FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission file number 0-22450
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For quarter ended Commission File Number
COUNTRY WORLD CASINOS, INC.
(Name of Small Business Issuer in its charter)
Nevada 13-3140389
(State of jurisdiction of incorporation) (IRS Employer I.D. Number)
200 Monument Road, Suite 10, Bala Cynwyd, Pennsylvania 19004
(Address of principal executive offices)
Registrant's telephone number (610) 617-9990
Check whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period as 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 class of
common stock. The Registrant had 14,331,687 shares of its common stock
outstanding as of March 31, 1998.
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of March 31, 1998 (Unaudited). . . . . . . 1 - 2
Statements of Operations for the nine months ended
March 31, 1998 and 1997 and for the period from
November 9, 1982 (Date of Inception) through
March 31, 1998 (Unaudited). . . . . . . . . . . . . . . . 3
Statements of Stockholders' Equity (Unaudited). . . . . . . 4 - 6
Statements of Cash Flows for the nine months ended
March 31, 1998 and 1997 and For the period from
November 9, 1982 (Date of Inception) through
March 31, 1998 (Unaudited). . . . . . . . . . . . . . . . 7 - 9
Notes to Financial Statements (Unaudited) . . . . . . . . . 10
Item 2. Management's Discussion and Analysis or Plan of Operation 11 - 15
Part II: OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 16 - 18
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 19
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . 20
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET AS OF MARCH 31, 1998 (UNAUDITED)
ASSETS:
CURRENT ASSETS:
Cash 66
Prepaid Interest 61,290
Prepaid Expenses 37,500
Due From Parent 8,706
TOTAL CURRENT ASSETS 107,562
PROPERTY AND EQUIPMENT:
Land 7,475,476
Casino Under Development 9,587,413
Furniture and Fixtures 38,888
Total 17,101,777
Less Accumulated Depreciation (21,774)
Total Property and Equipment 17,080,003
OTHER ASSETS
Deposits 35,630
TOTAL ASSETS $17,223,195
See Notes to Financial Statements
1
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET AS OF MARCH 31, 1998 (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable 3,003,678
Payroll and Property Taxes Payable 139,652
Accrued Expenses 7,000
Accrued Interest - Related Parties 250,065
Notes Payable - Related Parties 2,853,610
TOTAL CURRENT LIABILITIES 6,254,005
LONG-TERM LIABILITIES:
Notes Payable 2,650,000
Notes Payable - Related Party 2,350,000
TOTAL LONG-TERM LIABILITIES 5,000,000
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock. Series A. $.001 Par
Value 2,250,000 Shares Authorized, 2,250,000
Shares Issued and Outstanding (Liquidation
Preference $7,492,500) 2,250
Common Stock, $.001 Par Value, 75,000,000 Shares
Authorized, 14,331,687 Issued and Outstanding 14,332
Convertible Preferred Stock, Class B, $.25 Par
Value, 5,000,000 Shares Authorized, 4,000,000
Shares Issued and Outstanding (Liquidation
Preference $1,000,000) 1,000,000
Additional Paid-in Capital 10,216,474
Deficit Accumulated During the Development Stage (5,263,866)
TOTAL STOCKHOLDERS' EQUITY 5,969,190
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,223,195
See Notes to Financial Statements
2
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM
NOVEMBER 9, 1982
(DATE OF INCEPTION)
NINE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
1998 1997 1998
COSTS AND EXPENSES:
Research and Development Costs $ $ $ 122,000
Loss on Non-Marketable Securities 85,000
Write-Off of Loan Receivable 90,000
General and Administrative Expenses 818,605 410,530 4,055,643
Management Fee - Related Party 408,000
Depreciation 4,743 4,672 47,257
TOTALS 823,348 415,202 4,807,900
OTHER INCOME (EXPENSE):
Interest Income 14,678 26,079 109,490
Interest Expense (92,267) (3,931) (163,712)
Professional Fees-Due to Bankruptcy (23,083) (514,757)
Forfeited Deposit (100,000)
Other Income 735 45,861
TOTALS (100,672) 22,883 (623,208)
(Loss) from Continuing Operations
Before Discontinued Operations
and Extraordinary Item (924,020) (392,319) (5,431,018)
DISCONTINUED OPERATIONS:
Gain on Disposal of Subsidiaries 389,286
(Loss from Discontinued Operations (389,286)
Total Discontinued Operations
(LOSS) BEFORE EXTRAORDINARY ITEM (924,020) (392,319) (5,431,018)
EXTRAORDINARY ITEM:
Extraordinary Gain on Forgiveness of Debt 167,152
NET (LOSS) $ (924,020)$(392,319) $ (5,263,866)
PER SHARE DATA:
Net (Loss) Per Common Share $ (0.07) (0.06)
WEIGHTED AVERAGE NUMBER OF SHARES 13,488,243 6,694,097
See Notes to Financial Statements
3
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Preferred Stock Common Stock Additional During the Stock-
Series A Series B Subscribed Paid-In Development holders'
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity
,
November 9, 1982 (Date
of Inception) $ $ $ $ $ $ $
Issuance of Shares for
Cash ($.51 Per Share) 2,971 15 1,510 1,525
Issuance of Common Stock
to the Public ($12.50
Per Share) 1,474 8 644,992 645,000
Deferred Offering Costs (115,690) (115,690)
Cancellation of Common Stock (800) (4) 4
Issuance of Shares for Services
($.18 Per Share) 85,714 429 14,571 15,000
Issuance of Common Stock at a
Discount ($.02 Per Share) 1,339,212 6,696 13,304 20,000
Capital Contribution 2,850 2,850
Net Loss for the Period From
November 9, 1982 (Date of
Inception) Through
June 30, 1992 (221,169) (221,169)
BALANCE - JUNE 30, 1992 1,428,571 7,144 561,541 (221,169) 347,516
Issuance of Common Stock at
a Discount for Services
($.02 Per Share, May 1993 714,287 3,571 8,929 12,500
Net Loss for Year Ended
June 30, 1993 (373,401) (373,401)
BALANCE - JUNE 30,
1993 - FORWARD $ $ 2,142,858 $10,715 $ $570,470 $ (594,570) $(13,385)
See Notes to Financial Statements
4
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Preferred Stock Common Stock Additional During the Stock-
Series A Series B Subscribed Paid-In Development holders'
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity
BALANCE - JUNE 30,
1993 - FORWARD $ $ 2,142,858 $10,715 $ $570,470 $(594,570) $(13,385)
Change in Par Value
from $.005 to $.001 (8,572) 8,572
Issuance of Shares for
Cash September 1993
($1.00 Per Share) 600,000 600 599,400 600,000
Issuance of Shares for
Cash September 1993
($1.00 per Share 1,500,000 1,500 1,498,500 1,500,000
Issuance of Convertible
Preferred Stock for
Acquisition of Land
Valued at $1.00 Per
Share Issued July 1993 2,250,000 2,250 2,247,750 2,250,000
Issuance of Stock to
Related Party for Cash
and Services Pursuit to
Exercise of Options
($1.00 Per Share) 250,000 250 249,750 250,000
Purchase and Cancellation of
Treasury Stock ($1.00 Per Share (125,000) (125) (124,875) (125,000)
Issuance of Stock for Cash
(140,000 Shares and 60,662
Shares Issued December 1993
and January 1994, Respectively)
at $2.50 Per Share 200,000 200 499,800 500,000
Balance of Common Stock for
Acquisition of Land Valued at
$1.00 Per Share Issued June 1994 250,000 250 249,750 250,000
Issuance of Common Stock for
Cash and Services Pursuant
to Exercise of Options (75,000
Shares and 20,000 Shares Issued
April and June 1994 Respectively
at $2.50 Per Share) 95,000 95 237,405 237,500
Issuance of Common Stock for
Services Rendered Valued at
$2.50 Per Share Issued April 1994 200,000 200 499,800 500,000
Subscription of Common Stock
Pursuant to Private Placement
Offering ($3.00 Per Share) 262,667 263 787,737 788,000
Net Loss for Year Ended
June 30, 1994 (1,490,785) (1,490,785)
BALANCE - JUNE 30,
1994 - FORWARD 2,250,000 $ 2,250 $ 5,113,520 $ 5,113 262,667 $ 263 $7,324,059 $(2,085,355) $5,246,330
See Notes to Financial Statements
5
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Preferred Stock Common Stock Additional During the Stock-
Series A Series B Subscribed Paid-In Development holders'
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity
,
BALANCE - JUNE 30,
1994 - FORWARD 2,250,000 $ 2,250 $ 5,113,520 $ 5,113 262,667 $ 263 $7,324,059 $(2,085,355) $5,246,330
Issuance of Common Stock
Pursuant to Private
Placement Offering
($2.67 Per Share) 460,000 460 1,229,040 1,229,500
Issuance of Stock for
Outstanding Note
Issued April 20, 1995
($.20 Per Share) 5,000,000 5,000 1,009,451 1,014,451
Convert Subscribed Stock
to Common and Record Fees 262,667 263 (262,667) (263)
Net Loss for Year Ended
June 30, 1995 (757,659) (757,659)
BALANCE - JUNE 30, 1995 2,250,000 $ 2,250 10,836,187 10,836 9,562,550 (2,843,014) 6,732,622
Net Loss for Year Ended
June 30, 1996 (416,440) (416,440)
BALANCE - JUNE 30, 1996 2,250,000 $ 2,250 10,836,187 10,836 9,562,550 (3,259,454) 6,316,182
Issuance of Preferred Stock -
Class B in Exchange for
Related Party Debt ($.25
Per Share) April 1997 4,000,000 1,000,000 ,000,000
Common Stock Issued in
Exchange for Debt ($.25
Per Share) April 1997 1,250,000 1,250 248,750 250,000
Warrants Issued for 1,000,000
Shares of Common Stock in
Connection with Norlar, Inc.
Debt Financing ($.06 Per Warrant 60,000 60,000
Net Loss for Year Ended
June 30, 1997 (1,080,391)(1,080,391)
BALANCE - JUNE 30,
1997 2,250,000 2,250 4,000,000 1,000,000 12,086,187 12,086 9,871,300 (4,339,845) 6,545,791
Issuance of Common Stock for
Services Rendered Valued
at $.20 per Share, July 1997 1,000,000 1,000 199,000 200,000
Issuance of Common Stock in
Exchange for Debt and
Services to be Rendered
($.1875 Per Share) September 1997 395,500 396 73,761 74,157
Issuance of Common Stock for
Services Rendered and Debt
Exchange ($.086 Per Share)
March 1998 85,000 850 72,413 72,263
Net Loss for the Nine Months
Ended March 31, 1998 (924,020) (924,020)
BALANCE-MARCH 31, 1998 2,250,000 $2,250 4,000,000 $1,000,000 14,331,687 $14,332 $ $10,216,474 $(5,263,866)$5,968,190
See Notes to Financial Statements
6
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD FROM
NOVEMBER 9, 1982
(DATE OF INCEPTION)
NINE MONTHS ENDED THROUGH
MARCH 31, MARCH 31,
1998 1997 1998
OPERATING ACTIVITIES:
Continuing Operations:
(Loss) Before Extraordinary Item $(924,020) $(392,319) $(5,431,017)
Adjustments to Reconcile Net
(Loss) to Net Cash
(Used for) Operating Activities:
Depreciation 4,743 4,672 47,257
Amortization of Discount 45,000 60,000
Common Stock Issued for Interest 14,451
Common Stock Issued for Services 933,307
Loss on Marketable Securities (85,000)
Write Off of Loan Receivable (90,000)
Extraordinary Item 167,152
Accrued Interest Related Parties 52,514
Allocation of Management Fees 408,000
Changes in Assets and Liabilities:
(Increase) Decrease in:
Noncurrent Assets (35,630)
Prepaid Interest 11,850 (61,290)
Prepaid Expenses (37,500) 562,500 (37,500)
Due from Parent (8,706) (8,706)
Increase (Decrease) in:
Accounts Payable 2,965,563 (638,193) 3,003,678
Payroll and Property Taxes
Payable 44,191 139,652
Accrued Interest 74,122 250,065
Accrued Expenses (21,778) (461,062) 7,000
Discontinued Operations:
Net (Loss) (389,286)
Adjustment to Reconcile Net (Loss)
to Net Cash (used for) Operating
Activities:
Gain on Disposal of Assets 389,286
Total Adjustments 3,173,292 (532,083 4,800,580
NET CASH USED PROVIDED BY
OPERATING ACTIVITIES - FORWARD 2,249,272 (924,402) (630,437)
See Notes to Financial Statements
7
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD FROM
NOVEMBER 9, 1982
(DATE OF INCEPTION)
NINE MONTHS ENDED THROUGH
DECEMBER 31, MARCH 31,
1998 1997 1998
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES - FORWARDED $ 2,249,272 (924,402) (630,437)
INVESTING ACTIVITIES:
Purchase of Land and Payment
of Casino Development Costs (4,193,334) (346,966) (9,408,205)
Disposal (Purchase) of Furniture
and Fixtures 5,209 (52,197)
Investment in Patents (62,000)
Deposits and Other (35,000) (35,630)
(Increase) Decrease in
Restricted Cash 1,817,213
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (4,223,125) 1,470,247 (9,558,032)
FINANCING ACTIVITIES:
Payment of Capital Lease Obligation (4,233)
Proceeds from Long-Term Borrowings 6,000,000
Advances to/from Related Party 1,731,732 580,164 2,853,610
Repayments on Borrowings (14,382) (1,111,353) (4,136,140)
Proceeds from Stock and Warrant
Issuance 251,613 5,472,448
Capital Contribution 2,850
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 1,968,958 (531,189) 10,188,535
Net Increase (Decrease) in Cash (4,895) 14,655 66
Cash - Beginning of Period 4,961 6,291
Cash - End of Periods $ 66 $ 20,946 $ 66
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the nine months ended March 31, 1998 and 1997 was $0 and
$3,931 respectively, net of interest capitalized. No income taxes were paid
during the nine months ended March 31, 1998 and 1997.
See Notes to Financial Statements
8
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW (UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Notes to Financial Statements
9
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
[1] Summary of Significant Accounting Policies
Significant accounting policies of Country World Casinos, Inc. are set
forth in the Company's Form 10-KSB for the period ended June 30, 1997, as
filed with the Securities and Exchange Commission.
[2] Business of Reporting
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements include
all adjustments (consisting of normal recurring items) which are considered
necessary for a fair presentation. Operating results for the nine months
ended March 31, 1998 and 1997 are not necessarily indicative of the results
that may be expected for the year June 30, 1998. It is suggested that these
financial statements be read in conjunction with the financial statement and
notes for the period ended June 30, 1997, included in the Country World
Casinos, Inc. Form 10-KSB.
[3] Earnings Per Share
Earnings per share are based on 13,488,243 and 6,694,097 shares
outstanding for the nine months ended March 31, 1998 and 1997, respectively.
Such amounts of shares represent the weighted average number of shares
outstanding for the periods. The effect of outstanding warrants and
convertible preferred stock were not included in the calculations.
10
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CERTAIN STATEMENTS INCLUDED HEREIN OR INCORPORATED BY REFERENCE CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). THE COMPANY DESIRES TO TAKE
ADVANTAGE OF CERTAIN "SAFE HARBOR" PROVISIONS OF THE REFORM ACT AND IS
INCLUDING THIS SPECIAL NOTE TO ENABLE THE COMPANY TO DO SO. FORWARD-LOOKING
STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS PART INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH WOULD CAUSE THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS
TO DIFFER MATERIALLY FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING
STATEMENTS.
In order to begin the process of timely completing its goals the Company
has contracted with Colorado Gaming Development Company, Inc., Semple Brown
Roberts, P.C. and PCL Construction Services, Inc., all of Denver, Colorado to
design and construct the planned casino and hotel complex. In addition, the
Company has signed a management agreement with Signature Hospitality
Resources, Inc. of Denver, Colorado to manage its Radisson Black Hawk Hotel, a
separate agreement to use the national flag of Radisson on the hotel and a
management agreement with Luciani & Associates, LLC. of Atlantic City, New
Jersey, to manage the casino operations. All parties will assist the
architect in design of their respective operations. The agreement with
Luciani & Associates, LLC has expired and they have advised the Company of
such in writing in February 1998. The Company is confident that once
financing has been secured, it will be able to renegotiate a new agreement.
The Company is engaged in the design, development and construction of the
Radisson Hotel and Country World Casino (the "Hotel Casino") in Black Hawk,
Colorado. The planned Hotel Casino will be a seven story complex, featuring
five stories of hotel rooms above a two-story, 75,000 square foot casino, and
an underground parking garage. Other amenities will include one or more full
service restaurants, a buffet, entertainment lounge and retail shops. When
completed as planned, the Hotel Casino will be largest hotel and casino
complex in Colorado. Construction and opening of the Hotel Casino is
dependent upon the Company's ability to successfully raise the required
capital. The Company is seeking $79,500,000 of debt or equity financing.
There can be no assurance, however, that the Company will be successful in
raising such financing or that the proceeds of such financing will be
sufficient to complete construction and provide working capital for the
opening and operation of the Hotel Casino.
The casino level of the project, at approximately 75,000 square feet,
will be the largest in Colorado and will be capable of accommodating 1,800
slot machines and 32 gaming tables. The Company intends to open the facility
with approximately 1,000 slot machines, 20 blackjack tables and 12 poker
tables,
11
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
and may add up to 800 additional slot machines if management determines that
the additional gaming devices will produce equal per square foot revenue and
will not create excess capacity. The Company expects that slot machines will
be the greatest source of its gaming revenues. Slot machines are less labor
intensive and require less square footage than table games, while generating
higher profit margins.
Based on the present design, the Country World Casino's atmosphere will
feature a country western music theme similar to the rock and roll music theme
successfully employed by the Hard Rock Cafe. The Casino decor will include
memorabilia from the great country singers, both past and present, with a star
walk of their own. The country western music theme has not been established
in the Black Hawk/Central City, Colorado gaming market, and therefore will
give the Country World Casino its own unique identity. Management believes
that as casinos have become more numerous, the gaming industry has begun to
recognize that popular themes and amenities such as quality dining and hotel
accommodations play an important role in attracting customers to casinos. The
theme is intended to appeal to the Hotel Casino's target customer base, which
consists primarily of residents of the Denver metropolitan area as well as
other Colorado communities located within driving distance of Black Hawk.
The Radisson Black Hawk Hotel will provide overnight accommodations with
290 standard rooms and 35 suites, making it the first destination resort of
its kind in Black Hawk. Complimenting both the casino and hotel will be a
three story 865 car underground parking facility featuring both valet and self
parking options, and the only covered on-site bus turnaround in Black Hawk for
the convenience of day trip customers.
Black Hawk is a picturesque mountain town approximately 40 miles west of
Denver. In the past year, Black Hawk hosted approximately 3 million visitors
and generated almost 60% of the state's gaming revenues. The 112,000 square
foot Hotel Casino site on the northern most end of the Black Hawk gaming
district is in a most highly visible location as it is in a direct line of
site to all visitors approaching Black Hawk's main intersection on State
Highway 119. The seven story structure will tower high above all existing
facilities. The Black Hawk and nearby Central City casino market includes
many small, privately held gaming facilities that the Company believes offer
limited amenities and are characterized by a shortage of convenient on-site
parking. There are a few large facilities currently operating with varying
levels of services and amenities, as well as new facilities planned. The
Country World Casino's country western music theme, country hospitality, ample
parking, modern hotel accommodations and a full line of amenities, will set it
apart from, and should give it a competitive advantage over, the other casinos
in the Black Hawk/Central City market.
The Hotel Casino complex will be designed and constructed pursuant to a
guaranteed maximum price agreement which will be finalized prior to
construction. The design and construction team consists of Semple Brown
Roberts, P.C., a Denver based architectural firm (the "Architect") and PCL
Construction Services, Inc., a multi-billion dollar North American
12
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
construction firm with U.S. headquarters located in Denver. The Architect is
the designer of Fitzgerald's Casino in Black Hawk, while the Contractor's
gaming credits include the MGM Grand Hotel Casino and Stratosphere Tower in
Las Vegas, Nevada, as well as the Chinook Winds Gaming and Convention Center
in Lincoln City, Oregon.
The Company has incurred substantial net losses to date. Insofar as the
Company has not completed its casino facility, it has received no revenues
from operations from these planned business activities. The Company's
financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company's ability to
continue in existence is dependent upon its ability to obtain additional
long-term financing and achieve profitable operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset or liability amounts which might be necessary
should the Company be unable to continue in existence.
During the nine months ended March 31, 1998, the Company had general and
administrative expenses of $818,605, depreciation expense of $4,743, interest
expense of $92,267 and legal fees incurred for its bankruptcy proceedings of
$23,083. The Company remains in the development stage and has incurred a loss
from inception thorough March 31, 1998 of $5,263,866.
In May 1997, the Company issued a promissory note and second deed of
trust on the property to Norlar, Inc. for a maximum of $600,000, or so much
thereof as may have been advanced by maker, for general corporate purposes.
As of September 1997, the Company owed approximately $600,000 on the Norlar
Note. In October 1997, the Company issued a second promissory note and a
fourth deed of trust on the property to Norlar, Inc., again for a maximum of
$600,000. As of March 31, 1998, the Company owed approximately $555,000 on
the Norlar Note. In addition, for each $100,000 Norlar, Inc. has loaned to
the Company, it has authorized the issuance of 500,000 warrants to purchase
shares of common stock at $0.20 per share. Norlar, Inc. is a closely-held
corporation beneficially owned by Larry Berman and his wife. Mr. Berman is
Chairman and Chief Executive Officer of the Company. The loans bear interest
at 12% per annum and is to be repaid upon the earlier of the sale of the
property, the contemplated refinance of the property or the financing of the
project.
In addition to obtaining the necessary financing, the Company must obtain
from the Colorado Gaming Commission approval to commence gaming operations.
The Commission's action is predicated upon approval of the applications of all
of the Company's principals. The Company is taking the steps necessary to go
forward with its submission to state authorities of its gaming application in
1998 and receive the required approvals to engage in gaming operations within
the State of Colorado. However, there can be no assurance that the Company
will be successful in its efforts. Management believes that the length of time
and disposition of the gaming approval process cannot be accurately predicted
at this point, but that the process could be time consuming and expensive.
In September 1997, the Company issued 395,000 shares of common stock to
Sommer & Schneider LLP, its securities attorneys, for payment of legal fees
and a six month retainer.
In March 1998, the Company issued 850,000 shares for the same purpose as
described above.
13
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is the plaintiff and a counterclaim defendant in a lawsuit
pending in Denver, Colorado District Court, Case No. 95CV2310, entitled
Country World Casinos, Inc., a Nevada corporation, Plaintiff, v. Tommyknocker
Casino Corp., a Colorado corporation and New Allied Development Corporation, a
Colorado corporation, Defendants, v. Country World Casinos, Inc., a Nevada
Corporation, Holly Products, Inc., a New Jersey corporation, Ronald G. Nathan,
Sal Lauria, Roger D. Leclerc, William H. Patrowicz and David Singer,
counterclaim Defendants. This lawsuit was commenced by the Company on May 26,
1995.
The pending lawsuit between the Company and New Allied and TKCC was
stayed upon the filing of the Company's bankruptcy petition in October 1995.
That stay was lifted when the bankruptcy case was dismissed in March 1997, and
the Company is now moving forward with these proceedings. In addition, the
Company has filed an appeal of the Bankruptcy Court's ruling. New Allied has
crossed appealed. Such appeals are pending.
The Company is seeking a court order requiring TKCC and New Allied to
sell to the Company their 2.5 million shares of voting stock in the Company at
the price set forth in ss.47.1-4.508 Rule 4.5 of the Colorado Gaming
Regulations on the basis that New Allied and TKCC might possibly be unsuitable
to hold voting securities in a licensed casino. As part of the consideration
given by the Company to TKCC to purchase the Black Hawk property, the Company
issued to TKCC 2,250,000 shares of non-voting preferred stock in the Company.
That preferred stock was subsequently given voting rights. In a subsequent
real estate purchase transaction, the Company issued to New Allied 250,000
share of common stock.
TKCC and New Allied have filed an answer to some of the Company's claims,
denying liability. In addition, TKCC and New Allied have filed counterclaims
against the Company, as well as against Holly Products, Inc. ("Holly"), the
majority shareholder in the Company, Ronald G. Nathan ("Nathan"), Sal Lauria
("Lauria"), and David Singer ("Singer") former directors of the Company, and
Roger G. Leclerc ("Leclerc") and William H. Patrowicz ("Patrowicz"), who are
currently officers and directors of the Company. TKCC alleges that the
Company has breached an agreement to file a registration statement for the
preferred stock given to TKCC as part of the consideration for purchase of the
Black Hawk property. The Company has filed an answer denying liability on
this counterclaim. The Federal Bankruptcy Court ruled that the Company was
not in breach of its agreement.
TKCC and New Allied have asserted that the Company, as well as Holly,
Nathan, Lauria, Leclerc, Patrowicz and Singer, breached their fiduciary duties
by the issuance of five million shares of common stock in the Company to
Holly. TKCC and New Allied seek actual and exemplary damages allegedly caused
by said alleged wrongful issuance of stock. TKCC and New Allied seek an
injunction requiring the Company and it board of directors to cancel the five
million shares of stock issued to Holly.
The Company, as well as Leclerc, Holly, Patrowicz and Singer, have filed
answers denying any wrongful conduct or any liability to TKCC or New Allied
14
resulting from said issuance of stock to Holly and have affirmatively asserted
that said issuance of stock was proper. Neither Nathan nor Lauria has been
served with the summons and counterclaim and have not yet appeared in this
lawsuit.
The Company is a co-defendant in a lawsuit pending in Travis County,
Texas District Court, Cause No. 95-04782, 200th Judicial District, entitled
James Hamilton, Plaintiff v. Robert Todd Financial Corporation; Defendant.
The Plaintiff James Hamilton contends that Defendant Robert Todd Financial
Corporation, and its agents and/or employees, made misrepresentations
regarding the Company's stock, which allegedly induced Hamilton's purchase of
said stock. Hamilton alleges that the Company is liable for the alleged
wrongful conduct of said Defendants. The Company has filed a Special
Appearance and Answer, objecting to the jurisdiction of the Travis County,
Texas District Court, as well as denying all material allegations of
Hamilton's Original Petition. No action has been taken in this case since
1996 and exposure to the company is minimal as the claim is for approximately
$25,000.00.
15
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
16
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
SIGNATURES
In accordance with the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COUNTRY WORLD CASINOS, INC.
By:__/s/_William_H._Patrowicz_________________
William H. Patrowicz, Secretary & Treasurer
Date: May 14, 1998
17