<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number 0-24074
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GAMING WORLD INTERNATIONAL, LTD.
(Exact name of registrant as specified in its charter)
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DELAWARE 51-0336065
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Medure Place, Suite 100
438 Line Avenue
Ellwood City, Pennsylvania 16117
(412) 758-2461
(address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class as of June 30, 1996
----- -------------------
Common Stock, $.01 par value 6,868,131 shares
<PAGE> 2
GAMING WORLD INTERNATIONAL, LTD.
INDEX
PART I. FINANCIAL INFORMATION. PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
as of June 30, 1996 and September 30, 1995 2
Consolidated Statements of Operations (Unaudited)
for the three and nine months ended June 30, 1995 and 1996 4
Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended June 30, 1995 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
<PAGE> 3
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
GAMING WORLD INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
-------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 13,889 $ 38,451
Marketable securities 3,000,000 3,650,000
Investment in management contracts 936,511 936,511
Accounts and advances receivable
Trade 255,783 278,411
Other - 6,616
----------- -----------
255,783 285,027
----------- -----------
Inventories 1,281,475 1,667,421
Net investment in leases 111,813 111,813
Deposits and prepaid expenses 147,645 182,165
----------- -----------
Total current assets 5,747,116 6,871,388
----------- -----------
LAND, BUILDINGS, EQUIPMENT, AND
LEASEHOLD IMPROVEMENTS -
AT COST
Land 3,655,300 3,655,300
Buildings 7,412,908 7,412,908
Furniture and equipment 1,632,324 1,613,889
Leasehold improvements 1,195,955 1,039,893
----------- -----------
13,896,487 13,721,990
Less accumulated depreciation and
amortization (978,367) (738,082)
----------- -----------
12,918,120 12,983,908
----------- -----------
DEFERRED MANAGEMENT FEE 384,812 384,812
INVESTMENTS IN MANAGEMENT CONTRACTS AND
LAND OPTIONS 2,055,355 2,201,859
GOODWILL LESS ACCUMULATED AMORTIZATION 482,648 509,648
OTHER ASSETS 23,100 23,100
----------- -----------
Total Assets $21,611,151 $22,974,715
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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GAMING WORLD INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(unaudited)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 5,998,369 $ 6,827,084
Current maturities of capitalized lease
obligations 111,813 111,813
Related party advances payable 1,372,139 1,047,911
Accounts payable and accrued liabilities 1,197,766 1,881,535
----------- -----------
Total Current Liabilities 8,680,087 9,868,343
----------- -----------
NOTES PAYABLE, less current portion 6,324,644 5,505,003
----------- -----------
DEFERRED REVENUE 1,234,512 1,017,176
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock - authorized 1,000,000
shares of $.01 par value; no shares issued -
Common Stock - authorized 15,000,000
shares of $.01 par value; 7,525,160 shares
issued in 1995 and 1994 and 5,650,160
shares issued in 1993; 6,868,131 shares
outstanding in 1995 and 1994 and 4,993,131
shares outstanding in 1993 75,252 75,252
Additional paid in capital 11,221,419 11,221,419
Retained earnings (Accumulated deficit) (4,311,136) (3,098,851)
----------- -----------
$ 6,985,535 $ 8,197,820
Less cost of 657,029 common shares, held in
the treasury 1,613,627 1,613,627
----------- -----------
Total Liabilities and Stockholders' Equity 5,371,908 6,584,193
----------- -----------
$21,611,151 $22,974,715
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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GAMING WORLD INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
-------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Management fee $ 373,615 $ 381,017 $1,219,995 $ 527,588
Concessions 1,423,969 1,408,761 3,414,250 3,904,452
---------- ---------- ---------- ----------
1,797,584 1,789,778 4,634,245 4,432,040
Expenditures
Concessions 1,232,133 1,282,922 2,747,178 3,268,837
General and Administrative 554,468 300,839 1,457,769 1,351,537
Depreciation and Amortization 87,257 89,095 244,990 267,285
---------- ---------- ---------- ----------
1,873,858 1,672,856 4,449,937 4,887,659
---------- ---------- ---------- ----------
Earnings/(Loss) from operations (76,274) 116,922 184,308 (455,619)
---------- ---------- ---------- ----------
Other Income and (Expenses) 58,612 78,747 305,963 180,458
Interest income (176,922) (352,661) (709,621) (937,124)
---------- ---------- ---------- ----------
Interest expense (118,310) (273,914) (403,658) (756,666)
---------- ---------- ---------- ----------
Earning/(Loss) before Income Taxes (194,584) (156,992) (219,350) (1,212,285)
---------- ---------- ---------- ----------
Income taxes (benefit) (29,188) (23,549) (32,903) (181,843)
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) (165,396) (133,443) (186,447) (1,030,442)
========== ========== ========== ==========
Net earnings (loss) per
common share $ (.02) $ (.02) $ (.03) $ (.15)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
GAMING WORLD INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(1,212,285) $ (219,350)
adjustments to reconcile net earnings (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization 267,285 244,990
(Increase) decrease in accounts, notes and advances
receivable and deferred management fee 29,244 276,179
(Increase) decrease in inventories 385,946 (1,270,575)
(Increase) decrease in investments in management contracts
and land options 146,504 (1,190,950)
(Increase) decrease in prepaid expenses
deposits and other 34,520 2,637
Increase (decrease) in accounts payable, accrued liabilities
and advanced management fee (683,769) 332,885
Increase in deferred revenue 217,336 207,120
----------- ----------
Net cash provided by (used in) operations (815,219) (1,617,064)
Cash flows from investing activities:
Reduction of investment in lease - 1,028,091
Capital expenditures (174,497) (1,163,133)
Reduction of marketable securities 650,000 789,695
----------- ----------
Net cash provided from (used in) investing
activities 475,503 654,653
Cash flows from financing activities:
Principal payments on notes payable (200,000) -
Payments on related party advances (304,875) -
Increase in short term debt - 399,508
Proceeds from notes payable 190,926 -
Principal reduction of capitalized lease
obligation - (185,372)
Related party advances 629,103 487,504
----------- ----------
Net cash provided by (used in)
financing activities 315,154 701,640
Net increase (decrease) in cash and cash equivalents (24,562) (260,771)
Cash and cash equivalents at Beginning of Period 38,451 308,457
----------- ----------
Cash and cash equivalents at End of Period $ 13,889 $ 47,686
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
GAMING WORLD INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - FINANCIAL STATEMENTS
The Consolidated Financial Statements are unaudited but, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for the periods included.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
The accompanying consolidated financial statements should be read in
conjunction with the Company's audited financial statements, and notes
included therein, for the year ended September 30, 1995 included in the
Company's Annual Report on Form 10-K/A.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Gaming World International, Ltd. (the "Company") develops and manages gaming
and related recreational facilities for federally-recognized Indian tribes and
currently manages two casinos. The Company developed and operates Shooting Star
Casino, located in Mahnomen, Minnesota, and the Golden Eagle Charitable Casino
and Entertainment Centre located in Kenora, Ontario, Canada. The Company is
also seeking additional opportunities to develop and manage other gaming
facilities, including riverboat and dockside casinos, which may be on sites
other than Indian Land. In particular, the Company may explore the possible
development of such facilities in the Commonwealth of Pennsylvania, although
the Company has not entered into any contracts or agreements in principle for
such other gaming facilities as of the date of this report.
The Company commenced business activity in June 1991 and to date, the Company
has devoted substantial efforts developing and managing the Shooting Star
Casino. The permanent Shooting Star Casino, which has been operating since May
1992, is owned by the White Earth Band of Chippewa Indians (the "Band"). The
Company manages the casino for the Band under the terms of a five-year
management contract (the "Shooting Star Management Contract"), which expires in
March 1997. Shooting Star Casino is located on Indian Land adjacent to Highway
59 in Mahnomen, Minnesota, approximately 60 miles east of Fargo, North
Dakota/Moorhead, Minnesota and near the resort of Detroit Lakes, Minnesota.
Shooting Star Casino contains a gaming room currently offering 24 blackjack
tables and approximately 985 video machines featuring slots, poker, blackjack
and keno. Casino patrons may place bets ranging from 5 cents to a maximum of
$1,000. Shooting Star Casino is open 24 hours a day, 365 days a year. Shooting
Star Casino was the first casino of the sixteen casinos currently operating in
Minnesota to offer both lodging and restaurant facilities adjacent to its
gaming room. The Company manages a lodge now containing 223 rooms, banquet
facilities, meeting rooms, a coffee shop, a gift shop offering Indian jewelry
and crafts, and a gourmet restaurant seating approximately 70 patrons. Live
entertainment is provided in a split-level casino lounge as well as in a
cabaret showroom that also features dinner-theatre style shows. In 1993, the
Company expanded the casino by constructing an indoor swimming pool and
expanded the lodging facility by adding a buffet room and an additional 146
rooms.
The Shooting Star Management Contract provides that net profits from the
casino and other revenue generating amenities be distributed 70% to the Band
and 30% to the Company, subject to the priority distribution of a guaranteed
minimum monthly payment to the Band. In November 1992, an amendment to the
Shooting Star Management Contract extended the expiration date of the contract
to March 1999 and adjusted the net profit distribution to 65% to the Band and
35% to the Company. This amendment is subject to approval by and has been
submitted to the National Indian Gaming Commission
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<PAGE> 9
(the "Gaming Commission") for review, which review is still pending. Although
the Company and the Band have been operating since May 1993 as if this approval
had been received, no assurance can be given that the Gaming Commission will
actually approve the amendment.
The Company has an agreement (the "Golden Eagle Management Contract") with
the Wauzhushk Onigum Nation and the Wauzhushk Onigum Foundation (collectively,
the "Nation") to develop and manage the Golden Eagle Charitable Casino and
Entertainment Centre in Kenora, Ontario, Canada. A temporary facility opened in
September 1994. The Company and the Nation believe a permanent casino is an
important part of the plan. The Company anticipates that construction of the
permanent casino is contingent upon the occurrence of two or more events: 1)
the obtaining of additional financing on commercially reasonable terms, and 2)
the government's approval of slot machines. Upon completion, the permanent
casino is expected to provide a complete gaming complex, including lodging,
restaurants, live entertainment and related facilities. The Golden Eagle
Charitable Casino offers 6 blackjack tables, 1 Big Six Wheel, 2 roulette
tables, 2 Caribbean stud games, 2 poker tables, live keno, a bingo hall seating
up to 1,000, pull tabs, and, when approved by the provincial government of
Ontario, slot machines. The Golden Eagle Management Contract expires nine years
after the opening of the Golden Eagle Charitable Casino and provides for a
management fee of 33.5% of the casino's net earnings to be paid to the Company.
The Golden Eagle Management Contract does not have to be approved by the
governments of Ontario or Canada. In accordance with the requirements of the
Ontario Gaming Control Act, Gaming World International, Ltd. is properly
registered as a Gaming Supplier.
On July 8, 1994, the Company completed the acquisition of substantially all
of the assets and liabilities of Fox Chapel Yacht Club, Inc. ("Fox Chapel"), a
privately held corporation having no affiliation with any officer or director
of the Company. Fox Chapel's yacht club occupies approximately 14 acres of land
and is located on the Allegheny River approximately one-eighth of a mile from
Route 28, in Pittsburgh, Pennsylvania. The site also includes an additional 24
contiguous acres of vacant land, on which the Company believes a dockside
and/or riverboat casino could be constructed in the event gaming is legalized
in Pennsylvania and the Company is licensed to conduct gaming, of which no
assurance can be given. Fox Chapel operates a marina business which has
approximately 800 members, 350 boat slips, and derives revenues from membership
fees, docking fees, boat sales, and its restaurant, bar, and banquet
facilities.
Pursuant to the Purchase Agreement, the Company acquired Fox Chapel for an
aggregate purchase price of $11,775,000, allocated as follows: (a) the sum of
$425,000 for substantially all of the tangible assets used in the operation of
Fox Chapel, including but not limited to all inventory, equipment, office and
restaurant equipment, boat docks, motor vehicles and boats; (b) the sum of
$100,000 for certain intangible assets, including but not limited to licenses,
liquor licenses, franchises, trademarks, trade names, customer lists and
permits; (c) the sum of $10,700,000 for approximately 38.5 acres of real
property
8
<PAGE> 10
and buildings constructed on such property, including but not limited to a
banquet and conference building and a boat house; and (d) the sum of $550,000
for all of the issued and outstanding shares of capital stock of Fox Chapel
(the "Fox Chapel Stock"). As a result of its purchase of the Fox Chapel Stock,
the Company also assumed all liabilities of Fox Chapel. The acquisition has
been accounted for as a purchase.
The aggregate purchase price of $11,775,000 was paid in full by the Company
at closing. Of this amount, approximately $3,000,000 was funded from proceeds
of the Company's initial public offering and the balance of $9,000,000 was
financed through a $9,000,000 credit facility with S&T Bank of Indiana,
Pennsylvania ("S&T Bank"), established on July 8, 1994. Borrowings under this
facility are secured, in part, by a first mortgage on the real property
purchased from Fox Chapel, a security interest in certain of the Company's
assets, and the Company's repurchase agreement in the amount of $3,660,000.
As used in this report with respect to U.S. Indian management contracts, the
term "net profit" is not intended to mean net profits as defined by generally
accepted accounting principles or by the Indian Gaming Regulatory Act of 1988,
25 U.S.C. Section 2701 et seq. (the "Gaming Act"). As used in this report, the
term "net profit" has the meaning ascribed to it in the management contracts to
which the discussion of net profit relates. Generally, the management contracts
define net profit as the gross revenues of a casino or a facility less
operating expenses, capital expenditures and debt service. In addition, the
amount of net profit available for distribution may be further reduced by
deduction of an amount to fund a cash contingency reserve, such as vault cash,
in the event the Company and the host tribe deem such a deduction to be
appropriate. As defined by generally accepted accounting principles, the term
"net profit" means total revenues less operating and interest expenses,
excluding principal payments of debt but, in contrast to the meanings accorded
in the management contracts, including management fees as an operating expense.
The Gaming Act defines "net revenues" as "gross revenues of an Indian gaming
activity less amounts paid out as, or paid for, prizes and total operating
expenses, excluding management fees," 25 U.S.C. Section 2703(9). In certain
examples provided to tribes, the Gaming Commission is currently using a
definition of "net revenues" that does not allow deduction of debt service,
although this interpretation has not been set forth in a regulation. The
Company continues to operate under the terms of the Bureau of Indian Affairs-
("BIA-") approved Shooting Star Management Contract as such contracts are valid
unless and until disapproved by the Gaming Commission. Until such time as the
Gaming Act or other regulation promulgated thereunder amends the definition of
"net revenues" or until BIA-approved management contracts must be conformed to
some other definition of this term, the Company will operate under the terms of
the Shooting Star Management Contract.
9
<PAGE> 11
RESULTS OF OPERATIONS
Three and Nine Months Ended June 30, 1996 Compared to Three and Nine Months
Ended June 30, 1995.
Management Fee Revenues
Management fee revenues for the three and nine months ended June 30, 1996
were $381,017 and $527,588, respectively, an increase from management fee
revenues of $373,615 for the three months ended June 30, 1995. Management fee
revenue decreased compared to $1,219,995 earned during the nine months ended
June 30, 1995. The primary reason for this decrease is the decreased management
fee revenue derived from the management fee under the Shooting Star Management
Contract. As the net profits of the casino fluctuate, the Company will realize
a corresponding increase or decrease in its management fees. The Company's goal
is to increase the revenues of the Shooting Star Casino as a result of
improvement in operating efficiency of the casino and attract more patrons as a
result of the recent expansion of this facility and increased marketing
efforts.
The Company believes that the decreased net profit of Shooting Star Casino,
for the nine month period, resulting in a corresponding decrease in the
management fee paid to the Company, may be attributed to a combination of
factors, but largely due to the extremely severe winter weather conditions in
Northern Minnesota causing patronage at the Casino to drop significantly during
the second quarter. Other factors include, increased competition from other
casinos as Shooting Star Casino is no longer the only casino operating in the
state of Minnesota to offer both lodging and restaurant facilities adjacent to
its gaming floor, and a lessening of public interest that often follows the
opening of a new establishment.
Under the Golden Eagle Management Contract, the Company only receives
management fee revenues to the extent the operation is profitable. During the
third quarter of 1996, the Golden Eagle Charitable Casino was not profitable
and thus, the Company received no management fee. The Company has taken
measures to decrease costs at the Golden Eagle Charitable Casino by reducing
staff and cutting general and administrative expenses, which the Company
believes will improve operating efficiency, although no assurance can be given
that the Company will be successful in this effort.
On May 7, 1996, the Government of Ontario announced that a certain number of
video lottery terminals (VLTs) will be placed at horse racing tracks and
permanent charity casinos and eventually, bars and restaurants. The Ontario
Lottery Corporation, an agency of the Government of Ontario, will own, operate,
and manage the VLTs. The siteholder will receive a certain percentage of the
gross revenue of the VLTs. The Company expects that the Golden Eagle Charitable
Casino will be eligible to apply for some number of VLTs although no assurance
can be given that the Golden Eagle Charitable Casino will be successful.
10
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Revenues Derived from Concessions
During the three and nine months ended June 30, 1996, the Company derived a
total of $1,408,761 and $3,904,452 respectively, in revenues from concessions
at Fox Chapel and recorded expenditures of $1,282,922 and $3,268,837 for the
same periods, respectively. These concessions consist of revenues derived from
membership fees, docking fees, boat sales, and the restaurant, bar and banquet
facilities. The Company believes the increased revenue during fiscal 1996 is
directly related to the capital improvement program the Company completed in
fiscal 1995.
General and Administrative Expenses
General and administrative expenses of the Company for the three and nine
months ended June 30, 1996 were $300,839 and $1,351,537 respectively, compared
to expenses of $554,468 and $1,457,769 respectively, for the three and nine
months ended June 30, 1995. A portion of this decrease can be attributed to
general and administrative expenses related to Fox Chapel, as the company
restructed its operations at Fox Chapel there was a corresponding decrease in
general and administrative expenses.
Earnings (Loss) Before Income Taxes
Net loss before income taxes for the three and nine months ended June 30,
1996 were ($156,992) and ($1,212,285), respectively, compared to net (losses)
of ($194,584) and ($219,350) for the three and nine months ended June 30, 1995,
respectively. The primary reason for this increase was the reduction in
management fee revenue earned from the Shooting Star Casino.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its daily operations through cash provided by
operating activities and its significant capital expenditures from equity
financings, debt financings, capital contributions, and loan guarantees of
Angelo Medure, the Company's President and Chief Executive Officer. Mr. Medure
is not obligated to make any loans to the Company or to guarantee any of its
obligations in the future. The Company believes that it will be able to obtain
financing from unrelated parties on terms acceptable to it and in amounts
sufficient to satisfy the Company's capital requirements, although the Company
has not obtained commitments for any such financing. No assurance can be given
that it will be able to obtain financing from unrelated third parties on terms
acceptable to it based on its having an operating history of approximately four
years, its financial position, and the experience of its management, factors
which a financing source considers in its decision to extend financing.
In May 1994, the Company received net proceeds of approximately $10,800,000
11
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from the issuance of 1,875,000 shares of Common Stock, $.01 par value per
share, and 1,875,000 Redeemable Class A Common Stock Purchase Warrants,
pursuant to the Company's initial public offering. The Company utilized
approximately $3,000,000 of the proceeds towards the purchase of Fox Chapel and
has invested an additional $3,650,000 of the proceeds in a repurchase agreement
which has been pledged to S&T Bank. In addition, the Company has used
approximately $1,100,000 of the offering proceeds for the financing and
equipping of the Golden Eagle Charitable Casino, as well as approximately
$1,200,000 for an improvement program at the Fox Chapel Yacht Club, which
included landscaping, lighting, paving, and renovations and upgrading of the
banquet and restaurant facilities, as well as enlarging the outside pool and
deck bar.
As of March 31, 1996, the Company entered into a $9,000,000 term loan
facility with S&T Bank. Borrowings under this loan arrangement are evidenced by
two promissory notes, one in the principal amount of $3,650,000 that bears
interest at an annual rate of 6.75%, and the other in the principal amount of
$5,350,000 that bears interest at an annual rate of S&T Bank's prime rate of
interest plus 2% (8.25% at March 31, 1996). The $5,350,000 loan is secured by
certain property and equipment, a pledge of all the issued and outstanding
common stock of Fox Chapel. The $3,650,000 is secured by a $3,650,000
repurchase agreement which originally was a $4,450,000 note secured by a
repurchase agreement in the amount of $4,450,000. The modification from the
original $4,450,000 note to a $3,650,000 note released $800,000 which was used
for working capital. Interest accrued under these notes was paid monthly, and
the maturity date of these notes was June 30, 1995. The Company negotiated a
four month extension of these notes, with the other above-stated terms
remaining the same, and which had a new maturity date of October 31, 1995. On
November 1, 1995, the $5,350,000 promissory note converted into a 15-year
mortgage amortization at S&T Bank with a rate of S&T Bank's prime rate of
interest plus 2%. The $3,650,000 promissory note secured by the repurchase
agreement was extended until December 27, 1995. Interest accrued under this
note must be paid monthly. The Company executed a further extension of this
note at a fixed rate of 7.25% until March 31, 1996. Accrued interest due to
this extension must be paid monthly. In February 1996, S&T Bank released
$650,000 of cash collateral resulting in a $650,000 term loan for a period of 5
years. The $3,650,000 promissory note was reduced to $3,000,000 and is still
secured by the repurchase agreement. The $5,350,000 mortgage remained intact
with all terms remaining the same.
In October 1994, the Company entered into a $1,200,000 term loan facility
with Miller and Schroeder Investments Corporation of Minneapolis, Minnesota.
Borrowings under this facility, which has a term of twenty-seven months, accrue
interest at an annual rate of 10.75%. The Company used this line to finance an
advance to the Golden Eagle Charitable Casino. No assurance can be given that
the Company will recover these funds in the event the development of this
facility does not proceed as currently anticipated that cash flow of the Golden
Eagle Charitable Casino, if any, will be sufficient to repay this amount.
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On March 16, 1995, the Company and Angelo Medure entered into a $500,000 term
loan arrangement with Richard Hvizdak and Perry Hvizdak, non-related third
parties ("the Note"). Borrowings under this arrangement are evidenced by a
promissory note in the principal amount of $500,000, which has a one-year term
and accrues interest at the annual rate of 12%. This debt is secured by real
property owned by Angelo Medure, and a pledge of 400,000 shares of the
Company's Common Stock held by Angelo Medure and certain trusts of which
members of Mr. Medure's family are beneficiaries. As additional consideration
for this loan, the Company issued Richard Hvizdak a five-year warrant to
purchase 10,000 shares of Common Stock at an exercise price of $3.00 per share.
The proceeds of this loan were applied towards general working capital for the
Company. In March 1996, the Company negotiated an extension of the Note in the
amount of $560,000 which included accrued interest.
In May 1995, the Company entered into a $200,000 one year term Note with PDS
Financial Corporation, of Eden Prairie, Minnesota. Borrowings under this
arrangement are evidenced by a Note in the amount of $200,000 that bears
interest at an annual rate of 13% for the term. This Note is secured by certain
furniture and equipment of the Fox Chapel Yacht Club as well as 120,000 shares
of Gaming World International stock owned by Angelo and Charlotte Medure as
well as a personal guarantee of Angelo Medure. As of June 30, 1996, this note
was paid in full.
In July 1995, the company and Dr. James Barber, an unrelated third party,
entered into a $200,000 term loan (the "Barber Note"). Borrowings under this
arrangement are evidenced by a promissory note in the principal amount of
$200,000, which has a term of 120 days and accrues interest at an annual rate
of 16%. Consideration for this loan is a stock warrant entitling Dr. Barber the
right to purchase 10,000 shares of Company's common stock at any time within
two years of the date of the Barber Note at $2.00 per share. The debt is
secured by an Irrevocable Stock Pledge of 200,000 shares of the Company's
stock. The Barber Note was subsequently extended to mature in February 1996.
Proceeds from this loan were applied towards general working capital. In
February 1996, the Company paid in full the Barber Note with a loan from Angelo
Medure to the Company.
As of June 30, 1996, West Penn Asphalt Co., Inc., a company of which Angelo
Medure is a principal stockholder, advanced approximately $570,000 to the
Company. The advance has no set term. Although the provisions of this advance
do not specify an interest rate, the Company, for accounting purposes, intends
to impute interest on this advance at a rate of 5%.
As of June 30, 1996, Ro-Med Construction Company, Inc. had advanced the
Company approximately $313,000 for working capital purposes. This amount bears
interest at an annual rate of 5%.
13
<PAGE> 15
As of June 30, 1996, Angelo Medure had advanced the Company approximately
$487,000 for working capital purposes. This amount bears interest at an annual
rate of 5%.
In December 1995, the Company entered into a $600,000 term loan with Miller &
Schroeder Investments Corporation. This borrowing is evidenced by a loan
agreement, a promissory note, a mortgage and security agreement, and a lender's
warrant relating to 50,000 shares of the Company's stock. The borrowing is also
personally guaranteed by Angelo Medure. The loan is for six years and bears
interest at an annual fixed rate of 13%. Accrued interest must be paid monthly
and an annual principal payment of $100,000 must be made every December until
maturity in December 2001. Proceeds from this loan were used for working
capital and $300,000 of the proceeds were used to repay a prior loan.
Under the Golden Eagle Management Contract, the Company does not have a
commitment to finance construction of the permanent casino. However, the
Company may elect to finance or to arrange financing for this construction. In
the event the Company does elect to finance the construction, it believes it
would be able to fund a portion of these costs from its working capital and
would be able to obtain financing from unrelated third parties on terms
acceptable to the Company for the balance, although the Company has obtained no
commitments for any such financing, and no assurance can be given that such
financing will be available on terms acceptable to the Company, if at all.
In the event that the Company does make advances or loans to tribes, such
advances or loans would not be conventional real estate and construction loans
subject to customary mortgages and encumbrances, and debt service of these
loans would be paid from cash flow generated by the facility. The advances made
by the Company to the tribes are not, and any loans it may make in the future
are not anticipated to be, secured by collateral of the tribe. Although a tribe
would have a legal obligation to repay amounts lent to it by the Company, no
assurance can be given that the Company would be repaid by the tribe.
In the event that a tribe obtains financing for the gaming facility from a
bank or other lender, the Company does not believe that it could be held
liable, based on a de facto joint venture or other legal theory, for such a
loan to which the Company is not a signatory. The Company believes that its
relationship to a tribe is no different from that of any other management agent
or distributor, which would not be liable in such an instance. Moreover,
holding a management company liable would conflict with the Gaming Act, which
regards the tribe as having the sole proprietary interest in the enterprise.
Although Angelo Medure has personally guaranteed many of the Company's
obligations to date, he is not obligated to make any loans to the Company or to
guarantee any of its obligations in the future. The Company does not, as of the
date of this report, have access to unused bank lines of credit. The Company
believes that it will be able to
14
<PAGE> 16
obtain financing from unrelated parties on terms acceptable to it and in
amounts sufficient to satisfy the Company's capital requirements, although the
Company has not obtained commitments for any such financing. No assurance can
be given that such financing will be available on terms acceptable to the
Company, if at all. The Company's belief that it will be able to obtain
financing from unrelated third parties on terms acceptable to it is based on
its having an operating history of approximately four years, its financial
position, and the experience of its management, factors which a financing
source considers in its decision to extend financing.
Presently, the Company is attempting to refinance its debt on terms
commercially reasonable and acceptable to the Company and achieve a
recapitalization of the Company, although no assurances can be given that the
Company will be successful in doing so.
Recording of Advances to Indian Tribes
The Company's management contracts provide, and any management contracts it
may enter into in the future would most likely require, that the Company
advance funds to the tribes, with such advances to be repaid from the casino's
or facility's cash flow. The Company records these advances as investments.
However, in the event it becomes probable that the Company will not obtain
approval of the management contract from the Gaming Commission; the Company
will elect for whatever reason not to proceed with the development of the
project; or the casino's or facility's cash flow, if any, will be insufficient
to make repayment, the Company will recognize a loss for, more than likely, the
entire amount of the advance as an expense in its financial statements. The
recognition of losses, if any, in the future could cause significant
fluctuations in the Company's quarterly or annual net income or loss.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
In September 1993, the Company, its President and Chief Executive Officer,
Angelo Medure, and his spouse, Charlotte Medure, filed a defamation suit
against U.S. News & World Report and its Senior Editor James Popkin in Common
Pleas Court, Lawrence County, Pennsylvania at No. 973 of 1993, C.A. The suit
arises from the publication of an article (the "Article") entitled "Gambling
with the mob? Wise guys have set their sights on the booming Indian casino
business" in the August 23, 1993 issue of U.S. News & World Report magazine.
The complaint alleges that the Article consisted of falsehoods, insinuations,
innuendos and misrepresentations adversely impacting the business and
reputation of the Company and Angelo Medure by imputing criminal activity to
them and by accusing Angelo Medure of being liked to and a part of organized
crime. The complaint also seeks money damages. The Company and Angelo Medure
strongly deny any and all allegations or implications of criminal wrongdoing
and each of them intends to vigorously prosecute this action. As of the date of
this report, the lawsuit is in the discovery stage. A date for trial has not
yet been set by the Court. The Company is
15
<PAGE> 17
unable to predict the effect, if any, of the Article or of the outcome of the
litigation on the Company's business or the trading price of the Company's
securities.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
(a) No Exhibits are filed herewith.
(b) No reports on Form 8-K have been filed during the period covered by
this report.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GAMING WORLD INTERNATIONAL, LTD.
By: /s/ ANTHONY J. MEDURE
------------------------------------
Anthony J. Medure, Vice President
Date: August 19, 1996 /s/ ANTHONY J. MEDURE
------------------------------------
Anthony J. Medure, Vice President
Date: August 19, 1996 /s/ DAVID A. RICHARDS
------------------------------------
David A. Richards, Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> GAMING WORLD INTERNATIONAL, LTD.
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