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 quarter ended June 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
Commission file number: 0-22242
BOUNCEBACKTECHNOLOGIES.COM, INC.
(Name of the Small Business Issuer 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 39564-2842
-------------------------------------
(Address of principal executive office)
Issuer's telephone number: (228) 872-5558
--------------
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, 2002, 11,352,871 Shares of Common Stock, $0.01 par value, of
the Company were outstanding.
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 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
BOUNCEBACKTECHNOLOGIES.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS June 30, September 30,
------ 2002 2001
------------ ------------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents ....................................................... $ 761,429 $ 1,863,359
Accounts receivable - net ....................................................... 68,260 90,463
Inventory ....................................................................... 54,965 57,047
Prepaid expenses ................................................................ 76,772 95,818
------------ ------------
Total current assets .................................................. 961,426 2,106,687
Deferred income taxes ................................................................ 1,710,311 1,510,311
Property and equipment - net ......................................................... 837,635 996,931
Goodwill, net ........................................................................ -- 22,900
Other receivable ..................................................................... 600,000 600,000
Notes receivable - related parties, net .............................................. 65,013 149,948
Deferred Charges ..................................................................... 31,250 --
Other assets ......................................................................... 30,287 30,287
------------ ------------
Total assets ................................................ $ 4,235,922 $ 5,417,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable ................................................................ $ 369,985 $ 337,765
Current maturities of long-term debt ............................................ 275,297 76,841
Accrued gaming tax .............................................................. 1,161,650 1,074,499
Accrued expenses and other liabilities .......................................... 882,265 447,913
Deferred income taxes ........................................................... 10,311 10,311
------------ ------------
Total current liabilities ............................................. 2,699,508 1,947,329
Long-term debt, less current maturities .............................................. -- --
Advance deposit ...................................................................... 2,000,000 2,000,000
Minority interest .................................................................... -- --
Stockholders' equity:
Preferred stock, 8% cumulative, $.01 par value; 5,000,000 shares authorized;
none issued and outstanding ................................................ -- --
Common stock, $.01 par value; 30,000,000 shares authorized; 11,352,871 and
12,487,871 issued and outstanding as of June 30, 2002 and September 30, 2001 113,741 113,879
Additional paid-in capital ...................................................... 23,166,783 23,165,749
Retained earnings ............................................................... (23,783,881) (21,809,893)
Accumulated comprehensive income ................................................ 39,771 --
------------ ------------
Total stockholders' equity ............................................ (463,586) 1,469,735
------------ ------------
Total liabilities and stockholders' equity .................. $ 4,235,922 $ 5,417,064
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BOUNCEBACKTECHNOLOGIES.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Operating Revenues:
Gaming segment ........................................ $ 429,541 $ 839,336 $ 1,388,311 $ 2,167,973
Technology sales ...................................... 16,387 57,876 33,718 264,766
Management fees ....................................... -- -- -- --
------------ ------------ ------------ ------------
Total revenue .................................... 445,928 897,212 1,422,029 2,432,739
Operating Expenses:
Gaming cost of sales .................................. 130,333 81,188 336,321 279,449
Gaming selling, general and administrative expenses ... 536,183 754,038 1,737,232 1,941,134
Technology cost of sales .............................. 11,952 55,374 24,993 155,031
Technology selling, general and administrative expenses 15,996 126,860 72,524 406,766
Technology asset writedown to realizable value ........ 70,167 -- 70,167 --
Corporate selling, general and administrative expenses 379,962 585,000 1,338,780 1,634,621
------------ ------------ ------------ ------------
Total operating expenses ......................... 1,144,593 1,602,460 3,580,017 4,417,001
------------ ------------ ------------ ------------
Operating loss ............................................. (698,665) (705,248) (2,157,988) (1,984,262)
Other Income and Expenses:
Other income .......................................... 5,234 3,735 5,061 11,205
Interest income ....................................... 2,248 2,938 18,103 11,652
Interest expense ...................................... (6,931) (14,840) (39,164) (18,025)
------------ ------------ ------------ ------------
Total other income and expenses .................. 551 (8,167) (16,000) 4,832
------------ ------------ ------------ ------------
Loss before minority interest .............................. (698,114) (713,415) (2,173,988) (1,979,430)
Minority interest ..................................... -- 24,871 -- 59,406
------------ ------------ ------------ ------------
Loss before income taxes ................................... (698,114) (688,544) (2,173,988) (1,920,024)
Income tax benefit .................................... -- -- 200,000 1,862,222
------------ ------------ ------------ ------------
Net loss - Operating ....................................... (698,114) (688,544) (1,973,988) (57,802)
------------ ------------ ------------ ------------
Discontinued Operations:
Income from entertainment segment, net of taxes of
$0 and $246,504 in 2002 and 2001 ................... -- 72,455 -- 419,523
Gain on sale of entertainment segment, net of taxes of
$0 and $1,048,137 in 2002 and 2001 ................. -- (19,000) 1,900,493
------------ ------------ ------------ ------------
Net income - Discontinued Operations ....................... -- 53,455 -- 2,320,016
------------ ------------ ------------ ------------
Net income (loss) .......................................... (698,114) (635,089) (1,973,988) 2,262,214
============ ============ ============ ============
Net income (loss) per Share - Basic and Diluted
Operating loss ........................................ $ (0.06) $ (0.06) $ (0.16) $ (0.00)
Discontinued operations ............................... $ -- $ 0.00 $ -- $ 0.19
------------ ------------ ------------ ------------
Net Income (Loss) Per Share ................................ $ (0.06) $ (0.05) $ (0.16) $ 0.18
============ ============ ============ ============
Weighted average common shares outstanding ............ 11,352,871 12,487,871 12,041,864 12,470,129
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
BOUNCEBACKTECHNOLOGIES.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Operating Activities:
Net income (loss) ........................................ $ (698,114) $ (635,089) $(1,973,988) $ 2,262,214
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................... 45,971 (233,503) 210,233 59,288
Writedown of technology segnment assets ............. 70,167 -- 70,167 --
Deferred income taxes benefit ....................... -- -- (200,000) (567,581)
Provisions for doubtful accounts .................... 145 (7,256) 2,974 606
Amortization of discount upon conversion of
convertible debentures ......................... -- 21,711 -- 32,933
Minority interest ................................... -- (24,871) -- (59,406)
Net change in working capital accounts .............. 294,657 143,633 588,704 19,145
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities ...... (287,174) (735,375) (1,301,910) 1,747,199
Investing activities:
Purchase of property and equipment ....................... (80,405) -- (80,405) (3,240)
Decrease (increase) in due to related party .............. -- 86,326 84,935 96,479
----------- ----------- ----------- -----------
Net cash provided by investing activities ................ (80,405) 86,326 4,530 93,239
Financing Activities:
Short-term borrowings .................................... 10,000 400,000 210,000 400,000
Repayment of short-term borrowings ....................... (3,496) 76,773 (11,544) (200,000)
Repayment of long-term debt .............................. -- (91,978) -- (91,978)
Capital stock repurchase ................................. -- -- (3,006) --
----------- ----------- ----------- -----------
Net cash used in financing activities .................... 6,504 384,795 195,450 108,022
Cash flows used in operations ............................ (361,075) (264,254) (1,101,930) 1,948,460
----------- ----------- ----------- -----------
Cash flows from discontinued operations:
Entertainment segment .................................... -- 355,263 -- (1,533,363)
----------- ----------- ----------- -----------
Net cash provided by discontinued operations ............. -- 355,263 -- (1,533,363)
----------- ----------- ----------- -----------
Net increase (decrease) in cash .......................... (361,075) 91,009 (1,101,930) 415,097
Cash at beginning of period .............................. 1,122,504 833,462 1,863,359 509,374
----------- ----------- ----------- -----------
Cash at end of period .......................... $ 761,429 $ 924,471 $ 761,429 $ 924,471
=========== =========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest expense ......................... $ 32,066 $ (0) $ 39,164 $ 13,447
Cash paid for income taxes ............................. $ -- $ -- $ -- $ --
Disclosure of non-cash financing and investing activities:
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
BOUNCEBACKTECHNOLOGIES.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements of the Company are unaudited. In
the opinion of management, all adjustments (which include only normal recurring
accruals) necessary for a fair presentation of such financial statements have
been included. Interim results are not necessarily indicative of results for a
full year.
The financial statements and notes are presented in accordance with the
rules and regulations of the Securities and Exchange Commission and do not
contain certain information included in the Company's annual report. Therefore,
the interim statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's annual report.
Certain reclassifications have been made to prior year amounts to
conform to the classifications used in the current year presentation.
Forward-Looking Statements:
The Private Securities Litigation Reform Act of 1995 (the Act) provides
a safe harbor for forward-looking statements made by or on behalf of the
Company. The Company and its representatives may from time to time make written
or oral statements that are "forward-looking," including statements contained in
this report and other filings by the Company with the Securities and Exchange
Commission and in reports to the Company's stockholders. Management believes
that all statements that express expectations and projections with respect to
future matters, including but are not limited to, those relating to expansion,
acquisition, the sale of assets and business segments and other development
activities, dependence on existing management, leverage and debt service,
domestic or global economic conditions (including sensitivity to exchange rate
fluctuations in foreign currencies), changes in federal or state tax laws or the
administration of such laws, changes in gaming laws or regulations (including
legalization of gaming in certain jurisdictions) and the requirement to apply
for licenses and approvals under applicable jurisdictional laws and regulations
(including gaming laws and regulations) are forward-looking statements within
the meaning of the Act. These statements are made on the basis of management's
views and assumptions, as of the time the statements are made, regarding future
events and business performance. There can be no assurance, however, that
management's expectations will necessarily come to pass.
Note 1 - Short-Term Financing Needs
The Company has no current sources of revenue. Its technology
subsidiary has essentially ceased all operations, and as of June 30, 2002, its
foreign subsidiary, CRC Tunisia, had negative working capital of $1,340,644.
Accordingly, the Company anticipates no revenues until and unless Lakes Gaming,
Inc. (NASDAQ: LACO) ("Lakes Gaming") opens the Pokagon Michigan Casino. (See
Note 9).
As of June 30, 2002, the Company had domestic cash of $322,190 and cash
in its foreign subsidiary of $439,239, a total of $761,429. For its domestic
operations, management does not believe the sum of $322,190 will be sufficient
to meet the Company's cash needs through the end of calendar 2002. Accordingly,
management plans to seek to raise cash through a private sale of securities, a
loan from a conventional lender, or the discounting of certain receivables.
However, there can be no assurance that the Company will be successful in
obtaining cash through any of these means. If the Company is unable to raise
cash by any of these methods, it will deplete its cash resources in the very
near future.
In its Tunisian foreign subsidiary, the Company had cash of $439,239.
This subsidiary, due to continual operating losses, had negative working capital
of $1,340,644 as of June 30, 2002. There is no requirement of the Company to
fund these working capital deficits or operating losses. In addition, the cash
held by the Tunisian subsidiary is generally not available for repatriation, and
therefore may not be available to pay the Company's operating expenses (other
than those expenses of the Tunisian subsidiary).
6
Note 2 - Business
BounceBackTechnologies.com,Inc. (the "Company") is a Minnesota
corporation organized in 1969. The Company and its subsidiaries are engaged in
two business segments: marketing, sales, and business solutions to the internet
and E-commerce industries and a gaming segment through a casino located in
Sousse, Tunisia, North Africa which is owned by the Company's 85%-owned
subsidiary, CRC of Tunisia, S.A.
Prior to January 4, 2000, the Corporation conducted its business under
the name of Casino Resource Corporation. The name change reflected the Company's
intent to focus on marketing, sales and business solutions to the Internet and
e-commerce industries through its 80%-owned subsidiary, BounceBack Media. com,
Inc ("BBM"). In January 2002, the Company contracted SG Partnership to operate
BBM and to reduce BBM's overhead expenses and cost of sales. To date, however,
this partnership has been unable to generate revenues sufficient to offset its
fixed and variable expenses. The parties terminated their agreement this August
2002, and the Company will liquidate BBM's business operation. In June 2002, as
the result of weaker than anticipated revenues in the technology sector and the
lack of demand for BBM's CD products, the Company recognized a loss of $70,167
in reducing the carrying value of BBM's assets to their estimated net realizable
value.
The Company, through its 85%-owned subsidiary, CRC of Tunisia, S.A.,
leases and operates a casino and 500-seat theatre in Sousse, Tunisia, North
Africa. The 42,000-square foot casino resort, which opened October 18, 1997, has
over 10,000 square feet of gaming space with approximately 281 slot machines and
21 table games. CRC of Tunisia also operates a gourmet restaurant, gift shop and
additional food and bar service on the property.
7
Note 3 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Three Months Ended
------------------------------
June 30, June 30,
2002 2001
------------ ------------
(Unaudited) (Unaudited)
Numerator:
Operating income (loss) ................................... $ (698,114) $ (688,544)
Discontinued Operations ................................... -- 53,455
------------ ------------
Net income (loss) ......................................... (698,114) (635,089)
Numerator for basic earnings (loss) per share- income (loss)
available to common shareholders ......................... $ (698,114) $ (635,089)
Effect of dilutive securites ................................. -- --
------------ ------------
Numerator for diluted earnings (loss) per share- income (loss)
available to common shareholders after assumed conversions $ (698,114) $ (635,089)
============ ============
Denominator:
Denominator for basic earnings (loss) per share-
weighted average shares ................................... 11,352,871 12,461,321
Effect of dilutive securites ................................. 21,212 --
------------ ------------
Dilutive potential common shares ............................. 11,374,083 12,461,321
------------ ------------
Denominator for diluted earnings (loss) per share- adjusted
weighted average shares and assumed conversions ........... 11,374,083 12,461,321
============ ============
Basic and diluted earnings (loss) per share:
Basic:
Operating income (loss) ................................ (0.06) (0.06)
Discontinued operations ................................ -- 0.00
------------ ------------
Net income (loss) ...................................... (0.06) (0.06)
============ ============
Diluted:
Note 4 - Segment Information
Gaming Segment
The Company, through its 85%-owned subsidiary, CRC of Tunisia, S.A.,
leases and operates a casino and 500-seat theatre in Sousse, Tunisia, North
Africa. The 42,000-square foot casino resort, which opened October 18, 1997, has
over 10,000 square feet of gaming space with approximately 281 slot machines and
21 table games. CRC of Tunisia also operates a gourmet restaurant, gift shop and
additional food and bar service on the property.
8
Note 4 - Segment Information (Continued)
Technology Segment
Through its 80%-owned subsidiary, BounceBack Media.com, Inc., the
Company acquired all of the assets of Raw Data Inc. a privately owned California
company focused on the development, sales and distribution of e-commerce
business solutions through direct advertising of mini CD's used by business and
consumers to link potential customers to web sites and e-commerce centers.
BounceBackMedia.com, Inc., commenced operations on December 31, 1999 when it
purchased all the assets of Raw Data Corp. for $85,000 cash, a non-interest
bearing note for $65,000 due when and if BounceBackMedia.com, Inc., reached
$8,000,000 in revenue on a cumulative basis within its first two years and 20%
of BounceBackMedia.com, Inc., common stock. The Company recognized $81,500 in
goodwill. The $65,000 note payable was not recorded because of the improbability
of BounceBackMedia.com, Inc., achieving $8,000,000 in revenue on a cumulative
basis within its first two years.
BBM has not been unable to stimulate revenues by expanding its product
line and services. BBM reduced its operating expenses by relocating to Ocean
Springs, MS in June 2001. Additionally, BBM contracted SG Partnership in January
2002 to reduce BBM's overhead expenses and cost of goods. To date this
partnership has been unable to generate revenue streams sufficient to offset its
fixed and variable expenses. The parties terminated their agreement this August
2002, and the Company will liquidate BBM's business operation.
Summary
As of June 30, 2002 Management Gaming Technology Total
----------- ----------- ----------- -----------
Total assets ........... $ 3,054,281 $ 1,105,595 $ 76,046 $ 4,235,922
Total liabilities ...... 1,849,981 1,853,831 995,696 4,699,508
Total equity ........... 1,204,300 (748,236) (919,650) (463,586)
As of September 30, 2001
Total assets ........... $ 1,317,776 $ 3,890,729 $ 208,559 $ 5,417,064
Total liabilities ...... 8,167,603 (5,201,184) 980,910 3,947,329
Total equity ........... (6,849,827) 9,091,913 (772,351) 1,469,735
9
Note 4 - Segment Information (Continued)
Three Months Ended
June 30, 2002 Gaming Technology Corp. & Other Total
- ------------------- ----------- ----------- ------------- -----------
Total Revenue .............................. 429,541 16,387 -- 445,928
Cost of sales .............................. 130,333 11,952 -- 142,285
Selling, general and ....................... --
administrative expenses .................. 536,033 15,996 -- 552,029
Corporate unallocated costs ................ -- -- 380,112
----------- ----------- ----------- -----------
Total Expenses ............................. 666,366 27,948 380,112 694,314
Operating income (loss) .................... (236,825) (11,561) (380,112) (628,498)
Other income and expenses .................. -- (70,167) 551 (69,616)
----------- ----------- ----------- -----------
Loss before income taxes ................... (236,825) (81,728) (379,561) (698,114)
Income tax benefit ......................... -- -- -- 0
----------- ----------- ----------- -----------
Net loss - operating ........ $ (236,825) $ (81,728) $ (379,561) $ (698,114)
=========== =========== =========== ===========
Three Months Ended
June 30, 2001 Gaming Technology Corp. & Other Total
- ------------------- ----------- ----------- ------------- -----------
Total Revenue .............................. 839,336 57,876 -- 897,212
Cost of sales .............................. 81,188 55,374 -- 136,562
Selling, general and ....................... --
administrative expenses .................. 754,038 126,860 -- 880,898
Corporate unallocated costs ................ -- -- 585,000 585,000
----------- ----------- ----------- -----------
Total Expenses ............................. 835,226 182,234 585,000 1,602,460
Operating income (loss) .................... 4,110 (124,358) (585,000) (705,248)
Income from discontinued operations ........ -- -- 53,455 53,455
Other income and expenses .................. -- -- (8,167) (8,167)
----------- ----------- ----------- -----------
Income (Loss) before minority interest ..... 4,110 (124,358) (539,712) (659,960)
Minority interest .......................... -- -- 24,871 24,871
----------- ----------- ----------- -----------
Income (Loss) before income taxes .......... 4,110 (124,358) (514,841) (635,089)
Income tax benefit ......................... -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) - operating $ 4,110 $ (124,358) $ (514,841) $ (635,089)
=========== =========== =========== ===========
10
Note 4 - Segment Information (Continued)
Summary (Continued)
Nine Months Ended
June 30, 2002 Gaming Technology Corp. & Other Total
- ------------------ ----------- ----------- ----------- -----------
Total Revenue .................................. 1,388,311 33,718 -- 1,422,029
Cost of sales .................................. 336,321 24,993 -- 361,314
Selling, general and
administrative expenses ...................... 1,737,232 72,524 -- 1,809,756
Corporate unallocated costs .................... 1,338,780 1,338,780
----------- ----------- ----------- -----------
Total Expenses ................................. 2,073,553 97,517 1,338,780 3,509,850
Operating income (loss) ........................ (685,242) (63,799) (1,338,780) (2,087,821)
Other income and expenses ...................... -- (83,482) (2,685) (86,167)
----------- ----------- ----------- -----------
Loss before income taxes ....................... (685,242) (147,281) (1,341,465) (2,173,988)
Income tax benefit ............................. -- -- 200,000 200,000
----------- ----------- ----------- -----------
Net loss - operating ............ $ (685,242) $ (147,281) $(1,141,465) (1,973,988)
=========== =========== =========== ===========
Nine Months Ended
June 30, 2001 Gaming Technology Corp. & Other Total
- ------------------ ----------- ----------- ------------- -----------
Total Revenue .................................. 2,167,973 264,766 -- 2,432,739
Cost of sales .................................. 279,449 155,031 -- 434,480
Selling, general and ........................... --
administrative expenses ...................... 1,941,134 406,766 -- 2,347,900
Corporate unallocated costs .................... -- -- 1,634,621 1,634,621
----------- ----------- ----------- -----------
Total Expenses ................................. 2,220,583 561,797 1,634,621 4,417,001
Operating income (loss) ........................ (52,610) (297,031) (1,634,621) (1,984,262)
Income from discontinued operations ............ -- -- 2,320,016 2,320,016
Other income and expenses ...................... -- -- 4,832 4,832
----------- ----------- ----------- -----------
Income (Loss) before minority interest ......... (52,610) (297,031) 690,227 340,586
Minority interest .............................. -- -- 59,406 59,406
----------- ----------- ----------- -----------
Income (Loss) before income taxes .............. (52,610) (297,031) 749,633 399,992
Income tax benefit ............................. -- -- 1,862,222 1,862,222
----------- ----------- ----------- -----------
Net Income (Loss) - operating $ (52,610) $ (297,031) $ 2,611,855 $ 2,262,214
=========== =========== =========== ===========
11
Note 5 - Other Receivable
The Company incurred approximately $600,000 in expenses in pursuit of a
Cherokee Indian gaming venture with Harrah's (NYSE: HET) in Cherokee, North
Carolina and ultimately, Harrah's was awarded a casino management agreement with
the Eastern Band of Cherokee Indians. Concurrent with the pursuit of this North
Carolina venture, the Company and Harrah's entered into a partnership agreement
to build and manage the future Michigan casino with the Pokagon Indians. (The
Company subsequently sought a new venture partner in Lakes Gaming and that new
agreement with Lakes Gaming is described in Note 9.) In return for the Company's
agreement to pursue the Michigan venture with Harrah's, Harrah's agreed to
reimburse the $600,000 related to the North Carolina venture.
During 1998, Harrah's terminated its agreement with the Pokagon tribe,
and the Company pursued legal remedies to recover the $600,000 in expenses from
Harrah's. This receivable was fully reserved for in fiscal year ended September
30, 1998.
A Minnesota trial court dismissed the Company's civil suit against
Harrah's on May 24, 1999 for lack of jurisdiction. The Company appealed this
decision to the Eighth Circuit U.S. Court of Appeals and on March 13, 2001, the
Appeals Court reversed the decision and remanded the Company's suit against
Harrah's back to District Court. The original facts and circumstances again
exist for the Company to expect to recover this receivable, thus, the Company
has reversed its allowance for doubtful accounts of $600,000. (For additional
information, see Part 2 Item 1 - Legal Proceedings.)
Note 6 - Note Receivable - Related Party
On January 12, 1999, John J. Pilger, the Company's CEO, was indebted to
the Company in the approximate amount of $500,000 and the Company agreed to
forgive this loan, including interest, in three installments over a three-year
period, contingent upon the CEO honoring his three-year employment contract with
the Company. During December 2001, the Company and the CEO agreed to delay the
forgiveness of the second and third installments of the Loan and amended the
"Existing Agreement". The Company has agreed to forgive the loan, including any
interest accrued thereon, in one payment of $165,306 forgiven on January 1,
2000, one payment of $177,647 forgiven on January 1, 2002 and one payment of
$177,647 to be forgiven on January 1, 2003, contingent on the CEO honoring his
employment contract, the "Existing Agreement".
Note 7 - Deferred Charges - Related Party
On April 3, 1998, the Company and it's CEO, John J. Pilger, entered
into a "Supplementary Employment Agreement" to have its foreign subsidiary, CRC
Tunisia, S.A., pay to Mr. Pilger the sum of $125,000 per year, payable in
advance, for the services he provides to the foreign subsidiary. Payments for
years 1998, 1999 and 2000 were paid to Mr. Pilger when due. The Company and Mr.
Pilger entered into a "Memorandum of Understanding" during December 2001
regarding the 2001 and 2002 payments not made to him.
In that "Memorandum of Understanding", Mr. Pilger and the Company
agreed to the following: The obligation of the Company to Mr. Pilger as of
December 31, 2001 was $265,200 which includes interest of $15,200, a rate of 8%
per annum on the unpaid amounts of $250,000. Mr. Pilger was indebted to the
Company at December 31, 2001 in the amount of $44,535, which includes interest
of $926, a rate of 8% per annum on the unpaid amounts of $43,609. The net
obligation between the Company and Mr. Pilger as of December 31, 2001 was
$220,665 in favor of Mr. Pilger. As part of the "Memorandum of Understanding",
the following payment schedule was agreed upon: Mr. Pilger agreed to accept and
was paid a payment of $80,665 on January 31, 2002 and the balance of $140,000,
plus interest at a rate of 8% per annum, is payable monthly commencing February
1, 2002, in payments of $5,000 principal per month, plus interest on the unpaid
balance. (Such payments are evidenced by a Promissory Note made by the Company
to Mr. Pilger with certain acceleration clauses for payment by the Company). The
Company's prepaid amount of these director's fees is recorded as a deferred
charge of $31,250 at June 30, 2002.
12
Note 8 - Long-Term Debt
June 30, September 30,
2002 2001
-------- --------
Mortgage payable, 11.5% $ 75,297 $ 76,841
Line of Credit, 9.75% . 200,000 --
Total debt .......... 275,297 76,841
Less current obligation 275,297 76,841
-------- --------
Total long-term debt $ -- $ --
======== ========
Mortgage payable, 11.5%. Note payable, interest at 11.5%, collateralized by real
estate, payable in monthly installments of $1,245 with a final payment of
$72,842 which was due June, 2002. This balloon payment was not made and the
mortgage went into default. Pursuant to the settlement agreement between the
Company and Smith/Monarch, the mortgage balloon is expected to be paid in full
on August 14, 2002 by Mr. Smith (for additional information, please see Part 2 -
Item 1 Legal Proceedings
Line of credit, 9.75%. The Company has a line-of-credit arrangement with a
regional bank, which provides for borrowing up to $200,000 with interest at
prime plus 1%. This line-of-credit is secured by the accounts receivable of the
Company and personally guaranteed by the Company's CEO, John Pilger. At June 30,
2002, the entire line had been drawn down. The credit line matured August 1,
2002 and is in the process of being renewed. The delinquency, or non-payment, is
only technical in nature.
Equipment lease, 12.5%. As of December 31, 2001, the Company reclassified an
operating lease to a capital lease. This lease is for the CD cutting machine
used by BounceBackMedia. The equipment lease is a three-year lease ending in May
of 2003. There is a $1 purchase option at the end of the lease.
Note 9 - Advance Deposit
In December 1998, the Company entered into a Memorandum of
Understanding to form a joint venture with Lakes Gaming, Inc. (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 a Conditional Termination Agreement ("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. In June 1999, Lakes Gaming was selected by the Pokagon Tribe to
negotiate a management and development agreement and on August 31, 1999, the
Pokagon Tribe ratified the Management and Development Agreement solely with
Lakes Gaming to build a Michigan casino. The "Condition" terminating the
"Agreement" was met and became effective. The terms of the "Agreement" call for
the payment by Lakes Gaming, Inc. to the Company of fees equating to $12.4
million over five years once the casino opens and the advance payment of $2
million of these fees received by the Company on August 31, 1999. The
"Agreement" requires the Company to return the advance after five years if the
casino has not opened. (The Company entered a Settlement Agreement this August
12, 2002 and assigned $1 Million of its prospective Lakes receivable to
Smith/Monarch. See Note 15: Subsequent Events).
The Agreement with Lakes Gaming, Inc. contains additional fees the
Company can earn in the aggregate of $3.7 million contingent on certain events
that may occur, such as the Tribe building an additional casino in Indiana and
selecting Lakes Gaming as the manager, the location of the Indiana casino, and
other events. However, at this time, there is no plan by the Pokagon Indians to
pursue any such additional casino.
13
Note 9 - Advance Deposit (Continued)
The Company is not scheduled to receive any further payments from Lakes
Gaming until the casino opens. Lakes Gaming commenced site development of the
Michigan casino in 2001, but there can be no assurances provided with respect to
timing of completion of the casino.
No timetable for the opening of the casino is determinable. The compact
has been signed by the Governor, approved by the Michigan senate and House of
Representatives, and recognized as valid by the Secretary of the Interior. The
land for the casino has been purchased and site improvements initiated. The
contractor has been selected to build the casino. The Bureau of Indian Affairs
has indicated that they are prepared to accept the land in trust and approve the
casino agreements between Lakes Gaming and the Pokagon Band of Potawatomis upon
a favorable outcome in the legal action between Taxpayers of Michigan Against
Casinos (T.O.M.A.C.) versus the Bureau of Indian Affairs. Until there is a
favorable outcome to this legal action, no timetable for the opening of the
casino can be determined. The Company expects an eventual favorable outcome and
opening of a casino in New Buffalo, Michigan.
Note 10 - Contingent Liability
As part of the consideration given for the assets purchased from Raw
Data, Inc., BounceBackMedia.com, Inc., issued a non-interest bearing note for
$65,000 due when and if BounceBackMedia.com, Inc., reached $8,000,000 in revenue
on a cumulative basis within its first two years. The $65,000 note payable was
not recorded because of the improbability of BounceBackMedia.com, Inc.,
achieving $8,000,000 in revenue on a cumulative basis within its first two years
was not probable. BBM's cumulative revenues through December 31, 2001 were
approximately $770,000. On December 31, 2001 this contingent liability expired,
as BBM did not meet contractually defined revenue targets.
Note 11 - Options Granted
Thirty Thousand (30,000) options were granted, 10,000 options to each
outside director, at fair market value on June 10, 2002.
Note 12 - Stock Repurchase
In April 1998, the Company's Board of Directors approved a stock
repurchase program allowing for the purchase of up to $1.5 million shares of the
Company's outstanding Common Stock. Pursuant to this agreement, the Company
purchased 35,000 shares of BBTC outstanding stock.
Note 13 - Shares Cancelled
On December 31, 1999 the Company issued 1,100,000 shares of common
stock and placed them in escrow as collateral on the debt between the Company
and Roy Anderson Corporation. On August 2, 2001, upon receipt of the $2.8
million due from the sale of the entertainment segment, the Company satisfied
its obligation under the Second Debenture with Roy Anderson Corporation with the
payment of $752,748. Upon receipt of this payment, Roy Anderson Corporation
released the 1.1 million shares from escrow. The Company received these shares
from the escrow agent in March 2002 and promptly cancelled the shares. This
cancellation reduced the total Company shares outstanding by 9.7% from
12,487,871 to 11,352,871, a 9.7% decrease.
Note 14 - Gain on Sale of Entertainment Segment
On January 25, 2001, the Company entered into an Asset Purchase
Agreement with On Stage Entertainment, Inc. ("On Stage") to sell the Company's
assets relating to the Country Tonite Theatre in Branson, Missouri, and the
Country Tonite Production Show for $3.8 million. On January 31, 2001, the
14
Company closed the sale transaction with On Stage and received $350,000 in cash,
a secured short term 10% interest-bearing note for $650,000, of which $150,000
was paid February 15, 2001 and $500,000 which was paid on March 15, 2001. The
balance of $2,800,000 was secured with a 10% interest-bearing promissory note
due July 31, 2001, which was paid in full. (The sale does not include the
licensing agreement with Country Tonite Theatre Pigeon Forge, Tennessee. See
last paragraph below.)
Gross Proceeds ................................ $3,800,000
Less:
Basis of Assets and Production Rights Sold 628,431
Commission paid on sale to related party.. 195,000
Expenses of Sale ......................... 27,939
Income Tax ............................... 1,048,137
----------
Gain on Sale of Entertainment Segment ......... $1,900,493
==========
Because the Company realized a gain on its sale of the entertainment
segment, the Company will recognize the tax benefit of previous unrecognized net
operating losses carry forward (net operating losses were previously
unrecognized due to uncertainty of future income). The tax benefits recognized
on this transaction are $1,048,137. At September 30, 2001, the Company has
remaining unrecognized net operating loss carry forwards of approximately
$9,293,000 for federal and state tax purposes that begin to expire in 2009.
Prior to 1999, the Company owned a 60% interest in a joint venture,
Country Tonite Theatre, LLC, which operated a theatre for the show in Pigeon
Forge, Tennessee. The Company sold its interest to the minority partner,
Burkhart Ventures, LLC, on December 31, 1998. Country Tonite Theatre, LLC
continued to contract with CTE to produce the Show through April 20, 2000. On
April 20, 2000, CTE granted a partnership related to Burkhart Ventures, LLC,
Country Tonite Theatre/ Pigeon Forge, a license to produce the Country Tonite
show within a 150-mile radius, excluding Nashville, Tennessee, for a 40-year
term. The partnership, Country Tonite Theatre/ Pigeon Forge, agreed to pay CTE
$1.3 million for the license. Country Tonite Theatre/ Pigeon Forge paid the
Company in April 2000, $900,000 in cash and the balance of $400,000 was to be
paid at a rate of $50,000 each December 31, which began December 31, 2000. By
agreement between Country Tonite Theatre/ Pigeon Forge and the Company, Country
Tonite Theatre/ Pigeon Forge satisfied the balances due the Company of $249,607
in full by making the negotiated payment of $200,000 on April 6, 2001. The
Company recognized a loss of $28,607 in the quarter ended March 31, 2001.
Note 15 - Subsequent Events
On August 12, 2002 the Company and Mr. Smith and Monarch entered into
an agreement to settle all litigation initiated by the Company against Mr. Smith
and Monarch, as well as all counter-claims initiated by Smith and Monarch
against the Company and its CEO, John Pilger. Per the terms of the Settlement
Agreement, the Company assigned to Smith and Monarch $1 Million of the
prospective proceeds due the company from Lakes Gaming per the terms of the
Conditional Release and Termination Agreement (see Note 9 - Advance Deposit).
Per the terms of the Settlement Agreement, Smith and Monarch shall receive
$200,000 per year, paid quarterly in the arrears, over the five-year term. The
Company also agreed to assign $1 Million to Smith and Monarch of any D&O
insurance proceeds that may be due the Company as settlement fees arising from
this litigation against John Pilger, in his capacity as the Company's CEO. The
Company, per the terms of the Settlement Agreement, conveyed to Smith a Quit
Claim Deed of property located at 303 LaSalle Court, and lots 5 and 6 in
Seapoint Subdivision, Ocean Springs, MS. Mr. Smith has agreed to satisfy the
underlying mortgage held on the residence at 303 LaSalle, Ocean Springs,
Mississippi.
In turn, Smith/Monarch and its representatives released the Company and
its agents from any
15
claims they may have now or in the future relating to any prior business
transactions between the parties. Per the terms of this agreement, if the
Company does not recover any money under the events described above, Smith and
Monarch agreed that the Company will have no further liability to them.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Following is management's discussion and analysis of significant
factors, which have affected the Company's financial position, and operating
results during the periods reflected in the accompanying condensed consolidated
financial statements. All references to dollar amounts are in U.S. dollars.
CONTINUING OPERATIONS
The Company has no current sources of revenue. Its technology
subsidiary has essentially ceased all operations, and, as of June 30, 2002, its
foreign subsidiary, CRC Tunisia, had negative working capital of $1,340,644.
Accordingly, the Company anticipates no revenues until and unless Lakes Gaming,
Inc. (NASDAQ: LACO) ("Lakes Gaming") opens the Pokagon Michigan Casino. (See
Note 9).
For comparative purposes, the Company's revenues from continuing
operations were $445,928 and $1,422,029, respectively, during the three-and
nine-months ended June 30, 2002. This compares to $897,212 and $2,432,739 for
the same periods in 2001.
The Company's business is in a transitional business phase whereby the
Company is shifting its business focus from E-commerce. As such, the Company
does not have any significant domestic revenue streams. Its foreign subsidiary
contributes up to a maximum of $40,000 per month, however, it has not
contributed any management fees this fiscal 2002. Management continues to work
toward reducing its overhead expenses.
BOUNCEBACKMEDIA.COM, INC.
BounceBackMedia.com, Inc., commenced operations on December 31, 1999
when it purchased all the assets of Raw Data Corp. for $85,000 cash,
non-interest bearing note for $65,000 due when and if BounceBackMedia.com, Inc.,
reached $8,000,000 in revenue on a cumulative basis within its first two years,
and 20% of BounceBackMedia.com, Inc., common stock. The Company recognized
$81,500 in goodwill. The $65,000 note payable was not recorded because of the
improbability of BounceBackMedia.com, Inc., achieving $8,000,000 in revenue on a
cumulative basis within its first two years. On December 31, 2001 this
contingent liability expired, as BBM did not meet contractually defined revenue
targets.
Revenues for the three- and nine- months ended June 30, 2002 were
$16,387 and $33,718. Operating expenses for the same periods, including cost of
goods sold, wages, marketing, promotional expense and office expenses were
$27,948 and $97,517, respectively. This compares to revenues of $57,876 and
$264,776 and operating expenses of $182,234 and $561,797 for the same periods in
2001. Operating revenues for 2002 were impacted by the relocation to Ocean
Springs, Mississippi as well as a change in personnel among other factors. The
decrease in operating expenses from 2001 to 2002 is directly related to the
reduction in overhead expenses related to the relocation.
BBM executed a contract with SG Partnership in January 2002 to provide
professional services for multimedia work. BBM's has been unable to stimulate
revenues by expanding product lines and services. BBM reduced its operating
expenses by relocating to Ocean Springs, MS in June 2001. Additionally, BBM
contracted SG Partnership in January 2002 to reduce BBM's overhead expenses and
cost of goods. To date
16
this partnership has been unable to generate revenue streams sufficient to
offset BBM's fixed and variable expenses. The parties terminated their agreement
this August 2002, and the Company will liquidate BBM's business operation.
GAMING, TUNISIA
For comparison purposes, revenue for the three- and nine- months ended
June 30, 2002 were $429,541 and $1,388,311 compared to $839,336 and $2,167,973
for the same period in 2001. This decrease was primarily due to the decrease in
patron count. Operating expenses including project, general and administrative
costs, depreciation and cost of sales for the three- and nine-month period ended
June 30, 2002 were $666,366 and $2,073,552 compared to $835,226 and $2,220,583
for the same periods in 2001. The operating loss was ($236,825) for the three
months ended June 30, 2002 compared to income of $4,110 for the same period in
2001. For the nine months ended June 30, 2002, the operating loss was ($685,241)
compared to ($52,610) for the same period in 2001.
GENERAL AND ADMINISTRATIVE
The Company's general and administrative expenses aggregated $1,338,780
for the nine-month period ended June 30, 2002 compared to $1,634,621 for the
same period in 2001, a decrease of $295,841. The decrease was primarily due to
the reduction of overhead with the sale of the entertainment segment and a
reduction in personnel. This reduction was offset by the recognition of foreign
director fees of $156,250 due to Mr. Pilger per his employment contract in
December 2001. This charge includes $125,000 for fiscal year 2001 and $93,750
for the nine months ended June 30, 2002.
INTEREST EXPENSE AND INCOME
Interest expense totaled $6,931 for the nine-month period ended June
30, 2002 compared to $14,840 for the same period in 2001. For the nine-month
period ended June 30, 2002, interest expense totaled $39,164 compared to $18,025
for the same period in 2001. This increase of $21,139 was primarily due to the
amortization of discounts in prior periods of bonds paid off in August 2001.
Interest income for the nine-month period ended June 30, 2002 was $2,248
compared to $2,938 for the same period in 2001, a decrease of $690. For the
nine-month period ended June 30, 2002, interest income was $18,103 compared to
$11,652 for the same period in 2001.
MINORITY INTEREST
All amounts due from the 20% minority interest of BounceBackMedia.com,
Inc. were eliminated in September of 2001 due to continued losses of
BounceBackMedia.com, Inc. in this segment.
INCOME TAXES
The Company recognized a tax benefit of $200,000 for the nine-month
period ended June 30, 2002 due principally from current net operating loss. The
Company's effective tax rates vary from statutory tax rates primarily as a
result of net losses of its foreign subsidiary for which there are no tax
benefits.
DISCONTINUED OPERATIONS
No discontinued operations existed during the current nine-month period
or three-month period since CRC of Branson and Country Tonite Enterprises venue
were sold January 31, 2001.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company has no current sources of revenue. Its technology
subsidiary has essentially ceased all operations, and, as of June 30, 2002, its
foreign subsidiary, CRC Tunisia, has negative working capital of $1,340,644.
Accordingly, the Company anticipates no revenues until and unless Lakes Gaming,
Inc. (NASDAQ: LACO) ("Lakes Gaming") opens the Pokagon Michigan Casino. (See
Note 9).
As of June 30, 2002, the Company had domestic cash of $322,190 and cash
in its foreign subsidiary of $439,239, for a total of $761,429. For its domestic
operations, management does not believe the sum of $322,190 will be sufficient
to meet the Company's cash needs through the end of calendar 2002. Accordingly,
management plans to seek to raise cash through a private sale of securities, a
loan from a conventional lender, or the discounting of certain receivables.
However, there can be no assurance that the Company will be successful in
obtaining cash through any of these means. If the Company is unable to raise
cash by any of these methods, it will deplete its cash resources in the very
near future.
In its Tunisian foreign subsidiary, the Company had cash of $439,239.
This subsidiary, due to continual operating losses, has negative working capital
of $1,340,644 as of June 30, 2002. There is no requirement of the Company to
fund these working capital deficits or operating losses. In addition, the cash
held by the Tunisian subsidiary is generally not available for repatriation, and
therefore may not be available to pay the Company's operating expenses (other
than those expenses of the Tunisian subsidiary).
The Company also has a line-of-credit arrangement with a regional bank,
which provides for borrowing up to $200,000 at an annual interest rate of prime
plus 1%. This line-of-credit is secured by the accounts receivable of the
Company and the personal guaranty of the Company's CEO, John Pilger. As of
January 31, 2002, and at all times thereafter, the line of credit was drawn in
full. The credit line matured August 1, 2002 and is in the process of being
renewed. The delinquency, or non-payment, is only technical in nature.
The Company has executed a Revised Conditional Release and Termination
Agreement with Lakes Gaming for a maximum aggregate amount of $16.1 million,
which included a $2 million refundable cash down payment received by the Company
in August 1999. The down payment is refundable if a casino is not opened within
five years and has been recorded as an advance deposit in 2001 and 2000. As the
Company cannot make any assurances that sufficient cash will be on hand as of
August 2004 to make repayment if necessary to Lakes Gaming, the Company will be
required to look to an outside source for these funds if repayment is required.
The Company would be more likely than not be required to renegotiate the terms
of repayment with Lakes Gaming. Payment of the remaining $14.1 million is
contingent upon opening of the casino and other events occurring in the future.
Site development of a Michigan casino by Lakes Gaming commenced in 2001. Lakes
has the right under the terms of the Company's Revised Conditional Release and
Termination agreement to retire its debt obligation to the Company of
approximately $11.0 million by making a one-time discounted 10% present value
payment of approximately $8.0 million. The Company entered a settlement
agreement with Smith/Monarch this August 12, 2002 and assigned $1 Million of the
prospective Lakes receivable to them (See Note 15 - Subsequent Events).
There can be no assurances as to the timing of completion of the casino
or its opening. No timetable for the opening of the casino is determinable. The
compact has been signed by the Governor, approved by the Michigan senate and
House of Representatives, and recognized as valid by the Secretary of the
Interior. The land for the casino has been purchased and site improvements
initiated. The contractor has been selected to build the casino. The Bureau of
Indian Affairs has indicated that it is prepared to accept the land in trust and
approve the casino agreements between Lakes Gaming and the Pokagon Band of
Potawatomi upon a favorable outcome in the legal action between Taxpayers of
Michigan Against Casinos (T.O.M.A.C.) versus the Bureau of Indian Affairs. Until
there is a favorable outcome to this legal action, no timetable for the opening
of the casino can be determined. The Company expects an eventual favorable
outcome and opening of a casino in New Buffalo, Michigan.
18
On June 21, 2001, the Company received notice of an assessment from the
Tunisian Department of Finance for an amount totaling 4.6 million dinars ($3.13
million U.S. equivalent, based on exchange rate on May 10, 2002). This is
related to unpaid gaming tax, a slot tax assessment, and an adjusted income tax
assessment. The Company has retained the services of a Tunisian tax attorney,
who is in the process of appealing this assessment. Based on the tax attorney's
review, approximately $3.1 million dinars ($2.11 million U.S. equivalent, based
on exchange rate on May 10, 2002) of this assessment relates to Tunisian
statutory regulations, which require businesses to maintain original transaction
documents for Tunisian tax purposes. Samara, the lessor of the casino,
confiscated the majority of Casino Caraibe's financial operating and reporting
records in December 2000, which records tracked both loans from the Company to
its 85%-owned subsidiary, CRC of Tunisia as well as purchases made by the
Company of equipment, furniture and fixtures for the sole benefit of CRC of
Tunisia, beginning in 1997. Thus, our tax attorney has recommended CRC of
Tunisia operation reserve 1.5 million dinars ($1.02 million U.S. equivalent,
based on exchange rate on May 10, 2002) to satisfy this assessment. $1,074,499
has been accrued for Tunisian slot taxes. Based on the advice of former counsel,
the Company's position was that it was not subject to a tax on slot revenue
under Tunisian gaming law.
During the three and nine months ended June 30, 2002 there were no
capital expenditures.
SEASONALITY
The casino in Tunisia is subject to seasonal factors as the period from
October to April is considered the slow tourist season.
IMPACT OF INFLATION
Management of the Company does not believe that inflation has had any
significant effect on the Company's financial condition or results of operations
for the periods presented. However, an increase in the rate of inflation could
adversely affect the Company's future operations and financial condition.
FOREIGN CURRENCY TRANSACTIONS
The Company's transactions with respect to its casino venture in
Tunisia will be in dinars. As such, there are all the risks that pertain to
fluctuations in foreign exchange rates and potential restrictions or costs
associated with the transfer of funds to the United States.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company initiated a civil suit against Harrah's on September 4,
1998 in the United States District Court for District of Minnesota. The Company
alleges that Harrah's breached various agreements with the Company and
tortuously interfered with the Company's contractual and prospective economic
advantage associated with the Pokagon Band of Potawatomi Indians' Management
Agreement. The suit further alleges that Harrah's withheld vital business
information from the Company. The trial court dismissed the case on May 24, 1999
for lack of jurisdiction stating that the Company's claims were preempted by the
Indian Gaming Regulatory Act. Accordingly, the court held that the Company's
claims could not be heard in Federal Court. The Company asserted that it had the
right to resolve the dispute with Harrah's in some forum and the trial court
erred by dismissing the Company's complaint without granting the Company leave
to file an amended complaint which would include a claim for an accounting and
damages under the Uniform Partnership Act. The Eighth Circuit U.S. Court of
Appeals filed its decision March 13, 2001, agreeing with the Company that the
District Court erred in dismissing the Company's suit against Harrah's;
accordingly, the suit against Harrah's was remanded to the District Court for
further proceedings. On May 16, 2001, the U.S. District Court of Minnesota set a
retrial scheduling order, which allows the Company's legal representatives to
initiate discovery. On October 3, 2001 Harrah's filed a motion to dismiss with
the US District Court District of Minnesota claiming that the contract between
Harrah's and the Company by its terms precludes the Company from asserting a
claim and further that the Company's claims are speculative. On March 22, 2002,
the United States District Court, District of Minnesota, rejected all but one of
the motions made by Harrah's to dismiss various counts in a complaint filed by
the Company against Harrah's and certain of its officers. The complaint concerns
the 1995 and 1996 agreements between the Company and Harrah's to jointly develop
and manage gaming facilities for the Pokagon band of Potawatomi Indians in
Michigan and Indiana. Judge Ann Montgomery left standing the Company's claims
for breach of contract, breach of fiduciary duty and accounting under
partnership law and claims against certain officers of Harrah's for aiding and
abetting the alleged inappropriate activities by Harrah's. The court dismissed
the Company's claim for tortuous interference with contract. The Company plans
to vigorously pursue its claims. A tentative trial date is set for November
2002.
The Company initiated a civil suit against Willard Smith and Monarch
Casinos, Inc. on December 19, 1998 in the Circuit Court of Jackson County,
Mississippi. The Company alleges that Mr. Smith and Monarch Casinos, Inc. 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 Mr. Smith
has defaulted on his obligations to pay rent and maintain the up-keep of the
Company residential property located at 303 LaSalle Street, Ocean Springs,
Mississippi and defaulted on repayment of loans from the Company in excess of
$300,000.
Mr. Willard Smith filed a counterclaim 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. Additionally, Willard Smith filed a suit on July 10,
2000, against the Company's CEO, John J. Pilger, alleging he is the alter ego of
CRC and as such liable for the acts of CRC including breach of contract; breach
of duty of good faith and fair dealing; tortuous interference with prospective
business advantage; breach of contract to purchase real property, and fraudulent
inducement. On April 9, 2001, the Company and John Pilger petitioned the Jackson
County Circuit Court for a partial Summary Judgment on all the counterclaims
filed by Smith and Monarch Casinos, Inc., with the exception of "breach of
contract to purchase real property." The Jackson County Circuit Court denied the
Company's motions for dismissal at the various counterclaims alleged by Monarch
and Smith.
On August 12, 2002 the Company and Mr. Smith and Monarch entered into
an agreement to settle all litigation initiated by the Company against Mr. Smith
and Monarch, as well as all counter-
20
claims initiated by Smith and Monarch against the Company and its CEO, John
Pilger. Per the terms of the Settlement Agreement, the Company assigned to Smith
and Monarch $1 Million of the prospective proceeds due the company from Lakes
Gaming per the terms of the Conditional Release and Termination Agreement (see
Note 9 - Advance Deposit). Per the terms of the Settlement Agreement, Smith and
Monarch shall receive $200,000 per year, paid quarterly in the arrears, over the
five-year term. The Company also agreed to assign $1 Million to Smith and
Monarch of any D&O insurance proceeds that may be due the Company as settlement
fees arising from this litigation against John Pilger, in his capacity as the
Company's CEO. The Company, per the terms of the Settlement Agreement, conveyed
to Smith a Quit Claim Deed of property located at 303 LaSalle Court, and lots 5
and 6 in Seapoint Subdivision, Ocean Springs, MS. Mr. Smith has agreed to
satisfy the underlying mortgage held on the residence at 303 LaSalle, Ocean
Springs, Mississippi.
In turn, Smith/Monarch and its representatives released the Company and
its agents from any claims they may have now or in the future relating to any
prior business transactions between the parties. Per the terms of this
agreement, if the Company does not recover any money under the events described
above, Smith and Monarch agreed that the Company will have no further liability
to them.
On May 13, 2001, Roger Birks, the former CEO of BBM, an 80%-owned
subsidiary of the Company, commenced an action in Clark County District Court,
Nevada, against BBM, a Nevada company, and John J. Pilger, President of BBM and
CEO of the Company, alleging: breach of BBM Purchase Agreement by the Company
for failure to use its best efforts to capitalize BBM; breach of Birks'
Employment Agreement; and lastly, alleging that the Company and its alter ego,
John Pilger, made false representations to Plaintiff which Plaintiff acted upon
with respect to the BBM Purchase Agreement and Plaintiff's Employment Agreement.
Plaintiff seeks compensatory and punitive damages and has not claimed a specific
amount of damages, but claims such damages exceed $40,000. The Plaintiff also
seeks reimbursement of attorney fees. Mr. Pilger has filed counterclaims against
Mr. Birks alleging that Birks has willfully caused these legal proceedings to
coerce a settlement and Mr. Birks is guilty of abuse of process. Mr. Pilger
further alleges Birks has acted in bad faith with malice; and is entitled to an
award for punitive and exemplary damages in excess of $10,000. The Company
denies these allegations and plans to vigorously defend itself in this matter.
CRC of Tunisia, S.A., the 85%-owned subsidiary of the Company,
initiated arbitration proceedings against the casino lessor, Samara Casino Inc.
and its control group, the Mahdoui family. The Company's position is that lessor
took unauthorized advances totaling $227,229, duplicated rent payments of
$210,294 and to date has been unwilling to treat these advances as prepaid rent.
A three-panel Tunisian arbitration began in March 2002,
On December 11, 2001 the Company issued a press release and a Form 8-K
with respect to a civil complaint "Kevin M. Kean pltf vs. John J. Pilger; et al,
including BounceBack Technologies.com dfts", filed by Kevin M Kean in Jackson
County, Mississippi Circuit Court, against the Company and each of the members
of its Board of Directors on November 21, 2001. Additionally, the Company
received on November 28, 2001 and December 26, 2001 from Kevin M. Kean, a
shareholder, a notice of demands that the Board of Directors of the Company
initiate actions to rectify alleged wrong doing committed by certain officers
and directors of the Company. The Company's qualified independent special
investigator has begun to review these claims and allegations.
21
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 99.1 - Certification Pursuant to Section 906 of the
Sarbane-Oxley Act of 2002, 18 U.S.C. Section 1350 - Chief
Executive Officer
b) Exhibit 99.2 - Certification Pursuant to Section 906 of the
Sarbane-Oxley Act of 2002, 18 U.S.C. Section 1350 - Chief
Financial Officer
c) During the quarter ended December 31, 2001, the Company filed
the following reports on Form 8-K:
None.
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.
BOUNCBACKTECHNOLOGIES.COM, INC.
August 13, 2002 s/John J. Pilger
---------------------------------
John J. Pilger,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE
August 13, 2002 s/John J. Pilger
---------------------------------
John J. Pilger, Chief Executive
Officer, President and Chairman
of the Board of Directors
("principal executive officer")
August 13, 2002 s/John J. Pilger
---------------------------------
John J. Pilger, Chief Financial
Officer and Chief Accounting
Officer ("principal financial and
accounting officer")
22