<PAGE>
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 March 31, 1998
[ ] 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.)
707 Bienville Boulevard
Ocean Springs, Mississippi 39564
(Address of principal executive officers)
228-872-5558
(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 May 11, 1998, 9,648,464 Shares of Common Stock and 2,760,000 of Redeemable
Class A 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
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, September 30,
ASSETS 1998 1997*
(restated)
--------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 535 $ 2,878
Accounts receivable, net 368 356
Inventory 281 286
Prepaid expenses 822 1,088
Net assets of discontinued operation 2,328 2,607
--------- -------------
TOTAL CURRENT ASSETS 4,334 7,215
--------- -------------
--------- -------------
PROPERTY AND EQUIPMENT 14,584 13531
Less accumulated depreciation (2,895) (2,371)
--------- -------------
NET PROPERTY AND EQUIPMENT 11,689 11,160
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--------- -------------
OTHER ASSETS
Related parties assets 713 754
Deferred development cost 1,232 1,230
Note receivable 232 221
Intangibles, net 527 551
Pre-opening and Other 1,686 2,386
--------- -------------
TOTAL OTHER ASSETS 4,390 5,142
--------- -------------
20,413 23,517
--------- -------------
--------- -------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 971 831
Accrued expenses 1,580 940
Line-of-credit and current maturities of
long-term debt 1,529 1,060
--------- -------------
TOTAL CURRENT LIABILITIES 4,080 2,831
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Long-term debt 9,940 11,100
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TOTAL LIABILITIES 14,020 13,931
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--------- -------------
Minority Interest in Subsidiary
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital shares 97 97
Paid in capital 22,585 22,793
Deficit (16,289) (13,304)
6,393 9,586
--------- -------------
TOTAL STOCKHOLDERS' EQUITY $20,413 $23,517
--------- -------------
--------- -------------
Condensed from audited financial statements
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
-------- ------------
(as restated)
<S> <C> <C>
Entertainment revenues 4,174 4,087
Gaming revenues 1,076 -
Operating costs - entertainment 4,053 3,168
Operating costs - gaming 2,772 -
General and administrative expenses 1,484 1,031
Loss on gaming project - 387
Other expense - net 593 257
Minority interest in operations of subsidiary (295) (31)
Loss from continuing operations (3,357) (725)
Income from discontinued operation 372 417
Net Loss (2,985) (308)
Earnings (Loss) per Common Share
Loss from continuing operations (0.34) (0.07)
Income from operation of discontinued operation 0.04 0.04
Net loss per share (0.30) (0.03)
Weighted average shares, common stock 9,846,366 9,988,231
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations (3,357) (725)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Depreciation and amortization 1,364 409
Discount upon conversion of debentures 157 -
Minority interest in net loss of consolidated subsidiary (295) (31)
Abandonment cost - gaming venture - 387
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable (12) (1,128)
Prepaid expenses 266 (285)
Other assets (192) (6)
Accounts payable 140 (186)
Accrued expenses 640 106
NET CASH USED IN CONTINUING OPERATIONS ACTIVITIES (1,289) (1,459)
INCOME FROM DISCONTINUED OPERATION 372 417
NET CASH USED IN OPERATING ACTIVITIES (917) (1,042)
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in net assets of discontinued
operation 279 (194)
Purchase of property and equipment (1,053) (65)
(Increase) decrease in deferred development costs - net (2) (454)
Increase (decrease) in due to/from related parties - net 41 (15)
NET CASH USED IN INVESTING ACTIVITIES (735) (728)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debentures and draws on line-of-credit 100 1,338
Payments on line-of-credit and long-term debt (791) (318)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (691) 1,020
Net Decrease in Cash and Cash Equivalents 2,343 (750)
CASH AND CASH EQUIVALENTS
At beginning of period 2,878 1,333
At end of period 535 583
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
------- ------------
(as restated)
<S> <C> <C>
Entertainment revenues 526 1,326
Gaming revenues 541 -
Operating costs - entertainment 1,358 1,483
Operating costs - gaming 1,361 -
General and administrative expenses 749 542
Loss on gaming project - 387
Other (income) expense - net (130) 135
Minority interest in operations of subsidiary (194) (31)
Loss from continuing operations (2,077) (1,190)
Income from discontinued operation 89 223
Net Loss (1,988) (967)
Earnings (Loss) per Common Share
Loss from continuing operations (0.21) (0.12)
Income from operation of discontinued operation 0.01 0.02
Net loss per share (0.20) (0.10)
Weighted average shares, common stock 9,798,324 10,043,364
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations (2,077) (1,190)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Depreciation and amortization 890 225
Minority interest in net loss of consolidated subsidiary (194) (31)
Abandonment cost - gaming venture - 387
Reserve for impaired receivable (260) -
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable (25) (957)
Prepaid expenses and inventory (3) (457)
Other assets (108) (85)
Accounts payable 220 (126)
Accrued expenses 409 (35)
NET CASH USED IN CONTINUING OPERATIONS ACTIVITIES (1,148) (2,269)
INCOME FROM DISCONTINUED OPERATION 89 223
NET CASH USED IN OPERATING ACTIVITIES (1,059) (2,046)
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in net assets of discontinued
operation 386 (61)
Purchase of property and equipment (35) (30)
(Increase) decrease in deferred development costs - net 18 283
Increase (decrease) in due to/from related parties - net (32) 12
NET CASH USED IN INVESTING ACTIVITIES 337 204
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of debentures and draws on line-of-credit 100 1,438
Payments on line-of-credit and long-term debt (258) (131)
NET CASH USED IN FINANCING ACTIVITIES (158) 1,307
Net Decrease in Cash and Cash Equivalents (880) (225)
CASH AND CASH EQUIVALENTS
At beginning of period 1,415 808
At end of period 535 583
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
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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
information reflects all adjustments (consisting solely of normal recurring
adjustments) which, in the opinion of management, are necessary for a fair
statement of results for the interim periods. The balance sheet for September
30, 1997 and the statements of operations and cash flows for the six months
and three months ended March 31, 1997 have been restated.
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 March 31,
1998 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2 DEBT
The Company's debt at March 31, 1998 consists primarily of a first lien
mortgage on its Grand Hinckley Inn ($2,382,000) (classified as part of net
assets of discontinued operation); a first lien mortgage on the
Country Tonite Theatre ($7,306,000); a debenture with a face value of
$1,500,000 bearing 6% interest rate; a note payable of $1,000,000 with
interest at 10% of operating income as defined, of the subsidiary that
operates the Tunisian casino; and a note payable of $800,000 with interest at
the greater of 20% per annum or 5% of the gross gaming win of the Tunisian
casino and a convertible debenture totaling $400,000 with interest at 13%.
NOTE 3 CAPITAL STOCK
During the three months ended March 31, 1998, the Company purchased and
retired 24,900 shares of common stock in the open market under a stock
repurchase plan.
During the second quarter of fiscal 1998, a previous default under a
note agreement was cured, and 220,000 shares of stock were retired. An
impairment charge of $260,000 taken in the first quarter of fiscal 1998 was
reversed in the second quarter of fiscal 1998.
The Company is required to maintain a $1.00 bid price, among other
requirements (which the company meets), for a continued listing on NASDAQ
National Market. The Company's common stock has closed below the $1.00 bid on
several occasions during the second quarter and subsequent thereto. If the
minimum bid price requirement is not met for a period of thirty consecutive
business days, the Company will have ninety days to achieve comlpiance with
such requirement.
6
<PAGE>
NOTE 4 DEFERRED DEVELOPMENT COSTS
Deferred development costs consist principally of externally incurred
charges principally related to a casino project in Tunisia and the Pokagon
Indian Gaming award in Indiana and Michigan.
NOTE 5 DISCONTINUED OPERATION
On April 17, 1998, the Company announced that a Letter of Intent was
signed with the Mille Lacs Band of Ojibwe Indians to sell the Grand Hinkley
Inn for $5,500,000 in cash. Accordingly, the hospitality segment is being
classified as a discontinued operation.
NOTE 6 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash expended during the three months ended March 31, 1998 and 1997 for
interest was $202,000 and $266,000, 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.
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
CONSOLIDATED
The Company's revenues from continuing operations for the six months
ended March 31, 1998 were $5,249,000, an increase of $1,162,000 or 28% from
$4,087,000 in the prior year period principally due to the addition of a
gaming segment in 1998.
ENTERTAINMENT
COUNTRY TONITE PRODUCTION SHOW
Country Tonite Production Show revenues totaled $956,000 for the six
months ended March 31, 1998 (including $682,000 eliminated in consolidation),
a decrease of $495,000 from the comparable fiscal 1997 period revenues of
$1,451,000. The decrease is due to the loss of the Aladdin venue in Las
Vegas in November, 1997 and a touring show appearing in Biloxi, Mississippi
during fiscal 1997 only. Operating income decreased to $38,000 for the six
months ended March 31, 1998 (including $682,000 eliminated in consolidation)
from $291,000 in the comparable prior year period.
The Company has not found a venue to replace the Aladdin contract.
7
<PAGE>
Operating expenses (including project, general and administrative costs)
decreased to $918,000 for the six months ended March 31, 1998 from $1,158,000
in the prior year period due principally to the 1997 Biloxi show production
expenses and the loss of the Aladdin venue in Las Vegas.
8
<PAGE>
COUNTRY TONITE THEATRE - BRANSON
The Country Tonite Theatre in Branson reopened on March 9 1998, the
beginning of the Branson tourist season. Paid attendance totaled 38% at an
average ticket price of $16.87 for the six months ended March 31, 1998 compared
to paid attendance of 41% at an average ticket price of $15.94 for the
comparable prior year period. Overall, revenues increased $67,000 or 3% from the
fiscal 1997 six month total of $2,624,000 to $2,691,000 for the first six months
of fiscal 1998 due principally to the addition of the Golden Girls show, which
offset a revenue decline for the Country Tonite show.
Operating expenses (including project, general and administrative expenses)
decreased $43,000 or 2% to $1,909,000 for the first six months of fiscal 1998
from $1,952,000 in the first six months of fiscal 1997. Operating income
increased by $110,000 or 20% to $782,000 in the first six months of fiscal 1998
from $672,000 in the first six months of fiscal 1997.
COUNTRY TONITE THEATRE-PIGEON FORGE
The Country Tonite Theatre in Pigeon Forge reopened for business on March
17, 1998. Revenues for the six months ended March 31, 1998 totaled $1,208,000
compared to $82,000 in 1997 as the show opened for the first time in March 1997.
Operating expenses for the 1998 period totaled $1,945,000 (including $682,000
eliminated in consolidation) generating an operating loss of $737,000 (before a
minority interest elimination of $295,000) compared to the 1997 period where
operating expenses totaled $128,000 (including $71,000 eliminated in
consolidation) generating an operating loss of $46,000.
GAMING
CASINO CARAIBE
The Company's first casino operation opened on October 18, 1997 in Sousse,
Tunisia. Revenues from Casino Caraibe for the six months ended March 31, 1998
were $1,076,000. Operating costs totaled $2,772,000 resulting in an operating
loss of $1,696,000. An operating loss was anticipated due to construction and
licensing delays that pushed the opening into Tunisia's slowest tourist season
and due to the amortization of pre-opening costs over a one year period.
Management also anticipates an operating loss for the fiscal year.
9
<PAGE>
On February 5, 1997, the Company sold its interest in the Palace Casino
back to its joint venture partner. In connection with the sale, the Company's
escrow deposit of $400,000 was refunded and, in addition, the Company received
proceeds of $1,000,000 for the $1,500,000 debenture. An additional $250,000 is
payable without interest in two years. The $250,000 receivable was discounted to
an effective interest rate of 10%. A loss of approximately $387,000 was recorded
in the six months and three months ended March 31, 1997 relating to the sale of
the Company's interest in the Palace.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $1,484,000 for
the six months ended March 31, 1998 compared to $1,031,000 for the comparable
1997 period. The increase is due to higher staffing levels due to the Tunisian
casino and Pigeon Forge theater and higher legal and professional fees.
OTHER
Interest expense totaled $654,000 for the six months ended March 31, 1998
compared to $406,000 for the 1997 period. The increase was due to a higher
level of indebtedness and charges from a convertible debenture issue in the
first quarter of fiscal 1998.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
CONSOLIDATED
The Company's revenues from continuing operations for the three months
ended March 31, 1998 were $1,067,000, a decrease of $259,000 or 20% from
revenues of $1,326,000 recorded in the prior year period. The decrease was
due principally to the loss of the Aladdin venue offset by revenues from the
Company's new gaming segment.
ENTERTAINMENT
COUNTRY TONITE PRODUCTION SHOW
Country Tonite Production Show revenues totaled $101,000 for the quarter
ended March 31, 1998 (including $101,000 eliminated in consolidation), a
decrease of $804,000 from the comparable 1997 period revenues of $905,000.
Operating costs (including project, general and administrative) decreased to
$232,000 for the quarter ended March 31, 1998 from $734,000 in the prior year
period. The decrease in revenues and operating costs is the result of the
Country Tonite Show appearing at the Biloxi Grand Theatre in 1997 and the loss
of the Aladdin venue in November, 1997. Operating income decreased from $174,000
in the quarter ended March 31,1997 (including $71,000 eliminated in
consolidation) to an operating loss of $131,000 for the 1998 quarter
(including $101,000 eliminated in consolidation).
10
<PAGE>
COUNTRY TONITE THEATRE - BRANSON
The Country Tonite Theatre in Branson was closed for the off-season for
most of the second quarter, having reopened on March 9, 1998, the beginning of
the tourist season in Branson. Revenues for the quarter ended March 31, 1998
totaled $411,000 an increase of $2,000 from the comparable 1997 quarter total of
$409,000. Operating costs for the quarter ended March 31, 1998 totaled $625,000
an increase of $4,000 from the comparable 1997 period total of $621,000.
COUNTRY TONITE THEATRE - PIGEON FORGE
The Country Tonite Theatre in Pigeon Forge reopened for business in
March 1998. Revenues totalled $114,000 for the three months ended March 31,
1998 compared to $82,000 for the 1997 period. Operating expenses totalled
$599,000 for the three months ended March 31, 1998 compared to $128,000 for
the 1997 period. The theatre opened for the first time in March 1997.
Operating expenses include amounts eliminated in consolidation totalling
$101,000 and $71,000 for the 1998 and 1997 periods, respectively.
GAMING
CASINO CARAIBE
Revenues for the three months ended totaled $541,000. Operating costs were
$1,361,000 resulting in an operating loss of $820,000 for the quarter. An
operating loss was due to amortization of pre-opening costs over a one year
period and the fact that this period is in Tunisia's slowest tourist season.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses totaled $749,000 for the
three months ended March 31, 1998 compared to $542,000 for the three months
ended March 31, 1997. The increase is due principally to higher legal and
professional expenses and higher staffing costs resulting from the start-up and
support of the Pigeon Forge theatre and Tunisian casino.
OTHER
Interest expense for the three months ended March 31, 1998 totaled $242,000
compared to $209,000 for the 1997 quarter. The increase is due to a higher level
in indebtedness.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". The new Standard discusses how to report and
display comprehensive income and its components. The standard is effective for
years beginning after December 15, 1997. When the Company adopts this
statement, it is not expected to have a material impact on the Company's
financial statements.
In June 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
standard requires enterprises to report certain information about operating
segments, their products and services, geographic areas, and major customers.
This standard is effective for years beginning after December 15, 1997. When
the Company adopts this statement, it is not expected to have a material impact
on the Company's financial statements.
11
<PAGE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained herein that are not historical facts are based
on current expectations. These statements are forward looking in nature and
involve a number of risks and uncertainties. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to
finance the Company's business plan on terms satisfactory to the Company;
competitive factors, such as the introduction of new hotels or renovation of
existing hotels in the same markets; failure to find a replacement venue for
the Country Tonite Las Vegas Show; changes in travel patterns which could
affect demand for the Company's hotel, theatres or casinos; changes in
development and operating costs, including labor, construction, land,
equipment, and capital costs; general business and economic conditions;
political unrest in Tunisia or the region; and other risk factors described
from time to time in the Company's reports filed with the Securities and
Exchange Commission. The Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which statements are
made pursuant to the Private Securities Litigation Reform Act of 1995, and as
such, speak only as to the date made.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $880,000 to $535,000 at March 31, 1998
from $1,415,000 at December 31, 1997.
The Company's principal use of funds during the second quarter of fiscal
1998 consisted of payments of notes payable and long-term debt totaling $258,000
and capital expenditures of $35,000. In addition, the Company's theaters are
closed during the off-season requiring use of cash.
With the net proceeds from the sale of the Grand Hinckley Inn,
(approximately $3,000,000), 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.
A portion of the proceeds from the sale of the Grand Hinkley Inn will
be utilized to retire outstanding indebtedness.
CAPITAL EXPENDITURES
Capital expenditures by the Company were $35,000 for the three months ended
March 31, 1998 compared to $30,000 for the comparable period in the prior year.
12
<PAGE>
SEASONALITY
The theatre operations in Branson, Missouri and Pigeon Forge, Tennessee,
will 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 and Pigeon Forge. The casino in
Tunisia is also subject to seasonal factors as the October to April period
is considered the slow tourist season.
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.
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, 1997. There have
been no further developments regarding such proceedings during the three months
ended March 31, 1998, except as described below.
James Barnes and Prudence Barnes, two former officers of a subsidiary of
the Company, have brought suit in the State District Court, Clark County,
Nevada, against the Company in connection with their employment termination
in June 1995. No specific amount of damages has been claimed. The Company
intends to vigorously defend itself in this matter and is seeking a summary
judgement. Trial is scheduled for July, 1998.
13
<PAGE>
On December 31, 1997, the Company's former chairman defaulted on repaying
the $1,232,000 (principal) of notes receivable due the Company. The Company
filed suit against the individual on January 2, 1998. The Company held 150,000
shares of the Company's stock as collateral. On January 15, 1998, the Company
signed an agreement with the individual. Under the agreement, 220,000
additional shares of the Company's stock would be canceled along with the
150,000 shares held at the market price of $1.19 per share. The shares to be
cancelled were not treated as outstanding as of September 30, 1997.
Additionally, the Company and the individual entered into a new note agreement.
The new note of $1,196,885, including approximately $143,000 of previously
reserved interest, bears interest at 7%, payable on maturity on January 15,
2001. The note is collateralized by the individual's 5% interest in the
Company's Pokagon management fee. Solely at the Company's discretion, at any
time prior to maturity, the Company can take the collateral as payment in full
for the note. Since the individual's ability to pay the note is not known, the
Company has provided an impairment reserve for $791,900, which represents the
remaining principal balance after stock cancellations. Generally accepted
accounting principles do not permit the recording of contingent assets until
realized and as the individual's ability to pay the note is not known, the
Company provided an impairment reserve of $791,900. In January 1998, this
individual failed to deliver the 220,000 shares of stock required under the
agreement. Accordingly, the Company recorded an impairment charge in the first
quarter of fiscal 1998 of $260,000. In the second quarter of fiscal 1998, the
default was cured and the impairment charge of $260,000 was reversed.
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
Exhibit 10.91 - Employment Agreement
Exhibit 10.92 - Amendment to Employment Agreement
Exhibit 27 - Financial Data Schedule
B) The following Forms 8-K have been filed during the three months ended
March 31, 1998:
1) 8-K filed on February 17, 1998 announcing the resignation
of a director and the appointment of a new director.
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused
this report to be signed on behalf by the undersigned, hereunto duly authorized.
CASINO RESOURCE CORPORATION
Date: May 15, 1998 s/ John J. Pilger
------------------
John J. Pilger, President & CEO
Date: May 15, 1998 s/ Maurice P. Gaudet
--------------------
Maurice P. Gaudet, Chief Financial Officer
14
<PAGE>
JOHN J. PILGER
EXECUTIVE EMPLOYMENT AGREEMENT
GOLDEN PARACHUTE
AGREEMENT ("Agreement") by and between Casino Resource Corporation, a
Minnesota corporation with its principal offices at 707 Bienville Boulevard,
Ocean Springs, Mississippi, 39564 (the "Company"), and John J. Pilger, Chief
Executive Officer, (the "Executive"), dated as of the 9th of March, 1998.
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interest of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined in Section 2) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the Executive by virtue
of the personal uncertainties and risks which may be created by a pending or
threatened Change of Control, and to encourage the Executive's full attention
and dedication to the Company currently and in the event of any threatened or
pending Change of Control. The Board also believes it is imperative to
provide the Executive with compensation and benefit arrangements upon a
Change of Control which ensure the compensation and benefit expectations of
the Executive will be satisfied and are competitive with those of other
corporations. Therefore, in order to accomplish these objectives the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions.
a. The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b)) on which a Change
of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or
(ii) otherwise arose in connection with or anticipation of the
Change of Control, then for all purposes of this Agreement the
"Effective Date" shall mean the date immediately prior to the date
of such termination of employment.
b. The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary date of such
date; provided, however, that commencing on the date one year
after the date hereof and on each annual anniversary of such date,
hereafter referred to as "Renewal Date," the Change of Control
period shall be automatically extended so as to terminate three
years from such Renewal Date, unless at least sixty (60) days
prior to the Renewal Date, the Executive shall give notice of his
determination not to extend the Change of Control Period.
2. Change of Control. For purpose of this Agreement, a "Change of Control"
shall mean:
a. The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended, (a "Person") of beneficial ownership of
20% or more of either (i) the outstanding shares of stock of the
Company or (ii)
1
<PAGE>
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors; or
b. As of the date hereof, if any two or more members within a class
of the staggered Board of seven or more Directors are removed
without the expressed approval or consent of the CEO and Chairman
of the Board, or where two or more members of the Board assume
office as a result of either an actual or threatened election
contest or other actual or threatened solicitation of proxies; or
c. A hostile reorganization, merger or consolidation which results
from either an actual or threatened election contest or actual or
threatened solicitation of proxies; or
d. A complete liquidation or dissolution of the Company, or the sale
or other disposition of all or substantially all of the assets of
the Company, other than to a corporation; which liquidation, sale
or dissolution occurs as a result of either actual or threatened
solicitation of proxies or consents by or on behalf of persons
other than the incumbent Board.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company, in accordance with this Agreement and the terms and provision of
this Agreement for a period commencing on the effective date and ending on
the third anniversary of such date, (the "Employment Period".)
4. Terms of Employment.
a. Position and Duties.
(i.) During the Employment Period (a) the Executive's position,
authorities, duties and responsibilities of same shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date and (b) the
Executive's services shall be performed at the location where the
Executive was employed preceding the Effective Date or at the
headquarters of the Company.
(ii.) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote attention and time during normal
business hours to the business and affairs of the Company and as
defined within his employment contract dated May 20, 1996 and
affixed hereto as Exhibit A and to discharge the responsibilities
assigned to the Executive hereunder. During the Employment Period
it shall not be in violation of this Agreement for the Executive to
(a) serve on corporate, civic, charitable boards or committees (b)
deliver lectures, fulfill speaking engagements and (c) manage
personal investments so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities to this Company in accordance with this Agreement.
b. Compensation
(i.) Base Salary. During the Employment Period the Executive shall
receive an "Annual Base Salary" of two hundred twenty-five thousand
dollars ($225,000), as set out within Executive Employment
Agreement attached here as Exhibit A, which shall be
2
<PAGE>
paid on a bi-weekly basis in the same manner as the wage payments
of other CRC employees. Additionally, Executive shall be paid by
CRC Tunisia S.A. the sum of one hundred twenty-five thousand
dollars ($125,000), as unanimously resolved by the Board of
Directors August , 1997, annually which sum shall be prepaid
annually on payment anniversary date. During the Employment
Period, the Annual Base Salary shall increase each year as
determined by any increase in the Consumer Price Index between
January first of the prior year and January first of the current
year (see Executive Employment Agreement). Any increase in the
annual base salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement.
(ii). Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded an "Annual Bonus" for each fiscal year ending
during the Employment Period where CRC and its affiliate
subsidiaries generate net income in excess of one million dollars
($1,000,000) as set forth in CRC's audited consolidated financial
statements. Annual Bonus payable shall be twenty five thousand
dollars ($25,000) per one million dollars ($1,000,000) net income,
per fiscal year.
(iii). Special Bonus. In addition to Annual Base Salary and any Annual
Bonus payable as here above provided, if Executive remains employed
with the Company or elects to provide consulting services to
Company through the first anniversary of the Effective Date, the
Company shall pay to the Executive a "Special Bonus" in recognition
of the Executive's services during the crucial one year period
following the Change of Control, in cash, a sum equal to
Executive's Annual Base Salary plus salary from affiliates
and Annual Bonus. The Special Bonus shall be paid no later
than thirty days following the first anniversary of the
Effective Date.
(iv.) Incentive Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of
the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the
Executive with incentive opportunities less favorable in the
aggregate than the most favorable provided by the Company for
the Executive in effect at any time during the 90 day period
immediately preceding the Effective Date.
(v.) Welfare Benefit Plans. During the Employment Period the
Executive and/or the Executive's family shall be eligible for
participation in and shall receive benefit plans, practices,
policies and programs provided by the Company and its
affiliates including without limitation; medical, prescription,
dental, disability, salary continuation, employee life, group
life and travel accident insurance to the extent applicable
generally to other peer executives of the Company.
(vi.) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance
with the most favorable policies, practices and programs of the
Company and its affiliates in effect for the Executive at any
time during the 90-day pay period immediately preceding the
Effective Date.
3
<PAGE>
(vii.) Office and Support staff. During the Employment Period the
Executive shall be entitled to an office or offices of the size
and with the furnishings and other appointments and to
exclusive personal secretarial and other assistance, at least
equal to the most favorable of the forgoing provided to the
Executive by the Company at any time during the 90-day period
preceding the Effective Date.
(viii.) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company as in
effect for the Executive under his Employment Contract attached
herein as Exhibit A.
5. Termination of Employment.
a. Death or Disability. The Executive's employment shall terminate
automatically upon the death of the Executive during the
Employment Period. For purposes of this Agreement "Disability"
shall mean the absence of the Executive from the Executive's
duties from the Company on a full time basis for 90 consecutive
business days as a result of incapacity due to a mental or
physical illness which is determined to be total and permanent by
a physician selected by Company and acceptable to the Executive or
the Executive's legal representative.
b. Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) Executive had theretofore been
convicted by any federal, state or local authority for, or pleaded
guilty to, an act constituting a felony, or (ii) Executive's
termination was as a result of : a) material acts of fraud,
material dishonesty or gross misconduct by Executive; or b)
repeated and willful failure or refusal by Executive to perform
his material duties as delineated herein in Exhibit I "Employment
Agreement" if termination for Cause by Company is pursued pursuant
to clause (ii)(b) of the preceding sentence it shall be preceded
by written notice to Executive describing the specific reasons for
termination in order to allow Executive the opportunity to cure
and correct problems identified.
c. Without Cause. Executive may terminate his employment hereunder,
without Cause, provided Executive first gives to Company a written
notice of intent to terminate (see (5)(d)).
d. Notice of Termination. Any termination by the Company for Cause,
or by the Executive without any reason shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 11(b). For purposes of this Agreement
"Notice of Termination" shall mean a written notice which
indicates the specific termination provision in this Agreement
relied upon.
6. Obligations of the Company.
a. Executive Termination (other than Cause, Death or Disability.) If
during the Employment Period the Executive shall terminate
employment without reason:
i. The Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination, the aggregate
of the following amounts:
4
<PAGE>
A. The sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not therefore paid,
(2) the product of ("x") the Highest Annual Bonus and
("y") a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (3)
the Special Bonus, if due to the Executive pursuant to
section 4(b)(iii) to the extent not theretofore paid and
(4) any compensation previously deferred by the Executive
and any accrued vacation pay, in each case to the extent
not theretofore paid (the sum of the amounts described in
1, 2, 3 and 4 shall refer to "Accrued Obligations"); and
B. The amount (hereafter referred to as "Severance Amount")
which shall equal the product of 2.99 and the sum of the
Executive's Annual Base Salary and the highest Annual
Bonus, which product shall be reduced by the present
value (determined in section 280G(d)(4) of the Internal
Revenue Code as amended); and
C. A separate lump sum supplemental retirement benefit
payable under Retirement Plan and Supplemental Retirement
Plan (SERP) of the Company providing benefits for the
Executive which the Executive would receive if the
Executive's employment continued at the compensation
level provided for in section 4(b)(i) and 4(b)(ii) for
the remainder of the Employment Period, assuming the
accrued benefits are fully vested.
ii. For the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section
4(b)(v). For purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such
period.
iii. To the extent not theretofore paid or provided; the Company
shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provide or which
the Executive is eligible to receive pursuant to this
Agreement and under any plan, program, practice or policy or
contract or agreement of the Company and its affiliated
companies.
b. Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations, payable to Executive's estate in a lump sum in cash within
30 days of Date of Termination and the timely payment of Welfare Benefit
Continuation and Other Benefits and a lump sum cash payment within 30
days of termination the Severance Amount and Supplemental Retirement
Amount (SERP).
c. Disability. If the Executive's employment is terminated by reason of
Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligation to the Executive other than
(i) payment of Accrued Obligation within 30 days of Termination Date and
5
<PAGE>
the timely payment of the Welfare Benefit Continuation and Other
Benefits and (ii) payment to the Executive in cash within 30 days
of termination an amount equal to the greater of a lump sum of
Severance Amount and Supplemental Retirement Amount (SERP).
d. Cause. If the Executive's employment is terminated for Cause
during the Employment Period, this Agreement shall terminate
without further obligation to the Executive other than an
obligation to pay to the Executive Annual Base Salary through the
Date of Termination plus any amount of compensation previously
deferred by the Executive to the extent theretofore unpaid.
7. Non-exclusivity of Rights. Except as provided in Sections 6(a)
(ii), 6(b) and 6(c) nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any
of its affiliated companies and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts
which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of
or any subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
8. Full Settlement; Resolution of Disputes.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and, except as provided in Section 6(a)(ii), such
amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred,
to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any
contest by the Company or the Executive where the Company is found
at fault.
9. Dispute. In the event of a dispute as to whether a violation of
any provision of the Agreement has occurred, or to enforce any
provision of this Agreement, all such disputes shall be submitted
to binding arbitration before the Arbitration Association in
Mississippi, in accordance with the commercial rules of the body,
and the prevailing party shall be entitled to reasonable costs and
attorneys fees. Judgement on the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof.
10. Certain Additional Payments by the Company.
Anything in this Agreement to the contrary not withstanding, in
the event it shall be determined that any payment or distribution
by the Company to or for the benefit of the Executive ("Payment")
would be subject to the Excise Tax (imposed by Section 4999 of the
Code) or any interest or penalties are incurred by the Executive
with respect to such Excise Tax such total amount paid by the
Executive of all taxes including without limitation income taxes
and interest and penalties thereto and any additional Excise Tax
imposed upon the gross up payment, the Executive will be
reimbursed in full by Company an amount of gross up payment equal
to Excise Tax and other taxes imposed.
Any Gross Up Payment as determined pursuant to this section shall
be paid by the Company to the Executive within 5 days of receipt
of an accounting determination. If accounting determines
6
<PAGE>
no Excise Tax is payable by the Executive it shall furnish the
Executive with a written opinion that failure to report the Excise
Tax on the Executive's applicable federal income tax return would
not result in the imposition of a penalty. Any determination to
the contrary which would require payment of an Excise Tax or other
tax payment will be remitted in full by Company within 10 business
days after Executive has provided Company with written claim,
nature of claim, and date claim is to be paid.
11. Successors.
a. This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable
by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal
representatives.
b. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
c. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall
mean, the Company as hereinbefore defined and any successor
to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous.
a. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, without
reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors
and legal representatives.
b. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive: John J. Pilger
115 Spanish Point
Ocean Springs, MS 39564
If to the Company: Casino Resource Corporation
707 Bienville Blvd.
Ocean Springs, MS 39564
or to such other address as either party shall have furnished
to the other in writing in accordance herewith. Notice and
communication shall be effective when actually received by
the addressee.
7
<PAGE>
c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
b. The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
e. The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement
between the Executive and the Company, the employment of the
Executive by the Company is "at will" and, prior to the
Effective Date, may be terminated by either the Executive or
the Company at any time. Moreover, if prior to the Effective
Date, the Executive's employment with the Company terminates,
then the Executive shall have no further rights under this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization form its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
------------------------------------------
John J. Pilger
Casino Resource Corporation
------------------------------------------
By
8
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT is entered into this 3rd day of
April, 1998 by and between Casino Resource Corporation (the "Company") and
John J. Pilger ("Pilger").
WHEREAS, the Company and Pilger are parties to an Employment Agreement
dated May 20, 1996 (the "Existing Agreement") which provides for an Initial
Term expiring on July 19, 1999 and for automatic year-to-year renewals
thereafter in the absence of notice to the contrary;
WHEREAS, the Company desires to change the Initial Term of the Existing
Agreement to conform to the Company's fiscal year and accounting cycles, and
to refine the renewal provisions of the Existing Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
convenants contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows:
1. Paragraph III of the Existing Agreement is hereby amended to read as
follows:
This Employment Agreement shall commence on May 20, 1996 and
expire on September 30, 1999 unless sooner terminated as provided
in this Agreement. Unless either party elects to terminate this
Agreement by giving written notice to the other party on or
before the Notice of Termination Date (as defined in the next
sentence), the term of this Employment Agreement shall be deemed
to have been automatically extended for an additional period of
one year commencing on the day after the day when the then
current term would have otherwise expired, and the expiration
date of the term of this Employment Agreement shall be
correspondingly changed to the next anniversary of the formerly
prevailing expiration date. For purposes of this Employment
Agreement, the term "Notice of Termination Date" shall mean the
date which is one (1) year before the then prevailing expiration
date of this Employment Agreement.
2. Except as modified by this Amendment, the Existing Agreement
shall remain in full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment the day and year first above written.
ATTEST: CASINO RESOURCE CORPORATION
- ------------------------- -------------------------------
Noreen Pollman, Secretary Robert J. Allen, Vice-President
Witness:
SEAL
- ------------------------- ------------------------------
John J. Pilger
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT TO SHAREHOLDERS 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-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 535
<SECURITIES> 0
<RECEIVABLES> 368
<ALLOWANCES> 0
<INVENTORY> 281
<CURRENT-ASSETS> 4334
<PP&E> 14584
<DEPRECIATION> 2895
<TOTAL-ASSETS> 20413
<CURRENT-LIABILITIES> 4080
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 6296
<TOTAL-LIABILITY-AND-EQUITY> 20413
<SALES> 1067
<TOTAL-REVENUES> 1067
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> (2077)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 89
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1988)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
