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 June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
Commission file number: 0-22242
CASINO RESOURCE CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
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 Offices)
228-872-5558
(Issuer's Telephone Number, Including Area Code)
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
As of August 10, 1999, 12,177,216 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30 September 30,
ASSETS 1999 1998 (1)
Current Assets
Cash and cash equivalents $ 749 $ 1,513
Accounts receivable, net 179 316
Vendor Receivable -- 243
Inventory 68 261
Prepaid expenses 305 164
Deferred tax asset -- 2,000
-------- --------
Total Current Assets 1,301 4,497
Property and Equipment 14,526 14,556
Less accumulated depreciation (4,446) (3,690)
-------- --------
Net Property and Equipment 10,080 10,866
Other Assets
Related parties assets, net of allowance 465 474
Intangibles, net 470 503
Miscellaneous 124 29
-------- --------
Total Other Assets 1,059 1,006
-------- --------
$ 12,440 $ 16,369
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 739 $ 733
Accrued expenses and other liabilities 1,171 1,412
Line-of-credit and current maturities of
long-term debt 7,550 459
-------- --------
Total Current Liabilities 9,460 2,604
Long-Term Liabilities 1,367 9,664
-------- --------
Total Liabilities 10,827 12,268
Commitments and Contingencies
Stockholders' Equity
Common Stock, $0.01 par value; 122 95
Authorized 30,000,000 shares;
12,177,216 shares issued & outstanding
as of 6/30/99
Preferred Stock, 8% cumulative; $0.01
par value; authorized 5,000,000 shares
0 issued & outstanding
Additional Paid in capital 23,797 22,631
Cumulative Translation Adjustment (310) (310)
Deficit (21,995) (18,315)
-------- --------
Total Stockholders' Equity 1,613 4,101
-------- --------
Total Liabilities & Stockholders' Equity $ 12,440 $ 16,369
======== ========
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30
(unaudited)
(in Thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income from Continuing Operations
Entertainment Revenues $ 5,965 $ 6,836
Gaming revenues 1,960 2,160
Operating costs - entertainment 4,728 6,074
Operating costs - gaming 2,700 4,383
General and administrative expenses 2,010 1,996
Gain on Sale of Joint Venture 103 --
Other expense - net 270 812
Minority interest in operation of subsidiary -- (313)
------------ ------------
Loss from Continuing Operations Before Income Tax Expense (1,680) (3,956)
Income tax expense (2,000) --
------------ ------------
Loss from Continuing Operations (3,680) (3,956)
Income from Discontinued Operation -- 697
Gain on Sale of Discontinued Operation 654
============ ============
NET LOSS (3,680) (2,605)
============ ============
Basic and Fully Diluted Income (Loss)
Per Common Share
Continuing Operations $ (0.35) $ (0.40)
Discontinued Operations -- $ 0.14
------------ ------------
Net loss per share $ (0.35) $ (0.26)
============ ============
Weighted average shares
Outstanding 10,537,188 9,797,036
============ ============
</TABLE>
Condensed from unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
4
<PAGE>
CASINO RESOURCE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations (3,680) (3,956)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED USED IN OPERATING ACTIVITIES
Depreciation and amortization 844 2,040
Reversal of Deferred Tax Asset 2,000
Discount upon conversion of debentures 19 --
Minority Interest in net loss of consolidated subsidiary -- (313)
Gain on sale of Joint Venture (103) --
Loss on Impairment of Vendor note receivable 56 --
Accretion of notes receivable (7) --
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable 227 104
Inventory 198 (34)
Prepaid expenses (141) 595
Other assets (95) (251)
Account payable 146 (105)
Accrued expenses 39 218
------- -------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATING (497) (1,702)
ACTIVITIES
INCOME FROM DISCONTINUED OPERATION -- 1,351
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (497) (351)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in net assets of discontinued operation -- 2,604
Purchase of property and equipment (58) (854)
Increase in deferred development costs - net -- (6)
Repurchase of common stock -- (40)
Decrease in due to/from related parties - net 9 155
Proceeds from Sale of Joint Venture 20 --
------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (29) 1,859
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of debentures and draws on line-of-credit -- --
Payments on line-of-credit and long-term debt (238) (1,639)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (238) (1,639)
Net Decrease in Cash and Cash Equivalents (764) (131)
CASH AND CASH EQUIVALENTS
At beginning of period 1,513 2,878
------- -------
At end of period $ 749 $ 2,747
======= =======
</TABLE>
Condensed from unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
5
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30
(unaudited)
(in Thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Income from Continuing Operations
Entertainment Revenues $ 2,042 $ 2,662
Gaming revenues 818 1,084
Operating costs - entertainment 1,416 2,021
Operating costs - gaming 1,162 1,612
General and administrative expenses 711 511
Other (income) expense - net (22) 219
Minority interest in operation of subsidiary -- (18)
------------ ------------
Loss from continuing operations before Income Tax Expense (407) (599)
Gain on Sale of Discontinued Operation
Income tax expense --
------------ ------------
Loss from continuing operations (407) (599)
Income from discontinued operation -- 325
Gain on Sale of Discontinued Operation 654
============ ============
NET (LOSS) INCOME $ (407) $ 380
============ ============
Basic and Fully Diluted Income (Loss)
Per Common Share
Continuing Operations $ (0.03) $ (0.06)
Discontinued operations 0.10
------------ ------------
Net (loss) Income per share $ (0.03) $ 0.04
============ ============
Weighted average shares
------------ ------------
Outstanding 11,949,932 9,698,375
============ ============
</TABLE>
Condensed from unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
6
<PAGE>
Casino Resource Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flow
For the Three Months ended June 30
<TABLE>
<S> <C> <C>
Reversal of Deferred Tax Asset -- --
Loss on Impairment of Vendor note receivable -- --
Minority Interest in net loss of consolidated subsidiary (18)
Reserve for impaired receivable -- --
Accretion of notes receivable -- --
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable 27 252
Prepaid expenses 10 (79)
Inventory 21 10
Other assets -- 179
Account payable 50 (245)
Accrued expenses 280 (422)
------- -------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATING 251 (246)
ACTIVITIES
INCOME FROM DISCONTINUED OPERATION -- 979
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 251 733
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in net assets of discontinued operation -- 2,328
Purchase of property and equipment (21) (5)
Decrease in deferred development costs - net -- (4)
Repurchase of common stock (6)
Decrease(Increase) in due to/from related parties - net 51 114
Proceeds from Sale of Joint Venture -- --
------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES 30 2,427
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of debentures and draws on line-of-credit -- --
Payments on line-of-credit and long-term debt (94) (948)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (94) (948)
Net Increase (Decrease) in Cash and Cash Equivalents 187 2,212
CASH AND CASH EQUIVALENTS
At beginning of period 562 535
------- -------
At end of period $ 749 $ 2,747
======= =======
</TABLE>
Condensed from unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
7
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: Business
Casino Resource Corporation and Subsidiaries (the "Company") is engaged in
the entertainment and gaming industry.
The Company operates and manages the Country Tonite Theatre in Branson,
Missouri. The Company owns and operates a musical production company, Country
Tonite Enterprises, which provides Country and Western musical entertainment to
the Country Tonite Theatre, LLC, in Pigeon Forge, Tennessee, and to its own
theatre in Branson, Missouri. Additionally, the Company leases and operates a
casino in Tunisia through its 85% owned subsidiary (CRC of Tunisia S.A.), which
opened October 18, 1997.
In September 1998, the Company entered into an Asset Purchase Agreement to
sell substantially all of the assets used in connection with operations of the
Country Tonite Theatre and Country Tonite Enterprises to On Stage Entertainment,
Inc. ("On Stage"), for $13.8 million. However, in April 1999, the Agreement
between the Company and On Stage was terminated. Operating results, therefore,
have been reclassified and reported as "continuing operations".
The Company sold it's 60% interest in the Joint Venture, Country Tonite
Theatre, LLC in Pigeon Forge, Tennessee for $20,000 to the 40% Joint Venture
owner, Burkhart Ventures, LLC, effective December 31, 1998. As a result, the
Company has recognized a "gain on the sale" in the amount of $103,000.
In December 1998, the Company entered into a Memorandum of Understanding to
form a joint venture with Lakes Gaming (NASDAQ: LACO) for the purpose of
pursuing a management and development agreement to develop one or more casinos
on behalf of the Pokagon Band of Potawatomi Indians (the "Pokagon Tribe") in
southwestern Michigan and northern Indiana. In May 1999, the Company and Lakes
Gaming entered into an agreement (the "Conditional Release and Termination
Agreement") to terminate the Memorandum of Understanding, in the event that the
Pokagon Tribe chose to enter into management and development agreements solely
with Lakes Gaming. The Company has subsequently renegotiated that agreement to
more fairly represent the concessions Lakes Gaming negotiated with the Pokagon
Tribe.
In June 1999, Lakes Gaming was in fact selected by the Pokagon Tribe to
negotiate a management and development agreement. This agreement is currently
pending ratification by the newly elected Tribal council, which shall be
inducted in August, 1999. The agreement the Company reached with Lakes Gaming is
conditioned upon the ratification of Lakes Gaming's Management and Development
Agreement with the Pokagon Tribe. The terms of the agreement, by mutual
agreement of the parties, will be released only if and when the Tribal Council
has ratified its agreement with Lakes Gaming.
NOTE 2: 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.
8
<PAGE>
Certain reclassifications of prior period amounts have been made to conform
to current period presentation.
The results of operations for the nine-month and three-month period ended
June 1999 are not necessarily indicative of the results to be expected for the
full year.
NOTE 3 Deferred Tax Asset
The Company recognized a $2,000,000 income tax benefit in fiscal 1998 that
was to be realized upon the sale of its entertainment segment in fiscal 1999 to
On Stage. On April 19, 1999, the Company was notified by On Stage that it was
unable to obtain the financing necessary to complete the sale. Therefore, the
$2,000,000 tax benefit that was recorded in fiscal 1998 has been reversed in
fiscal 1999 due to the termination of the sale.
NOTE 4 Discontinued Operations
On June 28, 1998, the Company completed the sale of the Grand Hinckley Inn
to the Mille Lacs Band of Ojibwe Indians for $5.5 million in cash.
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 reflected in the accompanying condensed
consolidated financial statements.
9
<PAGE>
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
CONSOLIDATED
The Company's revenues from continuing operations for the nine months ended
June 30, 1999, were $7,925,000 a decrease of $1,071,000 or 12% from $8,996,000
for the same nine month period ending June 30, 1998. The decrease in revenue is
principally due to the sale of the Company's 60% majority ownership of Country
Tonite Theatre, LLC ("CTT, LLC") in Pigeon Forge, Tennessee, effective December
31, 1998, and the termination of Country Tonite Enterprise's contract with the
Aladdin Hotel and Casino in November, 1997.
CONTINUING OPERATIONS
Country Tonite Production Show
Country Tonite Production Show revenues totaled $1,080,000 for the nine
months ended June 30, 1999 (including $597,000 eliminated in consolidation), a
decrease of $438,000 or 29% from the comparable fiscal 1998 period revenues of
$1,518,000. A $275,000 decrease in revenues is due to the loss of the Aladdin
Hotel and Casino venue in Las Vegas, Nevada and related merchandise sales in
November 1997. Revenue generated by Country Tonite Enterprises ("CTE") Pigeon
Forge decreased by $163,000 for the nine month period ending June of 1999, as
compared to the same period in 1998. The decrease in revenue is principally due
to CTE's 1999 contract, which calls for a lesser number of shows earlier in the
calendar year, at a contract rate which is approximately 14% lower than the
prior year. This discount rate was granted to CTT, LLC in order to maintain
CTE's year to year contract with CTT, LLC without the Company incurring any
financial deficits associated with the business operation of CTT, LLC. Operating
expenses (including project, general and administrative costs) decreased
$338,000 to $979,000 for the nine months ended June 30, 1999, from $1,317,000 in
the same period for the prior year. This was principally due to the
discontinuation of the Aladdin venue in November 1997. Operating income
decreased to $102,000 for the nine months ended June 30, 1999, from $191,000 in
the comparable prior year period.
CTE entered into a management agreement with Burkhart Ventures and CTT, LLC
for calendar year 1999, for a fee of $2,000 per week during the show season and
$1,000 per week for the remainder of the year. The fee, however, will be reduced
by fifty percent (50%) if ticket sales at the Theatre between January 1, 1999,
and September 30, 1999, do not increase by ten percent (10%) over the same
period in 1998. Ticket sales through June 1999 are out-performing 1998 by 28%.
The fee is payable on September 30, 1999. CTT, LLC or Burkhart Ventures may
terminate this agreement upon thirty (30) days notice to the Company.
Country Tonite Theatre - Branson
The Country Tonite Theatre in Branson reopened on March 8, 1999, which is
the beginning of the Branson tourist season. The Theatre's paid attendance
totaled 28% for the nine month period ended June 30, 1999, compared to 30% for
the same average seat availability for the nine month period in 1998. Overall,
revenues decreased $258,000 or 6% from $4,403,000 to $4,145,000 for the first
nine months of fiscal 1999. This decrease is due principally to a decline in bus
traffic in Branson with a corresponding decline in Theatre group sales in 1999
from 1998. Operating expenses (including project, general and administrative
10
<PAGE>
expenses) decreased $121,000 or 4% to $2,892,000 for the first nine months of
fiscal 1999, from $2,960,000 in the first nine months of fiscal 1998. Operating
income decreased by $173,000 or 19% to $749,000 in the first nine months of
fiscal 1999, from $922,000 in the first nine months of fiscal 1998.
GAMING, TUNISIA
Casino Caraibe
Revenues from Casino Caraibe for the nine month period ended June 30, 1999,
were $1,960,000 or a decrease of $200,000, or 9% from the same period ending
June 30, 1998. The decrease in revenue is predominately due to a decrease in the
table game hold percentage, as well as the drop or handle, in May 1999 versus
May 1998. Conversely, the Company reduced its operating expenses $1,683,000 from
$4,383,000 for nine month period in 1998 to $2,700,000 for same nine month
period in 1999. The 1999 expense reductions include: $532,000 reduction in the
amortization of pre-opening costs from 1998; $463,000 reduction in payroll; the
renegotiation of the lease in 1999 resulting in a decrease of rent expense of
$285,000 for the nine month period from $683,000 in 1998, to $399,000 in 1999.
Casino Caraibe experienced an operating loss of $740,000 for the nine month
period ending June 30, 1999 versus an operating loss of $2,223,000 for the same
period ending June 30, 1998 or an improvement of $1,301,000 or 77%.
Sale of CTT, LLC Joint Venture
Effective December 31, 1998, the Company sold its 60% interest in CTT,
L.L.C. to its minority partner, Burkhart Ventures, for a purchase price of
$20,000 (the "Purchase Price"). The Purchase Price is payable on September 30,
1999, subject to ticket sales at the Theatre between January 1, 1999, and
September 30, 1999, increasing 10% over the same period for 1998, or the
Purchase Price will be discounted to $10,000. Ticket sales through June 1999 for
the calendar year are out performing 1998 by 28%.
The Company's ownership interest in CTT, LLC was sold December 31, 1998.
Financial data for the nine month period reflects nine months in 1998, compared
to three months in 1999. Revenues for fiscal 1998 were $2,159,000, compared to
$1,337,000 in fiscal 1999. Operating expenses were $1,397,000 in fiscal 1999,
compared to $2,798,000 in fiscal 1998. The operating loss was $117,000 in 1999,
compared to $783,000 in fiscal 1998.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses remain substantially
unchanged from an aggregated $2,010,000 for the nine months ended June 30, 1999,
compared to $1,996,000 for the comparable 1998 period.
OTHER
Interest expense totaled $564,000 for the nine months ended June 30, 1999,
compared to $941,000 for the 1998 period. The decrease in interest expense is
the result of the Company satisfying an $800,000 term loan in June 1998 and
payments of $240,000 in principal on two outstanding debentures in August 1998
and February 1999.
In fiscal 1998 a $2 million deferred tax asset was recorded due to the
potential sale of the entertainment division to On Stage. In fiscal 1999, due to
the termination of the sale to On Stage, the deferred tax asset was reversed.
11
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
CONSOLIDATED
The Company's revenues from continuing operations for the three months
ended June 30, 1999, were $2,860,000 from $3,746,000 for the same prior year
period, a decrease of $885,000 or 24%. The decrease in revenue is principally
due to the sale of the Company's 60% ownership interest in CTT, LLC on December
31, 1998.
CONTINUING OPERATIONS
Country Tonite Production Show
The Country Tonite Production Show revenues totaled $438,000 for the
quarter ended June 30, 1999, a decrease of $124,000 from the comparable 1998
period revenues of $562,000. The decrease in operating revenue for the three
month period ended June 30, 1999, was the result of CTE having 11 less shows in
1999 versus 1998, and approximately a 14% lower per show contract fee in 1999
versus 1998. Operating costs (including project, general and administrative)
were unchanged at $382,000 for the quarter ended June 30, 1999, from $399,000 in
the prior year period. Operating income decreased from $152,000 for the three
month period ending June 30, 1998, to an operating income of $56,000 for the
same three month period ending June 30, 1999.
CTE is providing management services to Burkhart Ventures during 1999, for
a fee of $2,000 per week during the period the show is being produced and $1,000
per week for the remainder of the year. Provided; however, the fee payable
thereunder would be reduced by fifty percent (50%) if ticket sales at the
Theatre between January 1, 1999 and September 30, 1999, do not increase by ten
percent (10%) over the same period in 1998. Such fees shall be payable on
September 30, 1999. Burkhart Ventures may terminate the management service
agreement upon thirty (30) days notice to the Company.
Country Tonite Theatre - Branson
The Country Tonite Theatre in Branson was closed during the winter season,
reopening on March 8, 1999, which is the beginning of the tourist season in
Branson. Revenues for the quarter ended June 30, 1999, totaled $1,604,000 a
decrease of $102,000 from the comparable 1998 quarter total of $1,712,000. The
decrease was predominately related to the overall reduction in bus traffic in
the Branson market with a corresponding decline in Theatre group sales in 1999
from 1998. Operating costs for the quarter ended June 30, 1999, totaled
$1,038,000 a decrease of $13,000 from the comparable 1998 period total of
$1,051,000. Operating income decreased $67,000 from $472,000 for the three month
period ending June 30, 1998, to an operating income of $405,000 for the same
three month period ending June 30, 1999.
12
<PAGE>
GAMING
Casino Caraibe
Revenues for the three months ended June 30, 1999, decreased $266,000 to
$818,000 compared to revenues of $1,084,000 for the same period 1998. The
decrease in revenue is predominately due a decrease in the table game hold
percentage, as well as the drop or handle, in May 1999 versus May 1998.
Operating costs totaled $1,162,000 or a decrease of $450,000, or 28% from
$1,612,000 for the same three months in 1998. Conversely, the Company reduced
its operating expenses $450,000, or 28% from $1,612,000 for three month period
ending June 1998 to $1,162,000 for the three month period ending June 30, 1999.
The decrease in operating cost is primarily due to the following: $294,000 less
amortization expense in 1999 than in 1998, as all start up costs had been fully
amortized by September 30, 1998; the lease was renegotiated in 1999, resulting
in a reduction in lease expense of $93,000; and payroll and related expenses
decreased $152,000 for the third quarter in 1999, due to cost containment
efforts by management. Casino Caraibe experienced an operating loss of $344,000
for the quarter ended June 30, 1999, compared to an operating loss of $528,000
for the same three month period ending June 30, 1998, an improvement of $184,000
or 35%.
Sale of CTT, LLC Joint Venture
Effective December 31, 1998, the Company sold its 60% interest in CTT, LLC
to its minority partner, Burkhart Ventures, for a purchase price of $20,000 (the
"Purchase Price"). The Purchase Price is payable on September 30, 1999, subject
to ticket sales at the Theatre between January 1, 1999 and September 30, 1999
increasing 10% over the same period for 1998, or the Purchase Price will be
discounted to $10,000.
While the Company sold its 60% interest in CTT, LLC December 31, 1998,
miscellaneous operating adjustments were incurred subsequent to the sale.
Revenue for the three month period ended June 30, 1999 totaled $500, a decrease
of $950,500 from the comparable 1998 period revenues of $951,000. Due to
reimbursements from vendors, operating expenses were a credit of $3,300 compared
to $937,000 in the prior year period. Operating income increased to $4,000 for
the three month period ending June 30, 1999 from operating income loss of
$46,000 for the same three month period.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expense totaled $711,000 for the
three months ended June 30, 1999, compared to $511,000 for the three months
ended June 30, 1998. The $200,000 increase is due to an increase in legal fees
and professional fees and an accrual for a fee to be paid in December 1999.
OTHER
Interest expense for the three month period ended June 30, 1999, totaled
$158,000, compared to $283,000 for the same three month period in 1998. The
decrease in interest expense is due to the payoff of an $800,000 term loan in
June 1998, and the pay down of $240,000 in principal on two debentures, which
originally totaled $800,000 in August 1998 and February 1999.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased from $562,000 at March 31, 1999, to
$749,000 at June 30, 1999. In addition to operations, the Company's principal
source of funds during the three months ended June 30, 1999, were revenues from
Country Tonite Branson and the show fee from Pigeon Forge. The Company's
principal use of funds other than operations consisted of debt repayments
totaling $94,000 and capital expenditures of $21,000.
In December 1998, the Company entered into a Memorandum of Understanding to
form a joint venture with Lakes Gaming (NASDAQ: LACO) for the purpose of
pursuing a management and development agreement to develop one or more casinos
on behalf of the Pokagon Tribe. In May 1999, the Company and Lakes Gaming
entered into an agreement (the "Conditional Release and Termination Agreement")
to terminate the Memorandum of Understanding, in the event that the Pokagon
Tribe chose to enter into a management and development agreement solely with
Lakes Gaming. The Company has subsequently renegotiated that agreement to more
fairly represent the concessions Lakes Gaming negotiated with the Pokagon Tribe.
This June 1999, Lakes Gaming was in fact selected by the Pokagon Tribe to
negotiate a management and development agreement. This agreement is currently
pending ratification by the newly elected Tribal council, which shall be
inducted in August 1999. The agreement the Company reached with Lakes Gaming is
conditioned upon the ratification of Lakes Gaming's Management and Development
Agreement with the Tribe. The terms of the agreement, by mutual agreement of the
parties, will be released only if and when the Tribal Council has ratified its
agreement with Lakes Gaming.
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 owes approximately $7.0 million on a mortgage, which comes due
October 1, 1999, to Ahab of the Ozarks. The mortgage note is secured by the
Company's Branson, Missouri Theatre. The Company has initiated discussions with
several lenders and begun negotiations with several in hopes of obtaining a
financing commitment. If the Company is unable to refinance the mortgage loan
with a third party, it will be required to seek refinancing from the current
mortgage holder. If the current mortgage holder is unable or unwilling to
refinance the mortgage, the Company could offer the Theatre for outright sale or
for sale and lease back. In the unlikely event that none of these strategies is
successful, the Company could lose the Branson Theatre through foreclosure.
In March 1999, Officers and a key employee of the Company, in an effort to
preserve cash during the slow season, volunteered to take a 20% reduction in
their cash salary compensation. This payable is accruing interest at a rate of
prime plus 1%, with payment deferred until the Company is in its peak season and
the cash portion changes.
CAPITAL EXPENDITURES
Capital expenditures by the Company were $21,000 for the three months ended
June 30, 1999, compared to $32,000 for the comparable period in 1998. These
expenditures were primarily for leasehold improvements in the Casino.
SEASONALITY
The theatre operations in Branson, Missouri and Pigeon Forge, Tennessee may
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 theatre normally close in Branson and Pigeon Forge. The casino in
Tunisia is also subject to seasonal factors as the period from October to April
which is considered the slow tourist season.
14
<PAGE>
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.
YEAR 2000 UPDATE
The Company has continued to evaluate its Y2K readiness. The Company's
financial institutions have provided verbal assurances that all of their systems
are Y2K compliant. The Company has requested written statements regarding all
financial institutions Y2K compliance. These statements will be kept on file.
ADP, the Company's payroll outsourcing vendor has verified its readiness for the
year 2000 and confirmed that the software the Company is currently using (which
is the latest version) is Y2K compliant. All vendors used by the Company are
being sent a form letter requesting a response as to their Y2K readiness. The
Company anticipates responses within the next 60 days.
The Company has completed its review for the purpose of upgrading its
accounting system to meet Y2K compliance. All vendor software replacements and
upgrades are scheduled to be completed by September 30, 1999.
As of July 1999, the Company has spent approximately $15,000 as a 50% down
payment for the accounting hardware and software, the balance is expected to be
remitted in August 1999. It is estimated that the total replacement of necessary
accounting hardware and software and the related costs of conversion and
transmission will approximate $22,000 to $40,000 and be completed within 60
days. Beginning in August, the Company will start converting its accounting
software. It is estimated that the conversion and training will take
approximately two weeks to complete. At this time a contingency plan to handle
the Year 2000 problem has not been established, however the Company does intend
to establish one, prior to the end of 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This standard
established accounting and reporting standards for derivatives and for hedging
contracts. This standard is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. When the Company adopts this statement, it
is not expected to have a material impact on the Company's financial statements
or their presentation.
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
changes in travel patterns which could affect demand for the Company's theaters
or casino; changes in development and operating costs, including labor,
construction, land, equipment, and capital costs; general business and economic
15
<PAGE>
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.
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, 1998. There have
been no further developments regarding such proceedings during the nine months
ended June 30, 1999, except as described below.
Norm D. Holm and NDH, Inc., ("NDH"), a Minnesota corporation, brought suit
in the Tenth Judicial District Court, County of Sherburne, Minnesota, against
the Company on August 11, 1998. NDH alleges that the Company entered into an
Indemnification and Hold Harmless Agreement to indemnify and hold NDH harmless
from loss of claims, etc. incurred as a result of services provided to real
property known as "Pintail Woods", which claim purportedly totals $158,000.
These claims were brought before the American Arbitration Association ("AAA") in
December 1992, who ruled that arbitration was not appropriate at that time. On
July 7, 1999, the Tenth Judicial District Court, County of Sherburne, Minnesota,
ordered this matter be submitted to arbitration. The Company plans to vigorously
defend itself in this matter and is asking the Court to dismiss based on a
statue of limitations defense.
The Company initiated a civil suit against Harrah's on September 4, 1998,
in Federal District Court for the District of Minnesota. The Company alleges
that Harrah's breached the Technical Assistance and Consulting Agreement and
tortuously interfered with the Company's contractual and prospective economic
advantage associated with the Pokagon Tribe. The suit further alleges that
Harrah's withheld vital business information from the Company. Harrah's has
filed a motion to dismiss based on denial that Harrah's is a proper party to the
lawsuit and that the Technical Assistance and Consulting Agreements do not
create a partnership or Joint Venture relationship with the Company. The Company
filed its response to Harrah's Motion for Summary Judgment in late December
1998. The Federal Minnesota District Court granted Harrah's Motion for Dismissal
or Summary Judgment and the Company's complaint was dismissed with prejudice on
May 24, 1999. The Company filed notice that it is appealing the decision.
The Company initiated suit against Mark McKinney, personally, and Mana
Corporation, on March 12, 1999, in the Circuit Court of Benton County, Arkansas.
The Company alleges that Mr. McKinney and Mana Corporation breached the terms of
the Letter of Intent and the Extension Agreement dated December 4, 1998, by
prematurely terminating the agreement before April 30, 1999, and failure to
repay a short term loan made to Mark McKinney, personally. The Company seeks a
judgment against Mark McKinney and Mana Corporation in the amount of $150,000
plus interest and attorney's fees.
Mark McKinney and Mana Corporation filed a counter claim April 5, 1999,
alleging Mana Corporation incurred additional expenses associated with the due
diligence with the Company and is asking for a judgment against the Company for
$51,997 in addition to prejudgment and post judgment interest and attorney's
fees. Mana Corporation and Mark McKinney have declined consent to a bench trial
therefore the Company is proceeding with discovery and establishing a trial
date.
16
<PAGE>
ITEM 5 Other Information
The Company has maintained a receivable in the amount of $250,000 which was
due to mature two years from the dissolution of the partnership between the
Company and Robert E. Low and Lawana Low on January 31, 1997. The Company has
received $93,716 and is reserving the balance as an allowance for doubtful
account.
Prior to May, 1999, the Company received three letters from NASD notifying
it that if the Company did not achieve minimum maintenance requirements under
NASD rules the Company stock would be delisted from the National Market System.
On May 25, 1999, NASD moved the Company's listing of common stock and warrants
to the OTC Bulletin Board. While the Company may be subject to additional
requirements under the "Penny Stock" rules of the Securities Exchange Act of
1934, brokers who are currently trading in the stock will not be subject to any
additional reporting requirements when taking buy or sell orders. The Company's
stock symbol remains the same, CSNR for the common stock and CSNRW for the
warrants.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
3.1 Articles of Incorporation (1)
3.2 By-laws (2)
27.0 Financial Data Schedule
1) Incorporated by reference to the Company's Form 10-KSB for fiscal year
ended September 30, 1994, filed on January 12, 1995.
2) Incorporated by reference to the company's Registration Statement on
Form SB-2, File No. 33-9044
B) There have been no Current Reports on Form 8-K filed during the nine months
ended June 30, 1999.
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: August 16, 1999 /s/ John J. Pilger
-----------------------------------
John J. Pilger, President & CEO
Date: August 16, 1999 /s/ Karla Schlett
-----------------------------------
Karla Schlett, Financial Controller
18
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