UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________ to ____________.
Commission file number 0-28068
COLORADO GAMING & ENTERTAINMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1242693
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12596 WEST BAYAUD AVE, SUITE 450, LAKEWOOD, COLORADO 80228
(Address of principal executive offices)
(Zip Code)
(303) 716-5600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
Number of shares of common stock outstanding at May 12, 1998: 5,236,091
Colorado Gaming & Entertainment Co.
Form 10-Q
Index
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - as of March 31, 1998 and 1
December 31, 1997.
Consolidated Statements of Operations - for the three months 2
ended March 31, 1998 and 1997.
Consolidated Statements of Cash Flows - for the three months 3
ended March 31, 1998 and 1997.
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis 7-9
PART II OTHER INFORMATION 10-11
SIGNATURES 12
Colorado Gaming & Entertainment Co.
Consolidated Balance Sheets
(In thousands, except share amounts)
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
ASSETS
Cash $ 7,168 $ 4,228
Accounts receivable, net 327 467
Inventories 118 114
Prepaid expenses 1,188 619
------- -------
Total current assets 8,801 5,428
Property, equipment and leasehold improvements, net 47,316 41,798
Excess reorganization value, net 15,709 16,491
Other assets, net 1,047 962
------- -------
Total assets $72,873 $64,679
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable and credit facility 1,915 809
Accounts payable 933 1,118
Accrued interest 2,200 601
Accrued expenses 3,805 3,350
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Total current liabilities 8,853 5,878
------- -------
Senior secured notes payable 52,883 52,883
Other notes payable and credit facility, net of
current portion 5,023 670
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Total non-current liabilities 57,906 53,553
------- -------
Total liabilities 66,759 59,431
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Common stock, $.01 par value, 20 million shares
authorized, 5,236,091 and 5,138,888 issued and
outstanding, respectively 52 52
Additional paid-in capital 4,892 4,792
Retained earnings 1,170 404
------- -------
Total stockholders' equity 6,114 5,248
------- -------
Total liabilities and stockholders' equity $72,873 $64,679
------- -------
------- -------
The Notes to Consolidated Financial Statements are an integral part of these
consolidated balance sheets.
-1-
Colorado Gaming & Entertainment Co.
Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited) (Unaudited)
Revenue:
Casino $13,400 $12,455
Food and beverage 946 834
Other 38 63
------ ------
Gross revenue 14,384 13,352
Less: promotional allowances (406) (379)
------ ------
Net revenue 13,978 12,973
Operating Expenses:
Casino 3,355 3,687
Gaming taxes 2,390 2,267
Food and beverage 990 852
General and administrative:
Casino 800 746
Corporate 728 751
Marketing 1,721 1,725
Depreciation and amortization 934 1,577
Pre-opening 23 --
------ ------
Total operating expenses 10,941 11,605
Income from operations 3,037 1,368
Interest expense (1,702) (1,742)
Interest income 11 28
------ ------
Income (loss) before income tax provision 1,346 (346)
Income tax provision (580) --
------ ------
Net income (loss) $ 766 $ (346)
------ ------
------ ------
Net income (loss) per common share $ 0.15 $(0.07)
------ ------
------ ------
The Notes to Consolidated Financial Statements are an integral part of these
consolidated financial statements.
-2-
Colorado Gaming & Entertainment Co.
Consolidated Statements of Cash Flows
(In thousands)
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 766 $ (346)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 934 1,577
Deferred income tax expense 580 --
Noncash compensation expense 100 120
Loss on disposition of assets (15) 124
Change in working capital and other 1,372 1,827
------- ------
Net cash provided by operating activities 3,737 3,302
CASH FLOWS USED IN INVESTING ACTIVITIES:
Expenditures for acquisitions and capital
improvements (6,254) (1,461)
Net change in restricted funds (1) 42
------- ------
Net cash used in investing activities (6,255) (1,419)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from credit facility 5,766 --
Repayments of other notes payable, capital leases
and credit facility (308) (1,489)
------- ------
Net cash provided by (used in) financing activities 5,458 (1,489)
INCREASE IN CASH 2,940 394
CASH, at beginning of period 4,228 5,758
------- ------
CASH, at end of period $ 7,168 $ 6,152
------- ------
------- ------
The Notes to Consolidated Financial Statements are an integral part of these
consolidated statements.
-3-
COLORADO GAMING & ENTERTAINMENT CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(1) ORGANIZATION AND BASIS OF PRESENTATION
Colorado Gaming & Entertainment Co. ("CG&E") and its subsidiaries
(collectively referred to as the "Company") was incorporated in August 1993
to develop, own and operate gaming and related entertainment facilities.
Three wholly-owned subsidiaries, BWBH, Inc., BWCC, Inc., and Silver Hawk
Casino, Inc., own and operate limited stakes gaming facilities in Colorado,
individually known as Bullwhackers Black Hawk, Bullwhackers Central City, and
the Silver Hawk Saloon & Casino, respectively. Millsite 27, Inc., also a
wholly-owned subsidiary of CG&E, owns a surface parking facility, used for
the benefit of Bullwhackers Black Hawk and the Silver Hawk Casino.
INTERIM REPORTING
The accompanying unaudited consolidated financial statements and related
notes of the Company have been prepared in accordance with generally accepted
accounting principles for interim financial reporting. In the opinion of
management, all adjustments considered necessary for fair presentation of
financial position, results of operations and cash flows have been included.
Operating results for the three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
1998 presentation. Such reclassifications had no impact on the Company's net
income.
EARNINGS PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") effective December 15, 1997. This
pronouncement requires the presentation of the earnings per share ("EPS")
based on the weighted average number of common shares outstanding (referred
to as basic earnings per share) and earnings per share giving effect to all
dilutive potential common shares that were outstanding during the reporting
period (referred to as diluted earnings per share or earnings per share
assuming dilution).
-4-
The following data show the amounts used in computing earnings per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock (in thousands).
Three Months Year Ended
Ended December 31,
March 31, 1998 1997
-------------- ------------
Income available to common shareholders $ 766 $ 212
---------- ----------
---------- ----------
Weighted average number of common
shares used in basic EPS 5,236,091 5,194,280
Effect of dilutive securities:
Management stock incentive plan 118,350 118,350
---------- ----------
5,354,441 5,312,630
---------- ----------
---------- ----------
(2) PROPERTY
On May 1, 1998, the Company opened Bullwhackers' Bullpen Sports Casino
(the "Bullpen"), a 260 slot machine expansion to Bullwhackers Black Hawk. On
February 13, 1998, the Company purchased the assets comprising the Bullpen from
Pioneer Associates Limited Liability Company for approximately $5.5 million.
Additionally, the Company incurred approximately an additional $2.0 million to
equip and renovate the Bullpen. The Bullpen is located immediately adjacent to
Bullwhackers Black Hawk. The Company removed the common wall separating
Bullwhackers Black Hawk from the Bullpen. The combined casino will be operated
as a single casino, under one gaming license and one liquor license.
(3) NOTES PAYABLE
CREDIT FACILITY
On June 7, 1996, the Company entered into a $12.5 million revolving credit
facility (the "Credit Facility") with Foothill Capital Corporation. The Credit
Facility is segregated into several different sub-facilities, including a $3.5
million revolving line of credit and a $5.0 million equipment facility. Under
terms of the Credit Facility, borrowings accrue interest at prime plus 2.375%
(10.875% as of March 31, 1998). The different sub-facilities have varying terms
ranging from three to five years from the time funds are borrowed, but the
entire facility matures on June 7, 2001 with two one-year extension options. On
February 13, 1998, the Company entered into an amendment to the Credit Facility
converting the expired $5.0 million construction line into a new line which
provided up to $5.0 million (the "Bullpen Acquisition Line") to purchase and
perform tenant improvements on the Bullpen. The Company borrowed $5.0 million
under the Bullpen Acquisition Line and $500,000 under the equipment portion of
the Credit Facility to finance the acquisition of the Bullpen assets on February
13, 1998. The Bullpen Acquisition Line amortizes over 60 months, commencing on
June 1, 1998 and is payable in full on June 6, 2001. As of March 31, 1998, the
Company had an outstanding balance of approximately $748,000 on the equipment
facility line and $5.0 million on the Bullpen Acquisition Line.
-5-
(4) TAXES
For the three months ended March 31, 1998, the Company recorded a
$580,000 deferred income tax provision. Such income tax expense triggered
the utilization of certain deferred tax assets available to the Company, and,
accordingly, no income tax is currently payable. The recognition of such
deferred tax assets was offset by a like reduction in the valuation
allowance, which was recorded as a credit to excess reorganization value in
the accompanying consolidated balance sheets.
The net deferred tax assets is comprised of the following (in thousands):
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
Current:
Accrued vacation & gaming liabilities $ 330 $ 261
Non-Current:
Difference in depreciable asset basis 452 456
Recognition of legal settlement 440 503
Impairment of assets 1,208 1,208
Net operating loss carryforwards 4,106 4,689
------- -------
Net deferred tax assets 6,537 7,117
Valuation allowance (6,537) (7,117)
------- -------
$ -- $ --
------- -------
------- -------
The net deferred tax asset valuation allowance is equal to the full
amount of the gross deferred tax asset because the realization of such asset
is dependent upon future taxable income, which is uncertain. The Company
currently has net operating losses ("NOL's") totaling approximately $11.2
million, which expire beginning in 2008.
(5) COMMITMENT AND CONTINGENCIES
Effective August 22, 1997, the Company entered into an Agreement and
Plan of Merger, as amended as of October 21, 1997 (the "Merger Agreement"),
with Ladbroke Racing Corporation, a Delaware corporation ("LRC"), and CG&E
Acquisition Corp., a Delaware corporation ("Acquisition Sub"), pursuant to
which the Acquisition Sub will be merged with and into the Company (the
"Merger"). Prior to the Merger and pursuant to the terms of the Merger
Agreement, LRC will assign all of its rights and obligations under the Merger
Agreement, including its interest in the Acquisition Sub, to Ladbroke Gaming
Corporation, a Delaware corporation ("Ladbroke"), a wholly-owned subsidiary
of Ladbroke Group PLC, the ultimate parent of LRC. As a result of the
assignment and the Merger, the Company will become a wholly-owned subsidiary
of Ladbroke. Pursuant to the Merger Agreement, holders of the Company's
common stock, $0.01 par value (the "Common Stock"), will be entitled to
receive $6.25 in cash for each share of Common Stock held by them immediately
prior to the Merger. On December 12, 1997, stockholders of the Company
approved and adopted the Merger Agreement. The Merger remains subject to
approval by the Colorado Limited Gaming Control Commission (the "Gaming
Commission"). Although there can be no assurances, closing of the Merger is
anticipated to occur sometime in the third quarter of 1998. However,
pursuant to the terms of the Merger Agreement, if the Merger has not been
consummated on or before September, 30 1998, which date may be extended by
the mutual written consent of LRC and the Company, either party has the right
to terminate the Merger Agreement and abandon the Merger.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
The discussion below and under Item 5 of Part II of this Report on Form
10-Q and elsewhere herein contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Such Section 21E provides certain "safe harbor" protections for
forward-looking statements in order to encourage companies to provide
prospective information about their businesses. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, competition, growth opportunities, source and uses of
capital, future development or expansion activities, and underlying
assumptions and other statements which are other than statements of
historical facts. Such statements may be identified by the use of
forward-looking terminology such as "might," "may," "would," "could,"
"expect," "anticipate," "estimate," "likely," "believe," or "continue" or the
negative thereof or other variations thereon or comparable terminology.
Such forward-looking statements involve a number of risks, uncertainties and
other factors that may significantly affect the Company's liquidity and
results of operations in the future and, accordingly, actual results may
differ materially from those expressed in any forward-looking statements.
The forward-looking statements set forth in this Report on Form 10-Q are
based upon various assumptions, many of which are based, in turn, upon
further assumptions, including, without limitation, management's examination
of historical operating trends, data contained in the Company's records, and
other data available from third parties. Although the Company believes that
such assumptions were reasonable when made, because such assumptions are
inherently subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond the Company's control,
there can be no assurance, and no representation or warranty is made, that
management's expectations, beliefs, or projections will result or be achieved
or accomplished. In addition to the other factors and matters discussed
elsewhere herein, factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the
forward-looking statements include: (i) leverage and debt service, (ii)
financing and refinancing efforts, (iii) competition, (iv) inclement weather,
(v) changes in general economic conditions in the Denver metropolitan area,
(vi) changes in state and local gaming laws, regulations or tax rates, (vii)
risks related to development and construction activities, (viii) changes in
management or control of the Company, (ix) significant changes in competitive
factors affecting the Company, (x) significant changes from expectations in
actual capital expenditures and operating expenses, and (xi) occurrences
affecting the Company's ability to obtain funds from operations, debt or
equity to finance needed capital expenditures and other investments.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1997
The Company's net revenue increased 8%, to $14.0 million for the first
quarter of 1998 from $13.0 million for the first quarter of 1997. The
increase in net revenue is due to strong first quarter results at
Bullwhackers Black Hawk, which posted a 17%, or $1.5 million increase, in net
revenue compared to the prior year quarter. This increase resulted primarily
from overall growth in the Black Hawk market in the first quarter of 1998,
which benefited from mild weather. In addition, Bullwhackers Black Hawk was
positively affected by the availability of its fully expanded parking lot in
the first quarter of 1998, which opened in May 1997 which also caused
business disruption as a result of the construction in the first quarter of
1997. The increase in net revenues in Black Hawk were somewhat offset by a
decrease in net revenues of approximately 15%, or $400,000, at the Company's
Bullwhackers Central City facility as a result of a continued overall decline
of the casinos located on Main Street in the Central City market. The
increase in net revenues in Black Hawk were also offset by a 4% decrease in
net revenues at the Company's Silver Hawk Casino.
-7-
Expenses directly related to casino operations, including gaming taxes,
decreased 2% to $5.7 million for the first quarter of 1998, as compared to
$5.8 million for the first quarter of 1997. The decrease primarily relates
to a reduction of staffing and other costs at Bullwhackers Central City in
relation to the decrease in net revenues in the 1998 period.
Food and beverage expense increased 16% to $990,000 for the first
quarter of 1998, as compared to $852,000 for the first quarter of 1997.
This increase in expense is a result of high food costs and additional
staffing for certain discounted food promotions which were offered, beginning
in January of the 1998 period. Such promotions have substantially increased
food volumes, as food sales up 13% for the first quarter of 1998.
Marketing expense was consistent at approximately $1.7 million for the
first quarters of 1998 and 1997. Marketing expense reflects a 15% increase
in marketing expense at Bullwhackers Black Hawk due to the increased volumes
and was offset by a 21% decrease in marketing expense at Bullwhackers Central
City, as a result of the volume decreases at that property.
Corporate expenses decreased 3% to $728,000 for the first quarter of
1998, as compared to $751,000 for the first quarter of 1997. Included in
corporate expense are non-cash charges for stock awards under the Management
Incentive and Non-Employee Director Stock Plan of $100,000 and $120,000 for
the three months ended March 31, 1998 and 1997, respectively. In addition,
the 1998 period reflects $46,000 of legal, financial advisory and other
professional fees relating to the Merger.
Depreciation and amortization expense decreased 41% to $934,000 for the
first quarter of 1998, as compared to $1.6 million for the first quarter of
1997. The decrease in depreciation and amortization charges is due to a
substantial amount of equipment at Bullwhackers Black Hawk and Bullwhackers
Central City becoming fully depreciated in mid 1997.
INCOME TAX CONSIDERATIONS
For the three months ended March 31, 1998, the Company recorded a
$580,000 deferred income tax provision. The Company posted pre-tax income of
$1.3 million and such taxable income triggered the utilization of certain
deferred tax assets available to the Company (primarily net operating loss
carryforwards), and, accordingly, no income tax is currently payable. The
recognition of such deferred tax assets was offset by a like reduction in the
valuation allowance, which was recorded as a credit to excess reorganization
value in the accompanying consolidated balance sheets.
LIQUIDITY AND CAPITAL RESOURCES
DEBT
On June 7, 1996, the Company entered into a $12.5 million revolving
credit facility (the "Credit Facility") with Foothill Capital Corporation.
The Credit Facility is segregated into several different sub-facilities,
including a $3.5 million revolving line of credit and a $5.0 million
equipment facility. Under terms of the Credit Facility, borrowings accrue
interest at prime plus 2.375% (10.875% as of March 31, 1998). The different
sub-facilities have varying terms ranging from three to five years from the
time funds are borrowed, but the entire facility matures on June 7, 2001 with
two one-year extension options. On February 13, 1998, the Company entered
into an amendment to the Credit Facility converting the expired $5.0 million
construction line into a new line which provides up to $5.0 million (the
"Bullpen Acquisition Line") to purchase and perform tenant improvements on
the Bullpen. The Company borrowed $5.0 million under the Bullpen Acquisition
Line and $500,000 under the equipment portion of the Credit Facility to
finance the acquisition of the Bullpen assets on February 13, 1998. The
Bullpen Acquisition Line amortizes over 60 months, commencing on June 1,
1998 and is payable in full on June 6, 2001. As of March 31, 1998, the
Company had an outstanding balance of approximately $748,000 on the equipment
facility line and $5.0 million on the Bullpen Acquisition Line.
-8-
OTHER OPPORTUNITIES
On May 1, 1998, the Company opened Bullwhackers' Bullpen Sports Casino
(the "Bullpen"), a 260 slot machine expansion to Bullwhackers Black Hawk. On
February 13, 1998, the Company purchased the assets comprising the Bullpen
from Pioneer Associates Limited Liability Company for approximately $5.5
million. Additionally, the Company incurred approximately an additional $2.0
million to equip and renovate the Bullpen, which was funded out of cash flow
from operations in the first and second quarters of 1998.
On September 30, 1997, the Ontario Gaming Control Commission announced
that Diamond Gaming of Ontario Inc., a partnership between the Company, a
subsidiary of Ogden Corporation and Diamond Gaming Services Inc., was the
successful bidder to develop and operate charitable gaming clubs in the
cities of Kingston and Belleville, Ontario. The development and opening of
the Kingston and Belleville facilities remain contingent upon a number of
items, including entering into an operating agreement with the Ontario Gaming
Control Commission, reaching an agreement with property owners and local
municipalities on specific sites, and obtaining zoning and other local
approvals, none of which can be assured. The Company currently estimates
that the two clubs in Kingston and Belleville will require an initial
investment of approximately $5.0 million in the aggregate. The Company's
share of such investment is approximately 47% of that amount, which it
intends to fund from cash flow from operations or borrowings under the
revolving portion of the Credit Facility. The Company will account for its
45% interest in Diamond Gaming under the equity method of accounting.
GENERAL
The Company believes that its Credit Facility and its operating cash
flows will provide sufficient liquidity and capital resources for the
Company's operations and debt service payments. However, there is no
assurance that the Company's estimate of its need for liquidity and capital
resources is accurate or that new business developments or other unforeseen
events will not occur which will increase those needs. Although no
additional financings are contemplated at this time, the Company may seek
additional debt or equity financing if necessary. There can be no assurance
that additional financing will be available, or if available, will be on
terms favorable to the Company. Additionally, debt or equity financing may
require consent from the Company's bondholders and the lender under the
Credit Facility.
-9-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1996, BWCC, Inc. signed a non-binding memorandum of
understanding ("MOU") with Gold Coin, Inc., a wholly-owned subsidiary of Lady
Luck Gaming Corporation, to explore the possibility of physically combining
Bullwhackers Central City with the adjacent casino operated as Lady Luck Gold
Coin Gambling Hall & Saloon and owned by Gold Coin, Inc. The prospective
transaction was subject to a number of contingencies, including the execution
and delivery of definitive agreements setting forth the final agreed upon
terms and conditions of the transaction. While the parties continued to
negotiate over unresolved issues contained in the drafts of the definitive
agreements, market conditions and other events affecting the Central City
market continued to change and decline significantly. Despite continued
efforts to satisfactorily resolve the open issues in light of the foregoing,
no final, definitive agreements were executed and delivered, and the
prospective transaction was never consummated.
In March 1998, Lady Luck Central City, Inc., formerly known as Gold
Coin, Inc., filed a complaint in the District Court for the County of
Jefferson, State of Colorado, Case No. 98 CV 672, captioned as LADY LUCK
CENTRAL CITY, INC. V. BWCC, INC., d/b/a BULLWHACKERS CENTRAL CITY, COLORADO
GAMING & ENTERTAINMENT, CO., AND LADBROKE GROUP PLC. The complaint alleges
causes of action against BWCC, Inc. based upon the foregoing events for
breach of contract, breach of fiduciary duty, and breach of duty of good
faith. The complaint also alleges causes of action against the Company and
Ladbroke Group PLC for tortious interference with contract and tortious
interference with prospective business opportunity. The Company and BWCC,
Inc. filed an answer to the complaint and a counterclaim against the
plaintiff for breach of certain contracts relating to transportation
services. The Company and BWCC, Inc. believe the complaint is without merit
and intend to vigorously defend themselves. As required by the Colorado
Regulations, the Company has notified the Division of this matter.
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. The
Company's management believes that the ultimate resolution of currently
pending legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
A. LADBROKE. Effective August 22, 1997, the Company entered into an
Agreement and Plan of Merger, as amended as of October 21, 1997 (the "Merger
Agreement"), with Ladbroke Racing Corporation, a Delaware corporation
("LRC"), and CG&E Acquisition Corp., a Delaware corporation ("Acquisition
Sub"), pursuant to which the Acquisition Sub will be merged with and into the
Company (the "Merger"). Prior to the Merger and pursuant to the terms of the
Merger Agreement, LRC will assign all of its rights and obligations under the
Merger Agreement, including its interest in the Acquisition Sub, to Ladbroke
Gaming Corporation, a Delaware corporation ("Ladbroke"), a wholly-owned
subsidiary of Ladbroke Group PLC, the ultimate parent of LRC. As a result of
the assignment and the Merger, the Company will become a wholly-owned
subsidiary of Ladbroke. Pursuant to the Merger Agreement, holders of the
Company's common stock, $0.01 par value (the "Common Stock"), will be
entitled to receive $6.25 in cash for each share of Common Stock held by them
immediately prior to the Merger. On December 12, 1997, stockholders of the
Company approved and adopted the Merger Agreement. The Merger remains
subject to approval by the Colorado Limited Gaming Control Commission (the
"Gaming Commission"). Although there can be no assurances, closing of the
Merger is anticipated to occur sometime in the third quarter of 1998.
However, pursuant to the terms of the
-10-
Merger Agreement, if the Merger has not been consummated on or before
September, 30 1998, which date may be extended by the mutual written consent
of LRC and the Company, either party has the right to terminate the Merger
Agreement and abandon the Merger.
B. COMPETITION. Currently, there are two major projects under
construction in Black Hawk. The first is a joint venture between Black Hawk
Gaming & Development Co., the owner and operator of the Gilpin Hotel Casino,
and Jacobs Entertainment, for a new 35,000 square foot casino, with 55 hotel
rooms, 250 parking spaces and approximately 800 slot machines. It is
currently anticipated that this project will open sometime in the second
quarter of 1998. The second project is the Isle of Capri Black Hawk, which is
owned by subsidiaries of Casino America, Inc. and Nevada Gold & Casinos, Inc.
The Isle of Capri project is expected to include a 55,000 square foot casino
with 1,100 slot machines, 25 table games and 1,000 on-site parking spaces.
It is expected to open in late 1998 or early 1999. The new gaming capacity
being developed may dilute existing operators' win per unit and revenue,
including the Company's. Accordingly, such increase in capacity may have a
material adverse effect on the Company's results of operations. The new
projects have all been announced/commenced in Black Hawk, due to its more
convenient location as compared to Central City. As the town of Black Hawk
continues to expand, the Central City market contracts. The Company believes
that these new projects under construction will have a negative impact on the
town of Central City as compared to Black Hawk.
In addition, a number of other casino projects have been announced and
are in various planning stages, including a venture by Riviera Holdings,
Inc. to construct what would be the largest facility in Black Hawk.
Additionally, Bullseye Gaming has announced plans for the Black Hawk Brewery,
which will offer 500 slot machines and 10 table games when open. Various
other projects have been announced, proposed, discussed or rumored for the
Black Hawk market, including large projects known as "Country World" and the
"St. Moritz - Hyatt". While it is difficult to assess the likelihood and the
timing of these proposed projects being completed, it is reasonably likely
that at least some of the proposed competitive projects may be completed and
open to the public by sometime during 1999 or 2000. In addition, as the town
of Black Hawk has expanded, both in terms of gaming device capacity and
market size, the Central City market has contracted. Therefore, should
several of the announced competitive projects open, the increased competition
may adversely affect the Company's operations in both Black Hawk and, to a
greater extent, in Central City, which may be forced to close with the new
competition, and, accordingly, may have a material adverse effect on the
Company's consolidated results of operations and financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Colorado Gaming & Entertainment Co. has duly caused this report to be signed
by the undersigned thereunto duly authorized.
COLORADO GAMING & ENTERTAINMENT CO.
/s/ Stephen J. Szapor, Jr.
------------------------------------------
Stephen J. Szapor, Jr.
President and Chief Executive Officer
Date: May 12, 1998
/s/ Robert J. Stephens
------------------------------------------
Robert Stephens
Vice President of Finance & Treasurer
(Principal Financial Officer)
Date: May 12, 1998
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