<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 April 30, 1998
--------------
[ ] 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 reports), 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 June 5, 1998 was
7,790,933.
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AMERICAN WAGERING, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
April 30, January 31,
CURRENT ASSETS: 1998 1998
---- ----
<S> <C> <C>
Cash $ 2,428,223 $ 2,092,894
Short-term investments 2,804,234 5,409,723
Accounts receivable, net of allowance for doubtful accounts
of $55,444 and $69,736 142,669 333,660
Inventories, net of obsolescence reserve of $188,225 and $188,225 427,500 557,439
Prepaid expenses and other current assets 465,617 451,347
------------ ------------
TOTAL CURRENT ASSETS 6,268,243 8,845,063
PROPERTY AND EQUIPMENT, net 3,786,730 3,885,390
INTANGIBLE ASSETS, net 598,134 628,184
DEPOSITS AND OTHER ASSETS 656,126 280,157
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS 1,120,954 1,153,146
------------ ------------
TOTAL ASSETS $ 12,430,187 $ 14,791,940
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 54,542 $ 549,254
Accounts payable 613,563 1,476,892
Accrued expenses 638,066 860,710
Unpaid winning tickets 554,775 1,441,041
Shareholder notes payable 1,486,912 1,486,912
Other current liabilities 1,027,776 583,090
Net current liabilities of discontinued operations 922,979 1,158,649
------------ ------------
TOTAL CURRENT LIABILITIES 5,298,613 7,556,548
------------ ------------
LONG-TERM DEBT:
Shareholder notes payable 946,212 946,212
Long-term debt, less current portion 1,923,130 1,942,239
------------ ------------
TOTAL LONG-TERM DEBT 2,869,342 2,888,451
------------ ------------
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: 7,840,833 and 7,840,833 78,408 78,408
Additional paid-in capital 14,047,296 14,047,296
Accumulated deficit (9,665,986) (9,778,763)
Less treasury stock (197,486) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,262,232 4,346,941
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,430,187 $ 14,791,940
============ ============
</TABLE>
Note: The consolidated balance sheet at January 31, 1998
has been derived from the audited financial statements at that date.
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
AMERICAN WAGERING, INC
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES $ 2,335,368 $ 1,703,347
OPERATING COSTS AND EXPENSES:
Direct costs 1,364,998 1,256,513
Research and development 139,272 96,117
Selling, general and administrative 491,445 502,582
Depreciation and amortization 164,296 158,951
----------- -----------
TOTAL OPERATING COSTS AND EXPENSES 2,160,011 2,014,163
----------- -----------
OPERATING INCOME (LOSS) 175,357 (310,816)
OTHER INCOME (EXPENSE):
Interest income 65,401 101,186
Other income 83,459 39,617
Equity in earnings (loss) from investment in joint venture (110,315) --
Interest expense (101,125) (103,527)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (62,580) 37,276
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 112,777 (273,540)
PROVISION (BENEFIT) FOR INCOME TAXES -- --
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 112,777 (273,540)
LOSS FROM DISCONTINUED OPERATIONS -- (143,339)
----------- -----------
NET INCOME (LOSS) $ 112,777 $ (416,879)
=========== ===========
INCOME (LOSS) PER SHARE OF COMMON STOCK
Income (loss) from continuing operations
Basic $ 0.01 $ (0.03)
Diluted $ 0.01 $ (0.03)
Loss from discontinued operations
Basic $ -- $ (0.02)
Diluted $ -- $ (0.02)
Net income (loss)
Basic $ 0.01 $ (0.05)
Diluted $ 0.01 $ (0.05)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
AMERICAN WAGERING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 112,777 $ (416,879)
--------- ----------
Adjustments to reconcile net income (loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 220,163 232,589
Equity in (earnings) loss from investment in joint venture 110,315 ---
Provision (benefit) for doubtful accounts (14,292) (5,000)
Changes in assets and liabilities:
Decrease (increase) in assets:
Accounts Receivable 171,484 275,102
Inventory 135,042 (186,804)
Prepaid expenses and other current assets (159,582) (68,323)
Increase (decrease) in liabilities:
Accounts payable (871,876) (24,346)
Accrued expenses (419,897) (77,067)
Unpaid winning tickets (886,265) (309,798)
Other current liabilities 447,828 269,244
----------- ----------
Total adjustments (1,267,080) 105,597
----------- ----------
Net cash used in operating activities (1,154,303) (311,282)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (38,531) (179,940)
Proceeds from joint venture partner --- 500,000
Increase in investment in joint venture (137,896) (6,996)
(Increase) decrease in short-term investments 2,605,490 (75,030)
Deposits and other assets (212,388) (5,776)
------------ ----------
Net cash provided by investing activities 2,216,675 232,258
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (529,557) ( 74,259)
Purchase of treasury stock (197,486) ---
------------ ----------
Net cash used in financing activities (727,043) (74,259)
------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 335,329 $ (153,283)
============ ==========
CASH AND CASH EQUIVALENTS, beginning of period $ 2,092,894 $3,416,412
============ ==========
CASH AND CASH EQUIVALENTS, end of period $ 2,428,223 $ 3,263,129
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 172,042 $ 166,356
=========== ===========
Cash paid for income taxes $ --- $ 136,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
AMERICAN WAGERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 30, 1998 AND 1997
1. Summary of Business and Significant Accounting Policies
Summary of Business
In August 1995, American Wagering Inc., a Nevada corporation, (the
"Company") was formed to be a holding company, for Leroy's Horse and
Sports Place ("LHSP") and Leroy's Hotel Corporation ("LHC").
Immediately prior to the closing of the initial public offering by
American Wagering, Inc., the stockholders of LHSP and LHC exchanged
their shares in those companies for shares of American Wagering, Inc.
These transactions are referred to as the "Reorganization."
LHSP was incorporated under the laws of the State of Nevada on November
14, 1977. The Company operates its main race and sports book located on
the premises of LHC in Las Vegas, Nevada. In addition, LHSP operates
sports books throughout the state of Nevada in licensed gaming
establishments not owned by LHSP. The Company leases the square footage
necessary to conduct its operations at the non-Company owned gaming
establishments. As of April 30, 1998 and 1997 the Company had 41 and
40 locations, respectively.
LHC owns and operates a 150 room Howard Johnson's hotel (the "Hotel")
and, through its wholly owned subsidiary B-P Food Corporation, an
International House of Pancakes restaurant located in Las Vegas,
Nevada. Additionally, LHSP operates a 5,600 square foot casino
containing approximately 71 electronic gaming devices including slot
machines, video poker machines and multi-game video machines adjacent
to the Hotel and restaurant (collectively the "Hotel/Casino").
In March 1995, LHC purchased fifty-percent interests in certain
entities, which owned and operated the Hotel/Casino, located in Las
Vegas, Nevada. The related entities were BSRB Resort Hotels (a Nevada
general partnership) and B-P Food Corporation (a Nevada corporation
which was wholly-owned by BSRB Resort Hotels). The purchase was
financed by a bank note executed by LHSP for approximately $1.1
million.
In February 1996, the stockholders of LHSP purchased a fifty-percent
interest in the stock of B-P Gaming Corporation (a Nevada corporation),
which was contributed to the Company in connection with the
Reorganization.
On May 15, 1996, the Company purchased the remaining fifty-percent
interest in BSRB Resort Hotels and B-P-Gaming Corporation ("B-P") for
$3,601,000 in cash and the assumption of certain liabilities and B-P
Gaming was subsequently dissolved.
<PAGE>
On October 25, 1996, the Company acquired from Autotote
Corporation ("AC"), all of the shares of capital stock of Autotote CBS,
Inc. (subsequently renamed Computerized Bookmaking Systems, Inc.
("CBS")), along with certain software and licensing rights pursuant to
a Stock Transfer Agreement between the Company and AC. In consideration
the Company paid $3 million in cash to AC and agreed to guarantee,
pursuant to a Guaranty Agreement, CBS's obligation under its current
mortgage of approximately $2 million on the real estate and building in
Las Vegas, Nevada where the Company currently maintains its corporate
offices.
CBS, designs, installs and maintains sports and race book equipment,
software and computer systems for the sports betting industry. CBS is
also 50% partner in a joint venture that owns and operates Mega$ports,
Inc. ("Mega$ports") which offers a pari-mutuel sports wagering system.
The Mega$ports(R) joint venture began full operations in July 1997. CBS
recorded an equity in loss in joint venture of $110,000 for the three
months ended April 30, 1998.
On April 22, 1998, the Company determined it would concentrate its
business efforts on its core competency, sports wagering, and is
currently seeking a qualified buyer for the hotel, food and beverage
segment of American Wagering, Inc. In the accompanying consolidated
financial statements as of, and for the three months ended April 30,
1998 and 1997 the results of the hotel, food and beverage operations
have been accounted for as discontinued operations. (See Note 2)
Short-Term Investments
Short-term investments consist of liquid investments, such as treasury
bills, with a maturity of six months or less and are carried at cost
adjusted for discount amortization.
Inventory
Inventories are stated at the lower of cost (based on the first in,
first-out method) or market.
Depreciation and Amortization
Property and equipment are depreciated by use of both the straight line
and accelerated methods.
Intangible Assets
Intangile assets include software and rights for manufacturing and
distribution which are being amortized over 7 years and the excess of
the cost over the fair market value of net assets of acquired companies
which are being amortized over the periods expected to be benefited or
approximately 25 years. Accumulated amortization was $225,109 and
$195,050 at April 30, 1998 and January 31, 1998, respectively.
The realizability of intangible assets is evaluated periodically as
events or circumstances warrant. Such evaluations are based on various
analyses, including cash flow and profitability projections that
incorporate, as applicable, the impact on existing Company business.
The analyses necessarily involve significant management judgment to
evaluate the capacity of an acquired business to perform within
projections.
<PAGE>
Period Results Not Indicative of the Full Year
The results of operations for the three months ended April 30, 1998 and
1997 are not necessarily indicative of the results to be expected for
the full fiscal year.
Revenue Recognition
With respect to the horse and sports wagering segment, in accordance
with industry practice, the Company recognizes race and sports wagering
revenues as the net win from such wagering activities, which is the
difference between gaming wins and losses. Wagers received on future
race and sporting events are reflected as a liability and are not
recognized as revenues until the event has taken place. Sports wagering
revenues are recognized based on the results of a completed sporting
event. With respect to the Systems segment, 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.
Research and Development
The Company expenses all costs associated with the research and
development of computerized software as incurred.
Advertising
The Company expenses all costs associated with advertising as incurred.
Earnings per Share
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 -"Earnings Per Share" ("SFAS No. 128")
which became effective for periods ending after December 15, 1997 and
replaces historically reported earnings per share with "basic" earnings
per share and "diluted" earnings per share. Basic earnings per share is
computed by dividing net income by the weighted average number of
shares outstanding during the period, while diluted earnings per share
reflects the additional dilution for all potentially dilutive
securities, such as stock options.
The weighted-average number of common and common equivalent shares used
in the calculation of basic and diluted earnings per share consisted of
the following:
<PAGE>
<TABLE>
<CAPTION>
Three Months ended April 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Weighted-average common shares
outstanding (used in the computation
of basic earnings per share 7,833,445 7,837,500
Potential dilution from the assumed
exercise of common stock options 218,534 205,819
--------- ---------
Weighted-average common and common
equivalent shares (used in the
computation of diluted earnings per
share) 8,051,979 8,043,319
========= =========
</TABLE>
Use of Estimates
Financial statements prepared in accordance with generally accepted
accounting principles require the use of management estimates. The most
significant estimates with regard to these financial statements relate
to setting and adjusting lines on sporting events. The sports book
operator is betting as a principal against its patrons. Therefore, if
the "book" of wagers placed on an event is not balanced the sports book
operator is significantly at risk for the outcome of a sporting event.
Although sports book 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 sports book. 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
inter-company balances and transactions have been eliminated. The
financial results for acquisitions are included in the consolidated
financial statements from the date of acquisition. Investments in 50%
or less owned joint ventures are accounted for under the equity method.
Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation. These
reclassifications had no effect on the Company's net income (loss).
Income Taxes
The Company records income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
("SFAS No. 109") Under SFAS No. 109, deferred income taxes are
calculated using the asset and liability method. Under the asset and
liability method, deferred income taxes are measured using enacted
statutory tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or
settled.
The provision for federal income taxes and utilization of net operating
loss carryforwards is below. On January 31, 1998 the Company had
$2,029,132 of operating loss carryforwards available to reduce future
taxable income which will expire in 2013.
1998
----
Income from continuing operations
before provision for income taxes $ 112,777
Provision for income taxes 39,472
Net operating loss carryforwards (39,472)
---------
Net provision for income taxes --
---------
Income from continuing operations $ 112,777
=========
<PAGE>
2. Discontinued Operations
On April 22, 1998, the Company determined it would concentrate its
business efforts on its core competency, sports wagering, and is
currently seeking a qualified buyer for the hotel, food and beverage
segment of American Wagering, Inc. In the accompanying consolidated
financial statements as of, and for the three months ended April 30,
1998 and 1997 the results of the hotel, food and beverage operations
have been accounted for as discontinued operations.
The estimated loss on the disposal of this segment is $862,000
consisting of an estimated loss on disposal of the business of $246,000
and a provision of $616,000 for anticipated operating losses during the
phase out period.
These operations had operating revenues of $775,000 and $913,000 for
the three months ended April 30, 1998 and 1997, respectively, with
operating losses for the same periods of $225,000 and $143,000
respectively. Identifiable assets of the hotel, food and beverage
operations were $3.7 million as of April 30, 1998 and January 31, 1998.
The components of assets and liabilities of discontinued operations
included in the accompanying consolidated balance sheets are as
follows:
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
---- ----
<S> <C> <C>
Current assets $ 196,935 $ 162,878
Accounts payable, accrued expenses and other (1,119,914) (1,321,527)
----------- -----------
Net current liabilities $ (922,979) $(1,158,649)
=========== ===========
Property, plant and equipment, net $ 3,497,754 $ 3,546,725
Other non-current assets -- --
Non-current liabilities (2,376,800) (2,393,579)
----------- -----------
Net long-term assets $ 1,120,954 $ 1,153,146
=========== ===========
</TABLE>
The condensed statements of operations relating to the discontinued
operations are presented below:
April 30, April 30,
1998 1997
---- ----
Revenues $ 774,855 $ 912,532
Costs and expenses 1,000,025 1,055,871
------------- ------------
Loss before income taxes $ (225,170) $ (143,339)
Provision (benefit) for income taxes -- --
------------ -----------
Net loss $ (225,170) $ (143,339)
============ ===========
In conjunction with the proposed sale of the hotel facility, the
Company intends to negotiate a leaseback of, and continue to operate,
the casino, which will serve as the Company's principal gaming
location.
<PAGE>
3. Capital Stock
The Company's Board of Directors approved a program to repurchase up to
250,000 shares of the Company's common stock from time to time in the
open market. As at April 30, 1998, 36,700 shares had been repurchased
pursuant to this program. The timing and amount of future share
repurchases, if any will depend on various factors, including market
conditions, available alternative investments and the Company's
financial position.
4. Business Segments
The Company's primary operations are reported in the following three
segments: Horse and Sports Wagering, Casino and Computerized Bookmaking
Systems ("Systems"). The Hotel, Food and Beverage business segment has
been presented as discontinued operations in the accompanying
consolidated financial statements (See Note 2).
The Horse and Sports Wagering segment consists of licensed bookmaking
operations with the largest number of sports books in the state of
Nevada. During the three months ended April 30, 1998, in addition to
its main location, the Company operated 40 race and sports books
located within licensed gaming establishments owned by other companies
throughout the state of Nevada. The Horse and Sports wagering segment
leases the square footage necessary to conduct its operations at these
non-company owned establishments.
The Casino segment includes a 5,600 square foot casino within the
Howard Johnson Hotel containing approximately 71 electronic gaming
devices including slot machines, video poker machines and multi-game
video machines.
The Computerized Bookmaking Systems segment designs, installs and
maintains race and sports book equipment, software and computer systems
to the sports betting industry and is a 50% partner in the joint
venture, Mega$ports(R). Mega$ports(R) offers a pari-mutuel sports
wagering system.
The following summarizes the segment information for the Company:
<TABLE>
<CAPTION>
Three
Months Horse and
Ended Sports
April 30, Wagering Casino Systems Corporate Total
--------- -------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues 1998 $1,314,091 $147,062 $ 874,215 -- $ 2,335,368
1997 961,235 153,088 589,024 -- 1,703,347
Operating 1998 257,539 23,286 237,316 (342,784) 175,357
Income (Loss)* 1997 (86,635) 32,324 24,197 (280,702) (310,816)
Capital 1998 6,067 -- 8,934 16,634 31,635
Expenditures 1997 110,490 -- 16,641 6,623 133,754
Depreciation and 1998 74,692 5,624 72,289 11,691 164,296
Amortization 1997 40,108 4,001 110,872 3,970 158,951
Identifiable 1998 3,228,791 335,422 4,565,129 3,179,891 11,309,233
Assets January 31, 1998 2,974,576 336,910 4,564,546 5,762,762 13,638,794
</TABLE>
<PAGE>
* Operating income (loss) does not include the allocation of corporate
management fees. The management fees are equal to 9.5% of each
operating Company's gross operating revenues.
Comparative financial data for the hotel, food and beverage operations,
reported as discontinued operations is as follows:
Revenues were $775,000 and $913,000 for the three months ended April
30, 1998 and 1997, respectively. Operating losses were $90,000 and
$44,000, for the three months ended 1998 and 1997, respectively.
Capital Expenditures were $7,000 and $46,000 for the three months ended
April 30, 1998 and 1997, respectively. Depreciation and Amortization
was $56,000 and $74,000 for the three months ended April 30, 1998 and
1997, respectively. Identifiable assets were $3,695,000 and $3,710,000
as at April 30, 1998 and January 31, 1998, respectively.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Fiscal Quarter ended April 30, 1998 compared to the Fiscal Quarter ended April
30, 1997.
Revenues for the Fiscal Quarter ended April 30, 1998, ("First
Quarter of Fiscal 1999") were $2,335,000, an increase of $632,000 or 37.1%
from revenues of $1,703,000 for the Fiscal Quarter ended April 30, 1997 ("First
Quarter of Fiscal 1998"). The overall increase in revenues between fiscal
quarters was primarily attributed to the horse and sports wagering operation and
Computerized Bookmaking Systems, Inc. ("CBS").
Revenues from horse and sports wagering were approximately
$1,314,000 for the First Quarter of Fiscal 1999, an increase of $353,000 or
36.7% from revenues of $961,000 for the First Quarter of Fiscal 1998. The
increase in horse and sports wagering revenues was principally due to favorable
variances of sports book locations operating during both fiscal quarters ("same
store"). Revenues for same store locations were $1,167,000 for the First Quarter
of Fiscal 1999, an increase of $323,000 or 38.3% from revenues of $844,000 for
the First Quarter of Fiscal 1998. Revenues of $86,000 for the First Quarter of
Fiscal 1999 at locations that were not operating in both periods decreased
$27,000 or 23.9% from revenues of $113,000 for the First Quarter of Fiscal 1998.
The Company was licensed and operated a total of 41 sports book locations during
the First Quarter of Fiscal 1999, compared to a total of 40 sports book
locations during the First Quarter of Fiscal 1998. Other revenues of $61,000 for
the First Quarter of Fiscal 1999 were generated primarily from pari-mutuel race
and sports wagering. The Company believes the increase in revenues between
fiscal quarters was also due to the favorable results of college basketball and
baseball wagering which were positively impacted by the lack of success of
bettors in wagering selections offset by unfavorable results in boxing and
hockey. Handle (the total amount wagered at the Company's sports and race books)
for the First Quarter of Fiscal 1999 was $20,169,000, an increase of $2,714,000
or 15.5% from the handle of $17,455,000 for the First Quarter of Fiscal 1998.
The Company's increase in handle for the First Quarter of Fiscal 1999 compared
to the First Quarter of Fiscal 1998 was principally related to the increases in
baseball and basketball wagering offset by a decrease in boxing wagering. An
increase or decrease in handle is not necessarily indicative of an increase or
decrease in revenues or profits. The Company's net win percentage (revenues
divided by handle) for all race and sports wagering was 6.2% for the First
Quarter
<PAGE>
of Fiscal 1999, an increase of 14.8% compared to the Company's net win
percentage for all race and sports wagering of 5.4% for the First Quarter of
Fiscal 1998. Net win percentage fluctuates depending on the outcome of various
sporting events within the reporting period. The increase in the Company's net
win percentage between the fiscal quarters was attributed to favorable results
in baseball, basketball and parlay cards offset by unfavorable results from
hockey and boxing. Revenues from CBS of $874,000 for the First Quarter of Fiscal
1999 increased $285,000 or 48.4% as compared to revenues of $589,000 for the
First Quarter of Fiscal 1998. The increase in CBS revenues is principally
attributed to an increase in race and sports book equipment sales. Revenues from
Casino operations of $147,000 for the First Quarter of Fiscal 1999 decreased
$6,000 or 3.9% as compared to revenues of $153,000 for the First Quarter of
Fiscal 1998.
Direct costs were $1,365,000 for First Quarter of Fiscal 1999,
an increase of $108,000 or 8.6% from direct costs of $1,257,000 for the First
Quarter of Fiscal 1998. Direct costs include product and installation cost of
sales, labor costs, gaming taxes and supplies, rent, marketing and other costs.
The increase in direct costs was principally attributed to the CBS operations.
Direct costs associated with CBS were $289,000 for the First Quarter of Fiscal
1999, an increase of $98,000 or 51.3% as compared to direct costs of $191,000
for the First Quarter of Fiscal 1998. The increase in direct costs associated
with CBS operations was primarily due to an increase in equipment costs
related to the increase in equipment sales between fiscal quarters. Direct
cost associated with horse and sports operations were $958,000 an increase of
$8,000 or 0.8% from direct costs of $950,000 for the First Quarter of Fiscal
1998. Direct costs associated with Casino operations were $118,000 for the First
Quarter of Fiscal 1999, an increase of $3,000 or 2.6% as compared to direct
costs of $115,000 for the First Quarter of Fiscal 1998. Direct costs as a
percentage of revenues was 58.4% for the First Quarter of Fiscal 1999 a decrease
of 20.9% as compared to direct costs as a percentage of revenues of 73.8% for
the First Quarter of Fiscal 1998. This decrease is principally attributed to the
horse and sports wagering segment.
Research and Development expenses were $139,000 for the First
Quarter of Fiscal 1999, an increase of $43,000 or 44.8% from $96,000 for the
First Quarter of Fiscal 1998. The increase in expenses relate exclusively to CBS
and is principally attributed to costs associated with additional projects.
Selling, general and administrative expenses were $491,000 for
the First Quarter of Fiscal 1999, a decrease of $12,000 or 2.4% from selling,
general and administrative expenses of $503,000 for the First Quarter of Fiscal
1998. The decrease in selling, general and administrative expenses was
principally due to decreased expenditures at the horse and sports wagering,
casino and CBS operation of $64,000 offset by an increase in expenditures at the
corporate level of $52,000. The increase in corporate level expenses is
<PAGE>
principally attributed to labor costs, legal and travel expenses. These
expenditures were incurred to hire additional personnel for the Company's
consolidation of accounting, compliance, marketing, sales and treasury functions
at the corporate level to support increased regulatory and public disclosure
burdens as a publicly owned company, litigation services and to review potential
acquisitions. Selling, general, and administrative expenses were 21,0% of
revenues for the First Quarter of Fiscal 1999, a decrease of 28.8% compared to
29.5% for the First Quarter of Fiscal 1998. The decrease in selling, general and
administrative expenses as a percentage of revenue between the fiscal quarters
was principally due to increased revenues at the horse and sports wagering and
CBS operations.
Depreciation and amortization was $164,000 for the First
Quarter ended of Fiscal 1999, an increase of $5,000 or 3.1% from depreciation
and amortization of $159,000 for the First Quarter of Fiscal 1998. An increase
of approximately $34,000 relates to depreciation expense attributed to capital
equipment acquisitions by the horse and sports wagering operations. A decrease
of approximately $29,000 in amortization expense is attributed to CBS and
relates to a valuation adjustment, recorded during the First Quarter of Fiscal
1998, which reduced the intangible asset balance.
Other expense of $63,000 for First Quarter of Fiscal 1999,
varied unfavorably by $100,000 or 270.3% from other income of $37,000 in the
First Quarter of Fiscal 1998. The unfavorable variance between fiscal quarters
was principally due to the equity in loss from the Mega$ports joint venture of
$110,000.
Net income from continuing operations for the First Quarter of
Fiscal 1999 of $113,000 varied favorably by $387,000 compared to the net loss
from continuing operations of $274,000 for First Quarter of Fiscal 1998. The
favorable variance between fiscal quarters was primarily due to the increase in
revenues by horse and sports wagering and CBS operations. Net income from horse
and sports wagering operations of $203,000 for the First Quarter of Fiscal 1999
varied favorably by approximately $336,000 as compared to the net loss of
$133,000 for the First Quarter of Fiscal 1998. The net income from CBS
operations for the First Quarter of Fiscal 1999 was approximately $90,000, which
includes the equity in loss from the Mega$ports(R) joint venture of $110,000,
varied favorably by $100,000 compared to the net loss of $10,000 for the first
Quarter of Fiscal 1998. The net loss at the corporate level of $203,000 for the
First Quarter of Fiscal 1998 varied unfavorably by $40,000 as compared to net
loss of $163,000 for the First Quarter of Fiscal 1998. The net income from the
Casino operations of $23,000 for the First Quarter of Fiscal 1999, varied
unfavorably by $8,000 as compared to the net income of $32,000 for the First
Quarter of Fiscal 1998.
Discontinued Operations
On April 22, 1998 the Company determined to concentrate its
business efforts on its core competency, sports wagering, and is seeking a
qualified buyer for the hotel, food and beverage operations. In the Company's
accompanying consolidated financial statements for and as of April 30, 1998,
the results of the hotel, food and beverage operations has been accounted for as
discontinued operations. Revenues from hotel, food and beverage operations of
$775,000 for the First Quarter of Fiscal 1999 decreased $138,000 or 15.1% as
compared to revenues of $913,000 for the First Quarter of Fiscal 1998. The
decrease in revenues is principally due to a reduction in room revenues. The
Hotel's average occupancy rate was 76% for the First Quarter of Fiscal 1999 a
decrease of 6.2% compared to the Hotel's average occupancy rate of 81% for the
First Quarter of Fiscal 1998. The decrease in average occupancy is primarily due
to increased competition by new and expanded hotels in the Las Vegas area.
Direct costs associated with hotel, food and beverage operations were $609,000
for the First Quarter of Fiscal 1999, a decrease of $98,000 or 13.9% as compared
to direct costs of $707,000 for the First
<PAGE>
Quarter of Fiscal 1998. The decrease between fiscal quarters is principally due
to reductions in labor costs, marketing and housekeeping expenses. Selling,
general, and administrative costs associated with the hotel, food and beverage
operations were $209,000 for the First Quarter of Fiscal 1999, and increase of
$33,000 or 18.8% as compared to $176,000 for the First Quarter of Fiscal 1998.
The increase was principally due to legal expenses. Net loss from discontinued
operations for the First Quarter of Fiscal 1999 of $225,000 varied unfavorably
by $82,000 compared to the net loss from discontinued operations of $143,000 for
the First Quarter of Fiscal 1998. The net loss from discontinued operations of
$225,000 for the First Quarter of Fiscal 1999 was recorded against a reserve for
estimated operating losses to be incurred during the phase out period of
$616,000 established during the Fiscal Year ended 1998.
Liquidity and Capital Resources
As of April 30, 1998, working capital was $970,000. Cash used
in operating activities was $1,154,000 for the First Quarter of Fiscal 1999
compared to cash used in operating activities of $311,000 for the First Quarter
of Fiscal 1998. Net cash provided by investing activities was $2,217,000 for the
First Quarter of Fiscal 1999 compared to cash provided by investing activities
of $232,000 for the First Quarter of Fiscal 1998. The variance is principally
attributed to the decrease in short-term investments. Net cash used in financing
activities amounted to $727,000 for the First Quarter of Fiscal 1999 compared to
cash used in financing activities of $74,000 for the First Quarter of Fiscal
1998. The variance related to the use of cash in financing activities is
principally due to an increase of $456,000 related to the repayment of debt and
the purchase of the Company's common stock of $197,000. During the First Quarter
of Fiscal 1999, the Company paid $480,000 related to the balance of a note which
was due from Pioneer Citizens Bank of Nevada, borrowed in March 1995, and loaned
to LHC to acquire the initial 50% in the Hotel/Casino.
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 Leroy's 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 NON APPLICABLE
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 NON APPLICABLE
Item 5. OTHER INFORMATION NON APPLICABLE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - Financial Date 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
April 30, 1998:
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: June 15, 1998 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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1998
<CASH> 2,428,223
<SECURITIES> 2,804,234
<RECEIVABLES> 198,113
<ALLOWANCES> (55,444)
<INVENTORY> 427,500
<CURRENT-ASSETS> 6,268,243
<PP&E> 3,786,730
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,430,187
<CURRENT-LIABILITIES> 5,298,613
<BONDS> 2,869,342
0
0
<COMMON> 78,408
<OTHER-SE> 4,183,824
<TOTAL-LIABILITY-AND-EQUITY> 12,430,187
<SALES> 0
<TOTAL-REVENUES> 2,335,368
<CGS> 0
<TOTAL-COSTS> 2,160,011
<OTHER-EXPENSES> (38,545)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (101,125)
<INCOME-PRETAX> 112,777
<INCOME-TAX> 0
<INCOME-CONTINUING> 112,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,777
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
