Continental Wellness Casinos Inc. (letterhead)
THE COMPANY IS IN THE PROCESS OF CLOSING THE ACQUISITION
OF THE MAXIM HOTEL AND CASINO LAS VEGAS, NEVADA AND FUNDS
RAISED FROM THIS OFFERING WILL BE USED TO PAY THE COST OF
SAID ACQUISITION. FOR THE ABOVE REASON THE FINANCIAL
STATEMENT OF BABY GRAND CORPORATION DBA MAXIM HOTEL AND
CASINO ARE BEING INCLUDED ON THE MATERIAL COVERING THIS
OFFERING. AFTER THE ACQUISITION IS COMPLETED THEN THE
FINANCIAL STATEMENTS OF THE TWO COMPANIES WILL BE
CONSOLIDATED.
(Cover Page)
Grant Thornton
Grant Thornton LLP Accountants and
Management Consultants
The U.S. Member Firm of
grant Thornton International
BABY GRAND CORP.
dba MAXIM HOTEL & CASINO
Financial Statements
and
Report of Independent Certified Public Accountants
June 30, 1995 and 1994
(letterhead) 150 Almaden Boulevard
P.O. Box 6779
San Jose, CA 95150-6779
408 275-9000
FAX 408 275.0582
Report of Independent Certified Public Accountants
Grant Thornton
Grant Thornton LLP Accountants and
Management Consultants
Board of Directors The U.S. Member Firm of
Baby Grand Corp. Grant Thornton International
dba Maxim Hotel & Casino
We have audited the balance sheets of Baby Grand Corp., dba Maxim Hotel &
Casino (a wholly-owned subsidiary of Cedar Development Co.), as of June 30,
1995 and 1994, and the related statements of earnings, changes in deficit in
shareholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Baby Grand Corp., dba Maxim
Hotel and Casino, as of June 30, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As disclosed in Note S to the financial statements, the Nevada Federal Court
entered an Order Appointing Receiver and Granting Injunctive Relief (The
Order). The Order stayed certain powers of the Receiver, but allows the
Receiver to review the assets, observe the operations and inspect certain
books and records of the Company. The appointment of the receiver is a
result of the Federal Deposit Insurance Corporation (FDIC) taking action
against John B. Anderson (Anderson) the sole owner of the Company's parent,
Cedar Development Co., and certain related entities, which includes
the Company, but not as a named defendant, for non payment of debt obligations
of Anderson due to predecessors of the FDIC. As a result of this action,
Anderson has until January 12, 1996, unless extended by written agreement, to
attempt to negotiate aud execute an agreement for resolution of the FDIC
claim. If a written settlement is reached, Anderson will have an additional
sixty days from the date of execution of the settlement agreement, unless
extended by written agreement, to perform under the settlement agreement. If
a settlement is not readied or satisfied, a change in control of the Company
will take place. A change in control could cause the Company's secured long-
term debt to become immediately due and payable. The ultimate outcome of this
issue cannot presently be determined. Accordingly, the financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
s/Grant Thornton LLP
San Jose, California
September 8,1995 (except for Note S, as to which the date is November 9, 1995)
BABY GRAND CORP.
dba MAXIM HOTEL & CASINO
(A wholly-owned subsidiary of Cedar Development Co.)
BALANCE SHEETS
June 30,
ASSETS
1995 1994
CURRENT ASSETS
Cash and cash equivalents $4,047,000 $2,938,900
Accounts receivable - trade 1,093,600 860,800
Inventories 613,800 627,100
Prepaid expenses and deposits 926,400 925,500
Total current assets 6,680,800 5,352,300
PROPERTY AND EQUIPMENT - AT COST, less
accumulated depreciation of
$24,548,500 in 1995 and $22,768,100
in 1994 38,419,100 37,789,600
OTHER ASSETS
Residence 750,000 750,000
Deferred loan fees - net 21,500 22,400
Land option 1,000,000
Investment in affiliate 127,000
771,500 1,899,400
$45,871,400 $45,041,300
The accompanying notes are an integral part of these statements.
BABY GRAND CORP.
dba MAXLM HOTEL & CASINO
(A wholly-owned subsidiary of Cedar Development Co.)
BALANCE SHEETS - CONTINUED
June 30,
LIABILITIES AND SHAREHOLDER'S DEFICIT
1995 1994
CURRENT LIABILITIES
Current maturities of long-term debt:
Secured $339,500 $465,900
Unsecured 418,400 502,000
Affiliate 275,800
Contracts payable 727,900 304,000
1,761,600 1,271,900
Accounts payable, trade 1,779,400 1,135,800
Accrued Liabilities 3,167,200 3,026,700
Other current liabilities 271,100 324,000
3,438,300 3,350,700
Total current liabilities 6,979,300 5,758,400
LONG-TERM DEBT - NET OF CURRENT MATURITIES
Secured 41,776,000 41,947,800
Unsecured 4,000,000 4,418.400
Affiliate 2,333,000 2,750,000
Contracts Payable 474,200
48,583,200 49,116,200
DEFICIT IN SHAREHOLDER'S EQUITY
Common stock, $5 par value; authorized
1,100,000 shares issued 462,560 shares 2,312,800 2,312,800
Additional paid-in capital 17,073,600 17,073,600
Accumulated deficit (29,077,500) (29,219,700)
(9,691,100) (9,833,300)
$45,871,400 $45,041,300
BABY GRANI) CORP.
(1I)a MAXIM HOTEL & CASINO
(A w1~olly-owned subsidiary of Cedar Development Co.)
STATEMENTS OF EARNINGS
Year euded June 30,
1995 1994
REVENUES
Casino $36,719,800 $39,271,100
Rooms 11,860,200 10,579,100
Food and beverage 13,245,000 13,646,400
61,825,000 63,496,600
Less promotional allowances 7,094,300 6,146,300
54,730,700 57,350,300
Gift shop 1,380,300 1,785,400
Other 1,775,100 1,292,900
57,886,100 60,428,600
COSTS AND EXPENSES
Casino 17,594,500 17,851,100
Rooms 6,435,400 6,607,300
Food and beverage 14,943,600 15,278,400
Gift shop 1,047,300 1,408,100
Selling, general and administrative 10,822,200 10,604,100
Guest entertainment 905,900 963,600
Provision for doubtful accounts 205,400 279,700
51,954,300 52,992,300
Operatiug income before depreciation and amortization 5,931,800 7,436,300
Depreciation and amortization 1,774,700 I ,822,800
E~rnings from operations 4,157,100 5,613,500
OTHER INCOME (EXPENSE)
Interest (net) (3,745,400) (3,788,300)
Settlement Expenses (75,000) (831,700)
Investor's share of (loss) of investee (127,000) (425,000)
Other (67,500) 23,500
(4,014,900) (5,021,500)
NET F~RNlNGS $142,200 $592,000
BABY GRAND CORP.
dba MAXIM HOTEL & CASINO
(A wholly-owned subsidiary or Cedar Development Co.)
STATEMENT OF CHANGES IN DEFICIT IN SHAREHOLDER'S EQUITY
Years ended June 30, 1995 and 1994
Additional
Common paid-in
(Accumulated
stock capital
deficit) Total
Balauce at July 1, 1993 $2,312,800 $17,073,600 ($19,811,700) ($10,425,300)
Net earnings for the year 592,000 592,000
Balance at June 30, 1994 2,312,800 17,073,600 29,219,700 9,833,200
Net earilings for the year 142,200 142,200
Balauce at June 30, 1995 $2,312,800 $17,073,600 ($29,077,500) ($ 9,691,100)
The accompanying notes are an integral part of this statement.
BABY GRAND CORP.
dba MAXIM hOTEL & CASINO
(A wholly-owued subsidiary of Cedar Development Co.)
STATEMENTS OF CASH FLOWS
Year ended June 30,
1995 1994
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net earnings $142,200 $592,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and ainortization 1,774,700 1,823,700
Investor's share in net loss of investee 127,000 425,000
Settlement fees 75,000 400,000
CI)allges in assets and liabilities:
Accounts receivable (232,800) 75,600
Inventories 13,300 (87,500)
Prepaid expeuses and deposits 18,200
Accounts payable 643,600 (30,400)
Accrued liabilities 235,800 (436,800)
Net cash provided by operating activities 2,778,800 2,779,800
Cash flows from investing activities:
Procecds from safe of land option 685,000
Purchase of fixtures and equipment (686,600) (1,116.000)
Net cash used in investing activities (1,600) (1,116,000)
Cash flows froni finaucing activities:
Payments on contracts and long-term debt (1,669,100) (1,530,600)
NET INCREASE IN CASII AND CASII EQUIVALENTS 1,108,100 133,200
Cash aud cash equivalents at beginning of year 2,938,900 2,805,700
Cash and cash equivalents at end of year $4,047,000 $2,938,900
BABY GRAND CORP.
dba MIAXIM HOTEL & CASINO
(A wholly-owned subsidiary of Cedar Development Co.)
STATEMENTS OF CASh FLOWS - CONTINUED
Year ended June 30,
1995 1994
SuppIementa1 disclosures of cash flow information:
Cash paid during the year for interest $3,780,400 $3,813,900
Supplemental disclosure of noncash investing and financing activity:
During the fiscal year ended June 30, 1995 and 1994 the Company incurred
contracts payable and long-term debt of $1,717,600 and $596,200
respectively, in connection with the purchase of equipment.
Baby Grand Corp.
dba Maxim Ilotel & Casinio
(A wholly-owned subsidiary of Cedar Developineut Co.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTF A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in
the preparation of the accompanying financial statements follows.
1.Organization
Baby Grand Corp. dba The Maxim Hotel & Casino (tile Company), a
wholly-owned subsidiary of Cedar Development Company (CDC), is in the hotel
and gaming business in Las Vegas, Nevada.
The Company does not consolidate the accounts of its wholly-owned inactive
subsidiary, Paloma Ranch Development Corporation (PRDC) (See note A6).
2.Accounting for Casino Revenue and Promotional Allowances
In accordance with common industry practice, the Company
recognizes as casino revenue the net win from gaining activities, which is
the difference between gaming wins and losses. The retail value of
accommodations, food and beverages furnished without charge to customers is
included in gross revenues and then deducted as promotional allowances. The
cost of promotional allowances are charged to the operations to which they
relate.
3.Inventories
Inventories are stated at the lower of cost or market; cost is determined
principally on a first-in, first-out basis,
4.Property and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
principally on a straight-line basis, while accelerated methods are used for
tax purposes. The estiiiiated lives used in determining depreciation
are:
Buildings 40 years
Furniture, fixtures and equipment 5-10 years
Baby Grand Corp.
dba Maxim hotel & Casino
(A wholly-owned subsidiary or Cedar Developinent Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
4.Property and Equipmeent - continued
Maintenance, repairs and minor renewals are charged to operations as
incurred. Improvements and major renewals of facilities are capitalized.
Upon retirement or other disposition, the cost of die asset and the related
accumulated depreciation taken prior to disposition are removed from the
accounts and any resultant gain or loss is charged to operations.
5.Income taxes
For income tax purposes, the Company's earnings are included in the
consolidated tax return of its parent, CDC. Accordingly, all benefits from
operating losses and all tax expense generated from operating profits are
reported in the consolidated tax return of CDC. Taxes are allocated among the
members of the consolidated group, based on their relative taxable income,
only in the event that the consolidated group has tax expense.
For tIle years ended June 30, 1995 and 1994 there is no provision
for income tax in the accompanying financial statements as no material tax
expense of the consolidated group was attributable to the Company.
6.Investments
The Company accounts for its investment in its wholly-owned inactive
subsidiary, PRDC, at cost. The Company accounts for its investment in Dunes
hotels and Casinos Inc. (DHC) on the equity method.
Investments are written down to estimated realizable value if impairment
is considered to be other than temporary (See Note I).
7.Loan Fees
Loan fees are amortized on a straight-line basis over the term of the
related loan.
8.Statements of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
9.Reclassification
Certain accoulits in the prior year financial statements have been
reclassified to conform with current year presentation. The reclassifications
had no effect on the reported net loss or accumulated deficit.
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary or Cedar Developmeut Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30,1995 and 1994
NOTE B - BANKRUPTCY PROCEEDING
The Company filed a petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Nevada, Case No. BK 5-92-20989-RCJ, on March 10, 1992. On October 13, 1992,
tile Company filed its flust Amended Plan of Reorganization which was
outlined on November 10, 1992. On December 20, 1994, a Notice of Final Decree
was recorded in the United States Bankruptcy Court for the District of Nevada
indicating that the Company's Chapter 11 bankruptcy case was officially closed.
NOTE C - CASh
The Company has certain restricted cash deposits, which represent amounts
pledged as security for certain obligations, including workers' coinpensation
and casino activities. The following is a summary at June 30:
1995 1994
Restricted $ 351,400 $ 517,500
Unrestricted 3,695,600 2,421,400
$4,047,000 $2,938,900
NOTE D - TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the
following at June 30:
1995 1994
Casino $1,124,900 $1,322,600
Hotel 346,700 345,600
Other 102,000 31,700
1,573,600 1,699,900
Less allowance for doubtful accounts (a) 480,OO0 839,100
$1,093,600 $ 860,800
(a)The allowance for doubtful accounts includes an allowance for doubtful
casino receivables of $440,000 and $737,900 at June 30,1995 and 1994,
respectively.
Baby Grand Corp.
dba Maxim hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE E - INVENTORIES
Inventories consisted of the fol1o~ving at June 30:
1995 1994
Food and beverage $242,900 $217,400
Gift Shop 260,900 299,700
Supplies 110,000 110,000
$613,800 $627,100
NOTE F PREPAID EXPENSES AND DEPOSITS
Prepaid expenses and deposits consisted of
the following at June 30:
1995 1994
Gross with tax $416,800 $454,100
Licenses 286,500 277,800
Insurance 70,200 69,500
Supplies and proruotional expenses 57,200 58,400
Other 95,700 65,700
$926,400 $925,500
NOTE G - PROPERTY AND EQUIPMENT
Property and equipment consisted of the
following at June 30:
1995 1994
Land and land improvements $ 7,069,400 $7,150,700
Building 36,923,100 36,438,700
Gaming equipnlent and slot machines 8,282,200 6,727,900
Furniture and fixtures 9,304,400 8,860,000
Data processing 1,228,500 1,169,500
Other 160,000 210,900
62,967,600 60,557,700
Less accumulated depreciation 24,548,500 22,768,100
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE H - LAND OPTION
On April 30, 1993, the Company paid $1,000,000 to Los Rios Farms, Inc (Los
Rios) for an option to acquire approximately 1,690 acres of farmland in
Northern California, which property was, at one time, owned by Maxim
Development Company, an entity related to the Company through common
ownership. Los Rios used the proceeds to acquire the property for a total
purchase price of $2,450,000. Los Rios conducts farming operations on the
subject property.
On November 9, 1993, Bank One Arizona, N.A. (the Company's secured lender at
that date, Bank One) declared the Company to be in default of its secured
and unsecured obligations to Bank One (the Bank One Notes) as a result of the
purchase of the option. Bank One alleged that the purchase of the option was
a violation of certain loan covenants, although at no time was the Company in
default on any monetary covenants under the Bank One Notes.
On February 9, 1995, the Company sold the option to M & R Investment Company,
Inc. (MRI), an entity related to the Company through common ownership, for
$1,043,902 of which $685,000 was paid in cash and the remainder was paid by
granting an i(nillediate credit for all of the installment payments due under
the MRI Note from March 1, 1995 through September 1, 1995, as well as a
credit of $8,903 toward the payment due on October 1, 1995. Installment
payments will resume under the MRI Note with the balance of the payment due
on October 1, 1995 (See Note L). Additionally, upon certain conditions
atid the consent of Bank One and the Nevada Gaming Control Board, MRI can
require the Company to repurchase the option. The Company also agreed to
use its best efforts to obtain refinancing of the Bank One Notes, plus an
amount to prepay the MRI Note, each of which are subject to tile conselit of
the Nevada Gaming Control Board.
As a result of the sale of the option, all alleged events of default were
cured under the 13ank One Notes and the MRI Note.
NOTE I - INVESTMENT IN AFFILIATE
The investment consists of approximately 20% of the outstanding common stock
of DHC as of June 30, 1995 and 1994. The Company and certain other companies
related through common ownership collectively own a controlliug interest in
DHC. Accordingly, the Company accounts for its investment by the equity
method. As of June 30, 1995, the Company has written the investment down to
- -0 (zcro).
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE J - SECURED LONG-TERM DEBT
On April 10, 1995, West Coast Mortgage holdings, Inc. (WCMII) purchased the
Bank One Notes for an undisclosed amount.
Secured long-terni debt consisted of the following at June 30:
1995 1994
(I)Secured notes payable to West Coast
Mortgage Holdings, Inc.
Note A $34,707,100 $34,707,100
Note B 6,618,500 6,618,500
forbearance Fees 44,400 265,700
(2)Clark County Nevada, payable in 36 monthly
installments of $22,110 including interest at 8%
per annum. 87,000 334,500
(3)Adjustable rate mortgage note on residence
(9.375% at June 30, 1995 and 9.99% at June 30,
1994); payable in monthly installinents of $3,448,
including interest. final payment Is due December
2018. 373,900 378,000
(4)Adjustable rate mortgage note on residcnce
(10.99% at itine 30, 1995 and 10.99% at June 30,
1994); payable in monthly installments of $1,557,
including interest. Final payment is due
December 2003. 102,900 109,900
(5)10% note payable on telephone equipment,
payable in monthly installments of $1,035
Final payment is due December, 1999. 169,700
(6)10% note payable on security equipment,
payable in monthly installments of $250.
Final payment is due May, 1999. 12,000
42,115,500 42,413,700
Less current maturities 339,500 465,900
$41,776,000 $41,947,800
(1)Secured notes payable to WCMII:
"Note A" - Note in the origlual amount of $35,000,000 with interest at the
rate of 10% per annum, payable in equal monthly installments of $307,150,
commencing December 31, 1992, based on a thirty year amortization, with the
final payment of unpaid principal and unpaid interest due December 31, 1997,
collateralized by a first deed of trust and security agreement OR the Maxim
hotel and Casino property.
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE J - SECURED LONG-TERM DEBT - CONTINUED
"Note B" - Note in the original amount of $6,618,500, non-interest bearing,
does not require any installment payments, and is due on December 31, 1997.
Note B is collateralized by a deed of trust and security agreement on the
Maxim hotel and Casino property. In the event Note A is fully paid on or
before December 31, 1997, Note B will be canceled.
Forbearance Fees - Required payments on Note A shall be applied first to the
payment of interest accrued on Note A. The balance of the Note A payments
will be applied to the payment of the forbearance fees relating to the Bank
One litigation, referred to OR the following page, until they are paid in full.
The amended and restated loan agreement (A/R Loan Agreement) with Bank One,
now WCMH, contains the following financial covenants and restrictions:
Financial covenants:
The Company shall make capital expenditures during each fiscal year in a
minimum amount of 1% of gross revenue, exclusive of complimentaries, for
fiscal 1993 and 1994 and 11/2 % of gross revenue, exclusive of
complimentaries, for each year thereafter.
The Company will not declare, pay or make any distributions or stock
acquisitions unless each of the following conditions are satisfied:
(a) Payment of all non-insider Unsecured Claims or June 30, 1994, whichever
is last to occur
(b) Completion of the room renovations as set forth in the Room Renovation
Budget
(c) Distributions can only be made at the end of each fiscal year from
"excess cash" as defined in the agreemeent.
(d )Any distribution will not cause the Distribution Coverage Ratio to be
less than 1.0
(e) Any distribution will not cause the Company's tangible net worth deficit
to be greater than $13,473,l05.
The above items are to be calculated annuallya tthe end of each fiscal year.
Baby Grand Corp.
db4, Maxim hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE J - SECURED LONG-TERM DEBT - CONTINUED
The aggregate maturities of the Company's secured long-term debt subsequent
to June 30, 1995 are as follows:
1996 $ 339,500
1997 309,800
1998 40,963,700
1999 63,300
2000 38,100
Thereafter 401,100
$ 42,115,500
On Novetuber 9, 1993, Batik One recorded a notice of default against the
Company alleging a violation of certain covenants arising out of the Company's
acquisition of an option to purchase real property (Refer to Note II). In May
1994, the litigation between the Company and Bank One was settled (the Bank
One Settlement). At the same time MRI settled its action in intervention
against the Company (the MRI Settlement). Terms of the Bank One Settlement
required, among other things, that (the Company pay Bank One's litigation
expenses, which expenses approximated $300,000. Terms of the MRI Settlement
required, among other things, that the Company pay MRI1s litigation expenses,
which expenses approximated $100,000. The $100,000 was added to the amount
owing MRI by the Company (Refer to Note L). In addition, the Bank One
Settlement required the Company to cause to have deposited into its accounts
$1,000,000 plus accrued interest from April 30, 1993, (the Option Liquidation
Amount) on or before January 31, 1995. The sale of the option on February 9,
1995, satisfied the Company's obligation as required by the Bank One Settlement
(See Note 11). On February 9, 1995, Batik One, MRI and the Company entered
into a Second Settlement and Forbearance Agreement (the Second Settlement
Agreement). The Second Settlement Agreement required the Company to pay Bank
One a $75,000 forbearance fee. Each Forbearance Fee which becomes due and
payable shall be paid from the next payments received by Bank One under Note
A, which payments shall be applied as follows:
(a) First, to the payment of interest on the unpaid balance of the principal
sum of Note A; (b) Secondly, to the payment of any Forbearance Fee which is
due aud payable; (c) Thirdly, to the payment of (the Default Expenses, if any
remain unpaid; and (d) Fourtlily, to (lie reduction of principal of Note A.
As of June 30, 1995, the Company owed $44,400 to WCMII for forbearance
fees.
Total expenses related to (lie Bank One litigation ($75,000 in 1995 and
$831,700 in 1994) include the amounts owing to Bank Oiie, now WCMH, and MRI
and are included in Other Income (Expense) in (the accompanying Statement of
Earnings.
Baby Grand Corp).
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE K - UNSECURED LONG-TERM DEBT
Unsecured long-term debt consists of a note payable to WCMII in the original
amount of $7,000,000. The note is non-interest bearing. The balance
outstanding at June 30, 1995 and 1994, was $4,418,400 and $4,920,000,
respectively. Per the terms of the note, once the Company has paid $3,000,000
on the note, and there is no event of default existing under the A/R Loan
Agreement, the balance of $4,000,000 will be forgiven. The note is payable in
monthly installments of $41,837.
NOTE L - LONG-TERM DEBT - AFFILIATE
As of June 30, 1995 the Company was indebted to MRI in the principal amount
of $2,608,900. The obligation arose out of certain loans made by MRI to
the Company prior to the Company's Chapter 11 proceeding. Pursuant to the
Company's approved plan of reorganization, MRI amended and restated the
aggregate $2,650,000 indebtedness into a new promissory note (the New MRI
Note), which l)Cars interest at the rate of 9% per annum from December 1,
1992. The New MRI Note is secured by a pledge of 1,280,756 shares of DHC
stock. DH is the parent of MRI. Commencing oil the first business day of
Ma(cll 1995, the note is payable in equal monthly installments of $50,000 until
December 1, 1997, at which time tlie entire balance of unpaid principal and
interest is fully due and payable. (Refer to Note) re; Settlement expenses
added to the New MRI Note.) (See Note II re: MRI purchase of option.)
The aggregate maturities on the debt to MRI subsequent to June 30, 1995 are as
follows:
1996 $ 275,800
1997 410,600
1998 1,922,500
$2,608,900
NOTE M - ACCRUED LlABILIT1ES
Accrued liabilities consisted of the following at June 30:
1995 1994
Salaries and wages $ 635,700 $ 564,100
Interest 160,000 308,200
Employee taxes and benefits 459,200 627,400
Vacation liability 803,500 786,500
Clip liability 193,300 125,200
Token liability 338,200 397,000
Gaming taxes 250,000
Other 327,300
3,167,200 $3,026,700
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE N - OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at June 30:
1995 1994
Advance registr~tion deposits $38,600 $44,900
Customer deposits 85,500 75,600
Progressive slots 89,900 113,900
Other 57,100 89,600
$271,100 $324,000
NOTE O - MEDICAL SELF-INSURANCE
The Company has established a self-insurance program for medical coverage
employees. Each employee is covered up to a maximum of $50,000 per year.
Medical expenses exceeding this limit are then covered by an outside
insurance company. The Company has estimated the liability for unprocessed
claims to be approximately $120,000 and $90,000 at June 30, 1995 and 1994,
respectively. Such liabilities are included in accrued liabilities at year-
end.
NOTE P - MULTIEMPLOYER PLAN
The Company participates in defined benefit multiemployer plans which provide
benefits to substantially all union employees. These plans are not
administered by die Company and contributions are determined in accordance
with negotiated labor contracts. Contributions to the plans represent
pension benefits. Contributions to the plans in 1995 and 1994 aggregated
$631,400 and $657,300, respectively.
The Multiemployer Pension Plan Amendments Act of 1989 (the Act) significantly
increased the pension responsibilities of participating employers. Under the
provisions of the Act, if the plans terminate or the Company withdraws, the
Company could be subject to a substantial "withdrawal liability".
Manageent is not in a position to estimate the Company's withdrawal
liability, if any, as of June 30, 1995. Management has no ititention of
undertaking any action which could subject the Company to this potential
obligation.
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS CONTINUED
June 30, 1995 and 1994
NOTE Q - COMMITMENTS
The Company leases various types of equipment, primarily on a month-to-month
basis, in the operations of its business, all of which are considered
operating leases. Total rental expense for the years ended June 30, 1995 and
1994 aggregated approximately $190,000 and $165,000, respectively.
NOTE R - RESIDENCE
The Company owns the residence occupied by John B. Anderson, Chairman of the
Board and President of the Company (Anderson). The Company charges Anderson
an annual rent of $36,000, which is considered compensation to Anderson.
Rental income is included in Other Income and the related compensation is
included in Selling, General and Administrative expenses.
NOTE S - STOCK OWNERSHiP
Federal DeDosit Insurance Corporation. et al. v. John B. Anderson and Edith
Anderson. Cedar Development Co., J.A., Inc. and J.B.A. Investment. Inc., Case
No. CV-S-95-679-PMP (LRL) filed July 14, 1995 in the United States District
Court. District of Nevada (the Nevada Federal Court). In 1986, a Stipulated
Judgment was entered in a Nevada state court against John B. and Edith
Anderson ((lie Andersons) in favor of Eureka Federal Savings and Loan
Association, now known as Eurekabank (Eureka), in the original amount of
$33,700,000. In 1989, the Andersons entered into that certain Debtor-Creditor
Agreement (the DCA) which purported to define the terms under which the
Atidersons would repay tile judgment. The Federal Deposit Insurance
Corporation (FDIC), as assignee of Eureka, makes various claims, arising out
of the Stipulated Judgment and the DCA, and seeks various remedies against
the named defendants, including specific performance of the DCA, the
appointment of a receiver, injunctive relief, judicial foreclosure and
enforcement of the Stipulated Judgment. The Company is not a named defendant.
On September 12, 1995, pursuant to stipulation (the Stipulation) between the
Andersons, the named defendants and the FDIC, the Nevada Federal Court
entered an order (the Order) appointing a receiver over the assets, including
the Company's common stock, of the Andersons and the named defendants and
granting certain injunctive relief. The Order stayed certain powers of the
receiver, during the negotiation period as defined in the following
paragraph, but granted the receiver the right to review the assets, observe
the operations, and inspect certain books and records, including the Company's,
relating to the assets of the Andersons and the named defendants. The Order,
which incorporates the Stipulation, also provides for entry of a consent
judgment against the Andersons and the named defendants under certain
conditions as more fully explained in the following paragraph.
Baby Ga~nd Corp.
dba Niaxim Hotel & Casino
(A wholly-owned subsidiary or Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE S - STOCK OWNERSHIP - CONTINUED
The Andersons, the Anderson Parties, as defined in the DCA, and the FDIC
shall, for a period of sixty (60) days from the date of the entry of the
Order, unless extended by written agreement, (the Negotiation Peri(XI), attempt
to negotiate and execute a written agreement for resolution of the FDIC
claims against the Andersons and the Anderson Parties (Settlement Agreement).
If a Settlement Agreement is executed by the FDIC and the Andersons on or
before the last day of the Negotiation Period, the Andersons and the Anderson
Parties shall have an additional sixty (60) days from the date of execution
of the Settlement Agreement, unless extended by written agreement, in which to
satisfy all of the terms, conditions and requirements of such Settlement
Agreement (the Closing Period). On November 9, 1995, Mr. Anderson and the FDIC
agreed to an extension of the initial 60 day negotiation period to January 12,
1996, which extension was submitted to and approved by the Nevada Federal
Court. In the event that the Andersons, the Anderson Parties and the FDIC are
unable to execute a Settlement Agreetnent, the FDIC may submit the Consent
Judgment to the Nevada Federal Court for linmediate entry. If a Settlement
Agreement is reached, but the Andersons and the Anderson Parties are unable
to comply with all terms, conditions and requirements of the Settlement
Agreement on or before the last day of the Closing Period, the FDIC may
submit the Consent Judgment to the Nevada Federal Court for immediate entry.
The Company is an Anderson Party for purposes of the DCA.
Because the Company is a wholly-owned subsidiary of one of the named
defendants, Cedar Development Co., the entry of the Consent Judgment by the
Nevada Federal Court could result in the loss of the Company's gaming license,
the transfer of controi of the Company to the receiver, or other material
effects, depending on the actions the receiver takes with regard to the stock
of the Company.
On September 28, 1995, the Nevada Gaming Commission approved the application
of the receiver to act as such under the Company's gaming license.
WCMII declared the Company to be in default under the WCMII notes as a result
of the appointment of a receiver. The Coinpaiiy has responded to WCMII
stating its belief that no event of default has occurred or will occur with
respect to the appointment of a receiver unless the Anderson Parties and the
FDIC are unable to reach a Settlement Agreement as discussed above. The
Company believes that under Nevada law, if WCMII iiitends to exercise its
default remedies against the Company, WCMll must cause to be recorded a
statutorily required notice of breach which will then continence a
statutorily mandated time period of in excess of three months before a non-
judicial trustee sale of the Company's primary asset can occur. The Company
has not been notified that WCMII has recorded any statutorily requited
notice.
The Company is unable to predict whether the Andersons will be able to
achieve a Settlemetit Agreement, will be able to perform under the terms of any
such Settlement Agreement, or the other circumstances utider which the Cousent
Judgment could be entered.
Baby Grand Corp.
dba Maxim hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE T - ShAREHOLDER DISTRIBUTIONS
Anderson has been limited by the Nevada Gaming Control Board (NGCB) to annual
distributions not to exceed $200,000 in any fiscal year, on a combined basis,
from both the Company and its affiliate, J.A., Inc. During the year ended
June 30, 1995, Anderson has received the maximum distribution allowed by the
NGCB.
NOTE U - LITIGATION
The Company is involved in various litigation and arbitration proceedings
arising in the normal course of business. Management believes the ultimate
resolution of the litigation and arbitration against the Company will not
have a material adverse effect on the Company.
No dealer, salesman or other person has been authorized in connection with
this offering to give any information or to make any representation other
than as contained in this prospectus and, if given or made, such information
or representation must not be relied upon as having been authoriazed by the
Company. This prospectus does not constitute an offer to sell or the
soliciation of an offer to buy any securities covered by this prospectus in
any state or other jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such stare or jurisdiction.
TABLE OF CONTENTS
SECTION PAGE
ADDITIONAL INFORMATION 2
PROSPECTUS SUMMARY 3
RISK FACTORS 4
DILUTION 7
MARKET PRICE OF COMMON STICK 8
USE OF PROCEEDS 9
MANAGEMENT'S DISCUSSION AND ANALYSIS 10
BUSINESS 12
MANAGEMENT 15
PRINCIPAL STOCKHOLDERS 16
CERTAIN TRANSACTIONS 17
PLAN OF DISTRIBUITON 18
DESCRITPION OF SECURITIES 19
LEGAL MATTERS 20
EXPERTS 20
FINANCIAL STATEMENTS INDEX 21
CONTINENTIAL WELLNESS CASINOS, INC.
8,000,000 SHARES OF COMMON STOCK
__________, 1993
PART II
Item 27. Exhibits
2. Plan of Purchase, Sale, Reorganization, Arrangement,
Liquidation, or Succession.
2.1 Agreement for Purchase of Shares dated __________ between
the Company and the shareholders of _______________
3. Certificaiton of Incorporiation and Bylaws
3.1 Amendment and Restated Articles of Incorporation(1)
3.1 Bylaws, as amended(1)
5. Opinion of Agent or underwriter.
10. Material Contracts
10.1 None available
10.2 None available
10.3 None available
22. Subsidiaries(1)
N/A
24. Consents of Experts and Counsel
24.1 Consent of Accountants(2)
24.2 Consent of Counsel
25. Powers of Attorney
25.1 Powers of Attorney are included on signature page
__________________
(1) Filed with original filing
(2) Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San
Diego, State of California on August 16, 1993.
CONTINENTAL WELLNESS CASINOS, INC.
By: s/Fred Cruz,
______________________________
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the follwoing persons in the
capacities indicated on August 16, 1993.
By: s/Fred Cruz President, CEO & Director
FRED CRUZ, M.D. (Principal executive officer)
By: s/Mel Cruz Chief Financial Officer and Director
MEL CRUZ (Principal accounting and financial officer)
By: s/Kari L. Cruz Executive Vice President, Secretary & Director
KARI L. CRUZ
*By signing hereto the undersigned hereby executes this Registration
Statement on behalf of the above persons.
By: s/Rick Eriksen
RICK ERIKSEN
(The following exhibits are being submitted under separate cover to the SEC
using form SE.)
CONTINENTAL WELLNESS CASINOS, INC.
REGISTRATION STATEMENT OF FORM SB-2
EXHIBIT INDEX
Exhibit Page in Manually
Number Description Signed Original
2.1 Geological studies of the mines at Quincy,
Plumas County California by Stickel and
Associates
3.1 Amended and Restated ARticles of Incorporation(1)
3.2 Bylaws, as amended(1)
5 Opinion of Counsel as to legality of securities
being registered(1)
10.1 Brochure of the Maxim Hotel and Casino, Las Vegas,
Nevada
10.2 Form of Common Stock Class "A"
10.3 Form of Common STock Class "B"
22. Subsidiaries(1)
24.1 Consent of Accountants(2)
24.2 Consent of Counsel included in Exhbiit 5 hereto
25.1 Powers of attgorney are included on signature page
26.1 SEC Form 8-K Change in Company Name.
___________
(1) Filed with original filing.
(2) Filed herewith.