30, 2013, and an accumulated deficit of $33,349,300 as of March 31, 2014, and further losses are anticipated.

We do not have sufficient funds to continue our operating activities. Future operating activities are expected to be funded by sales of common stock and to a limited extent, debt financing until such time that operations will generate sufficient funds.

These factors raise doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations arising from normal business operations when they come due. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts of and classification of liabilities that might be necessary in the event we cannot continue.

Cash Provided by Operating Activities

Cash flows from operating activities for the nine months ended March 31, 2014 was $721,698, as compared to cash flows from operating activities of $1,539,844 for the comparable nine months ended March 31, 2013. The decrease in the Company's operating cash flows was $818,146 from the nine months ended March 31, 2014 as compared the nine months ended March 31, 2013. The Company had not generated revenues from operations for the nine months ended March 31, 2014 or 2013. As a result, cash flows from operations are generated primarily by changes in amounts accrued for operating expenses, stock-based compensation, as well as amortization and changes in fair market value associated with the convertible debt and warrant liability.

Cash Used in Investing Activities

Cash flows used in investing activities for the nine months ended March 31, 2014 was $905,611 as compared to $2,007,963 used in investing activities for the nine months ended March 31, 2013. This decrease in cash used in investing activities of $1,102,352 consisted primarily of decreases in casino construction costs and deferred casino development costs offset by an increase in deferred casino ground lease rent.

Cash Provided by Financing Activities

Cash flows provided by financing activities for the nine months ended March 31, 2014 were $183,867 as compared to $459,725 provided by financing activities for the nine months ended March 31, 2013. This decrease in cash provided by financing activities of $275,858 consisted primarily of a decreases in loan payables from stockholders and discounts on notes payable offset by an increase in the sale of convertible promissory notes.

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements other than the guarantees discussed in the Notes to the consolidated financial statements.

Impact of Inflation

We believe that inflation has not had a material impact on our results of operations for the period ended March 31, 2014. We cannot be assured that future inflation will not have an adverse impact on our operating results and financial condition.

Climate Change

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

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