News Column

NEVADA GOLD & CASINOS INC - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

July 29, 2014

The following discussion and analysis ("MD&A") should be read in conjunction with our Consolidated Financial Statements and Notes thereto contained in Item 8 herein. Management is of the opinion that inflation and changing prices, including foreign exchange fluctuations, will have little, if any, effect on our consolidated financial position or results of our operations. Critical Accounting Policies and Estimates Our critical accounting policies and estimates involve the use of complicated processes, assumptions, estimates and/or judgments in the preparation of our consolidated financial statements. An accounting estimate is an approximation made by management of a financial statement element, item or account in the consolidated financial statements. Accounting estimates in our historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require us to make assumptions about matters that are uncertain at the time the estimate is made. Additionally, different estimates that we could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of our consolidated financial condition or results of operations. We base our estimates on historical experience and on various other assumptions that we believe are reasonable in the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Our significant accounting policies are discussed in Note 2 to our Consolidated Financial Statements included in Item 8 of this report. We have discussed the development and selection of our critical accounting policies and related disclosures with the Audit Committee of the Board of Directors and have identified the following critical accounting policies for the current fiscal year. Principles of Consolidation We consolidate entities when we have the ability to control the operating and financial decisions and policies of that entity and record the portion we do not own as non-controlling 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 if we can exert significant influence over, but do not control the policies and decisions of an entity. We use the cost method of accounting if we are unable to exert significant influence over the entity. Capitalized Development Costs We capitalize certain third party, professional, licensing, 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 an annual 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 if the project is abandoned, the costs are charged to earnings. 10



Goodwill, Other Intangible Assets, and Other Long-Lived Assets

In connection with our acquisitions of the ten Washington mini-casinos from May 12, 2009 to July 18, 2011, and the acquisition of the South Dakota Gold slot route operation in South Dakota on January 27, 2012, we have goodwill and identifiable intangible assets of $21.9 million, net of amortization. Goodwill represents a significant portion of our total assets. We review goodwill for impairment annually or more frequently if certain impairment indicators arise under the provisions of authoritative guidance. We review goodwill at the reporting level unit, which is the same as our operating segments. We compare the carrying value of the net assets of each reporting unit to the estimated fair value of the reporting unit, based upon a multiple of estimated earnings. If the carrying value exceeds the estimated fair value of the reporting unit, an impairment indicator exists and an estimate of the impairment loss is calculated. The fair value calculation includes multiple assumptions and estimates, including the projected cash flows and discount rates applied. Changes in these assumptions and estimates could result in goodwill impairment that could materially adversely impact our financial position or results of operations. All of our goodwill is attributable to reporting units within our gaming segment. We use earnings before interest, taxes, depreciation, amortization, non-cash goodwill and other long-lived asset impairment charges, litigation charges, and net losses/gains from asset dispositions ("EBITDA") as the measure for future earnings in our impairment test. Management estimates future adjusted EBITDA based primarily on its projections of future revenues. We utilized comparable industry average multiples of adjusted EBITDA rates based on industry standards ranging from 4.5 to 7.5 times adjusted EBITDA for the estimated fair values of our operating facilities as of April 30, 2014. Long-lived assets, including property, plant and equipment and amortizable intangible assets also comprise a significant portion of our total assets. We evaluate the carrying value of long-lived assets if impairment indicators are present or if other circumstances indicate that impairment may exist under authoritative guidance. When management believes impairment indicators may exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of long-lived assets held for use are prepared. If the projections indicate that the carrying values of the long-lived assets are not recoverable, we reduce the carrying values to fair value. For property held for sale, we compare the carrying values to an estimate of fair value less selling costs to determine potential impairment. We test for impairment of long-lived assets at the lowest level for which cash flows are measurable. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available.



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 collectability and establish or adjust our allowance as necessary using the specific identification method. We make advances to 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 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 to determine the appropriate discount to be recorded on the note for it to be considered a performing note. If the note is performing, interest is recorded using the effective interest method based on the value of the discounted note balance. See Note 4 of our Consolidated Financial Statements. We review on an annual basis, or more frequently, 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, the note receivable would be written down to its estimated fair value. Revenue Recognition

We record revenues from casino operations and interest on notes receivable 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 collectability is reasonably certain. 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. 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 30, 2014 April 30, 2013 Food and beverage $ 3,079,963$ 3,302,772 Other 142,350 147,185



Total cost of complimentary services $ 3,222,313$ 3,449,957

11 Accrued Jackpot Liability



We accrue slot jackpot liability as games are played under a matching concept of coin-in. In addition, as of April 30, 2014 and April 30, 2013, we also maintained approximately $1,389,000 and $1,306,500, respectively, in player-supported jackpot accrued liability. Player-supported jackpot is a progressive game of chance directly related to the play or outcome of an authorized non-house-banked card game separately funded by our patrons. Any jackpots hit in these card games are paid from such reserved funds.

Income Taxes Income taxes are accounted for using 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 recognize the impact of uncertain tax positions in our financial statements only if that position is more likely than not of not being sustained upon examination by the taxing authority. 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 applicable guidance. Deferred tax assets and liabilities presented on the balance sheet are as follows: April 30, 2014April 30, 2013



Current deferred tax asset $ 98,643 $ 67,123 Non-current deferred tax asset 4,356,972

4,671,250 Net deferred tax asset $ 4,455,615$ 4,738,373 A summary of our deferred tax assets and liabilities is presented in the table below: April 30, 2014 April 30, 2013 Deferred tax assets: Net operating loss carryforwards $ 1,355,917$ 954,742 Fixed assets - 98,151 Tax credit carryforwards 215,155 - Stock options 269,617 278,283 Impairment of notes receivable and land 3,417,478 3,417,478 Revenue not recognized for tax reporting and other 145,696 109,660 Capitalized acquisition costs - 59,110 Prepaid expenses - 194,789 Other 167,336 67,123 Total deferred tax assets 5,571,199 5,179,336 Deferred tax liabilities: Amortization of intangibles (833,731 ) (408,654 ) Fixed assets (234,838 ) - Prepaid expenses (47,015 ) - Total deferred tax liabilities (1,115,584 ) (408,654 ) Net deferred tax assets before valuation allowance 4,455,615 4,770,682 Valuation allowance - (32,309 ) Net deferred tax assets $ 4,455,615$ 4,738,373 At April 30, 2014, we have gross federal net operating loss carryforwards of approximately $4.0 million. We also have deferred tax assets of approximately $0.2 million related to general business credits and $0.01 million related to Alternative Minimum Tax credits. The net operating losses and general business credits can be carried forward and applied to offset taxable income for 20 years; they will begin to expire in 2031. The Alternative Minimum Tax credit can be carried forward indefinitely and will offset future regular tax liabilities. 12



We have analyzed our income tax filing positions in all jurisdictions and believe our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments which will result in a material change to our financial position. As of the time of this filing, no income tax examinations are currently being undertaken by any jurisdiction.

Reconciliations between the statutory federal income tax expense rate of 34.0% in the fiscal years ended April 30, 2014 and April 30, 2013 and our effective income tax rate as a percentage of pre-tax book income is as follows: Years Ended April 30, 2014 April 30, 2013 Percent Dollars Percent Dollars Income tax expense at statutory federal rate 34.0 $ 248,452 34.0 $ 186,921 Non-Deductible Expenses 3.3 24,639 - - Utilization of General Business Credits (8.6 ) (63,075 ) - - Write-off of expired or forfeited stock options - - 78.4 431,124 Tax Return to Provision Adjustments 10.0 72,743

(19.1 ) (105,183 ) Effective income tax rate 38.7 $ 282,759 93.3 $ 512,862 Accrued Contingent Liability

We assess our exposure to loss contingencies including legal matters. If a potential loss is justified, probable, able to be quantified, and material, 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 30, 2014 and 2013, we did not record any accrued litigation liability. 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 undiscounted 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. The recorded value of cash, accounts receivable, notes receivable and payable approximate carrying value based on their short term nature. The recorded value of long term debt approximates carrying value as interest rates approximate

market rates. 13 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. As of April 30, 2014 we had three notes receivable, as well as the BVD/BVO receivable, outstanding. Two of these notes were issued in connection with a potential gaming project and one is for the sale of the Colorado Grande Casino. Management performs periodic evaluations of the collectability of these notes. 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. Stock-Based Compensation

Compensation cost for stock options granted will be 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 compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the

award. Executive Overview We were formed in 1977 and, since 1994, have primarily been a gaming company involved in financing, developing, owning and operating gaming facilities. Our gaming facility operations are located in the United States of America (the "U.S."), specifically in the states of Washington, South Dakota and, until recently, Colorado. On April 25, 2005, we acquired the Colorado Grande Casino in Cripple Creek, Colorado, which we sold on May 25, 2012. On May 12, 2009, we acquired three mini-casinos in Washington State. On July 23, 2010, we acquired six additional mini-casinos and, on July 18, 2011, we acquired one more mini-casino in Washington State. On January 27, 2012, we acquired all of the shares of A.G. Trucano, Son and Grandsons, Inc. ("South Dakota Gold"), a slot machine route operation in Deadwood, South Dakota. Our business strategy will continue to focus on gaming projects with a continued emphasis on owning and operating gaming establishments. If we are successful, both our future revenues and costs and our profitability can be expected to increase. Our net revenues from continuing operations were $62.8 million and $65.9 million for the fiscal years April 30, 2014 and 2013, respectively.



At times we hold investments in various development projects that we consolidate. As of April 30, 2014 and April 30, 2013, we had capitalized development costs of $0 and $56,959. In fiscal 2014, we determined that it would take an excessive period of time to recover the investment and we therefore wrote off the $56,959.

14



The following table sets forth our consolidated results of operations for the three months and fiscal years ended April 30, 2014, and April 30, 2013:

Consolidated Statements of Operations Three Months Ended Twelve Months Ended April 30, April 30, April 30, April 30, 2014 2013 2014 2013 Revenues: Casino $ 14,093,561$ 14,651,475$ 55,332,569$ 58,393,105 Food and beverage 2,577,761 2,510,539 10,053,883 10,103,913 Other 447,161 443,607 1,742,710 1,808,538 Gross revenues 17,118,483 17,605,621 67,129,162 70,305,556 Less promotional allowances (1,085,552 ) (1,086,239 ) (4,321,768 ) (4,381,638 ) Net revenues 16,032,931 16,519,382 62,807,394 65,923,918 Expenses: Casino 7,810,946 8,155,865 32,081,242 33,016,277 Food and beverage 1,292,352 1,270,391 5,114,077 4,838,447 Marketing and administrative 3,991,514 4,095,164 16,369,505 16,652,746 Facility 490,906 564,070 1,951,314 2,270,774 Corporate and legal expense 544,168 795,361 2,384,596 4,051,972 Depreciation and amortization 571,245 498,764 2,263,499 2,126,888 Write-off of project development costs - - 56,959 257,733 Loss on settlements - sale of assets 11,676 986

27,605 6,081 Other 59,775 82,525 263,052 310,411 Total operating expenses 14,772,582 15,463,126 60,511,849 63,531,329 Operating income from continuing operations 1,260,349 1,056,256 2,295,545 2,392,589 Non-operating income (expenses): Interest income 31,677 34,398 133,404 120,349 Interest expense (138,929 ) (345,512 ) (1,097,005 ) (1,494,989 ) Interest rate swap expense (26,912 ) - (26,912 ) - Decrease in swap fair value (58,352 ) - (58,352 ) -

Amortization of loan issue costs (22,505 ) (81,643 ) (232,391 ) (329,387 ) Loss on extinguishment of debt - - (283,550 ) - Income before income tax 1,045,328 663,499 730,739 688,562 Income tax expense (399,239 ) (211,065 ) (282,758 ) (560,052 ) Net income from continuing operations 646,089 452,434 447,981 128,510 Net loss from operations held for sale, net of taxes - - - (91,603 ) Net income $ 646,089$ 452,434$ 447,981$ 36,907 Per share information: Net income per common share - basic and diluted for continuing operations $ 0.04$ 0.03 $



0.03 $ 0.01

Net loss per common share - basic and diluted for discontinued operations $ - $ - $



- $ (0.01 )

Basic weighted average number of shares outstanding 16,165,930 16,065,719



16,127,654 15,997,546

Diluted weighted average number of shares outstanding 16,366,283 16,110,304 16,294,487 16,020,789



The accompanying notes are an integral part of these consolidated financial

statements. 15 Comparison of the Three Months Ended April 30, 2014 and April 30, 2013

Net revenues. Net revenues year over year decreased 2.9%, to $16.0 million from $16.5 million for the three month period ended April 30, 2014, compared to the same period ended April 30, 2013. Casino revenues declined 3.8% to $14.1 million from $14.7 million primarily resulting from a decrease in the number of gaming devices we operated at our South Dakota Gold properties. Food and beverage, other revenues and promotional allowances remained consistent year over year for the three month period ended April 30, 2014. Total operating expenses. Total operating expenses decreased 3.9%, to $14.8 million from $15.5 million, for the three month period ended April 30, 2014, compared to the same period ended April 30, 2013. Casino expenses decreased $0.3 million, or 4.2%, primarily caused by decreased commissions, royalty fees and device taxes paid on our slot route. Food and beverage expenses, and other expenses remained consistent. Marketing and administrative expenses decreased $0.1 million, or 2.5%, primarily due to reduced promotions, events and giveaways. Facility expense decreased $0.1 million, or 13.0%, as a result of reduced operating supplies, payroll and related benefit costs. Corporate expenses decreased $0.3 million, or 31.6%, primarily resulting from a reduction in staff, reduced office rent due to our move from Houston to Las Vegas in March 2013, and concerted efforts to reduce other operating costs. Depreciation and amortization increased $0.1 million, or 14.5%, primarily related to fixed asset replacements at our South Dakota Gold operations. Interest income (expense). Interest expense decreased 52.0%, or $0.2 million, for the three month period ended April 30, 2014, compared to the three month period ended April 30, 2013. The decrease resulted from the reduction of outstanding debt since April 30, 2013 and the refinancing of all remaining debt in December 2013 (See Notes 5 and 6 of our Consolidated Financial Statements). Interest income decreased $3,000 for the three month period ended April 30, 2014, compared to the three month period ended April 30, 2013, which was related to interest earned on notes receivables based on note terms. We recorded a $58,000 decrease of the fair value of the interest rate swap we were required to enter into as a result of refinancing our debt in December 2013, whereas we did not have any swaps during fiscal year 2013. Amortization of loan issue cost was $22,500 and $81,600 for the three month periods ended April 30, 2014 and April 30, 2013, respectively. The reduction resulted from the write-off of $283,550 of our debt refinancing loan issuance costs, offset by the addition of $450,000 of new loan issuance costs which is being amortized over the life of the new debt. Income Taxes. For the three months ended April 30, 2014 and April 30, 2013, our overall effective income tax rates were 38.2% and 31.8%, respectively. The increase in the quarterly effective tax rate for the three months ended April 30, 2014 as compared to the same period of the prior year is primarily related to changes in the calculation of the FICA tip credit and prior year tax return to provision adjustments.

Net income. Net income from continuing operations was $646,100 compared to $452,400 for the three month periods ended April 30, 2014 and April 30, 2013, respectively. The increase is primarily a result of the $0.2 million increased operating income, a $0.2 million reduction of net interest expense offset by a $0.2 million increase in income tax expense. Comparison of Fiscal Years Ended April 30, 2014 and April 30, 2013 Net revenues. Net revenues decreased 4.7%, to $62.8 million from $65.9 million, for the fiscal year ended April 30, 2014 compared to the fiscal year ended April 30, 2013. Casino revenues decreased 5.2%, or $3.1 million, primarily resulting from decreased drop at our Washington properties caused by abnormally dry weather conditions in the Seattle market during the first quarter of fiscal year 2014 compared to abnormally wet weather conditions during the first quarter of fiscal year 2013 and a decrease in the number of gaming devices we operated at our South Dakota Gold route operations caused by the closure of several gaming facilities in Deadwood, South Dakota. Food and beverage and other revenues each decreased $0.1 million, also caused by the Seattle weather conditions. In an effort to maintain revenues and market share promotional allowances only decreased $0.1 million. Total operating expenses. Total operating expenses decreased 4.8% to $60.5 million from $63.5 million, for the fiscal year ended April 30, 2014, compared to the fiscal ended April 30, 2013. Casino expenses decreased $0.9 million, or 2.8%, primarily resulting from decreased commissions, royalty fees and device taxes paid on our slot route. Food and beverage increased $0.3 million, or 5.7%, primarily resulting from increased payroll benefit costs. Marketing and administrative expenses decreased $0.3 million, or 1.7%, primarily resulting from reduced promotions, events and giveaways. Facility expenses decreased $0.3 million, or 14.1%, primarily resulting from reduced operating supplies, payroll and related benefit costs. Corporate expenses decreased $1.7 million, or 41.1%, primarily as a result of a reduction in staff, reduced office rent due to our move from Houston to Las Vegas in March 2013, and concerted efforts to reduce operating costs whereas, in the prior year we recorded $0.7 million severance accrual for the former CEO and other Houston office employees. Depreciation and amortization increased $0.1 million, or 6.4%, primarily due to fixed asset replacements at our South Dakota Gold operations. Other expenses decreased $0.1 million, or 15.3%, due to concerted efforts to reduce operating costs. In the current fiscal year we wrote-off $0.1 million of project development costs compared to $0.3 million in the prior fiscal year. Interest income (expense). Interest expense decreased 28.2%, or $0.5 million, for the fiscal year ended April 30, 2014 compared to the fiscal year ended April 30, 2013. The decrease is primarily related to the reduction of outstanding debt since April 30, 2013 and the refinancing of all remaining debt in December 2013 (See Note 5 of our Consolidated Financial Statements). We recorded a $58,000 decrease of the fair value of the interest rate swap we were required to enter into as a result of refinancing our debt in December 2013, whereas we did not have any swaps during fiscal year 2013. Amortization of loan issue costs was $232,000 and $329,000 for the fiscal years ended April 30, 2014 and April 30, 2013, respectively. The reduction resulted from our debt refinancing completed in December 2013 (See Note 5 of our Consolidated Financial Statements). 16 Income taxes. The effective tax rates for the years ended April 30, 2014 and April 30, 2013, were 38.7% and 93.3%, respectively. The decrease in the year-to-date tax rate as of April 30, 2014, as compared to the same period of the prior year is primarily related to changes in the calculation of the FICA tip credit and prior year tax return to provision adjustments. Operations held for sale. For the year ended April 30, 2013, we recorded a net loss of $0.1 million primarily related to the completion of tax related matters associated with our May 2012 sale of the Colorado Grande Casino. Net income. Net income was $448,000 and $36,900 for the fiscal years ended April 30, 2014 and April 30, 2013, respectively. The improvement of $0.4 million is primarily a result of the $0.3 million decreased tax expense, the $3.0 million reduction of operating expenses, the $0.5 million reduction of net interest expense and the recording of a $0.1 million write-off of project development costs in the current year compared a $0.3 million write-off in the prior year, offset by, the $3.1 million decline in net revenues, $0.1 million decrease in swap fair value and the $0.3 million write-off of loan issuance costs recorded in the current year. Non-GAAP Financial Measures The term "adjusted EBITDA" is used by us in presentations, quarterly earnings calls, and other instances as appropriate. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, non-cash goodwill and other long-lived asset impairment charges, write-offs of project development costs, litigation charges, non-cash stock grants, non-cash employee stock purchase plan discounts, exclusion of net income or loss from assets held for sale, and net losses/gains from asset dispositions. Adjusted EBITDA excludes the impact of slot and table games hold percentages compared to the prior year. Adjusted EBITDA is presented because it is a required component of financial ratios reported by us to our lenders, and it is also frequently used by securities analysts, investors, and other interested parties, in addition to and not in lieu of GAAP results, to compare to the performance of other companies that also publicize this information. Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or any other measure of performance derived in accordance with GAAP. 17



The following table shows adjusted EBITDA by operating unit for the three months ended April 30, 2014 and April 30, 2013:

For the three months ended April 30, 2014 Total South Dakota Corporate - Continuing Washington Gold Gold Other Operations Revenues: Gross revenues $ 15,218,306$ 1,898,935$ 1,242$ 17,118,483 Less promotional allowances (1,087,935 ) 2,383 - (1,085,552 ) Net revenues 14,130,371 1,901,318 1,242 16,032,931 Expenses: Total operating expenses (excludes depreciation, amortization, write downs, acquisition costs, stock grants, employee stock purchase plan discounts and impairments) 11,826,904 1,818,074 533,209 14,178,187 Adjusted EBITDA $ 2,303,467$ 83,244$ (531,967 )$ 1,854,744 For the three months ended April 30, 2013 Total South Dakota Corporate - Continuing Washington Gold Gold Other Operations Revenues: Gross revenues $ 15,205,564$ 2,400,057 $ - $ 17,605,621 Less promotional allowances (1,038,030 ) (48,209 ) - (1,086,239 ) Net revenues 14,167,534 2,351,848 - 16,519,382



Expenses:

Total operating expenses (excludes depreciation, amortization, write downs, acquisition costs, stock grants, employee stock purchase plan discounts and impairments) 11,922,206 2,204,817 676,670 14,803,693 Adjusted EBITDA $ 2,245,328$ 147,031$ (676,670 )$ 1,715,689



The following table shows adjusted EBITDA by operating unit for the twelve months ended April 30, 2014 and April 30, 2013:

For the twelve months ended April 30, 2014 Total South Dakota Corporate - Continuing Washington Gold Gold Other Operations Revenues: Gross revenues $ 57,925,748$ 9,195,102$ 8,312$ 67,129,162 Less promotional allowances (4,261,796 ) (59,972 ) - (4,321,768 ) Net revenues 53,663,952 9,135,130 8,312 62,807,394 Expenses: Total operating expenses (excludes depreciation, amortization, write downs, acquisition costs, stock grants, employee stock purchase plan discounts and impairments) 47,389,477 8,358,993 2,338,917 58,087,387 Adjusted EBITDA $ 6,274,475$ 776,137$ (2,330,605 )$ 4,720,007 For the twelve months ended April 30, 2013 Total South Dakota Corporate - Continuing Washington Gold Gold Other Operations Revenues: Gross revenues $ 59,807,753$ 10,497,803 $ - $ 70,305,556

Less promotional allowances (4,313,644 ) (67,994 ) - (4,381,638 ) Net revenues 55,494,109 10,429,809 - 65,923,918



Expenses:

Total operating expenses (excludes depreciation, amortization, write downs, acquisition costs, stock grants, employee stock purchase plan discounts and impairments) 47,623,120 9,357,269

3,181,347 60,161,736 Adjusted EBITDA $ 7,870,989$ 1,072,540$ (3,181,347 )$ 5,762,182 18



Adjusted EBITDA reconciliation for the three months and fiscal years ended April 30, 2014 and April 30, 2013:

Adjusted EBITDA reconciliation to net income:

For the quarter ended (unaudited) April 30, 2014 April 30, 2013 Net Income $ 646,089 $ 452,434 Add: Income tax expense 399,239 211,065 Net interest expense 156,669 392,757 Decrease in swap fair value 58,352 -

Loss on settlements-sale of assets 11,676



986

Stock options amortization 13,620



13,620

Employee stock purchase discount 1,391



-

Relocation expenses -



127,029

Depreciation and amortization 571,245 498,764 Deferred rent escalation (3,537 ) 19,034 Adjusted EBITDA $ 1,854,744$ 1,715,689



Adjusted EBITDA reconciliation to net income:

For the fiscal year ended April 30, 2014 April 30, 2013 Net Income $ 447,981 $ 36,907 Add: Income tax expense 282,758 560,052 Net interest expense 1,222,904 1,704,027 Decrease in swap fair value 58,352 - Loss on extinguishment of debt 283,550 - Loss on settlements-sale of assets 27,605 6,081 Severance expenses - 637,868 Relocation expenses - 127,029 Stock options amortization 54,479 137,858 Employee stock purchase discount 7,384 - Net loss on operations held for sale, net of taxes - 91,603 Depreciation and amortization 2,263,499 2,126,888 Deferred rent escalation 14,536 76,136 Write-off of project development costs 56,959 257,733 Adjusted EBITDA $ 4,720,007$ 5,762,182



Liquidity and Capital Resources

Historical Cash Flows

The following table sets forth our consolidated net cash provided by (used in) operating, investing and financing activities for the fiscal years ended April 30, 2014 and April 30, 2013: Fiscal Years Ended April 30, April 30, 2014 2013 Cash provided by (used in): Operating activities $ 3,343,316$ 3,499,787 Investing activities $ (110,360 )$ 223,613 Financing activities $ (2,217,890 )$ (2,199,642 ) 19

Operating activities. Net cash provided by operating activities during the fiscal year ended April 30, 2014 decreased $0.2 million compared to the same period in the fiscal year ended April 30, 2013. This decrease resulted primarily from a $0.4 million increase in net income and a net increase of $0.2 million to operating assets and liabilities offset by a $0.2 million decrease of net deferred income tax assets and a $0.6 million increase in the changes to restricted cash. Investing activities. Net cash used in investing activities during the fiscal year ended April 30, 2014 increased $0.3 million compared to the same period in the fiscal year ended April 30, 2013. The increase of funds used primarily resulted from a net $0.3 million decrease of property and equipment purchases, a $0.2 million increase in the collections of the G Investments note receivable, offset by the collection of $0.8 million from the sale of operations held for sale in the fiscal year ended April 30, 2013. Financing activities. Net cash used in financing activities was $2.2 million for fiscal year ended April 30, 2014 and April 30, 2013, respectively. The activity for the year ended April 30, 2014 is primarily attributable to $0.5 million prepayment of deferred loan issue costs, $16.1 million net repayment of credit facilities offset by $14.3 million net proceeds from borrowed funds and $0.1 million proceeds from employee stock purchases and exercise of stock options.



Future Sources and Uses of Cash

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

- capital requirements related to future acquisitions;

- cash flow from operations; - new management contracts;



- working capital requirements;

- obtaining debt financing; and

- debt service requirements.

At April 30, 2014, outstanding indebtedness was $12,350,000, of which $1,625,000 million is due by April 30, 2015.

As of April 30, 2014, scheduled principal payments on the Credit Facility for each of the next five years and thereafter are as follows:

May 1, 2014 - April 30, 2015$ 1,625,000May 1, 2015 - April 30, 2016$ 1,725,000May 1, 2016 - April 30, 2017$ 1,825,000May 1, 2017 - April 30, 2018$ 1,925,000May 1, 2018 - December 10, 2018$ 5,250,000



On April 30, 2014, excluding restricted cash of $1,389,000, we had cash and cash equivalents of $7,739,000. The restricted cash consists of approximately $1,389,000 of player supported jackpots.

Our Consolidated Financial Statements have been prepared assuming that we will have adequate availability of cash resources to satisfy our liabilities in the normal course of business. We have made arrangements to ensure that we have sufficient working capital to fund our obligations as they come due. We believe that funds from operations will provide sufficient working capital for us to meet our obligations as they come due; however, there can be no assurance that we will be successful. Should cash resources not be sufficient to meet our current obligations as they come due, repay or refinance our long-term debt, and acquire operations that generate positive cash flow, we would be required to curtail our activities and maintain, or grow, at a pace that cash resources

could support. Liquidity The current ratio is an indication of a company's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry and are generally between 1.25 and 3 for healthy businesses. If a company's current ratio is in this range, then it generally indicates good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management. The table below shows as of April 30, 2014, we have a 2.09 ratio, sufficient to service debt and maintain operations. Current Ratio as of April 30, 2014 Current Ratio Current Assets $ 10,986,014 2.09 Current Liabilities $ 5,267,797 20 Indebtedness On December 18, 2013, the Company and certain of its subsidiaries entered into a new $12,750,000 Reducing Revolving Credit Agreement with Mutual of Omaha Bank (the "Credit Facility"). The Credit Facility and $1,170,000 of the Company's cash were utilized to pay off all of the Company's outstanding long term debt obligations. The Credit Facility, which matures on December 10, 2018, 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, which will be determined quarterly, based on the total leverage ratio for the trailing twelve month period. The initial Applicable Margin is 5.00% until July 1, 2014, when the first quarterly pricing change will take effect. In addition, the Company is required to fix the interest rate on at least 50% of the borrowing through a swap agreement.



As of April 30, 2014, scheduled principal payments on the Credit Facility for each of the next five years and thereafter are as follows:

May 1, 2014 - April 30, 2015$ 1,625,000May 1, 2015 - April 30, 2016$ 1,725,000May 1, 2016 - April 30, 2017$ 1,825,000May 1, 2017 - April 30, 2018$ 1,925,000May 1, 2018 - December 10, 2018$ 5,250,000 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 commencing as of the fiscal quarter ending April 30, 2014, including a minimum total leverage ratio ranging from 3.00 to 1.00 through July 31, 2015, 2.50 to 1.00 from August 1, 2015 through January 31, 2017, and 2.00 to 1.00 from February 1, 2017 until maturity; and lease adjusted fixed charge coverage ratio no less than 1.15 to 1.00. The Company evaluated the refinancing transaction in accordance with the accounting standards for debt modifications and extinguishments and evaluated the refinancing transaction on a lender by lender basis. As a result of this evaluation, the Company concluded the refinancing was an extinguishment of debt and recognized a loss on debt extinguishment of $283,550 representing the write-off of unamortized debt issuance costs as of the date of the refinancing. In connection with the refinancing transaction, the Company paid $450,000 in fees and other costs which have been capitalized and included in other assets on the consolidated balance sheet. We are required by the Credit Facility to have a secured interest rate swap for at least 50% of the remaining Credit Facility principal balance. The Company has an approved interest rate swap policy which establishes guidelines for the use and management of interest rate swaps to either reduce the cost or hedge existing or planned debt. The policy states that the Company shall not enter into swap transactions for speculative purposes. At the inception of any hedge agreement, as required by ASC 815, Derivatives and Hedging, the Company documented the hedging relationship and the risk management objective and strategy for the undertaking of all qualifying hedges. On January 17, 2014, 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 beginning with February 10, 2014 until the maturity date of the Credit Facility. As of April 30, 2014, the Company had one outstanding interest rate swap with MOOB with a notional amount of $6,175,000 at a swap rate of 1.52%, which as of April 30, 2014, effectively converts $6,175,000 of our floating-rate debt to a synthetic fixed rate of 6.02%. Under the terms of the swap agreement, the Company pays a fixed rate of 1.52% and receives variable rate based on one-month LIBOR as of the first day of each floating-rate calculation period. Under the ISDA Confirmation, the initial floating index as of April 30, 2014 is set at 0.151%.

The Company will not designate the interest rate swap as a cash flow hedge and the interest rate swap will not qualify for hedge accounting under ASC Topic 815. Changes in our interest rate swap fair value will be recorded in our Consolidated Statements of Operations. As required by ASC 815, on a quarterly basis, the Company will assess whether any changes to the hedge instrument, or underlying debt agreement, have occurred which would alter the original designation of the hedge instrument. 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. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. As a result of our evaluation of our interest rate swap as of April 30, 2014, we recorded a decrease in our interest rate swap fair value for the three or twelve months ended April 30, 2014. 21



Off-Balance Sheet Arrangements

None.



New Accounting Pronouncements and Legislation Issued

Since the filing of our Form 10-K for the fiscal year ended April 30, 2013, there are no new accounting standards effective which are material to our financial statements or that are required to be adopted by the Company.


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Source: Edgar Glimpses


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