UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




———————


FORM 10-Q


———————




(Mark One)


þ
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the quarter endedSeptember 30, 2010o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.For the transition period from _____________ to _____________




Commission File No.333-44315




———————


ROTATE BLACK, INC.


(Exact name of small business issuer as specified in its charter)


———————






NEVADA

75-3225181(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)932 Spring Street Petoskey, Michigan

49770(Address of principal executive offices)

(Zip Code)




(231) 347-0777


(Registrant’s telephone number, including area code)




———————




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
þ
No
oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes
o
No
þ


At November 18, 2010, 17,346, 784, shares of the registrant’s common stock (par value of $0.001) were outstanding.










ROTATE BLACK, INC.


FORM 10-Q


TABLE OF CONTENTS




PAGEPART I. FINANCIAL INFORMATIONITEM 1.
Consolidated Financial Statements

1ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

16ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk

22ITEM 4T.
Controls and Procedures

22PART II. OTHER INFORMATIONITEM 1.
Legal Proceedings

23ITEM 1A.
Risk Factors

23ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds

23ITEM 3.
Defaults upon Senior Securities

24ITEM 4.
Reserved

24ITEM 5.
Other Information

24ITEM 6.
Exhibits

24SIGNATURES


26




i


PART 1. FINANCIAL INFORMATION
 
 ITEM 1 FINANCIAL STATEMENTS
 
 ROTATE BLACK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
 September 30,

June 30,2010

2010(Unaudited)ASSETSCurrent AssetsCash

$
1,016


$
1,226Due from RBMS


278,777



-Prepaid expenses


138,487



20,536Total current assets


418,280



21,762Unbilled development advances


2,352,925



2,331,684Fixed assets - net


4,227,580



4,286,399Contract rights


6,323,884



6,323,884Land purchase deposit


8,470,674



8,470,674Deferred development cost


32,267



31,631Deferred financing fee


25,000



25,000Security deposit


3,600



3,600TOTAL ASSETS

$
21,854,210


$
21,494,634LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable and accrued expenses

$
2,402,086


$
2,232,444Loan payable


15,000



-Due to RBMS


-



138,993Note payable - insurance


86,600



-Mortgage payable - Big Easy vessel


2,975,000



2,975,000Note payable - Big Easy vessel


600,000



600,000Loan payable - stockholder


1,038,880



1,026,093Note payable - truck - current portion


5,293



5,293Total current liabilities


7,122,859



6,977,823Note payable - truck


6,057



7,335Derivative liability


58,003



220,050Contingent liability


142,000



62,000Shares to be issued


31,500



-Deferred revenues


49,621



49,621TOTAL LIABILITIES


7,410,040



7,316,829STOCKHOLDERS'  EQUITYCONTROLLING INTERESTCommon stock, $0.01 par value, 100,000,000shares authorized; 16,750,030 and 16,599,829shares issued and outstanding as ofSeptember 30, 2010 and June 30, 2010,respectively


167,501



165,999Additional paid-in capital


17,585,012



17,524,014Accumulated deficit


(4,626,453
)


(4,850,386
)TOTAL ROTATE BLACK, INC.STOCKHOLDERS' EQUITY


13,126,060



12,839,627NONCONTROLLING INTEREST


1,318,110



1,338,178TOTAL STOCKHOLDERS' EQUITY


14,444,170



14,177,805TOTAL LIABILITIES ANDSTOCKHOLDERS' EQUITY

$
21,854,210


$
21,494,634
 
 See notes to financial statements
 
 1
 
 ROTATE BLACK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
 
 Three Months EndedSeptember 30,2010


2009Revenue

$
600,000


$
-Operating expensesSalary expense


48,138



51,450Stock based compensation


13,000



75,000Stock issued for interest


6,000



-General and administrative expenses


353,454



256,875Interest expense and change in derivative liability


(24,457
)


12,575Total expenses


396,135



395,900Net Income (Loss)


203,865



(395,900
)Less:  Net loss attributable to noncontrolling interest


20,068



5,076Net income (loss) attributable to controlling interest

$
223,933


$
(390,824
)Basic and diluted net income (loss) per common shareattributed to controlling interest

$
0.01


$
(0.03
)Basic and diluted averagecommon shares outstanding


16,664,817



13,490,306
 
 See notes to financial statements
 
 2
 ROTATE BLACK, INC. AND  SUBSIDIARY
 CONSOLIDATED  STATEMENT OF CASH FLOWS (UNAUDITED)
 
 
 Three Months EndedSeptember 30,2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
223,933


$
(390,824
)Adjustments to reconcile net loss to net cashused in operating activities:Stock-based compensation


13,000



75,000Stock issued for interest


6,000



-Depreciation and amortization


58,819



5,356Noncontrolling interest


(20,068
)


(5,076
)Changes in assets and liabilities:Prepaid expenses


(117,951
)


(23,540
)Unbilled development advances


(21,241
)


(100,260
)Accounts payable and accrued expenses


169,642



122,258Derivative liability


(162,047
)


-Contingent liablitiy


80,000



-Deposits


15,000



-Deferred revenues


-



1,243Net cash provided by (used in) operating activities


245,087



(315,843
)CASH FLOWS FROM INVESTING ACTIVITIESPurchases of fixed assets


-



(3,867
)Increase in due from/to RBMS


(342,770
)


-Increase in deferred expenses


(636
)


-Net cash used in investing activities


(343,406
)


(3,867
)CASH FLOWS FROM FINANCING ACTIVITIESIncrease (decrease) in loan payable - stockholder


12,787



31,668Proceeds from sales of  common stock


-



300,000Payment on note payable


-



(25,000
)Increase in note payable


86,600



-Payments of note payable - truck


(1,278
)


(1,158
)Net cash provided by financing activities


98,109



305,510Net increase (decrease) in cash


(210
)


(14,200
)Cash, beginning of period


1,226



15,453Cash, end of period

$
1,016


$
1,253
 
 See notes to financial statements
 
 3
 
 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 to be the successor by merger of BevSystems International, Inc. and BevSystems International Ltd. (BevSystems) under a plan of reorganization (Plan), effective August 15, 2008, as approved by the United States Bankruptcy Court in Tampa, Florida. Under the terms of the Plan, BevSystems merged into the Company with the Company as the survivor.
 
 On March 31, 2004, BevSystems filed under Chapter 7 of the Bankruptcy Code and, on April 15, 2006, filed a plan of reorganization under Chapter 11 of the Bankruptcy Code. The Plan provided for the Company to: (1) purchase the intangible assets of BevSystems, (2) pay creditors opting out of the common stock settlement, (3) pay all legal and other cost of the Plan (4) issue 200,000 shares of common stock of the Company (10%) to the balance of the creditors and issue 1,800,000 shares of common stock of the Company (90%) to Rotate Black, LLC (RBL), an entity substantially owned by an officer of the Company and family members. The Company was also required to provide an escrow fund for future operations of $200,000. All outstanding equity shares of BevSystems were cancelled. All requirements under the Plan have been met.
 
 The shares issued to the creditors were valued at $.285, per share, the value of the shares issued to the 90% stockholder for their purchase price of $513,079.
 
 The aggregate purchase price, including the shares issued to the creditors, consisted of the following:
 
 Purchase of intangible assets of Bevsystems

$
175,000Cash payments to creditors


10,000Shares issued to creditors


57,009Legal and other expenses


132,256Cash Escrow


200,000$
574,265
 
 The Company recorded the purchase of BevSystems under the purchase method of accounting and allocated the aggregate purchase price, as follows:
 
 Cash in escrow

$
200,000Intangible assets


374,265$
574,265
 
 Prior to August 15, 2008, all activity prior thereto has been charged to operations. On April 1, 2010,the Company commenced operations under the Big Easy management agreement and is no longer a development stage company.
  4
 
 Acquisitions
 
 In October 2008, the Company acquired: (1) 75% of the outstanding common stock of Rotate Black-Gaming, Inc., (Gaming), (2) all of the assets of a casino development in Dayton, Nevada (Dayton) and (3) a 50% joint venture interest in Rotate Black India Pvt Ltd. (India) in exchange for 5,312,000, 1,096,180 and 1,680,000 shares of common stock of the Company, respectively, from RBL.
 
 The acquisitions have been recorded at the carrying amounts on RBL of the assets and liabilities acquired as of the date of acquisition, as RBL is under common control with the Company. The statement of operations has been presented as if the acquisition had occurred at the beginning of the reporting of the acquisition and all prior periods from inception.
 
 Gaming
 
 The purchase price of Gaming of $4,325,913 has been allocated as follows:
 
 Development advances

$
1,411,511Other current assets


3,992Land


556,000Contract rights


5,767,884Accounts payable and accrued expenses


(1,229,570
)Loan payable - stockholder


(1,411,941
)Note payable


(268,000
)Deferred revenue


(33,817
)Deficit


971,8255,767,884Less:  Noncontrolling interest


(1,441,971
)$
4,325,913
 
 Gaming was under contract to develop and manage a world-class destination casino resort in Sullivan County, New York. Gaming has acquired the property and completed all design layouts. (See Note 6 as to proposed sale of RBG)
 
 Dayton
 
 The purchase price of Dayton of $219,154 has been allocated to deferred expenses and includes predevelopment expenses as of the date acquired. During the year ended June 30, 2009, the Company entered into a cancellable agreement to purchase land in Dayton for this casino project and in September 2009 cancelled the land purchase agreement due to excessive land preparation costs on this property and the declining market in Dayton.
 
 As of June 30, 2009, the Dayton casino development was terminated and the Company has written-off the deferred expenses of $233,960.
 
 India
 
 The purchase price of India of $136,121 has been allocated to investment in joint venture and includes all the investment of RBL as of the date acquired. Although the Company has identified potential properties for acquisition, it does not anticipate an acquisition until new Indian gaming laws are solidified and, therefore, has written-off the investment expense of $136,121.
 
 5
 
 Big Easy Gaming Vessel
 
 On May 28, 2010, the Company, RBL and an officer of the Company formed Rotate Black MS, LLC (RBMS), a limited liability company, to own, develop and manage the operations of a dockside casino in Gulfport, Mississippi.
 
 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
 The accompanying interim unaudited consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations set forth in 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 statement 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 the interim periods have been included. These consolidated financial statements should be read in conjunction with the financial statements of Rotate Black, Inc. and Subsidiary together with Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the year ended June 30, 2010. 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 the subsidiary.
 
 The Company records adjustments to noncontrolling interest for the allocable portion of income or loss that the noncontrollling interest holders are entitled based upon their portion of certain of the subsidiaries that they own. Distributions to holders of noncontrolling interests are adjusted to the respective noncontrolling interest holders’ balance.
 
 The Company suspends allocation of losses to noncontrolling interest holders when the noncontrolling interest balance for a particular noncontrolling interest holder is reduced to zero. Any excess loss above the noncontrolling interest holders’ balance is not charged to noncontrolling interest as the noncontrolling interest holders have no obligation to fund such losses.
 
 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.
 
 All significant intercompany accounts and transactions have been eliminated in consolidation.
 
 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.
 
 Reclassifications
 
 Certain amounts for prior years have been reclassified to conform to 2010 financial statement presentation.
 
 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.
 
 6
 
 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.
 
 Contract Rights and Intangible Assets
 
 Contract rights and intangible assets are valued at cost and, if there is a finite life, will be amortized over their estimated useful lives of each asset as determined by management. Amortization will commence upon the placement of individual assets into service and the initial determination of the lives assigned to each. The Company expects this to occur for the Contract Rights upon the effective date of the Development Agreement. As of September 30, 2010, all the Contract Rights had not commenced amortization.
 
 The Company will evaluate the carrying value of the intangible assets for impairment at least annually or upon the occurrence of an event, which may indicate that the carrying amount may be greater than its fair value. If impaired, the Company will write-down such impairment. In addition, the useful life of the intangible assets will be evaluated by management at least annually or upon the occurrence of an event which may indicate that the useful life may have been definitive and the Company would have commenced amortization over such useful life.
 
 Contract Rights were valued based management’s forecast of expected future net cash flows, with revenues based on projected revenues under the Development and Management Agreements.
 
 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.
 
 Development advances are the funds advanced by the Company for necessary costs in advance of the facility loan for the Seneca Nation (Note 6), which include expenses for legal, engineering and architectural fees and have been capitalized. 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.
 
 The Development Advances and the development fee are being deferred and will be billed upon the closing of the financing.
 
 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 had limited trading through March 31, 2010 and used recent sales of shares of common stock to value share-based compensation and other issuances of shares. Effective April 1, 2010, the Company began using the closing trading price.
 
 In accordance with EITF 96-18, 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.
 
 7
 
 The Company recognizes compensation expense for stock awards with service conditions on a straight-line basis over the requisite service period and are included in operations.
 
 Loss per Common Share
 
 Basic loss per share is calculated using the weighted-average number of common shares outstanding during each period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each period.
 
 For the three months ended September 30, 2010 and 2009, there were no significant potentially dilutive securities.
 
 Basic loss per share has been retroactively restated to reflect the reverse stock split (Note 13).
 
 Income Taxes
 
 Deferred income taxes have been provided for temporary differences between financial statement and income tax reporting under the liability method, using expected tax rates and laws that are expected to be in effect when the differences are expected to reverse. A valuation allowance is provided when realization is not considered more likely than not.
 
 The Company’s policy is to classify income tax assessments, if any, for interest in interest expense and for penalties in general and administrative expenses.
 
 Leases
 
 Rent expense is recognized on the straight-line basis over the term of the lease.
 
 Recent Accounting Pronouncements
 
 Management does not believe that any 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 Company has incurred losses since inception, resulting in an accumulated deficit of $4,626,453 and negative working capital of $6,704,579 as of September 30, 2010 and further losses are anticipated. These factors raise substantial 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 resolve this issue with the commencement of management fees from the Big Easy Management Agreement and other future sources of revenue. Until these occur in sufficient amounts, the Company plans to sell unregistered stock to investors and borrow from its principle stockholder to continue operations.
 
 8
 
 4.  PROPERTY AND EQUIPMENT
 
 As of September 30, 2010, property and equipment consisted of the following:
 
 Gaming vessel

$
4,264,500Truck


39,761Furniture and fixtures


8,490Office equipment


23,2904,336,041Less accumulated depreciation


(108,461
)$
4,227,580
 
 
 On June 10, 2010, the Company purchased The Big Easy, a gaming vessel 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 Note is collateralized by the gaming vessel and both notes are guaranteed by an officer of the Company.The Secured Note is 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. As of September 17, 2010, both notes are in default and the interest rate was increased to 20%, per annum.
 
 RBMS, at a purchase price equal to the carrying value on RBI. RBI is required to use the proceeds to pay off the Secured Note and interest thereon, to allow RBMS to collateralize the gaming vessel under the borrowing facility.
 
 For the three months ended September 30, 2010 and 2009, depreciation expense was $58,819 and 5,356, respectively.
 
 5.  INTANGIBLE ASSETS
 
 The intangible assets acquired under the Plan consisted of a license of patents, pending patents, trade secrets, know-how and other intangibles of Life O2 Oxygenated Water (Life O2), valued at $374,265, which were assigned to the Company under the Plan. The license grants the Company the exclusive worldwide (as defined), irrevocable, perpetual, royalty-free right to all the intangible assets for use in the production, marketing, distribution, sublicensing and sale of Life O2, subject to certain previously granted licenses, and only for human consumption. The Company has the right to assign the rights under the license to any corporate successor by way of merger, etc.
 
 The Company is entitled to sublicense, exclusively or not, or to subcontract the manufacture of products under the license. The existing License and Trademark Bottling Agreement has been cancelled and the Company is currently arranging another similar license and bottling arrangements.
 
 Prior to filing for reorganization, BevSystem had revenues and profits from Life O2. The Company anticipates sublicensing the license in territories worldwide. Based on management's estimate of cash flows expected from such a licensing arrangement, as compared to a similar distributor, management believes that the future cash flows are in excess of the value allocated to the license in the purchase price and has determined that there is no impairment of the Life O2 licenses and patents as of June 30, 2009
 
 As of June 30, 2010, the Company had not arranged a similar license and bottling arrangement for Life O2 and, presently, the Company is not planning to pursue Life O2. The Company determined that the carrying amount has been impairment and wrote-off of the intangible assets.
 
 9
 
 6.  CONTRACT RIGHTS
 
  
  
 Management believes that when the financing of the gaming facility is in place, the Development Advances and development fee will be billed and the contract rights will commence amortized over its useful life.
 
 As of September 30, 2010, unbilled Development Advances were $2,352,925, including $318,460 in interest and $49,621 of deferred developer fees deferred.
 
 Development Agreement
 
 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 Nation’s 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 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. As of June 30, 2009, accrued interest payable on the loan of $70,116 was included in accounts payable and accrued expenses. The Company had not made the payment and had arranged to pay off the loan in monthly payments of $25,000. In August 2009, the Company made a payment of $25,000 against the note.
  10
  On December 23, 2008, under the terms of the Development Agreement, the land was transferred to the Nation, without compensation, and the cost of the land has been included in 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 defined.
 
 As of September 30, 2010, the Company has accrued $58,003 for the potential issuance of 193,343 shares of common stock, valued at of $0.30, per share. On November 8, 2010, the Company issued 139,270 shares of common stock, valued at $52,923, $.38, per share, in satisfaction of anti-dilution rights.
 
 Management Agreement
 
 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.
 
 Land Purchase
 
 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 RBL 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 RBL.
 
 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, $2.50, 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.
  11
  Proposed Sale of RBG
 
 On July 1, 2010, the Company and RBL entered into an agreement to sell 100% of the common stock of RBG to Catskills Gaming and Development, LLC (Catskill) for an aggregate consideration of $21,000,000 in cash and the assumption of indebtedness of $6,300,000, payable as follows:
 
 (a)
$2,000,000 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,(b)
$2,000,000 on the second anniversary;(c)
$3,400,000 on the third anniversary;(d)
$3,400,000 on the fourth anniversary;(e)
$3,400,000 on the fifth anniversary;(f)
$3,400,000 on the sixth anniversary; and(g)
$3,400,000 on the seventh anniversary.
 
 The Company expects to close the transaction in the first quarter of 2011. Until the sale of RBG closes, the Company will continue carrying the accounts related to RBG and the accounting for such amounts.
 
 7. BIG EASY MANAGEMENT AGREEMENT
 
 On October 27, 2010, the Company entered into a management agreement (Big Easy Management Agreement), effective April 1, 2010 for a period of 99 years.  The Company, as manager, will manage all the operations, of the Big Easy gaming facility, including all gaming, food, beverages, gifts, hotels, parking, resorts, etc. The management fee is 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.
 
 For the three months ended September 30, 2010, management fees from RBMS were $600,000.
 
 The Manager is entitled to appoint two directors out of the five directors on the RBMS Board of Directors.
 
 8.  INVESTMENT IN JOINT VENTURE
 
 Investment in joint venture consisted of a 50% interest in India.  The financial statements of India are as follows:
 
 As of September 30, 2010, the balance sheet of India was as follows:
 
 Total Assets

$
NoneCapital Contribution


272,242Deficit


(272,242
)Total assets and liabilities

$
None
 
 For the period October 7, 2008 through September 30, 2010, the investment in India was inactive.
 
 As of December 31, 2009, the Company determined that the recovery of the carrying value of the investment in India was uncertain and wrote-off the investment in the joint venture of $136,121.
  As of September 30, 2010, the Company the Company is not planning to pursue the India casino development project.
 
 9.  DUE FROM/TO AND INVESTMENT IN RBMS
 
 As of September 30, 2010, Due From RBMS consisted of management fees and other amounts paid on behalf of RBMS and is payable on demand.
 
 12
 
  
 As of September 30, 2010, the condensed balance sheet of RBMS was as follows:
 
 Development costs

$
2,862,383Stock subscriptions receivable


210,000Total Assets

$
3,072,383Current liabilities

$
718,606Due from RBI


278,777Members’ equity


2,075,000Total assets and liabilities

$
3,072,383
 
 On May 16, 2010, RBMS entered into a term sheet to borrow up to $15,000,000 for the Big Easy gaming facility, with interest at 15%, per annum, payable monthly over three years. The lender will receive a fee equal to a 40% interest in RBMS, subject to a reduction of 10%, if certain earnings are achieved, as defined. RBI has guaranteed the borrowing. The lender shall appoint two directors.
 
 10.  LEASE
 
 On August 8, 2008, the Company entered into a lease for office space, commencing on September 1, 2008 through August 31, 2011.  Rent is payable in advance, in annual installments. The initial year’s rent is $46,200, increasing as defined. The Company has an option to extend the lease for an additional three-year period.
 
 As of September 30, 2010, $63,175 of the second year’s rent was included in accrued expenses.
 
 11.  LOAN PAYABLE – STOCKHOLDER
 
 As of September 30, 2010, loan payable - stockholder primarily consisted of advances incurred by RBL on behalf of the Company and is payable on demand, with interest at 12%, per annum.
 
 12.  NOTE PAYABLE - TRUCK
 
 On September 10, 2008, the Company borrowed $20,800 to purchase a truck. The note is payable in 48 equal installments of $520, including interest at 9.19%, per annum, through September 10, 2012.
 
 As of September 30, 2010, minimum annual payments under the loan are:
 
 2011

$
4,0152012


5,8002013


1,535$
11,350
 
 13.  COMMON STOCK
 
 Reverse Stock Split
 
 On July 19, 2010, the Company amended its articles of incorporation, effective August 2, 2010, to affect a one-for-five reverse split by combining every five outstanding shares of common stock into one share of common stock, without a change to authorized shares or par value. All share and per share amounts have been retroactively restated.
 
 13
 
 For the three months ended September 30, 2010, the Company issued an aggregate of 106,692 shares of common stock for consulting services rendered, valued at $50,000, an average of $.47, per share, the value of the service provided.
 
 For the three months ended September 30, 2010, the Company issued 28,509 shares of common stock for legal services rendered, valued at $6,500, $.23, per share, the value of the service provided.
 
 On September 28, 2010, the Company borrowed $15,000 from a stockholder and issued 15,000 shares of common stock as interest, valued at $6,000, $.40, per share, the value of the shares issued.
 
 Warrants
 
 On May 28, 2010 the Company granted a warrant to purchase 20,000 shares of the Company's common stock to a consultant for services rendered. The warrant is exercisable at $0.85 and was valued at $11,610 using a Black-Scholes Option Pricing Model with the stock price on day of grant, $0.95, the risk free interest rate, 2.10% and the expected volatility of 69.81%.
 
 14.  NONCONTROLLING INTEREST
 
 As of September 30, 2010, the noncontrolling interest of Gaming was 25%.
 
 15.  INCOME TAXES
 
 As of September 30, 2010, management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements.
 
 16.  FINANCING ARRANGEMENT
 
 On October 26, 2009, the Company entered into an agreement with a placement agent (Agent) for a proposed offering (Offering) up to $12,500,000 of debt obligations or other financings, on a best-efforts basis.
 
 The Company will pay fees to the Agent, as follows: 
 ●
Nonrefundable retainer of $25,000, paid as of June 30, 2010, to be credited against expenses due of the Offering;●
6% of the maximum amount of any debt securities, including the face value of any committed line of credit, payable at closing;●
A warrant to purchase common shares of the Company equal to 3% of (1) the number of shares issued in an equity financing and (2) any maximum credit available in any debt obligation divided by the closing price of the Company's stock price on the day of closing, as defined. The warrant will be exercisable at the minimum exercise price of any warrants received by investors in the financing or, in the absence of any warrant issuance, the closing price for the common stock of the Company on the day of the closing for five years.On April 26, 2010, in connection with the proposed secured and equity financing arrangement the Company entered into an agreement for legal services for $5,000 in cash and the issuance of 30,000 shares of common stock, payable upon signing and an additional $55,000 in cash from the proceeds of the secured financing arrangement and $35,000 from the proceeds of the equity financing arrangement.On August 31, 2010, the Company into a agreement with a placement agent (Agent), as its non-exclusive financial advisor, to provide certain financial advisory services in connection with the financing of its Big Easy casino development project. The Company will pay fees to the Agent, as follows:●
4.00% of the gross proceeds of any equity financing received by the Company or its affiliates in connection with the development project induced to the Company by the agent;●
3.00% of the gross proceeds of any debt financing received by the Company or its affiliates in connection with the development project induced to the Company by the agent;●
2.00% of the gross proceeds of any equity or debt financing received by the Company or its affiliates in connection with the development project introduced to the Agent by the Company as not defined by the agreement;●
1.00% of the gross proceeds of any equity financing received by the Company or its affiliates in connection with the development project introduced to the Agent by the Company as defined by the agreement.
 
 14
 
 17. COMMITMENTS AND CONTINGENCIES
 
 The Company has guaranteed certain notes payable of RBL in the amount to $250,000.
 
 A complaint has been filed against the Company, RBL, and an officer of the Company and others in the amount of $5,000,000 pursuant to the termination of a development agreement for a casino project previously written-off in a prior period. The Company and RBL have filed a counterclaim for damages related to the project. Although the matter is in its early stages, the Company believes that the action is without merit and intends to defend itself against this action.
 
 On November 15, 2010, the Company was made aware of a complaint against the Company, RBL and a former employee of RBL, dated October 25, 2010, for the repurchase of 1,200,000 shares of common stock for $1,200,000, plus damages and fees. The Complaint is in connection with RBL’s failure to repurchase 1,200,000 shares of common stock of the Company, under a share purchase agreement with RBL.
 
 The Company is exposed to various risks of loss related to theft, damage or destruction of assets, general liability and errors or omissions. The Company purchases commercial insurance to cover these risks and retains minimal risk through reduced deductibles. To mitigate certain risks, the Company also monitors the financial condition of the banking institutions, and cash in excess of operating needs are transferred to securities and other investments on a regular basis.
 
 18. PURCHASE OPPORTUNITIES
 
 On August 15, 2009, the Company entered into an agreement with Sage Gaming and Entertainment to acquire the purchase opportunities (Purchase Opportunities) of Big Easy Gaming vessel and Panama City International Casino. The Purchase Opportunities include contact information, work product and due diligence to date on these certain casino properties. On November 8, 2010, terms of the agreement were revised for a total fee of 300,000 shares of common stock.
 
 19.  SUBSEQUENT EVENTS
 
 Issuance of Shares
 
 In October and November 2010, the Company issued 157,484 shares of common stock for consulting services, valued at $50,000, $.32, per share, the value of the service provided.
 
 15


ITEM 2:   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, the  section titled “Consolidated Financial Statements” and the accompanying “Notes to Consolidated Financial Statements” included elsewhere in this Quarterly Report on Form 10-Q.  Unless the context otherwise requires, all references herein to the “Company,” “RBI”, “we,” “us” or “our,” or similar terms, refer to Rotate Black, Inc., a Nevada corporation. References below are to the fiscal years of Rotate Black, Inc., unless otherwise noted.   RBI’s fiscal year is from July 1 to June 30.





FORWARD LOOKING STATEMENTS





The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to statements relating to our financial condition, profitability, liquidity, resources, business outlook, market forces, corporate strategies, contractual commitments, legal matters, capital requirements and other matters.  Any statements contained in this Quarterly Report on Form 10-Q, in our other filings with the Securities and Exchange Commission, or the SEC, in our press releases or in our other public communications, the words: “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely,” “enable,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believes,” “estimates,” “projects” or similar words or expressions, as well as statements containing phrases such as “in our view,” “there can be no assurance,” “although no assurance can be given,” or “there is no way to anticipate with certainty,” forward-looking statements are being made and these words or phrases or similar expressions should be interpreted as intended to identify these forward-looking statements.  Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us.  We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements.





In addition to the risks discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 30,2010, various other risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including the following factors: These statements are subject to risks and uncertainties beyond our reasonable control that could cause our actual business and results of operations to differ materially from those reflected in our forward-looking statements. Forward-looking statements are not guarantees of future performance. Our forward-looking statements are based on trends which we anticipate in our industry and our good faith estimate of the effect on these trends of such factors as industry capacity, product demand and product pricing. The inclusion of projections and other forward-looking statements should not be regarded a representation by us or any other person that we will realize our projections or that any of the forward-looking statements contained in this prospectus will prove to be accurate.





●
our growth strategies;


●
our development and potential acquisition of new facilities;


●
risks related to development and construction activities;


●
anticipated trends in the gaming industries;


●
patron demographics;


●
general market and economic conditions;


●
access to capital and credit, including our ability to finance future business requirements;


●
the availability of adequate levels of insurance;


●
changes in federal, state, and local laws and regulations, including environmental and gaming license legislation and regulations;


●
regulatory approvals;


●
competitive environment;


●
risks, uncertainties and other factors described from time to time in this and our other SEC filings and reports.




16




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





Overview





Rotate Black, Inc. (“Rotate Black, Inc.” or the “Company” ”We” ”Us” “Our”) was incorporated in Nevada on August 2, 2006 to be the successor by merger of BevSystems International, Inc. and BevSystems International Ltd. (“BevSystems”) under a plan of reorganization (the “Plan”) effective August 15, 2008, as approved by the United States Bankruptcy Court in Tampa, Florida. Under the terms of the Plan, BevSystems merged into the Company with the Company as the survivor.





We own, manage and/or invest in gaming-related opportunities. The Company continues to actively investigate, individually and with partners, new business opportunities. We currently have a management agreement with our affiliate, rotate Black MS, LLC (RBMS), a Mississippi limited liability company,  an affiliated company. The Company, RBL and an officer of the Company will own 46.6% of the voting interests of RBMS. The Company has accounted for its investment in RBMS on the equity method as it does not meet all the control requirements to consolidate.





The Company has shifted its major focus of managing and developing of a casino in New York State to the management of the development of a casino in Gulfport, Mississippi.  We have entered in to an agreement to sell our investment in Rotate Black Gaming, Inc., which includes our development assets and contract rights for the Seneca project, to Catskill Gaming and Development, LLC (‘Catskill’). Catskill has the resources, relationships and contacts to finalize the project while allowing us the ability to focus on managing the development of the casino project in Gulfport, Mississippi where cash flows and development times have a more foreseeable future.





Gulfport, Mississippi.  Since January 2010, we have been working to develop a gaming and hospitality project in Gulfport, Mississippi. Our President and Chief Operating Officer, Dual Cooper, has over 7 years of experience as a senior executive officer of various gaming operations in the Gulf Coast. Mr. Cooper also serves as Chief Executive Officer of RBMS.





As of November 19, 2010, RBMS has: (a) entered into two ground leases for approximately nine and a half (9.5) acres of land adjacent to the small craft harbor at the Bert Jones Yacht Basin in Gulfport, Mississippi, (b) achieved rezoning of such property from general business to entertainment and gaming, and (c) been approved by the Mississippi Gaming Commission to submit an application for gaming site approval.





Description of the Project.  RBMS is developing a gaming facility on approximately nine and a half (9.5) acres located on and around the Bert Jones Yacht Basin in Gulfport, Mississippi. In addition to gaming operations, RBMS also intends to build other non-gaming structures and amenities, such as two hotels, a parking garage, restaurants, retail space and other entertainment facilities, located on approximately five acres of real property currently under leased from Marine Life Incorporated and Mississippi Coast Marine, Inc. and approximately four and a half acres of real property currently under lease with the Gulfport Redevelopment Commission (Gaming Site). The Project is expected to be completed in two phases. In the first phase, gaming activities shall be conducted on a five deck, 238 feet long and 62 feet wide luxury gaming vessel docked adjacent to the Gaming Site. The luxury gaming vessel is expected to have approximately 26,000 square-feet of gaming space, with 875 slot machines and 18 table games, including blackjack, craps, roulette and baccarat. The gaming vessel is expected to include four bars and three distinctive and diverse dining options, including a 30-seat 24-hour snack bar, a 110-seat restaurant, and 400-seat BBQ. The 120 room two to three diamond hotel is expected to include a 100-seat restaurant and lounge.  The hotel is expected to have a large porte-cochere, which will permit access to the luxury gaming vessel.  Phase I is expected to include a surface parking lot that will accommodate approximately 600 vehicles.  We estimate hiring 500 employees to operate the Gaming Vessel and Hotel.SeeAcquisition of the Luxury Gaming Vessel below.


17





We estimate the Gulfport project will cost approximately $45 million.  We have engaged Citadel Securities, LLC and Poydras Street Capital, LLC to help us raise approximately $30 million in the aggregate.  The balance of the Gulfport Project cost of $10 million is expected to come from vendor financing. As of November 10, 2010, the Company and its Chairman and CEO have invested $5 million in cash and personal guarantees on the Gulfport project. We can provide no assurance that we will be able to obtain all the necessary financing to develop and construct the Gulfport project.





Based on the leases, we are required to further invest in the Gaming Site and construct a permanent land based casino by the end of 2015. Our ability to complete the permanent land based casino will depend on a number of factors including the economic environment on the Gulf Coast to support a larger permanent land based casino and our ability to obtain financing on terms that make further expansion economically feasible.





Acquisition of the Luxury Gaming Vessel.In June 2010, we purchased the luxury gaming vessel “The Big Easy” for $3,250,000.  We paid $600,000 in cash, issued a secured promissory note to the Seller of $2,975,000 and an unsecured promissory note to the Seller of $600,000. The gaming vessel was moved in July 2010 from its mooring in St. Petersburg, Florida to Tampa Bay, Florida where it is being repainted and fit out to make it ready for our casino operation. When completed, the luxury gaming vessel will be moved to the Bert Jones Yacht Basin in Gulfport, Mississippi.




The Secured Note is payable in full on June 11, 2011 and bears interest at 14.5% per annum.  The Secured Note is a non-amortizing interest only note.  Monthly interest payments of $35,000 commenced on June 11, 2010.    The Unsecured Note also bears interest at 14.5% per annum and is non-amortizing and interest only.  The maturity date of the Unsecured Note is June 11, 2012.   Interest payments commence thirty days after the opening of the gaming operations on the luxury gaming vessel. Currently, we are in default on both Notes.  See Part II, Item 3.




As of November 10, 2010, we have invested over $1,500,000 of renovations and other improvements to the gaming vessel. A key safety aspect of the luxury gaming vessel is that it is a seaworthy ship with its own engines, captain and crew. Therefore, it can be moved to a safe location in event of another severe hurricane threat unlike a permanently moored barge, which could pose a hazard to surrounding property in the event of a powerful hurricane like Hurricane Katrina.  Our ability to relocate the gaming vessel is dependent on a number of factors, some of which are outside our control.




Immediate Regulatory Approvals needed to proceed with the Gulfport Project.  Now that RBMS has leased the acreage necessary under the City of Gulfport ordinance for a gaming eligible site, we will submit a gaming site approval application to the Mississippi Gaming Commission.  Gaming site approval is the process by which, following a recommendation from the Mississippi Gaming Commission (MGC) staff, a proposed operator of a gaming development site obtains a formal approval from MGC is accordance with the Mississippi Gaming Control Act and the regulations thereunder.  On the November 18, 2010, the MGC has approved for RBMS to submit its application to the MGC.





Gulfport Management Agreement.On October 27, 2010, RBMS and the Company, as manager, entered into a Management Agreement, effective as of April 1, 2010.  The Management Agreement is for ninety-nine (99) years and provides for management fees equal to $200,000 per month payable on the first day of each month in advance until commencement of the gaming operations. Upon commencement of the gaming operations the fee will increase to $250,000) per month. Upon achieving certain earnings before interest, taxes, depreciation and amortization, the fee will increase to $300,000 per month.





Catskill, NY.The Company has cease operations to develop, construct, manage and operate a casino, hotel and entertainment complex in the Catskill, New York region with the Seneca Nation of Indians, as a result of our proposed sale of RBG to Catskill.


18




On July 1, 2010, the Company and RBL entered into an agreement to sell 100% of the common stock of RB Gaming to Catskill, which is owned and controlled by one of our principal shareholders for an aggregate consideration of $21,000,000 in cash and the assumption indebtedness related to the Catskill project of $6,300,000 payable as follows:





(a)
$2,000,000 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,(b)
$2,000,000 on the second anniversary;(c)
$3,400,000 on the third anniversary;(d)
$3,400,000 on the fourth anniversary;(e)
$3,400,000 on the fifth anniversary;(f)
$3,400,000 million on the sixth anniversary; and(g)
$3,400,000 on the seventh anniversary.





The indebtedness would be assumed by Catskill upon the approval of the assignment of the Catskill project from RBG to Catskill.




As of November 10, 2010, although the assignment of the Catskill project from RBG to Catskill has not been approved by the Seneca Nation of Indians, we believe it will occur during first calendar quarter of 2011. We can provide no assurance, we expect the assignment of the Catskill casino project from RBG to Catskill will be approved by the Seneca Nation of Indians.





Discontinued Projects





As of September 30, 2010, the Company the has decided not to pursue the Dayton, Nevada, India (Rotate Black India Pvt LTD) and Life O2 Oxygenated Water projects. All the carrying amount has been wrttten-off. A complaint has been filed against the Company related to the Dayton project. See Part II, Legal Proceedings.





Results of Operations





The Company had been in the development stage entity until March 31, 2010, when the management agreement with RBMS, our affiliate, commenced.  All of our revenue is generated from this management agreement with RBMS for the development of a casino in Gulfport, Mississippi.





Three Months Ended September 30, 2010, Compared to Three Months Ended September 30, 2009





Revenue





For the three months ended September 30, 2010, total revenue was $600,000, as compared to none for the prior year. Revenues consisted of fees from the management agreement from RBMS that commenced on April 1, 2010.





Operating Expenses





Three Months EndedSeptember 30,2010


2009Operating expensesSalary expense

$
48,138


$
51,450Stock-based compensation


13,000



75,000Stock issued for interest


6,000



-General and administrative expenses


353,454



256,875Interest expense


(24,457
)


12,575Total expenses

$
396,135


$
395,900




19




Salary Expense.  For the three months ended September 30, 2010, salary expenses decreased $3,312, or 6.4%, as compared to the prior year.  Salary expense for the three months ended September 30, 2010, consisted of wages for our CEO and COO and health insurance. The decrease was primarily attributable to the reduced salaries earned by employees.





Stock-based compensation.  For the three months ended September 30, 2010, stock based compensation decreased $62,000, or 82.7%, as compared to the prior year. The decrease was related to decreased legal and consulting services related to the proposed sale of RBG’s Catskill project.





Stock issued for interest.  For the three months ended September 30, 2010, stock issued for interest was $6,000, as compared to none for the prior year.  Stock issued for interest was related to a bridge loan by one of our investors.





General and administrative expenses.  General and administrative expenses increase by $96,579, or 38%, for the three months ended September 30, 2010, resulting from increases in depreciation, insurance and other expenses of $240,613 offset by a decrease in outside services of $112,841.





Interest expense. For the three months ended September 30, 2010, interest expenses decreased $37,032, or 294%, as compared to the prior year.  The decrease in interest expenses was primarily the result of a reduction in the valuation of our derivative liabilities.





Net income/(loss)





Net income/(loss) for the three months ended September 30, 2010 and 2009, was $203,865 and ($395,900), respectively, an increase of $596,765.





Liquidity and Capital Resources





At September 30, 2010, we had current assets of approximately $418,000 and current liabilities of approximately $7,123,000, as compared to current assets of approximately $22,000 and current liabilities of approximately $6,978,000 to June 30, 2009, an increase in working capital of $251, resulting primarily from an increase in due from/to RBMS of $417,000 offset in part by an increase in accounts payable of approximately $169,000.





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





On October 26, 2009, we entered into an agreement with CapStone Investments to act as placement agent (Agent) for a proposed offering by the Company of up to $12,500,000 of debt obligations or other financings, on a best-efforts basis.





We plan to utilize the proceeds of the CapStone financing to fund the acquisition of assets and operations of the casino properties under the Purchase Opportunities.





On August 31, 2010, the Company entered into an agreement to engage Citadel Securities, LLC (Citadel) as its non-exclusive financial advisor to provide certain financial advisory services in connection with the financing of its Gulfport, Mississippi casino development project.  The Company will pay fees to Citadel, as follows:





●
4.00% of the gross proceeds of any equity financing received by the Company or its affiliates in connection with the development project induced to the Company by Citadel;


●
3.00% of the gross proceeds of any debt financing received by the Company or its affiliates in connection with the development project induced to the Company by Citadel;


●
2.00% of the gross proceeds of any equity or debt financing received by the Company or its affiliates in connection with the development project introduced to Citadel by the Company as not defined by the agreement;


●
1.00% of the gross proceeds of any equity financing received by the Company or its affiliates in connection with the development project introduced to Citadel by the Company as defined by the agreement.





20





Cash Flows





As ofSeptember30,2010


2009Net cash provided by (used in) operating activities

$
245,087


$
(315,843
)Net cash used in investing activities


(343,406
)


(3,867
)Net cash provided by investing activities


98,109



305,510Net increase (decrease) in cash

$
(210
)

$
(14,200
)





Cash Flows from Operating Activities.  Net cash provided from operating activities increased by approximately $560,000 over the prior year resulting primarily from an increase in net income/loss of $615,000 in 2010 over 2009, net of noncash adjustments. The increase in net cash provided by operating activities was primarily the result of revenue from our RBMS management agreement offset by additional operating costs associated with this agreement and the Catskill project.





Cash Flows from Investing Activities.  Net cash used by investing activities increased by approximately $339,000, resulting primarily from our increased investment in RBMS of $343,000.





Cash Flows from Financing Activities.  Net cash provided by financing activities decreased by approximately $207,000, resulting primarily from a decrease of $300,000 from proceeds received from the sale of our common stock in 2009 and the issuance of a notes payable of $86,000 in 2010.





Off-balance Sheet Arrangements





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





Impact of Inflation





We believe that inflation has not had a material impact on our results of operations for the period ended June 30, 2010. We cannot be assured that future inflation will not have an adverse impact on our operating results and financial condition.





Climate Change





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






21





ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The information to be reported under this item is not required of smaller reporting companies.





ITEM 4T:  CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures




An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act was conducted by our Principal Executive and Principal Financial Officer. Based upon that evaluation, he has concluded that our disclosure controls and procedures were not effective as of September 30, 2010, based on his evaluation of these controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Exchange Act is accumulated and communicated to management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
 We have identified certain material weakness (as defined under the Public Company Accounting Oversight Board Auditing Standard No. 2) in our internal control over financial reporting.  The material weaknesses that we have identified relate to the fact that that our overall financial reporting structure, internal accounting information systems and current staffing levels are not sufficient to support our financial reporting requirements. We are working to remedy these deficiencies and material weaknesses.





Changes in Controls and Procedures





There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Subsequent to September 30, 2010, we hired a controller under our plan to upgrade our procedures and controls. We are working to remedy our deficiencies and material weaknesses.








22





PART II. OTHER INFORMATION





ITEM 1:  LEGAL PROCEEDINGS





Dayton.  A complaint has been filed in the Third Judicial Court of the State of Nevada, in and for the County of Lyon, by SMC Construction Co, Inc., Richard Schaller, et al, against the Company, RBL, John Paulsen, Dual Cooper and others in the amount of $5,000,000 pursuant to the termination of the development agreement for Dayton. The company and RBL have filed a counterclaim for damages related to the project. Although the matter is in its early stages, the Company believes that the action is without merit and intends to defend itself against this action.





India.   On October 25, 2010, an action was filed in the United States District Court, Western District of New York by The Sandesh Limited, the Plaintiff, against Rotate Black, Inc., Rotate Black LLC and Randy Edgerton, collectively, the Defendants. The Plaintiff alleges that as a condition to their purchase of 1,200,000 shares of our common stock, the Plaintiff had the right to require the Defendants to repurchase all or any portion of the shares. Plaintiffs also allege that a subsequent agreement was entered into with Rotate Black, LLC, whereby Rotate Black, LLC would purchase the Plaintiff’s 1,200,000 shares of common stock.  Plaintiff further alleges that this repurchase also did not occur and that the Defendants breached other terms of the agreements. Plaintiffs are seeking the return of $1,200,000 and additional unspecified amounts as compensatory, actual and punitive and/or exemplary damages, restitution for unjust enrichment, prejudgment interest, attorney’s fees and costs and other relief as the court deems appropriate. The Company is preparing its answer and a counterclaim and will defend this action. There Company can provide no assurance as to the likelihood of its winning this action.





ITEM 1A:  RISK FACTORS





The information to be reported under this item is not required of smaller reporting companies.





ITEM 2:  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





For the three months ended September 30, 2010, the Company issued an aggregate of 106,700 shares of common stock for consulting services rendered, valued at $50,000, an average of $.47, per share, the value of the service provided.





For the three months ended September 30, 2010, the Company issued 28,500 shares of common stock for legal services rendered, valued at $6,500, $.23, per share, the value of the service provided.





On September 28, 2010, the Company borrowed $15,000 from a stockholder and issued 15,000 shares of common stock as interest, valued at $6,000, $.40, per share, the value of the shares issued.


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ITEM 3:  DEFAULTS UPON SENIOR SECURITIES





As of September 30, 2010, we owe $70,000 on the Secured Note of the minimum monthly interest payments of $35,000.  This resulted in a notice of default on both the Secured and Unsecured Notes and raised the interest rate for both Notes from 14.5% to 20% per annum.  As of November 13, 2010, our current minimum monthly interest payment amount outstanding is $140,000.





ITEM 4:  RESERVED





ITEM 5:  OTHER INFORMATION





None.





ITEM 6:  EXHIBITS




10.1
Development Agreement between the Seneca Nation of Indians and Solstice International, Inc., dated June 22, 2007, incorporated by reference to Exhibit 10.1 of Form 10-K filed on November 8, 201010.2
Management Agreement between the Seneca Nation of Indians and Solstice International, Inc., dated June 22, 2007, incorporated by reference to Exhibit 10.2 of Form 10-K filed on November 8, 201010.3
Agreement between Rotate Black Gaming, Inc. and 3D LLC dated November 1, 2009, incorporated by reference to Exhibit 10.3 of Form 10-K filed on November 8, 201010.4
Accepted Offer to Purchase between Rotate Black, Inc. and Mark Calvert, Chapter 11 Trustee of Cruise Holdings II, LLC (the “Trustee”), dated January 29, 2010, incorporated by reference from Exhibit 10.1 of Form 8-K filed on February 8, 201010.5
Promissory Note from Rotate Black, Inc. to the Trustee, dated January 28, 2010, incorporated by reference from Exhibit 10.2 of Form 10-K filed on February 8, 201010.6
Unconditional Guarantee from John Paulsen to the Trustee, dated January 28, 2010, incorporated by reference from Exhibit 10.3 of Form 8-K filed on February 8, 201010.7
Letter Agreement between Rotate Black, Inc. and the Trustee, dated April 16, 2010, incorporated by reference from Exhibit 10.1 of Form 8-K filed on April 27, 201010.8
Offer to Purchase and Sale Agreement between Rotate Black, Inc. and Cruise Holdings II, LLC, dated June 10, 2010, incorporated by reference from Exhibit 10.1 of Form 8-K filed on June 16, 201010.9
Secured Promissory Note issued by Rotate Black, Inc. in favor of Cruise Holdings II, LLC, dated June 10, 2010, incorporated by reference from Exhibit 10.2 of Form 8-K filed on June 16, 201010.10
Preferred Mortgage issued by Rotate Black, Inc. in favor of Cruise Holdings II, LLC, dated June 10, 2010, incorporated by reference from Exhibit 10.3 of Form 8-K filed on June 16, 2010





10.11
Unsecured Promissory Note issued by Rotate Black, Inc. in favor of Cruise Holdings II, LLC, dated June 10,  2010, incorporated by reference from Exhibit 10.4 of Form 8-K filed on June 16, 201010.12
Unconditional Guaranty from John Paulsen in favor of Cruise Holdings II, LLC, dated June 11, 2010, incorporated by reference from Exhibit 10.5 of Form 8-K filed on June 16, 201010.13
Agreement with Catskills Gaming and Development, LLC, dated July 1, 2010, incorporated by reference from Form 8-K filed on July 9, 2009





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10.14
Placement Agreement between Capstone Investments and Rotate Black, Inc., dated October 26, 2009 and incorporated by reference to Exhibit 10.14 of Form 10-K filed on November 8, 201010.15
Placement Agreement between CRT Capital Corp, LLC and Solstice International, Inc., dated February 12, 2008 and incorporated by reference to Exhibit 10.15 of Form 10-K filed on November 8, 201010.16
Equity Sale/Purchase Agreement between Rotate Black, Inc. and Rotate Black, LLC, dated October 7, 2008, incorporated by reference to Exhibit 99.1 to Form 8-K filed on October 8, 200810.17
Asset Sale Agreement between Rotate Black, Inc. and Rotate Black, LLC, dated October 7, 2008, incorporated by reference to Exhibit 99.2 to Form 8-K filed on October 8, 200810.18
Stock Purchase Agreement between Rotate Black, Inc. and Rotate Black Gaming, Inc. and Rotate Black, Inc., dated as of October 3, 200810.19
Agreement with Catskills Gaming and Development, LLC, dated July 1, 2010, incorporated by reference to Exhibit 10.6 to Form 8-K filed on July 9, 2010, incorporated by reference to Exhibit 99.3 to Form 8-K filed on October 8, 200810.20
Agreement and Plan of Merger, dated as of August 15, 2008, incorporated by reference to Exhibit 99.1 to Form 8-K filed on August 22, 200810.21
Ground Lease Agreement among Marine Life Ventures LLC, MC Marine, LLC and Rotate Black MS, LLC, effective as of October 20, 2010, incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 26, 201010.22
Ground Lease, between Gulfport Redevelopment Commission and Rotate Black MS, LLC, dated October 20, 2010, incorporated by reference to Exhibit 10.2 to form 8-K filed on October 26, 201010.23
Management Agreement between Rotate Black Mississippi Black, LLC and Rotate Black, Inc. dated October 27, 2010, incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 29, 2010.31.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934*32.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350*





*filed herewith





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SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 18, 2010.




ROTATE BLACK, INC.By:
/s/ John PaulsenJohn Paulsen, Chairman, CEO and CFO(Principal Executive Officer, Principal Financial Officer)