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EXHIBIT 13.1
ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED APRIL 30, 1996
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF CROWN CASINO CORPORATION
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere in this annual report.
OVERVIEW
The Company owns an 18.6 acre tract of land in the gaming district of Las
Vegas, Nevada which may be used in the development of a hotel and casino, and
in June 1996 the Company entered into a definitive asset purchase agreement to
acquire the Mississippi Belle II, Inc. ("MBII") riverboat casino located in
Clinton, Iowa. The Company is also actively pursuing other gaming
opportunities in these and other jurisdictions. 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 gaming casino.
In March 1994 SCGC received a license from the Louisiana Riverboat Gaming
Enforcement Division of the Office of State Police. In January 1995 SCGC made
the strategic decision to relocate the site for its planned Louisiana riverboat
casino from St. Charles Parish (near New Orleans) to Calcasieu Parish in the
southwest part of the state near the Texas border.
In June 1995 the Company sold a 50% interest in SCGC to Louisiana Riverboat
Gaming Partnership ("LRGP"), a joint venture owned 50% by Casino America, Inc.
("Casino America") and 50% by Louisiana Downs, Inc. LRGP owns the Isle of
Capri(SM) dockside riverboat casino in Bossier City, Louisiana. The purchase
price consisted of (i) a five-year $20 million note (the "LRGP Note"), (ii) $1
million cash, and (iii) a warrant (which may only be exercised by converting a
portion of the LRGP Note) to purchase 416,667 shares of Casino America common
stock at $12 per share. In connection with this transaction the Company
recorded a pretax gain of approximately $21.5 million. In July 1995 SCGC's
riverboat casino opened for business in Calcasieu Parish, Louisiana as an Isle
of Capri(SM) themed property.
In May 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note
B ("Note B"), each in the principal amount of $10 million and bearing interest
at 11.5% per annum, and (iii) an additional five-year warrant to purchase up
to another 416,667 shares of Casino America common stock (bringing the total
number of shares purchasable pursuant to warrants by the Company to 833,334) at
an exercise price of $12 per share. In connection with this transaction, in
May 1996, the Company recorded a gain before income taxes of approximately
$14.9 million.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and issued $315 million of senior secured notes due 2003 (the
"Casino America Bonds"), a portion of the proceeds of which were used to pay
off Note A. As a result of the Casino America transactions, Note B has become
an unsecured, subordinated obligation of Casino America, with interest payable
monthly and principal due in seventeen equal fully amortizing quarterly
payments beginning in June 1997 with final maturity in June 2001. The
subordination language of Note B requires principal and interest payments to be
made according to the terms of the note unless there is a payment default of
(i) principal on, or (ii) interest on and a resulting acceleration of, the
Casino America Bonds, in which case the payments to the Company would be
suspended during the pendency of such default.
The original Casino America warrant received in the sale of the first 50% of
SCGC and the additional Casino America warrant received in the sale of the
remaining 50% of SCGC, both of which expire in May 2001, may only be exercised
by converting all or a portion of the principal amount of Note B based upon a
$12 per share exercise price.
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In connection with a rights offering declared by Casino America, the Company
was granted the right to purchase 684,786 shares of Casino America common stock
at a price of $5.875 per share. On August 6, 1996 the Company exercised its
right and purchased 684,786 shares of Casino America common stock for an
aggregate exercise price of $4,023,118.
In December 1993 the Company acquired 100% of the outstanding common stock of
Gaming Entertainment Management Services, Inc. ("GEMS"), a Nevada corporation,
which was organized for the purpose of developing a hotel and casino in Las
Vegas, Nevada. 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 and the land was purchased. The Company may develop such property by
itself or on a joint venture basis, or, if not developed, may sell the land.
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of the MBII riverboat casino located in
Clinton, Iowa for a purchase price of $40 million. The MBII riverboat contains
approximately 485 slot machines, 20 table games and has on-board dining and
entertainment facilities. For the year ended December 31, 1995 MBII had
revenues and pretax profits of $30.5 million and $9.5 million, respectively.
As a result of the Company's entry into the gaming industry in June 1993, the
Company made the decision to discontinue operations in the cable 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, interest expense, and other charges related to developing
the Company's gaming operations. The following discussion focuses on results
from continuing operations.
Furthermore, as a result of the Company's sale of the first 50% of SCGC on June
9, 1995, from and after such date SCGC's operating results are no longer
consolidated with the Company, but rather are accounted for on the equity
method. Accordingly, operating results for the current and prior fiscal
periods are not entirely comparable.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
General and administrative expenses for fiscal 1996 increased $1,033,755
compared to fiscal 1995. The increase was primarily attributable to greater
personnel, transportation, and consulting and directors fees, offset by a
decrease in professional fees. Gaming development costs for fiscal 1996
decreased $297,077 compared to fiscal 1995 principally as a result of the
Company ceasing to pursue a riverboat gaming license in the State of Illinois.
SCGC pre-opening and development costs for fiscal 1996 decreased $14,272,011
compared to fiscal 1995 as a result of the Company no longer consolidating
SCGC's operating results from and after June 9, 1995.
Interest expense for fiscal 1996 decreased $5,817,826 compared to fiscal 1995.
The decrease was the result of the Company no longer consolidating SCGC's
operating results from and after June 9, 1995. Interest income for fiscal 1996
increased $2,115,707 compared to fiscal 1995. The increase was a result of
interest being recognized in the current fiscal year on the $20 million LRGP
Note at the rate 11.5% per annum, whereas in the prior fiscal year the LRGP
Note was not in existence.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
General and administrative expenses for fiscal 1995 increased $583,006 compared
to fiscal 1994. The increase was primarily attributable to increased
professional fees, personnel and travel costs associated with the development
of
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SCGC's riverboat casino project. Gaming development costs for fiscal 1995
increased $474,453 over fiscal 1994 principally as a result of the Company's
efforts to obtain a riverboat gaming license in the State of Illinois in
anticipation that such state may authorize additional licenses. SCGC
pre-opening and development costs for fiscal 1995 increased $13,865,459
compared to fiscal 1994. The increase was the result of (i) greater personnel,
advertising, legal, consulting and training costs incurred in connection with
the anticipated opening of the Louisiana riverboat casino, (ii) a $3.1 million
charge pertaining to the abandonment of a former site in St. Charles Parish,
Louisiana in favor of a new site in Calcasieu Parish, Louisiana, and (iii) in
connection with the stock purchase agreement with LRGP, a $4 million payment by
SCGC to buy out its casino management agreement such that it could enter into a
new management agreement with Casino America. In addition, fiscal 1995
reflects SCGC pre-opening and development activities for a full year, whereas
in fiscal 1994 the Company was only in the early stages of developing its
Louisiana riverboat casino project.
Interest expense amounted to $6,826,538 in fiscal 1995, principally
attributable to the issuance of SCGC's $28 million Senior Note in June 1994,
with no comparable amount in the prior fiscal period. Included in fiscal 1995
interest expense is $3,376,392 of amortization of debt issuance costs and the
discount from the issuance of the SCGC Senior Note.
LIQUIDITY AND CAPITAL RESOURCES
As of August 6, 1996, after (i) the sale of the Company's remaining 50%
interest in SCGC, (ii) receiving a $10 million prepayment on Note A, and (iii)
purchasing an additional 684,786 shares of Casino America common stock, the
Company's sources of liquidity included (a) $6.1 million in cash, (b) the sale
of all or a portion of the Company's 2,534,786 shares of Casino America common
stock (which stock was valued at approximately $18.4 million on such date), (c)
the sale of Note B, (d) the sale of the Company's Las Vegas land, and (e) the
issuance of debt and/or equity. See "Overview".
In August 1996 Casino America filed a registration statement with the
Securities and Exchange Commission to register the 1,850,000 shares of Casino
America common stock received by the Company in the sale of the Company's
remaining 50% interest in SCGC, which registration statement has not as yet
been declared effective. During the effectiveness of such registration
statement the Company may sell such shares in the open market. The 684,786
shares of Casino America common stock purchased by the Company pursuant to the
Casino America rights offering are freely tradable shares and may be sold by
the Company at any time.
In connection with the proposed acquisition of the MBII riverboat casino the
Company anticipates raising the $40 million purchase price from some
combination of (i) the issuance of $20 million of bank debt, (ii) $6.1 million
of cash on hand, (iii) the sale of all or a portion of the Company's Casino
America common stock, (iv) the sale of the Company's Las Vegas land, and/or (v)
the sale of Note B.
In March 1996 the Company's Board of Directors approved a program to repurchase
up to 500,000 shares (which was amended to 1,000,000 shares in May 1996) of the
Company's common stock from time to time in the open market. At April 30, 1996
the Company had repurchased 25,000 shares pursuant to this program. The timing
and amount of future share repurchases, if any, will depend on various factors
including market conditions, available alternative investments and the
Company's financial position.
Management of the Company continues to evaluate the potential development of a
hotel and casino project on the Company's 18.6 acre tract of land in Las Vegas.
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, but currently has no definitive development plan in
place. In connection with the stock purchase agreement with LRGP, the Company
granted LRGP a right of first refusal, which expires in June 1998, to develop
such project with the Company in the event the Company chooses to develop such
project on a joint venture basis. In addition to seeking an acceptable joint
venture arrangement, the Company has considered selling its Las Vegas land and
has had discussions with certain parties in that regard, although no agreement
has been reached with any party respecting such a sale.
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CONSOLIDATED BALANCE SHEETS CROWN CASINO CORPORATION
April 30,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 668,853 $ 1,692,440
Receivables, net 742,246
Prepaid expenses 49,766 931,935
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Total current assets 1,460,865 2,624,375
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Property and equipment:
Construction in progress 1,565,739
Furniture, fixtures and equipment 1,892,666 8,887,241
Riverboat and barges 15,256,140
Land held for development 16,169,709 16,608,555
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18,062,375 42,317,675
Less accumulated depreciation (194,179) (223,055)
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17,868,196 42,094,620
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Other assets:
Note receivable from LRGP 20,000,000
Non-compete agreement, net 316,674
Debt issuance costs, net 345,963
License costs 9,125,000
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20,000,000 9,787,637
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$ 39,329,061 $ 54,506,632
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 72,773 $ 999,611
Accrued liabilities 819,018 1,038,587
Advances from LRGP 2,179,083
Capital lease obligations 6,329 2,876,632
Current portion of long-term debt 62,676 26,511,603
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Total current liabilities 960,796 33,605,516
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Capital lease obligations, less current portion 2,271,477
Long-term debt, less current portion 918,564
Deferred income taxes 4,000,000 500,000
Investment in SCGC 3,297,043
Common stock pending issuance 200,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized; none issued or outstanding
Common stock, par value $.01 per share, 50,000,000 shares
authorized; 11,650,559 issued and outstanding (11,678,459 in 1995) 116,506 116,785
Additional paid-in capital 41,784,088 41,859,407
Accumulated deficit (11,747,936) (24,046,553)
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Total stockholders' equity 30,152,658 17,929,639
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$ 39,329,061 $ 54,506,632
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See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION
Years Ended April 30,
1996 1995 1994
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Revenues $ - $ - $ -
Costs and expenses:
General and administrative 3,042,074 2,008,319 1,425,313
Gaming development 215,963 513,040 38,587
SCGC pre-opening and development 536,110 14,808,121 942,662
Bourbon Street acquisition abandonment 664,991
Depreciation and amortization 130,556 248,044 370,885
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4,589,694 17,577,524 2,777,447
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Other income (expense):
Interest expense (1,008,712) (6,826,538) (578,320)
Interest income 2,292,596 176,889 197,447
Equity in loss of SCGC (2,408,213)
Gain on sale of 50% of SCGC 21,512,640
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20,388,311 (6,649,649) (380,873)
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Income (loss) from continuing operations before
income taxes 15,798,617 (24,227,173) (3,158,320)
Provision (benefit) for income taxes 3,500,000 (3,902,328) (1,105,933)
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Income (loss) from continuing operations 12,298,617 (20,324,845) (2,052,387)
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Discontinued operations, net of taxes:
Income from discontinued operations 2,949
Loss on disposition of discontinued operations (179,755)
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(176,806)
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Net income (loss) $ 12,298,617 $ (20,324,845) $ (2,229,193)
============ ============= ============
Earnings (loss) per share:
From continuing operations $ 1.03 $ (2.01) $ (.34)
From discontinued operations (.03)
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$ 1.03 $ (2.01) $ (.37)
============ ============= ============
Weighted average common and common
equivalent shares outstanding 11,981,757 10,103,993 5,988,963
============ ============= ============
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN CASINO CORPORATION
Years Ended April 30,
1996 1995 1994
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Operating activities:
Income (loss) from continuing operations $ 12,298,617 $(20,324,845) $(2,052,387)
Adjustments to reconcile income (loss)
to net cash used by operating activities:
Depreciation and amortization 130,556 248,044 370,885
Amortization of debt issuance costs/discount 389,360 3,376,392
Deferred income taxes 3,500,000 (3,940,000) (1,147,500)
Equity in loss of SCGC 2,408,213
Write-down of assets 51,496 3,131,359 421,760
Gain on sale of 50% of SCGC (21,512,640)
Equity securities issued for services 1,562,500
Discount on notes sold 245,086
Changes in assets and liabilities, net of transactions:
Receivables, net (780,747) 592,447 344,534
Prepaid expenses 54,347 (902,259) (113,082)
Accounts payable and accrued liabilities 243,606 1,611,415 96,673
Net effect of discontinued operations 322,357
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Net cash used by operating activities (3,217,192) (14,644,947) (1,511,674)
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Investing activities:
Purchase of assets (4,536,401) (18,897,910) (7,452,047)
Sale of assets 441,023 1,331,374
Acquisitions of SCGC and GEMS, net (869,519)
Sale of 50% of SCGC 1,000,000
Net effect of discontinued operations 869,623
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Net cash used by investing activities (3,095,378) (18,897,910) (6,120,569)
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Financing activities:
Issuance of common stock 23,125 7,403,490 13,298,463
Purchase of common stock (298,723) (55,000) (2,208,000)
Issuance of debt and warrants 1,000,000 32,700,000 700,000
Debt issuance costs (1,633,407)
Advances from LRGP 4,627,897 2,179,083
Payments of debt and capital lease obligations (63,316) (7,137,808) (2,500,000)
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Net cash provided by financing activities 5,288,983 33,456,358 9,290,463
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Increase (decrease) in cash and cash equivalents (1,023,587) (86,499) 1,658,220
Cash and cash equivalents at: Beginning of year 1,692,440 1,778,939 120,719
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End of year $ 668,853 $ 1,692,440 $ 1,778,939
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See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CROWN CASINO CORPORATION
For the Three Years in the Period Ended April 30, 1996
Common Stock Treasury Stock
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Shares Amount Shares Amount
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Balance at April 30, 1993 4,211,230 $ 42,112 687,394 $(587,887)
Issuance of common stock 5,608,389 56,084
Issuance of warrants
Purchase of common stock (220,800) (2,208)
Stock options exercised 87,500 875
Tax benefit of stock options
Net loss
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Balance at April 30, 1994 9,686,319 96,863 687,394 (587,887)
Issuance of common stock 2,650,034 26,501
Issuance of warrants
Purchase of common stock 10,000 (55,000)
Stock options exercised 39,500 395
Cancellation of treasury stock (697,394) (6,974) (697,394) 642,887
Net loss
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Balance at April 30, 1995 11,678,459 116,785 - -
Issuance of common stock 50,000 500
Purchase of common stock (90,900) (909)
Stock options exercised 13,000 130
Net income
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Balance at April 30, 1996 11,650,559 $116,506 - $ -
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See accompanying notes to consolidated financial statements.
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Additional Total
Paid-In Accumulated Stockholders'
Capital Deficit Equity
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Balance at April 30, 1993 $ 4,313,708 $ (57,315) $ 3,710,618
Issuance of common stock 23,347,585 23,403,669
Issuance of warrants 951,664 951,664
Purchase of common stock (770,592) (1,435,200) (2,208,000)
Stock options exercised 67,016 67,891
Tax benefit of stock options 140,000 140,000
Net loss (2,229,193) (2,229,193)
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Balance at April 30, 1994 28,049,381 (3,721,708) 23,836,649
Issuance of common stock 12,418,442 12,444,943
Issuance of warrants 1,989,845 1,989,845
Purchase of common stock (55,000)
Stock options exercised 37,652 38,047
Cancellation of treasury stock (635,913)
Net loss (20,324,845) (20,324,845)
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Balance at April 30, 1995 41,859,407 (24,046,553) 17,929,639
Issuance of common stock 199,500 200,000
Purchase of common stock (297,814) (298,723)
Stock options exercised 22,995 23,125
Net income 12,298,617 12,298,617
----------- ------------ ------------
Balance at April 30, 1996 $41,784,088 $(11,747,936) $ 30,152,658
=========== ============ ============
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CROWN CASINO CORPORATION
A - HISTORY AND DESCRIPTION OF BUSINESS
Crown Casino Corporation and subsidiaries (the "Company") is in the business of
owning, operating and developing casino properties. Presently the Company owns
an 18.6 acre tract of land in the gaming district of Las Vegas, Nevada, which
may be used in the development of a hotel and casino, and in June 1996 the
Company entered into a definitive asset purchase agreement to acquire the
Mississippi Belle II, Inc. ("MBII") riverboat casino in Clinton, Iowa (see Note
O). On June 9, 1995 the Company sold a 50% interest in St. Charles Gaming
Company, Inc. ("SCGC"), which owns and operates a riverboat casino located in
Calcasieu Parish, Louisiana, to Louisiana Riverboat Gaming Partnership ("LRGP")
(see Note C). SCGC was originally acquired by the Company in June 1993 and
remained in the development stage until opening its riverboat casino in July
1995. On May 3, 1996 the Company sold its remaining 50% interest in SCGC to
Casino America, Inc. ("Casino America"). The Company is actively pursuing
gaming opportunities in these and other jurisdictions.
Prior to March 1994 the Company had been engaged in various facets of the cable
programming business.
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. The consolidated
financial statements include the accounts of Crown Casino Corporation and all
of its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Since its acquisition in June 1993 through
June 8, 1995 SCGC was a consolidated subsidiary of the Company. From June 9,
1995 through May 3, 1996 the Company accounted for its 50% ownership in SCGC
using the equity method.
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Casino Pre-opening and Development Costs
All casino pre-opening and development costs are expensed as incurred.
Pre-opening and development costs consist principally of personnel costs,
advertising, insurance, travel, consulting and professional fees.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions,
renewals and improvements are capitalized. Interest costs during construction
of facilities are capitalized. Costs of repairs and maintenance are expensed
as incurred. Depreciation on furniture, fixtures and equipment is computed
using the straight-line method over five to ten years.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk consist principally of a $20 million note receivable from LRGP,
which owns a dockside riverboat casino in Bossier City, Louisiana (see Note C).
In August 1996 $10 million of this receivable was paid off and the balance
became an obligation of Casino America (see Note O). The collectability of
this receivable could be affected by future economic, competitive and
regulatory conditions as they pertain to gaming in the State of Louisiana.
Management believes the remaining receivable is fully collectable.
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Non-Compete Agreement
In connection with the acquisition of SCGC the seller agreed not to compete
with the Company within the Louisiana market for a period of five years. The
cost allocated to such agreement is being amortized over a five year period
using the straight-line method. At April 30, 1995 accumulated amortization
amounted to $183,326.
Debt Issuance Costs
In connection with SCGC's issuance of the Senior Note (see Note E) in June 1994
and amendments to the agreement governing the Senior Note, SCGC incurred debt
issuance costs of approximately $2.5 million. These costs have been amortized
over the one year term of the Senior Note using the effective interest method.
License Costs
License costs principally represent the excess purchase price of acquiring SCGC
over the net identifiable tangible assets. Amortization of these costs began
in July 1995 upon commencement of SCGC's operations.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Treasury Stock
During fiscal 1995 the Company formally canceled all of its shares held in
treasury. The amount credited to additional paid-in capital upon the original
issuance of such shares was estimated to be equal to or greater than the
Company's cost of reacquiring such shares. Accordingly, the carrying value in
excess of the par value of such shares was charged to additional paid-in
capital upon such cancellation.
Employee Stock Options
The Financial Accounting Standards Board has issued a new standard, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that an entity
account for employee stock compensation under a fair value based method.
However, SFAS 123 also allows an entity to continue to measure compensation
cost for employee stock-based compensation plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"). Entities
electing to remain with the accounting under Opinion 25 are required to make
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting under SFAS 123 had been applied. Upon adopting SFAS
123 in fiscal 1997, the Company expects to continue to account for employee
stock-based compensation under Opinion 25.
Earnings (Loss) Per Share
Earnings (loss) per share has been calculated using the weighted average number
of shares outstanding, including common stock equivalents, if dilutive. Fully
diluted per share amounts are substantially the same as primary per share
amounts for the periods presented.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the fiscal 1996 presentation. Amounts associated
with cable activities have been reclassified to discontinued operations.
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C - SALE OF SCGC
On June 9, 1995 pursuant to a definitive stock purchase agreement the Company
sold a 50% interest in SCGC to LRGP, a joint venture owned 50% by Casino
America and 50% by Louisiana Downs, Inc. LRGP owns the Isle of Capri(SM)
dockside riverboat casino in Bossier City, Louisiana. The purchase price
consisted of (i) a five-year $20 million non-recourse note with interest
payable monthly at 11.5% per annum and secured by LRGP's 50% interest in SCGC
(the "LRGP Note"), (ii) $1 million cash, and (iii) a warrant (which may only be
exercised by converting a portion of the LRGP Note) to purchase 416,667 shares
of Casino America common stock at $12 per share. In connection with this
transaction the Company recorded a gain before income taxes of approximately
$21.5 million.
The fair value of the LRGP Note at April 30, 1996 is not readily determinable
since such note was issued in a private transaction and is not traded, nor is
the Company aware of a security with similar terms that does trade. However,
based upon limited discussions with certain investment professionals,
management believes the fair value of the LRGP Note at April 30, 1996 was
approximately $19 million.
On May 3, 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note
B ("Note B"), each in the principal amount of $10 million and bearing interest
at 11.5% per annum, and (iii) an additional five- year warrant to purchase up
to another 416,667 shares of Casino America common stock (bringing the total
number of shares purchasable pursuant to warrants by the Company to 833,334) at
an exercise price of $12 per share. In connection with this transaction, in
May 1996, the Company recorded a gain before income taxes of approximately
$14.9 million.
Casino America has agreed to register the 1,850,000 shares issued to the
Company in order that, providing such registration statement is effective, the
Company may sell such shares in the open market. The Company has given Casino
America an irrevocable proxy on the Casino America stock held by the Company,
and the right of first refusal to purchase any Casino America stock the Company
plans to sell in a single transaction of 500,000 shares or more, or in a series
of related transactions to a single purchaser within a 120 day period. In
connection with a rights offering declared by Casino America, the Company was
granted the right to purchase 684,786 shares of Casino America common stock at
a price of $5.875 per share. On August 6, 1996 the Company exercised its right
and purchased 684,786 shares of Casino America common stock for an aggregate
exercise price of $4,023,118.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and issued $315 million of senior secured notes due 2003 (the
"Casino America Bonds"), a portion of the proceeds of which were used to pay
off Note A. As a result of the Casino America transactions, Note B has become
an unsecured, subordinated obligation of Casino America, with interest payable
monthly and principal due in seventeen equal fully amortizing quarterly
payments beginning in June 1997 with final maturity in June 2001. The
subordination language of Note B requires principal and interest payments to be
made according to the terms of the note unless there is a payment default of
(i) principal on, or (ii) interest on and a resulting acceleration of, the
Casino America Bonds, in which case payments to the Company would be suspended
during the pendency of such default.
The original Casino America warrant received in the sale of the first 50% of
SCGC and the additional Casino America warrant received in the sale of the
remaining 50% of SCGC, both of which expire in May 2001, may only be exercised
by converting all or a portion of the principal amount of Note B based upon a
$12 per share exercise price.
In addition to the foregoing the Company granted LRGP a right of first refusal,
which expires in June 1998, to jointly develop its 18.6 acre tract of land in
the gaming district of Las Vegas, Nevada in the event the Company chooses to
develop such project on a joint venture basis.
14
13
The Company has included 100% of SCGC's operating results in its consolidated
results of operations through June 8, 1995. From and after June 9, 1995 (the
date of sale of 50% of SCGC), the Company has accounted for its investment in
SCGC on the equity method, and accordingly has included its proportionate share
of SCGC's operating results in its consolidated results of operations. The
Company's gain before income taxes on the sale of SCGC is calculated as follows
(in thousands):
Sale of Sale of
First 50% Second 50%
(June 1995) (May 1996)
----------- ----------
Consideration received in sale $ 21,000 $ 12,025
The Company's negative basis in stock sold 889 3,297
Transaction and other costs (376) (388)
-------- --------
Gain before income taxes on sale of SCGC $ 21,513 $ 14,934
======== ========
At April 30, 1996 the Company's investment in SCGC is calculated as follows (in
thousands):
Remaining negative basis in SCGC on June 9, 1995 after sale of 50% $ (889)
The Company's portion of SCGC's loss from June 9, 1995 to April 30, 1996 (2,408)
--------
The Company's investment in SCGC $ (3,297)
========
Since the Company anticipated SCGC would have future income (operations
commenced on July 29, 1995), its investment in SCGC was carried below zero and
is shown as a liability at April 30, 1996. Upon closing of the sale of its
remaining 50% interest in SCGC on May 3, 1996, the Company's investment in SCGC
was eliminated. Other than a guarantee of certain leases, for which the
Company has been indemnified by LRGP and Casino America, the Company is not
liable for any obligations of SCGC.
At April 30, 1996 SCGC had assets, liabilities and shareholders' deficit of
approximately $87 million, $94 million and $7 million, respectively. SCGC's
condensed results of operations for the years ended April 30, 1996 and 1995,
and the period from June 25, 1993 (date of acquisition) through April 30, 1994
are as follows (in thousands):
1996 1995 1994
-------- --------- --------
Revenues $ 57,263 $ - $ -
Costs and expenses 50,958
Pre-opening and development 4,196 14,809 1,182
Depreciation and amortization 3,289 111 334
Interest expense 6,210 6,810
Benefit for income taxes (1,056) (2,828) (573)
-------- --------- --------
Net loss $ (6,334) $ (18,902) $ (943)
======== ========= ========
15
14
D - ACQUISITIONS
In June 1993 the Company acquired 100% of the outstanding common stock of SCGC,
a Louisiana corporation which was organized in January 1993 for the purpose of
developing a riverboat casino project in St. Charles Parish, Louisiana. The
Company paid $500,000 and issued 1.2 million shares of restricted common stock
to the seller in exchange for all of the issued and outstanding common stock of
SCGC and for the seller's agreement not to compete with the Company. In
addition, in connection with the transaction, the Company issued 400,000 shares
of restricted common stock as a finder's fee to a company which has a principal
shareholder who is a director of the Company.
In December 1993 the Company acquired 100% of the outstanding common stock of
Gaming Entertainment Management Services, Inc. ("GEMS"), a Nevada corporation
which was organized in September 1992 for the purpose of developing a hotel and
casino project in Las Vegas, Nevada. GEMS' primary asset was its option to
purchase an 18.6 acre tract of land in the gaming district of Las Vegas located
on the southeast corner of the intersection of Flamingo and Arville. The
option was exercised and the land was purchased in June 1994. In connection
with the transaction, the Company issued 850,000 shares of restricted common
stock to the shareholders of GEMS and issued 35,000 shares of restricted common
stock to an unrelated company as a finder's fee. Prior to the acquisition the
Company loaned GEMS $500,000 which was assumed in the purchase.
The acquisitions have been accounted for using the purchase method of
accounting. The purchase price and purchase price allocations are as follows
(in thousands):
SCGC GEMS
------- -------
Purchase price:
Cash $ 500
Stock issued 5,600 $ 3,982
Other transaction costs 50 20
Liabilities assumed 25 585
------- -------
$ 6,175 $ 4,587
======= =======
Purchase price allocation:
Cash $ 50 $ 80
Non-compete agreement 500
Land purchase option 6,075
License costs 9,025
Deferred income taxes (3,400) (1,568)
------- -------
$ 6,175 $ 4,587
======= =======
The shares issued were valued based upon the trading price of the Company's
stock on the earlier of the date when all material contingencies to the
acquisition were removed or upon closing, discounted to reflect the restricted
nature of the securities. The Company recorded a deferred tax liability to
reflect the difference in basis of the acquired assets and liabilities for
income tax and financial reporting purposes. The activities of SCGC and GEMS
have been included in the Company's results of operations from their respective
dates of acquisition.
In July 1995 the Company entered into a definitive asset purchase agreement to
acquire the Bourbon Street Hotel and Casino located in Las Vegas, Nevada. In
November 1995 the Company determined not to proceed with the acquisition due to
(i) the possibility of more attractive investment opportunities, (ii) the lack
of attractive financing, and (iii) declining margins at the property. In
connection with this decision, the Company wrote off $664,991 of costs and
expenses related to the proposed acquisition.
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of MBII which owns a riverboat casino in
Clinton, Iowa for a purchase price of $40 million (see Note O).
16
15
E - DEBT
At April 30, 1996 and 1995 the Company had the following debt:
1996 1995
--------- ------------
Note payable to bank $ 981,240
Senior Note, net of discount of $118,397 $ 21,811,603
Notes payable to Casino America 4,700,000
--------- ------------
981,240 26,511,603
Less current portion (62,676) (26,511,603)
--------- ------------
Long-term debt, less current portion $ 918,564 $ -
========= ============
In November 1995 the Company issued a $1 million ten year note to a bank which
bears interest at prime plus 1 1/2%, and is collateralized by certain equipment
of the Company. Principal and interest payments of $13,364 are due monthly for
the full ten year term. Management believes the estimated fair value of the
Company's long-term debt at April 30, 1996 approximates its carrying value.
The proceeds have been used for general corporate purposes.
In June 1994 SCGC issued a $28 million Senior Secured Increasing Rate Note (the
"Senior Note") to an institutional investor. The Senior Note was initially due
on June 3, 1995, but was subsequently extended to August 31, 1995 and carried a
12% coupon increasing 67 basis points each quarter up to a maximum interest
rate of 14%. The Senior Note was issued with a five year warrant to purchase
508,414 shares of the Company's common stock. The proceeds from the private
placement were 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 has
been amortized over the life of the Senior Note using the effective interest
method.
SCGC repaid $6.5 million of the Senior Note in October 1994. The balance of
the Senior Note was repaid in August 1995 from the proceeds of $38.4 million of
Senior Secured Increasing Rate Notes (the "New Notes"), issued jointly by SCGC
and LRGP. The New Notes initially became due in July 1996, but can be extended
up to an additional twelve months at the option of the issuers, provided no
event of default has occurred and is continuing, and carry a 12% coupon
increasing 25 basis points each quarter until maturity, and provide for
contingent interest beginning in June 1996 equal to 7.5% of SCGC's and LRGP's
consolidated cash flow, as defined. The New Notes are collateralized by
substantially all of the assets of SCGC and LRGP and contain covenants relating
to certain business, operational and financial matters. The New Notes are not
guaranteed by the Company or any of its subsidiaries.
In March 1995, pursuant to the stock purchase agreement with LRGP, SCGC issued
promissory notes aggregating $4.7 million to Casino America. The notes bear
interest at 11.5% per annum and are due three business days after the New Notes
are paid in full. The notes are not guaranteed by the Company or any of its
subsidiaries.
17
16
F - CAPITAL STOCK
During fiscal 1994 the Company conducted a private placement offering under
Regulation D of the Securities Act of 1933 ("Securities Act") whereby the
Company sold 2,690,056 shares of its common stock to accredited investors which
resulted in gross proceeds of approximately $14.0 million. In connection with
such private placement the Company paid cash finder's fees of approximately
$770,000. In May 1994 the Company sold an additional 636,700 shares of its
common stock in the private placement offering which resulted in gross proceeds
of approximately $3.7 million.
In connection with the purchase of SCGC's riverboat the Company issued 433,333
shares of its common stock during fiscal 1994 to Kehl River Boats, Inc.
("KRB"). During fiscal 1995, after KRB was found suitable by the Louisiana
gaming regulatory authorities, the Company issued KRB the remaining 623,334
shares of its common stock due under the vessel purchase agreement.
During fiscal 1995 the Company sold 915,000 shares of its common stock pursuant
to an effective registration statement resulting in net proceeds of $3,545,500.
In addition, during fiscal 1995 the Company (i) sold 150,000 shares of its
common stock to foreign investors under the provisions of Regulation S under
the Securities Act resulting in net proceeds of $461,406, and (ii) issued a
total of 325,000 shares of its common stock for services rendered and the
termination of a certain letter agreement pertaining to a proposed casino site
in Lake Charles, Louisiana that was ultimately not pursued.
In February 1995 the Company made a commitment to issue 50,000 shares of its
common stock (representing $200,000) to a consultant upon commencement of
SCGC's riverboat gaming operations in Calcasieu Parish, Louisiana. In July
1995 such operations commenced and subsequently the shares were issued.
In March 1996 the Company's Board of Directors approved a program to repurchase
up to 500,000 shares (which was amended to 1,000,000 shares in May 1996) of the
Company's common stock from time to time in the open market. At April 30, 1996
the Company had repurchased 25,000 shares pursuant to this program. The timing
and amount of future share repurchases, if any, will depend on various factors
including market conditions, available alternative investments and the
Company's financial position.
The Company is authorized to issue up to one million shares of $.01 par value
preferred stock in one or more series having such respective terms, rights and
preferences as are designated by the Board of Directors. No preferred stock
has yet been issued.
G - LICENSING
In connection with the proposed acquisition of the assets and operations of
MBII, the Company has applied for an Iowa gaming license.
In connection with the Company's ownership of more than 5% of the outstanding
common stock of Casino America, the Company has made application to the
Mississippi gaming authorities to be approved to be a 5% or greater holder of
such shares.
18
17
H - STOCK OPTIONS AND WARRANTS
Options
The Company has two stock option plans, the 1986 Incentive Stock Option Plan
("1986 Plan") for employees covering 1,250,000 shares of common stock and the
1991 Non-Qualified Stock Option Plan ("1991 Plan") for directors and key
employees covering 250,000 shares of common stock. Stock options are granted
with the exercise price equal to the market value of the Company's common stock
on the date of grant. No options may be granted after September 1996 with
respect to the 1986 Plan, and February 1996 with respect to the 1991 Plan.
Options granted under the Plans expire in the years 1998 through 2006 and
generally are exercisable on the date of grant, with the exception of options
to purchase 225,000 shares which become exercisable from 1997 through 1999. At
April 30, 1996 there were 248,575 shares of common stock available for grant
under the 1986 Plan.
The following is an aggregate summary of the 1986 Plan and 1991 Plan activity
since April 30, 1993:
Number Exercise Price Proceeds
of Shares per Share on Exercise
--------- ------------------- -----------
Outstanding at April 30, 1993 237,143 $ .41 to $ .72 $ 152,813
Granted 507,500 $ 1.41 to $ 7.38 2,903,125
Exercised (77,500) $ .63 to $ 1.41 (62,891)
-------- -----------
Outstanding at April 30, 1994 667,143 $ .41 to $ 7.38 2,993,047
Granted 480,000 $ 3.31 to $ 4.03 1,671,094
Exercised (39,500) $ .41 to $ 1.41 (38,047)
Canceled (310,000) $ 7.31 (2,266,875)
-------- -----------
Outstanding at April 30, 1995 797,643 $ .41 to $ 7.38 2,359,219
Granted 12,500 $ 1.95 24,414
Exercised (18,000) $ 1.41 to $ 3.31 (53,906)
Canceled (25,000) $ 7.31 (182,813)
-------- -----------
Outstanding at April 30, 1996 767,143 $ .41 to $ 7.38 $ 2,146,914
======== ===========
Warrants
During fiscal 1994 and 1995, the Company issued common stock purchase warrants
to a variety of parties in connection with (i) the issuance of SCGC's debt
(558,414 underlying shares), (ii) finder's fees for private placements of
common stock (314,952 underlying shares), (iii) a commitment fee for the
issuance of a commitment letter (160,880 underlying shares), (iv) the purchase
of SCGC's riverboat (100,000 underlying shares), and (v) a certain joint
venture agreement (50,000 underlying shares). The warrants issued were valued
based upon a composite of commonly accepted warrant valuation models.
The following is an aggregate summary of warrant activity since April 30, 1993:
Number of
Underlying Exercise Price Proceeds
Shares per Share on Exercise
---------- --------------- -----------
Outstanding at April 30, 1993 - $ -
Issued 475,832 $ 6.00 to $ 12.00 3,327,420
--------- ----------
Outstanding at April 30, 1994 475,832 $ 6.00 to $ 12.00 3,327,420
Issued 708,414 $ 3.00 to $ 7.25 2,793,992
--------- ----------
Outstanding at April 30, 1995 1,184,246 $ 3.00 to $ 12.00 6,121,412
--------- ----------
Outstanding at April 30, 1996 1,184,246 $ 3.00 to $ 12.00 $6,121,412
========= ==========
All of the warrants became exercisable upon their issuance. The warrants
expire between 1997 and 1999, contain certain anti-dilution provisions and
provide the holders with certain registration rights relative to the underlying
shares.
19
18
I - INCOME TAXES
The provision (benefit) for income taxes from continuing operations was as
follows for the three fiscal years ended April 30, 1996:
Fiscal Fiscal Fiscal
1996 1995 1994
----------- ------------ ------------
Provision (benefit) for income taxes:
Current $ - $ 37,672 $ (43,359)
Deferred 3,500,000 (3,940,000) (1,062,574)
----------- ------------ ------------
$ 3,500,000 $ (3,902,328) $ (1,105,933)
=========== ============ ============
The provision (benefit) for income taxes from continuing operations is
different from the amount computed by applying the statutory federal income tax
rate to income (loss) from continuing operations before income taxes for the
following reasons:
Fiscal Fiscal Fiscal
1996 1995 1994
------ ------ -------
Federal statutory rate 34% (34)% (34)%
State income tax, net of federal benefit (5) (3)
Equity in loss of SCGC 5
Basis difference in SCGC stock (22)
Valuation allowance 23
Other 5 2
----- ----- -----
22% (16)% (35)%
===== ===== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets were as follows:
April 30, April 30,
1996 1995
----------- -------------
Deferred tax liabilities:
Installment sale $ 3,768,841
License costs $ 3,442,030
Land held for development 1,792,255 1,792,255
Other 460,560 19,975
----------- -------------
Total deferred tax liabilities 6,021,656 5,254,260
----------- -------------
Deferred tax assets:
Pre-opening expenses 1,436,428 6,471,000
Net operating loss carryforward 466,510 3,589,150
Barge reserve 269,000
Other 118,718 57,304
----------- -------------
Total deferred tax assets 2,021,656 10,386,454
Valuation allowance (5,632,194)
----------- -------------
Net deferred tax liability $ 4,000,000 $ 500,000
=========== =============
20
19
The Company recorded a valuation allowance for the year ended April 30, 1995 to
reduce the carrying value of certain SCGC deferred tax assets. The valuation
allowance at April 30, 1995 related to management's estimate of the realization
of such deferred tax assets. At April 30, 1996 the Company had a net operating
loss carryforward for tax purposes of approximately $1,372,000 which expires in
2011.
J - LEASES
The Company has certain operating leases for equipment and its office
facilities. As of April 30, 1996 the aggregate rentals due under such leases
were as follows:
Fiscal Amount
------ ---------
1997 $ 66,936
1998 71,400
1999 72,888
2000 77,352
2001 58,014
---------
$ 346,590
=========
Rent expense for all operating leases during the last three fiscal years was as
follows:
Fiscal Fiscal Fiscal
1996 1995 1994
---------- ---------- ----------
Continuing operations $ 62,158 $ 93,888 $ 39,483
Discontinued operations 23,727
---------- ---------- ----------
$ 62,158 $ 93,888 $ 63,210
========== ========== ==========
K - COMMITMENTS AND CONTINGENCIES
Litigation
On September 21, 1994 an action was filed against the Company and SCGC 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 SCGC's
riverboat vessel based upon a letter of intent (allegedly reaffirming a
previous agreement entered into between Avondale and SCGC). 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 made certain misrepresentations. Avondale seeks unspecified
damages including "all lost profits and lost overhead" and attorneys fees.
Avondale has claimed its lost profits and lost overhead amount to approximately
$2.5 million. The Company intends to vigorously contest liability in this
matter. While no assurance can be given as to the ultimate outcome of this
litigation, management believes that this litigation will not have a material
adverse effect on the Company.
Teaming Agreement
In June 1994 the Company entered into a teaming agreement with a group of
individuals for the purpose of pursuing a gaming license in the State of
Illinois. The agreement requires the Company to issue warrants to purchase up
to 250,000 shares of the Company's common stock, and to make certain payments
in cash upon the occurrence of specified events, including the issuance of a
gaming license. The teaming agreement expires in April, 1997.
21
20
Severance Agreements
In July 1996 the Board of Directors of the Company authorized the Company to
enter into severance agreements with three of its executive officers which
provide for payments to the executives in the event of their termination after
a change in control, as defined, of the Company. These agreements will
provide, among other things, for a compensation payment equal to 2.99 times
the annual compensation paid to the executive as well as accelerated vesting of
options under the Company's incentive stock option plan.
Louisiana Local Option Referendum
As of August 6, 1996 the Company was the holder of 2,534,786 shares of Casino
America common stock and a $10 million note receivable from Casino America.
Casino America currently operates four gaming facilities, two in Mississippi
and two in Louisiana. In April 1996 Louisiana gaming statutes were modified to
provide for a local option vote to decide whether or not to continue riverboat
gaming, video draw poker and the New Orleans land-based casino. The vote will
be conducted on a parish by parish basis in November 1996 with separate votes
for each form of gaming. The discontinuation of riverboat gaming in Bossier
Parish or Calcasieu Parish would have a material adverse effect on Casino
America and, to the extent the Company continues to hold securities of Casino
America, the Company. Based upon published polls, the Company believes that
the vote to continue riverboat gaming in the two parishes in which Casino
America operates will be approved.
L - RELATED PARTY TRANSACTIONS
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of MBII, which owns and operates a riverboat
casino in Clinton, Iowa (see Note O). MBII is principally owned by the adult
children of a director of the Company.
During fiscal 1995 the Company entered into a teaming agreement (see Note K)
with an individual who subsequently became a director of the Company. Pursuant
to such agreement the Company issued warrants to purchase 50,000 shares of the
Company's common stock.
During fiscal 1994, in connection with the acquisition of SCGC (see Note D),
the Company issued 400,000 shares of restricted common stock as a finder's fee
to a company whose principal shareholder is a director of the Company. In July
1995 this director became a full-time executive officer of the Company.
The Company incurred legal fees of approximately $121,000, $259,000 and
$218,000 during fiscal 1996, 1995 and 1994, respectively, from a law firm of
which a director of the Company was a partner. In July 1995 this director left
such law firm and became a full-time executive officer of the Company.
During fiscal 1994 the Company paid $24,000 for investment banking services to
a company of which a director of the Company is an officer.
During fiscal 1994 the Company borrowed an aggregate of $700,000 on a
short-term basis from an individual who was a beneficial shareholder of more
than five percent of the Company at the time of such loan.
M - 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, during fiscal 1994 the Company sold all its remaining cable assets
for total consideration of $1,125,000.
22
21
The loss on disposal of the Company's cable operations was as follows:
Loss Before Income
Income Taxes Tax Benefit Net Loss
----------- ---------- ---------
Loss on disposal of cable operations $(239,925) $(81,575) $(158,350)
Operating loss from July 1993 to
February 1994 (disposal date) (32,432) (11,027) (21,405)
--------- -------- ---------
$(272,357) $(92,602) $(179,755)
========= ======== =========
The identifiable revenues and expenses from cable operations have been
reclassified on the accompanying statements of operations from their historical
classification to separately identify them as the net results of discontinued
operations. Discontinued operations include allocations of general and
administrative expenses that were determined to be directly related to such
operations. The condensed statements of operations for discontinued operations
for fiscal year 1994 are as follows:
Fiscal 1994
---------------------------
May-June July-April
(Pre-measure- (Post-measure-
ment Date) ment Date)
---------- ----------
Revenues $ 192,313 $ 412,050
Costs and expenses 187,845 444,482
Loss on disposal of cable operations 239,925
---------- ----------
Income (loss) before income taxes 4,468 (272,357)
Provision (benefit) for income taxes 1,519 (92,602)
---------- ----------
Net income (loss) $ 2,949 $ (179,755)
========== ==========
N - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures are as follows for the three fiscal years
ended April 30, 1996:
Fiscal Fiscal Fiscal
1996 1995 1994
----------- ---------- ----------
Continuing operations:
Note received for sale of 50% of SCGC stock $20,000,000
Common stock issued in acquisitions $9,582,500
Common stock issued for equipment $1,450,000 550,000
Common stock issued for services and other 1,300,000
Equipment acquired under capital leases 5,778,767
Equipment acquired with debt 5,000,000
Note payable converted to common stock 3,000,000
Note payable exchanged for land 471,465
Retirement of debt with property 200,000
Warrants issued for equipment and services 337,500 951,664
Interest paid, net of amount capitalized 922,801 6,132,059 11,474
Income taxes paid, net of refunds (124,328) (141,359)
Discontinued operations:
Cable assets sold for note receivable 250,000
23
22
O - SUBSEQUENT EVENTS
On May 3, 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for Note A and Note B, each in the
principal amount of $10 million, and (iii) an additional five-year warrant to
purchase up to another 416,667 shares of Casino America common stock (bringing
the total number of shares purchasable pursuant to warrants by the Company to
833,334) at an exercise price of $12 per share. In connection with this
transaction, in May 1996, the Company recorded a gain before income taxes of
approximately $14.9 million (see Note C).
On June 11, 1996 the Company entered into a definitive asset purchase agreement
to acquire the assets and operations of Mississippi Belle II, Inc. ("MBII") for
a purchase price of $40 million. The MBII riverboat casino, located in
Clinton, Iowa, has been owned and operated by the Kehl family, and has been
profitable since its opening in June of 1991. The MBII riverboat contains
approximately 485 slot machines, 20 table games, and has on-board dining and
entertainment facilities. In connection with the agreement the Company will
enter into employment agreements with certain members of the Kehl family
whereby MBII's existing management will continue to operate the Clinton
facility. Closing of the transaction is subject to certain conditions
including obtaining the approval of the Iowa Racing and Gaming Commission. For
the year ended December 31, 1995 MBII had revenues and pretax profits of $30.5
million and $9.5 million, respectively.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and paid off Note A in the amount of $10 million which was due
from LRGP to the Company. Also in August 1996, pursuant to a rights offering
of Casino America, the Company exercised its right and purchased 684,786 shares
of Casino America common stock for an aggregate purchase price of $4,023,118 or
$5.875 per share.
24
23
REPORT OF INDEPENDENT ACCOUNTANTS Crown Casino Corporation
Stockholders and Board of Directors
Crown Casino Corporation
We have audited the accompanying consolidated balance sheets of Crown Casino
Corporation and subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended April 30, 1996. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Crown
Casino Corporation and subsidiaries as of April 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 30, 1996 in conformity with generally
accepted accounting principles.
Dallas, Texas Coopers & Lybrand L.L.P.
August 6, 1996
25
24
COMMON STOCK INFORMATION, DIVIDENDS AND Crown Casino Corporation
RELATED STOCKHOLDER MATTERS
The Company's common stock is authorized for quotation on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") Small
Cap Market under the NASDAQ symbol DICE. The following table sets forth, by
fiscal quarter, the high and low bid prices reported by NASDAQ for the
Company's common stock for the periods indicated. The bid quotation
information presented represents prices between dealers and does not include
retail mark-ups, mark-downs, or other fees or commissions and may not represent
actual transactions.
Fiscal 1996 Fiscal 1995
----------------- ----------------
High Low High Low
-----------------------------------------------------------------------------
First quarter $6 5/16 $4 3/4 $7 1/2 $5 5/8
Second quarter 5 5/8 2 7/8 8 3/8 4 1/8
Third quarter 3 1/16 1 5/8 7 2 7/8
Fourth quarter 2 3/16 1 7/16 5 3/4 3 1/4
As of July 1, 1996, there were approximately 1,823 stockholders of record.
This number excludes individual stockholders holding stock under nominee
security position listings.
Since its inception the Company has paid no dividends on its common stock. The
Company currently intends to follow a policy of retaining earnings to finance
future growth. Payment of dividends in the future will be determined by the
Company's Board of Directors and will depend upon, among other things, the
Company's future earnings, operations, capital requirements and surplus,
general financial condition, and contractual restrictions that may exist, and
such other factors as the Board of Directors may deem relevant.
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SELECTED FINANCIAL DATA
The financial data set forth below was derived from the audited consolidated
financial statements of the Company and should be read in conjunction with the
consolidated financial statements and related notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere herein. (In thousands, except per share amounts.)
YEARS ENDED APRIL 30, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
Revenues from:
Continuing operations $ - $ - $ - $ - $ -
Discontinued operations - - 604 1,347 11,618
Income (loss) from:
Continuing operations $ 12,298 $ (20,325) $ (2,052) $ (263) $ (380)
Discontinued operations (177) (145) 2,701(a)
---------- --------- --------- --------- -------
$ 12,298 $ (20,325) $ (2,229) $ (408) $ 2,321
---------- --------- --------- --------- -------
Income (loss) per share:
Continuing operations $ 1.03 $ (2.01) $ (.34) $ (.07) $ (.10)
Discontinued operations (.03) (.04) .73
---------- --------- --------- --------- -------
$ 1.03 $ (2.01) $ (.37) $ (.11) $ .63
---------- --------- --------- --------- -------
Total assets(b) $ 39,329 $ 54,507 $ 30,974 $ 4,388 $ 5,477
Long-term obligations 919 2,271 2,330 - -
Stockholders' equity 30,153 17,930 23,837 3,711 4,196
Shares outstanding 11,650 11,678 8,999 3,524 3,689
(a) - Includes a gain on the sale of certain cable assets of $5.7 million
before income taxes.
(b) - Assets related to discontinued operations are shown net of related
liabilities.
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