<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2000
COMMISSION FILE NO. 000-20685
AMERICAN WAGERING, INC.
---------------------------------
(exact name of Registrant as specified in its charter)
Nevada 88-0344658
------------------------------ -------------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
675 Grier Drive, Las Vegas, Nevada 89119
-------------------------------------------
(Address of Principal Executive Offices)
(702) 735-0101
--------------------------------------
(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
Class Outstanding as of December 14, 2000
----- -----------------------------------
Common Stock, $.01 par value 7,836,846
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<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
------
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets - October 31, 2000 (Unaudited)
and January 31, 2000.............................................5
Consolidated Statements of Operations - Three Months Ended
October 31, 2000 and 1999 (Unaudited)............................6
Consolidated Statements of Income (Loss) - Nine Months Ended
October 31, 2000 and 1999 (Unaudited)............................7
Consolidated Statements of Cash Flows - Nine Months Ended
October 31, 2000 and 1999 (Unaudited)............................8
Notes to Consolidated Financial Statements (Unaudited)........9-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................13-15
PART II OTHER INFORMATION
-------
Item 1. Legal Proceedings............................................16-17
Item 6. Exhibits and Reports on Form 8-K................................18
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS October 31, January 31,
2000 2000
(Unaudited)
------------- ---------------
Current assets
<S> <C> <C>
Cash $1,645,886 $ 3,232,235
Accounts receivable, net of allowance for
doubtful accounts of $27,903 and $188,624 445,834 686,418
Inventories 350,810 430,619
Other 1,028,445 399,804
---------- -----------
3,470,975 4,749,076
Other assets
Property and equipment, net 3,758,663 4,081,926
Unamortized intangible assets 869,376 1,127,421
Other 600,011 670,600
---------- -----------
$8,699,025 $10,629,023
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 66,585 $ 61,892
Litigation judgment 184,790 -
Accounts payable 1,431,933 1,637,826
Interest payable 427,002 -
Accrued expenses 477,077 954,015
Unpaid winning tickets 743,473 1,888,424
Other current liabilities 1,108,403 1,049,194
Net liabilities of business held for sale 469,525 -
---------- -----------
4,908,788 5,591,351
---------- -----------
Long-term debt, less current portion 1,766,084 1,816,517
---------- -----------
Stockholders' equity
Series A Preferred stock - 10% cumulative, $100 par value,
authorized: 25,000,000 shares; issued and outstanding:
14,662 and 15,424 shares 1,466,200 1,542,400
Common stock - $.01 par value, 25,000,000 shares
authorized: 7,836,846 issued and outstanding 78,980 78,857
Common shares (239,819) to be issued in settlement of
litigation 2,549,276 3,587,625
Additional paid-in capital 11,833,240 10,709,223
Accumulated deficit (13,576,050) (12,369,457)
Treasury shares (61,100) at cost (327,493) (327,493)
---------- -----------
2,024,153 3,221,155
---------- -----------
$8,699,025 $10,629,023
========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
Revenues $3,211,857 $ 3,684,758
---------- -----------
Costs and expenses
Direct costs and expenses 1,933,087 2,495,495
Research and development 165,999 277,776
Selling, general and administrative 584,303 905,566
Depreciation and amortization 191,703 212,910
---------- -----------
2,875,092 3,891,747
---------- -----------
Operating income (loss) 336,765 (206,989)
---------- -----------
Other income (expense)
Interest income 3,858 13,730
Other (293) (38,722)
Interest expense (36,908) (39,296)
---------- -----------
(33,343) (64,288)
---------- -----------
Income (loss) before unusual or infrequent items 303,422 (271,277)
Litigation judgment and settlements 415,210 -
---------- -----------
Income (loss) from continuing operations 718,632 (271,277)
---------- -----------
Discontinued operations
Income (loss) from operations (39,492) 9,938
Loss on disposal (134,329) -
---------- -----------
(173,821) 9,938
---------- -----------
Net income (loss) 544,811 (261,339)
Preferred stock dividend requirements (38,067) (42,417)
---------- -----------
Net income (loss) applicable to common stockholders $ 506,744 $ (303,756)
========== ===========
Per share amounts
Basic:
Income (loss) from continuing operations $ 0.09 $ (0.03)
Loss from discontinued operations (0.02) -
Net income (loss) applicable to common shareholders 0.06 (0.03)
Diluted:
Income (loss) from continuing operations $ 0.09 $ (0.03)
Loss from discontinued operations (0.02) -
Net income (loss) applicable to common shareholders 0.06 (0.04)
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED OCTOBER 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Revenues $ 7,811,606 $8,584,400
----------- ----------
Costs and expenses
Direct costs and expenses 6,049,491 6,057,002
Research and development 720,469 621,018
Selling, general and administrative 2,021,084 2,301,170
Depreciation and amortization 622,367 604,719
----------- ----------
9,413,411 9,583,909
----------- ----------
Operating loss (1,601,805) (999,509)
----------- ----------
Other income (expense)
Interest income 17,983 24,273
Other (70,782) 77,018
Interest expense (551,705) (118,749)
----------- ----------
(604,504) (17,458)
----------- ----------
Loss before unusual or infrequent items (2,206,309) (1,016,967)
Litigation judgment and settlements 1,315,210 -
----------- ----------
Loss from continuing operations (891,099) (1,016,967)
----------- ----------
Discontinued operations
Income (loss) from operations (66,235) 234,076
Gain (loss) on disposal (134,329) 341,403
----------- ----------
(200,564) 575,479
----------- ----------
Net loss (1,091,663) (441,488)
Preferred stock dividend requirements (114,930) (136,771)
----------- ----------
Net loss applicable to common stockholders $(1,206,593) $ (578,259)
=========== ==========
Per share basic and diluted amounts
Loss from continuing operations $ (0.11) $ (0.13)
Income (loss) from discontinued operations (0.03) 0.07
Net loss applicable to common shareholders (0.15) (0.07)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 31
(Unaudited)
2000 1999
----------- ----------
Operating activities
Net cash used in operating activities $(1,357,596) $ (739,419)
----------- ----------
Investing activities
Purchase of property and equipment (218,371) (409,649)
Purchase of intangibles - (16,756)
Proceeds from sale of assets - 3,809,392
Deposits and other assets 140,697 95,070
Proceeds from sale of investments - 231,605
----------- ----------
Net cash provided by (used in) investing
activities (77,674) 3,709,662
----------- ----------
Financing activities
Proceeds from exercise of stock options 85,791 -
Repayment of borrowings (45,740) (2,427,027)
Redemption of preferred stock (76,200) (250,000)
Preferred stock dividends (114,930) (122,628)
----------- ----------
Net cash provided by (used in) financing
activities (151,079) (2,799,655)
----------- ----------
Change in cash
Net increase (decrease) in cash (1,586,349) 170,588
Cash at beginning of period 3,232,235 3,076,563
----------- ----------
Cash at end of period $ 1,645,886 $3,247,151
=========== ==========
See notes to consolidated financial statements.
<PAGE>
AMERICAN WAGERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. The results of operations
for any interim period are not necessarily indicative of results for the full
year. For further information, please refer to the consolidated financial
statements of American Wagering, Inc. (the "Company"), and the related notes,
included within the Company's Annual Report on Form 10-KSB for the fiscal year
ended January 31, 2000, previously filed with the Securities and Exchange
Commission. The consolidated balance sheet at January 31, 2000, was derived from
the audited financial statements included therein.
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform to the current period presentation.
2. NET LIABILITIES OF BUSINESS HELD FOR SALE
On July 27, 2000, the Company reached a settlement with the Nevada Gaming
Commission regarding a disciplinary complaint filed against the
Company. The Company agreed to pay a fine of $10,000 and to divest by January
27, 2001, of its interests in its international Internet and telephone wagering
operation. The Company intends to terminate those operations on that date if its
efforts to sell the business are unsuccessful.
As of October 31, 2000, the total liabilities of the business $634,206 exceeded
the book value of its assets by $469,525. The net loss for the three and nine
months ended October 31, 2000, includes losses from this business totaling
$195,116 and $580,449, respectively. For the same period of the prior year,
losses of the business totaled $226,512 and $628,519, respectively.
3. DISCONTINUED OPERATIONS
Subsequent to October 31, 2000, the Company decided to discontinue its
casino gaming operations, consisting of 57 electronic gaming devices, and
recorded a $68,811 provision for anticipated operating losses through December
22, 2000, the planned closing date of the casino. The Company also recorded an
asset valuation allowance of $65,518. At October 31, 2000 and January 31, 2000,
the net current assets of the discontinued segment totaled $9,121 and $112,026
and are included in other current assets. There were no long-term liabilities
associated with the discontinued segment, and its other assets are not material.
4. PER SHARE DATA
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:
Three Months Ended Nine Months Ended
-------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
Basic 7,836,846 7,824,513 7,835,547 7,824,513
Diluted 7,836,846 -- -- --
The basic and diluted weighted average shares are the same as there is not an
increase for the common equivalent shares as the market price of the Company's
common stock was below the average exercise price of the options.
Except for the current quarter, the Company incurred net losses for the other
periods and, as a result, no dilutive securities entered into the calculation of
the weighted average shares outstanding.
<PAGE>
AMERICAN WAGERING, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. SEGMENT INFORMATION
The Company conducts business with customers through three business
segments, Wagering Unit, Systems Unit, and Keno Unit. Its Wagering Unit
(Wagering) operates 47 race and sports books throughout Nevada, and an Internet
and telephone betting operation located in Canberra, Australia that it has
agreed to divest of by January 27, 2001. The Company's Systems Unit (Systems)
designs, markets, installs and maintains sports and race book systems for the
sports betting industry. The Keno Unit (Keno) operates keno games in four
locations in Nevada. The accounting policies of each business unit are the same
as those described in Note 1 to the Consolidated Financial Statements included
in the Company's 2000 Form 10-KSB. The Company evaluates the performance of its
operating segments based primarily on operating income (loss).
Amounts for the 1999 periods presented below have been reclassified to
conform to the 2000 presentation, including the elimination of the discontinued
Casino segment. Financial performance measurements for Wagering, Systems, Keno,
and SG&A (certain unallocated selling, general, and administrative costs) are
set forth below.
<TABLE>
<CAPTION>
Three months ended October 31, Nine months ended October 31,
------------------------------ -------------------------------
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Wagering $ 1,731,043 $ 2,253,445 $ 4,201,441 $ 4,777,523
Systems 1,447,049 1,424,668 3,435,960 3,800,232
Keno 33,765 6,645 174,205 6,645
----------- ----------- ----------- -----------
$ 3,211,857 $ 3,684,758 $ 7,811,606 $ 8,584,400
=========== =========== =========== ===========
Systems research/development $ 165,699 $ 277,776 $ 720,469 $ 621,018
=========== =========== =========== ===========
Operating income (loss)
Wagering $ 207,787 $ 355,879 $ (96,513) $ 177,125
Systems 710,558 232,320 779,789 631,374
Keno (159,828) (291,560) (741,650) (454,062)
SG&A (421,752) (503,628) (1,543,431) (1,353,946)
----------- ----------- ----------- -----------
$ 336,765 $ (206,989) $(1,601,805) $ (999,509)
=========== =========== =========== ===========
October 31, January 31,
2000 2000
----------- -----------
Identifiable assets
Wagering $ 2,057,089 $ 3,943,317
Systems 5,276,562 5,070,162
Keno 783,597 931,046
SG&A 505,126 506,924
----------- -----------
$ 8,622,374 $10,451,449
=========== ===========
</TABLE>
<PAGE>
6. CONTINGENCIES
Imagineering Systems, Inc.
In October 2000, a jury rendered a verdict including interest against the
Company in a breach of contract claim and a judgment in favor of the Company in
a related matter. The Company has received a legal opinion that there is a high
likelihood that damages awarded for the breach of good faith and fair dealing
and a portion of the award for the breach of contract will be set aside. The
Company, based on advice of legal counsel, estimates that the net damage award
by the court could range between $156,417 and $1,320,917 plus interest. The
judgment has not yet been entered pending hearings on motions filed by the
Company, and the favorable judgment has been stayed pending the outcome of this
matter. As a result, in accordance with Statement of Financial Accounting
Standard No. 5 Accounting for Contingencies, the Company has recorded an
allowance for probable losses equal to the lower end of the probable loss range.
Autotote Corporation and Autotote Systems, Inc.
On March 3, 1998, the Company filed a complaint in the United States District
Court for the District of Nevada, against Autotote Corporation and Autotote
Systems, Inc. seeking to enjoin certain actions of Autotote and asking for
monetary damages for the alleged breach by Autote of certain provisions of a
Stock Transfer Agreement, a Technology Cross License Agreement, a
Distributorship Agreement, and the International Cooperation Agreement, all of
which were executed by the parties on October 25, 1996 (collectively the
"Agreements"), and for the infringement by Autotote of CBS" copyright interest
in, and the misappropriation and conversion of, CBS' Race and Sports Book
Software.
On April 15, 1998, Autotote filed a counterclaim against the Company and CBS
with the United States District Court for the District of Nevada, asking that
the Agreements be rescinded and for compensatory damages in excess of $75,000
plus interest, and punitive damages.
In July 2000, the Company settled its litigation with Autotote Corporation and
the Company received a cash settlement of $540,000 and was relieved of an
obligation to pay accrued royalties of approximately $360,000.
In connection with the Autotote Corporation and Autotote Systems Inc.
settlement, the Company and CBS entered into a settlement agreement on March 31,
1999 with Hipodromo De Agua Caliente, S.A. De C.V. a Mexican Corporation
("Caliente"). Caliente is a customer of Autotote Systems Inc. that uses the CBS
race and sports book software system. The Company and CBS claimed that the use
of the CBS race and sports book software by Caliente outside of Mexico breached
the Agreement. The settlement with Caliente provided for a license to Caliente
to use the race and sports book software upon terms set forth in the license
agreement. The license agreement grants Caliente a perpetual, nonexclusive,
nontransferable worldwide right and license for the sole purpose of operating
the International Risk Management Business. Caliente agreed to pay a license fee
of $600,000 payable in four equal installments of $150,000 starting on October
31, 2000. The settlement agreement was subject to Nevada Gaming Commission
approval of a one time waiver of a condition on the Company's Nevada gaming
license prohibiting the expansion of the relationship with Caliente. On November
20, 2000, the Company received approval from the Nevada Gaming Commission of the
one time waiver of the condition permitting the Company to receive the license
fee payments from Caliente. Through December 10, 2000 CBS has received $300,000
in license fee payments from Caliente. As of October 31, 2000 the Company has
recorded a gain of $600,000 as litigation settlement.
Following is a summary of the Litigation (judgement) and settlements for the
three and nine months ended October 31, 2000:
Three Months ended Nine Months ended
October 31, 2000 October 31, 2000
------------------ -----------------
Imagineering Systems, Inc. $ (184,790) $ (184,790)
Autotote Corporation -- 900,000
Hipodromo De Agua Caliente 600,000 600,000
----------- -----------
$ 415,210 $ 1,315,210
=========== ===========
<PAGE>
7. CONTINGENCIES
Management Plans.
The Company has incurred net losses for the past several years and as
of October 31, 2000, has a net working capital deficiency of $1,437,813. The
Company's ability to continue as a going concern is dependent upon attaining and
sustaining profitable operations and obtaining additional debt or equity
financing until operating cash flows are sufficient to satisfy its current
obligations. The Company is implementing cost cutting measures in all of its
activities, including the elimination of immature business activities that
appear to lack short-term profit potential. In addition, historically, the
Company derives seasonally high results from its licensed race and sports books
in the State of Nevada between September and January. However, the Company takes
financial risks on the outcome of various sporting events, and there is no
assurance that the outcome will be favorable and that sufficient cash flow can
be generated to sustain operations during periods of lower activity. The Company
is currently seeking additional collaterized debt and other financing to reduce
its current working capital deficiency and to sustain its operations during
periods of lower activity. There is no assurance that the Company can complete
such funding or do so under acceptable terms and that such funding would be
sufficient to meet the Company's cash flow requirements.
Regulatory Matters.
The scope of the Company's licensed race and sports books operation in
the State of Nevada is limited by regulation and statute. On March 22, 2000,
legislation entitled the "Amateur Sports Integrity Act" was introduced in
Congress. The general purpose of the proposed legislation is to prohibit
wagering on games and performances at the Summer and Winter Olympics and on high
school and college games. On September 13, 2000 the House Judiciary Committee
voted 19-9 in favor of banning wagering on college games. In order for the
proposal to become law it will have to be voted on and passed by the full House
and Senate and forwarded to the President for signature. The Company's currently
accepts wagering on Olympic and college games. The Company estimates that
wagering on college sports represents approximately 26% of its Nevada race and
sports book revenues. The passage of such legislation will have a material
adverse affect upon the Company's wagering operations.
In December 1999, the Australian government released its Productivity
Commissions report on Australia's Gambling Industries. The report made certain
recommendations including regulation of online casinos. Following this report,
the Senate Select Committee on Information Technologies issued a report entitled
"NETBETS" a review of online gambling in Australia. The committee made a series
of proposals to online casinos with a moratorium on the issuance of online
gaming licenses until consumer protection policies were implemented. On December
6, 2000 the Australian government passed The Interactive Gambling (Moratorium)
Bill 2000. The bill provides for a twelve month retrospective ban to May 2001 on
internet gaming services and makes it an offense to operate an interactive
gambling service that was not operating prior to May 19, 2000. The bill provides
for exemption for online sports and race wagering.
At this time the effect of the outcome of the implementation of the
recommendation of the government to permanently ban online gaming is unknown. If
the federal government is successful in banning online gaming, such ban may have
a material adverse effect on Mega$ports (ACT).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results Of Operations
Three months ended October 31, 2000 and 1999
Operating income. Operating income for the quarter increased to
$336,765, $543,754 over the same quarter of the prior year, as a result of
management efforts to reduce operating costs and expenses for all segments.
Revenues for the current quarter were $3,211,857, a decrease of $472,928 or
12.8% from the same quarter of the prior year. The decrease primarily consisted
of decreases in wagering revenues from the Company's Nevada race and sports book
operations that resulted from two factors. First, total wagers (handle)
decreased $1,586,471 (4.8%) as a result of increased competition. Next, the win
percentage (handle less paid-outs divided by handle) also decreased from 6.1% to
5.4%, a decline of 11.7%. Fluctuations of this nature are not unusual in the
wagering industry because of inherent risks associated with betting against
patrons. Comparative operating costs and expenses for the quarter decreased
$1,016,655 over the prior quarter as follows:
Three months ended October 31,
-------------------------------------------
Decrease 2000 1999
----------- ----------- -----------
Direct costs and expenses
Wagering $ (301,523) $ 1,377,839 $ 1,679,362
System (201,256) 396,318 597,574
Keno (59,629) 158,930 218,559
Research and development (111,777) 165,999 277,776
Selling, general and administrative (321,263) 584,303 905,566
Depreciation and amortization (21,207) 191,703 212,910
----------- ----------- -----------
$(1,016,655) $ 2,875,092 $ 3,891,747
=========== =========== ===========
The decrease in expenses is principally due to a $374,310 reduction in Wagering
operating costs of which $192,207 is due to Mega$ports, U.S. which ceased
operations in March 2000, a $455,857 reduction in Systems operating costs mainly
associated with a reduction of equipment sales, a $104,612 reduction in Keno
operating costs and a $81,876 Selling, General and Administration reduction
which are mainly associated with the Company's efforts to reduce spending. Of
the $1,016,655 decrease in costs and expenses, approximately $201,000 was
reduced labor costs.
Unusual or infrequent items. In October 2000, in connection with the
Imagineering Systems, Inc. matter, a jury rendered a verdict against the Company
in a breach of contract claim and a judgment in favor of the Company in a
related matter. The Company has recorded a loss of $184,790 with respect to this
litigation. (See "Legal Proceedings")
In connection with the Autotote Corporation and Autotote Systems, Inc.
settlement, the Company and CBS entered into a settlement agreement on March 31,
1999 with Hipodromo De Agua Caliente, SA De C.V. a Mexican Corporation
(Caliente"). As of October 31, 2000 the Company has recorded a gain of $600,000
as litigation settlement. (See "Legal Proceedings")
<PAGE>
Discontinued operations. Subsequent to October 31, 2000, the Company
decided to discontinue its casino gaming operations, consisting of 57 electronic
gaming devices, and recorded a $68,811 provision for anticipated operating
losses through December 22, 2000, the planned closing date of the casino. The
Company also recorded an asset valuation allowance of $65,518. Income (loss)
from discontinued operations relating to the former casino segment total
$(173,821) and $25,017 for the current and prior quarter.
Nine months ended October 31, 2000 and 1999
Operating loss. The operating loss for the current nine months
increased $602,296 over the prior year period primarily because of decreased
wagering revenues from the Company's Nevada race and sports books operations and
continuing losses from the Keno operations, offset by an increase in the Systems
segment. Total revenues for the nine months were $7,811,606, a decrease of
$772,794 or 9.0% from the same period of the prior year. $755,256 of the
decrease related to the Company's Nevada race and sports book operations,
including $38,339 attributed to pari-mutuel sports betting which ceased
operations in March 2000. Total wagers accepted declined partially as a result
of additional competition. In addition to a $1,169,177 or 1.5% decrease in
wagers accepted, the net win percentage (handle less paid-outs divided by
handle) also decreased from 5.6% to 5.2%, a decline of 6.8%. Fluctuations of
this nature are not unusual in the wagering industry because of inherent risks
associated with betting against patrons.
System revenues of $3,435,960 for the nine months ended October 31,
2000 declined $364,272 or 9.6% from $3,800,232 for the nine months ended October
31, 1999 mainly due to reduced equipment sales associated with new race and
sports book installations. The decline in equipment sales was accompanied by a
corresponding $398,947 reduction in costs and expenses. Equipment maintenance
fees increased by $249,656 or 17% for the period.
Current period Keno revenues exceeded that of the prior period by
$167,560 because the prior period only included the initial two months of
operations. However, the Keno operation is still in its infancy and operating
costs and expense exceeded related revenues by $741,650 for the current period,
$287,588 more than that of the prior period.
Unusual or infrequent items. In October 2000, in connection with the
Imagineering Systems, Inc. matter, a jury rendered a verdict against the Company
in a breach of contract claim and a judgment in favor of the Company in a
related matter. The Company has recorded a loss of $184,790 with respect to this
litigation. (See "Legal Proceedings")
In July 2000, the Company settled it's litigation with Autotote
Corporation and the Company received a cash settlement of $540,000 and was
relieved of an obligation to pay accrued royalties of approximately $360,000.
In connection with the Autotote Corporation and Autotote Systems, Inc.
settlement, the Company and CBS entered into a settlement agreement on March 31,
1999 with Hipodromo De Agua Caliente, SA De C.V. a Mexican Corporation
(Caliente"). As of October 31, 2000 the Company has recorded a gain of $600,000
as litigation settlement. (See "Legal Proceedings")
Discontinued operations. Subsequent to October 31, 2000, the Company
decided to discontinue its casino gaming operations, consisting of 57 electronic
gaming devices, and recorded a $68,811 provision for anticipated operating
losses through December 22, 2000, the planned closing date of the casino. The
Company also recorded an asset valuation allowance of $65,518 Income (loss) from
discontinued operations relating to the former casino segment total $(200,564)
and $20,611 for the current and prior nine month periods, respectively. Income
from discontinued operations of $213,465 and a disposal gain of $341,403 for the
prior nine months relates to a hotel, food, and beverage facility sold during
that period.
<PAGE>
Liquidity and Capital Resources
Working capital decreased $595,538 from January 31, 2000 and, as of
October 31, 2000, the Company has a net working capital deficiency of
approximately $1,437,813. Cash used in operating activities totaled $1,541,154
for the nine months ended October 31, 2000, and increase of $801,735 over the
prior year period. Net cash used in investing and financing activities for the
current nine months totaled $228,753. In the prior year period the Company sold
its hotel, food, and beverage operation generating $3.8 million used to repay
$2.4 million of long-term debt and to meet current period working capital
requirements.
The Company has incurred net losses for the past several years and for
the nine months ended October 31, 2000. The Company's ability to continue as a
going concern is dependent upon attaining and sustaining profitable operations
and obtaining additional debt or equity financing until operating cash flows are
sufficient to satisfy its current obligations. The Company continues to review
and implement cost cutting measures in all of its activities, including the
elimination of immature business activities that appear to lack short-term
profit potential. In addition, historically, the Company derives seasonally high
results from its licensed race and sports books in the State of Nevada between
September and January. However, the Company takes financial risks on the outcome
of various sporting events, and there is no assurance that the outcome will be
favorable and that sufficient cash flow can be generated to sustain operations
during periods of lower activity. If the Company cannot generate sufficient cash
flow from its operations to meet its operating requirements and/or the required
investments, the Company would have to obtain additional debt or equity funding.
The Company is currently seeking additional collaterized debt and other
financing to reduce its current working capital deficiency and to sustain its
operations during periods of lower activity. There is no assurance that the
Company can complete such funding or do so under acceptable terms and that such
funding would be sufficient to meet the Company's cash flow requirements.
Currency Risk
Except for the Company's wagering operation in Australia, the Company's
transactions are conducted and accounts are denominated in United States
dollars. As of October 31, 2000, cash includes approximately $88,000 denominated
in Australian dollars. For the nine months ended October 31, 2000, wagers
accepted by the Australian operation totaled approximately $12,000,000 of which
approximately 25% were in Australian dollars.
Forward-Looking Statements
Certain statements contained herein which are not historical facts are
forward-looking statements with respect to events, the occurrence of which
involves risks and uncertainties, including without limitation, operating and
business development plans, the Company taking risks on the outcome of sports
events as a principal betting against its patrons, strict regulation by gaming
authorities, changes in federal or state laws and the administration thereof,
competition the Company faces or may face in the future, uncertainty concerning
market acceptance of the Company's services and products, the ability of the
Company to continue to obtain adequate financing and to meet its obligations as
they become due, the ability of the Company to recover its investment in
businesses held for sale and discontinued segments, the Company's dependence on
key employees, potential fluctuations in the Company's quarterly results,
general domestic and global economic and business conditions, and other risk
factors detailed from time to time in the Company's reports filed with the
Securities and Exchange Commission.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - In addition to the descriptions set forth
below please see the description of these legal proceedings set
forth in the Registrant's Form 10-KSB for the year ended January
31, 2000.
Racusin
On August 23, 1995, Leroy's filed a complaint for Declaratory
Relief in the District Court of Clark County, Nevada, requesting
that the court declare that 2 written agreements between Leroy's
and Michael Racusin, d.b.a. M. Racusin & Company ("Racusin"),
were vague, ambiguous and unenforceable contracts. Racusin had
introduced certain underwriters, including Equity Securities
Trading Co., Inc. (one of the underwriters of the Company's
Initial Public Offering) to Leroy's and provided Leroy's certain
advisory services. The specific language of the alleged
unenforceable agreements provided that Leroy's would pay to
Racusin (i) a commission equal to 5% of the purchase price of
Leroy's in the event Racusin brings in a buyer for Leroy's; and
(ii) compensation equal to 4.5% of the "final evaluation in the
form of Leroy's Common Stock plus $150,000 in cash upon
completion of common offering or IPO".
In February 2000 a jury verdict was rendered. The jury found
that; (i) Leroy's breached its contract with Racusin; (ii) as a
result of that breach, Racusin was entitled to receive stock in
Leroy's in the amount equal to 4.5% of $45,000,000 plus $150,000
in cash; and (iii) American Wagering is the later ego of Leroy's.
On July 12, 2000 a judgement was entered by the Court as follows:
1. Racusin should receive $150,000 plus interest totaling
$170,251. This sum shall be set off against the $756,340
previously paid by the Company on September 5, 1997.
2. Racusin shall receive 239,819 shares of common stock in the
Company. The shares are net of 97,681 shares, which the
Company is entitled to set off for the amount of $589,089
previously paid to Racusin. Racusin shall receive pre
judgement interest on the 239,819 shares.
3. Racusin shall recover his costs of the suit.
The Company has filed an appeal of the judgement.
The Company has reserved 239,819 shares of Common Stock and has
accrued $469,000 in interest awarded in the Judgement.
Autotote Systems, Inc.
On March 3, 1998, the Company and CBS filed a Complaint in the
United States District Court for the District of Nevada, against
Autotote Corporation and Autotote Systems, Inc. seeking to enjoin
certain actions of Autotote and asking for monetary damages for
the alleged breach by Autotote of certain provisions of a Stock
Transfer Agreement, a Technology Cross License Agreement, a
Distributorship Agreement, and the International Cooperation
Agreement, all of which were executed by the parties on October
25, 1996 (collectively the "Agreements"), and for the
infringement by Autotote of CBS' copyright interest in, and the
misappropriation and conversion of, CBS' Race and Sports Book
Software.
On April 15, 1998, Autotote filed a counterclaim against the
Company and CBS with the United States District Court for the
District of Nevada, asking that the Agreements be rescinded and
for compensatory damages in excess of $75,000 plus interest, and
punitive damages.
On July 18, 2000, the parties executed a settlement agreement
under which the Company and CBS received $540,000 in settlement
of their claims against Autotote and was relieved of its
obligation to pay accrued royalty payments of $359,997, and the
counterclaims of Autotote were dismissed with prejudice.
<PAGE>
In connection with the Autotote Corporation and Autotote Systems
Inc. settlement, the Company and CBS entered into a settlement
agreement on March 31, 1999 with Hipodromo De Agua Caliente, S.A.
De C.V. a Mexican Corporation ("Caliente"). Caliente is a
customer of Autotote Systems Inc. that uses the CBS race and
sports book software system. The Company and CBS claimed that the
use of the CBS race and sports book software by Caliente outside
of Mexico breached the Agreement. The settlement with Caliente
provided for a license to Caliente to use the race and sports
book software upon terms set forth in the license agreement. The
license agreement grants Caliente a perpetual, nonexclusive,
nontransferable worldwide right and license for the sole purpose
of operating the International Risk Management Business. Caliente
agreed to pay a license fee of $600,000 payable in four equal
installments of $150,000 starting on October 31, 2000. The
settlement agreement was subject to Nevada Gaming Commission
approval of a one time waiver of a condition on the Company's
Nevada gaming license prohibiting the expansion of the
relationship with Caliente. On November 20, 2000, the Company
received approval from the Nevada Gaming Commission of the one
time waiver of the condition permitting the Company to receive
the license fee payments from Caliente. Through December 10, 2000
CBS has received $300,000 in license fee payments from Caliente.
As of October 31, 2000 the Company has recorded a gain of
$600,000 as litigation settlement.
Internet Operation Investigation
On December 16, 1999 the Nevada State Gaming Control Board
("Board") filed a complaint for disciplinary action against
American Wagering, Inc., referred to as State Gaming Control
Board v. American Wagering, Inc. d.b.a. Mega$ports Pty, Ltd. Case
No. 99-27 ("complaint"), related to the operation of Mega$sports
Pty, Ltd., ("Mega$ports (ACT)"). The complaint contained 13
separate counts against the Company. The complaint alleged the
Company, as a Company registered with the Nevada Gaming
Commission, engaged in an unsuitable method of operation due to
the fact that Mega$ports (ACT) accepted a series of wagers from a
patron who was physically located in Las Vegas, Nevada. The Board
further alleged that the acceptance of these wagers was a
violation of both federal and Nevada State laws that prohibit
Internet sports wagering.
On July 27, 2000 the Company entered into a settlement of the
complaint with the Board which was approved by the Nevada Gaming
Commission. The Company neither admitted nor denied the
allegations. The Company agreed to pay a fine of $10,000 and has
agreed to divest itself of any and all interests and rights
pertaining to Mega$ports (ACT). The divestiture may be
accomplished by sale, spin off or termination of the operations
of Mega$ports (ACT). The divestiture is to be accomplished by
January 27, 2001. The Company has the right to request not more
than three 60-day extension periods to complete the divestiture.
The Company is currently negotiating the sale of Mega$ports (ACT)
with a third party. The Company will continue to entertain
offers with respect to the sale of Mega$ports (ACT).
Imagineering Systems, Inc.
On October 21, 1998 Imagineering Systems, Inc. ("ISI") filed
a civil complaint against the Company claiming, among other
things breach of contract and implied covenant of good faith and
fair dealing. On November 8, 1998 the Company brought an action
to recover on loans it made to ISI.
On October 2, 2000 the Company's Notice for Summary
Judgement for the claim of relief for breach of Promissory Note
was granted. The Company was awarded $76,583.03 plus interest.
The execution of the judgment was stayed until the outcome of the
ISI civil complaint is known.
On October 17, 2000 a trial by jury was held and on October
30, 2000 the jury rendered a verdict in favor of ISI in the
amount of $1,397,500 plus interest for breach of contract and
breach of its implied covenant of good faith and fair dealing.
The judgement has not been issued pending hearings on motions
filed by the Company.
The Company has accrued $156,417 plus interest net of
$76,503.03 plus interest with respect to this litigation.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included with this quarterly report on Form
10-QSB as required by Item 601 of Regulation S-K:
Exhibits - Financial Data Schedule
Number Description Method of Filing
------ ----------- ----------------
27 Financial Data Schedule Filed herewith
b) Reports on Form 8-K. There were no reports filed on Form 8-K during
the quarter ended October 31, 2000.
Signature
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN WAGERING, INC.
Dated: December 15, 2000 By:/s/ Robert D. Ciunci
-------------------------
Executive Vice President and Chief Financial Officer
(a duly authorized officer)
