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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended January 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-14939
CROWN CASINO CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of 63-0851141
incorporation or organization) (I.R.S. employer identification number)
2415 WEST NORTHWEST HIGHWAY
SUITE 103
DALLAS, TEXAS 75220-4446
(Address of principal executive offices,
including zip code)
(214) 352-7561
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Title of Each Class March 16, 1995
------------------- --------------
Common Stock, Par Value $.01 Per Share 11,128,459
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PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements
CONSOLIDATED BALANCE SHEETS CROWN CASINO CORPORATION
January 31,
1995 April 30,
(Unaudited) 1994
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 902,856 $ 1,778,939
Receivables, net 155,544 1,041,243
Prepaid expenses 1,083,503 155,082
----------- ----------
Total current assets 2,141,903 2,975,264
Property and equipment:
Land held for development 16,559,895
Land deposit and site costs 56,709 1,286,223
Riverboat 14,906,140 8,844,024
Barges and improvements 350,000 485,000
Furniture, fixtures and equipment 8,803,512 1,842,118
----------- ----------
40,676,256 12,457,365
Less accumulated depreciation (186,267) (75,007)
----------- ----------
40,489,989 12,382,358
Other assets:
Debt issuance costs, net 1,050,645
Non-compete agreement, net 341,673 416,670
Land purchase option 6,075,000
License costs 9,125,000 9,125,000
----------- ---------
10,517,318 15,616,670
----------- ----------
$ 53,149,210 $ 30,974,292
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 590,515 $ 215,334
Accrued liabilities 1,034,363 152,809
Capital lease obligations 2,704,104
Note payable, net of discount 21,513,392
----------- ----------
Total current liabilities 25,842,374 368,143
Capital lease obligations,
less current portion 2,466,103
Deferred income taxes 4,440,000
Common stock pending
issuance 1,500,000
Common stock subject to
redemption 829,500
Stockholders' equity:
Preferred stock, 1,000,000 shares
authorized; none issued
Common stock, par value $.01 per share,
50,000,000 shares authorized; 11,449,853
issued and 10,752,459 outstanding
(9,686,319 issued and 8,998,925
outstanding at April 30, 1994) 114,499 96,863
Additional paid-in capital 39,151,612 28,049,381
Accumulated deficit (13,782,491) (3,721,708)
Treasury stock, at cost (642,887) (587,887)
----------- ----------
Total stockholders' equity 24,840,733 23,836,649
----------- ----------
$ 53,149,210 $ 30,974,292
=========== ==========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION
(Unaudited)
Three Months Ended
January 31,
1995 1994
---------------- --------------
Revenues $ - $ -
Costs and expenses:
General and administrative 457,929 293,765
Gaming pre-opening and development 1,724,115 286,628
Depreciation and amortization 62,793 258,555
St. Charles Parish site abandonment 3,131,359
---------- -----------
5,376,196 838,948
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Net interest (income) expense:
Interest expense 1,756,523 9,521
Interest income (14,855) (54,951)
---------- -----------
1,741,668 (45,430)
---------- -----------
Loss from continuing operations before
income taxes (7,117,864) (793,518)
Benefit for income taxes (1,603,478) (263,565)
---------- -----------
Loss from continuing operations (5,514,386) (529,953)
Discontinued operations, net of taxes:
Loss on disposition of discontinued
operations (115,985)
---------- -----------
Net loss $ (5,514,386) $ (645,938)
========== ===========
Loss per share:
From continuing operations $ (.54) $ (.08)
From discontinued operations (.02)
---------- -----------
$ (.54) $ (.10)
========== ===========
Weighted average common and common
equivalent shares outstanding 10,284,658 6,227,706
========== ===========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION
(Unaudited)
Nine Months Ended
January 31,
1995 1994
---------------- --------------
Revenues $ - $ -
Costs and expenses:
General and administrative 1,398,296 745,053
Gaming pre-opening and development 5,120,524 515,910
Depreciation and amortization 186,257 335,329
St. Charles Parish site abandonment 3,131,359
----------- -----------
9,836,436 1,596,292
----------- -----------
Net interest (income) expense:
Interest expense 4,799,569 11,303
Interest income (172,895) (174,685)
----------- -----------
4,626,674 (163,382)
----------- -----------
Loss from continuing operations before
income taxes (14,463,110) (1,432,910)
Benefit for income taxes (4,402,328) (528,929)
----------- -----------
Loss from continuing operations (10,060,782) (903,981)
Discontinued operations, net of taxes:
Loss on disposition of discontinued
operations (192,535)
----------- -----------
Net loss $ (10,060,782) $ (1,096,516)
=========== ===========
Loss per share:
From continuing operations $ (1.03) $ (.17)
From discontinued operations (.04)
----------- ------------
$ (1.03) $ (.21)
=========== ============
Weighted average common and common
equivalent shares outstanding 9,799,176 5,319,318
=========== ===========
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN CASINO CORPORATION
(Unaudited)
Nine Months Ended
January 31,
1995 1994
---------------- --------------
Operating activities:
Net loss $ (10,060,782) $ (903,981)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 186,257 335,329
Amortization of debt issuance costs/discount 2,298,499
Write-down of assets 3,131,359 100,000
Warrant issued for services 62,500
Deferred income taxes (4,440,000) (438,534)
Changes in assets and liabilities:
Receivables, net 436,902 399,260
Prepaid expenses (1,053,827) (66,218)
Accounts payable and accrued liabilities 1,198,095 (22,840)
Net effect of discontinued operations 301,404
------------ ----------
Net cash used by operating activities (8,240,997) (295,580)
------------ ----------
Investing activities:
Purchases of property and equipment (17,270,420) (1,446,112)
Loan to GEMS (500,000)
Purchases of other assets (300,000)
Acquisition of GEMS, net 80,481
Acquisition of SCGC, net (450,000)
Net effect of discontinued operations 498,872
------------ ----------
Net cash used by investing activities (17,270,420) (2,116,759)
------------ ----------
Financing activities:
Issuance of common stock 5,350,522 2,414,984
Purchase of common stock (55,000)
Issuance of debt and warrants 28,000,000 500,000
Debt issuance costs (1,558,407)
Payments of debt (7,101,781) (500,000)
------------ ----------
Net cash provided by financing activities 24,635,334 2,414,984
------------ ----------
Increase (decrease) in cash and cash equivalents (876,083) 2,645
Cash and cash equivalents at: Beginning of period 1,778,939 120,719
------------ ----------
End of period $ 902,856 $ 123,364
============ ===========
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CROWN CASINO CORPORATION
(Unaudited)
FOR THE NINE MONTHS ENDED JANUARY 31, 1995
NOTE A - BASIS OF PRESENTATION
Crown Casino Corporation ("Crown") and its wholly-owned subsidiaries, St.
Charles Gaming Company, Inc. ("SCGC") and Gaming Entertainment Management
Services, Inc. ("GEMS"), (collectively, the "Company") is currently developing
a riverboat gaming casino in Calcasieu Parish, Louisiana, near Lake Charles.
In addition, the Company has purchased an 18.6 acre tract of land in the gaming
district of Las Vegas, Nevada for development of a hotel and casino. The
Company is also actively pursuing gaming opportunities in other jurisdictions.
The Louisiana riverboat casino project is the only project currently under
development. Prior to March 1994, the Company had been engaged in various
facets of the cable and related programming businesses.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended January 31, 1995 are not necessarily indicative of the results that may
be expected for the year ended April 30, 1995. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended April 30, 1994.
NOTE B - DISCONTINUED OPERATIONS
In July 1993 the Company made the decision to focus all its efforts in the
gaming industry and discontinue operating in the cable programming industry.
As a result, all cable related assets and operations were sold during fiscal
1994. The identifiable revenues and expenses from discontinued operations have
been reclassified on the accompanying statement of operations from their
historical classification to separately identify them as net results from
discontinued operations. Discontinued operations include allocations of
general and administrative expenses that were determined to be directly related
to such operations. The condensed statement for discontinued operations for
the nine months ended January 31, 1994 was as follows:
Revenues $ 592,154
Costs and expenses 881,809
--------
Loss before income taxes (289,655)
Benefit for income taxes (97,120)
--------
Net loss $(192,535)
========
NOTE C - LAND HELD FOR DEVELOPMENT
In June 1994 the Company exercised its option for $10 million and closed the
purchase of an 18.6 acre tract of land in the gaming district of Las Vegas,
Nevada located on the southeast corner of the intersection of Flamingo and
Arville. Upon closing, land purchase option costs were reclassified to land
held for development. The Company intends to construct a hotel and casino on
the site. Also included in land held for development is a 6.5 acre tract of
land adjacent to the Company's former riverboat gaming site in St. Rose,
Louisiana. In consideration for the purchase of this land the Company
exchanged a note receivable with a face value of approximately $471,000.
NOTE D - RIVERBOAT
In July 1994 upon completion of construction and receipt of a temporary
certificate of inspection, the Company closed the purchase and took delivery of
its riverboat vessel. In December 1994, after satisfying certain conditions,
the vessel received a certificate of inspection. Also in December 1994, the
Company delivered the final portion of the purchase price (623,334 shares of
Crown common stock) to the seller, Kehl River Boats, Inc. ("KRB"), upon being
notified by the Louisiana gaming regulatory authorities that KRB had been
approved as a 5% or greater shareholder of the Company.
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NOTE E - DEBT
In June 1994 the Company's SCGC subsidiary issued a $28 million Senior Secured
Increasing Rate Note (the "Senior Note") to an institutional investor
("Lender"). The Senior Note is due in June 1995 and carries a 12% coupon
increasing 67 basis points each quarter up to a maximum interest rate of 14%.
The Senior Note was issued with a warrant to purchase 508,414 shares of the
Company's common stock for a period of five years with an original exercise
price of $6.00 per share, which was adjusted to $3.00 per share in December
1994 pursuant to an amendment to the warrant. The proceeds from the private
placement have been allocated between the Senior Note ($26.7 million) and the
warrant ($1.3 million) based upon the relative fair value of each of the
securities at the time of issuance. The resulting original issue discount is
being amortized over the life of the Senior Note using the effective interest
method. In connection with the initial issuance of the Senior Note, the
Company incurred debt issuance costs of approximately $1.6 million.
The Senior Note is collateralized by a first priority perfected security
interest in substantially all the assets of the Company and the agreement
governing the Senior Note ("Note Purchase Agreement") contains covenants
relating to certain business, operational and financing matters, including
requirements that the Company (i) commence gaming operations in Louisiana by
April 30, 1995, (ii) maintain its consolidated net worth and fixed charge
coverage above specified levels, and (iii) observe restrictions on additional
indebtedness and the payment of dividends. The Company and its GEMS subsidiary
also provided full and unconditional guarantees of the Senior Note.
The proceeds from the issuance of the Senior Note and the warrant were
initially placed in escrow. As a result of delays experienced in attempting to
obtain zoning approval for the St. Rose site (see Note H) and related inability
to close on the purchase of such site, on October 7, 1994, the $6.5 million
then remaining in escrow was returned to the Lender and the escrow agreement
was terminated. The Company's inability to withdraw the $6.5 million held in
escrow by September 16, 1994 and the failure to receive a letter of no
objection from the Board of Commissioners of the Ponchartrain Levee District
("Levee District") by September 30, 1994 resulted in events of default under
the Note Purchase Agreement. The receipt of the letter of no objection from
the Levee District was contingent upon the Company closing on the purchase of
the St. Rose site and providing satisfactory indemnification to the Levee
District. The Company obtained waivers of such events of default from the
Lender through October 31, 1994, and effective December 3, 1994 the Company and
its Lender executed an amendment ("Amendment") to the Note Purchase Agreement
eliminating the loan covenants that gave rise to the events of default. In
connection with the execution of the Amendment, the Company agreed to reduce
the exercise price of the warrant held by the Lender from $6.00 per share to
$3.00 per share, and to pay an additional fee of $430,000 payable by the
issuance of a note due in June 1995.
In March 1995, pursuant to the joint venture agreement (See Note I), the
Company borrowed $700,000 from its proposed joint venture partner, Louisiana
Riverboat Gaming Partnership ("LRGP"). The $700,000 note bears interest at
11.5% per annum and is due on the later of i) August 1, 1995, or ii) three
business days after the Senior Note and any related obligations are retired.
NOTE F - CAPITAL LEASES
During the first nine months of fiscal 1995 the Company accepted delivery of
various gaming, surveillance and computer equipment pursuant to capital lease
agreements. As of January 31, 1995 future minimum lease payments under capital
leases were as follows:
Fiscal year ending April 30,
----------------------------
1995 $ 280,797
1996 3,289,216
1997 1,996,033
1998 79,476
1999 79,476
Thereafter 6,624
-----------
Total minimum lease payments 5,731,622
Less amount representing interest (561,415)
-----------
5,170,207
Less current portion (2,704,104)
-----------
Capital lease obligations, less current portion $ 2,466,103
===========
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NOTE G - SALES AND ISSUANCES OF COMMON STOCK
In May 1994 the Company sold 636,700 shares of its common stock resulting in
net proceeds of approximately $3.4 million pursuant to a private placement
under Regulation D of the Securities Act of 1933 ("Securities Act"). On May
31, 1994 the Company filed a registration statement with the Securities and
Exchange Commission to register these and other shares of stock issued by the
Company. On November 8, 1994 this registration statement, covering an
aggregate of 10.1 million shares of its $.01 par value common stock, was
declared effective. Of the total shares being registered, approximately 6.9
million are for the benefit of certain selling shareholders, 1.2 million
represent the underlying shares of outstanding common stock purchase warrants,
and 2.0 million are being offered on a best efforts basis by the Company for
its own account. As of March 15, 1995, the Company had sold a total of 490,000
shares of the 2,000,000 shares being offered by the Company, resulting in gross
proceeds of approximately $ 2.2 million. In February and March 1995, the
Company sold 100,000 shares of its common stock to a foreign investor under the
provisions of Regulation S under the Securities Act resulting in net proceeds
of approximately $320,000.
In March 1995, the Company issued 200,000 shares of its common stock to
Calcasieu Development Corporation ("CDC") in consideration for i) the mutual
release and termination of a prior letter agreement regarding the potential use
of certain land controlled by CDC in the City of Lake Charles that the Company
was considering to use for its riverboat casino site, and ii) obtaining CDC's
cooperation in effecting the Company's development of an alternative site in
Calcasieu Parish. Also in March 1995, the Company issued 50,000 shares of its
common stock, pursuant to a total commitment of 100,000 shares, to a consultant
in partial consideration for services rendered by such consultant. The balance
of such shares (50,000) are due seven business days after opening of the
Calcasieu Parish casino.
NOTE H - CHANGE OF LOUISIANA SITE
The prior site for the casino was located along the bank of the Mississippi
River in St. Rose, Louisiana in St. Charles Parish near New Orleans. In
connection with the proposed St. Charles Parish site, the Company made
application for a change in zoning which was approved by the St. Charles Parish
Planning and Zoning Commission and by the St. Charles Parish Council. However,
the zoning change approval was vetoed by the Parish President on September 9,
1994. On September 16, 1994, the Company filed a petition in the 19th Judicial
District Court in Baton Rouge, Louisiana seeking to enjoin the Parish from
taking any further action on the zoning approval. The suit challenged the
authority of St. Charles Parish to impose local zoning ordinances on riverboat
gaming, which the Company believed to be in direct contradiction to state law.
On October 20, 1994, the Company was granted a preliminary injunction enjoining
the Parish and its officers and employees from interfering with, prohibiting or
restricting the location, operation or development of the riverboat project at
the Company's proposed site in St. Charles Parish. The preliminary injunction
also prohibited the enjoined parties from failing to take any affirmative
action to which the Company was entitled in conducting its activities within
St. Charles Parish. The court held that an ordinance adopted by the Parish
purported to restrict gaming operations in contradiction of state law and held
such ordinance to be unconstitutional on its face.
Following the issuance of the preliminary injunction, the President of St.
Charles Parish requested a suspensive appeal from the 19th Judicial District
Court, the First Circuit Court of Appeals and the Supreme Court of Louisiana.
Both the 19th Judicial District Court and the First Circuit Court of Appeals
denied the request for suspensive appeal. On November 3, 1994, the Supreme
Court of Louisiana ordered that the preliminary injunction be stayed pending
further notice from that court. On November 15, 1994, the Company filed a
motion with the Supreme Court seeking to lift the stay, or in the alternative,
to expedite the decision on the matter. The Supreme Court heard oral arguments
on the matter on December 14, 1994, and on January 17, 1995 reversed the
decision of the trial court, holding that the St. Charles Parish ordinance in
question was not unconstitutional. The Supreme Court remanded the case back to
the trial court for further proceedings.
In light of the potential for protracted legal proceedings in St. Charles
Parish, coupled with the delays already encountered and growing legal expenses,
the Company decided to pursue an alternative site that was investigated by the
Company during the delays in St. Charles Parish. On January 23, 1995, the
Company entered into a letter of intent with LRGP to jointly develop a site on
the Calcasieu River in Calcasieu Parish, Louisiana, near Lake Charles. The
change in site from St. Charles Parish to Calcasieu Parish required the
approval of the Gaming Commission, which was granted on February 8, 1995. On
March 2, 1995, the Company and LRGP entered into a definitive joint venture
agreement (see Note I).
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NOTE I - JOINT VENTURE AGREEMENT
On March 2, 1995 the Company entered into an agreement with LRGP to form a
joint venture to develop the Company's Louisiana casino project (the "Joint
Venture Agreement"). Pursuant to the Joint Venture Agreement, the Company will
sell a 50% interest in SCGC to LRGP in return for i) a five-year $20 million
note (the "LRGP Note"), and ii) $1 million. The sale of a 50% interest in SCGC
requires the approval of the Enforcement Division, which was granted on March
14, 1995. The transaction is expected to be consummated by May 15, 1995.
The LRGP Note will bear interest at 11.5% per annum, and will be secured by
LRGP's 50% interest in SCGC. Interest will be payable monthly for the entire
term of the LRGP Note. Principal is payable in seventeen equal quarterly
installments beginning twelve months after closing, provided that if the
distributions from SCGC to LRGP during any quarter are less than the principal
installment due for such quarter, LRGP will only be obligated to pay the amount
of such distributions and any deficiency will be deferred to the next
installment due under the LRGP Note. All principal and interest not previously
paid will be due and payable five years after closing. The Company will have
the option at any time to convert up to 50% of the principal outstanding on the
LRGP Note (but not more than a total conversion of $5 million in principal
amount) into common stock of Casino America at a conversion rate of $12 per
share.
With the approval of the Company's senior Lender, LRGP loaned certain funds to
SCGC for working capital and casino design planning purposes. In addition,
pursuant to the Joint Venture Agreement, LRGP will lend funds to SCGC, or will
provide a financing source for SCGC, to provide for i) all development costs
relating to the Calcasieu Parish project, ii) monies necessary to buy out the
Century Casinos, Inc. management agreement, and iii) interest due on its senior
debt, in amounts to be agreed upon by LRGP and the Company. The maximum amount
of all loans funded or guaranteed by LRGP will not exceed $45 million. The
loans will be secured by substantially all the assets of SCGC (after the
retirement of SCGC's senior debt) and will bear interest and be repayable on
the same terms as the financing to be obtained by SCGC, with the credit
assistance of LRGP.
Simultaneously with the execution of the Joint Venture Agreement, SCGC entered
into a casino management agreement with a subsidiary of Casino America. The
casino management agreement has a term of 99 years and provides for a
management fee of 2% of "Revenues," as defined in the agreement, (generally net
gaming and other operating revenues less gaming and admission taxes) plus 10%
of "Net Operating Income," as defined in the agreement, but not to exceed a
total of 4% of aggregate "Revenues." In the event the joint venture is not
consummated, the casino management agreement will be terminated. In the event
the Company reacquires LRGP's 50% interest in SCGC, SCGC will have the right to
terminate the casino management agreement.
In addition to the foregoing, the Company has agreed to grant LRGP a right of
first refusal to develop its 18.6 acre parcel of land in the gaming district of
Las Vegas with the Company in the event the Company chooses to develop such
project on a joint venture basis.
The Joint Venture Agreement is subject to certain closing conditions including
the receipt of certain environmental engineering reports and the execution of
leases with respect to the Calcasieu Parish site, as well as a determination of
the Federal Trade Commission not to raise an objection to the consummation of
the transaction. The parties have agreed to use their best efforts to close
the transaction by April 30, 1995, but in no event later than May 15, 1995.
NOTE J - LOUISIANA LICENSE CONDITIONS
In connection with obtaining the Enforcement Division's approval of the
proposed transfer of a 50% interest in SCGC from the Company to LRGP, the
Enforcement Division imposed certain additional conditions to SCGC's Louisiana
gaming license. These conditions require SCGC to i) commence gaming operations
in Calcasieu Parish by October 10, 1995, ii) submit a plan of internal controls
and rules of play to the Enforcement Division at least 120 days prior to the
commencement of gaming operations, iii) exercise due diligence in the
development of its planned hotel in Calcasieu Parish, iv) obtain the
Enforcement Division's finding of suitability of the lessor of the Calcasieu
Parish site, v) obtain the U.S. Army Corps of Engineers approval for the
Calcasieu Parish project, and vi) submit a good faith plan to upgrade
minorities in employment and business opportunities by May 13, 1995.
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NOTE K - COMMITMENTS AND CONTINGENCIES
LITIGATION
On September 21, 1994, an action was filed against the Company in the 24th
Judicial District Court for the Parish of Jefferson, Louisiana by Avondale
Industries, Inc. ("Avondale"). In this action, Avondale alleges that the
Company was contractually obligated to Avondale for the construction of the
Company's riverboat vessel based upon a letter of intent (allegedly reaffirming
a previous agreement entered into between Avondale and the Company). Avondale
alleges that the Company breached a duty to negotiate in good faith toward the
execution of a definitive Vessel Construction Contract. Alternatively,
Avondale alleges that a separate, oral contract for the construction of the
vessel existed and that the Company committed unspecified unfair trade
practices and misrepresentations. Avondale seeks unspecified damages including
"all lost profits and lost overhead" and attorneys fees. The Company intends
to vigorously contest liability in this matter.
COMMITMENTS TO PARISH
In January 1995, the Company made a commitment to Calcasieu Parish to provide
certain payments to the Parish above and beyond the mandatory $2.50 per head
admissions tax. The Company committed to a $1 million initial payment, which
is due and payable upon the opening of the casino, and a $1 million annual
payment for as long as the casino is operating in the Parish, but in no event
less than six years. The commitment contemplates that the parties will enter
into a definitive development agreement wherein the Company anticipates
receiving certain commitments from the Parish to cooperate with and provide
assistance to the Company in obtaining and maintaining necessary permits and
approvals.
OPTION TO LEASE
In January 1995, the Company entered into an option agreement to lease the
Calcasieu Parish site, for which option the Company paid aggregate
consideration of $100,000. The underlying leases have an initial term of five
years with three five year renewal options. During the initial term, the
leases require annual rental payments totaling $850,000, payable monthly.
During the first renewal term, the rent will be increased annually by the
greater of i) 5%, or ii) the percentage increase in the average consumer price
index for Calcasieu Parish, Louisiana for the previous twelve month period.
During the second and third renewal terms, the lessor and the lessee will
attempt to set the rent equal to 100% of the rent paid by other riverboat
gaming operators in Louisiana and Mississippi for comparable property usages,
or if no agreement can be made, then the parties will appoint real estate
appraisers to set the rent for such renewal term. In addition, the Company
will pay all real estate taxes, except for taxes due on the unimproved value of
the property.
NOTE L - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures are as follows for the nine months ended
January 31, 1995 and 1994:
Nine Months Ended January 31,
------------------------------
Continuing operations: 1995 1994
------ ------
Common stock issued in acquisitions $9,582,500
Common stock issued for equipment $1,450,000 550,000
Equipment acquired under capital leases 5,764,838
Equipment acquired with debt 5,000,000
Property acquired in exchange for note receivable 471,465
Retirement of debt with property 200,000
Warrants issued for equipment and services 337,500 321,760
Interest paid, net of amount capitalized 1,953,951 11,303
Discontinued operations:
Cable assets sold for note receivable 250,000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto appearing
elsewhere in this report.
OVERVIEW
The Company is currently developing a riverboat gaming casino in Calcasieu
Parish, Louisiana (near Lake Charles). In addition the Company has purchased
an 18.6 acre tract of land in the gaming district of Las Vegas, Nevada for
development of a hotel and casino. The Company is also actively pursuing
gaming opportunities in other jurisdictions. The Company currently has no
gaming operations. Prior to March 1994 the Company had been engaged in various
facets of the cable and related programming businesses.
In June 1993, the Company completed the acquisition of 100% of the outstanding
common stock of St. Charles Gaming Company, Inc. ("SCGC"), a Louisiana
corporation, which had received preliminary approval from the Louisiana
Riverboat Gaming Commission to construct and operate a riverboat casino. In
March 1994, SCGC received a license with certain conditions from the Louisiana
Riverboat Gaming Enforcement Division of the Office of State Police. In
connection with the acquisition the Company paid $500,000 and issued 1.6
million shares of its common stock. The Company has entered into an agreement
with Louisiana Riverboat Gaming Partnership ("LRGP") to form a joint venture to
operate the Company's riverboat casino in Calcasieu Parish, Louisiana. If such
joint venture is consummated, the Company will sell 50% of the common stock of
SCGC to LRGP for $1,000,000 cash and a $20,000,000 five-year note. See Note I
to the accompanying consolidated financial statements.
In December 1993, the Company acquired 100% of the outstanding common stock of
Gaming Entertainment Management Services, Inc. ("GEMS") which was organized for
the purpose of developing a hotel and casino in Las Vegas, Nevada known as the
Desert Winds Hotel and Casino. GEMS' primary asset was its option to purchase
an 18.6 acre tract of land in the gaming district of Las Vegas. In June 1994
the option was exercised for $10 million and the land was purchased. In
connection with the acquisition, the Company issued 885,000 shares of its
common stock and assumed approximately $585,000 of liabilities.
As a result of the Company's entry into the gaming industry in June 1993 with
the acquisition of SCGC, the Company made the decision to discontinue
operations in the cable programming industry and focus all its efforts on
gaming. During fiscal 1994 the Company sold all its remaining cable related
assets and operations.
RESULTS OF OPERATIONS
As a result of the Company's decision to exit the cable industry, all revenues,
costs and expenses directly related to cable operations have been reclassified
to discontinued operations. Continuing operations principally consist of
corporate general and administrative expenses, gaming pre-opening and
development costs and interest expense.
THREE MONTHS ENDED JANUARY 31, 1995 COMPARED TO THE THREE MONTHS ENDED JANUARY
31, 1994
General and administrative expenses for the three months ended January 31, 1995
increased $164,164 compared to the same period in the prior fiscal year. The
increase was attributable primarily to increased professional fees, personnel
and travel costs associated with the development of the Company's Louisiana
riverboat casino project. Interest expense amounted to $1,756,523 in the
current fiscal quarter, principally attributable to the issuance of the Senior
Note in June 1994 with no comparable amount in the prior fiscal quarter.
Included in interest expense is $885,759 of amortization of deferred financing
costs and the discount from the issuance of the Senior Note. Gaming
pre-opening and development costs for the three months ended January 31, 1995
increased $1,437,487 compared to the same period in the prior fiscal year. The
increase was the result of greater personnel, advertising, legal and training
costs in connection with the anticipated opening of its Louisiana riverboat
casino and development costs outside of Louisiana, whereas in the prior fiscal
year the Company was only in the early stages of development of its Louisiana
riverboat casino project and other projects outside of Louisiana were not being
pursued. In January 1995, the Company made the decision to abandon its site in
St. Charles Parish, Louisiana in favor of a new site in Calcasieu Parish,
Louisiana. As a result of this decision the Company recorded a charge of
approximately $ 3.1 million which represents the write-off of previously
capitalized costs specific to the St. Charles Parish site. During the
development of the Calcasieu Parish site, the Company has taken steps to reduce
its personnel, advertising and certain other costs.
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NINE MONTHS ENDED JANUARY 31, 1995 COMPARED TO THE NINE MONTHS ENDED JANUARY
31, 1994
General and administrative expenses for the nine months ended January 31, 1995
increased $653,243 compared to the same period in the prior fiscal year. The
increase was attributable primarily to increased professional fees, personnel
and travel costs associated with the development of the Company's Louisiana
riverboat casino project. Interest expense amounted to $4,799,569 in the
current period, principally attributable to the issuance of the Senior Note in
June 1994 with no comparable amount in the prior fiscal period. Included in
interest expense is $2,298,499 of amortization deferred financing costs and the
discount from the issuance of the Senior Note. Gaming pre-opening and
development costs for the nine months ended January 31, 1995 increased
$4,604,614 compared to the same period in the prior fiscal year. The increase
was the result of greater personnel, advertising, legal and training costs in
connection with the anticipated opening of its Louisiana riverboat casino,
development costs outside of Louisiana and development activities for a full
nine months in the current fiscal period, whereas in the prior fiscal period
the Company was only in the early stages of development of its Louisiana
riverboat casino project and other projects outside of Louisiana were not being
pursued. In January 1995, the Company made the decision to abandon its site in
St. Charles Parish, Louisiana in favor of a new site in Calcasieu Parish,
Louisiana. As a result of this decision the Company recorded a charge of
approximately $3.1 million which represents the write-off of previously
capitalized costs specific to the St. Charles Parish site. During the
development of the Calcasieu Parish site, the Company has taken steps to reduce
its personnel, advertising and certain other costs.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the development of its Calcasieu Parish riverboat casino,
the Company, with its joint venture partner, expects to incur total project
costs of approximately $79 million including pre-opening expenses. As of
January 31, 1995, the estimated remaining project costs through the opening of
the casino via a temporary terminal facility were approximately $20 million,
including a $4 million buy-out of the Century Casino management agreement.
After the opening of the Casino, the Company expects to expend an additional i)
$7 million to complete the land-based pavilion, ii) $15 million to construct an
approximately 300 room hotel, and iii) $4 million to retire certain project
related payables.
Pursuant to the Company's joint venture agreement, LRGP will be required to
provide, either itself or through a third party financing arranged by it, all
remaining development costs related to the Calcasieu Parish project up to $45
million, which may include the retirement of approximately $22 million of
senior debt of SCGC. See Note I to the accompanying consolidated financial
statements. Capital costs paid after the opening of the Casino are expected to
be financed principally out of cash flows from operations. In the event the
joint venture with LRGP is not consummated, the Company expects to raise the
additional capital necessary to complete the Calcasieu Parish project through
one or more of i) public and/or private sales of its common stock, ii)
obtaining financing from its Lender, or with the consent of its Lender, a third
party, and iii) potentially entering into a joint venture agreement with a
third party.
The estimated cost to complete the Calcasieu Parish project is based upon
preliminary construction plans, which are subject to change. The scope and
resulting costs of the project may vary significantly from that which is
currently anticipated. However, management believes that the Company will be
able to obtain the financing necessary to open the casino as currently
designed, and should a significant change in the cost occur, management
believes the Company and/or LRGP will be able to raise any additional capital
that may be necessary through the issuance of debt, the sale of the Company's
common stock or otherwise. There can be no assurance that LRGP (or in the
event the joint venture with LRGP is not consummated, the Company) will be able
to obtain the financing necessary to complete the Calcasieu Parish project.
In May 1994 the Company sold 636,700 shares of its common stock resulting in
net proceeds of approximately $3.4 million pursuant to a private placement
under Regulation D of the Securities Act of 1933 ("Securities Act"). On May
31, 1994 the Company filed a registration statement with the Securities and
Exchange Commission to register these and other shares of stock issued by the
Company. On November 8, 1994 this registration statement, covering an
aggregate of 10.1 million shares of its $.01 par value common stock, was
declared effective. Of the total shares being registered, approximately 6.9
million are for the benefit of certain selling shareholders, 1.2 million
represent the underlying shares of outstanding common stock purchase warrants,
and 2.0 million are being offered on a best efforts basis by the Company for
its own account. As of March 15, 1995, the Company had sold a total of 490,000
shares of the 2,000,000 shares being offered by the Company, resulting in gross
proceeds of approximately $2.2 million. In February and March 1995, the
Company sold 100,000 shares of its common stock to a foreign investor pursuant
to the provisions of Regulation S under the Securities Act resulting in net
proceeds of approximately $320,000. In May and June of 1994, the Company
accepted delivery of approximately $6 million of gaming, surveillance and
computer equipment with respect to which the vendors have provided capital
lease financing for nearly the full value thereof.
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In June 1994, the Company's SCGC subsidiary completed a private placement of a
$28,000,000 Senior Secured Increasing Rate Note (the "Senior Note") to an
institutional investor (the "Lender"). The Senior Note bears an initial
interest rate of 12% per annum and increases by .67% on a quarterly basis
during its one-year term, up to a maximum of 14%. The Senior Note was issued
to finance a portion of the Company's riverboat casino project, to acquire
certain land in Las Vegas, Nevada (which land was acquired in June 1994) upon
which an additional casino facility may be built, and for general working
capital purposes.
The Senior Note is collateralized by a first priority perfected security
interest in substantially all the assets of the Company, as well as a first
priority perfected security interest in all the outstanding stock of SCGC and
GEMS. The agreement governing the Senior Note (the "Note Purchase Agreement")
contains covenants relating to certain business, operational and financing
matters, including requirements that the Company i) commence gaming operations
in Louisiana by April 30, 1995, ii) maintain its consolidated net worth and
fixed charge coverage above specified levels, and iii) observe restrictions on
additional indebtedness and the payment of dividends. The Company and its GEMS
subsidiary also provided full and unconditional guarantees of the Note.
The proceeds from the issuance of the Senior Note were initially placed in
escrow. At September 30, 1994, $6.5 million remained in escrow subject to
meeting certain escrow conditions and was designated for the purchase of land
at its former riverboat casino site in St. Charles Parish. As a result of
delays experienced in attempting to obtain zoning approval for its former site
and related inability to close on the purchase of such site, on October 7,
1994, the $6.5 million then remaining in escrow was returned to the Lender and
the escrow agreement terminated.
In January 1995, SCGC made a commitment to Calcasieu Parish to provide certain
payments to the Parish above and beyond the mandatory $2.50 per head admissions
tax. SCGC committed a $1 million initial payment, which is due and payable
upon the opening of the casino, and a $1 million annual payment for as long as
the casino is operating in the Parish, but in no event less than six years.
The commitment contemplates that the parties will enter into a definitive
development agreement wherein the Company anticipates receiving certain
commitments from the Parish to cooperate with and provide assistance to the
Company in obtaining and maintaining necessary permits and approvals.
The Company anticipates that shortly after its Calcasieu Parish riverboat
casino becomes operational, it may seek long term financing from public or
private sources to i) provide development capital for the Company's Las Vegas
project, ii) provide capital for potential future developments in other gaming
jurisdictions, and iii) for general corporate purposes. While management
anticipates such third party financing will be available to the Company, there
can be no assurance that any such financing will be available, or, if
available, on terms acceptable to the Company.
Management of the Company is currently evaluating the design and scope of the
Las Vegas hotel and casino project and the anticipated capital requirements
related thereto. Management is considering a variety of scenarios with respect
to the operation and ownership of the proposed hotel and casino, including a
potential joint venture relationship. In connection with the joint venture
with LRGP, the Company will grant LRGP a right of first refusal to develop the
Company's Las Vegas project with the Company in the event the Company chooses
to develop such project on a joint venture basis. Management does not expect
to finalize its plans for the Las Vegas project until the Calcasieu Parish
riverboat casino is fully operational.
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CROWN CASINO CORPORATION
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
The following pro-forma condensed consolidated statement of operations for the
nine months ended January 31, 1994 gives effect to the acquisitions of St.
Charles Gaming Company, Inc. ("SCGC") and Gaming Entertainment Management
Services, Inc. ("GEMS"), as if the acquisitions had occurred on May 1, 1993.
The pro-forma information is based on the historical financial statements of
the Company, SCGC and GEMS, giving effect to the acquisitions under the
purchase method of accounting and the pro-forma adjustments described below.
The pro-forma condensed consolidated statement of operations may not be
indicative of the results that actually would have occurred had the
acquisitions occurred on May 1, 1993 or which may be obtained in the future.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended January 31, 1994
(In thousands, except per share data)
Crown as Pro-forma Pro-forma
Reported Adjustments Consolidated
-------- ----------- ------------
Revenues $ - $ - $ -
Costs, expenses and interest 1,433 634 (a) 2,067
-------- ---------- --------
Loss from continuing operations
before income taxes (1,433) (634) (2,067)
Benefit for income taxes 529 529
-------- ---------- --------
Loss from continuing operations (904) (634) (1,538)
Discontinued operations (193) (193)
--------- ---------- --------
Net loss $ (1,097) $ (634) $ (1,731)
========= ========== ========
Loss per share:
From continuing operations $ (.17) $ (.24)
From discontinued operations (.04) (.03)
-------- --------
$ (.21) $ (.27)
======== ========
Average shares outstanding 5,319 6,370
======== ========
(a) To reflect additional costs and expenses of SCGC and GEMS during
the period which have not been included in the historical results
of Crown, and to record additional amortization expense with
respect to the non- compete agreement entered into in connection
with the acquisition of SCGC.
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CROWN CASINO CORPORATION
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 21, 1994, an action was filed against the Company in the 24th
Judicial District Court for the Parish of Jefferson, Louisiana by Avondale
Industries, Inc. ("Avondale"). In this action, Avondale alleges that the
Company was contractually obligated to Avondale for the construction of the
Company's riverboat vessel based upon a letter of intent (allegedly reaffirming
a previous agreement entered into between Avondale and the Company). Avondale
alleges that the Company breached a duty to negotiate in good faith toward the
execution of a definitive Vessel Construction Contract. Alternatively,
Avondale alleges that a separate, oral contract for the construction of the
vessel existed and that the Company committed unspecified unfair trade
practices and misrepresentation. Avondale seeks unspecified damages including
"all lost profits and lost overhead" and attorneys fees. The Company intends
to vigorously contest liability in this matter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The proceeds from the issuance of the Senior Note and the warrant were
initially placed in escrow. As a result of delays experienced in attempting to
obtain zoning approval for the St. Rose site (see Note H to the accompanying
consolidated financial statements), the Company was unable to withdraw funds
from escrow to close on the purchase of such site. The Company's inability to
withdraw funds held in escrow designated for the purchase of the St. Rose site
by September 16, 1994 and the failure to receive a letter of no objection from
the Board of Commissioners of the Ponchartrain Levee District ("Levee
District") by September 30, 1994 resulted in events of default under the Note
Purchase Agreement. The receipt of the letter of no objection from the Levee
District was contingent upon the Company closing on the purchase of the St.
Rose site and providing satisfactory indemnification to the Levee District.
The Company obtained waivers of such events of default from the Lender through
October 31, 1994, and effective December 3, 1994 the Company and its Lender
executed an amendment to the Note Purchase Agreement eliminating the loan
covenants that gave rise to the events of default.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
2.3.1 Stock Purchase Agreement dated March 2, 1995 by and
between Crown Casino Corporation ("Crown"), St.
Charles Gaming Company, Inc. ("SCGC") and Louisiana
Riverboat Gaming Partnership ("LRGP").
2.3.2 Management Agreement by and between River Services,
Inc. and SCGC.
4.4.13 Waiver to the Note Purchase Agreement dated March 3,
1995.
27 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed in the third fiscal
quarter of the current year.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CROWN CASINO CORPORATION
By: /s/ Mark D. Slusser
-------------------------------------------
Mark D. Slusser
Vice President Finance, Chief Financial
Officer and Secretary
(Principal Financial and Accounting Officer)
Dated: March 16, 1995
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