Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. AMERICAN WAGERING INC (1005214) 10-Q published on Jun 14, 2012 at 1:34 pm
Reporting Period: Apr 29, 2012
Several years of increased reinvestment costs, increased competition, and coupled with reduced cash flow from a distressed economy and altered consumer betting patterns have had a significant adverse effect on us; thus, compelling our merger with the Purchaser. On June 7, 2012, the Nevada Gaming Control Board recommended to the Nevada Gaming Commission that the transaction contemplated by the Merger Agreement, and related findings of suitability, be approved. The Nevada Gaming Commission is scheduled to meet on June 21, 2012. Should the Nevada Gaming Commission accept the Nevada Gaming Control Board’s recommendation and grant approval of the transaction, then we would expect the closing of the merger to occur on or about June 27, 2012, in accordance with the process set forth in the Merger Agreement. Although we have no reason to indicate otherwise, no assurances can be given that the Nevada Gaming Commission will grant approval on June 21, 2012, or that closing will occur on June 27, 2012 (Note 7).
On June 7, 2012, the Nevada Gaming Control Board recommended to the Nevada Gaming Commission that the transaction contemplated by the Merger Agreement, and related findings of suitability, be approved. The Nevada Gaming Commission is scheduled to meet on June 21, 2012. Should the Nevada Gaming Commission accept the Nevada Gaming Control Board’s recommendation and grant approval of the transaction, then we would expect the closing of the merger to occur on or about June 27, 2012, in accordance with the process set forth in the Merger Agreement. Although we have no reason to indicate otherwise, no assurances can be given that the Nevada Gaming Commission will grant approval on June 21, 2012, or that closing will occur on June 27, 2012.
As of April 30, 2012, we had a working capital deficit of nearly ($1.6 million), compared to working capital deficit of approximately ($180,000) at January 31, 2012. The decrease in working capital is primarily due to the maturity of the note payable on the Sturgeon’s property of $1.4 million which will become due and payable on February 4, 2013. If the merger is not closed by the due date, we believe, but there is no assurance that, the note payable on the Sturgeon’s property can be refinanced. We believe, but there is no assurance that, our working capital position will also improve in fiscal 2013 due to: (a) normalization of the win percentage in sports book wagering as we experienced in the quarter ended April 30, 2012; (b) a continued increase in users of our Leroy’s® App© and other forms of account wagering services; and (c) additional or expanded sportsbook and/or tavern locations in fiscal 2013. Based on the foregoing, subject to the economy and the timely closing of the Merger, we believe we will be able to satisfy our cash requirements for the remainder of fiscal 2013 from existing cash balances, anticipated cash flows and potential borrowings under the Bridge Facility. Some of the above statements are forward-looking in nature. No assurance can be given as to the ultimate outcome of any forward-looking statement because such outcome is dependent upon unknown evolving events.
As of April 30, 2012, we had cash reserves and pledge agreements totaling $1.9 million to satisfy the Regulation 22.040 requirement in addition to a float amount of $600,000 allowed by the Nevada Gaming Control Board to cover short term fluctuations in the outstanding liability. The $1.9 million amount consisted of our reserve account of $700,000 held at Nevada State Bank, a pledged certificate of deposit totaling $200,000, and an Irrevocable Standby Letter of Credit of $1 million. The pledged certificate initially expired in October 2010, but the Victor and Terina Salerno agreed to extend their pledge without designating a specific expiration date.
We will likely have to increase our reserve in August 2012 in preperation for the football season. Should the merger and related findings of suitablity receive approval from the Nevada regulators in June, then it would be anticipated that any increase to our reserve would be the Purchaser’s responsibility as closing of the merger would likely have occurred by August 2012. However, should the Purchaser not receive approval from the Nevada regulators or should closing not occur by August 2012, and if we are unable to increase the reserve, then it would have an adverse impact on us including, but not limited to, requiring a significant reduction in the number of race/sports locations operated by Leroy’s, and/or an elimination or reduction of telephone wagering accounts, resulting in an adverse change in our operating results. We anticipate being able to increase our reserve balance as a portion of the financing proceeds from the Bridge Facility is allocated for this purpose. There is no assurance that we will be able to borrow additional funds under the Bridge Facility as any additional advances are in the sole discretion of the Purchaser.
During the three months ended April 30, 2012, our sports handle increased by 2.9%, compared to the same period in the prior year, primarily due to the convenience provided by remote account wagering via the Leroy’s® App© and an increase in kiosk activity at the tavern locations although the average wager per ticket continues to trend downward. However we continue to see signifcant growth in smart phone wagering through the Leroy’s® App©, which more than offset declines in betting at our various locations. Consumers are migrating from feature phones to smart phones at an accelerated rate, and we are constantly updating our software for device compatibility and software advancements. An increase or decrease in handle is not necessarily indicative of an increase or decrease in revenues or profits due to the volatility of the win percentages. We experienced a higher win percentage of 7.46% compared to 5.53% in the prior year’s quarter. Our race commissions were down approximately $61,000 (-26.4%) from the prior year’s quarter due to the loss of two contracts with racing components.