|10. Rotate Black, Gaming, Inc.
On June 22, 2007, Gaming entered into a Development Agreement
with the Seneca Nation of Indians (Nation), a Federally-recognized Indian tribal government, to act as the Developer to provide
managerial expertise and financial resources to assist the Nation in acquiring land and developing and constructing a gaming facility
(Facility). The purpose of the Facility for the Nation is to provide employment and improve the social, economic, education, and
health needs of its members; to increase its revenues and to enhance the Nations economic self-sufficiency.
The Development Agreement commenced upon execution and continues
through the date the Facility is open to the public and operational, until all obligations of the parties have expired, as defined,
or until all obligations owed to the Company by the Nation have been satisfied, whichever is later; provided the agreement is not
terminated by mutual agreement.
Under the terms of the Development Agreement, the Company
is responsible for arranging a limited recourse loan or other arrangements to finance the Facility in an aggregate principal amount
of up to $350,000,000. The proceeds of the loan are to be used exclusively for the development, design, construction, furnishing
and equipping of the Facility, for start-up and working capital and reimbursing the Company for development advances. Development
advances are the funds advanced by the Company for necessary costs in advance of the facility loan. In accordance with the Development
Agreement, development costs include the costs of the design, construction, furnishing and equipping of the Facility and such other
costs incurred by the Company or by the Nation to advance the conclusion of the project, including consultant and attorney fees
and costs. According to the Agreement, funds advanced as development costs, together with the development fee, will constitute
the initial principal of the development loan and the funds advanced by the Company as developer will be reimbursed from the proceeds
of the Facility Loan.
The funds expended under the Development Loan are subject
to authorization by a Business Board of the Nation and the financing will not exceed $350,000,000, exclusive of interest.
A development fee of 2.5% of total development costs will
be paid to the Company for services rendered pursuant to the Development Agreement and are in addition to the amounts advanced
to cover the development costs.
In October, 2007, as amended, Gaming acquired land from 3D
Associates, LLC (3D) in exchange for $556,000, payable $288,000 in cash and the issuance of a note in the amount of $268,000, payable
on August 15, 2009, as extended, with interest payable at 18%, per annum. The land was subsequently transferred to the Seneca Nation
without compensation by Gaming and is included in the Contract Rights. On November 1, 2009, the Company issued 132,000 shares of
common stock in full repayment of the note payable of $243,000 and accrued interest thereon of $87,000, $2.50, per share. The number
of shares and price per share are subject to adjustment for stock splits, dividends, exchanges and consideration received by stockholders
in the event of an acquisition of the Company by another entity, and dependent on the performance of the stock prices, as defined.
In addition, for one year and under certain conditions, the Company could be liable for certain market loss on these shares, as
Subsequent to the transfer of the Property to the Seneca Nation
of Indians pursuant to its agreements with the Seneca Nation, 3D had filed a lawsuit against the Seneca Nation and the Company
to recover the Property for the reason that the land was not yet developed which would have benefited other holdings of 3D.
On May 11, 2011, the Company entered into an agreement with
3D wherein 3D agreed to drop its lawsuit and forever waive any and all claims against the Company. In consideration for this, the
Company agreed to pay 3D ten dollars ($10) and to grant 3D the right to buy the Property for $500,000, in the event that the Company
is successful in re-acquiring the 3D Property from the Seneca Nation.
On June 14, 2008, Gaming entered into a Management Agreement
with the Nation for an exclusive right and obligation to manage, operate and maintain the gaming facility to be developed in Sullivan
County, New York, commencing on the effective date, as defined, and continuing for a period of seven years after the date on which
gaming commences in the facility. The term will be automatically extended for a period of seven years unless terminated under the
provisions of the agreement.
Under the Management Agreement, the Nation will pay the Company
a fee based on a percent of gaming revenues, as defined. As manager, the Company will conduct and direct all business and affairs
in connection with the operation, management and maintenance of the Facility, including all commercial gaming business, sale of
food, beverages, tobacco and gifts, hotels, parking, resorts, amusement or accommodation operations.
Contract rights consisted of the various rights acquired under
the Development and Management Agreements. It is composed of contract rights acquired by Rotate Black, LLC and draws from an asset-backed
lending agreement used to finance the expenses associated with acquiring the Development and Management Agreements. In addition,
$556,000 represents the cost of the land for the gambling facility, which was transferred to the Seneca Nation without compensation
by Gaming. The Company has not amortized the contract rights as they were deemed to be inactive are not producing a cash flow.
With the financing of the gaming facility in place, the Development
Advances and development fee will be billed and the contract rights will commence amortization over its useful life.
On February 2, 2011, Gaming filed a notice of breach of the
Management and Development Agreements with the Nation in response to the notification to Catskill that the development in the region
is premature until the United States imposed moratorium on the acquisition of lands in trust for new Indian gaming facilities has
been lifted. Gaming has also commenced a binding arbitration proceeding under their Development and Management Agreements with
the Nation, seeking $21 million in actual damages and $350 million in lost profits. The Company believes that it will recover its
carrying value either through the arbitration or through the execution of the agreement. On July 1, 2010, the Company
sold Gaming to Catskill Gaming and Development, LLC (See Sale of Gaming). In May, 2011 Catskills Gaming informed the
Company that they will be moving forward with the project and therefore the Company couldnt move forward with arbitration.
Sale of Gaming
On July 1, 2010, as amended, the Company and RBL entered into
an agreement to sell 100% of the common stock of Gaming to Catskills Gaming and Development, LLC (Catskill) in exchange for an
aggregate contingent consideration of $21,000,000 in cash and the assumption of indebtedness of approximately $6,300,000. According
to the Agreement, the consideration is to be paid in installments as follow:
||$2 million on or before the first anniversary of the date of the opening for business to the public of a gaming facility under a management agreement between Catskills, as manager, and the Seneca Nation of Indians, in or near the Counties of Ulster and Sullivan in the State of New York (the Opening Date);|
||$2 million on the second anniversary of the Opening Date;|
||$3.4 million on the third anniversary of the Opening Date:|
||$3.4 million on the fourth anniversary of the Opening Date;|
||$3.4 million on the fifth anniversary of the Opening Date;|
||$3.4 million on the sixth anniversary of the Opening Date; and|
||$3.4 million on the seventh anniversary of the Opening Date.|
As of June 30, 2011, the Company received the payment of $15,000
and, since the balance of the compensation is contingent upon the opening for business of a gaming facility under a management
agreement between Catskills, as manager, and the Seneca Nation of Indians, the Company has not recorded a receivable for the balance
of the sales agreement.
The Company has recorded the deconsolidation of Gaming in
accordance with ASC 810-10-40 and has recorded a loss on the sale of Gaming of $6,843,246, by calculating the difference between
the sum of the consideration received and the carrying amount of the noncontrolling interest and the carrying amount of the entitys
assets and liabilities as follows:
|Intangible assets Contract rights
|Developer loan receivable
|Accounts payable & accrued expenses
|Accumulated deficit noncontrolling entity
|Less consideration on sale:
|Loss on sale of Gaming
Land Purchase Deposit
On May 26, 2009, the Company entered into an agreement to
acquire additional real property in Sullivan County, New York. The purchase price for the property was 1,409,828 shares of common
stock of the Company, $1,750,000 in cash on escrow and $1,750,000 in cash upon closing. On May 11, 2009, the Company issued 630,735
shares of common stock and Rotate Black, LLC transferred, on behalf of the Company, 779,093 shares of the Companys common
stock to the seller, both being held in escrow, as a deposit under the agreement. The shares were valued at $7,049,142, $5.00,
In October 2009, the Company issued 779,093 shares of common
stock to Rotate Black, LLC as repayment of the advance.
On November 9, 2009, March 16, 2010 and May 21, 2010, the
Company issued 70,000 (valued at $350,000, $5.00, per share), 208,613 (valued at $521,532, $2.5, per share) and 500,000 (valued
at $550,000 $1.10, per share) shares of common stock in satisfaction of anti-dilution rights of the land purchase agreement.
The Company has evaluated the fair value of the land deposit
and has determined that the fair value is in excess of its book value as of March 31, 2012.
This land purchase deposit was made by the Company and not
part of Gaming and, therefore, was not included in the sale to Catskill.