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, 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 May 17, 1999, 11,854,700 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)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1999 1998 (1)
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 562 $ 1,152
Accounts receivable, net 115 108
Palace Receivable 94 243
Inventory 87 36
Prepaid expenses 315 59
Deferred tax asset -- 2,000
Net assets held for sale - entertainment -- 2,385
---------------------------
Total Current Assets 1,173 5,983
Property and Equipment 14,505 3,406
Less accumulated depreciation (4,184) (743)
---------------------------
Net Property and Equipment 10,321 2,663
Other Assets
Related parties assets, net of allowance 516 474
Intangibles, net 478 --
Miscellaneous 124 24
---------------------------
Total Other Assets 1,118 498
---------------------------
$ 12,612 $ 9,144
===========================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 689 $ 733
Accrued expenses and other liabilities 891 1,412
Line-of-credit and current maturities of
long-term debt 7,555 188
---------------------------
Total Current Liabilities 9,135 2,333
Long-Term Liabilities 1,456 2,710
---------------------------
Total Liabilities 10,591 5,043
Commitments and Contingencies
Stockholders' Equity
Common Stock, $0.01 par value; 119 95
Authorized 30,000,000 shares;
11,854,700 shares issued & outstanding
as of 3/31/99
Preferred Stock, 8% cumulatives; $0.01
par value; authorized 5,000,000 shares
0 issued & outstanding
Additional Paid in capital 23,800 22,631
Cumulative Translation Adjustment (310) (310)
Deficit (21,588) (18,315)
---------------------------
Total Stockholders' Equity 2,021 4,101
---------------------------
Total Liabilitites & Stockholders' Equity $ 12,612 $ 9,144
===========================
<FN>
(1) Condensed from audited financial statements
</FN>
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31
(unaudited)
(in Thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
---- ----
Income from Continuing Operations
<S> <C> <C>
Entertainment Revenues $ 3,922 $ 4,174
Gaming revenues 1,141 1,076
Operating costs - entertainment 3,312 4,053
Operating costs - gaming 1,536 2,772
General and administrative expenses 1,194 1,484
Gain on Sale of Joint Venture 91 --
Other expense - net 385 593
Minority interest in operation of subsidiary -- (295)
-------------------------------
Loss from Continuing Operations Before Income Tax Expense (1,273) (3,357)
Income tax expense (2,000) --
-------------------------------
Loss from Continuing Operations (3,273) (3,357)
Income from discontinued operation -- 372
-------------------------------
NET LOSS (3,273) (2,985)
===============================
Basic and Fully Diluted Income (Loss)
Per Common Share
Loss from Continuing Operations $ (0.33) $ (0.34)
Income from discontinued operations 0.04
-------------------------------
Net loss per share $ (0.33) $ (0.30)
===============================
Weighted average shares
of Common Shares Outstanding 9,830,834 9,846,366
===============================
</TABLE>
Condensed form unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
<PAGE>
CASINO RESOURCE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED MARCH 31
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Loss from continuing operations (3,273) (3,357)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED USED IN OPERATING ACTIVITIES
Depreciation and amortization 574 1,364
Reversal of Deferred Tax Asset 2,000
Discount upon conversion of debentures 19 157
Minority Interest in net loss of consolidated subsidiary -- (295)
Gain on sale of Joint Venture (91) --
Loss on Impairment of Palace note receiveable 56 --
Accretion of notes receviable (7) --
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable 201 (12)
Inventory 174 31
Prepaid expenses (151) 235
Other assets (95) (192)
Account payable 96 140
Accrued expenses (241) 640
-----------------------
NET CASH USED IN CONTINUING OPERATING (738) (1,289)
ACTIVITES
INCOME FROM DISCONTINUED OPERATION -- 372
-----------------------
NET CASH USED IN OPERATING ACTIVITIES (738) (917)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in net assets of discontinued operation -- 276
Purchase of property and equipment (37) (1,053)
Increase in deferred development costs - net -- (2)
Increase in due to/from related parties - net (42) 41
Proceeds from Sale of Joint Venture 20 --
-----------------------
NET CASH USED IN INVESTING ACTIVITIES (59) (735)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of debentures and draws on line-of-credit 50 100
Payments on line-of-credit and long-term debt (204) (791)
-----------------------
NET CASH USED IN FINANCING ACTIVITIES (154) (691)
Net Decrease in Cash and Cash Equivalents (951) (2,343)
CASH AND CASH EQUIVALENTS
At beginning of period 1,513 2,878
-----------------------
At end of period $ 562 $ 535
=======================
</TABLE>
Condensed from unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(unaudited)
(in Thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
Income from Continuing Operations
<S> <C> <C>
Entertainment Revenues $ 489 $ 526
Gaming revenues 580 541
Operating costs - entertainment 894 1,358
Operating costs - gaming 635 1,361
General and administrative expenses 581 749
Gain on Sale of Joint Venture 91 --
Other (income) expense - net 162 (130)
Minority interest in operation of subsidiary -- (194)
---------------------------------
Loss from continuing operations before Income Tax Expense (1,112) (2,077)
Income tax expense (2,000) --
---------------------------------
Loss from contining operations (3,112) (2,077)
Income from discontinued operation -- 89
=================================
NET LOSS $ (3,112) $ (1,988)
=================================
Basic and Fully diluted Income (Loss)
Per Common Share
Loss from Continuing Operations $ (0.31) $ (0.21)
Income from discontinued operations 0.01
---------------------------------
Net loss per share $ (0.31) $ (0.20)
=================================
Weighted average shares 10,176,149 9,798,324
of Common Shares Outstanding =================================
</TABLE>
Condensed from unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
<PAGE>
Casino Resource Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flow
For the Three Months ended March 31
<TABLE>
<CAPTION>
1999 1998
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Loss from continuing operations (3,112) (2,077)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED USED IN OPERATING ACTIVITIES
Depreciation and amortization 286 890
Gain on Sale of Joint Venture (91) --
Reversal of Deferred Tax Asset 2,000 --
Loss on Impairment of Palace note receviable 56 --
Minority Interest in net loss of consolidated subsidiary (194)
Reserve for impaired receivable -- (260)
Accretion of notes receivable (2) --
CHANGES IN ASSETS AND LIABILITIES
Accounts receivable 123 (25)
Prepaid expenses (27) (3)
Inventory 8 --
Other assets -- (108)
Account payable 130 220
Accrued expenses (25) 409
-----------------------
NET CASH USED IN CONTINUING OPERATING ACTIVITIES (654) (1,148)
INCOME FROM DISCONTINUED OPERATION -- 89
-----------------------
NET CASH USED IN OPERATING ACTIVITIES (654) (1,059)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in net assets of discontinued operation -- 386
Purchase of property and equipment (32) (35)
Decrease in deferred development costs - net -- 18
Decrease in due to/from related parties - net (21) (32)
Proceeds from Sale of Joint Venture 20 --
-----------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (33) 337
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of debentures and draws on line-of-credit 50 100
Payments on line-of-credit and long-term debt (84) (258)
-----------------------
NET CASH USED IN FINANCING ACTIVITIES (34) (158)
Net Decrease in Cash and Cash Equivalents (721) (880)
CASH AND CASH EQUIVALENTS
At beginning of period 1,283 1,415
-----------------------
At end of period $ 562 $ 535
=======================
</TABLE>
Condensed from unaudited financial statements. The accompanying notes are an
integral part of these condensed financial statements.
<PAGE>
CASINO RESOURCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: Business
Casino Resource Corporation and Subsidiaries (the "Company") is engaged
in the entertainment and gaming industry.
Casino Resource Corporation operates and manages the Country Tonite
Theatre in Branson, MO. Additionally, Casino Resource Corporation owns and
operates a musical production company, Country Tonite Enterprises, which
provides Country and Western musical entertainment to Country Tonite Theatre,
LLC, Pigeon Forge, TN, as well as its own theatre in Branson, MO. The Company
leases and operates a casino in Tunisia through its 85% owned subsidiary (CRC of
Tunisia S.A.), which opened October 18, 1997.
Prior to 1998, the Company operated an additional hospitality business
segment. On June 28, 1998, the Company sold the Hinckley Hotel for $5.4 million.
Accordingly, operating results have been reclassified and reported as
"discontinued operations."
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
(subsequent to these financials), the Agreement between the Company and On Stage
was terminated. Operating results 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 $91,000.
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.
Certain reclassifications of prior period amounts have been made to
conform to current period presentation.
The results of operations for the six-month and three-month period
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full year.
<PAGE>
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. On April 19, 1999, the Company was notified by On Stage that it was unable
to obtain the financing necessary to complete the sale. 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 to On Stage.
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.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998
CONSOLIDATED
The Company's revenues from continuing operations for the six months
ended March 31, 1999, were 5,063,000 a decrease of $187,000 or 4% from
$5,250,000 for the same six month period ending March 31, 1998. The revenue
decrease is principally due to the sale of the Company's 60% majority ownership
of Country Tonite Theatre, LLC in Pigeon Forge, TN, effective December 31, 1998.
CONTINUING OPERATIONS
Country Tonite Production Show
Country Tonite Production Show revenues totaled $642,000 for the six
months ended March 31, 1999 (including $597,000 eliminated in consolidation), a
decrease of $314,000 from the comparable fiscal 1998 period revenues of
$956,000. The decrease is due to the loss of the Aladdin venue and related
merchandise sales in November 1997. Operating expenses (including project,
general and administrative costs) decreased to $597,000 for the six months ended
March 31, 1999 from $918,000 in the same period for the prior year, principally
due to the discontinuation of the Aladdin venue in November 1997. The Country
Tonite Theatre closed for the winter season and reopened March 8, 1999.
Operating income increased to $45,000 for the six months ended March 31, 1999,
from $38,000 in the comparable prior year period. The increase is primarily due
to a reduction in operating cost related to the discontinuation of the Aladdin
venue.
Country Tonite Enterprises ("CTE") entered into a management agreement
with Burkhart Ventures and the Country Tonite Theatre, L.L.C. ("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
<PAGE>
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. The fee is payable 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. Paid attendance totaled 29.8% of
the Theatre capacity at an average ticket price of $17.01 for the six months
ended March 31, 1999, compared to paid attendance of 38% of the Theatre capacity
at an average ticket price of $16.87 for the same six month period in 1998.
Overall, revenues decreased $150,000 or 7% to 2,541,000 for the first six months
of fiscal 1999. This decrease is due principally to a decline in group sales in
1999 from 1998.
Operating expenses (including project, general and administrative
expenses) decreased $54,000 or 3% to $1,855,000 for the first six months of
fiscal 1999, from $1,909,000 in the first six months of fiscal 1998. Operating
income decreased by $140,000 or 18% to $642,000 in the first six months of
fiscal 1999 from $782,000 in the first six months of fiscal 1998.
GAMING, TUNISIA
Casino Caraibe
Revenues from Casino Caraibe for the six month period ended March 31,
1999, were $1,141,000 or an increase of $65,000 or 6% over the same period
ending March 31, 1998. Operating costs totaled $1,536,000 for this six month
period ending March 31, 1999 versus $2,772,000 a decrease of $1,236,000 or 45%
for the same six month period ending March 31, 1998. Operating cost reduction,
as a result of cost containment efforts by management, resulted in an operating
loss of $395,000, versus an operating loss of $1,696,000 for the same period
ending March 31, 1998, or an improvement of $1,301,000 or 77%. The decrease in
operating expenses are due to a $532,000 reduction in the amortization of
pre-opening costs from 1998, $318,000 reduction in payroll and related expenses,
and due to the renegotiation of the lease in 1999 rent expense decreased
$192,000 for the six month period from $412,000 in 1998 to $220,000 in 1999.
Management had anticipated an operating loss as Tunisia's slow tourist season is
November through April annually.
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 Purchase
Price will be discounted to $10,000.
<PAGE>
Discontinued Operation
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.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $1,194,000
for the six months ended March 31, 1999, compared to $1,484,000 for the
comparable 1998 period. The $290,000 decrease is primarily due to a decrease in
payroll and payroll related expenses of $152,000 and a decrease in amortization
expense in the amount of $82,000.
OTHER
Interest expense totaled $406,000 for the six months ended March 31,
1999, compared to $654,000 for the 1998 period. The decrease in interest expense
reflects payoff of the $800,000 Berman loan in June 1998. Additionally the
Company paid approximately $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.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
CONSOLIDATED
The Company's revenues from continuing operations for the three months
ended March 31, 1999, were $1,069,000, compared to $1,067,000 recorded in the
same period for the prior year.
CONTINUING OPERATIONS
Country Tonite Production Show revenues totaled $45,000 for the quarter
ended March 31, 1999, a decrease of $56,000 from the comparable 1998 period
revenues of $101,000. The decrease in revenues for the comparable period were
due to a reduction in the number of shows from 26 to 15 in 1999. The production
show contract began March 19, 1999, the opening date for CTT, LLC, Pigeon Forge.
Operating costs (including project, general and administrative) decreased to
$201,000 for the quarter ended March 31, 1999, from $232,000 in the prior year
period. Operating loss increased from $131,000 for the three month period ending
March 31,1998 to an operating loss of $156,000 for the same three month period
ending March 31, 1999.
<PAGE>
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, which includes most of the second quarter, reopening on March 8, 1999,
which is the beginning of the tourist season in Branson. Revenues for the
quarter ended March 31, 1999, totaled $418,000 an increase of $8,000 from the
comparable 1998 quarter total of $410,000. Operating costs for the quarter ended
March 31, 1999 totaled $637,000 an increase of $12,000 from the comparable 1998
period total of $625,000.
GAMING
Casino Caraibe
Revenues for the three months ended March 31, 1999 increased $39,000 to
$580,000 compared to revenues of $541,000 for the same period 1998. Operating
costs totaled $635,000 or a decrease of $726,000 or 53% from $1,361,000 for the
same three months in 1998. This resulted in an operating loss of $55,000 for the
quarter ended March 31, 1999, compared to an operating loss of $820,000 for the
same three month period ending March 31, 1998, a reduction in the operating loss
of $765,000 or 93%. The decrease in operating costs is primarily due to $294,000
less amortization expense in 1999 than in 1998 due to all start up cost having
been fully amortized by September 30, 1998. The lease was renegotiated in 1999,
which resulted in a reduction from the 1998 expense in the amount of $128,000.
Additionally, payroll and related expense decreased $127,000 in 1999.
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 Purchase
Price will be discounted to $10,000.
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 $5.4 million in cash.
<PAGE>
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expense aggregated $581,000
for the three months ended March 31, 1999, compared to $749,000 for the
comparable 1998. The $168,000 decrease is primarily due to a reduction of
professional fees in the amount of $82,000 and a reduction in payroll and
related expense in the amount of $32,000.
OTHER
Interest expense for the three month period ended March 31, 1999
totaled $162,000 compared to $242,000 for the same three month period in 1998.
The decrease in interest expense is due to the payoff of the $800,000 Berman
loan in June 1998. Additionally, the Company paid approximately $240,000 in
principal on two debentures totaling $800,000 in August 1998 and February 1999.
In fiscal 1998, a $2 million deferred tax asset was realized 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $721,000 to $562,000 at March 31,
1999, from the December 31, 1998 figure of $1,283,000.
The Company's principal use of funds during the second quarter of
fiscal 1999 consisted of payments of notes payable and long-term debt totaling
$53,000 and capital expenditures of $32,000. Additionally, the Company's
theaters were closed during this period as it is the off-season thus requiring
the use of cash.
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 million on a mortgage, which comes
due October 1, 1999 to Ahab of the Ozarks. The mortgage note is secured by
Casino Resource Corporation's Branson, Missouri, Theatre. If Casino Resource
Corporation is unable to refinance the mortgage loan with a third party, it will
be required to seek a refinancing from the current mortgage holder. If the
current mortgage holder is unable or unwilling to refinance the mortgage, Casino
Resource Corporation 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.
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures by the Company were $32,000 for the three months
ended March 31, 1999, compared to $35,000 for the comparable period in 1998.
These expenditures were for leasehold improvements in the Casino.
SEASONALITY
The theatre operations in Branson, Missouri and Pigeon Forge, Tennessee
will also be affected by seasonal factors and, in addition, will be closed from
mid-December through mid-March. This period is historically when theatres like
the Company's 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
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.
YEAR 2000 UPDATE
The Company has continued to evaluate its Y2K readiness. Although the
Company's financial institutions have provided verbal assurances as their Y2K
readiness, the Company has requested a written statements regarding all
financial institutions Y2K compliance. These statements will be kept in a
permanent file. ADP, the Company's payroll outsourcing vendor has verified their
readiness for the year 2000 and confirmed the software the Company is currently
using (which is the latest version) is Y2K compliant. Beginning June 1, 1999 all
vendors used by the Company will be sent a form letter requesting a response as
to their Y2K readiness.
The Company is reviewing software demonstrations for the purpose of
upgrading its accounting system to meet Y2K compliance (which occurred April 27,
1999). All vendor software replacements and upgrades are scheduled to be
completed by September 30, 1999.
Although the Company has not yet incurred any year 2000 costs, it
estimates that replacement of necessary accounting hardware and software and the
related costs of conversion and transmission will approximate $22,000 to $32,000
and be completed within 30 days from start to finish. 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
<PAGE>
hedging contracts. This standard is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. 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 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 theaters or casino; 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.
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 six months
ended March 31, 1999, 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. The Barnes have alleged the following: breach of contract (based on
the termination of the Barnes' employment contracts); intentional
misrepresentation; and a breach of contract based on the untimely registration
of their stock. No specific amount of damages has been claimed, however the
plaintiffs have informally indicated that they would entertain a settlement
offer of between $250,000 and $350,00. The Company was scheduled to appear in
State District Court in Clark Country, Nevada in May 1999, however the plaintiff
has requested a Motion to Continue. The Company is awaiting the determination of
a new trial date. The Company intends to vigorously defend itself in this matter
and is seeking a summary judgement.
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
<PAGE>
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, and were subsequently dismissed by AAA. NDH is requesting the
Court compel arbitration on their claim. The Company plans to vigorously defend
itself in this matter and is asking the Court to dismiss the matter with
prejudice.
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 Band of Potawatomi Indians. 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, and is currently awaiting the Court's decision to the
motion. The Company plans to vigorously pursue its claims and seeks a judgment
against Harrah's plus interest and legal fees.
The Company initiated a civil suit against Willard Smith and Monarch
Casino, Inc., ("Monarch") on December 19, 1998, in the Circuit Court of Jackson,
Mississippi. The Company alleges that Mr. Smith and Monarch have breached the
terms of the Memorandum of Understanding, Amendment and Modification Agreement,
and Consulting Agreement by failing to provide the services required under the
terms of the agreements, breaching their obligations of good faith to the
Company, and by attempting to secure the termination of the Company's interest
in the Pokagon project. The suit further alleges that Mr. Smith has defaulted on
his obligations to pay rent and maintain the upkeep of the Company's residential
property located at 303 LaSalle Street, Ocean Springs, Mississippi. The Company
seeks a judgment against Monarch Casino, Inc. and Willard Smith, plus interest
and attorneys' fees for notes due and material breach of agreements; removal of
Mr. Smith from the rental property and punitive damages.
Willard Smith filed a counter claim on February 16, 1999 alleging
breach of contract; breach of duty of fair dealing; tortuous interference with
prospective business advantage; specific performance of contract to purchase
real property and fraud. The Company plans to vigorously defend itself in this
matter and is asking the Court to dismiss the matter.
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
judgement against Mark McKinney and Mana Corporation in the amount of $150,000
plus interest and attorney's fees.
<PAGE>
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 judgement against the Company for
$51,997 in addition to prejudgment and post judgement 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.
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. 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 which represents the remaining principal balance after stock
cancellations.. 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 5 Other Information
The Company has maintained a receivable from New Palace Casino in the
amount of $250,000 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. Upon its initial reconciliation of pre-opening, startup and professional
fees, the Company has received $93,716 to date.
The Company has received three letters from NASD notifying the Company
that if it does not achieve minimum maintenance requirements under NASD rules,
the Company's common stock will be delisted from the National Market System. The
Company met with NASD officials on April 15, 1999 to discuss the Company's
current inability to maintain three of the NASDAQ National Market Listing
Requirements; those requirements being: a) $1.00 per share minimum bid price; b)
$4,000,000 minimum tangible net worth; and c) $5,000,000 minimum market
capitalization of public float.
The Company requested an additional period of grace to satisfy these
requirements. The Company further discussed, as an alternative, its willingness
to reverse split its common stock and transfer the listing to the NASDAQ Small
Cap Market. NASD could grant the additional grace period requested, or permit
<PAGE>
transfer of the listing to the NASDAQ Small Cap Market or could delist the
common stock. If the $1 minimum bid price cannot be maintained, the Company's
common stock can trade on the OTC Bulletin Board. Such an occurrence could
significantly affect the marketability of the Company's common stock and subject
the Company to additional requirements under the "Penny Stock" rules of the
Securities Exchange Act of 1934. The Company expects to hear from NASD regarding
this matter in May or June 1999.
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 six
months ended March 31, 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: May 21, 1999 s/ John J. Pilger
------------------------------------------
John J. Pilger, President & CEO
Date: May 21, 1999 s/Karla Schlett
------------------------------------------
Karla Schlett, Financial Controller
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