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 ended March 31, 2011o
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, 201, 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.
Yes
þ
No
oIndicate 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
þAt August 9, 2011, 18,707,042, shares of the registrant’s common stock (par value of $0.001) and 190 preferred A shares were outstanding.














PART 1.
 
 ITEM 1 FINANCIAL STATEMENTS
 ROTATE BLACK, INC. AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEET
 March 31,


June 30,2011


2010(Unaudited)ASSETSCurrent AssetsCash

$
11


$
1,226Due from RBMS


1,435,520



-Prepaid expenses


78,693



20,536Total current assets


1,514,224



21,762Unbilled development advances


2,390,043



2,331,684Fixed assets - net


16,616



33,153Fixed Assets to be disposed - net


4,093,328



4,253,246Contract rights


6,323,884



6,323,884Land purchase deposit


8,470,674



8,470,674Deferred development cost


64,016



31,631Deferred financing fee


25,000



25,000Security deposit


3,600



3,600TOTAL ASSETS

$
22,901,385


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

$
3,037,507


$
2,232,444Due to RBMS


-



138,993Note payable - insurance


84,872



-Mortgage payable - Big Easy vessel


2,975,000



2,975,000Note payable - Big Easy vessel


600,000



600,000Loan payable - stockholder


985,961



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


5,293



5,293Total current liabilities


7,688,633



6,977,823Note payable - truck


3,411



7,335Derivative liability


-



220,050Contingent liability


152,000



62,000Shares to be issued


56,500



-Deferred revenues


49,621



49,621TOTAL LIABILITIES


7,950,165



7,316,829STOCKHOLDERS' EQUITYCommon stock, $0.001 par value, 20,000,000shares authorized; 18,707,042 and 16,599,829shares issued and outstanding as ofMarch 31, 2011 and June 30, 2010,respectively


18,707



16,600Additional paid-in capital


18,323,192



17,673,413Accumulated deficit


(4,705,919
)


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


13,635,980



12,839,627NONCONTROLLING INTEREST


1,315,240



1,338,178TOTAL STOCKHOLDERS' EQUITY


14,951,220



14,177,805TOTAL LIABILITIES ANDSTOCKHOLDERS' EQUITY

$
22,901,385


$
21,494,634
 See notes to financial statements
  2
 
 ROTATE BLACK, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF OPERATIONS
 (UNAUDITED)
 Three Months Ended


Nine Months EndedMarch 31,


March 31,2011


2010


2011


2010Revenue

$
600,000


$
-


$
1,800,000


$
-Operating expensesSalary expense


161,033



48,399



235,642



184,946Stock based compensation


-



112,500



124,600



287,500Stock issued for interest


-



-



26,000



-General and administrative expenses


176,635



562,382



942,675



852,113Write-off investment in joint venture


-



-



-



139,782Forgiveness of accounts payable and accrued expenses


-



-



-



49,145Interest expense


186,093



2,803



349,554



21,212Total expenses


523,761



726,084



1,678,471



1,534,698Net Income (Loss)


76,239



(726,084
)


121,529



(1,534,698
)Less: Income (loss) attributable to noncontrolling interest


330



(1,521
)


(22,938
)


(10,183
)Net Income (loss) attributable to controlling interest

$
75,909


$
(724,563
)

$
144,467


$
(1,524,515
)Basic and diluted net loss per common shareattributed to controlling interest

$
*


$
(0.05
)

$
0.01


$
(0.11
)Basic and diluted averagecommon shares outstanding


18,674,635



15,410,329



17,643,345



14,529,463
 * Less than $0.01, per share.
  3
 ROTATE BLACK, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENT OF CASH FLOWS
 (UNAUDITED)
 Nine Months EndedMarch 31,2011


2010CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
144,467


$
(1,524,515
)Adjustments to reconcile net loss to net cashused in operating activities:Stock-based compensation


124,600



287,500Stock issued for interest


26,000



-Write-off of investment in joint venture


-



139,782Depreciation and amortization


176,455



16,381Loss on settlement of note payable


-



473Forgiveness of accounts payable and accrued expenses


-



(49,145
)Cancellation of shares to be issued


-



(32,138
)Noncontrolling interest


(22,938
)


(10,183
)Changes in assets and liabilities:Prepaid expenses


(58,157
)


1,270Unbilled development advances


(58,359
)


(180,181
)Accounts payable and accrued expenses


969,926



550,992Due to affiliate


(138,993
)


-Derivative liability


(167,127
)


-Contingent liability


90,000



-Deposits


15,000



-Deferred revenues


-



2,743Net cash provided by (used in) operating activities


1,100,874



(797,021
)CASH FLOWS FROM INVESTING ACTIVITIESIncrease in due from/to RBMS


(1,235,520
)


-Increase in deferred expenses


(32,385
)


(407,980
)Purchases of fixed assets


-



(3,867
)Net cash used in investing activities


(1,267,905
)


(411,847
)CASH FLOWS FROM FINANCING ACTIVITIESIncrease in notes payable


109,350



-Increase in loan payable - stockholder


79,868



411,470Proceeds from sales of common stock


5,000



813,931Payment on note payable


(24,478
)


(25,000
)Payments of note payable - truck


(3,924
)


(3,964
)Net cash provided by financing activities


165,816



1,196,437Net decrease in cash


(1,215
)


(12,431
)Cash, beginning of period


1,226



15,453Cash, end of period

$
11


$
3,022Noncash TransactionIssuance of common stock for services billed to customer

$
150,000Issuance of common stock in payment of due to stockholder

$
120,000


$
1,500,000Issuance of common stock in settlement of accounts payable

$
179,863Issuance of common stock in settlement of derivative liability

$
52,923Issuance of common stock in payment of note payable





$
330,000
 See notes to financial statements




4




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).
 
 The Company develops, operates and manages gaming and related properties. On April 1, 2010, the Company commenced operation under the Gulfport Project management agreement and was no longer a development stage company.
 
 Gulfport Project
 
 The Company’s primary focus is the management of a gaming casino and amenities in Gulfport, Mississippi (Gaming Project) under the Gulfport Project Management Agreement (Note 6) with the Company’s affiliate, Rotate Black MS, LLC (RBMS), a Mississippi limited liability company.
 
 On May 28, 2010, the Company, Rotate Black, LLC and an officer of the Company formed RBMS, a limited liability company, (Note 7) to own, develop and manage the operations of a dockside vessel-based casino in Gulfport, Mississippi. The Company’s initial strategy was to secure an existing gaming vessel, move the vessel to the Company’s Gulfport site, and build land assets on that site to support the gaming vessel. Subsequently, RBMS changed its strategy to an entirely land-based casino.
 
 Gaming Project
 
 In October 2008, the Company acquired 75% of the outstanding common stock of Rotate Black-Gaming, Inc., (Gaming), from RBL. Gaming is 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 layout (Note 5).
 
 Other Projects
  In connection with the acquisition of Gaming, the Company also acquired the Dayton Project, a casino development project in Dayton, Nevada, The Dayton Project has been cancelled and, as of June 30, 2009, the Company has written-off the deferred expenses of $233,960.
 
 Also in connection with the acquisition of Gaming, the Company acquired a 50% joint venture interest in Rotate Black India Pvt Ltd. (India), formed to develop a project in India. This project is on hold until new Indian gaming laws are solidified and, as of December 31, 2009, the Company had written-off the investment expense of $136,121.
  5
 
 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 its 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 2011 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.
 
 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.
 
 6
 
 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 March 31, 2011, 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 upon 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, which include expenses for legal, engineering and architectural fees and have been capitalized. A development fee of 2.5% of total development costs was accrued by the Company for services rendered pursuant to the Development Agreement and is in addition to the amounts advanced to cover the development costs.
 
 The development advances and the development fee are being deferred and will be paid or eliminated upon the resolution of the arbitration (Note 5) with the Seneca Nation.
 
 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.
 
 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 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.
 
 7
 
 For the nine months ended March 31, 2011 and 2010, there were no significant potentially dilutive securities.
 
 Basic loss per share has been retroactively restated to reflect the reverse stock split (Note 11).
 
 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 $4,705,919 and negative working capital of $6,174,409 as of March 31, 2011 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 Gulfport Project Management Agreement and other future sources of revenue. Until these occur in sufficient amounts, the Company plans to sell unregistered stock to investors.
 
 4. ASSET TO BE DISPOSED
 
 For the nine months ended March 31, 2011 and 2010, depreciation expense for the gaming vessel was $171,172 and $11,254, respectively.
 
 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 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. Since September 17, 2010, both notes have been in default and the interest rate was increased to 20%, per annum.
  8
 
 On July 15, 2011, the seller of the “Big Easy” agreed to forever waive any and all claims against the Company and its guarantor, including, but not limited to the principal and interest. In consideration, the Company agreed to issue to the seller: (1) 500,000 shares of the Company’s common stock, (2) warrants to purchase 500,000 shares of the Company’s common stock at $0.40, per share, immediately exercisable, (3) 205 Common “B” Units of RBMS of 100,000 to be authorized, (4) warrants to purchase 375 units of Common “B” Units of RBMS, at $0.01, per unit, exercisable pursuant to the warrant agreement and (5) an administration fee of $5,000, per month, payable in cash for 60 months commencing with the first month of operations of the Gulfport Project casino. This agreement is subject to completing the financing for RBMS (Note 7) and court approval.
 
 The cost of the boat has been reclassified to assets to be disposed.
 
 5. CONTRACT RIGHTS
 
 Contract rights consisted of the various rights acquired under the Development and Management Agreements. It is composed of $2,520,000 in contract rights acquired by Rotate Black, LLC and $3,247,884 in draws from an asset-backed lending agreement used to finance the expenses associated with acquiring the Development and Management Agreements. In addition, $556,000 represents the cost of the land for the gambling facility, which was transferred to the Seneca Nation without compensation by Gaming. The total contract rights as of March 31, 2011 were $6,323,884.
 
 In determining the useful life of the assets for amortization, the Company will consider the period of expected cash flows adjusted by the Company's expected use of the asset. The Company is not currently amortizing the contract rights as they are deemed to be inactive since they are not yet producing a cash flow.
 
 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 March 31, 2011, unbilled Development Advances were $2,390,043, including $355,579 in interest in addition to $49,621 of developer fees, which have been deferred.
 
 Development and Management 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.
 9
 
 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.
 
 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.
 
 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.
 
 Subsequent to the transfer of the Property to the Seneca Nation of Indians pursuant to its agreements with the Seneca Nation, 3D has filed a lawsuit against the Seneca Nation and RBI to recover the Property and other claims.
 
 On May 11, 2011, RBI entered into an agreement with 3D wherein 3D has agreed to drop its lawsuit against RBI and forever waive any and all claims against RBI. In consideration for this, RBI has agreed to pay 3D ten dollars ($10) and to grant 3D the right to buy the Property from RBI for $500,000, in the event that RBI is successful in re-acquiring the 3D Property from the Seneca Nation.
  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 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.
 
 Proposed Sale of Gaming
 
 On July 1, 2010, the Company and RBL entered into an agreement to sell 100% of the common stock of Gaming to Catskills Gaming and Development, LLC (Catskill) for an aggregate consideration of $21,000,000 in cash and the assumption indebtedness of $6,300,000. The Nation notified Catskill that any further discussions pertaining to gaming development in the Catskills Region of New York is premature until the United States imposed moratorium on the acquisition of lands in trust for new Indian gaming facilities has been lifted.
  10
 
 On February 2, 2011, Gaming filed a notice of breach of the Management and Development Agreements with the Nation in response to the notification to Catskill. Gaming has also commenced a binding arbitration proceeding under their Development and Management Agreements with the Nation, seeking $21 million in actual damages and $350 million in lost profits. The Company believes that it will recover its carrying value either through: (1) the arbitration, (2) the proposed sale or (3) by continuing to develop and manage the Gaming Project.
 
 6. RBMS MANAGEMENT AGREEMENT
 
 On October 27, 2010, RBMS and the Company, as manager, entered into a management agreement, effective as of April 1, 2010. On June 20, 2011 the Company agreed to amend its management agreement with RBMS to facilitate the $15.0 million equity financing. The management agreement is for ninety-nine (99) years and under the new terms of the management agreement the Company will receive from the closing of the equity financing to the opening date of the Casino, a management fee of $200,000 per month payable the 10th day of every month and will be paid by the Company. In addition, the management fee that is payable prior to the opening of the casino shall never exceed $1,000,000 in total.
 
 Upon the opening of the casino, the monthly ongoing management fee will be 2% of monthly net revenues plus 5% of the monthly EBTDAM up to $1 million of monthly EBTDAM plus 10% of the monthly EBTDAM above $1 million monthly EBTDAM. The monthly ongoing management fee will not exceed $300,000 in any month. For the nine months ended March 31, 2011, management fees from RBMS were $1,800,000.
 
 The Manager is entitled to appoint two directors out of the five directors on the RBMS Board of Directors.
 
 7. INVESTMENT IN RBMS
 
 As of March 31, 2011, the Company, RBL and an officer of the Company own an aggregate 46% 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 of a variable interest entity to consolidate and current percent of ownership will be diluted by future financing of RBMS.
 
 As of March 31, 2011, the condensed balance sheet of RBMS was as follows:
 
 Development costs

$
4,676,820Total Assets

$
4,676,820Current liabilities

$
1,141,300Due to RBI


1,435,520Members’ equity


2,100,000Total assets and members equity

$
4,676,820
 
 As of November 19, 2010, RBMS has: (a) entered into two ground leases for the nine and a half acre site, (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. On July 5, 2011, RBMS received an equity funding commitment by an outside investor for $15 Million and has engaged Citadel Securities, LLC as advisor for the placement of the senior secured debt for the project. Pursuant to the equity investment the outside investor shall appoint three directors to RBMS. The Company anticipates closing of this equity finance on or before September 30, 2011.
  11
 
 8. EDMONTON PROJECT MANAGEMENT AGREEMENT
 
 On January 11, 2011, the Company, through a wholly-owned subsidiary, entered into a management agreement (Agreement), 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 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 of all profits on any amenities or services supporting or related directly or indirectly to the casino.
 
 The Tribe Companies and the Company are scheduled to meet with the Alberta Liquor and Gaming Commission in the fall of 2011 for the purpose of securing approval to proceed.
 
 9. PANAMA PROJECT
 
 On March 17, 2011, the Company entered into an agreement (Agreement) for a proposed joint venture (Blue Water Gaming and Entertainment S.A.) (Blue Water), with Ocean Point Development Corp. (Ocean Point) and Renaissance Gaming, LLC (Renaissance) to develop and manage an approximately 52,000 square foot Las Vegas style casino at the Trump Ocean Club International Hotel and Tower, in Panama City, Panama (Trump Ocean Club).
 
 Under the Agreement, Ocean Point shall transfer certain rights to Blue Water in exchange for $24 million of preferred units and forty-nine percent (49%) of the fully diluted common units of Blue Water, at closing. Renaissance has secured an investment partner to provide $14 million to Blue Water in exchange for $14 million of preferred units and thirty-five percent (35%) of the fully diluted common Units of Blue Water. The Company is continuing to work with Renaissance and it’s investment partner to secure the $14 Million in agreed upon funds.
 
 10. LOAN PAYABLE – STOCKHOLDER
 
 As of March 31, 2011, loan payable - stockholder primarily consisted of development advances provided by RBL, a company under common control, on behalf of the Company and is payable on demand, with interest at 12%, per annum.
  11. COMMON STOCK
 
 Reverse Stock-Split
 
 On July 19, 2010, effective August 2, 2010, the Board of Directors authorized a one-for-five reverse stock-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.
 
 Common and Preferred Shares
 
 In November 2010, the Company sold 20,000 shares of common stock to an investor, valued at $5,000, an average of $0.25, per share.
 
 For the nine months ended March 31, 2011, the Company issued 407,318 shares of common stock for legal services rendered, valued at $150,000, an average of $.37, per share, the value of the service provided.
 
 12
 
 For the nine months ended March 31, 2011, the Company issued an aggregate of 460,401 shares of common stock for consulting services rendered, valued at 128,500, an average of $.28, 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.
 
 For the nine months ended March 31, 2011, the Company issued 40,000 shares of common stock to board members for services rendered, valued at $9,600, an average of $.24, per share, the value of the service provided.
 
 For the nine months ended March 31, 2011, the Company issued 564,494 shares of common stock for debt settlement, valued at $232,786, an average of $.41, per share.
 
 For the nine months ended March 31, 2011, the Company issued 600,000 shares of common stock for debt settlement to stockholder, valued at $120,000, an average of $.20, per share.
  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%.
 
 12. NONCONTROLLING INTEREST
 
 As of March 31, 2011, the noncontrolling interest of Gaming was 25%.
 
 13. INCOME TAXES
 
 As of March 31, 2011, management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements.
 
 14. 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 others in the amount of $5,000,000 pursuant to the termination of a development agreement for Dayton. In March 2011, a notice of the default was entered against the Company. The Company has filed an answer and a counterclaim and will defend against this action. The Company can provide no assurance as to the likelihood of the outcome as the matter is in its early stages.
  On October 25, 2010, an action was filed against the Company, RBL and a former employee, collectively, the Defendants. The Plaintiff alleges that as a condition to their purchase of 1,200,000 shares of the Company's 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 RBL, whereby RBL 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 has filed an answer and a counterclaim and will defend against this action. The Company can provide no assurance as to the ultimate outcome of this action.
 
 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.
  13
 15. SUBSEQUENT EVENTS
 
 Authorized shares
 
 On April 20, 2011, the Stockholders authorized an increase the number of authorized common shares from 20,000,000 to 75,000,000, $0.001, par value, and authorized 5,000,000 preferred shares, $.01, par value, subject to Board of Directors designation.
 
 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 antidilution 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.
 
 Preferred Stock
 
 In April and June, 2011 the Company sold 190 Series A shares and 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.
 
 Warrants
 
 On June 23, 2011, in connection with the Company’s sale of 190 Series A shares, the Company issued to the selling agent warrants to purchase 158,000 shares of the Company's common stock, exercisable through June 23, 2016, at $0.10, per share, as defined.
 
 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. The Plan shall terminate after ten years.





14





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 10Q 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 insuranceChanges 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.





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.




15




Overview





Gulfport Project





Rotate Black, Inc. (“Rotate Black” or the “Company” ”We” ”Us” “Our”) was incorporated in Nevada on August 2, 2006. The Company’s primary focus, since January 2010, is the management of a gaming casino and amenities in Gulfport, Mississippi (“Gulfport Project”) under a management agreement with our affiliate, Rotate Black MS, LLC (“RBMS”), a Mississippi limited liability company.  Our President and Chief Operating Officer, Dual Cooper, also serves as the Chief Executive Officer of RBMS and will oversee the development and management of the Gulfport Project. Dual has over 30 years of gaming experience on both the development and operations side of the business and he has over seven years of experience as a senior executive officer of various gaming operations in the Gulf Coast. He served as President, CEO or General Manager of 20 properties during their development. He has held executive positions at the following casinos, among others: Tulalip Casino, Pechanga Entertainment Center, Casino Magic Corp., Desert Inn, Bally’s Las Vegas and Morongo Casino Resort.





The Gulfport Project site is located on approximately nine and a half (9.5) acres of land adjacent to the small craft harbor at the Bert Jones Yacht Basin in Gulfport, MS.  The site offers exceptional Gulf of Mexico and city views.  It will have easy access from US 90 as well as direct access from I-10 via the Central Harrison County Connector Highway currently under construction by the State of Mississippi. In addition, the site is directly adjacent to the newly renovated Joseph T. Jones Memorial Park (“Jones Park”). Jones Park is the largest public park on the Gulf Coast and is undergoing a three phase restoration including green spaces, gardens, pavilions, water features, as well as art and entertainment facilities.





As of November 19, 2010, RBMS has: (a) entered into two ground leases for the nine and a half acre site, (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.  On July 5, 2011 RBMS received an equity funding commitment by an outside investor for $15 Million and has engaged Citadel Securities, LLC as advisor for the placement of the senior secured debt for the project.




RBMS is developing the Gulfport Project in two phases.  The first phase will include a land-based 57,000 square facility dedicated to gaming and entertainment and an attached 100-room hotel.  The second phase is expected to increase the gaming and entertainment space by an additional 38,000 square feet, add 200 additional hotel rooms and a parking garage.





On October 27, 2010, RBMS and the Company, as manager, entered into a management agreement, effective as of April 1, 2010.  On June 20, 2011 the Company agreed to amend its management agreement with RBMS to facilitate the $15.0 million equity financing.  The management agreement is for ninety-nine (99) years and under the new terms of the management agreement the Company will receive from the closing of the equity financing to the opening date of the Casino, a management fee of $200,000 per month payable the 10th day of every month. In addition, the management fee that is payable prior to the opening of the casino shall never exceed $1,000,000 in total.





Upon the opening of the casino, the monthly ongoing management fee will be 2% of monthly net revenues plus 5% of the monthly EBTDAM up to $1 million of monthly EBTDAM plus 10% of the monthly EBTDAM above $1 million monthly EBTDAM.  The monthly ongoing management fee will not exceed $300,000 in any month.  The monthly ongoing management fee will always be payable the 10th day of each month based on the prior month’s EBTDAM.





In connection with the finalization of funding, the Company anticipates revising the management agreement.





Retirement of Debt





The Company’s initial strategy for its Gulfport Project was to purchase an existing gaming vessel, move the vessel to the Gulfport Project site, and build amenities on that site to support the gaming vessel.  In its effort to execute that strategy, we purchased the “Big Easy” gaming for an aggregate purchase price of $4,264,500, payable by issuance of a secured note payable to the seller of $2,975,000, issuance of an unsecured note payable to the seller of $600,000, fees of $414,500 and cash of $275,000.




16




On July 15, the noteholder agreed to forever waive all claims against the Company and its guarantor, John Paulsen, the Company’s CEO including but not limited to the principal and interest on the promissory note. In consideration, the Company agreed to issue to the seller: (1) 500,000 shares of our common stock, (2) warrants to purchase shares of our common stock priced at $0.40 per share, immediately exercisable, (3) 205 Common “B” Units of RBMS (out of 100,000 authorized), (4) warrants to purchase 375 common “B” Units in RBMS, at $0.01 per unit, exercisable as defined in the warrant agreement and (5) an administration fee of $5,000 per month in cash for 36 months starting with the first month of operations of the Gulfport Project casino.





In addition, the Board has approved a resolution that will enable Management to negotiate and retire any outstanding debt by issuing stock to the applicable creditor(s) at $0.20, per share.





Catskill, NY





We own 75% of our subsidiary, Rotate Black Gaming, Inc., which has been developing the Gaming Project under development and management agreements.





On July 1, 2010, the Company entered into an agreement to sell our 75% of the common stock of Gaming to Catskills Gaming and Development, LLC (Catskill) for an aggregate consideration of $21,000,000 in cash and the assumption indebtedness of $6,300,000. The Seneca Nation notified Catskill that any further discussions pertaining to gaming development in the Catskills Region of New York is premature until the United States imposed moratorium on the acquisition of lands in trust for new Indian gaming facilities has been lifted.





Gaming has filed a notice of breach of the Management and Development Agreements with the Nation in response to the notification to Catskill and has also commenced a binding arbitration proceeding under their Development and Management Agreements with the Nation, seeking $21 million in actual damages and $350 million in lost profits. The Company believes that it will recover its carrying value either through:  (1) the arbitration, (2) the proposed sale or (3) by continuing to develop and manage the Gaming Project.





Edmonton, Alberta





On January 11, 2011, our wholly-owned subsidiary, 3176797 Canada Ltd. entered into a management agreement (Agreement), as manager, with the Bear Hills Charitable Foundation, Bear Hills Casino Inc., the Louis Bull Tribe and 677626 Alberta Ltd. for a proposed casino and entertainment destination on the Louis Bull Indian Reserve near Edmonton, Canada.  The term of the Agreement commences on the date the Bear Hills Charitable Foundation receives a license for the proposed casino and all related necessary approvals from the Alberta Gaming and Liquor Commission and shall continue for a term which shall be the greater of twenty years or when all monies advanced by us to the Bear Hills Charitable Foundation, Bear Hills Casino, Inc., the Louis Bull Tribe and 677626 Alberta Ltd., relating directly or indirectly to the casino project are repaid in full or for such other term agreed to by the parties.





We will be entitled to receive thirty percent of the revenues distributed to the Bear Hills Charitable Foundation, Bear Hills Casino Inc., the Louis Bull Tribe and 677626 Alberta Ltd. from the operations of the slot revenue and live games.  In addition, the Manager is entitled to thirty percent of all profits from any other businesses or activities on the property provided by the Louis Bull Tribe and its affiliates and thirty of all profits on any amenities or services supporting or related directly or indirectly to the casino.





The Louis Bull Tribe and the Company are scheduled to meet with the Alberta Liquor and Gaming Commission in September, 2011. The purpose of this meeting is to secure an approval to proceed from the Commission.





Panama Project





On March 17, 2011 the Company entered into an agreement (the “Agreement”) for a proposed joint venture, Blue Water Gaming and Entertainment S.A. (Blue Water), with Ocean Point Development Corp. (“Ocean Point”) and Renaissance Gaming, LLC (“Renaissance ”).  The purpose of the joint venture is to develop and manage an approximately 52,000 square foot Las Vegas style casino at the Trump Ocean Club International Hotel and Tower, in Panama City, Panama (“Trump Ocean Club”).




17




Under the Agreement, Ocean Point shall transfer the certain rights to Blue Water in exchange for $24 million of preferred units and forty-nine percent (49%) of the fully diluted common units of Blue Water at closing. Renaissance  has secured an investment partner that will provide $14 million to Blue Water in exchange for $14 million of preferred units and thirty-five percent (35%) of the fully diluted common units of Blue Water. The Company is continuing to work with Renaissance and its investment partner to secure the $14 million in agreed upon funds.





Discontinued Projects





As of December 31, 2010, the Company has decided not to pursue the Dayton, Nevada and Life O2 Oxygenated Water projects and has placed India (Rotate Black India Pvt LTD) on hold. All of the carrying amounts have been written-off. A complaint has been filed against the Company related to the Dayton project. SeePart II, Legal Proceedings.





Results of Operations





On April 1, 2010, the Company commenced operation under the Gulfport Project management agreement and was no longer a development stage company.





All of our revenue is generated from this management agreement with RBMS for the development of a casino in Gulfport, Mississippi.





Three Months Ended March 31, 2011, Compared to Three Months Ended March 31, 2010





Revenue





For the three months ended March 31, 2011, 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 Ended March 31,2011


2010


Increase/(decrease)


PercentSalary expense


161,033



48,399



112,634



233
%Stock-based compensation


-



112,500



(112,500
)


(100
%)General and administrative expenses


176,635



562,382



(385,747
)


(69
%)Interest expense


186,093



2,803



183,290



6539
%Total expenses

$
523,761


$
726,084


$
(202,323
)


(28
%)





Salary Expense.  For the three months ended March 31, 2011, salary expenses increased $112,634, or 233% as compared to the three months ended March 31, 2010.  Salary expense for the three months ended March 31, 2011, consisted of wages for our CEO, COO and controller and health insurance. The increase was primarily attributable to salaries earned by employees.





Stock-based compensation.  For the three months ended March 31, 2011, stock based compensation decreased $112,500, or 100%, as compared to the comparable prior year period. The decrease was the result of legal and consulting services paid by stock during the 2010 period.




General and administrative expenses.  General and administrative expenses decreased by $385,747, or 69%, for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010, resulting from decreases in outside services, travel and other expenses.




18




Interest expense. For the three months ended March 31, 2011, interest expense was $186,093, an increase of $183,290 as compared to interest expense of $2,803 for the three months ended March 31, 2010.  The increase in interest expenses was primarily the result of the acquisition of the Big Easy vessel for our Gulfport project and the mortgage associated with it.





Net Income (loss)





Net income for the three months ended March 31, 2011 was $76,239 as compared to net loss of $726,084 for the three months ended March 31, 2010. This increase in income is due to the monthly management fee paid to the Company by RBMS which commenced in 2011.





Nine Months Ended March 31, 2011, Compared to Nine Months Ended March 31, 2010





Revenue





For the nine months ended March 31, 2011, total revenue was $1,800,000, 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





Nine Months Ended March 31,2011


2010


Increase/(decrease)


PercentSalary expense


235,642



184,946



50,696



27
%Stock-based compensation


124,600



287,500



(162,900
)


(57
%)Stock issued for interest


26,000



-



26,000



100
%General and administrative expenses


942,675



852,113



90,562



11
%Write-off of investment






139,782



(139,782
)


(100
%)Forgiveness of accounts payable and accrued expenses






49,145



(49,145
)


(100
%)Interest expense


349,554



21,212



328,342



1548
%Total expenses

$
1,678,471


$
1,534,698


$
143,773



10
%




Salary Expense.  For the nine months ended March 31, 2011, salary expenses increased $50,696, or 27%, as compared to the prior year period.  Salary expense for the nine months ended March 31, 2011, consisted of wages for our CEO, COO and controller and health insurance. The increase was primarily attributable to the salaries earned by the CEO and COO.





Stock-based compensation.  For the nine months ended March 31, 2011, stock based compensation decreased $162,900, or 57%, as compared to the prior year period. The decrease was related to a decrease in legal and consulting services.





Stock issued for interest.  For the nine months ended March 31, 2011, stock issued for interest was $26,000, as compared to none for the prior year.  Stock issued for interest was related to a bridge loan by one of our investors in 2011.





General and administrative expenses.  General and administrative expenses increased by $90,562, or 11%, for the nine months ended March 31, 2011 as compared to the nine months ended March 31, 2010, resulting from increases in outside services, travel, depreciation, insurance and other expenses related to the current development project in Gulfport Mississippi and Edmonton, Alberta.





Write-off investment in joint venture.  For the nine months ended March 31, 2010, write-off investment in joint venture was $139,782 and was related to our discontinued India project.




Forgiveness of accounts payable and accrued expenses.  Forgiveness of accounts payable and accrued expenses was $49,145 for the nine months ended March 31, 2010 and was related to accounting services.




19




Interest expense. For the nine months ended March 31, 2011 was $349,554 as compared to $21,212 for the nine months ended March 31, 2010. This increase of $328,342 was the result of the acquisition of the Big Easy vessel for our Gulfport project and the mortgage associated with it.





Net income (loss)





Net income for the nine months ended March 31, 2011 was $144,467 compared to a net loss of $1,524,515 for the nine months ended March 31, 2010. This increase in net income is due to the monthly management fee paid to the Company by RBMS which commenced in 2011.





Liquidity and Capital Resources





At March 31, 2011, we had negative working capital of $6,174,409 as compared to negative working capital of $2,282,731 at March 31, 2010.  The increase in negative working capital is primarily the result of the reclassification of the assets to be disposed from current to noncurrent of $4,093,328.





Cash Flows from Operating Activities.  Net cash provided from operating activities increased by approximately $1,897,895 over the prior year period resulting primarily from an increase in net income of $1,656,227 in 2011 as compared to the 2010 period, 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 $856,058, resulting primarily from our increased investment in RBMS of $1,235,520.





Cash Flows from Financing Activities.  Net cash provided by financing activities decreased by approximately $1,030,621, resulting primarily from a decrease of $808,931 from proceeds received from the sale of our common stock in 2011 and the decrease of $331,602 of proceeds from loan payable - stockholder, offset by the increase in notes payable of $109,350.





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 May 16, 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.





In April and June, 2011 the Company sold 190 Series A shares and 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.





Off-balance Sheet Arrangements





The Company has no off-balance sheet arrangements.




20




Impact of Inflation





We believe that inflation has not had a material impact on our results of operations for the period ended March 31, 2011. 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.




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 March 31, 2011, 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 March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Subsequent to March 31, 2011, we hired a controller under our plan to upgrade our procedures and controls.




21




PART II. OTHER INFORMATION





ITEM 1:  LEGAL PROCEEDINGS





On February 23, 2010, a complaint has been filed in Third Judicial Court of the State of Nevada by SMC Construction Co., Inc. and others against the Company, RBL and others in the amount of $5,000,000 pursuant to the termination of a development agreement for Dayton. In March 2011, a notice of the default was entered against the Company.  The Company has filed an answer and a counterclaim and will defend against this action.





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 a former employee, 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 has filed an answer and a counterclaim and will defend against this action. The Company can provide no assurance as to the ultimate outcome of this action.





On February 2, 2011, Gaming filed a notice of breach of the Management and Development Agreements with the Seneca Nation of Indians in in response to the notification to Catskill. Gaming has also commenced a binding arbitration proceeding under their Development and Management Agreements with the Nation, seeking $21 million in actual damages and $350 million in lost profits.




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




None of the transactions described below involved any underwriters, underwriting discounts or commissions, except as specified below, or any public offering, and the registrant believes that, except as set forth below, each transaction was exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. All recipients had adequate access, though their relationships with the registrant, to information about the registrant.




For the nine months ended March 31, 2011, the Company sold 20,000 shares of common stock to an investor, valued at $5,000, an average of $0.25, per share.




For the nine months ended March 31, 2011, the Company issued 407,318 shares of common stock for legal services rendered, valued at $150,000, an average of $.37, per share, the value of the service provided.




For the nine months ended March 31, 2011, the Company issued an aggregate of 460,401 shares of common stock for consulting services rendered, valued at 128,500, an average of $.28, per share, the value of the service provided.




For the nine months ended March 31, 2011, the Company issued 40,000 shares of common stock to board members services rendered, valued at $9,600, an average of $.24, per share, the value of the service provided.




For the nine months ended March 31, 2011, the Company issued 564,494 shares of common stock for debt settlement, valued at $232,786, an average of $.41, per share.




For the nine months ended March 31, 2011, the Company issued 600,000 shares of common stock for debt settlement to stockholder, valued at $120,000, an average of $.20, per share.




22





ITEM 3:  DEFAULTS UPON SENIOR SECURITIES





Since September 17, 2010, the secured note payable and the unsecured note payable to the seller of the gaming vessel of $2,975,000 and $600,000 have been in default and the interest rate was increased to 20%, per annum.





On July 15, 2011, the seller of the gaming vessel agreed to forever waive any and all claims against the Company and its guarantor, including, but not limited to the principal and interest. In consideration, the Company agreed to issue to the seller: (1) 500,000 shares of the Company’s common stock, (2) warrants to purchase 500,000  shares of the Company’s common stock at $0.40, per share, immediately exercisable, (3) 205 Common “B” Units  of RBMS of 100,000 to be authorized, (4) warrants to purchase 375 units of Common “B” Units of RBMS, at $0.01, per unit,  exercisable pursuant to the warrant agreement and (5) an administration fee of $5,000, per month, payable in cash for 60 months commencing with the first month of operations of the Gulfport Project casino.  This agreement is subject to completing the financing for RBMS and court approval.





ITEM 4:  OTHER INFORMATION





None.





ITEM 5:  EXHIBITS





20.1
Rotate Black, Inc. Stock Option Plan*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





23




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 August 9, 2011.





Rotate Black, Inc.By:
/s/ John PaulsenJohn Paulsen, Chairman, CEO and CFO(Principal Executive Officer and Principal Financial Officer)