robk_10q.htm

ROTATE BLACK, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	March 31,			June 30,
	2014			2013
	(Unaudited)
ASSETS
Current assets
Cash	$	-		$	46
Prepaid expenses		129,891			108,023
Total current assets		129,891			108,069

Fixed assets - net		19			872
Deferred development costs - Gulfport Project		3,844,961			3,831,327
Land purchase deposit		437,688			437,688
Deferred casino ground lease rent		2,791,633			1,902,156
Deferred development costs - SlotOne - Project		2,500			-
Stock as loan collateral		400,000			400,000
Security deposit		3,600			3,600

TOTAL ASSETS	$	7,610,292		$	6,683,712


LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable and accrued expenses	$	5,384,836		$	5,371,847
Accrued salaries		1,603,963			1,264,371
Accrued ground lease rent		2,791,633			1,902,156
Note payable		80,000			80,000
Loans payable - stockholders		306,382			320,250
Mortgage payable - Big Easy vessel		2,975,000			2,975,000
Note payable - Big Easy vessel		600,000			600,000
Accrued interest on mortgage and note payable		3,907,580			2,846,405

Total current liabilities		17,649,394			15,360,029

10% convertible promissory notes payable		713,015			328,015
Discount on 10% convertible notes payable		(498,716	)		(161,451	)
Beneficial conversion feature		268,273			206,053
Warrant liability		467,224			98,814

TOTAL LIABILITIES		18,599,190			15,831,460

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' (DEFICIT) EQUITY

Common stock, $0.001 par value, 75,000,000
shares authorized; 49,499,783 and 45,698,938
shares issued and outstanding as of March 31, 2014
and June 30, 2013, respectively		49,500			45,700

Class A Preferred Stock Units, $0.001 par value, 45 units
authorized, issued and outstanding as of March 31, 2014		1,750,000			1,750,000
and June 30, 2013, respectively

Class B Preferred Stock Units, $0.001 par value, 2,687 units
authorized, issued and outstanding as of March 31, 2014		725,000			725,000
and June 30, 2013, respectively

Additional paid-in-capital		23,429,685			22,906,551

Accumulated deficit		(33,349,300	)		(31,514,166	)

Noncontrolling interest		(3,593,783	)		(3,060,833	)

TOTAL STOCKHOLDERS' (DEFICIT) EQUITY		(10,988,898	)		(9,147,748	)


TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$	7,610,292		$	6,683,712

See notes to financial statements.

ROTATE BLACK, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2014			2013			2014			2013

Revenue	$	-		$	-		$	-		$	-

Operating expenses
Accrued salary expense		165,606			188,400			456,516			538,729
Stock based compensation		26,000			-			303,734			439,676
General and administrative expenses		247,504			344,468			383,941			957,869
Change in fair value of conversion feature		(1,751,149	)		39,538			(1,074,217	)		(87,830	)
Amortization of beneficial conversion feature and discount		232,047			28,907			1,167,581			139,784
Interest expense		407,119			322,689			1,130,529			923,183

Total expenses		(672,873	)		924,002			2,368,084			2,911,411

Net Loss	$	672,873		$	(924,002	)	$	(2,368,084	)	$	(2,911,411	)

Net profit attributable to noncontrolling interest		229,082			367,660			532,950		$	916,512

Net loss attributable to stockholders	$	901,955		$	(556,342	)	$	(1,835,134	)	$	(1,994,899	)

Basic and diluted net income per common share	$	0.01		$	(0.02	)	$	(0.05	)	$	(0.08	)

Basic and diluted average
common shares outstanding		48,614,303			42,156,932			47,098,867			38,295,067

See notes to financial statements.

ROTATE BLACK, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)


	Nine Months Ended March 31,
	2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,368,084	)	$	(2,911,411	)
Adjustments to reconcile net loss to cash
provided by operating activities:
Stock-based compensation		303,734			439,676
Stock for interest		53,200			37,075
Original issue discount		-			15,000
Depreciation and amortization		853			784
Amortization and changes in beneficial conversion feature and warrant liability		430,630			57,954
Changes in assets and liabilities:
Prepaid expenses		(1,868	)		3,302
Accounts payable and accrued expenses		1,242,058			3,035,311
Accrued interest on mortgage and notes payable		1,061,175			862,153

Net cash provided by operating activities		721,698			1,539,844

CASH FLOWS FROM INVESTING ACTIVITIES
Casino construction in progress		-			(1,234,235	)
Deferred development costs - Gulfport Project		(13,634	)		(771,028	)
Deferred casino ground lease rent		(889,477	)		-
Deferred development costs - SlotOne Project		(2,500	)		-
Land deposit					(2,700	)

Net cash used in investing activities		(905,611	)		(2,007,963	)

CASH FLOWS FROM FINANCING ACTIVITIES
Stock sold for cash		-			30,000
Proceeds from convertible promissory notes payable		535,000			89,015
Proceeds from note payable		-			65,000
Discount on 10% convertible promissory notes payable		(337,265	)		-
Increase in loans payable - stockholders		(13,868	)		276,118
Payments of note payable - truck		-			(408	)

Net cash provided by financing activities		183,867			459,725

Net (decrease) in cash		(46	)		(8,394	)

Cash, beginning of period		46			8,671

Cash, end of period	$	-		$	277

Noncash Transactions:

Issuance of common stock in payment of due to stockholder	$	-		$	240,000

Issuance of common stock for compensation, legal and consulting services	$	187,067		$	-

Issuance of common stock in payment of notes payable	$	150,000		$	-

Issuance of common stock in payment toward accounts payable	$	-		$	255,000

Issuance of common stock for redemption of Preferred Series A Stock plus interest and dividends	$	-		$	264,008

Issuance of common stock for loan consideration	$	136,667		$	-

Issuance of common stock as interest	$	53,200		$	-

Issuance of common stock in equity investment	$	-		$	10,000

See notes to financial statements.

ROTATE BLACK, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS

Rotate Black, Inc. (Company) was incorporated in Nevada on August 2, 2006. The Company develops, operates and manages gaming and related properties. On April 1, 2010, the Company commenced operations under the Gulfport Project management agreement and was no longer a development stage company.

Gulfport Project

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 Rotate Black MS, LLC (RBMS), a Mississippi limited liability company, to own, develop and manage the operations of a casino resort to be located on the property adjacent to the Gulfport, MS marina. RBMS’s initial strategy was to secure an existing gaming vessel, move the vessel to the Gulfport site, and build land assets on that site to support the gaming vessel. Subsequently, RBMS changed its strategy to an entirely land-based casino.

In December 2013, RBMS entered into a term sheet and Summary of Proposed Terms and Conditions Senior Secured Credit Facility with debt and equity investors related to a proposed financing for the Gulfport Casino Hotel Project to be developed by RBMS (Borrower). The proposed financing is for up to $125,000,000 for the development, design, construction, financing, ownership, operation and maintenance of an approximately 191,000 square foot land based, four star casino, including gaming, restaurant, bar and support space and an adjacent 205-room hotel in Gulfport, Mississippi.

On December 30, 2013, Rotate Black MS, LLC. (“RBMS”), an affiliate of Rotate Black, Inc. (the “Company”) appeared before the Mississippi Gaming Commission (the “Commission”) seeking Approval to Proceed with the construction of its Gulfport casino resort. At that meeting, the Commission approved the application, thus allowing RBMS to move forward with the closing of its financing and begin construction. Approval was granted on the condition that Rotate Black obtain the necessary project financing, complete its documentation of the financing and fund the local vendors by April 1, 2014.

The Company obtained the full financial commitment for the project, but its lender needed additional time to complete the proper documentation necessary to close the financing. To that end, the Company and its financing partner submitted an application for a 20-day extension of its Approval to Proceed. The Commission notified the Company that the extension request would not be considered as presented and that RBMS would need to expand its plans for the project.

On April 10, 2014, Rotate Black MS, LLC entered into a new exclusivity agreement with its lender for the full financing of the expanded Gulfport project as well as the possible acquisition of Rotate Black MS, LLC.

Other Projects

On December 14, 2011, the Company formed a wholly-owned subsidiary, Rotate Black OK, LLC (OKL) and through the subsidiary, 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 and the subsidiary is currently inactive.

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.

On January 11, 2011, the Company entered into a management agreement whereby a new to-be-formed wholly owned subsidiary of the Company would act as manager for a proposed casino and entertainment destination on the Louis Bull Indian Reserve near Edmonton, Canada. The project is awaiting final approval from Alberta Liquor and Gaming (Note 10).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the rules and regulations under Regulation S-X of the Securities and Exchange Commission for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for interim financial statements have been included. These financial statements should be read in conjunction with the financial statements of the Company together with the Company’s management discussion and analysis in Item 2 of this report and in the Company’s Form 10-K for the year ended June 30, 2013. Interim results are not necessarily indicative of the results for a full year.

Consolidated Financial Statements

The accompanying consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiary, Rotate Black, OK, LLC. (OKL). In addition, the Company has included the financial statements of RBMS in the accompanying consolidated financial statements. (Note 7).

Investments in 50% or less owned entities without controlling influence by the Company are accounted for using the equity method. Under the equity method, the Company recognizes its ownership share of the income and losses of the equity entity. Through June 30, 2011, the Company recognized an equity interest in RBMS. (Note 7).

All significant intercompany accounts and transactions have been eliminated.

Reclassifications

Certain amounts for the prior year have been revised or reclassified to conform to 2014 financial statement presentation.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.

Financial Instruments

The Company considers the carrying amounts of financial instruments, including cash, accounts payable and accrued expenses to approximate their fair values because of their relatively short maturities.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method.

Maintenance and repairs are charged to operating expenses as they are incurred. Improvements and betterments, which extend the lives of the assets, are capitalized. The cost and accumulated depreciation of assets retired or otherwise disposed of are relieved from the appropriate accounts and any profit or loss on the sale or disposition of such assets is credited or charged to income.

Derivative Instruments

The Company’s derivative liabilities are related to embedded conversion features of the 10% Convertible Notes Payable. For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and is then re-valued at each reporting date, with changes in fair value recognized in operations for each reporting period. The Company uses the Black-Scholes model to value the derivative instruments at inception and subsequent valuation dates and the value is re-assessed at the end of each reporting period in accordance with Accounting Standards Codification (“ASC”) 815.

Beneficial Conversion Charge

The intrinsic value of the beneficial conversion feature arising from the issuance of convertible notes payable with conversion rights that are in the money at the commitment date is recorded as debt discount and amortized to interest expense of the term of the note. The intrinsic value of a beneficial conversion feature is determined after initially allocating an appropriate portion of the proceeds received from the sale of the note to any detachable instruments, such as warrants, included in the sale based on relative fair values.

Revenue Recognition

Revenue is recognized when evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Management fees earned under a contract to operate and manage casino projects are recognized pursuant to terms of the agreement.

Share-Based Compensation

The Company recognizes compensation expense for all share-based payment awards made to employees, directors and others based on the estimated fair values on the date of the grant. Common stock equivalents are valued using the Black-Scholes Option-Pricing Model using the market price of our common stock on the date of valuation, an expected dividend yield of zero, the remaining period or maturity date of the common stock equivalent and the expected volatility of our common stock.

The Company determines the fair value of the share-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measureable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either the date at which a commitment for performance to earn the equity instrument is reached or the date the performance is complete.

The Company recognizes compensation expense for stock awards with service conditions on a straight-line basis over the requisite service period, which is included in operations.

Basic and Diluted Net Income (Loss) per Common Share

Basic net income (loss) per share (EPS) is calculated by dividing net income (loss) available to common stockholders (numerator) by the weighted-average number of common shares outstanding during each period (denominator). Diluted loss per share gives effect to all dilutive common shares outstanding using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Although there were common stock equivalents outstanding as of March 31, 2014 and March 31, 2013, they were not included in the calculation of earnings per shares because their inclusion would have been considered anti-dilutive.

Leases

Rent expense is recognized on the straight-line basis over the term of the lease.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The adoption of this pronouncement is not anticipated to have a material impact on the Company’s financial results or disclosures.

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220) Reporting of Amounts reclassified Out of Accumulated Other Comprehensive Income”. The amendments in this update seek to obtain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross reference other disclosures required under U.S. GAAP that provide additional detail about these amounts. The amendment is effective prospectively for reporting periods beginning after December 15, 2012. For non-public entities, the amendments are effective prospectively for reporting periods beginning December 15, 2013. Early adoption is permitted. The adoption of this pronouncement is not anticipated to have a material impact on the Company’s financial results or disclosures.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

3. GOING CONCERN

The financial statements have been prepared assuming the Company will continue as a going concern. The pany has incurred losses since inception, resulting in an accumulated deficit of $33,349,300 and negative working capital of $17,519,503 as of March 31, 2014 and further losses are anticipated. These factors raise doubt about the Company’s ability to continue as a going concern. Its ability to continue as a going concern is dependent upon the ability of the Company 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 the Company cannot continue.

The Company’s plan is to commence management fees from the Gulfport Project Management Agreement and other future sources of revenue. Until these occur in sufficient amounts, the Company plans to sell unregistered stock to accredited investors.

4. RBMS MANAGEMENT AGREEMENT

On October 27, 2010, RBMS and the Company, as manager, entered into a management agreement, effective as of April 1, 2010 for a period of 99 years. The Company, as manager, would manage all of the operations of the gaming facility. The management fee was payable; (1) $200,000, per month, (2) then upon commencement of the gaming operations, $250,000, per month, and (3) then achieving certain earnings, as defined, $300,000, per month. The manager is entitled to appoint two directors of the five directors on the RBMS Board of Directors.

In December 2013, the Company agreed to amend its management agreement with RBMS to facilitate the equity financing for the Gulfport Project and is in the process of negotiating the final terms of this agreement.

As of June 30, 2013, and December 31, 2013, in accordance with ASC 810, “Consolidation”, Management evaluated and determined that the variable interest holders of RBMS lacked the direct and indirect ability to make decisions about the entity’s activities and determined that that the Company is the primary beneficiary of RBMS. As a result, the financial statements of RBMS have been included in the accompanying consolidated financial statements of the Company.

5. GULFPORT CASINO HOTEL PROJECT

In December 2013, RBMS entered into a term sheet and Summary of Proposed Terms and Conditions, Senior Credit Facility with debt and equity investors related to a proposed financing for the Gulfport Casino Hotel Project to be developed by RBMS (Borrower). The proposed financing is for up to $125,000,000 for the development, design, construction, financing, ownership, operation and maintenance of an approximately 191,000 square foot land based, four star casino, including gaming, restaurant, bar and support space and an adjacent 205-room hotel in Gulfport, Mississippi.

Terms of the proposed financing call for senior secured loans whereby the Company shall draw down one-half of the Facility at closing and the remaining one-half on the eighth month anniversary of the closing. Full repayment is expected six years after the closing, which is anticipated to occur in July 2014. Amounts outstanding under the Facility will bear an interest rate of 13% per annum, payable monthly in arrears. Any undrawn amounts under the Facility will bear an interest rate of 6.5% per annum, payable monthly in arrears. Definitive terms conditions and provisions will be stipulated in the final agreement for the credit facility.

6. INVESTMENT IN RBMS

Upon formation of RBMS and the commencement of the management agreement, the Company, RBL and an officer of the Company owned an aggregate 46.6% of the voting interests of RBMS and the remaining units were sold to outside investors. Through June 30, 2011, the Company accounted for its investment in RBMS on the equity method in accordance with ASC 810-10; as it did not meet all the requirements of a variable interest entity to consolidate; the outside equity investors were not protected from the losses of the entity nor were they guaranteed a return by the legal entity; the outside equity investors expected residual returns that were not capped by any arrangements or documents with other holders; and the percent of ownership will be diluted by future financing of RBMS.

As of June 30, 2013, and March 31, 2014, Management evaluated and determined that the variable interest holders lacked the direct and indirect ability to make decisions about the entity’s activities and determined that that the Company is the primary beneficiary of RBMS. As a result, the financial statements of RBMS have been included in the accompanying consolidated financial statements of the Company. At June 30, 2012, the Company owned an aggregate of 24.81% of the voting interest of RBMS; therefore, a non-controlling interest representing 75.19% of the net loss of RBMS was reflected on the Statement of Operations as of June 30, 2012. In consolidation, the Company recorded an adjustment to retained earnings of $651,478; the difference between the opening balance of retained earnings of RBMS of $1,219,995 and the equity loss recorded prior to June 30, 2012 by the Company of $568,517.

Ground Lease

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 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 approximately $2,450,000 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.

7. THE BIG EASY GAMING VESSEL

On June 10, 2010, the Company purchased The Big Easy, a gaming vessel for the Gulfport Project, for an aggregate purchase price of $4,264,500, payable: (a) by issuance of a secured note payable to the seller of $2,975,000 (the Secured Note), (b) issuance of an unsecured note payable to the seller of $600,000 (Unsecured Note), fees of $414,500 and cash of $275,000. The Secured Notes were collateralized by the gaming vessel and both notes are guaranteed by an officer of the Company. The Secured Note was payable on June 11, 2011 and bears interest at 14.5%, per annum, payable $35,000, per month, commencing June 11, 2010. The Unsecured Note bears interest at 14.5%, per annum, and is payable monthly, in an amount equal to 2% of the monthly gross gaming revenue generated from operations, as defined, until June 2012 when all principal and interest are due. Since September 17, 2010, both notes have been deferred and the interest rate was increased to 20%, per annum.

As of June 30, 2011, the due dates of both notes were extended in support of the Company’s current project in Gulfport, MS and the Trustee of the Cruise Holdings bankruptcy estate, holding the mortgage and promissory note payable consented; (1) to require no payments through June 30, 2012; (2) that the collection fees and accrued interest be paid on or before October 1, 2012; (3) extend the due date of the balance of the obligation for the principal and accrued interest to July 1, 2013. As of April 25, 2014, the Company has not repaid the principal and accrued interest by the dates stipulated in the extension and is currently in default. As a result, the balances as of the mortgage payable, note payable and accrued interest have been reflected as current liabilities in the Company’s balance sheet as of March 31, 2014 and June 30, 2013.

On December 20, 2012, the Company and an officer of the Company, as Guarantor, entered into a Settlement Agreement (Agreement) with the Trustee for the estate of the gaming vessel which set forth terms related to the consideration to be paid by the Company to the Trustee in exchange for the release of all claims against the Company and the Guarantor, including all promissory notes, penalties, fees and interest.

The Agreement is subject to the order of approval by the US Bankruptcy Court, Southern District of Florida, West Palm Division with regard to the Guarantor and will become effective upon the first business day of RBMS’s closing on primary equity and debt financing for not less than $100,000,000 for the design, construction and opening of a casino resort in Gulfport, MS. Pursuant to the terms of the Agreement, upon closing, the Company shall deliver to the Trustee 250,000 shares of Series B Subordinated Participating Preferred Stock in Rotate Black, to be designated These Series B Preferred shares will be fully redeemed through payments to the Trustee totaling $5,000,000 and will be determined as a percentage of the Company’s gross cash receipts each year, as defined. The payments will be due on a monthly basis. The Series B shares will be subordinated to a maximum of $2,500,000 of Series A Preferred shares. The Series B are fully redeemable by the Company in part or in full based upon a schedule whereby the balance will be adjusted; (1) within the first three months of the closing to $2,000,000; (2) within the first 15 months of closing to $2,500,000; (3) within the first 27 months of closing to $3,000,000; (4) within the first 39 months of closing to $3,500,000; (5) within the first 51 months of closing to $4,000,000; and (5) after 51 but before 59 months of closing the Company is obligated to pay $5,000,000. If the Series B Preferred is not redeemed on an accelerated basis or in accordance with the terms of the Agreement, the Company shall pay the Trustee the sum of $5,000,000, plus 12% interest, per annum, over the five years, with default provisions as defined.

8. LAND PURCHASE DEPOSIT

On May 26, 2009, the Company entered into an agreement to acquire 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 Company’s 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, per share. 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 acreage of land has a fair value in excess of the book value of the deposit recorded, however, the value of the 2,188,441 shares of the common stock of the Company provided as a deposit on the land is not in excess of its fair value and, therefore, has recorded a loss on impairment of the land purchase deposit of $8,032,986 as of June 30, 2012.

As of March 31, 2014, the Company has evaluated the fair value of the land deposit and has determined that the fair value is in excess of the book value of the deposit recorded.

9. EDMONTON PROJECT MANAGEMENT AGREEMENT

On January 11, 2011, the Company, through an officer of the Company, entered into a management agreement (“Management Agreement”), whereby a newly to-be-formed wholly-owned subsidiary of the Company would act as manager, with the Bear Hills Charitable Foundation, Bear Hills Casino Inc., the Louis Bull Tribe and 677626 Alberta Ltd. (Tribe Companies) for a proposed casino and entertainment destination on the Louis Bull Indian Reserve, near Edmonton, Canada. The term of the Management Agreement commences on the date the Tribe Companies receive a license for the proposed casino and all related necessary approvals from the Alberta Gaming and Liquor Commission and then shall continue for the greater of twenty years or until all monies advanced by the Company to the Tribe Companies relating directly or indirectly to the casino project are repaid or for such other term agreed.

The Company, as manager, will be entitled to receive thirty percent of the revenues distributed to the Tribe Companies from the operations of the slot revenue and live games. In addition, the Company is entitled to thirty percent of all profits from any other businesses or activities on the property provided by Tribe Companies and thirty percent of all profits on any amenities or services supporting or related directly or indirectly to the casino. The Company is currently awaiting approval from the Alberta Gaming and Liquor Commission.

11. LOANS PAYABLE – STOCKHOLDERS

Loans payable – stockholders consists of advances made by the certain stockholders of the Company and an officer of the Company through a limited liability entity owned by him, and are payable on demand.

12. EMPLOYMENT AGREEMENT

Commencing July 3, 2013, the Company entered into an agreement with its Chief Financial Officer for a term of twelve months subject to earlier termination or renewable upon mutually agreed terms. Compensation for the officer will be accrued at $5,000, per month, and will not be paid until the earlier that the Company has successfully raised a minimum of $500,000 in working capital for its own operations or the Company has sufficient excess cash reserves to enable payment. Upon signing the agreement, the officer was issued 100,000 shares of common stock as a signing bonus and is entitled to receive 10,000 additional shares of the Company’s common stock for each month of service provided, issued quarterly.

13. CONVERTIBLE AND PROMISSORY NOTES PAYABLE

May 1, 2012 Convertible Promissory Note Payable

On May 1, 2012, the Company issued a two-year, 10% convertible promissory note in the amount of $150,000. After 121 days from the issue date, the holder can convert any unpaid principal and accrued interest into common shares of the Company. Between 121 days and 150 days from the issue date, the conversion price per share shall be $0.25; from 151 days to 180 days from the issue date, the conversion price shall be $0.20; anytime thereafter the conversion price shall be $0.15, subject to adjustment as defined.

The investor also was issued a five year common stock purchase warrant for the purchase of up to 480,000 shares of the Company’s common stock, at a price per share of $0.40, that permits a cashless exercise in the event that the underlying shares of common stock to be issued upon exercise are not registered pursuant to an effective registration statement at the time of the exercise.

In connection with this financing, the investment banker received 40,000 shares of the Company’s common stock.

Convertible Promissory Note Payable Beneficial Conversion Feature

As part of the issuance of the convertible promissory note payable, the Company recorded a liability for the embedded beneficial conversion feature on the convertible debentures. Since the conversion feature of the note payable may be reset based upon subsequent financing, the derivative was reflected as a liability. The Company records changes in fair value at each reporting period in its consolidated statements of operations as a gain or loss associated with the change in fair market value.

The Company calculated the value of the conversion feature as of May 1, 2012 at $45,251, based upon the Black Scholes model, and has reflected this as a discount against the convertible promissory note, amortizable as interest expense over two years. The Company recorded $4,399 and $5,656 in amortization expense for the three months ended March 31, 2014 and 2013, respectively.

Pursuant to the terms of this convertible promissory note payable, since the note was not repaid by February 15, 2013, the conversion price of the note payable was reduced from $0.15 to $.10, per share.

In December 2013, $50,000 of the principal of the promissory note, plus interest accrued on a default basis, of $22,271 was converted to 722,711 shares of the Company’s common stock.

The Company calculated the value of the conversion feature at March 31, 2014 of the remaining note totaling $50,000 using a Black-Scholes Option Pricing Model with the stock price of, $0.15, per share, the risk free interest rate of 1.73% and the expected volatility of 99.68% for the two year term, and recorded a gain on the change in fair market value of $86,449. In addition, the discount of $95,898 on the $50,000 note which was converted was fully amortized as of March 31, 2014.

In February 2014, $50,000 of the principal of the promissory note, plus interest accrued on a default basis, of $25,548 was converted to 755,480 shares of the Company’s common stock.

Warrants

As part of the issuance of the convertible debentures, the Company recorded a liability for the issuance of detachable warrants. Although such warrants are typically considered equity instruments, the warrant agreement allows for resets of the conversion price based upon subsequent financing, therefore the warrant issuance was deemed a liability for financial reporting purposes under the accounting guidance. Under the terms of the subsequent June 10, 2013 convertible promissory note, the warrant price was reduced to $.15.

The warrant was valued as of May 1, 2012 at $100,431, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.22, per share, the risk free interest rate of .84% and the expected volatility of 108.93%. This value has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years.

For the three months ended March 31, 2014 and 2013, the Company recorded $12,554 and $12,554 in interest expense, respectively.

The Company calculated the fair value of the warrant using a Black-Scholes Option Pricing Model with the stock price of, $0.15, per share, the risk free interest rate of 1.73% and the expected volatility of 95.15% for the five year term, recording a gain on the change in fair market value of $83,056 as of March 31, 2014.

July 17, 2012 Convertible Promissory Notes

On July 17, 2012, the Company sold $50,000 of 10% convertible promissory notes. Warrants to purchase an aggregate of 194,500 shares of the Company’s common stock were issued in conjunction with these financings. In connection with these financings, the investment banker received a 10% promissory note for $6,000 and a warrant to purchase 34,500 shares of the Company’s common stock, under the same terms as the other notes sold, as payment for commissions on the financing. In addition, the investment banker received 22,253 shares of the Company’s common stock as commission.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the beneficial conversion feature as of July 17, 2012 at $49,288, based upon the Black Scholes model. Since the fair value of the conversion feature exceeded the remaining proceeds to be allocated, the Company has reflected $2,749, as a discount against the convertible promissory note, amortizable as interest expense over two years. The excess of the value of the conversion feature over the proceeds was $46,539, which was recorded as interest expense on July 17, 2012. The Company recorded $81 and $344 in amortization expense for the three months ended March 31, 2014 and 2013.

Pursuant to the terms of one of the convertible promissory notes payable for $15,000 the note was not repaid by February 15, 2013, and the conversion price of that note payable was reduced from $0.15 to $.10, per share.

In July 2013, $15,000 of the principal of the promissory notes, and $1,467 in interest were repaid as a result of converting the debt to 164,671 shares of the Company’s common stock.

In September 2013, $20,000 of the principal of the promissory notes, and $2,259 in interest were repaid as a result of converting the debt to 222,574 shares of the Company’s common stock.

In September 2013, $6,000 of the principal of the promissory notes issued to the investment banker, and $667 in interest were repaid as a result of converting the debt to 66,677 shares of the Company’s common stock.

In October 2013, $5,000 of the principal of the promissory notes, and $564 in interest were repaid as a result of converting the debt to 55,643 shares of the Company’s common stock.

The Company calculated the value of the conversion feature at March 31, 2014 using a Black-Scholes Option Pricing Model of the remaining note totaling $10,000 and recorded gain on the change in fair market value of $1,803. In addition, the discount of $4,742 on the $5,000 note which was converted was fully amortized as of December 31, 2013.

Warrants

The warrants were valued as of July 17, 2012 at $53,251, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.30, per share, the risk free interest rate of .76% and the expected volatility of 148.12%. This value has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. The Company recorded $6,656 and $6,656 in interest expense for the three months ended March 31, 2014 and 2013.

In connection with the subsequent June 10, 2013 financing, the warrant price was reduced to $0.15. The Company calculated the value of the warrants at March 31, 2014 using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $33,786 as of March 31, 2014.

October 15, 2012 Convertible Promissory Notes

On October 15, 2012, the Company sold $39,015, of the 10% convertible promissory notes. Warrants to purchase an aggregate of 78,030 shares of the Company’s common stock were issued in conjunction with these financings. A $4,000, 10% convertible promissory note, without warrants, was also issued to the investment banker for fees pursuant to this investment.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the beneficial conversion feature as of October 15, 2012 for the $39,015 note at $19,876, based upon the Black Scholes model. The Company recorded $2,485 and $2,054 in amortization expense of the discount for the three months ended March 31, 2014 and 2013.

The Company calculated the value of the conversion feature at March 31, 2014, recording a gain on the change in fair market value of $57,551.

The Company calculated the value of the beneficial conversion feature as of October 15, 2012 for the $4,000 note at $2,038, based upon the Black Scholes model. In November 2013, the $4,000, 10% convertible promissory note and interest of $423 were converted into 44,423 shares of the Company’s common stock.

Warrants

The warrants were valued as of October 15, 2012 at $13,146, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.24, per share, the risk free interest rate of .71% and the expected volatility of 105.60%. This value has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. The Company recorded $1,643 and $1,643 in interest expense for the three months ended March 31, 2014 and 2013.

The Company calculated the value of the warrants at March 31, 2014 using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $13,710.

May 28, 2013 Convertible Promissory Note Payable

On May 28, 2013, the Company sold an additional $59,000 of the 10% convertible promissory notes. In connection with this note, the Company agreed to hold 2,000,000 of its common stock as collateral for the note payable.

The Company calculated the value of the beneficial conversion feature as of May 28, 2013 at $29,817, based upon the Black Scholes model. The Company recorded $3,727 in amortization expense for the three months ended March 31, 2014.

The Company calculated the value of the conversion feature at March 31, 2014 using a Black-Scholes Option Pricing Model, recording a loss on the change in fair market value of $79,915.

No warrants were granted with this convertible promissory note payable.

June 10, 2013 Convertible Promissory Note Payable

On June 10, 2013, under the Agreement, the Company issued a two-year, 10% convertible promissory note in the amount of $20,000 to an investor. with the same conversion rights and terms. The investor also was issued a five year common stock purchase warrant for the purchase of up to 133,334 shares of the Company’s common stock, at a price per share of $0.15, that permits a cashless exercise in the event that the underlying shares of common stock to be issued upon exercise are not registered pursuant to an effective registration statement at the time of the exercise. In addition if, while the warrant is outstanding, the Company effects a merger or consolidation, sells all of its assets or enters into other specifically defined transactions, the warrant will be exercisable into shares of the surviving entity as defined

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of June 10, 2013 at $9,108, however, the excess of the value of the conversion feature over the proceeds was $3,318, which was recorded as interest expense on June 10, 2013 and $5,790, based upon the Black Scholes model, and has been reflected as a discount against the convertible promissory note, amortizable as interest expense over two years. The Company recorded $724 in amortization expense for the three months ended March 31, 2014.

The Company calculated the value of the conversion feature using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $27,090 as of March 31, 2014.

Warrants

As part of the issuance of certain convertible debentures, the Company recorded a liability for the issuance of detachable warrants. Although such warrants are typically considered equity instruments, the warrant agreement allows for resets of the conversion price based upon subsequent financing, therefore the warrant issuance was deemed a liability for financial reporting purposes under the accounting guidance.

The warrant was valued as of June 10, 2013 at $14,210, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.135, per share, the risk free interest rate of 1.20% and the expected volatility of 111.47%. This value has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. For the three months ended March 31, 2014, the Company recorded $1,760 in interest expense.

The Company calculated the value of the warrants using a Black-Scholes Option Pricing Model recording a gain on the change in fair market value of $23,527 as of March 31, 2014.

July 2, 2013 Convertible Promissory Note Payable

On July 2, 2013, the Company issued four two-year, 10% convertible promissory notes in the amount of $10,000 each. The investors also were each issued a five year common stock purchase warrant for the purchase of up to 67,000 shares of the Company’s common stock, at a price per share of $0.15, that permits a cashless exercise in the event that the underlying shares of common stock to be issued upon exercise are not registered pursuant to an effective registration statement at the time of the exercise.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of July 2, 2013 at $23,243, however, the excess of the value of the conversion feature over the proceeds was $19,630, which was recorded as interest expense on July 2, 2013, and $3,613, based upon the Black Scholes model, and has been reflected as a discount against the convertible promissory note, amortizable as interest expense over two years. The Company recorded $452 in amortization expense for the three months ended March 31, 2014.

The Company calculated the value of the conversion feature using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $53,642 as of March 31, 2014.

Warrants

The warrant was valued as of July 2, 2013 at $36,387, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.17, per share, the risk free interest rate of 1.38% and the expected volatility of 109.18%. This value has been reflected as a discount of the convertible promissory note payable and amortizable as interest expense over two years. For the three months ended March 31, 2014, the Company recorded $4,548 in interest expense.

The Company calculated the value of the warrants using a Black-Scholes Option Pricing Model recording a gain on the change in fair market value of $47,362 as of March 31, 2014.

On July 2, 2013 the Company issued a five-year warrant to purchase of up to 100,000 shares of the Company’s common stock, at a price per share of $0.15, to the investment banker in payment for commissions due.

August 28, 2013 Convertible Promissory Note Payable

On August 28, 2013, the Company agreed to sell up to an aggregate of $250,000 in convertible promissory notes under a securities purchase agreement (Agreement) with an aggregate stated value equal to the purchaser’s subscription amount and a warrant to purchase up to a number of shares of common stock equal to 100% of the purchaser’s subscription amount divided by $0.15 with an exercise price of $0.15 exercisable immediately with a term of five years. The Company issued four 10% convertible promissory notes under this Agreement for an aggregate of $70,000 and warrants to purchase 469,000 shares of the Company’s common stock.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of August 28, 2013 at $75,175; however, the excess of the value of the conversion feature over the proceeds was $75,175, which was recorded as interest expense on August 28, 2013.

The Company calculated the value of the conversion feature using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $92,981 as of March 31, 2014.

Warrants

The warrant was valued as of August 28, 2013 at $102,553, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.26, per share, the risk free interest rate of 1.62% and the expected volatility of 109.18%. $32,553 of this value has been recorded as interest expense and $70,000 has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. For the three months ended March 31,2014, the Company recorded $8,750 in interest expense.

The Company calculated the value of the warrants using a Black-Scholes Option Pricing Model recording a gain on the change in fair market value of $83,522 as of March 31, 2014.

October 29, 2013 Convertible Promissory Note Payable

On October 29, 2013, the Company issued a two-year, 10% convertible promissory note in the amount of $15,000. After 121 days from the issue date, the holder can convert any unpaid principal and accrued interest into common shares of the Company at $0.15, per share. After 210 days conversion price shall be $0.10, subject to adjustment as defined. The investor also was issued a five year common stock purchase warrant for the purchase of up to 100,000 shares of the Company’s common stock, at a price per share of $0.15, that permits a cashless exercise in the event that the underlying shares of common stock to be issued upon exercise are not registered pursuant to an effective registration statement at the time of the exercise. The Company issued 25,000 shares of common stock to the investor as an incentive.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of October 29, 2013 using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.20, per share, the risk free interest rate of .32%, a term of two years and the expected volatility of 85.01% at $10,647, however, the excess of the value of the conversion feature over the proceeds was $10,647, which was recorded as interest expense on October 29, 2013.

The Company calculated the value of the conversion feature using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $16,137 as of March 31, 2014.

Warrants

The warrant was valued as of October 29, 2013 at $15,587, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.20, per share, the risk free interest rate of 1.31%, a term of five years and the expected volatility of 99.68%. $587 of this value has been recorded as interest expense and $15,000 has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. For the three months ended March 31, 2014, the Company recorded $1,875 in interest expense.

The Company calculated the value of the warrants using a Black-Scholes Option Pricing Model recording a gain on the change in fair market value of $17,752 as of March 31, 2014.

December 12, 2013 Convertible Promissory Note Payable

On December 12, 2013, the Company issued a two-year, 10% convertible promissory note in the amount of $30,000. After 121 days from the issue date, the holder can convert any unpaid principal and accrued interest into common shares of the Company at $ .15, per share. After 210 days, the conversion price shall be $0.10, per share, subject to adjustment as defined. The investor also was issued a five year common stock purchase warrant for the purchase of up to 200,000 shares of the Company’s common stock, at a price per share of $0.15, that permits a cashless exercise in the event that the underlying shares of common stock to be issued upon exercise are not registered pursuant to an effective registration statement at the time of the exercise. In addition, the Company issued 50,000 shares of common stock to the investor as an incentive to the note.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of December 12, 2013 at $15,847, however, the excess of the value of the conversion feature over the proceeds was $10,834, which was recorded as interest expense on December 12, 2013, and $5,013, based upon the Black Scholes model, and has been reflected as a discount against the convertible promissory note, amortizable as interest expense over two years. The Company recorded $627 in amortization expense for the three months ended March 31, 2014.

The Company calculated the value of the conversion feature, recording a gain on the change in fair market value of $32,965 as of March 31, 2014.

Warrants

The warrant was valued as of December 12, 2013 at $24,987, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.165 per share, the risk free interest rate of 1.55% and the expected volatility of 99.68%. $24,987 has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. For the three months ended March 31, 2014, the Company recorded $3,123 in interest expense.

The Company calculated the value of the warrants recording a gain on the change in fair market value of $35,759 as of March 31, 2014.

December 17, 2013 Convertible Promissory Note Payable

On December 17, 2013, the Company issued a two-year, 10% convertible promissory notes in the amount of $50,000. Warrants to purchase an aggregate of 333,334 shares of the Company’s common stock were issued in conjunction with these financings. If the Company has not redeemed the notes by the 120th day after the issuance of the notes the note holders may convert at a price of $0.15 a share. If the Company has not redeemed the notes by the 210th day after the issuance of the notes the note holders may convert at a price of $0.10 a share. In addition, the Company issued 83,333 shares of common stock to the investor as an incentive to the note. In addition, the investment banker received 245,333 shares of the Company’s common stock and a five year common stock purchase warrant for the purchase of up to 77,300 shares of the Company’s common stock, at a price per share of $0.15 as commission.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of December 17, 2013, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.18, per share, the risk free interest rate of .34%, a term of two years and the expected volatility of 85.01%, at $30,236, however, the excess of the value of the conversion feature over the proceeds was $$26,306, which was recorded as interest expense on December 17, 2013, and $3,930, based upon the Black Scholes model, and has been reflected as a discount against the convertible promissory note, amortizable as interest expense over two years. The Company recorded $491 in amortization expense for the three months ended March 31, 2014.

The Company calculated the value of the conversion feature using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $54,942 as of March 31, 2014.

Warrants

The warrant was valued as of December 17, 2013 at $46,070, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.18 per share, the risk free interest rate of 1.52% a five year term and the expected volatility of 99.68%. $46,070 has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. For the three months ended March 31, 2014, the Company recorded $5,759 in interest expense.

The Company calculated the value of the warrants using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $59,599 as of March 31, 2014.

December 30, 2013 Convertible Promissory Note Payable

On December 30, 2013, the Company sold $270,000, of the two-year 10% convertible promissory notes. Warrants to purchase an aggregate of 1,800,000 shares of the Company’s common stock were issued in conjunction with these financings. If the Company has not redeemed the notes by the 120th day after the issuance of the notes the note holders may convert at a price of $0.15 a share. If the Company has not redeemed the notes by the 210th day after the issuance of the notes the note holders may convert at a price of $0.10 a share. In addition, the Company issued 450,000 shares of common stock to the investors as an incentive to the note.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of December 30, 2013 using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.34 per share, the risk free interest rate of .39% a two year term and the expected volatility of 85.01%, at $408,384, however, the excess of the value of the conversion feature over the proceeds was $408,384, which was recorded as interest expense on December 30, 2013.

The Company calculated the value of the conversion feature using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $294,218 as of March 31, 2014.

Of the notes payable issued, $105,000 of the proceeds was not received by the Company until January 2014. and has been recorded as a receivable on the consolidated financial statements as of December 31, 2013.

Warrants

The warrant was valued as of December 30, 2013 at $513,341, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.34, per share, the risk free interest rate of 1.71%, a term of five years and the expected volatility of 99.68%. $243,341 of this value has been recorded as interest expense and $270,000 has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. For the three months ended March 31, 2014, the Company recorded $22,500 in interest expense.

The Company calculated the value of the warrants using a Black-Scholes Option Pricing Model recording a gain on the change in fair market value of $316,024 as of March 31, 2014.

January 1, 2014 Convertible Promissory Note Payable

On January 1, 2014, the Company sold $60,000, of the two-year 10% convertible promissory notes. Warrants to purchase an aggregate of 400,000 shares of the Company’s common stock were issued in conjunction with these financings. If the Company has not redeemed the notes by the 120th day after the issuance of the notes the note holders may convert at a price of $0.15 a share. If the Company has not redeemed the notes by the 210th day after the issuance of the notes the note holders may convert at a price of $0.10 a share. In addition, the Company issued 100,000 shares of common stock to the investors as an incentive to the note.

In connection with the financings, the investment banker received 200,000 shares of the Company’s common stock as a fee totaling $30,000.

Convertible Promissory Note Payable Beneficial Conversion Feature

The Company calculated the value of the conversion feature as of January 1, 2014 using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.34 per share, the risk free interest rate of .38% a two year term and the expected volatility of 82.96%, at $90,061, however, the excess of the value of the conversion feature over the proceeds was $90,061, which was recorded as interest expense on January 1, 2014.

The Company calculated the value of the conversion feature using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $64,595 as of March 31, 2014.

Warrants

The warrant was valued as of January 1, 2014 at $112,331, using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.34 per share, the risk free interest rate of 1.75% a five year term and the expected volatility of 95.15%. $52,331 of this value has been recorded as interest expense and $60,000 has been reflected as discount of the convertible promissory note payable, amortizable as interest expense over two years. For the three months ended March 31, 2014, the Company recorded $7,500 in interest expense.

The Company calculated the value of the warrants using a Black-Scholes Option Pricing Model, recording a gain on the change in fair market value of $69,440 as of March

As of March 31, 2014 and June 30, 2013, the 10% Convertible Notes Payable were as follows:

	Mar 31, 2014		June 30, 2013

10% Convertible Promissory Note Payable	$	713,015	$	328,015
Less:
Beneficial Conversion Feature Discount		(37,832)		(69,642)
Warrant Discount		(460,884)		(91,809)

10% Convertible Promissory Note Payable - Net	$	214,299	$	166,564

Promissory Note Payable

On September 6, 2012, the Company received $65,000 in loan proceeds. A promissory note was issued in the amount of $80,000, which includes interest payments of $15,000. In addition, 185,000 shares of common stock were issued as additional interest. Pursuant to the terms of the note, if the promissory note is not repaid by May 20, 2013 the Company is to use its best efforts to liquidate shares of its common stock to repay the loan. As of April 25, 2014, no payments have been made on the promissory note.

14. COMMON STOCK

Common and Preferred Shares

In July 2013, the Company issued 164,671 shares of common stock at $0.10, per share for the conversion of $15,000 of the 10% Convertible Promissory Notes and accrued interest.

In July 2013, the Company issued a warrant to purchase 100,000 shares of common stock exercisable at $0.15, per share for 5 years and 100,000 shares of common stock at $0.15, per shares, to the investment banker for fees totaling $30,000.

In September 2013, the Company issued an aggregate of 30,000 shares of common stock, at $0.20, per share, for compensation to an employee valued at $6,000.

In September 2013, the Company issued 289,251 shares of common stock at $.10, per share for the conversion of $26,000 of the 10% Convertible Promissory Notes and accrued interest.

In October 2013, the Company issued 200,000 shares of common stock at $.15, per share as fees to the investment banker totaling $30,000.

In December 2013, the Company issued an aggregate of 30,000 shares of common stock, at $0.20, per share, for compensation to an employee valued at $6,000.

In October and December 2013, an aggregate of 822,777 shares of common stock were issued for the conversion of $59,000 of the 10% Convertible Promissory Notes and accrued interest.

In November 2013, the Company issued 150,000 shares of common stock at $0.20, per share, to a consultant for investor relations services

In November 2013, the Company issued 100,000 shares of common stock at $0.20, per share, to its chief financial officer pursuant to an employment agreement.

In December 2013, the Company issued 200,000 shares of common stock at $0.10, per share, for legal fees.

In January, February and March 2014, the Company issued an aggregate of 30,000 shares of common stock, at $0.20, per share, for compensation to an employee valued at $6,000.

In February 2014, 755,480 shares of common stock were issued for the conversion of $50,000 of the 10% Convertible Promissory Notes and accrued interest

RBMS Equity

RBMS equity consists of 45 Series A Preferred Common Stock Units and 2,687 Series B Preferred Common Stock Units. $1,925,000 in Units were sold for cash from 2010 through 2012 and $550,000 in Units were issued for services rendered to the Company.

Stock Option Plan

On July 6, 2011, the Company’s stockholders approved the Rotate Black, Inc. Stock Option Plan (Plan) under which the Chief Executive Officer of the Company may grant incentive stock options to certain employees to purchase up to 25,000,000 shares of common stock of the Company. The option price shall be no less than the fair market value of the stock, as defined. The Plan shall terminate after ten years. As of March 31, 2014 and June 18, 2014 no options were granted under the Plan.

Class A 12% Preferred Stock

On June 10, 2011, the Board of Directors designated 500 shares of Class A 12% Preferred stock (Series A), stated value of $1,000, per share. Each share is convertible at any time from and after the issue date into shares of common stock determined by dividing the stated value of the shares of Series A by the conversion price of $.10, as defined. Holders of the Series A are entitled to receive cumulative dividends at 12%, per annum, payable quarterly, subject to periodic increases, as defined, and a late fee of 18%, per annum. The Series A have certain anti-dilution rights, as defined. In addition, upon the occurrence of any triggering event, as defined, the holder of the Series A shall have the right to: (A) require the Company to redeem all of the Series A held by the holder for a redemption price, in cash, equal to the an amount as defined, or (B) redeem all of the Series A held by the holder for a redemption price, in shares of common stock of the Company, equal to a number of shares equal to the redemption amount, as defined. Upon liquidation of the Company, the Series A holders are entitled to receive an amount equal to the stated value, plus accrued and unpaid dividends. The Series A have no voting rights.

On June 10, 2011, the Company entered into a Securities Purchase Agreement to sell up to an aggregate of 500 shares of Preferred Stock with an aggregate value of $500,000.

As of June 30, 2011 the Company sold 190 Series A shares with 950,000 warrants to purchase common stock for an aggregate of $190,000. Each warrant is exercisable at $0.40, per share, for five years. As of March 31, 2014, none of the warrants have been exercised.

The fair value of the 950,000 detachable warrants sold with the Series A for an aggregate of $190,000, was valued at $91,500 and recorded as additional paid-in capital using a Black Scholes Option Pricing Model using the stock price on day of grant, $0.19, per share, the risk free interest rate of 1.48% and the expected volatility of 81.13%.

Since the Series A embodies an obligation to repurchase the issuer’s equity shares in response to a triggering event, as defined, the Company classified the Series A Preferred Stock as a liability in accordance with guidance under ASC 480-10-65.

As of June 30, 2013, all of the 190 shares of Series A Preferred Stock, including accrued interest, dividends and penalty, have been converted to an aggregate of 4,030,389 shares of the Company’s common stock.

15. INCOME TAXES

The Company and its subsidiaries file separate tax returns and have not filed income tax returns for the years ended June 30, 2009 through 2013 but anticipate no significant income tax expenses as a result of these filings.

The Company’s policy is to classify tax assessments, if any, for interest in interest expense and for penalties in general and administrative expenses.

As of March 31, 2014, management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements

16. SUBSEQUENT EVENTS

Common Stock

In April and May 2014, the Company issued an aggregate of 20,000 shares of common stock, at $0.20, per share, for compensation to an employee valued at $4,000.

In May 2014, the Company issued an aggregate of 763,166 shares of common stock at $0.10, per share for the conversion of $60,000 of the 10% Convertible Promissory Notes and accrued interest.

Nevada		75-3225181
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32

ITEM 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	32

ITEM 1A.	Risk Factors	33

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

ITEM 3.	Defaults upon Senior Securities	33

ITEM 4.	Mine Safety Disclosures	33

ITEM 5.	Other Information	33

ITEM 6.	Exhibits

SIGNATURES