<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended July 31, 1997
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________
Commission file number: 000-20685
_________________________________
American Wagering, Inc.
_______________________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Nevada 88-0344658
______________________________ ___________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
675 Grier Drive, Las Vegas, Nevada 89119
_______________________________________________________________________________
(Address of principal executive office)
(702) 735-0101
_______________________________________________________________________________
(Issuer's telephone number)
_______________________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last year)
Check whether the issuer (1) filed reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock outstanding as of September 12, 1997
was 7,840,833.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
AMERICAN WAGERING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
July 31, January 31,
1997 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,841,150 $ 3,416,412
Short-term investments 7,321,393 7,154,007
Accounts receivable, net of allowance for doubtful accounts
of $127,945 and $152,445 591,442 409,141
Inventory 385,019 300,334
Prepaid expenses and other current assets 442,755 392,678
------------ ------------
10,581,759 11,672,572
PROPERTY AND EQUIPMENT, net 9,131,580 8,710,404
INVESTMENT IN JOINT VENTURE 816,158 134,599
INTANGIBLE ASSETS, net 631,128 1,424,933
EXCESS OF COST OVER FAIR MARKET VALUE
OF NET ASSETS ACQUIRED, net 2,100,085 2,144,474
DEPOSITS AND OTHER ASSETS 563,402 633,175
------------ ------------
$ 23,824,112 $ 24,720,157
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 749,856 $ 383,673
Accounts payable 1,411,545 922,206
Accrued expenses 599,376 687,914
Unpaid winning tickets 616,770 927,866
Other current liabilities 909,985 602,659
------------ ------------
4,287,532 3,524,318
LONG-TERM DEBT
Stockholder notes payable 2,433,124 2,433,124
Long-term debt, less current portion 4,397,266 4,931,411
------------ ------------
6,830,390 7,364,535
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock -- $.01 par value; authorized
25,000,000 shares; issued and outstanding: none -- --
Common stock -- $.01 par value; authorized
25,000,000 shares; issued and outstanding: 7,837,500 78,375 78,375
Additional paid-in capital 14,686,208 14,686,208
Accumulated deficit (2,058,393) (933,279)
------------ ------------
12,706,190 13,831,304
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$ 23,824,112 $ 24,720,157
============ ============
</TABLE>
Note: The consolidated balance sheet at January 31, 1997 has been derived
from the audited consolidated financial statements at that date.
The accompanying notes are an integral part of these consolidated
financial statements.
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AMERICAN WAGERING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUES $ 2,801,227 $ 1,523,720
OPERATING COSTS AND EXPENSES:
Direct costs 2,372,643 1,454,481
Research and development 164,810 --
Selling, general and administrative 679,676 279,233
Depreciation and amortization 223,476 107,022
----------- -----------
Total operating costs and expenses 3,440,605 1,840,736
----------- -----------
OPERATING LOSS (639,378) (317,016)
OTHER INCOME (EXPENSE):
Interest income 106,912 99,738
Other income (801) 14,548
Interest expense (174,969) (83,891)
----------- -----------
Total other income (expense) (68,858) 30,395
----------- -----------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (708,236) (286,621)
PROVISION (BENEFIT) FOR INCOME TAXES -- --
----------- -----------
NET LOSS $ (708,236) $ (286,621)
=========== ===========
LOSS PER SHARE $ (0.09) $ (0.04)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,837,500 7,247,802
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUES $ 5,399,106 $ 2,580,646
OPERATING COSTS AND EXPENSES:
Direct costs 4,346,910 2,319,236
Research and development 260,927 --
Selling, general and administrative 1,329,582 454,521
Depreciation and amortization 456,065 144,839
----------- -----------
Total operating costs and expenses 6,393,484 2,918,596
----------- -----------
OPERATING LOSS (994,378) (337,950)
OTHER INCOME (EXPENSE):
Interest income 208,264 115,984
Other income 2,325 73,775
Interest expense (341,325) (130,398)
----------- -----------
Total other income (expense) (130,736) 59,361
----------- -----------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (1,125,114) (278,589)
PROVISION (BENEFIT) FOR INCOME TAXES -- --
----------- -----------
NET LOSS $(1,125,114) $ (278,589)
=========== ===========
LOSS PER SHARE $ (0.14) $ (0.04)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,837,500 6,263,118
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,125,114) $ (278,589)
------------ ------------
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 456,065 144,839
Short-term investment interest (167,386) --
Equity in earnings from investment in partnership -- (68,041)
Provision for doubtful accounts (24,500) --
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts receivable (157,801) (114,223)
Inventory (84,685) (14,486)
Prepaid expenses and other current assets (50,077) 479,975
Increase (decrease) in liabilities:
Accounts payable 489,339 (34,141)
Accrued expenses (88,538) (338,378)
Unpaid winning tickets (311,096) (580,271)
Other current liabilities 307,326 (16,858)
------------ ------------
Total adjustments 368,647 (541,584)
------------ ------------
Net cash used in operating activities (756,467) (820,173)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (750,808) (124,581)
Deposits and other assets 69,773 (127,365)
Intangible assets (42,439) --
Purchase of remaining 50% interest in partnership,
net of cash acquired -- (3,041,592)
Contributions to the joint venture (427,359) --
Proceeds received from joint venture partner 500,000 --
------------ ------------
Net cash used in investing activities (650,833) (3,293,538)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (167,962) (140,788)
Proceeds from Stockholder notes -- 2,433,124
Net proceeds from issuance of
common stock -- 13,711,326
Contributions from stockholders -- 558,000
Distributions to stockholders -- (3,649,021)
------------ ------------
Net cash provided by (used in) financing activities (167,962) 12,912,641
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,575,262) 8,798,930
CASH, beginning of period 3,416,412 3,938,582
============ ============
CASH, end of period $ 1,841,150 $ 12,737,512
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the six months ended July 31, 1997 and 1996 was
$341,325 and $130,398. Cash paid for income taxes during the six months ended
July 31 1997 and 1996 was $136,000 and $0.
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JULY 31, 1997 AND 1996
1. Information and Disclosure
The accompanying unaudited consolidated financial statements do not include all
information and disclosures required under generally accepted accounting
principles. However, in the opinion of management, the accompanying financial
statements contain all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly the financial position,
results of operations and cash flows, of the Company for the periods presented.
The financial statements as of and for the years ended January 31, 1997 and 1996
and the notes thereto included in the Company's Annual Report on Form 10-KSB
should be read in conjunction with these interim financial statements.
Financial statements prepared in accordance with generally accepted accounting
principles require the use of management estimates. The most significant
estimates with regard to these consolidated financial statements involves the
Company's Horse and Sports wagering segment and relates to setting and adjusting
lines on sporting events. The sportsbook operator is betting as a principal
against its patrons. Therefore, if the "book" of wagers placed on an event is
not balanced, the sportsbook operator is significantly at risk for the outcome
of a sporting event. Although sportsbook operators attempt to keep the book in
balance by adjusting the betting line, the risk of a non-balanced book is
inherent in the operation of a sportsbook. To the extent that a book on a
particular event is not balanced, the book-making operation, like its patrons,
is gambling on the outcome of an event.
In February, 1997, the Company formed American Wagering Management Company, Inc.
to facilitate the management services provided to its subsidiaries. Management
service fees such as human resources, accounting and marketing are centralized
and are billed monthly to each subsidiary through intercompany
<PAGE>
transactions at 9.5% of their respective gross incomes.
Reclassifications
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform with the 1997 presentation. These reclassifications had
no effect on the Company's net income.
Period Results Not Indicative of the Full Year
The results of operations for the six months ended July 31, 1997 and 1996 are
not necessarily indicative of the results to be expected for the full fiscal
year.
2. Investment in Joint Venture
The Company, through the acquisition of Computerized Bookmaking Systems, Inc.
("CBS") on October 24, 1996, is involved in a joint venture with IGT-North
America ("IGT"). CBS and IGT each own a fifty percent interest in the joint
venture company named Mega$ports, Inc., a Nevada corporation ("Mega$ports").
Mega$ports, an enterprise which began operations in July 1997, is engaged in the
design, manufacture and distribution of a pari-mutuel sport wagering system. The
Company's investment in joint venture balance has arisen primarily through
contributions of property and equipment, programming services and operating
expenses.
In February 1997, the Company received a reimbursement of $500,000 from IGT for
previous start-up costs incurred by CBS related to the Mega$ports investment in
joint venture. The contribution by IGT was treated as a "contingent asset" as
defined by SFAS No. 38 "Accounting for Business Combinations" which was resolved
within a short period of time after the consummation of the acquisition of CBS
and was accounted for as a purchase price allocation adjustment. Accordingly,
the investment in joint venture
<PAGE>
balance and intangibles arising from the CBS acquisition were revalued to
reflect the increase in the total contribution to the joint venture by CBS. In
May and June 1997, the Company incurred $38,000 in additional startup costs
which were invoiced to IGT in July 1997.
3. Business Segment Reporting
The Company's primary operations are reported in the following four segments:
Horse and Sports Wagering, Hotel, Food and Beverage, Casino and Computerized
Bookmaking Systems ("Systems").
The Horse and Sports Wagering segment consists of licensed bookmaking
operations with the largest number of sportsbooks in the state of Nevada. In
addition to its main location, the Company operates 41 race and sports books
located within licensed gaming establishments owned by other companies
throughout the state of Nevada.
The Hotel, Food and Beverage segment consists of Hotel and Food operations of a
150 room Howard Johnson Hotel and adjacent International House of Pancakes
restaurant located in Las Vegas, Nevada.
The Casino segment consists of the operations of a 5,600 square foot casino
within the Howard Johnson Hotel containing approximately 68 electronic gaming
devices including slot machines, video poker machines and multi-game video
machines.
The Computerized Bookmaking Systems segment consists of operations which design,
install and maintain race and sports book equipment, software and computer
systems to the sports betting industry.
<PAGE>
The following summarizes the segment information for the Company:
<TABLE>
<CAPTION>
Three months Horse and Hotel,
ended Sports Food and
July 31, Wagering Beverage Casino Systems Corporate Total
----------- --------- -------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues 1997 $ 862,051 $ 832,324 $122,736 $ 984,116 $ -- $ 2,801,227
1996 689,584 743,227 90,909 -- -- 1,523,720
Operating 1997 (363,039) (113,232) 3,977 184,237 (351,321) (639,378)
Income (Loss) 1996 (209,991) (124,705) (56) -- 17,736 (317,016)
Capital 1997 378,607 138,699 -- 21,669 31,893 570,868
Expenditures 1996 22,329 56,543 31,011 -- -- 109,883
Depreciation and 1997 56,429 86,933 4,002 71,726 4,386 223,476
Amortization 1996 29,400 74,936 2,686 -- -- 107,022
Indentifiable 1997 2,614,132 7,631,989 365,165 5,702,179 7,510,647 23,824,112
Assets
As at Jan. 31, 1997 3,633,668 7,672,444 350,153 5,781,141 7,282,751 24,720,157
Six months Horse and Hotel,
ended Sports Food and
July 31, Wagering Beverage Casino Systems Corporate Total
----------- --------- -------- ------ ------- --------- -----
Revenues 1997 $ 1,823,285 $1,744,856 $257,824 $1,573,141 $ -- $ 5,399,106
1996 1,746,510 743,227 90,909 -- -- 2,580,646
Operating 1997 (449,673) (157,417) 36,300 208,435 (632,023) (994,378)
Income (Loss) 1996 (160,574) (141,454) (56) -- (35,866) (337,950)
Capital 1997 489,097 184,885 -- 38,310 38,516 750,808
Expenditures 1996 32,632 60,938 31,011 -- -- 124,581
Depreciation and 1997 96,537 160,570 8,003 182,598 8,357 456,065
Amortization 1996 53,029 89,124 2,686 -- -- 144,839
Indentifiable 1997 2,614,132 7,631,989 365,165 5,702,179 7,510,647 23,824,112
Assets
As at Jan. 31, 1997 3,633,668 7,672,444 350,153 5,781,141 7,282,751 24,720,157
</TABLE>
4. Subsequent Event
On August 21, 1997, the U.S. District Court of Nevada issued a
declaratory judgement with respect to a
<PAGE>
lawsuit pending since August, 1995, between Michael Racusin, d/b/a M.
Racusin & Company ("Racusin") and American Wagering, Inc. ("Company") and
Leroy's Horse and Sports Place ("Leroy's"), the wholly-owned subsidiary of the
Company which operates sports and race books. As previously reported, in dispute
in the lawsuit are two written contracts between Leroy's and Racusin.
The Court held that pursuant to the terms of the agreements, Racusin
was entitled to receive from the Company a commission, as adjusted, of
$648,375, plus prejudgment interest of $84,597 through August 21, 1997. The
Court's holding indicated that Racusin was entitled to the commission because
he served as a finder to the Company for the underwriter of the Company's
initial public offering in May, 1996, which enabled the Company to make a public
sale of Leroy's assets. The Company has tendered the entire judgment plus
interest of $732,972 to Racusin. As the payment to Racusin represents a cost of
the Company's initial public offering, the entire amount paid to Racusin will
reduce its paid-in capital. The declaratory judgement of the Court is not final
and is subject to timely appeal.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Fiscal Quarter ended July 31,1997 Compared to the Fiscal Quarter ended
July 31,1996
Revenues for the Fiscal Quarter ended July 31,1997 ("Second Quarter of
Fiscal 1998"), were $2,801,000, an increase of $1,277,000 or 83.8% from revenues
of $1,524,000 for the Fiscal Quarter ended July 31,1996 ("Second Quarter of
Fiscal 1997"). The increase in revenues was primarily attributed to the
following event:
On October 24, 1996, the Company acquired Computerized Bookmaking
Systems, Inc.
<PAGE>
("CBS") located in Las Vegas, Nevada. Revenues from CBS for the Second Quarter
of Fiscal 1998 were approximately $984,000. CBS revenues consisted principally
of maintenance contract and equipment revenues of $889,000.
Revenues from horse and sports wagering were approximately $862,000 for
the Second Quarter of Fiscal 1998, an increase $172,000 or 24.9% from revenues
of $690,000 for the Second Quarter of Fiscal 1997. The increase in horse and
sports wagering revenues was principally due to favorable variances of
sportsbook locations operating in both periods ("same store") and the opening of
eleven new sportsbooks which were operating during the Second Quarter of Fiscal
1998, offset by the closing of four sportsbook locations which were operating
during the Second Quarter of Fiscal 1997. Revenues of $767,000 for the Second
Quarter of Fiscal 1998 at same store locations increased $124,000 or 19.3% from
revenues of $643,000 for the Second Quarter of Fiscal 1997. Handle (the total
amount wagered at the Company's sports and race books) for the Second Quarter of
Fiscal 1998 was $18,393,000, an increase of $5,715,000 or 45.1% from the handle
of $12,678,000 for the Second Quarter of Fiscal 1997. The increase in handle was
principally due to a higher volume of wagering at same store locations in
addition to seven more sportsbook locations operating during the Second Quarter
of Fiscal 1998 than were operating during Second Quarter of Fiscal 1997. Handle
of $15,541,000 for Second Quarter of Fiscal 1998 at same store locations
increased $3,449,000 or 28.5% over the handle of $12,092,000 for the Second
Quarter of Fiscal 1997. Handle of $2,852,000 for Second Quarter of Fiscal 1998
at the locations that were not operating in both periods increased $2,266,000 or
386.7% from the handle of $586,000 for the Second Quarter of Fiscal 1997. The
Company believes the increase in handle is additionally attributed to the modest
increase in the industry-wide handle compared to the same period last year and
the implementation of a strategic business plan which included: 1) increased
marketing, to promote name recognition, 2) better customer service at the
<PAGE>
sportsbooks, 3) the installation of a new software and hardware operating system
which provides more efficient wager processing by allowing the customers to
simultaneously cash a winning ticket and place a new wager, and 4) increased
baseball simulcasting at many locations throughout the state. An increase or
decrease in handle is not necessarily indicative of an increase or decrease in
revenues or profits. Net win percentage (revenues divided by handle) for all
race and sports wagering was 4.7% for the Second Quarter of Fiscal 1998 a
decrease of 13.0% compared to a net win percentage for all race and sports
wagering of 5.4% for the Second Quarter of Fiscal 1997. Net win percentage
fluctuates depending on the outcome of various sporting events within the
reporting period. The decrease in the net win percentage between the fiscal
quarters was attributed to unfavorable results in hockey offset by favorable
results from boxing and baseball. The Hotel, Food and Beverage and Casino
segments, were acquired in the first month of the Second Quarter of Fiscal 1997.
Revenues from Hotel, Food and Beverage operations of $832,000 for the Second
Quarter of Fiscal 1998 increased $89,000 or 12.0% as compared to revenues of
$743,000 for the Second Quarter of Fiscal 1997. Revenues from Casino operations
of $123,000 for the Second Quarter of Fiscal 1998 increased $32,000 or 35.2% as
compared to revenues of $91,000 for the Second Quarter of Fiscal 1997. The
increase in revenues for both segments was principally due to a modest increase
in the Hotel average occupancy rate to 75% for the Second Quarter of Fiscal 1998
from 73% for the Second Quarter of Fiscal 1997.
Direct costs were $2,373,000 for Second Quarter of Fiscal 1998, an
increase of $918,000 or 63.1% from direct costs of $1,455,000 for the Second
Quarter of Fiscal 1997. Direct costs include product and installation cost of
sales, labor costs, gaming taxes and supplies, rent, advertising, franchise
fees, and other costs. The increase in direct costs was principally due to the
acquisition of CBS. The acquisition of CBS, which occurred during the Third
Quarter of Fiscal 1997, contributed to an increase in direct costs of $491,000
for the Second Quarter of Fiscal 1998. Direct costs associated with horse and
sports wagering
<PAGE>
were $1,111,000 for the Second Quarter of Fiscal 1998, an increase of $379,000
or 51.8% as compared to direct costs of $732,000 for the Second Quarter of
Fiscal 1997. The increase in direct costs associated with horse and sports
wagering was primarily due to labor costs, related to additional operations
personnel, advertising, gaming taxes and supplies and expenses associated with
the sportsbook operations transition to a new hardware/software operating
system. Direct costs associated with the transition to the new system were
approximately $147,251 during the Second Quarter of Fiscal 1998. The new
operating system provides greater functionality and allows the operation of our
Mega$ports(TM) pari-mutuel sports wagering product at the Company's sportsbook
locations. Direct costs associated with Hotel, Food and Beverage operations were
$672,000 for the Second Quarter of Fiscal 1998 an increase of $10,000 or 1.5% as
compared to direct costs of $662,000 for the Second Quarter of Fiscal 1997.
Direct costs associated with Casino operations were $99,000 for the Second
Quarter of Fiscal 1998 an increase of $39,000 or 65.0% as compared to direct
costs of $60,000 for the Second Quarter of Fiscal 1997.The increase between the
fiscal quarters was principally due to advertising, housekeeping, and supplies
expenses in the Hotel, Food, and Beverage operations and labor costs in the
Casino operations. Direct costs as a percentage of revenues was 84.7% for the
Second Quarter of Fiscal 1998 a decrease of 11.3% as compared to direct costs as
a percentage of revenues of 95.5% for the Second Quarter of Fiscal 1997. This
decrease is principally due to the acquisition of CBS.
Research and Development expenses were $165,000 for the Second Quarter
of Fiscal 1998. These expenses relate exclusively to CBS and are principally
attributed to software and hardware development for new products.
Selling, general and administrative expenses were $680,000 for the
Second Quarter of Fiscal 1998, an increase of $401,000 or 143.7% from selling,
general and administrative expenses of $279,000 for the Second Quarter of Fiscal
1997. The increase in selling, general and administrative expenses was
principally
<PAGE>
due to increased expenditures at the corporate level. Corporate level selling,
general and administrative expenses were $347,000 for the Second Quarter of
Fiscal 1998, an increase of $365,000 or 2,027.8% compared to ($18,000) for the
Second Quarter of Fiscal 1997. The increased expenditures were principally due
to labor costs, legal and other professional services, investor relations and
travel. These expenditures were principally made to hire additional personnel,
support the Company's increased regulatory and public disclosures burdens as
a publically owned company and to review potential acquisitions. The acquisition
of CBS, which occurred during the Third Quarter of Fiscal 1997, contributed to
an increase in the selling, general and administrative expenses of $73,000 for
the Second Quarter of Fiscal 1998. Selling, general and administrative costs
associated with the Hotel, Food and Beverage were $187,000 for the Second
Quarter of Fiscal 1998, an increase of $56,000 or 42.7% as compared to $131,000
for the Second Quarter of Fiscal 1997. The unfavorable variance was principally
due to greater labor related costs, property taxes and utilities. Selling,
general and administrative costs associated with the Casino were $16,000 for the
Second Quarter of Fiscal 1998, a decrease of $12,000 or 42.3% as compared to
$28,000 for the Second Quarter of Fiscal 1997. The decrease between the fiscal
quarters was principally due to favorable variances in labor costs and legal
expenses. Selling, general and administrative expenses associated with horse and
sports wagering were $57,000 for the Second Quarter of Fiscal 1998, a decrease
of $81,000 or 58.7% as compared to selling, general and administrative expenses
of $138,000 for the Second Quarter of Fiscal 1997. The favorable variance
between the fiscal quarters was principally due to the reduction in labor costs
associated with the transfer of personnel to the corporate level. Selling,
general and administrative expenses were 24.2% of revenues for the Second
Quarter of Fiscal 1998 an increase of 32.2% compared to 18.3% for the Second
Quarter of Fiscal 1997. The unfavorable variance in selling, general and
administrative expenses as a percentage of revenue between the fiscal quarters
was principally due to increased expenditures at the corporate level.
Depreciation and amortization was $223,000 for the Second Quarter of
Fiscal 1998, an increase of $116,000 or 108.4% from depreciation and
amortization of $107,000 for the Second Quarter of Fiscal 1997. An increase of
$23,000 relates to amortization expense attributed to goodwill and other
intangible
<PAGE>
assets associated with the acquisition of the Hotel, Food and Beverage and
Casino operations and CBS, respectively. An increase in depreciation expense of
$93,000 was due to capital equipment associated with the acquisition of CBS and
new capital equipment purchases by the horse and sports wagering segment to
support the transition to the new operating system and by the hotel and casino
for renovations.
Other expense of $69,000 for Second Quarter of Fiscal 1998, varied
unfavorably by $99,000, or 330.0%, from other income of $30,000 in the Second
Quarter of Fiscal 1997. The unfavorable variance between other expense and other
income was principally due to additional interest expense of $91,000 on the
long-term debt of the Hotel, Food and Beverage and Casino and CBS and the
absence of equity in earnings of $9,000 from the partnership investment in the
hotel recognized during the Second Quarter of Fiscal 1997.
Net loss before income taxes for the Second Quarter of Fiscal 1998 of
$708,000 varied unfavorably by $421,000 compared to the net loss before income
taxes of $287,000 for Second Quarter of Fiscal 1997. Net loss from horse and
sports wagering operations of $424,000 for the Second Quarter of Fiscal 1998
varied unfavorably by approximately $174,000 as compared to the net loss of
$250,000 for the Second Quarter of Fiscal 1997. The unfavorable variance was
principally due to increased operating costs and expenses of $325,000. The net
loss from the Hotel, Food and Beverage operations of $179,000 for the Second
Quarter of Fiscal 1998 varied unfavorably by $38,000 as compared to the net loss
of $141,000 for the Second Quarter of Fiscal 1997. The net income from the
Casino operations of $4,000 for the Second Quarter of Fiscal 1998 varied
unfavorably by $4,000 as compared to the net income of $0 for the Second Quarter
of Fiscal 1997. The net income from CBS operations for the Second Quarter of
Fiscal 1998 was approximately $147,000. The net loss at the corporate level
of $256,000 for the Second Quarter of Fiscal 1998 varied unfavorably by $360,000
as compared to net income of $104,000 for the Second Quarter of Fiscal 1997.
Partly offsetting these losses for the Second Quarter of Fiscal 1998 were
earnings of
<PAGE>
$95,000 from temporary investments of the proceeds from the initial public
offering of the Company's common stock during the Second Quarter of Fiscal 1997.
Six Months Ended July 31, 1997 Compared to the Six Months Ended July 31, 1996
Revenues for the six months ended July 31,1997 were $5,399,000, an
increase of $2,818,000 or 109.2% from revenues of $2,581,000 for the six months
ended July 31,1996. The increase in revenues was primarily attributed to the
following two events:
1. On May 15, 1996, the Company completed the acquisition of the Howard
Johnson Hotel and Casino ("Hotel/Casino") located in Las Vegas, Nevada. Revenues
from the Hotel, Food and Beverage operations for the six months ended July 31,
1997 were approximately $1,745,000. Revenues from the Casino operations for the
six months ended July 31, 1997 were approximately $258,000. Hotel, Food and
Beverage revenues for the six months ended July 31, 1997 consisted principally
of room sales of $958,000 and food and beverage sales of $717,000. The hotel's
occupancy rate averaged 78% for the six months ended July 31, 1997, a decrease
of 7% from the hotel's average occupancy rate of 84% for the six months ended
July 31, 1996 due primarily to increased competition of new and expanded hotels
in the Las Vegas area. Casino revenues for the six months ended July 31, 1997
consisted primarily of slot revenue of $251,000.
2. On October 24, 1996, the Company acquired Computerized Bookmaking
Systems, Inc. ("CBS") located in Las Vegas, Nevada. Revenues from CBS for the
six months were approximately $1,573,000. CBS revenues consisted principally of
maintenance and equipment sales of $1,384,000.
Revenues from horse and sports wagering was approximately $1,823,000
for the six months ended July 31, 1997, an increase of $76,000 or 4.4% from
revenues of $1,747,000 for the six months ended
<PAGE>
July 31, 1996. The increase in horse and sports wagering revenues was
principally due to favorable variances at same store locations. Revenues of
$1,637,000 for the six months ended July 31, 1997 at same store locations
increased $93,000 or 6.0% from revenues of $1,544,000 for the six months ended
July 31, 1996. Handle (the total amount wagered at the Company's sports and race
books) for the six months ended July 31, 1997 was $35,849,000 an increase of
$5,989,000 or 20.1% from the handle of $29,860,000 for the six months ended July
31, 1996. The increase in handle is principally due to the favorable performance
of same store locations. Handle of $30,934,000 for six months ended July 31,
1997 at same store locations increased $4,133,000 or 15.4% over the handle of
$26,801,000 for the six months ended July 31, 1996. The remaining increase in
handle was principally due to six more sportsbook locations operating during the
six months ended July 31, 1997 than were operating during six months ended July
31, 1996, a modest increase in the industry-wide handle when compared to same
period last year and the implementation of a strategic business plan which
included: 1) increased marketing, to promote name recognition, 2) better
customer service at all the sportsbooks locations, 3) the installation of a new
software and hardware operating system which provides more efficient wager
processing by allowing customers to simultaneously cash a winning ticket and
place a new wager, and 4) increased baseball simulcasting at many locations
throughout the state. An increase or decrease in handle is not necessarily
indicative of an increase or decrease in revenues or profits. Net win percentage
(revenues divided by handle) for all race and sports wagering was 5.1% for the
six months ended July 31, 1997 a decrease of 12.1% compared to a net win
percentage for all race and sports wagering of 5.8% for the six months ended
July 31, 1996. Net win percentage fluctuates depending on the outcome of various
sporting events within the reporting period. The decrease in the net win
percentage between the six month periods was attributed to unfavorable results
in football, basketball, baseball, hockey, horse racing, and parlay cards offset
by favorable results from boxing and other sports.
Direct costs were $4,347,000 for six months ended July 31, 1997, an
increase of $2,028,000
<PAGE>
or 87.5% from direct costs of $2,319,000 for the six months ended July 31, 1996.
Direct costs include product and installation cost of sales, labor costs, gaming
taxes and supplies, rent, advertising, franchise fees, and other costs. The
increase in direct costs was principally due to the acquisition of the
Hotel/Casino and CBS. The acquisition of the Hotel/Casino, which occurred during
the Second Quarter of Fiscal 1997, contributed to an increase in direct costs of
$820,000 for the six months ended July 31, 1997 of which $716,000 were Hotel,
Food and Beverage direct costs and $104,000 were Casino direct costs. The
acquisition of CBS, which occurred during the Third Quarter of Fiscal 1997,
contributed to an increase in direct costs of $742,000 for the six months ended
July 31, 1997. Direct costs associated with horse and sports wagering were
$2,061,000 an increase of $464,000 or 29.1% as compared to direct costs of
$1,597,000 for the six months ended July 31, 1996. The increase in direct costs
associated with horse and sports wagering was primarily due to greater
advertising, labor costs, related to additional operations personnel, and
expenses associated with the sports operations transition to a new
hardware/software system. Costs associated with the transition to a new
operating system were approximately $243,000 for the six months ended July 31,
1997. The new system will provide greater functionality and allow the operation
of the Mega$ports(TM) pari-mutuel sports wagering product at the Company's
sportsbook locations. Direct costs as a percentage of revenues was 86.0% for the
six months ended July 31, 1997 a decrease of 4.3% as compared to direct costs as
a percentage of revenues of 89.9% for the six months ended July 31, 1996.
Research and Development expenses were $261,000 for the six months
ended July 31, 1997. These expenses relate exclusively to CBS and are
principally attributed to software and hardware development for new products.
Selling, general and administrative expenses were $1,329,000 for the
six months ended July 31, 1997, an increase of $874,000 or 192.1% from selling,
general and administrative expenses of $455,000 for
<PAGE>
the six months ended July 31, 1996. The increase in selling, general and
administrative expenses was principally due to unfavorable variances at the
corporate level. Corporate level selling, general and administrative expenses
were $624,000 for the six months ended July 31, 1997, an increase of $588,000 or
1,633.3% compared to $36,000 for the six months ended July 31, 1996. The
unfavorable variance was principally due to labor costs, related to additional
personnel, legal and other professional services, investor relations and travel.
The acquisition of the Hotel/Casino, which occurred during the Second Quarter of
Fiscal 1997, contributed to an increase in selling, general and administrative
expenses of $249,000 for the six months ended July 31, 1997, of which $228,000
are Hotel, Food and Beverage expenses and $21,000 are Casino expenses. The
acquisition of CBS, which occurred during the Third Quarter of Fiscal 1997,
contributed to an increase in the selling, general and administrative expenses
of $179,000 for the six months ended July 31, 1997. Selling, general and
administrative expenses from horse and sports wagering was $115,000 for the six
months ended July 31, 1997, a decrease of $142,000 or 55.3% as compared to
selling, general and administrative expenses of $257,000 for the six months
ended July 31, 1996. The favorable variance between the fiscal quarters was
principally due to the reduction in labor costs, associated with the transfer of
personnel to the corporate level and legal expenses. Selling, general and
administrative expenses were 24.6% of revenues for the six months ended July 31,
1997 an increase of 39.8% as compared to 17.6% for the six months ended July 31,
1996. The unfavorable variance in selling, general and administrative expenses
as a percentage of revenue between the fiscal quarters was principally due to
increased operating expenses at the corporate level and the acquisition of the
Hotel/Casino and CBS.
Depreciation and amortization was $456,000 for the six months ended
July 31, 1997, an increase of $311,000 or 214.5% from depreciation and
amortization of $145,000 for the six months ended July 31, 1996. An increase of
$90,000 relates to amortization expense attributed to goodwill and other
intangible assets associated with the acquisition of the Hotel/Casino and CBS,
respectively. An increase in
<PAGE>
depreciation expense of $221,000 was due to capital equipment associated with
the acquisition of the Hotel/Casino and CBS and new capital equipment purchases
principally by the horse and sports wagering segment to support the transition
to the new operating system.
Other expense of $131,000 for the six months ended July 31, 1997,
varied unfavorably by $190,000, or 322.0%, compared to other income of $59,000
for the six months ended July 31, 1996. The unfavorable variance was principally
due to additional interest expense of $211,000 on the long-term debt of the
Hotel/Casino and CBS and the absence of equity in earnings of $68,000 from the
partnership investment in the hotel recognized during the six months ended July
31, 1996. Partly offsetting these unfavorable items were increased earnings of
$92,000 from the investments of the net proceeds from the initial public
offering of the Company's common stock during the Second Quarter of Fiscal 1997.
Net loss before income taxes for the six months ended July 31, 1997 of
$1,125,000 varied unfavorably by $846,000 or 303.2% compared to the net loss
before income taxes of $279,000 for six months ended July 31, 1996. Net loss
from horse and sports wagering operations of $558,000 for the six months ended
July 31, 1997 varied unfavorably by $323,000 or 137.4% as compared to the net
loss of $235,000 for the six months ended July 31, 1996. The unfavorable
variance was principally due to increased operating costs and expenses of
$365,000. The net loss from the Hotel, Food and Beverage operations for the six
months ended July 31, 1997 was $286,000. The net income from the Casino
operations for the six months ended July 31, 1997 was $37,000. The net income
from CBS operations for the six months ended was $138,000. The net loss at the
corporate level of $456,000 for the six months ended July 31, 1997 varied
unfavorably by $505,000 or 1010.0% as compared to net income of $50,000 for the
six months ended July 31, 1996. Partly offsetting these losses were earnings of
$178,000 from temporary investments of the proceeds from the initial public
offering of the Company's common stock during the Second Quarter of Fiscal 1997.
<PAGE>
Liquidity and Capital Resources
As of July 31, 1997, working capital was $6,294,000 reflecting the net
proceeds from the Company's initial public offering and the exercise of the
underwriters over-allotment option during the Second Quarter of Fiscal 1997.
Cash used in operating activities was $756,000. Net cash used in
investing activities amounted to $651,000 reflecting a contribution from IGT, a
joint venture partner, offset by the purchase of capital expenditures and
contributions to the joint venture. The transition to a new hardware/software
platform to support the Mega$ports(TM) pari-mutuel sports wagering product
accounted for approximately $459,000 of new capital equipment purchases for the
six months ended July 31, 1997. Additional capital expenditures included
renovations and a vehicle at the Hotel/Casino and building improvements and
equipment at CBS. Net cash used in financing activities amounted to $168,000
representing repayments of long-term debt.
Management believes that the Company will be able to satisfy its cash
requirements for at least the next twelve months without having to raise
additional funds.
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Statements contained in this document which are not historical
facts contain forward looking information with respect to plans, projections or
future performance of the Company, the occurrence of which involve certain risks
and uncertainties, including that the Company takes financial risks on the
outcome of sporting events as a principal betting against its patrons and
uncertainties detailed in the Company's filings with the Securities and Exchange
Commission.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Note 4 to Item I of Part I of this report is herein incorporated by
reference.
Item 2. CHANGES IN SECURITIES NON APPLICABLE
Item 3. DEFAULTS UPON SENIOR SECURITIES NON APPLICABLE
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 15, 1997, the Company held its Annual Meeting of Stockholders
(the "Meeting"). The matters voted upon at the Meeting were the election of
directors, a proposal to amend the 1995 Stock Option Plan and ratification of
the appointment of Arthur Andersen LLP as the Company's independent accountants
for the fiscal year ending January 31, 1998.
At the Meeting, the Stockholders were asked to elect five directors
with each director to serve until the next annual meeting of the Stockholders or
until the election and qualification of a respective successor. All of the
nominees for director recommended by the Board of Directors were elected and the
results of the voting were as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Against Abstentions
---- --------- ------------- -----------
<S> <C> <C>
Victor J. Salerno 7,745,011 - 11,600
Robert D. Ciunci 7,745,011 - 11,600
Michael Merillat 7,745,011 - 11,600
Robert R. Barengo 7,745,011 - 11,600
Michael Roxborough 7,745,011 - 11,600
</TABLE>
At the Meeting, the Stockholders were asked to act upon a proposal to
amend the 1995 Stock Option Plan to, among other things, increase the number of
shares by 200,000. The outcome of the voting was: 7,720,231 For; 14,130 Against:
22,250 Abstentions; and 63,135 broker non-votes.
At the Meeting, the Stockholders ratified the appointment of Arthur
Andersen LLP as the
<PAGE>
Company's independent accountants for the fiscal year ending
January 31, 1998, and the outcome of the voting was: 7,744,631 For; 8,730
Against; and 2,750 Abstentions.
There were no broker non-votes in connection with any of the matters
other than for the amendment to the 1995 Stock Option Plan.
Item 5. OTHER INFORMATION NON APPLICABLE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - Financial Data Schedule
Number Description Method of Filing
------ ----------- ----------------
27 Financial Data Schedule Filed Herewith
(b) The following report on form 8-K was filed during the quarter ended July
31, 1997:
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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: September 12, 1997 By: /s/ Robert D. Ciunci
----------------------------
Robert D. Ciunci
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
American Wagering, Inc.
Financial Data Schedule Required under:
Appendix A to Item 601(c) of Regulation S-B
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 1,841,150
<SECURITIES> 7,321,393
<RECEIVABLES> 463,497
<ALLOWANCES> (127,945)
<INVENTORY> 385,019
<CURRENT-ASSETS> 442,755
<PP&E> 9,131,580
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,824,112
<CURRENT-LIABILITIES> 4,287,532
<BONDS> 6,830,390
0
0
<COMMON> 78,375
<OTHER-SE> 12,706,190
<TOTAL-LIABILITY-AND-EQUITY> 23,824,112
<SALES> 0
<TOTAL-REVENUES> 5,399,106
<CGS> 0
<TOTAL-COSTS> 6,393,484
<OTHER-EXPENSES> (210,589)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341,325
<INCOME-PRETAX> (1,125,114)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,125,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,125,114)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
