<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 25, 1996
AMERICAN WAGERING, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter).
Nevada 000-20685 88-0344658
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission IRS Employer
of incorporation File Number) Identification No.)
or organization)
675 Grier Drive, Las Vegas, Nevada 89119
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (702) 735-0101
<PAGE>
EXPLANATORY NOTE:
On October 25, 1996, the Registrant, American Wagering, Inc., a Nevada
corporation (the "Company"), acquired from Autotote Corporation, a Delaware
corporation ("AC"), all of the outstanding shares of capital stock ("Shares") of
Autotote CBS, Inc., a Nevada corporation ("CBS"), pursuant to a Stock Transfer
Agreement between the Company and AC, and the right to use certain software
owned by AC and Autotote Systems, Inc., a Delaware corporation ("ASI"), useful
in CBS's business ("License") pursuant to a Technology Cross License Agreement,
as amended, among CBS, AC and ASI. CBS designs, installs and provides sports and
race book equipment, software, including the MEGASPORTS (R) product for
pari-mutuel sports wagering, and computer systems to the sports betting industry
and owns the real estate and building in Las Vegas, Nevada where the Company
currently maintains its corporate offices.
As consideration for the Shares and License the Company paid $3 million in cash
from its working capital to AC and agreed to guarantee pursuant to a Guaranty
Agreement CBS's obligation under its current mortgage of approximately $2
million on the real estate and building.
Simultaneously with the execution of the Stock Transfer Agreement, (i) ASI
appointed CBS as its distributor in Nevada of ASI products, including Probe
terminals, MKII terminals, videocards, communication devices and pari-mutuel
race systems ("Distribution Products") pursuant to an Authorized Exclusive
Distributorship Agreement between them ("Distributorship Agreement"); (ii) ASI
granted CBS the right under certain conditions, to manufacture video gaming
machines, Distribution Products pursuant to a Manufacturing Agreement between
them ("Manufacturing Agreement") and (iii) CBS and ASI agreed to cooperate in
pursuing business relating to international sports and pari-mutuel wagering
pursuant to an International Cooperation Agreement between them ("International
Agreement").
The terms of the Stock Transfer Agreement, including the agreement with respect
to consideration, were arrived at pursuant to arms-length negotiations between
representatives of the Company, on the one hand, and representatives of AC, on
the other hand. The transaction was approved by the Company's Board of Directors
on October 25, 1996.
On November 8, 1996, the Company filed with the Securities and Exchange
Commission (the "Commission") a Report on Form 8-K (the "Initial 8-K Report")
with respect to the Company's acquisition of the stock of Autotote CBS, Inc.
Pursuant to clause (a)(4) of Item 7 of Form 8-K, the Initial 8-K Report did not
include the historical CBS financial statements and the pro forma financial
information of the Company (the "Financial Information") and instead contained
an undertaking to file the Financial Information with the Commission in an
amendment to the Initial 8-K Report as soon as practicable, but not later than
January 7, 1997. This amendment is being filed for the purpose of satisfying the
Company's undertaking to file the Financial Information, and this amendment
should be read in conjunction with the Initial 8-K Report.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of the Business Acquired.
The balance sheets of CBS as of October 31, 1995 and as of
October 24, 1996, and the related statements of income,
stockholders' equity and cash flows for the year ended October
31, 1995 and for the period from November 1, 1995 to October
24, 1996, together with the related notes and audit report of
Arthur Andersen LLP, are set forth below.
(b) Pro Forma Financial Information.
Set forth below are the following unaudited pro forma
financial statements:
1. Introduction to Pro Forma Financial Statements.
2. Pro Forma Condensed Statement of Income of the Company for
the Nine Month Period October 31, 1996.
3. Pro Forma Condensed Statement of Income of the Company for
the Year Ended January 31, 1996.
4. Notes to Pro Forma Financial Statements.
(c) Exhibits.
None.
<PAGE>
Item 7.(a) Financial Statements of the Business Acquired
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Autotote CBS, Inc.:
We have audited the accompanying balance sheets of Autotote CBS, Inc. (a Nevada
corporation) (the "Company") as of October 24, 1996 and October 31, 1995, and
the related statements of income, stockholders' equity and cash flows for the
period from November 1, 1995 to October 24, 1996 and the for year ended October
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Autotote CBS, Inc. as of
October 24, 1996 and October 31, 1995, and the results of its operations and its
cash flows for the period from November 1, 1995 to October 24, 1996 and for the
year ended October 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
December 20, 1996
<PAGE>
AUTOTOTE CBS, INC.
BALANCE SHEETS
AS OF OCTOBER 31, 1995 AND OCTOBER 24, 1996
<TABLE>
<CAPTION>
ASSETS
October 31, October 24,
1995 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 334,535 $ 162,531
Accounts receivable (net of allowances for
uncollectible accounts of $46,400 and $27,000
as of October 31, 1995 and October 24,
1996, respectively) 831,932 397,551
Current portion of note receivable 93,269 93,269
Inventory 322,000 157,550
Rent receivable from affiliate 39,366 71,413
Prepaid expenses and other 212,420 76,596
---------- ----------
Total current assets 1,833,522 958,910
PROPERTY AND EQUIPMENT, net 3,414,789 3,349,136
INVESTMENT IN JOINT VENTURE 74,452 101,173
NOTE RECEIVABLE, net of current portion 227,649 108,575
INTERCOMPANY RECEIVABLE 1,328,405 --
INTANGIBLE AND OTHER ASSETS 1,649,609 1,301,280
---------- ----------
$8,528,426 $5,819,074
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of mortgage note payable $ 44,990 $ 48,402
Accounts payable 198,280 76,009
Accrued expenses 272,507 416,964
Customer deposits 43,880 50,800
---------- ----------
559,657 592,175
---------- ----------
DEFERRED INCOME TAXES 50,109 67,847
---------- ----------
MORTGAGE NOTE PAYABLE, less current portion 2,047,854 2,003,345
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Capital stock -- $.01 par value; authorized
250,000 shares; issued and outstanding: 100 shares 1 1
Additional paid-in capital 499,999 499,999
Retained earnings 5,370,806 2,655,707
---------- ----------
Total stockholders' equity 5,870,806 3,155,707
---------- ----------
$8,528,426 $5,819,074
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUTOTOTE CBS, INC.
STATEMENTS OF INCOME
FOR THE YEAR ENDED OCTOBER 31, 1995
AND THE PERIOD FROM NOVEMBER 1, 1995 TO OCTOBER 24, 1996
October 31, October 24,
1995 1996
----------- -----------
REVENUES:
Equipment and supplies $ 3,468,669 $ 1,914,069
Maintenance fees 1,744,206 1,809,416
Equipment rentals 213,071 88,329
Other 406,154 315,346
----------- -----------
Total revenues 5,832,100 4,127,160
----------- -----------
COSTS AND EXPENSES:
Cost of product sales and maintenance fees 2,843,950 2,308,577
Selling, general and administrative 1,220,334 1,181,252
Depreciation and amortization 258,683 259,957
Write off of investment, intangible
and other assets 681,701 258,369
----------- -----------
Total costs and expenses 5,004,668 4,008,155
----------- -----------
Income from operations 827,432 119,005
OTHER INCOME (EXPENSE):
Interest and other income 38,399 34,901
Interest expense (42,745) (156,643)
Rent income from affiliate 54,306 213,040
Equity in loss of joint venture (197,078) (112,602)
----------- -----------
Total other income (147,118) (21,304)
----------- -----------
Income before intercompany
charge in lieu of income taxes 680,314 97,701
INTERCOMPANY CHARGE IN
LIEU OF INCOME TAXES 238,110 123,268
----------- -----------
Net income (loss) $ 442,204 $ (25,567)
----------- -----------
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUTOTOTE CBS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED OCTOBER 31, 1995
AND THE PERIOD FROM NOVEMBER 1, 1995 TO OCTOBER 24, 1996
<TABLE>
<CAPTION>
Capital Stock Additional
-------------------- Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1994 100 $ 1 $ 499,999 $ 4,928,602 $ 5,428,602
Net income -- -- -- 442,204 442,204
----------- ----------- ----------- ----------- -----------
Balance, October 31, 1995 100 1 499,999 5,370,806 5,870,806
Net (loss) -- -- -- (25,567) (25,567)
Dividends paid to
parent -- -- -- (2,689,532) (2,689,532)
----------- ----------- ----------- ----------- -----------
Balance, October 24, 1996 100 $ 1 $ 499,999 $ 2,655,707 $ 3,155,707
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUTOTOTE CBS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1995
AND THE PERIOD FROM NOVEMBER 1, 1995 TO OCTOBER 24, 1996
<TABLE>
<CAPTION>
October 31, October 24,
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 442,204 $ (25,567)
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization expense 258,683 259,957
Equity in loss of joint venture 197,078 112,602
Write off of investment, intangible and other assets 635,279 254,494
Provision for bad debts (335) (13,604)
Inventory reserve 36,683 32,429
Property reserve 46,422 3,875
Deferred income taxes 31,750 35,878
Intercompany charge - current tax provision 206,360 87,390
Change in assets and liabilities Decrease (increase) in:
Accounts receivable 302,649 447,985
Inventory (3,427) 132,021
Rent receivable from affiliate (39,366) (32,047)
Prepaid expenses and other (187,858) 117,801
Increase (decrease) in:
Accounts payable 167,585 (122,271)
Accrued expenses (1,219,019) 144,457
Customer deposits (39,453) 6,920
----------- -----------
Cash flows provided by operating activities 835,235 1,442,320
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (212,655) (104,344)
Net contributions to unconsolidated joint venture (436,295) (26,721)
Decrease (increase) in intercompany receivable 303,719 (1,561,236)
Expenditures capitalized as intangible assets (173,332) --
----------- -----------
Cash flows used in investing activities (518,563) (1,692,301)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments received on notes receivable -- 119,074
Issuances of notes receivable (320,918) --
Repayment of notes payable (7,156) (41,097)
----------- -----------
Cash flows (used in) provided by financing activities (328,074) 77,977
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,402) (172,004)
CASH AND CASH EQUIVALENTS, beginning of year 345,937 334,535
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 334,535 $ 162,531
=========== ===========
</TABLE>
(Continued)
<PAGE>
AUTOTOTE CBS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1995
AND THE PERIOD FROM NOVEMBER 1, 1995 TO OCTOBER 24, 1996
(Continued)
<TABLE>
<CAPTION>
October 31, October 24,
1995 1996
---------- -----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 14,000 $ 166,100
---------- -----------
Purchase of building with debt $2,100,000 $ --
---------- -----------
Non-cash dividend to Autotote Corporation $ -- $2,689,532
---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AUTOTOTE CBS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Autotote CBS, Inc., a Nevada corporation (the "Company" or "CBS"), is a
wholly-owned subsidiary of Autotote Corporation ("AC"). CBS is principally
engaged in providing hardware and software products to licensed race and sports
book operations in the State of Nevada.
On October 25, 1996, American Wagering, Inc., a Nevada corporation ("AWI"),
acquired from Autotote Corporation all of the outstanding shares of capital
stock ("Shares") of the Company pursuant to a Stock Transfer Agreement between
AWI and AC, and the right to use certain software owned by AC and Autotote
Systems, Inc. ("ASI"), a sister corporation wholly-owned by AC, in the Company's
business pursuant to a Technology Cross License Agreement, among CBS, AC and ASI
(the "License"). At the purchase date, the Company changed its name to
Computerized Bookmaking Systems, Inc.
As consideration for the Shares and License, AWI paid $3 million in cash to AC
and agreed to guarantee, pursuant to a Guaranty Agreement, the Company's
obligation under its current mortgage of approximately $2 million on the
underlying real estate and building.
Simultaneous with the execution of the Stock Transfer Agreement, ASI appointed
CBS as its distributor in Nevada of ASI products, including Probe terminals,
MKII terminals, videocards, communication devices and pari-mutuel race systems
("Distribution Products") pursuant to an Authorized Exclusive Distributorship
Agreement ("Distributorship Agreement"). Pursuant to the Distributorship
Agreement, prices for products excluding terminals will be the Cost (as defined)
to AC or ASI plus a 25 percent mark-up. Additionally, terminals are to be
purchased at prescribed costs as stated in such agreement. The Distributorship
Agreement results in product pricing in excess of what was historically paid
while CBS was under common ownership with ASI. In addition, ASI granted CBS the
right, under certain conditions, to manufacture video gaming machines and
Distribution Products pursuant to a Manufacturing Agreement. Finally, CBS and
ASI agreed to cooperate in pursuing business relating to international sports
and pari-mutuel wagering pursuant to an International Cooperation Agreement.
AC and its subsidiaries have entered into certain non-competition provisions
with respect to the Company which include, among other requirements, a provision
that for a period of five years after the closing date and thereafter during the
continuation of the Distributorship Agreement, AC and subsidiaries are
prohibited from directly or
<PAGE>
indirectly competing with the Company in the operation of its pari-mutuel racing
businesses which have been and will be conducted in Nevada and in the operation
of its race and sports book or pari-mutuel sports wagering businesses, anywhere
in the world.
2. Summary of Significant Accounting Policies
a. Revenue Recognition
The Company recognizes revenue when the software and hardware are
installed at the customer location. Maintenance fee revenue is
recognized as the services are provided.
b. Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Such
investments are carried at a cost which approximates market value.
c. Inventories
Inventories are stated at the lower of cost (based on the first-in,
first-out method) or market. Costs capitalized as inventory include
direct labor and materials. Inventories consisted of the following at
October 31, 1995 and October 24, 1996:
October 31, October 24,
1995 1996
---------- ------------
Raw material components $ 6,841 $ 22,722
Work in process 50,491 --
Finished goods 278,234 149,128
Spare parts 155,200 122,037
--------- ---------
490,766 293,887
Less: obsolescence reserve (168,766) (136,337)
--------- ---------
$ 322,000 $ 157,550
========= =========
Spare parts represents inventory needed to service systems under
maintenance agreements.
-2-
<PAGE>
d. Property and Equipment
Property and equipment is recorded at cost. Depreciation of property
and equipment is provided using the straight line method over the
following estimated useful lives of the related assets:
Life in
Years
-------
Building 39
Furniture and equipment 5-7
Vehicles 5-7
e. Federal Income Taxes
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 109, "Accounting for Income Taxes," effective November 1, 1993.
Under SFAS 109, income taxes are calculated using the asset and
liability method. Under the asset and liability method, deferred income
taxes are calculated by applying enacted statutory tax rates to
cumulative temporary differences between financial statement carrying
amounts and tax bases of existing assets and liabilities.
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
g. Concentration of Risk
The Company derives a substantial portion of its revenues from a
limited number of licensed race and sports books in the State of
Nevada. Limitations on the scope of operations at such licensed race
and sports books due to statutory or regulatory changes or
deterioration in the general economic conditions which impact the
gaming industry in Nevada could adversely affect the Company's
operating results.
The Company purchases substantially all of its inventory for resale
from ASI and is dependent on ASI for its future inventory supply. Any
interruption in the Company's relationship with ASI could have a
negative impact on the Company's ability to obtain inventory on
comparable terms and provide uninterrupted service to its customers.
-3-
<PAGE>
3. Property and Equipment
Property and equipment consisted of the following at October 31, 1995 and
October 24, 1996:
October 31, October 24,
1995 1996
------------- -------------
Building $ 2,500,783 $ 2,546,206
Furniture and equipment 600,113 659,680
Vehicles 65,717 65,717
Less: accumulated depreciation (217,649) (388,292)
----------- -----------
2,948,964 2,883,311
Land 465,825 465,825
----------- -----------
$ 3,414,789 $ 3,349,136
=========== ===========
4. Investment in Joint Venture
On January 24, 1994, Autotote Systems, Inc. entered into a joint venture with
IGT-North America ("IGT"). ASI and IGT each owned a fifty percent interest in
the joint venture company which was named MegaSports, Inc., a Nevada corporation
("MegaSports"). MegaSports is an enterprise in the development stage and is
engaged in the design, manufacture and distribution of a pari-mutuel sport
wagering system. On April 27, 1994, ASI's interest in MegaSports was assigned to
the Company.
The Company's investment in joint venture balance in the accompanying balance
sheets have arisen primarily through contributions of property, equipment and
programming services. In 1995, the Company put on hold indefinitely pursuing the
licensing of the MegaSports software in the State of Nevada. As a result of this
decision, the Company determined that $202,774 of previously contributed costs,
consisting primarily of programming services, would not be realizable and,
accordingly, wrote down its investment in joint venture balance related to these
costs.
5. Intangible and Other Assets
Intangible and other assets consisted of the following at October 31, 1995 and
October 24, 1996:
October 31, October 24,
1995 1996
----------- ------------
Goodwill $1,498,846 $1,201,810
Loan fees 91,348 86,828
Product development costs 59,415 12,642
---------- ----------
$1,649,609 $1,301,280
---------- ----------
Goodwill arose in connection with AC's original acquisition of the Company in
1989 and is being amortized over a 40 year period. In connection with the
acquisition of the Company by AWI, the Company wrote down the goodwill balance
at October 24, 1996 by $254,000 which represents the difference between the
purchase price of $3,156,000 and the book value of net assets acquired.
Capitalized loan fees associated with the building mortgage note are being
amortized over the related term of the mortgage. The
-4-
<PAGE>
Company has capitalized the cost of developing certain software it sells to
customers in accordance with Statement of Financial Accounting Standards No. 86
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." These costs are amortized based on estimated future revenues, but not
less than straight-line amortization over the remaining economic life of the
software.
In 1995, the Company put on hold indefinitely pursuing its application for a
gaming license in the State of Nevada and, accordingly, the Company wrote-off
approximately $323,500 of previously capitalized costs incurred in conjunction
with this pursuit. This amount is included in the write off of investment and
other assets in the accompanying statements on income.
6. Accrued Expenses
Accrued expenses consisted of the following at October 31, 1995 and October 24,
1996:
October 31, October 24,
1995 1996
--------- ------------
Accrued 401(k) payable - employer $ 52,879 $ 50,791
Accrued salaries 60,300 37,270
Accrued vacation 75,297 61,815
Accrued employment contract - 217,000
Other 84,031 50,088
--------- ------------
$ 272,507 $ 416,964
========= ============
7. Mortgage Note Payable
In September 1995, the Company financed the acquisition of its office building
by entering into a $2.1 million mortgage note payable. The mortgage note payable
carries interest at an 8 percent fixed rate and matures in September, 2015. The
amount due under the mortgage note payable is collateralized by a first deed of
trust on the building.
As of October 24, 1996 the Company's mortgage note payable matures as follows:
1997 $ 48,402
1998 52,418
1999 55,947
2000 61,413
2001 66,510
Thereafter 1,767,057
-----------
2,051,747
Less: current portion (48,402)
-----------
$ 2,003,345
===========
-5-
<PAGE>
8. Income Taxes
The Company has been included in the consolidated tax returns of Autotote
Corporation. In accordance with a tax sharing agreement with Autotote
Corporation, the Company provides for an intercompany charge in lieu of income
taxes for its current and deferred taxes at a rate of 35 percent. Items
considered non-deductible for tax purposes consist of goodwill amortization and
the write down of goodwill disclosed in Note 5.
The provision (benefit) for federal income taxes consisted of the following:
October 31, October 24,
1995 1996
--------- ---------
Current $ 206,360 $ 87,390
Deferred 31,750 35,878
--------- ---------
$ 238,110 $ 123,268
========= =========
The tax effect of significant temporary differences representing deferred tax
assets and liabilities for the Company is as follows:
October 31, October 24,
1995 1996
---------- ----------
Current Deferred Tax Assets
Inventory obsolescence reserve $ 59,068 $ 47,718
Bad debt allowance 16,240 9,450
--------- ---------
75,308 57,168
--------- ---------
Long-term Deferred Tax Liabilities
Depreciation (50,109) (67,847)
--------- ---------
$ 25,199 $ (10,679)
========= =========
The Company did not record a valuation allowance at October 31, 1995 relating to
recorded tax benefits because all benefits are likely to be realized.
Pursuant to provisions contained in the Stock Transfer Agreement, the applicable
income, deductions and credits for the Company up to and including the closing
date will be included in the consolidated federal income tax returns of AC for
the fiscal year ending October 31, and AC shall pay all federal income taxes
(excluding deferred taxes), attributable to such period.
9. Commitments and Contingencies
The Company has executed long-term employment contracts with five of its
employees. Four of the employees have three-year contracts, commencing in mid
1995, which are automatically renewable each year. These contracts stipulate
that if the employees are terminated other than for cause, the employees are to
receive five percent of their total salaries since their beginning of
employment. Certain of these agreements exempt the employees from non-compete
agreements previously entered into if terminated other than for cause.
-6-
<PAGE>
In March 1996, the Company entered into a guaranteed two year employment
contract with a former officer of the Company. The contract (as amended) states
that the former officer of the Company will receive $155,000 per year. This
former officer resigned his position as an officer effective October 25, 1996
but remained an employee of the Company. The Company has accrued $217,000 to
reflect the liability associated with this employment contract.
Substantially all of the Company's assets are pledged to secure AC's debt. The
Company has also guaranteed a portion of AC's debt. Upon the sale of the Company
to AWI (see Note 1), AC's lender released the Company from its pledge and
guarantee obligations.
The Company has committed to purchase approximately $323,000 of inventory from
ASI as of October 24, 1996.
The Company is the subject of certain lawsuits that arise during the normal
course of business. Management of the Company believes the ultimate outcome of
the lawsuits will not have a material adverse impact on the financial position
or results of operations of the Company.
10. Related Party Transactions
An officer of the Company received a portion of his compensation in fiscal 1995
and 1996 from Leroy's Race and Sports Book ("Leroy's"), currently a wholly-owned
subsidiary of American Wagering, Inc., for whom he also provided substantial
employment services. The officer's compensation was allocated to the two
companies based on the amount of services performed for each company.
In 1995 and 1996, the Company provided certain office space to Leroy's and
MegaSports and other services to Leroy's.
During 1995 and 1996, the Company provided continuing software support for a
customer of ASI. During 1996, the Company provided these services on behalf of
ASI at a rate approximately 40 percent below its normal market prices. During
fiscal 1995, the Company provided these services at no charge to ASI.
During 1995 and 1996, the Company purchased substantially all of its inventory
from ASI.
In 1995 and 1996, the Company was provided with certain liability, property and
health insurance coverages from AC.
Except as indicated above, management believes that transactions between the
Company and Autotote Corporation, Autotote Systems, Inc. and other affiliates of
AC were on terms comparable to those that could be obtained from unaffiliated
parties.
-7-
<PAGE>
11. Dividend to Autotote Corporation
On September 16, 1996, the Board of Directors of the Company declared a dividend
to AC which consisted of the following: (1) the transfer, grant, conveyance,
assignment and quitclaim of the entire right, title and interest of the Company
in and to the Pari-mutuel Tote Software (as defined), including both tangible
and intangible property constituting the Pari-mutuel Tote Services as follows:
(a) all copyright and patent interest throughout the world owned or claimed by
the Company in the Pari-mutuel Tote Software, together with the right to sue
for, settle, or release any past, present or future infringements; (b) title to
and possession of two copies of the media and documentation that constitute the
component parts and copies of the Pari-mutuel Tote Software, and (c) all right,
title and interest owned or claimed by the Company in and to the inventions,
discoveries, improvements, ideas, trade secrets, know-how, confidential
information, and all other intellectual property owned or claimed by the Company
pertaining to the Pari-mutuel Tote Software, but not to the CBS Software (as
defined), and (2) all net intercompany accounts receivable owed by AC to the
Company.
12. Employees' 401 (k) Profit Sharing Plan
The Company offers all its eligible employees participation in the Autotote
Systems, Inc. 401 (k) Retirement Plan for Non-Union Employees (the "Plan"). The
Plan provides for purchases of certain investment vehicles by eligible employees
through annual payroll deductions of up to 10 percent of compensation. Upon
attainment of certain service requirements, the Company contributes 5 percent of
a participant's earnings to the Plan. Participant contributions are always fully
vested. Employer contributions vest pro rata over a five-year period. The
Company had expenses related to the Plan of $50,381 and $56,435 for 1995 and
1996, respectively.
On October 25, 1996, concurrent with the sale of the Company (see Note 1), the
Company discontinued its participation in the Plan.
-8-
<PAGE>
Item 7.(b) Pro Forma Condensed Financial Information
AMERICAN WAGERING, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
Introduction to Pro Forma Condensed Financial Statements
The accompanying pro forma condensed financial statements present pro forma
financial information for American Wagering, Inc. ("AWI") on a consolidated
basis giving effect to the October 25, 1996 acquisition of Autotote CBS, Inc.
("CBS"). Under the terms of the Stock Transfer Agreement, AWI paid $3,000,000 in
cash and incurred other acquisition costs totaling $156,000 for a total purchase
price of $3,156,000 for all of the capital stock of CBS.
American Wagering, Inc. timely filed its Quarterly Report on Form 10-QSB for
the quarter ended October 31, 1996 on December 16, 1996. A consolidated balance
sheet of AWI as of October 31, 1996, including the accounts of Autotote CBS,
Inc. (renamed Computerized Bookmaking Systems, Inc.) since its acquisition on
October 25, 1996, was included in this Form 10-QSB.
The accompanying pro forma condensed statements of income cover the year ended
January 31, 1996 for AWI, the year ended October 31, 1995 for CBS and the twelve
months ended December 31, 1996 for a hotel/casino business acquired by AWI in
fiscal year 1997 in an unrelated transaction. The nine month period for AWI is
for the period ended October 31, 1996 and nine months ended July 31, 1996 for
CBS. Both statements of income have been presented on the assumption that the
acquisition occurred at the beginning of the earliest period presented.
The pro forma condensed financial statements are not necessarily indicative of
the results that will be achieved for future periods as a result of the
combination of AWI and CBS. These pro forma financial statements and the related
notes thereto should be read in conjunction with the historical financial
statements of AWI and CBS.
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American Wagering, Inc.
Pro Forma Condensed Statement of Income
For the Nine Month Period Ended October 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Nine Months
Ended
AWI CBS October 31,
October 31, July 31, Pro Forma 1996
1996 1996 Adjustments Ref.
-------------- -------------- --------------- ------ -------------
<S> <C> <C> <C> <C>
Operating revenues $ 4,858 $ 3,116 $ - $ 7,974
Direct costs and expenses 3,283 1,809 - 5,092
---------- --------- ----------- ----------
Gross profit 1,575 1,307 - 2,882
Depreciation and amortization 254 199 183 3 636
Other operating expenses 1,967 799 (158) 1 2,608
---------- --------- ----------- ----------
(646) 309 (25) (362)
Other income/(expense) 169 55 (158) 1 66
---------- --------- ----------- ----------
Net income (loss) before income taxes (477) 364 (183) (296)
Provision for income taxes - (127) 127 2 -
---------- --------- ----------- ----------
Net income (loss) $ (477) $ 237 $ (56) $ (296)
========== ========= =========== ==========
</TABLE>
American Wagering, Inc.
Pro Forma Condensed Statement of Income
For the Year Ended January 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
AWI CBS Hotel/Casino Year Ended
January 31, October 31, December 31, Pro Forma January 31,
1996 1995 1996 Adjustments Ref. 1995
------------- ------------- --------------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Operating revenues $ 5,577 $ 5,832 $ 3,723 - $ 15,132
Direct costs and expenses 2,868 2,844 2,368 - 8,080
----------- ---------- --------- ---- ----------
Gross profit 2,709 2,988 1,355 - 7,052
Depreciation and
amortization 145 259 240 426 3 1,070
Other operating expenses 1,830 1,902 894 (142) 1,5 4,484
----------- ---------- --------- ---- ----------
Operating income 734 827 221 (284) 1,498
Other income/(expense) 58 (147) (230) (77) 1,4 (396)
----------- ---------- --------- ---- ----------
Net income (loss) before
income taxes 792 680 (9) (361) 1,102
Provision for income taxes - (238) - (137) 6 (375)
----------- ---------- --------- ---- ----------
Net income (loss) $ 792 $ 442 $ (9) (498) $ 727
=========== ========== ========= ==== ==========
</TABLE>
The acccompanying notes are an integral part
of these proforma condensed financial statements.
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American Wagering, Inc.
Notes to Pro Forma Condensed Financial Statements
October 31, 1996
1. The adjustment to other income and operating expenses reflects the
elimination of rental income and expense of $54,000 for the year ended
October 31, 1995 and $158,000 for the nine months ended July 31, 1996
related to the lease between CBS (the landlord) and American Wagering, Inc.
(the tenant).
2. The adjustment to the October 31, 1996 provision for income taxes reflects
the offset of CBS tax expense with the net operating loss of AWI resulting
in no pro forma tax benefit as the operating entity had not previously
generated taxable income.
3. The adjustment to depreciation and amortization arises from the step-up in
the basis of assets and amortization of the excess of purchase price over
fair market value of net acquired assets related to the hotel/casino
business that was previously acquired in fiscal year 1997. In addition,
additional amortization expense is reflected for the periods related to
software, non-compete provisions and licensing rights purchased in the CBS
acquision.
4. The adjustment to other income of $23,000 reflects interest expense on debt
issued in connection with the prior acquisition of the hotel/casino
business in fiscal year 1997.
5. The adjustment to other operating expenses reflects removal of bankruptcy
costs incurred by the previously acquired hotel/casino business.
6. The adjustment to compute the pro forma income tax provision for the year
ended January 31, 1996 utilizes a rate of 34 percent.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN WAGERING, INC.
--------------------------------
(Registrant)
Date: January 7, 1997 By: /s/ Robert D. Ciunci
----------------------------
Robert D. Ciunci
Executive Vice President and
Chief Financial Officer
