UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(D) OF THE EXCHANGE ACT
Commission file number: 0-22242
CASINO RESOURCE CORPORATION
Minnesota 41-0950482
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1719 Beach Boulevard, Suite 306
Biloxi, Mississippi 39531
(Address of principal executive officers)
601-435-1976
(Issuer's telephone number)
Check whether the issuer (1) filed all 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.
[X] Yes [ ] No
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. [ ] Yes [ ] No
As of January 29, 1997, 10,053,364 Shares of Common Stock and 2,760,000 of
Redeemable Class Warrants of the Company were outstanding.
<PAGE>
INDEX TO QUARTERLY REPORT
ON FORM 10-QSB
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
December 31, September 30,
1996 1996*
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,067 $1,546
Restricted cash 342 339
Accounts receivable, net 550 307
Prepaid expenses 263 438
-------- --------
Total Current Assets 2,222 2,630
Property and Equipment 17,721 17,670
Less accumulated depreciation ( 2,856) (2,587)
-------- --------
Net property and equipment 14,865 15,083
Other Assets
Related parties assets 560 557
Deferred development cost 2,938 2,201
Intangibles, net 587 599
Other 716 715
-------- --------
Total Other Assets 4,801 4,072
-------- --------
$21,888 $21,785
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable $ 847 $ 1,173
Accrued expenses 979 949
Line-of-credit and current maturities
of long-term debt 993 1,138
-------- --------
Total Current Liabilities 2,819 3,258
Long-term debt 9,835 10,302
-------- --------
Total Liabilities 12,654 13,560
Commitments and Contingencies
Stockholders' Equity
Capital shares 100 98
Paid-in Capital 22,469 22,121
Deficit (12,103) (12,762)
Note receivable related to
common stock ( 1,232) ( 1,232)
-------- --------
Total Stockholders' Equity 9,234 8,225
-------- --------
$21,288 $21,785
======== ========
<FN>
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
<PAGE>
<TABLE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31
(unaudited)
(In thousands, except per share data)
<CAPTION>
1996 1995
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS
Entertainment revenues $ 2,761 $ 2,388
Hospitality revenues 902 872
Operating costs - entertainment 1,759 1,681
Operating costs - hospitality 637 509
General and administrative expense 489 551
Other expense ( 119) ( 296)
--------- ---------
NET INCOME $ 659 $ 223
========= =========
NET INCOME PER COMMON SHARE $ .07 $ .03
========= =========
Weighted average shares, common stock 9,934,297 8,361,901
========= =========
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 659 $ 223
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 284 375
Changes in assets and liabilitie
Accounts receivable ( 243) ( 34)
Prepaid expenses 175 125
Other assets ( 7) 9
Accounts payable ( 326) ( 666)
Accrued expenses 30 ( 25)
--------- --------
Net Cash Used in Operating Activities 572 7
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash ( 2) ( 2)
Purchase of property and equipment ( 50) ( 25)
Increase in deferred development costs ( 737) ( 492)
Increase in due to/from related parties - net ( 3) ( 80)
-------- --------
Net Cash Used in Investing Activities ( 792) ( 599)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and
other equity transactions -- 623
Payments on life-of-credit and long-term debt ( 259) ( 451)
-------- --------
Net Cash Provided by (Used In)
Financing Activities ( 259) 172
-------- --------
Net Increase in Cash and Cash Equivalent ( 479) ( 420 )
CASH AND CASH EQUIVALENTS
At beginning of period 1,546 1,043
-------- --------
At end of period $ 1,067 $ 623
======== ========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 Basis of Presentation
The financial information included herein is unaudited; however, such in-
formation reflects all adjustments (consisting solely of normal recurring ad-
justments) which are, in the opinion of management, are necessary for a fair
statement of results for the interim periods.
Certain reclassifications of prior period amounts have been made to
conform to current period presentation.
The results of operations for the three-month period ended December 31,
1996 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2 Debt
The Company's debt at December 31, 1996 consists primarily of a first lien
mortgage on its Grand Hinckley Inn ($2,710,638); a first lien mortgage
on the Country Tonite Theatre ($7,556,456); and a working capital line-of-
credit owing to Grand Casinos Inc. of $439,410.
NOTE 3 Capital Stock
For the three months ended December 31, 1996, $350,000 of principal
amount of convertible subordinated debentures were converted into 281,561
shares of common stock.
NOTE 4 Deferred Development Costs
Deferred development costs consist principally of externally incurred
charges principally related to the potential acquisition of the Palace
Casino in Biloxi, Mississippi, a casino project in Tunisia and the Pokagon
Indian Gaming award in Indiana and Michigan.
<PAGE>
NOTE 5 Supplemental Disclosure of Cash Flow Information
Cash expended during the three months ended December 31, 1996 and 1995 for
interest was $ 276,000 and $304,000, respectively, and income tax payments for
the same periods were $74,000 and $70,000, respectively. The Company has
federal and state tax loss carryforwards of approximately $11.0 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
consolidated financial statements.
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1995
CONSOLIDATED
The Company's revenues for the three months ended December 31, 1996 were
$3,663,000, an increase of $403,000 or 12% from the $3,260,000 recorded in
the prior year period. Of the increase, $373,000 or 93% was provided by the
entertainment segment with the hospitality segment accounting for the
remaining increase of $30,000.
ENTERTAINMENT
Country Tonite Production Show
Country Tonite Production Show revenues totaled $546,000 for the first
quarter of fiscal 1997, a decrease of $10,000 from the comparable fiscal
1996 quarter revenues of $556,000. The decline was due principally to a
lower contractual rate with the Aladdin Hotel in calendar 1996. Despite the
decline in revenues, operating income increased slightly to $118,000 in the
first quarter of fiscal 1997 from $116,000 in the comparable prior year
quarter. Operating expenses (including project, general and administrative
cost) decreased to $428,000 for the three months ended December 31, 1996 from
$440,000 in the prior year period. The savings occurred through a concerted
effort to reduce general and administrative expenses.
Country Tonite Theatre
Paid attendance reached 47% at an average ticket price of $16.34 for the
quarter ended December 31, 1996 compared to paid attendance of 41% at an
average ticket price of $14.13 for the comparable prior year period.
Accordingly, revenues increased $383,000 or 21% from the fiscal 1996 first
quarter total of $1,832,000 to $2,215,000 for the first quarter of fiscal
1997. Operating expenses (including project, general and administrative
expenses) increased $90,000 or 7% to $1,331,000 for the first quarter of
fiscal 1997 from $1,241,000 in the first quarter of fiscal 1996. Operating
income increased by $293,000 or 50% to $884,000 in the first quarter of
fiscal 1997 from $591,000 in the first quarter of fiscal 1996. The marketing
efforts at the Country Tonite Theatre and its acceptance in the market have
resulted in increase in attendance and revenues. Economies of scale at
higher paid occupancy levels have resulted in operating expenses increasing
at a slower pace.
HOSPITALITY
Grand Hinckley Inn
For the three months ended December 31, 1996, revenues for the Grand
Hinckley Inn totaled $902,000, an increase of $30,000 from revenues of
$872,000 for the three months ended December 31, 1995. Average occupancy
rate fell from 78% in the first quarter of fiscal 1996 to 76% in the first
quarter of fiscal 1997. The decrease in occupancy was more than offset by an
increase in the average daily room rate from $56.50 in the first quarter of
fiscal 1996 to $60.47 in the first quarter of fiscal 1997. Operating costs
totaled $637,000 for the three months ended December 31, 1996 compared to
$509,000 for the comparable 1995 period, an increase of $128,000. The
increase in operating expenses was due principally to higher real estate
taxes and higher levels of profit sharing with Grand Casino Hinckley.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $489,000 in
the first quarter of fiscal 1997 compared to $551,000 for the first quarter
of fiscal 1996. The decrease resulted primarily from lower legal and
professional fees.
GAMING
On February 5, 1997, the Company sold its interest, subject to
Mississippi Gaming Commission approval, in the Palace Casino back to its
joint venture partner. A loss of approximately $270,000 will be recorded in
the second fiscal quarter.
A combination of events including cash commitments to other projects under
development and the fact that the Company could not manage the facility until
its corporate officers and board members were found suitable, a process which
could have taken several additional months, contributed to the Company's
decision to sell its interest in the Palace Casino.
OTHER
Interest expense totaled $267,000 for the first quarter of fiscal 1997
compared to $332,000 for the first quarter of fiscal 1996. The decrease was
due to a lower level of indebtedness.
Other income included a gain of approximately $117,000 from an
arbitration award.
Although the first quarter of fiscal 1997 was profitable, no provision for
income taxes was recorded due to approximately $11 million of federal and
state income tax loss carryforwards.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB has issued SFAS no. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets Being Disposed of," which which
provides guidance on how and and when impairment losses are recognized on
long-lived assets. This statement, when adopted, is not expected to have a
material impact on the Company.
The FASB has issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting for
stock-based compensation plans. This statement provides a choice to either
adopt the fair value based method of accounting or continue to apply APB
Opinion No. 25, which would require only disclosure of the pro forma net
income and earnings per share, determined as if the fair value based method
has been applied. The Company plans to continue to apply APB Opinion No. 25
when adopting this statement, and accordingly, this statement is not expected
to have a material impact on the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $479,000 to $1,067,000 at December 31,
1996 from $1,546,000 at September 30, 1996. The Company's principal source
of funds during the three months ended December 31, 1996 were funds provided
by operations. The Company's principal use of funds during the first quarter
of fiscal 1997 consisted of additions to deferred development costs of
$575,000, payments of notes payable and long-term debt totaling $492,000 and
capital expenditures of $50,000. A total of $500,000 of deferred development
costs were refunded in January, 1997.
The Company expects that available cash and cash from future operations
will be sufficient to meet the capital expenditures, debt service and working
capital requirements of its existing businesses. The Company will need to
raise approximately $2,000,000 to meet the near term capital requirements of
its new businesses (the Tunisia Casino and Pigeon Forge Theater).
The sources of such funding have not yet been identified and cannot be
assured.
Collection of notes receivable totaling $1,232,000 related to the warrant
exercise originally due in January and December 1996 are not anticipated in
the 1997 fiscal year. The Company initiated litigation in February 1997
to collect sums due under these notes.
CAPITAL EXPENDITURES
Capital expenditures by the Company were $ 50,000 for the three months
ended December 31, 1996 compared to $25,000 for the comparable period in the
prior year. The increase was principally attributable to the purchase of a
truck for the Company's new business in Pigeon Forge, Tn.
<PAGE>
SEASONALITY
The Company expects its hotel operations will be affected by seasonal
factors, including holidays, weather and travel conditions. The theatre
operation in Branson, Missouri, will also be affected by seasonal factors
and, in addition, will be closed from mid-December through mid-March. This
period is historically when theatres like the Company's normally close in
Branson.
IMPACT OF INFLATION
Management does not believe that inflation has had any significant adverse
impact on the Company's financial condition or results of operations for the
periods presented. An increase in the rate of inflation could adversely
affect the Company's future operations and expansion plans.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various legal proceedings as described in its
Annual Report on Form 10-KSB for the year ended September 30, 1996.
There have been no further developments regarding such proceedings during
the three months ended December 31, 1996, except as described below.
The Company commenced an arbitration action with the Arbitration
Association in Minneapolis, Minnesota against Cunningham, Hamilton and
Quiter, PA (CHQ), the architect it retained in connection with construction
of the Biloxi Theater. On December 30, 1994, the architect firm CHQ
commenced a suit in a Mississippi State Court seeking a foreclosure on
a mechanics lien it had filed on the Biloxi Theater project in the amount of
$321,000 which sum the Company escrowed. On December 26, 1996, the
Arbitration Association announced the Company was entitled to an award of
approximately $142,000, which sum was a portion of the previously escrowed
$321,000. The decision resulted in a gain to the Company of approximately
$117,000.
In 1995, a suit was brought against the Company in Federal District Court
of New Jersey, which venue was later transferred to Southern District Court
of Mississippi. Plaintiff asserts it had a contract with Company to provide
eight professional boxing events at the Company's former Biloxi Theater. The
complaint was thereafter amended by plaintiff to reflect additional
allegations that defendant tortuously harmed plaintiff's business reputation
and maliciously interfered with existing and prospective economic
relationships. The total claims asserted are for $500,000 in compensatory
damages, punitive damages, and attorneys fees and additional costs and other
relief the court may deem just and proper. The Company's general liability
insurance carrier has taken up the defense of the Company.
Two former officers of a subsidiary of the Company have brought suit
against the Company in connection with their employment termination in June
1995. No specific amount of damages have been claimed, however the plaintiffs
have informally indicated recently that they would entertain a settlement
offer of between $250,000 and $350,000. The Company believes that damages,
if warranted, are well below such amount and accordingly intends to vigorously
defend this matter.
In March 1996, PDC, a Minnesota limited liability company and two of its
officers filed suit against the Company and Harrah's Entertainment, in
Minnesota and Michigan, which venue was later dropped, alleging tortuous
interference with its business relations and prospective economic advantage,
as well as false light invasion of privacy in connection with the Pokagon
Indian Gaming Award. The Company's general liability carrier has taken up
the defense of the Company. The Company intends to vigorously defend this
matter.
In November. 13, 1995, Casino Resort, Inc., a Minnesota Corporation,
commenced an action in a Minnesota State Court against Monarch and the
Company alleging breach of contract against Monarch and tortuous interference
with a contractual business relationship against the Company. This matter
came before the Fourth Judicial District Court of Minnesota, on December 9,
1996, for hearing on motions by the Company and Monarch for summary judgment.
On January 22, 1997, the Company's motion for summary judgment on plaintiff's
claims of tortuous interference were granted and plaintiff's claims against
Company were dismissed. Additionally, Monarch's motion of summary judgment
on plaintiffs claim for breach of contract were granted and plaintiff's
claims against it were dismissed.
<PAGE>
Item 2. Exhibits and Reports on Form 8-K
A) Exhibits
1) Exhibit 27 - Financial Data Schedule
B) The following Forms 8-K have been filed during the three months ended
December 31, 1996:
1) A report on Form 8-K was filed on October 30, 1996. The
Company announced the approval of acquisition of the Palace Casino
by a Bankruptcy Court.
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused
this report to be signed on behalf by the undersigned, thereunto duly
authorized.
CASINO RESOURCE CORPORATION
Date March 10, 1997 s/ John J. Pilger
John J. Pilger,President & CEO
Date March 10, 1997 s/ Maurice P. Gaudet
Maurice P. Gaudet, Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
quarterly report to shareholders for the quarter ended December 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,067
<SECURITIES> 0
<RECEIVABLES> 554
<ALLOWANCES> 4
<INVENTORY> 0
<CURRENT-ASSETS> 2,222
<PP&E> 17,221
<DEPRECIATION> 2,856
<TOTAL-ASSETS> 21,888
<CURRENT-LIABILITIES> 2,819
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 9,134
<TOTAL-LIABILITY-AND-EQUITY> 21,888
<SALES> 3,663
<TOTAL-REVENUES> 3,663
<CGS> 0
<TOTAL-COSTS> 2,737
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 267
<INCOME-PRETAX> 659
<INCOME-TAX> 0
<INCOME-CONTINUING> 659
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</TABLE>
