<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
----------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997
Commission File No. 0-10061
AMERICAN CASINO ENTERPRISES, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Nevada 04-2709807
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
6787 W. Tropicana, Ste 200, Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip Code)
</TABLE>
(702) 227-9800
(Registrant's telephone number, including area code)
N/A
(Former name, former address & former fiscal year, if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, $.01 Par Value,
14,867,958 shares at March 14, 1997.
Transitional Small Business Disclosure Format Yes No X
----- -----
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
American Casino Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
January 31, 1997 and July 31, 1996
<TABLE>
<CAPTION>
January 31, July 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $13,661,000 $12,578,000
Consulting fee and other receivables 69,000 202,000
Refundable and prepaid income taxes 225,000 187,000
Deferred tax asset 2,000 2,000
Prepaid expenses 69,000 45,000
----------- -----------
Total current assets 14,026,000 13,014,000
----------- -----------
Property and equipment, net 228,000 214,000
----------- -----------
Other assets:
Consulting agreement acquisition costs, net 335,000 275,000
Deposits and other 155,000 133,000
Deferred tax asset 47,000 --
Land held for investment or future development 5,202,000 --
----------- -----------
5,739,000 408,000
----------- -----------
$19,993,000 $13,636,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 77,000 $ 51,000
Accrued expenses 125,000 296,000
Current portion of long-term debt 15,000 --
----------- -----------
Total current liabilities 217,000 347,000
----------- -----------
Minority interests in consolidated subsidiary 958,000 --
Long-term debt, less current portion 1,651,000 --
----------- -----------
2,609,000 --
----------- -----------
Commitments -- --
Shareholders' equity:
Common stock, $.01 par; 30,000,000 shares
authorized; 14,867,958 and 14,367,958
shares issued and outstanding 149,000 144,000
Preferred stock, $.01 par; 10,000,000 shares
authorized; shares issued and outstanding - none -- --
Capital in excess of par 4,901,000 3,213,000
Capital in excess of par - warrants 110,000 --
Retained earnings 12,007,000 9,932,000
----------- -----------
17,167,000 13,289,000
----------- -----------
$19,993,000 $13,636,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
American Casino Enterprises, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended January 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ 2,220,000 $ 2,551,000
------------ -----------
Costs and expenses:
Casino consulting 405,000 1,124,000
General and administrative 363,000 292,000
Amortization and depreciation 37,000 20,000
------------ -----------
805,000 1,436,000
------------ -----------
Income from operations 1,415,000 1,115,000
------------ -----------
Other income (expense):
Other income - interest 148,000 203,000
Other expense - interest -- --
------------ -----------
148,000 203,000
------------ -----------
Income before NIGC civil fine and income taxes 1,563,000 1,318,000
------------ -----------
NIGC civil fine -- 500,000
------------ -----------
Income before income taxes 1,563,000 818,000
------------ -----------
Income tax expense (benefit):
Current:
State 14,000 85,000
Federal 569,000 418,000
Deferred
State 0 --
Federal (3,000) --
------------ -----------
580,000 503,000
------------ -----------
Net income $ 983,000 $ 315,000
============ ===========
Earnings per common share and
common share equivalent $ 0.06 $ 0.02
============ ===========
Weighted average number of common shares
and common share equivalents 16,243,000 16,722,000
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
American Casino Enterprises, Inc. and Subsidiaries
Consolidated Statements of Income
Six Months Ended January 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Revenues:
Casino consulting fees $ 4,440,000 $ 5,111,000
------------ -----------
Costs and expenses:
Casino consulting 699,000 1,409,000
General and administrative 646,000 439,000
Amortization and depreciation 72,000 40,000
------------ -----------
1,417,000 1,888,000
------------ -----------
Income from operations 3,023,000 3,223,000
------------ -----------
Other income (expense):
Other income - interest 318,000 298,000
Other expense - interest (2,000) --
------------ -----------
316,000 298,000
------------ -----------
Income before NIGC civil fine and income taxes 3,339,000 3,521,000
------------ -----------
NIGC civil fine -- 500,000
------------ -----------
Income before income taxes 3,339,000 3,021,000
------------ -----------
Income tax expense (benefit):
Current:
State 141,000 236,000
Federal 1,170,000 778,000
Deferred
State (7,000) --
Federal (40,000) 339,000
------------ -----------
1,264,000 1,353,000
------------ -----------
Net Income $ 2,075,000 $ 1,668,000
============ ===========
Earnings per common share and
common share equivalent $ 0.13 $ 0.10
============ ===========
Weighted average number of common shares
and common share equivalents 16,172,000 16,207,000
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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American Casino Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended January 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,075,000 $ 1,668,000
------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 72,000 40,000
Deferred income tax expense (benefit) (47,000) 339,000
Warrants issued for services 110,000 --
Minority interests in consolidated subsidiary -- --
Changes in other assets and liabilities, net (204,000) (44,000)
------------ ------------
(69,000) 335,000
------------ ------------
Net cash provided by operating activities 2,006,000 2,003,000
------------ ------------
Cash flows from investing activities:
Property and equipment, net (38,000) 2,000
Land held for investment or future development (5,202,000) --
------------ ------------
Net cash provided (used) by investing activities (5,240,000) 2,000
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock
of consolidated subsidiary 2,638,000 --
Investment in consolidated subsidiary (112,000) --
Proceeds from long-term debt 1,673,000 --
Repayment of long-term debt (7,000) --
Proceeds from issuance of common stock 125,000 --
------------ ------------
Net cash provided by financing activities 4,317,000 --
------------ ------------
Net increase in cash and cash equivalents 1,083,000 2,005,000
Cash and cash equivalents, at beginning of period 12,578,000 8,841,000
------------ ------------
Cash and cash equivalents, at end of period $ 13,661,000 $ 10,846,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for state and federal income taxes $ 1,350,000 $ 1,356,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
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American Casino Enterprises, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Year Ended July 31, 1996 and Six Months
Ended January 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Capital
Common Stock Capital In excess
------------------------- in excess of par - Retained
Shares Dollars of par warrants earnings
---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1995 14,367,958 $144,000 $3,213,000 $6,136,000
Net income for the year 3,796,000
---------- -------- ---------- ---------- -----------
Balance, July 31, 1996 14,367,958 144,000 3,213,000 9,932,000
Issuance of shares 500,000 5,000 120,000
Issuance of warrants 110,000
Excess of equity in consolidated
subsidiary over cost 1,568,000
Net income for the period 2,075,000
---------- -------- ---------- ---------- -----------
Balance, january 31, 1997 14,867,958 $149,000 $4,901,000 $ 110,000 $12,007,000
========== ======== ========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
AMERICAN CASINO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1997
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
As permitted by the Securities and Exchange Commission (SEC) under Rule 10-01 of
Regulation S-X, the accompanying consolidated financial statements and notes
have been condensed and, therefore, do not contain all disclosures required by
generally accepted accounting principles. The consolidated financial statements
include the accounts of American Casino Enterprises, Inc. and its wholly and
majority-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated. For additional disclosures,
refer to the Annual Report on Form 10-KSB of the Company for the year ended July
31, 1996 ("Fiscal 1996").
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods.
Certain amounts in the interim period financial statements for Fiscal 1996 have
been reclassified for comparability with the current period presentation.
The computations of earnings per common share and common share equivalents are
based on the weighted average number of common share and common share
equivalents outstanding. Stock purchase warrants and options outstanding and
exercisable at or below the market price are considered common share
equivalents. Fully diluted earnings per share is not presented because the
effect would be antidilutive or the dilutive effect is less than three percent.
Results of the interim periods are not necessarily indicative of those to be
expected for the full year.
NOTE 2 - CONSULTING AGREEMENTS
TABLE MOUNTAIN CASINO & BINGO
The Company has a consulting agreement with the Table Mountain Band of Indians
(the "Table Mountain Tribe") for the Table Mountain Casino & Bingo (the
"Casino") in Friant, California, which is near Fresno, California.
On February 1, 1996, the Company signed a new consulting agreement with the
Tribe. The new consulting agreement has a duration of 27 months, and provides
that the Company will receive a base monthly consulting fee of $90,000, plus an
additional $90,000 for each increment of $500,000 or portion thereof, of Casino
monthly net income in excess of the first $1.5 million of net income from casino
operations. Additionally, effective February 1, 1996, the Company and the Table
Mountain Tribe signed a termination agreement of the previous consulting
agreement, and a monthly payment of $350,000 is being paid to the Company for a
term of 48 months, subject to meeting certain thresholds.
The prior consulting agreement provided for consulting fees equal to 35% of the
Casino's net income before consulting fees. For the period from June 19, 1995 to
February 1, 1996, the Company paid a concession to the Table Mountain Tribe
equal to seven percent (7%) of the Casino's net income before consulting fees.
During the six month period ended January 31, 1996, the concession totaled
$1,276,000.
7
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AMERICAN CASINO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1997
(UNAUDITED)
Consulting fee revenue is reported net of the concession to the Table Mountain
Tribe. See Note 6, Litigation.
UNITED AUBURN INDIAN COMMUNITY
In February 1996, the Company formed a joint venture with the Table Mountain
Tribe to provide consulting services to the United Auburn Indian Community ("the
Auburn Tribe"). The joint venture will assist in the development of a Class II
casino to be built and owned by the Auburn Tribe near Sacramento, California.
The joint venture will also train tribal members in operating the casino. The
Company has an 80% interest in the joint venture.
In February 1996, the joint venture entered into a consulting agreement with the
Auburn Tribe. Compensation to the joint venture for the consulting agreement is
structured as a base consulting fee of $150,000 per month, with additional fees
of $37,500 paid for each increment of $250,000 of net income between $1,000,000
and $3,000,000, and $31,250 paid for each increment of $250,000 of net income
over $3,000,000. The consulting fee payments will not commence until the casino
becomes operational and will then continue for a five year term.
The joint venture is committed to advance to the Auburn Tribe capital for land
acquisition, pre-development costs, and Tribal needs. Advances will begin to be
repaid with interest after the casino begins operations. Advances to the Auburn
Tribe by the Company at January 31, 1997 totaled approximately $141,000 and are
reported as "Deposits and other" in the accompanying balance sheet.
The Auburn Tribe is in the process of acquiring land for the casino. If and when
the Auburn Tribe acquires the land, it will be submitted to the Bureau of Indian
Affairs for placement into trust. At the time the land is placed into trust, a
one-time fee of $125,000 will be paid by the joint venture to the Auburn Tribe.
The Auburn Tribe will also receive options to acquire 150,000 shares of American
Casino Enterprises, Inc.'s common stock at the then-current market price.
A monthly payment of $22,500 for Tribal needs will be made by the joint venture
to the Auburn Tribe until the gaming facility is operational. At January 31,
1997, $216,000 of such payments had been made. The Company's share of these
monthly payments ($18,000) are reported in the accompanying balance sheet as
"Consulting agreement acquisition costs". See Note 6, Litigation.
NOTE 3 - CONSULTING AGREEMENT ACQUISITION COSTS
TABLE MOUNTAIN CASINO & BINGO
Consulting agreement acquisition costs are amortized over the life of the
consulting contract with the Table Mountain Tribe. The amortization period was
84 months for the first six months of Fiscal 1996. The amortization period is 27
months, the length of the new consulting agreement, for periods after February
1, 1996.
UNITED AUBURN INDIAN COMMUNITY
Interim payments to the Auburn Tribe for Tribal needs are being capitalized and
will begin to be amortized, after the casino is operational over the period of
the contract.
8
<PAGE> 9
AMERICAN CASINO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1997
(UNAUDITED)
NOTE 4 - LAND ACQUISITION AND RESALE
In October 1996, the Company entered into an agreement to purchase approximately
162 acres of land in Las Vegas, Nevada. The total purchase price of the land was
$5,202,000, consisting of approximately $3,600,000 in cash with the remaining
amount representing an assumption of a mortgage on the land. In connection with
the purchase, the Company granted an option to the seller of the land to
repurchase the land. The option holder exercised the option in February 1997 and
the Company recognized a gain of approximately $180,000 on the sale.
NOTE 5 - FORMATION OF NEW SUBSIDIARY
In September 1996, the Company formed a new subsidiary, G & L Acquisition Corp.
("G & L"). G & L will pursue business opportunities involving the establishment
or acquisition of a California card room, a gaming business located on a ship
which sails to international waters from home ports in the United States or
elsewhere and/or a leisure business ("Target Business"). The Company owns
approximately 64% of the outstanding shares of G & L.
G & L sold additional shares of its common stock through a private placement to
"accredited investors" as such term is defined in Regulation D under the
Securities Act of 1933. The private placement resulted in the sale of 1,992,000
shares at a price of $1.55 per share. The net proceeds from the sale, after the
costs of the offering, totaled $2,582,000. In the event, G & L does not effect
the acquisition or establishment of a Target Business within 18 months from the
closing of the offering, January 21, 1997, the remaining net proceeds from the
offering will be returned to the investors in the private placement.
The Company recorded the excess of its equity in net assets of G & L over the
cost as capital in excess of par in the accompanying consolidated financial
statements.
NOTE 6 - LITIGATION
AMERICAN CASINO ENTERPRISES, INC.
On July 15, 1994, the Chairman of the National Indian Gaming Commission ("NIGC")
issued a Notice of Violation and a separate Notice to Show Cause to the Company.
The Notice of Violation charged that the Company was in violation of certain
provisions of the Indian Gaming Regulatory Act ("IGRA") and the NIGC's
regulations, in that the Company had allegedly; (1) engaged in management of the
Table Mountain Casino & Bingo without an approved management contract beginning
on November 1, 1990; and (2) operated illegal video gaming devices and
house-banked blackjack games without a Class III gaming compact with the State
of California.
On February 1, 1996, the Company entered into a settlement agreement with the
NIGC. The settlement agreement resolved all issues associated with the Notice of
Violation and the Notice to Show Cause.
In the settlement, the NIGC agreed to fully withdraw any and all allegations,
charges and claims against the Company. In turn, the Company, without admitting
or denying the NIGC allegations, agreed to pay a civil fine of $500,000 and to
terminate its 1993 amended agreement with the Table Mountain Tribe. The
9
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AMERICAN CASINO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1997
(UNAUDITED)
civil fine was accrued at January 31, 1996 and charged to operations for the
period then ended.
On February 1, 1996, the Company signed a new consulting agreement and entered
into a termination agreement with the Table Mountain Tribe (See Note 2).
TABLE MOUNTAIN CASINO
In 1992, the National Indian Gaming Commission promulgated regulations stating
that Indian casinos could not offer certain games, including electronic gaming
machines, such as the Table Mountain Tribe's video pull tab gaming devices,
without state approval under tribal-state compacts. Several tribes sought a
compact to engage in full casino gaming, but, the State of California refused to
allow certain games.
In May 1992, the Table Mountain Tribe and other California Indian tribes filed a
lawsuit in Federal court against the State of California and its Governor over
the scope of gaming permissible on Indian land, captioned Rumsey v. Wilson. In
July 1993, the Federal District Court ruled that the proposed electronic games
are a proper subject of negotiation with Tribal State Compact and that the
tribes and State should negotiate to determine whether other banked and
percentage card games will be permitted under a tribal-state compact. The State
of California appealed the District Court decision in Rumsey v. Wilson.
In November 1994, the U.S. Court of Appeals for the Ninth Circuit reversed in
part the July 1993 ruling by the District Court in favor of the tribes, and
remanded the case to the District Court for additional fact finding. The
remanded issue is whether California law permits the use of video gaming
devices. If California law is found to permit the use of video gaming devices,
the tribes are entitled to seek agreements for the use of such devices. If
California is not found to permit their use, the tribes would not be so entitled
under the Court of Appeals' analysis.
In December 1994, the tribes filed a petition for rehearing with the Ninth
Circuit and a suggestion for rehearing en banc. The petition and suggestion were
denied on August 11, 1995, with a vigorous dissent by six judges. On August 21,
1995, the Ninth Circuit issued an order requesting further briefing by the
parties on the relevance of a state court decision entitled Western Telcon v.
California State Lottery. In Western Telcon, the issue was whether the State
Lottery could operate banked games and utilize slot machines. On October 16,
1995, the Ninth Circuit stayed its final decision in Rumsey until the final
disposition of Western Telcon by the California Supreme Court and requested the
parties to file briefs with the Ninth Circuit after that decision.
On June 24, 1996, the California Supreme Court decided Western Telcon. The court
held that the California State Lottery could not "bank" games, but it left open
the possibility that certain types of electronic devices could be used to play
non-banked games, and cited with approval the Lottery's use of on-line computers
and video terminals as consistent with the State Lottery Act. The parties filed
their briefs in Rumsey on July 23, 1996.
On October 29, 1996, the Ninth Circuit issued an order finding that the Western
Telcon decision had no impact on its earlier opinion in Rumsey. As a result, the
Court reissued its opinion of August 11, 1995, which will have the effect of
sending the Rumsey case back to the District Court to determine whether the
California State Lottery uses electronic devices that constitute "slot
machines".
10
<PAGE> 11
AMERICAN CASINO ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JANUARY 31, 1997
(UNAUDITED)
On December 30, 1996, several Tribal plaintiffs in the Rumsey case filed a
petition asking the U.S. Supreme Court to review the Ninth Circuit Court
decision. To date, no action has been taken on that petition.
In February 1997, the U.S. Attorneys' offices in California issued letters to
the Indian Tribes in California ("Tribes") which operate casinos using
electronic gaming devices. The letters, in essence, gave the Tribes until May 1,
1997 to reach a settlement with the State of California over the types of games
to be included in a compact or unplug the machines in their casinos. It is
unknown what action the Tribes, including the Table Mountain Tribe, will take in
response to the letters.
Should the U.S. Attorneys' offices enforce compliance with their letters or
should the State of California be successful in its legal actions, it could have
an adverse effect on the Company's business, because decreases in the Table
Mountain Casino's net income before consulting fees would decrease the Company's
consulting fees.
11
<PAGE> 12
PART 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1997
REVENUES
Casino consulting fees in the six months ended January 31, 1997 ( "Fiscal 1997")
decreased 13.1% to $4,440,000 from the $5,111,000 recorded in the same period in
Fiscal 1996, and were derived from the consulting agreement the Company has with
the Table Mountain Band of Indians (the "Tribe") for providing consulting
services to the Table Mountain Casino & Bingo (the "Table Mountain Casino"),
which is located near Fresno, California.
On February 1, 1996, the Company signed a new consulting agreement with the
Tribe. The new consulting agreement has a duration of 27 months and provides
that the Company will receive a base monthly consulting fee of $90,000, plus an
additional $90,000 for each increment of $500,000, or portion thereof, of casino
net income in excess of the first $1.5 million of net income from casino
operations. Additionally, effective February 1, 1996, the Company and the Tribe
signed a termination agreement of the March 1993 agreement under which a monthly
payment of $350,000 will be paid to the Company for a term of 48 months, subject
to certain thresholds.
The prior consulting agreement provided for consulting fees equal to 35% of the
Casino's net income before consulting fees. Also, for the period from June 19,
1995 to February 1, 1996, the Company paid a concession to the Tribe equal to
seven percent (7%) of the net income, before consulting fees, of the Casino.
During the six month period ended January 31, 1996, the concession totaled
$1,276,000. Consulting fee revenue is reported net of the concession to the
Tribe.
COSTS AND EXPENSES
Casino consulting expenses in the six months ended January 31, 1997 decreased to
$699,000, or 50.4%, from $1,409,000 in the comparable period in Fiscal 1996.
This decrease is comprised principally of a reduction in payroll costs, legal
expenses and consulting fees paid. And, in the comparable period of Fiscal 1996,
the Company wrote off an investment in a company seeking to build a cardroom in
a California community. Also, in the Fiscal 1996 period, the Company incurred
legal costs related to the settlement of an National Indian Gaming Commission
action against the Company.
General and administrative expenses in the six month period ended January 31,
1997 increased by $207,000 or 47.2% over the comparable period of Fiscal 1996.
The increase resulted mainly from increases in : legal costs related to
prospective business investment opportunities; insurance costs, office rental
costs, and expenses related to the value of stock purchase warrants issued to
the Company's investment banker for services rendered. The warrants are
exercisable at the closing price of the Company's common stock on the grant date
of the warrants.
Amortization and depreciation was $72,000 and $40,000 in the six months ended
January 31, 1997 and 1996, respectively. Amortization is comprised of consulting
agreement acquisition costs, which are being amortized over the term of the
Table Mountain Casino agreement.
OTHER OPERATIONAL ITEMS
Interest income, represented principally by interest on time deposits with
financial institutions, totaled
12
<PAGE> 13
$318,000 and $298,000 in the six month periods ended January 31, 1997 and 1996,
respectively.
During the second quarter of Fiscal 1996, the Company charged operations for a
$500,000 civil fine assessed by the National Indian Gaming Commission.
The Company recorded provisions of $141,000 and $236,000 for State of California
income taxes for the six month periods ended January 31, 1997 and 1996,
respectively. Additionally, a deferred state income tax benefit of $7,000 was
recorded for the six months ended January 31, 1997.
Provisions of $1,170,000 and $778,000 were recorded for Federal income taxes
currently payable for the six month periods ended January 31, 1997 and 1996,
respectively. A deferred income tax benefit of $40,000 and deferred income tax
expense of $339,000 was recorded for the six month periods ended January 31,
1997 and 1996, respectively. Approximately $1,000,000 of net operating loss
carryforwards was utilized to reduce the Company's current Federal income tax
liability for the six month period ended January 31, 1996. At July 31, 1996, the
Company had utilized all of its net operating loss carryforwards.
Net income for the six months ended January 31, 1997 was $2,075,000 or $0.13 per
common share and common share equivalent compared to $1,668,000 or $0.10 per
common share and common share equivalent for the six months ended January 31,
1996.
THREE MONTHS ENDED JANUARY 31, 1997
REVENUES
Casino consulting fees from the Table Mountain Casino in the second quarter of
Fiscal 1997 decreased by $331,000 or 13.0% from the second quarter of Fiscal
1996 due to the different consulting fees under the old and the new agreements.
COSTS AND EXPENSES
Casino consulting expenses decreased to $405,000 in the second quarter of Fiscal
1997 from $1,124,000 in the second quarter of Fiscal 1996. This decrease is
comprised principally of a reduction in payroll costs, legal expenses and
consulting fees paid. And, in the comparable period of Fiscal 1996, the Company
wrote off an investment in a company seeking to build a cardroom in a California
community. Also, in the second quarter of Fiscal 1996, the Company incurred
legal costs related to an National Indian Gaming Commission action against the
Company.
General and administrative expenses were $363,000 for the second quarter of
Fiscal 1997 and $292,000 for the second quarter of Fiscal 1996. The increase
resulted mainly from increases in legal costs related to prospective business
investment opportunities, increased insurance costs and office rental costs
OTHER OPERATIONAL ITEMS
Interest income decreased to $148,000 in the second quarter of Fiscal 1997 from
$203,000 in the second quarter of Fiscal 1996. The income is represented by
interest earned on the Company's bank deposits.
During the second quarter of Fiscal 1996, the Company charged operations for a
$500,000 civil fine assessed by the National Indian Gaming Commission.
The Company recorded state income taxes of $14,000 and Federal income taxes of
$569,000 for the three months ended January 31, 1997 as compared to state income
tax expense of $85,000 and Federal income taxes of $418,000 for the same period
in Fiscal 1996.
Net income for the three months ended January 31, 1997 was $983,000 or $0.06 per
common share and
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<PAGE> 14
common share equivalent compared to $315,000 or $0.02 per common share and
common share equivalent for the three months ended January 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES AT JANUARY 31, 1997
At January 31, 1997, the Company had consolidated working capital of
$13,807,000, as compared with working capital of $12,667,000 at July 31, 1996.
The change resulted principally from a combination of increases of cash
($1,083,000), prepaid and refundable income taxes ($38,000); prepaid expenses
($24,000) and accounts payable ($26,000) and reductions of consulting fee and
other receivables ($133,000) and accrued expenses ($171,000).
During the six month period ended January 31, 1997, investing activities used
$5,240,000 as compared to $2,000 provided by investing activities in the same
period in Fiscal 1996. The cash used in investing activities in Fiscal 1997 was
to acquire the undeveloped land near Las Vegas ($5,202,000) and additional
office furniture and equipment and leasehold improvements. The land was sold to
the original seller through the exercise of a repurchase option in February
1997.
Financing activities in the six month period ended January 31, 1997 were
comprised of the assumption of a mortgage payable ($1,673,000), the proceeds
from the exercise of 500,000 options ($125,000) and the issuance of common stock
of a consolidated subsidiary ($2,526,000).
Historically, the Company has provided funds for its operations from operating
activities, financing from financial institutions and shareholders, and issuance
of common stock, and it will likely continue to use these sources of liquidity
in the future. The Company has always sought and will continue to seek other
suitable consulting contracts and/or ownership of casinos and other gaming
opportunities on and off Indian land, as well as recreational, leisure time and
entertainment ventures. In the event any of these opportunities come to
fruition, management will consider satisfying financing requirements from
working capital, through borrowing or capital infusion through the public or
private placement of common stock of the Company or its subsidiaries.
At January 31, 1997, the Company had revolving lines of credit totaling
$2,000,000 with two banks. One line for $1,000,000 expires in December 1997 and
bears interest at 2.5% above a reference prime rate. The line is collateralized
by certificates of deposit totaling $500,000. The other $1,000,000 line of
credit is unsecured, expires in November 1997 and bears interest at 1% above an
indexed prime (8.25% at January 31, 1997). At January 31, 1997, no funds were
outstanding on the lines of credit.
In February 1997, the U.S. Attorney's offices in California issued letters to
the Indian Tribes in California ("Tribes") which operate casinos using
electronic gaming devices. The letters, in essence, gave the Tribes until May 1,
1997 to reach a settlement with the Sate of California over the types of games
to be included in a compact or unplug the machines in their casinos. It is
unknown what action the Tribes, including the Table Mountain Tribe, will take in
response to the letter.
Should the U.S. Attorney's office enforce compliance with their letters or
should the State of California be successful in its legal actions, it could have
an adverse effect on the Company's business, because decreases in the Table
Mountain Casino's net income before consulting fees would decrease the Company's
consulting fees. The Company plans to diversify its business operations and is
seeking other opportunities to provide a means of obtaining other sources of
revenue.
14
<PAGE> 15
PART II
OTHER INFORMATION
Item 1. See Part I Note 6, Litigation of Notes to Consolidated Financial
Statements.
Item 5. Other Information
See Part I. Notes 4, 5 and 6 of Notes to Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11-1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during
the quarter ended January 31, 1997.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN CASINO ENTERPRISES, INC.
Dated: March 14, 1997 By: /s/ Ronald J. Tassinari
------------------------
Las Vegas, Nevada Ronald J. Tassinari
President
(Principal Executive Officer)
By: /s/ Roy K. Keefer
-----------------------
Roy K. Keefer
(Chief Financial Officer and
Accounting Officer)
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
11.01 Schedule of Computation of Earnings Per Common Share
And Common Share Equivalent
27.1 Financial Data Schedule
17
<PAGE> 1
EXHIBIT 11.01
AMERICAN CASINO ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
SIX MONTHS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
PRIMARY:
Net income $ 2,075,000 $ 1,668,000
=========== ===========
Weighted average number of common shares
outstanding during the period 14,867,958 14,367,958
Add:
Common stock equivalents (determined using the "treasury
stock" method) representing shares issuable upon exercise
of options and warrants that are in the money 1,303,701 1,838,758
----------- -----------
Weighted average number of shares used in
calculation of primary income per share 16,171,659 16,206,716
=========== ===========
PRIMARY EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.13 $ 0.10
=========== ===========
FULLY DILUTED:
Net income $ 2,075,000 $ 1,353,000
=========== ===========
Weighted average number of common shares
outstanding during the year 14,867,958 14,367,958
Add:
Common stock equivalents (determined using the "treasury
stock" method) representing shares issuable upon exercise
of options and warrants that are in the money 1,478,962 2,173,470
----------- -----------
Weighted average number of shares used in
calculation of fully diluted income per share 16,346,920 16,541,428
=========== ===========
FULLY DILUTED EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT $ 0.13 $ 0.10
=========== ===========
</TABLE>
NOTE: Fully diluted earnings per common share and common
share equivalent is not presented in the Consolidated
Statements of Income because the effect is antidilutive
or the dilutive effect is less than three percent.
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,661,000
<SECURITIES> 0
<RECEIVABLES> 69,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,026,000
<PP&E> 228,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,993,000
<CURRENT-LIABILITIES> 217,000
<BONDS> 0
149,000
0
<COMMON> 0
<OTHER-SE> 17,028,000
<TOTAL-LIABILITY-AND-EQUITY> 17,167,000
<SALES> 4,440,000
<TOTAL-REVENUES> 4,440,000
<CGS> 0
<TOTAL-COSTS> 1,417,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 3,339,000
<INCOME-TAX> 1,264,000
<INCOME-CONTINUING> 2,075,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,075,000
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
