UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR 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 0-8927 NEVADA GOLD & CASINOS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0142032
(State or other jurisdiction (IRS Employer identification number)
of incorporation)
3040 POST OAK BLVD., SUITE 675, HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 621-2245
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.12 PER SHARE
(Title of Class)
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. [X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant as of June 30, 1998, based upon the last reported sales price of the
OTC Electronic Bulletin Board, was $14,898,860.
As of June 30,1998, 9,051,156 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PART I
ITEM 1. BUSINESS
Nevada Gold & Casinos, Inc. ("Nevada Gold" or the "Company") is the owner
of a 40% interest in the Isle of Capri Black Hawk LLC ("Isle of Capri Black
Hawk" or the "Casino") currently under construction in Black Hawk, Colorado,
expected to open for business in December 1998 or January 1999. The Casino is a
limited liability company organized by the Company and Casino America, Inc.
("Casino America"). Nevada Gold is also actively pursuing other gaming ventures
throughout the world.
Nevada Gold also owns approximately 150 acres of real property in the
vicinity of Black Hawk, Colorado, and has an option to purchase an additional 18
acres from an affiliate of the Secretary of the Company for a nominal amount.
The Company contemplates the completion of additional acquisitions by the end of
July 1998 which, in conjunciton with an exchange of properties with third
parties, shall provide the Company a total of approximately 170 nearly
continguous acres for development of a commercial and residential real estate
project on the property.
GAMING DEVELOPMENT
Currently under construction with an anticipated completion date of
December 1998 or January 1999, the Casino, at 101,000 square feet, will be the
largest gaming facility in Colorado when completed. The Casino is strategically
located so that it is the first casino encountered by customers traveling to
Black Hawk from Denver. The $103 million Casino will feature over 1100 slot
machines, 25 blackjack and poker tables, three restaurants, an event center, and
a 1000 space covered parking garage. Construction is proceeding under a
"guaranteed maximum price" design/build agreement and allows the addition of a
hotel to the Casino at some future time, if desired. Operation of the Casino is
subject to approval of the Colorado Gaming Commission, which is currently
conducting the required financial and background investigation of all members of
the limited liability company.
The Black Hawk Market consists of the cities of Black Hawk and Central
City which are located approximately 40 miles west of Denver and approximately
10 miles from Interstate 70, the main east-west artery from Denver. Gaming
customers to the Black Hawk Market are primarily "day trippers" from within a
100-mile radius of Black Hawk and Central City, which includes the major
population centers of Denver, Boulder, Fort Collins, and Golden, Colorado, and
Cheyenne, Wyoming. The Black Hawk Market is primarily characterized by numerous
small, privately-owned gaming facilities, although the main competition for the
Casino are the larger gaming facilities located in Black Hawk, particularly
those with a considerable number of on-site parking spaces and established brand
names and reputations in the local market. The largest casinos in Black Hawk in
terms of gaming positions are Harvey's Wagon Wheel Casino Hotel, Colorado
Central Station, Bullwhackers, Canyon Casino, Fitzgerald's Black Hawk, and
Gilpin Hotel Casino, each of which also offer on-site parking.
The Casino's closest competition is Colorado Central Station located
across the intersection of Mill and Main Streets from the Casino. Colorado
Central Station has approximately 700 slot machines, approximately 20 table
games, amenities such as a food court and bar, and approximately 690 valet
parking spaces. Colorado Central Station has generated an estimated $240 per
gaming position per day in revenues over the twelve-month period ended March 31,
1997. Jacobs Entertainment, Ltd. has opened a 50,000 square foot facility with
800 slot machines, 20 table games, a 450 space underground parking garage (with
an affiliated two-story overflow parking facility for approximately 200
additional vehicles), and 50 hotel rooms. The facility is located approximately
0.3 miles from the Casino.
Additionally, Riviera Holdings Corporation has begun construction on a
site directly across Main Street from the Casino of a facility containing 1000
slot machines and a 500 space covered parking garage, with an anticipated
opening scheduled in 1999.
Casinos in Cripple Creek, Colorado (located a driving distance of 110
miles to the south of the Black Hawk Market) and the Native American casinos
located in the southwestern corner of Colorado, constitute the only other gaming
communities in the state. Management believes that Cripple Creek provides only
limited competition to the Black Hawk Market given its distance from the Black
Hawk Market and its relatively smaller facilities with fewer amenities.
Management also believes that the Native American casinos are too far removed
from the Black Hawk Market to provide any significant competition.
While not presently in negotiation for the development of another gaming
project, Nevada Gold intends to pursue additional gaming ventures on a worldwide
basis. Nevada Gold's aim is to identify gaming and associated real estate
development projects with high potential rates of return on investment. Nevada
Gold will then look to create associations with successful gaming operators for
the acquisition and operation of the gaming ventures, while Nevada Gold will
acquire, plan, and develop the real estate projects. Nevada Gold's strategy is
to utilize its expertise - project identification and development - to create
financially attractive investment opportunities without the burden of creating a
labor intensive organization which would be required for gaming operations,
while at the same time having a small, knowledgeable, and responsive staff able
to capitalize on real estate projects in developing markets.
Nevada Gold has not completely rejected the possibility of owning and
operating gaming facilities. Merger and acquisition prospects are actively
evaluated as they are presented to Nevada Gold from a variety of sources. In the
event one or more economically feasible merger or acquisition projects are
capable of completion by Nevada Gold, Nevada Gold is prepared to create an
operations division staffed with personnel experienced in gaming operations to
manage the gaming facilities.
ISLE OF CAPRI BLACK HAWK CASINO
In April 1997, Isle of Capri Black Hawk was formed by Casino America of
Colorado, Inc. ("Casino Colorado") a wholly owned subsidiary of Casino America,
Inc. ("Casino America"), and BlackHawk Gold, Ltd., ("BlackHawk Gold") a wholly
owned subsidiary of Nevada Gold to develop, own and operate the Isle of Capri
Black Hawk as a premier casino gaming facility. The rights and obligations of
Casino America and BlackHawk Gold are governed in part by an operating agreement
("Operating Agreement") dated July 29, 1997. Pursuant to the Operating
Agreement, Casino America contributed cash, purchase rights and development
costs and BlackHawk Gold contributed land to the Isle of Capri Black Hawk. Upon
execution of the Operating Agreement, the membership interests ("Membership
Interests") were set at 45% for BlackHawk Gold and 55% for Casino Colorado.
BlackHawk Gold sold Casino Colorado a portion of its Membership Interest
representing 4.2% of the total Membership Interest (the "Transferred Interest")
in the Isle of Capri Black Hawk so that the respective Membership Interests were
as follows: BlackHawk Gold - 40.8% and Casino Colorado - 59.2%. On July 29,
1997, Casino Colorado, Casino America, BlackHawk Gold and Nevada Gold entered
into a members agreement ("Members Agreement") which addressed the development
of the Isle of Capri Black Hawk, management of the Isle of Capri Black Hawk,
additional capital contributions, and other matters. Pursuant to the Members
Agreement, BlackHawk Gold had the right to sell up to 4.8% ownership in the Isle
of Capri Black Hawk to Casino Colorado, for up to $0.8 million. On November 13,
1997, pursuant to that provision, Casino Colorado purchased a .8% Membership
Interest from BlackHawk Gold for $133,333 and on February 16, 1998, Casino
Colorado purchased an additional 4.0% interest for $666,667. BlackHawk Gold
subsequently restored its ownership interest to 40% by repurchasing from Casino
Colorado 4.0% of the Transferred Interest for $715,000, including interest. As a
result, as of March 31, 1998, Casino Colorado owned 60% and BlackHawk Gold owned
40% of the Isle of Capri Black Hawk.
As of March 31, 1998, BlackHawk Gold had the right to repurchase the .8%
ownership interest and the 4.0% ownership interest purchased by Casino Colorado
on November 13, 1997 and February 16, 1998, respectively, under the 180 day
repurchase provision of the Put. The 180 day period for repurchase of the .8%
ownership interest expired on May 12, 1998 and the gain resulting from the sale
has been recognized in the Company's March 31, 1998 financial statements. The
180 day repurchase period on the ownership interest sold to Casino Colorado on
February 16, 1998 expires on August 15, 1998 and the $591,404 gain relating to
the sale has been deferred in the Company's March 31, 1998 Financial Statements.
In the event management of BlackHawk Gold is successful in its intent to
repurchase this 4.0% interest before August 15, 1998, BlackHawk Gold's ownership
will be increased to 44%.
Management of the Isle of Capri Black Hawk is governed by a management
agreement ("Management Agreement"). The following is a summary of the more
significant provisions agreed by Casino Colorado and BlackHawk Gold in the
formation of the Isle of Capri Black Hawk.
OPERATING AGREEMENT
ADDITIONAL CONTRIBUTIONS. Pursuant to the terms of the completion
capital commitment ("Completion Capital Commitment") and by a vote of the
majority in interest ("Majority in Interest"), members ("Members") may be
required to make additional contributions.
NO WITHDRAWAL. Except as provided in the Operating Agreement, no
Member will be entitled to withdraw all or any part of such Member's capital
from the Isle of Capri Black Hawk.
TRANSFER. If all or any part of a membership interest ("Membership
Interest") is transferred, the capital account and Membership Interest of the
transferor (including a pro-rata share of capital contributions) that is
attributable to the transferred interest will carry over to the transferee.
MEMBERS AND MEMBERSHIP INTERESTS. The Isle of Capri Black Hawk's
profits and losses are allocated in proportion to each Member's Membership
Interest in the Isle of Capri Black Hawk. Each corporation that serves as a
Member must designate one or more individuals to act as such Member's
representatives. Casino Colorado has selected John M. Gallaway as its
representative and BlackHawk Gold has selected H. Thomas Winn as its
representative.
MANAGEMENT. The Isle of Capri Black Hawk will be managed by its
managers ("Managers"). Each Member shall have the right to elect one Manager,
except that so long as Casino Colorado or its affiliates own a Majority In
Interest of the Isle of Capri Black Hawk, Casino Colorado or its affiliates
shall be entitled to elect a majority of the Managers, which initially shall be
two Managers, and BlackHawk Gold shall be entitled to elect one Manager. Each
Member shall have the right to remove, replace, fill a vacancy, or designate a
temporary replacement for the Manager or Managers elected by it. The initial
Managers are designated in the Operating Agreement as John M. Gallaway and Allan
B. Solomon of Casino America and H. Thomas Winn of Nevada Gold.
UNANIMOUS VOTE. The following actions by the Isle of Capri Black
Hawk will require the affirmative vote of all the Managers and the Members,
without regard to quorum requirements.
(a) the admission of an additional Member;
(b) any non pro-rata distribution;
(c) the amendment of the Operating Agreement;
(d) the merger of the Isle of Capri Black Hawk with any other
business entity; or
(e) the sale of substantially all of the Isle of Capri Black
Hawk's assets.
PROFITS AND LOSSES. For each fiscal year, profits or losses of the
Isle of Capri Black Hawk will be an amount equal to the Isle of Capri Black
Hawk's income or loss determined under the accrual method of accounting in
accordance with generally accepted accounting principles consistently applied.
Profits or losses of the Isle of Capri Black Hawk, including items of income,
gain, loss and deduction for each fiscal year, will be allocated to the Members
in proportion to their respective Membership Interests. No cash shall be
distributed to any Member if the effect thereof would be to create a deficit in
his capital account balance or increase the deficit in his capital account below
the sum of (1) the amount (if any,) which he is required to contribute to the
Isle of Capri Black Hawk and (2) said Member's share of gain which the Isle of
Capri Black Hawk would recognize upon a sale of its property for an amount equal
to the balance of the non-recourse debt encumbering it. Allocation of items of
income, gain, loss and deduction of the Isle of Capri Black Hawk will be
allocated, as nearly as is practicable, in accordance with the manner in which
such items are reflected in the allocations of profits and losses among the
Members for such fiscal year.
TAX ALLOCATIONS. Allocation of items of income, gain, loss and
deduction of the Isle of Capri Black Hawk for federal income tax purposes for a
fiscal year will be allocated, as nearly as is practicable, in accordance with
the manner in which such items are reflected in the allocations of profits and
losses among the Members for such fiscal year.
CONTRIBUTED PROPERTY. All items of income, gain, loss and deduction
with respect to property contributed to the Isle of Capri Black Hawk will,
solely for tax purposes be allocated among the Members as required by Section
704(c) of the Internal Revenue Code so as to take into account the variation
between the tax basis of the property and its fair market value at the time of
contribution. For example, if there is built-in gain with respect to contributed
property, upon the Isle of Capri Black Hawk's sale of that property the
pre-contribution taxable gain would be allocated to the contributing Member.
PRO-RATA DISTRIBUTIONS. The Isle of Capri Black Hawk will make
distributions to the Members in proportion to their Membership Interests.
NON PRO-RATA DISTRIBUTIONS. Unless the Members otherwise unanimously
agree, the Members intend that all distributions will be made to the Members in
proportion to their Membership Interests.
MEMBERS AGREEMENT
INITIAL CONTRIBUTIONS. BlackHawk Gold made an initial contribution
of the property (the "BlackHawk Gold Land"). The Members agreed that the net
fair market value of the BlackHawk Gold Land is $7.5 million. Casino Colorado
made an initial contribution aggregating $9.2 million, consisting of the
following: (i) the sum of $1 million, less the aggregate amount of the
development and pre-opening costs paid or incurred by Casino Colorado or its
affiliates through August 20, 1997 (the "Closing Date"), (ii) the development
plan ("Development Plan"), which effective as of the Closing Date, was deemed to
have been contributed by Casino Colorado to the Isle of Capri Black Hawk, (iii)
an assignment of the right to acquire the property owned by Caesars World, Inc.
(the "Caesars Land"), together with the amount of $6.4 million, representing the
balance of the total purchase price of $6.5 million for the Caesars Land and
(iv) the benefits to the Isle of Capri Black Hawk resulting from the Completion
Capital Commitment and the fee subordination agreement.
DEBT FINANCING. Except for the initial contributions by the Members
and any contributions under the Completion Capital Commitment, the Members
agreed that, to the extent commercially reasonable, the project would be funded
through debt financing. The Isle of Capri Black Hawk shall incur no debt or
liability for which the Members or their respective affiliate will be required
to guarantee or co-sign any loan made to the Isle of Capri Black Hawk or any
other obligation of the Isle of Capri Black Hawk.
UNANIMOUS VOTE. The parties agree to cause the Managers appointed by
them not to cause the Isle of Capri Black Hawk to effect any of the following
matters without (i) the unanimous consent of each of the other Managers and (ii)
the unanimous consent of the Members:
(a) the making of material changes to the Development Plan;
(b) the adoption of any annual budget for any year following the
opening of the project for public business calling for capital
expenditures for such budgeted year of greater than $4,000,000;
(c) a call for additional contributions by the Members; and
(d) the approval of the principal terms of any refinancing of the
project financing or the incurrence of indebtedness outside of
the normal operating requirements of the project in an
outstanding amount which at any time exceeds $1 million, except
for indebtedness incurred for replacement of furnishings,
fixtures or equipment or as may be otherwise specifically
authorized in the Members Agreement.
MANDATORY DISTRIBUTIONS. Subject to the terms of an indenture
agreement (the "Indenture"), the Isle of Capri Black Hawk will make quarterly
distributions of cash from operations subject to certain adjustments, to the
Members in proportion to their Membership Interests from cash available for
distribution (which excludes certain reserves that the Isle of Capri Black Hawk
is required to maintain under the Operating Agreement) in an amount equal to the
maximum amount that may be distributed pursuant to the terms of the Indenture.
If Casino America is required to make any capital contributions under the
Completion Capital Commitment, Casino Colorado will receive additional
Membership Interest and Casino Colorado will be entitled to receive all
distributions with respect to all Membership Interests up to the aggregate
amount of such payments before any distributions are made to any other Member.
TRANSFER OF MEMBERSHIP INTERESTS. If Casino America reasonably
determines, based on communications with regulatory authorities, that BlackHawk
Gold's interest in the Isle of Capri Black Hawk will cause Casino America or its
affiliates (including the Isle of Capri Black Hawk) a licensing problem in any
jurisdiction including Colorado, and such licensing problem cannot be resolved,
Casino America can require BlackHawk Gold to sell its Membership Interest in the
Isle of Capri Black Hawk to an acceptable party or to Casino Colorado. In the
event of a sale to Casino Colorado, the purchase price will equal the capital
account balance of BlackHawk Gold in the Isle of Capri Black Hawk.
MANAGEMENT AGREEMENT
AUTHORITY OF THE ISLE OF CAPRI BLACK HAWK. The Isle of Capri Black
Hawk shall determine the general policy with respect to the management of its
casino facility and shall have all other decision making powers customarily
afforded to an owner of a casino/hotel facility, as well as any additional
powers reserved to the Isle of Capri Black Hawk hereunder.
DUTIES OF THE MANAGER. The Manager manages the daily operations of
the Isle of Capri Black Hawk, including among other things, the (i) exclusive
supervision and direction of the activities; (ii) development and effectuation
of an annual plan, consisting of forecasts of monthly income and expenses,
monthly cash flow projections and working capital requirements, a budget
covering estimated capital expenditures, and an annual marketing plan; (iii)
development of an operating policy; (iv) supervision of advertising, sales and
business promotion; (v) supervision, hiring and discharge of all personnel; (vi)
maintenance of the property; and (vii) maintenance of all books of accounts and
the submission of all requisite informational and/or tax returns.
COMPENSATION. The Manager is paid an annual management fee equal to
2% of Revenues plus 10% of Operating Income; provided that such management fee
shall not exceed 4% of Revenues. "Revenues" means all revenues, less sales tax
on such revenues, determined on an annual basis received from the following
sources: (i) gross gaming receipts from the Isle of Capri Black Hawk, less 50%
of applicable gaming and admission taxes from the operation of the Isle of Capri
Black Hawk; (ii) hotel operations; (iii) food and beverage operations; (iv)
parking fees; (v) revenues generated from gift shops and arcades; and (vi) other
revenues, fees and income, which are attributable to the Isle of Capri Black
Hawk. "Operating Income" means the income of the Isle of Capri Black Hawk before
any management fee paid to the Manager, distributions to Members, interest,
depreciation, amortization and write-off of start-up and pre-opening expenses
and income taxes. All amounts due to Casino America under the Management
Agreement will be subordinated to all obligations under the notes.
REIMBURSEMENT. In addition to compensation, the Manager will be
entitled to receive reimbursement for certain expenses incurred by it as the
actual cost or fair market value thereof, including, subject to certain
limitations, compensation paid to employees of the Manager that perform services
in connection with the Isle of Capri Black Hawk that would otherwise be filled
by an employee of the Isle of Capri Black Hawk.
TERM. The Management Agreement will terminate upon the earliest to
occur of (i) the election of either party if the other party fails to perform
any material obligation under the Management Agreement, (ii) the mutual
agreement of the parties, (iii) the inability of either party to obtain or
maintain licenses necessary to carry out their obligations under the Management
Agreement, (iv) the occurrence of certain bankruptcy events with respect to the
Manager or (v) December 31, 2096.
PERSONNEL. Manager, for the account of the Isle of Capri Black Hawk,
shall hire, supervise, direct, discharge and determine terms of employment of
all personnel working for the casino facility. The determination of compensation
for all employees shall be part of the annual plan approved by the Isle of Capri
Black Hawk.
REAL ESTATE DEVELOPMENT PROJECT
In September 1995, Nevada Gold completed acquisition of Gold Mountain
Development, LLC ("GMD"), a Colorado limited liability company, making it a
wholly owned subsidiary. Nevada Gold, through its acquisition of all membership
interests in GMD, acquired approximately 150 acres in the vicinity of Black
Hawk, Colorado. All references to Nevada Gold's ownership of real property in
the vicinity of Black Hawk, Colorado, include GMD.
In July 1996, President Clinton signed legislation authorizing the Bureau
of Land Management ("BLM") to exchange 133 separate tracts of federal public
land consisting of over 300 acres near Black Hawk for two privately-owned
ranches in Colorado of approximately 8700 total acres to be preserved as federal
public wilderness areas. The two ranches, purchased by a third party, will be
acquired by BLM and BLM is in the final phases of reappraisal of the federal
tracts and completion of a historical structures survey prior to final closing
of the exchange. As part of the exchange, Nevada Gold will receive BLM tracts in
exchange for certain real property it owns and, upon completion of the BLM
acquisition and exchange of real properties, will have approximately 170 acres,
which includes 18 acres available for acquisition for a nominal value from an
affiliate of the Secretary of the Company, available for residential and
commercial development in the immediate area of Black Hawk, Colorado. Management
believes the value of the property to be approximately $3 million. The various
casinos currently operating in Black Hawk employ in excess of 5000 individuals,
all of whom must commute daily for distances of 25 miles or more one way, as
there is no residential housing available in Black Hawk. With the exception of
existing casinos, there are also no commercial facilities in Black Hawk, which
can provide amenities for Black Hawk residents.
Nevada Gold's strategy is to proceed with the development of a
master-planned residential and commercial real estate project adjacent to Black
Hawk, Colorado. Upon the receipt of sufficient funds, Nevada Gold will secure a
feasibility/site evaluation study from an architectural planning firm or other
professional planning firm to provide guidance in development design, planning,
and construction. Following the initial planning stage, Nevada Gold will secure
financing or additional capital to develop the project in stages as determined
by the feasibility study and the then current residential/commercial property
needs in Black Hawk, subject always to obtaining zoning approval and building
permits from state and local agencies. Sales of pad sites may be made to assist
in the funding of the project and Nevada Gold may acquire a partner for no more
than a 50% interest to complete the project as a joint venture.
EMPLOYEES
Nevada Gold has six full-time permanent employees.
ENVIRONMENTAL CONSIDERATIONS
The casino being constructed in Black Hawk will be located in an area that
has been designated by the Environmental Protection Agency ("EPA") as a
superfund site on the National Priorities List ("NPL") as a result of
contamination from historic mining activity in the area. The EPA is entitled to
proceed against owners and operators of properties located within the superfund
site for remediation and response costs associated with their properties and
with the entire site. The Isle of Capri Casino Black Hawk will be located within
the drainage basin of the North Clear Creek and therefore subject to potentially
contaminated surface and ground water from upstream mining-related sources. Soil
and ground water samples on the site indicate that several contaminants existed
in concentrations exceeding drinking water standards. In 1995, an affiliate of
Nevada Gold, in cooperation with the EPA and the Colorado Department of Health
performed environmental analyses and tests and removed all mined waste located
on the gaming site
Nevada Gold's real property in the vicinity of Black Hawk is also located
in an EPA National Priorities List area. A portion of the real estate
development property has already been remediated by an affiliate of Nevada Gold
that was responsible for disposing of waste tailings and rock located on the
property. This remediation was performed under a consent order in agreement with
the EPA and the EPA has issued a notification that no further action is required
to remediate known contamination on the parcel. Additionally, the EPA requires
the maintenance and monitoring of drainage pipes installed in a mine tunnel, the
opening of which is located on property owned by Nevada Gold sought to be
developed, in order to prevent the backup of heavily mineralized, acidic water.
In the event of an unexpected water discharge from the tunnel, Nevada Gold's
property and access roads could suffer damage and require remediation or repair.
GOVERNMENTAL REGULATIONS
The ownership and operation of gaming facilities in Colorado are subject
to extensive state and local regulations. No gaming may be conducted in Colorado
unless licenses are obtained from the Colorado Limited Gaming Control Commission
(the "Colorado Commission"). In addition, the State of Colorado created the
Division of Gaming (the "Colorado Division") within its Department of Revenue to
license, implement, regulate, and supervise the conduct of limited stakes
gaming. The Director ("Colorado Director") of the Colorado Division under the
supervision of the Colorado Commission, has been granted broad powers to ensure
compliance with the law and regulations. The Colorado Commission, Colorado
Division, Colorado Director, and the city authorities in Black Hawk that have
responsibility for regulation of gaming are collectively referred to as the
"Colorado Gaming Authorities."
The laws, regulations and supervisory procedures of the Colorado Gaming
Authorities seek to maintain public confidence and trust that licensed limited
gaming is conducted honestly and competitively, that the rights of the creditors
of licensees are protected and that gaming is free from criminal and corruptive
elements. It is the stated policy of the Colorado Gaming Authorities that public
confidence and trust can be maintained only by strict regulation of all persons,
locations, practices, associations, and activities related to the operation of
the licensed gaming establishments and the manufacture and distribution of
gaming devices and equipment. The Colorado Commission is empowered to issue five
types of gaming and related licenses. The Isle of Capri Casino Black Hawk
requires a retail gaming license, which must be renewed each year, and the
Colorado Division has broad discretion to revoke, suspend, condition, limit or
restrict the licensee at any time. No person or entity can have an ownership
interest in more than three retail licenses, and Nevada Gold's business
opportunities will be limited accordingly. The Isle of Capri Casino Black Hawk
has not yet obtained the required gaming license.
The proposed real estate development will be contingent upon Nevada Gold
receiving all required licenses, permits, and authorizations, to include state
and local land-use permits, excavation, building, and zoning permits,
architectural approvals, approval of street and traffic signal improvements, and
health and safety permits. Also, unanticipated changes or concessions required
by local, regulatory, and/or state authorities, or challenges from local or
special interest groups, could involve significant costs and could prevent or
delay the development of the real estate project.
COMPETITION
The gaming and casino industry is subject to intense competition. As the
number of gaming establishments in Colorado has increased over the past two
years, average revenues for some of the smaller casinos located in Colorado have
declined significantly. Future initiatives could expand limited gaming in
Colorado to other locations. In addition to competing with other casinos in
Black Hawk, the Isle of Capri Casino Black Hawk may compete for customers with
casinos in other gaming jurisdictions. While the Isle of Capri Casino Black Hawk
believes its casino will have competitive advantages over the other gaming
establishments in the area as a primary result of its size and location, Nevada
Gold believes that national, regional, state, and local competition for the
gaming markets, in general, will be extremely intense during the foreseeable
future. Many of Isle of Capri Black Hawk's competitors may have established
positions in more locations, have greater financial resources, and have more
experience and expertise than Isle of Capri Black Hawk.
It is anticipated that real estate development in the Black Hawk area will
become highly competitive. Certain of Nevada Gold's competitors have or may have
significantly more real estate development experience and may have significantly
greater financial resources available or to be made available permitting more
extensive and more rapid development. Real estate developers with greater
resources than Nevada Gold have announced plans for multiple-use real estate
projects. Nevada Gold assumes that other developers may do the same, all of whom
may proceed with real estate developments prior to Nevada Gold.
INSURANCE
Nevada Gold has no liability insurance for officers, directors, or
employees.
GOLDFIELD RESOURCES, INC.
Goldfield Resources, Inc. ("Goldfield Resources") is a Nevada corporation
and a wholly owned subsidiary of Nevada Gold. Goldfield Resources, which was
originally incorporated under another name in 1995, was inactive until June
1998, when the corporation's name was changed and it was reinstated as an active
corporation. As consideration for shares of common stock of Goldfield Resources,
Nevada Gold will transfer approximately 2000 acres of land owned in fee simple
and approximately 7000 acres of BLM mining claims in the State of Nevada to
Goldfield Resources. Although the claims were acquired over a twenty year period
at a time when Nevada Gold was solely a mining concern, the shift of Nevada
Gold's business from mining to gaming and real estate development created an
opportunity for the formation of a subsidiary whose sole business is the
development of the mining claims.
Goldfield Resources will not be directly involved in mining operations,
but will secure mining leases with mining companies for its properties and will
retain royalty interests under the leases. This will permit Goldfield Resources
to benefit financially from mining operations without incurring the significant
labor and machinery costs of operating mining projects. In the event the price
of gold increases, Goldfield Resources will be in an ideal position to be a
participant in possible mergers and acquisitions given the size of its mining
claim holdings. The Company has executed a Letter of Intent with a mining
company and is currently negotiating the terms of a lease agreement for its
Nevada mineral properties.
ENVIRONMENTAL
There can be no assurance that the EPA or another governmental entity,
including an agency of the State of Nevada, will not require an environmental
audit of the properties and there can be no assurances that such an audit would
not discover hazardous substance contamination. The discovery of hazardous
substances on the properties could require the remediation or removal of the
substances by the Company at a prohibitive cost.
REGULATORY
Although Goldfield Resources currently holds mining claims from the Bureau
of Land Management ("BLM"), there can be no assurance that BLM will not modify
its rules and regulations to cancel the claims or that the U.S. Congress will
not pass legislation which also serves to cancel the claims or prohibit mining
operations on the claims.
If, because of a merger or acquisition, Goldfield Resources becomes
involved in mining operations, Goldfield Resources will be subject to federal
and state mining and safety laws and regulations administered by federal and
state agencies. Compliance with the stringent health and safety regulations
could impose a significant expense on operational costs.
COMPETITION
Given the current low price for gold, the entire gold mining industry is
in a slump. The majority of mining companies cannot profitably conduct mining
operations and are not acquiring mining leases from landowners or holders of
mining claims. Competition is heavy from the standpoint that few mining
companies are actively pursuing lease acquisitions and landowners and mining
claim holders are competing for a relatively small number of leasing
opportunities. In general, however, it is extremely difficult to enter into
mining leases with mining companies in today's market.
FACILITIES
Goldfield Resources shares office space with Nevada Gold at 3040 Post Oak
Blvd., Suite 675, Houston, Texas 77056 and the facilities are considered
adequate to meet its current needs and to accommodate anticipated growth.
EMPLOYEES
Goldfield Resources has one full-time employee.
SUNRISE LAND AND MINERALS CORPORATION
Sunrise Land and Minerals Corporation ("SLMC") was organized as a Nevada
corporation in September 1990. SLMC was successful in acquiring 300 acres of
land in Nevada County, California, including all surface, mineral, water, air,
and timber rights. In March 1995, Nevada Gold acquired all of the outstanding
shares of common stock (12,775,000) of SLMC for $525,000 payable in the form of
a Promissory Note. By subsequent agreement with the Noteholder, payment of the
Note was made in shares of common stock of Nevada Gold.
SLMC has been inactive since its acquisition in 1995. Nevada Gold's
complete focus on gaming and real estate development projects in Black Hawk,
Colorado precluded the development and expansion of a business role for SLMC.
Now that Nevada Gold's casino project is funded and under construction, the
Company intends to direct its attention to subsidiary operations. The immediate
goal of SLMC is the conduct of feasibility studies evaluating the highest and
best use of SLMC's 300-acre tract of land. In addition to potential sales of
sand, gravel, clay, and decorative rock from the property, there is also
potential for a real estate development on the property. The feasibility studies
will permit SLMC to make a more informed decision regarding its future efforts
for utilization of the property and determining the economic returns of the
potential uses for the property.
ENVIRONMENTAL
To the best of SLMC's knowledge, there is no hazardous substance
contamination on the subject property nor is the property in an EPA NPL area.
There can be no assurance that the EPA or another governmental entity, including
an agency of the State of California, will not require an environmental audit of
the property and there can be no assurances that such an audit would not
discover hazardous substance contamination. The discovery of hazardous
substances on the properties could require the remediation or removal of the
substances by SLMC at a prohibitive cost.
REGULATORY
SLMC is not aware of any federal or state regulatory requirements
concerning the sale of sand, gravel, clay, and decorative rock; however, there
can be no assurances that federal or state laws will not be enacted which would
serve to regulate the sales of these products with a possible adverse impact on
SLMC.
When SLMC begins conducting operations for the sale of sand, gravel, clay,
and decorative rock, SLMC will be subject to federal and state health and safety
laws, rules, and regulations administered by federal and state agencies.
Compliance with the health and safety regulations could impose a significant
expense on operational costs.
COMPETITION
SLMC is not fully knowledgeable of the exact number of competitors in the
sand, gravel, clay, and decorative rock business; however, SLMC is aware that
there is a market for the products and that there are competitors which may have
substantially more experience and financial resources than SLMC. Further, in the
event that SLMC proceeds with a real estate development project on the property,
SLMC is aware that there are other experienced real estate development companies
in competition with it, many of whom have substantially more financial resources
available for real estate development.
FACILITIES
SLMC shares office space with Nevada Gold at 3040 Post Oak Blvd., Suite
675, Houston, Texas 77056 and the facilities are considered adequate to meet its
current needs and to accommodate anticipated growth.
EMPLOYEES
SLMC currently has no employees, but it is anticipated that SLMC will
initially employ one full-time employee.
ITEM 2. PROPERTIES
The Company's principal properties consist of undeveloped land located in
and around Black Hawk, Colorado, Nye and Esmeralda Counties, Nevada, and Nevada
County, California. Certain Colorado properties are zoned for gaming, while the
other Colorado, Nevada, and California properties are intended for residential,
commercial, and recreational real estate development or mineral resource
development.
The Company leases approximately 3,500 square feet of office space in
Houston, Texas, and a 1,300 square foot apartment/office in Denver Colorado. The
monthly rental for both facilities is currently $3,800. The Company believes
that its existing facilities are adequate to meet its current needs and to
accommodate anticipated growth.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 18, 1997, the Board of Directors of Nevada Gold passed a
resolution recommending an increase in the number of authorized shares of common
stock to 20,000,000 shares to permit the Company to raise additional capital and
to explore mergers and acquisitions. The increase in authorized shares was
approved at the annual stockholders' meeting on February 9, 1998 with 5,636,342
votes in favor, 58,035 votes in opposition, and 1,593,673 votes abstaining. The
engagement of the firm of Pannell Kerr Forster of Texas, P.C., as auditors for
the fiscal year was approved with 7,273,362 votes in favor, 5413 votes in
opposition, and 9275 votes abstaining.
The February 9, 1998 Annual Meeting of Shareholders also elected Directors
of the Company for Fiscal Year 1998. Results of the election were as follows:
VOTES
FOR AGAINST ABSTAIN
DIRECTORS
H. Thomas Winn 7,262,429 2949 22,672
Paul J. Burkett 7,262,341 3037 22,672
Hubert J. Wen 7,262,387 2991 22,672
William G. Jayroe 7,262,471 2907 22,672
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the OTC Electronic Bulletin Board,
under the symbol UWIN. There were approximately 4,400 shareholders of record, as
of June 30, 1998. The following table sets forth the high and low sales prices
relating to the Company's common stock for the last two fiscal years:
FISCAL YEARS ENDED
-------------------------------------
MARCH 31, 1998 MARCH 31, 1997
----------------- -----------------
HIGH BID LOW BID HIGH BID LOW BID
---- --- --- --- ---- --- --- ---
First Quarter $2.250 $1.375 $ 6.188 $4.125
Second Quarter 3.125 1.500 6.563 3.375
Third Quarter 2.125 1.250 5.375 2.875
Fourth Quarter 2.875 2.000 3.000 1.500
DIVIDENDS
There have never been any dividends declared by the Registrant. The
Registrant's losses do not currently indicate the ability to pay cash dividends
and Registrant does not intend to pay cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data set forth below should be read in conjunction
with the accompanying financial statements and notes, thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
1998 1997 1996 1995 1994
---------- ---------- ----------- --------- ---------
Revenues $153,212 $ 94,004 $468,113 $ 77,900 $ 60,152
Net loss 2,580,644 1,613,078 598,752 434,364 113,203
Net loss per
share * .32 .20 .07 .06 .05
Total assets 3,615,699 4,956,023 5,057,691 4,213,808 2,265,932
Long term debt 632,741 208,900 395,798 579,480 369,446
* Adjusted retroactively for the three-for-one reverse stock split effective
September 23, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
The following discussions of the Company's results of operations and
financial position should be read in conjunction with the financial statements
and notes pertaining thereto, appearing elsewhere in this Form 10-K. Management
is of the opinion that inflation and changing prices will have little, if any,
effect on the Company's financial position or results of operations. The
financial statements have been consolidated for all wholly owned subsidiaries as
of March 31, 1997 and 1998. All significant intercompany transactions and
balances have been eliminated in the financial statements. Certain prior-year
balances have been reclassified to conform to current year presentations.
GENERAL
Revenues from the Company have not been sufficient to cover the Company's
operating expenses during the past year. In addition, there have been no
revenues from the Company's gaming operations to date since these are currently
in the development stage. Management does not expect revenues from operations
until after the opening of the Isle of Capri Black Hawk Casino, anticipated to
open in late December 1998 or January 1999.
The Company's significant source of revenue will likely be from its
membership interest in the Isle of Capri Black Hawk. To date, no distributions
have been declared. Although it is anticipated that the casino will commence
operations in the next calendar year, there can be no assurances that this will
occur. In the event operations do commence, there can be no assurance that the
Isle of Capri Black Hawk will be profitable. Other numerous contingencies, out
of the control of the Company, may affect distributions by the Isle of Capri
Black Hawk, and there can be no assurance that the Company will receive
distributions or that they will be of an amount substantial enough to fund the
Company's operations.
The Company's 40% ownership of the Isle of Capri Black Hawk is accounted
for using the equity method of accounting. The Company's investment in the
limited liability company is stated at cost, adjusted for its equity in the
undistributed earnings or losses of the project.
The Company capitalizes costs of acquiring and developing mineral claims
until such time as the properties are placed into production. At that time,
costs will be amortized on a units-of-production basis. Such costs include the
costs to acquire and improve the claims, including land-related improvements,
such as roads. The Company carries these costs on its books at the lower of its
basis in the claims or the net realizable value of the mineral reserves
contained in the claims.
Property held for development consists of undeveloped land located in and
around Black Hawk, Colorado and Nevada County, California. The Company has
capitalized certain direct costs of predevelopment activities together with
capitalized interest. Property held for development is carried at the lower of
cost or net realizable value.
The Company's internally generated cash flows from operations have
historically been and continue to be insufficient for its cash needs. The
Company has historically relied upon equity and debt financing to fund
operations. The Company's current cash forecasts indicate that there will be
negative cash flows from operations for the balance of the current fiscal year.
It is likely that the Company will be required to seek debt or equity financing,
curtail operations, or sell assets in order to bring its cash flow into balance;
however, there are currently no specific plans or commitments with respect
thereto. Management's strategy is to raise additional funds through the sale of
Company debt and equity securities, including those held by affiliates of the
Company. In the event that such actions are required, there can be no assurances
that the Company will be successful in any such effort.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send payments on
invoices, or engage in similar normal business activities.
The Company intends to initiate formal communications with its business
venture associates and affiliates to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. There can be no guarantee that the systems of other
companies on which the Company's own systems may rely will be timely converted
and would not have an adverse effect on the Company's systems. The Company
believes that the Year 2000 issue will not pose significant operational problems
for its computer systems.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1998 AND 1997
Revenues increased $59,208 for the year ended March 31, 1998 compared to
the prior year. The current year includes gains of $135,116 for the sale of part
of the Company's interest in the Isle of Capri Black Hawk. The prior year
included $33,385 interest income from BSH, Inc., an affiliate of the Secretary,
and interest earned on the proceeds of commercial paper.
General and administrative expenses increased $109,551 for the year ended
March 31, 1998 compared to the prior year, including increases of $67,275 in
commission expense, $33,521 in land maintenance fees, and $22,639 in travel
expense, partially offset by a decrease of $22,255 in contract labor. The
current year included fees in the amount of $91,275 related to the casino
project and the acquisition of financing. Last year included $24,000 related to
the acquisition of financing. The prior year also included a $32,100
reimbursement for land maintenance fees paid and expensed in September 1996. The
current year includes travel related to the Isle of Capri Black Hawk and
evaluation of potential gaming ventures.
Interest expense decreased $120,648 for the year ended March 31, 1998 as
compared to last year. The prior year included interest on short-term notes and
accrued expenses related to the management agreement with Aaminex, which were
paid off during the year. The prior year also included $30,000 interest expense
on commercial paper.
Salaries increased $100,699 for the year ended March 31, 1998 as compared
to last year, due to the hiring of additional personnel to handle accounting,
legal, and other functions previously performed by independent contractors and
consultants.
Legal and professional fees decreased $8,809, primarily as a result of
decreases of $86,533 for legal fees and $47,342 in accounting expense. The prior
year's fees included legal fees associated with the acquisition of capital.
Legal fees also decreased because many legal services are being handled
in-house. Accounting expense decreased because employees were added to handle
functions previously performed by independent contractors and consultants. The
current year includes $442,444 consulting expense recorded on stock options
awarded, compared to $363,250 last year. The current year also includes $45,000
expense for stock issued for consulting services.
Other expenses decreased $25,523, including a decrease of $14,154 in
printing expense. The prior year included expenses for SEC filings.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
Revenues decreased $374,109 for the year ended March 31, 1997 compared to
the prior year. Royalty income decreased $30,000. The year ended March 31, 1997
included $25,000 from the Sagebrush Exploration rental agreement that was
effective beginning November 1, 1996 and $5,000 under the terms of a rental
agreement with Cameco that was terminated effective March 31, 1996. The previous
year included $60,000 from Cameco. Included in Other Income for the year ended
March 31, 1996 was $350,000 recognized as a gain on the disposal of assets in
which the Company had a nominal cost basis and $50,000 as part of a rental
agreement. The year ended March 31, 1997 includes a $57,644 increase in interest
income including interest earned on the proceeds of the $2,000,000 commercial
paper and $33,385 interest income received from BSH, Inc., an affiliate of the
President and Secretary.
General and Administrative expenses increased $69,669, including increases
of $22,441 for travel, $16,500 for commission expense, $12,241 for depreciation
and $9,713 for telephone expense.
Interest Expense increased $208,625, for the year ended March 31, 1997 as
compared to the previous year. The year ended March 31, 1997 included $30,000
interest on the $2,000,000 commercial paper and an increase of $178,625 in other
interest expense, primarily for other short-term notes payable and interest on
the accrued expenses related to the management agreement with Aaminex.
Salaries increased $86,132 for the year ended March 31, 1997 as compared
to the previous year, because employees were added to handle accounting and
other functions previously outsourced by the Company.
In general, legal and professional fees increased $255,745, primarily as a
result of consulting expense increases of $346,321, generally due to expense
recorded on stock options awarded. Accounting expense decreased $67,337 because
employees were added to handle functions previously outsourced by the Company.
Legal fees decreased $23,240. The previous year included legal fees attributable
to the Caesar's Black Hawk project and the $8.5 million debt offering.
Other Expenses increased $20,046, including an increase in printing
expenses, generally related to printing of SEC filings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's internally generated cash flows from operations have
historically been and continue to be insufficient for its cash needs. The
Company has historically relied upon equity and debt financing to fund
operations. The Company's current cash forecasts indicate that there will be
negative cash flows from operations for the balance of the current fiscal year.
It is likely that the Company will be required to seek debt or equity financing,
curtail operations, or sell assets in order to brings its cash flow into
balance; however, there are currently no specific plans or commitments with
respect thereto. Management's strategy is to raise additional funds through the
sale of Company debt and equity securities, including those held by affiliates
of the Company. In the event that such actions are required, there can be no
assurance that the Company will be successful in any such efforts.
The short term viability of the Company is dependent upon the Company's
ability to raise sufficient capital to meet its cash requirements. In addition,
the Company and its venture partner, Casino America, are in the process of
developing a casino as described above; however, there is no assurance that the
development of a successful casino will be completed. The ownership and
operation of gaming facilities are subject to extensive state and local
regulations. There is no assurance that the Company or its partner will be able
to comply or conduct business in accordance with applicable regulations. The
long term viability of the Company is dependent upon successful completion and
operaiton of a casino hotel complex. The factors described above raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. If the Company is unable to continue
as a going concern, the values realized from the Company's assets may be less
than the carrying amounts reported in its financial statements. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
During the year ended March 31, 1998, the Company received proceeds from
short-term debt of $679,495 to cover its operating deficit and for scheduled
payments on its long-term debt. Additional funds were obtained through private
sales of restricted Company Stock to "accredited" investors, as such term is
defined under Regulation D. As of March 31, 1998, the Company had short-term
notes payable totaling $279,591, current portion of long-term debt of $73,187,
and long-term notes and capital leases payable totaling $632,741. The Company
intends to fund these current obligations from future financings.
Pursuant to an amended operating agreement with Casino America, the
Company received from Casino America a $500,000 loan and $700,000 in cash for
sale of part of its ownership interest in the casino project. Casino America
also committed to fund up to $800,000 toward the Company's future cash
requirements. The Company's ownership of the project was reduced to
approximately 41% upon receipt of the initial $1,200,000 from Casino America and
the Company's ownership has subsequently been reduced to 40% by utilization of
the cash funding commitment. Substantially all of the $1,200,000 proceeds were
paid directly to creditors of the Company in full payment of outstanding
obligations to such creditors. The loan bears interest at the higher of 14.5% or
Casino America's highest cost of funds plus two percentage points and is due on
August 20, 2000.
In January 1997, the Company engaged Jefferies and Company, Inc., a
nationally known investment banking concern prominent in the gaming industry, as
its exclusive financial advisor in connection with the structuring and financing
of the Casino project. In August 1997, first mortgage notes in the aggregate
amount of $75,000,000 were issued by the Isle of Capri Black Hawk and its wholly
owned subsidiary, Isle of Capri Black Hawk Capital Corp. (collectively the
"Issuers"). These notes mature on August 31, 2004 and bear interest at 13% per
annum. Interest on the notes is payable semi-annually on each February 28 and
August 31, commencing February 28, 1998. Contingent interest is payable on the
notes, on each interest payment date, in an aggregate amount equal to 5% of the
Isle of Capri Black Hawk's consolidated cash flow for the two fiscal quarters
ending during the January or July immediately preceding such interest payment
date. The notes are secured by a first lien on substantially all of the existing
and future assets of the Issuers and are without recourse to the members of the
Isle of Capri Black Hawk or their respective parents or affiliate entities.
Effective December 31, 1996, the Board of Directors and the holders of the
Company's common stock having at least a majority of the voting power of the
shares, approved and authorized the issuance of 500,000 shares of Preferred
Stock, $10 par value per share. The Company subsequently issued 141,490 shares
of 12% cumulative preferred stock, $10 par value, in exchange for short-term
notes payable to Clay County Holdings, Inc., an affiliate of the Secretary of
the Company, and accrued management fees due to Aaminex Capital Corp
("Aaminex,") an affiliate of the President of the Company.
These shares are callable by the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
During the year ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 requires primary earnings per share ("EPS") to be replaced with basic EPS.
Basic EPS is computed by dividing reported earnings available to all common
shareholders by the weighted average number of shares outstanding without
consideration of common stock equivalents or other potentially dilutive
securities. Fully diluted EPS gives effect to common stock equivalents and other
potentially dilutive securities outstanding during the period.
During June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." These statements are
effective for years beginning after December 15, 1997. SFAS No. 130 established
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. SFAS No. 131
establishes standards for reporting financial and descriptive information
regarding an enterprise's operating segments. These statements increase
financial reporting disclosures and will have no impact on the Company's
financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required thereunder is included in this report as set forth in
the "Index to Consolidated Financial Statements".
Index to Consolidated Financial Statements
Reports of independent public accountants 17,18
Consolidated balance sheets 19
Consolidated statements of operations 20
Consolidated statements of stockholders' equity 21-23
Consolidated statements of cash flows 24
Notes to consolidated financial statements 25-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Nevada Gold & Casinos, Inc.:
We have audited the accompanying consolidated balance sheets of Nevada Gold &
Casinos, Inc. and subsidiaries (a Nevada corporation in the development stage)
as of March 31, 1998 and 1997 and the related statements of operations,
stockholders' equity and cash flows for the years then ended and the 1998 and
1997 amounts included in the cumulative amounts during the development stage
(Inception -December 27, 1993). 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 audit. We did not audit the
financial statements of Nevada Gold & Casinos, Inc. for the periods prior to
April 1, 1996. Those statements were audited by other auditors whose report has
been furnished to us and our opinion, insofar as it relates to amounts for the
periods prior to April 1, 1996, included in the cumulative totals, is based
solely upon the report of the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Nevada Gold & Casinos, Inc. and
subsidiaries as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended and for the 1998 and 1997 amounts
included in the cumulative amounts for the period from Inception to March 31,
1998, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, revenues have not been
sufficient to cover the Company's operating expenses during the past several
years. In addition, there have been no revenues from the Company's gaming
operations to date since these activities are currently in the development
stage. Management does not expect significant increases in revenues from any of
its operations over the next year. The Company will require substantial
additional capital to fund the continued acquisition and development of gaming
and real estate properties and to cover the Company's anticipated operating
deficits and debt maturities over the next several years. The Company intends to
fund such capital requirements through a combination of debt and equity
offerings. However, there is no assurance that these offerings will be
successful or that proceeds from these offerings, if successful, will be
sufficient to meet all of the Company's future cash requirements. The short term
viability of the Company is dependent upon the Company's ability to raise
sufficient capital to meet its cash requirements. In addition, the Company has
signed an Operating Agreement with Casino America, Inc. concerning the
development of a casino. However, there is no assurance that the development of
a successful casino will be completed. The ownership and operation of gaming
facilities are subject to extensive state and local regulations. There is no
assurance that the Company will be able to comply or conduct business in
accoradance with applicable regulations. The long term viability of the Company
is dependent upon successful completion and operation of a casino. The factors
described above raise substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. If the Company is
unable to continue as a going concern, the values realized from the Company's
assets may be less than the carrying amounts reported in its financial
statements. The accompanying financial statements do no include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Pannell Kerr Forster of Texas, P. C.
Houston, Texas
June 2, 1998
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nevada Gold & Casinos, Inc.:
We have audited the accompanying statements of operations, stockholders' equity
and cash flows for the year ended March 31, 1996, of Nevada Gold & Casinos, Inc.
(a Nevada corporation in the development stage), and the related statements of
operations and cash flows for the period from the inception of the development
stage (Inception-December 27, 1993) to March 31, 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 did not audit the financial statements of Nevada Gold & Casinos,
Inc. for the period from Inception through March 31, 1994. Such statements are
included in the cumulative inception to March 31, 1996 totals of the statements
of operations and cash flows and reflect total revenues and net loss of 10
percent and 10 percent respectively, of the related cumulative totals. Those
statements were audited by other auditors whose reports have been furnished to
us and our opinion, insofar as it relates to amounts for the period from
Inception to March 31, 1994, included in the cumulative totals, is based solely
upon the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the results of its operations and its cash flows of Nevada Gold & Casinos, Inc.
for the year ended March 31, 1996 and for the period from Inception to March 31,
1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, revenues have not been
sufficient to cover the Company's operating expenses during the past several
years. In addition, there have been no revenues from the Company's gaming
operations to date since these activities are currently in the predevelopment
stage. Management does not expect significant increases in revenues from any of
its operations over the next year. The Company will require substantial
additional capital to fund the continued acquisition and development of gaming
and real estate properties to cover the Company's anticipated operating deficits
and debt maturities over the next several years. The Company intends to fund
such capital requirements through a combination of debt and equity offerings.
However, there is no assurance that these offerings will be successful or that
the proceeds from these offerings, if successful, will be sufficient to meet all
of the Company's future cash requirements. The short term viability of the
Company is dependent upon the Company's ability to raise sufficient capital to
meet its cash requirements. In addition, the Company has signed an Operating
Agreement with Caesars World Inc. ("Caesars") concerning the development of a
casino hotel complex. However, there is no assurance that the development of a
successful casino will be completed. The ownership and operation of gaming
facilities are subject to extensive state and local regulations. There is no
assurance that the Company will be able to comply or conduct business in
accordance with applicable regulations. The long term viability of the Company
is dependent upon successful completion and operation of a casino hotel complex.
The factors described above raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. If the
Company is unable to continue as a going concern, the values realized from the
Company's assets may be less than the carrying amounts reported in its financial
statements. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Arthur Andersen LLP
Houston, Texas
May 24, 1996
17
<PAGE>
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents ........................... $ 154,367 $ 78,245
Other assets ........................................ 83,211 82,408
--------- ---------
TOTAL CURRENT ASSETS ................................ 237,578 160,653
Investment in Isle of Capri Black Hawk .............. 599,828 --
Real estate and assets held for development ......... 2,201,809 4,203,418
Mining properties and claims ........................ 480,812 480,812
Furniture, fixtures and equipment, net of accumulated
depreciation
of $81,677 in 1998 and $59,174 in 1997 ............ 95,672 111,140
----------- -----------
TOTAL ASSETS ........................................ $ 3,615,699 $ 4,956,023
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities ............ $ 56,248 $ 261,930
Accrued interest payable ............................ 49,154 63,963
Short term notes payable ............................ 279,591 1,504,367
Current portion of long term debt ................... 73,187 112,492
----------- -----------
TOTAL CURRENT LIABILITIES ........................... 458,180 1,942,752
----------- -----------
LONG-TERM DEBT
Mortgages payable, net of current portion ........... 111,023 176,632
Notes payable, net of current portion ............... 521,718 32,268
----------- -----------
TOTAL LONG TERM DEBT ................................ 632,741 208,900
----------- -----------
OTHER LIABILITIES
Deferred gain ....................................... 591,404 _
----------- -----------
TOTAL LIABILITIES ................................... 1,682,325 2,151,652
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $10 par value, 500,000 shares
authorized,
141,490 and 90,100 shares outstanding at
March 31, 1998 and 1997, respectively .......... 1,414,900 901,000
Common stock, $.12 par value, 20,000,000 shares
authorized, 8,822,464 and 8,349,046 shares
outstanding at March 31, 1998 and 1997,
respectively .................................... 1,058,696 1,001,886
Additional paid in capital .......................... 7,095,896 5,956,959
Accumulated deficit prior to development stage
(12/27/93) .......................................... (2,296,077) (2,296,077)
Accumulated deficit during development stage ........ (5,340,041) (2,759,397)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .......................... 1,933,374 2,804,371
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .......................................... $ 3,615,699 $ 4,956,023
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
AND CUMULATIVE AMOUNTS DURING DEVELOPMENT STAGE SINCE DECEMBER 27, 1993
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS
DURING
DEVELOPMENT
STAGE (SINCE
1998 1997 1996 12/27/93)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Royalty income ...................... $ 15,000 $ 30,000 $ 60,000 $ 219,000
Gain on sale-part interest
Isle of Capri Black Hawk ............ 135,116 -- -- 135,116
Other income ........................ 3,096 64,004 408,113 499,265
----------- ----------- ----------- -----------
TOTAL REVENUES ...................... 153,212 94,004 468,113 853,381
----------- ----------- ----------- -----------
EXPENSES
General and administrative .......... 573,777 464,226 394,557 1,702,932
Interest expense .................... 217,570 338,218 129,593 704,592
Salaries ............................ 250,210 149,511 63,379 529,194
Legal and professional fees ......... 644,067 652,876 397,131 1,912,018
Other ............................... 76,728 102,251 82,205 373,182
----------- ----------- ----------- -----------
TOTAL EXPENSES ...................... 1,762,352 1,707,082 1,066,865 5,221,918
----------- ----------- ----------- -----------
EQUITY IN EARNINGS (LOSS) OF
ISLE OF CAPRI BLACK HAWK ........... (971,504) -- -- (971,504)
----------- ----------- ----------- -----------
NET LOSS ............................ $(2,580,644) $(1,613,078) $ (598,752) $(5,340,041)
=========== =========== =========== ===========
PER SHARE INFORMATION
Net loss ............................ $(2,580,644) $(1,613,078) $ (598,752) $(5,340,041)
Preferred stock dividends
accumulated ........................ (146,047) (27,030) -- (173,077)
----------- ----------- ----------- -----------
Loss available to common
stockholders ....................... $(2,726,691) $(1,640,108) $ (598,752) $(5,513,118)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding .......... 8,494,093 8,219,096 8,136,788 6,927,185
=========== =========== =========== ===========
Net loss per common
share-basic ........................ $ (.32) $ (.20) $ (.07) $ (.80)
=========== =========== =========== ===========
</TABLE>
19
The accompanying notes are an integral part of these financial statements.
<PAGE>
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1997, AND 1996
AND CUMULATIVE AMOUNTS DURING DEVELOPMENT STAGE SINCE DECEMBER 27, 1993
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
STOCK PREFERRED STOCK COMMON STOCK PAID ACCUMULATED STOCKHOLDERS'
SUBSCRIPTIONS SHARES AMOUNT SHARES* AMOUNT IN CAPITAL DEFICIT EQUITY
------------- ------- ------ ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 3/31/93 ............ $ $1,426,939 $ 171,233 $ 2,559,028 $(2,296,077) $ 434,184
Stock issued for cash ......... 133,333 16,000 84,000 100,000
Stock issued for
property 12/27/93 ............ 3,166,667 380,000 703,000 1,083,000
Cash for stock
subscriptions ................ 295,500 295.500
Contribution of
salaries to paid in
Capital by officer ........ 1,000 1,000
Net loss ...................... (113,203) (113,203)
------------- ------- ------ ---------- ---------- ----------- ------------ -------------
Balance at 3/31/94 ............ 295,500 4,726,939 567,233 3,347,028 (2,409,280) 1,800,481
Stock subscriptions
outstanding .................. (295,500) (295,500)
Stock issued for
property 8/1/94 .............. 2,204,434 264,532 182,468 447,000
Stock issued for cash
4/1/94 ....................... 390,000 46,800 46,800
Stock issued for cash
4/15/94 ...................... 392.400 47,088 541,512 588,600
Stock issued for cash
8/15/94 ...................... 295,371 35,445 486,610 522.055
Net loss ...................... (434,364) (434,364)
------------- ------- ------ ---------- ---------- ----------- ------------ -------------
Balance at 3/31/95 ............ 8,009,144 961,098 4,557,618 (2,843,644) 2,675,072
Stock issued for cash
2/7/96 ....................... 2,784 334 5,930 6,264
Stock issued associated
with debt offering 3/31/96 ... 9,820 1,178 20,917 22,095
Stock issued for
promotional and
employee benefits 2/8/96 ..... 4,151 498 13,189 13,687
Stock issued for
accounting expenses 2/8/96 ... 7,472 897 24,834 25,731
</TABLE>
20
<PAGE>
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1997, AND 1996
AND CUMULATIVE AMOUNTS DURING DEVELOPMENT STAGE SINCE DECEMBER 27, 1993
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
STOCK PREFERRED STOCK COMMON STOCK PAID ACCUMULATED STOCKHOLDERS'
SUBSCRIPTIONS SHARES AMOUNT SHARES* AMOUNT IN CAPITAL DEFICIT EQUITY
------------- ------- ------ ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Additional stock issued
for property
1/19/96 ..................... 50,000 6,000 (6,000)
Investment banker's
option expense ................ 225,000 225,000
Interest paid in stock
3/31/96 ....................... 14,000 1,680 40,320 42,000
Net loss ...................... (598,752) (598,752)
------------- ------- ------ ---------- ---------- ----------- ------------ -------------
Balance at 3/31/96 ............ 8,097,371 971,685 4,881,808 (3,442,396) 2,411,097
Stock issued for cash
4/30/96 ....................... 1,667 200 3,550 3,750
Stock issued for
services 8/9/96 ............... 2,000 240 5,760 6,000
Stock issued for
convertible debt 8/23/96 ...... 166,667 20,000 522,966 542,966
Stock issued for
services 8/30/96 .............. 8,749 1,050 27,974 29,024
Stock issued for
interest 9/4/96 ............... 833 100 2,400 2,500
Stock issued for
convertible debt 12/23/96 ..... 33,007 3,961 95,060 99,021
Stock issued for cash
12/23/96 ...................... 5,000 600 6,900 7,500
Stock issued for
services 12/31/96 ............. 2,596 312 312
Stock issued for
convertible debt and
management fee 12/31/96 .... 90,100 901,000 901,000
Stock issued for
convertible debt 2/27/97 ...... 31,917 3,830 47,238 51,068
Consultant and
investment bankers
option expense ............. 363,250 363,250
Other, including
fractional shares ............. (761) (92) 53 (39)
Net loss ...................... (1,613,078) (1,613,078)
------------- ------- ------ ---------- ---------- ----------- ------------ -------------
Balance at 3/31/97 ............ 90,100 901,000 8,349,046 1,001,886 5,956,959 (5,055,474) 2,804,371
</TABLE>
21
<PAGE>
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1997, AND 1996
AND CUMULATIVE AMOUNTS DURING DEVELOPMENT STAGE SINCE DECEMBER 27, 1993
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
STOCK PREFERRED STOCK COMMON STOCK PAID ACCUMULATED STOCKHOLDERS'
SUBSCRIPTIONS SHARES AMOUNT SHARES* AMOUNT IN CAPITAL DEFICIT EQUITY
------------- ------- ------ ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued for
compensation 10/31/97 ..... 10,000 1,200 13,800 15,000
Stock issued for cash ........ 212,800 25,536 329,857 355,393
Stock issued for
convertible debt and
management fees-12/29/97...... 51,390 513,900 513,900
Stock issued for
convertible debt ............. 206,068 24,728 292,170 316,898
Stock issued for
services ..................... 44,550 5,346 60,666 66,012
Consultant option
expense ...................... 442,444 442,444
Net loss ..................... (2,580,644) (2,580,644)
Balance at 3/31/98 ........... $- $ 1,414,900 $1,414,900 8,822,464 $1,058,696 7,095,896 (7,636,118) $ 1,933,374
======= =========== ========= ========== ========= ========== ===========
</TABLE>
* Adjusted for three-for-one reverse stock split.
22
The accompanying notes are an integral part of these financial statements.
<PAGE>
NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997, AND 1996
AND CUMULATIVE AMOUNTS DURING DEVELOPMENT STAGE SINCE DECEMBER 27, 1993
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS
DURING
DEVELOPMENT
STAGE (SINCE
1998 1997 1996 12/27/93)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING
ACTIVITIES:
Net loss .......................... $(2,580,644) $(1,613,078) $ (598,752) $(5,340,041)
Adjustment to reconcile net
loss to net cash
provided (used) by
operating activities
Depreciation ................. 26,401 26,612 14,370 72,871
Equity in net loss of
Isle of Capri
Black Hawk .................. 971,504 971,504
Consultant and
investment bankers
option expense ............. 442,444 320,625 -- 763,069
Gain on sale-part
interest Isle of
Capri Black Hawk ........... (135,116) -- -- (135,116)
Other ...................... 231 231
Changes in operating assets
and liabilities: ................. --
Other ........................ (2,985) (7,619) 230,644 203,541
Accounts payable and
accrued liabilities ......... 111,626 530,908 377,474 1,178,665
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) IN
OPERATING ACTIVITIES ............. (1,166,539) (742,552) 23,736 (2,285,276)
----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING
ACTIVITIES:
Real estate and assets held
for development .................. (85,211) (53,263) (410,919) (1,357,725)
Purchase of furniture,
fixtures and equipment ........... (19,621) -- (23,739) (48,659)
Proceeds from sale of part
interest of Isle of
Capri Black Hawk ................. 833,334 -- -- 833,334
Proceeds on disposition of
property ......................... 8,866 -- -- 8,866
----------- ----------- ----------- -----------
NET CASH PROVIDED
(USED) IN INVESTING
ACTIVITIES ....................... 737,368 (53,263) (434,655) (564,184)
----------- ----------- ----------- -----------
CASH FLOW FROM FINANCING
ACTIVITIES
Salaries contributed by
officers ......................... -- -- -- 1,000
Common stock issued for
cash, net of offering costs ...... 355,392 31,250 28,359 1,376,955
Payment for fractional shares ..... -- (36) (36)
Proceeds from debt ................ 1,179,496 2,952,751 501,407 4,765,658
Payments on debt .................. (1,029,595) (2,186,276) (131,656) (3,441,537)
Prepaid stock subscriptions ....... -- -- -- 295,500
----------- ----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING
ACTIVITIES ................... 505,293 797,689 398,110 2,997,540
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH .............................. 76,122 1,874 (12,809) 148,080
BEGINNING CASH BALANCE ............ 78,245 76,371 89,180 6,287
----------- ----------- ----------- -----------
ENDING CASH BALANCE ............... $ 154,367 $ 78,245 $ 76,371 $ 154,367
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW
INFORMATION:
CASH PAID FOR INTEREST ............ $ 149,057 $ 161,084 $ 84,149 $ 413,500
=========== =========== =========== ===========
CASH PAID FOR TAXES ............... -- -- -- --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
NEVADA GOLD & CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. BUSINESS
Nevada Gold was formed in 1977 under the name Pacific Gold & Uranium
Corporation for the principal purpose of operating and managing mining
activities, primarily in the western United States. On December 27, 1993,
control of the Company changed and the Company's primary focus was redirected
toward the development of gaming and real estate properties in Colorado. The
Company is considered to be in the development stage since December 27, 1993. In
January 1994, the Company changed its name from Pacific Gold Corporation to
Nevada Gold & Casinos, Inc.
In April 1997, the Company and Casino America, wholly owned subsidiaries,
BlackHawk Gold and Casino Colorado, respectively, formed a limited liability
company, the Isle of Capri Black Hawk. The limited liability company's purpose
is the construction and operation of the Isle of Capri Black Hawk Casino on the
Black Hawk Property. Casino America will operate the Casino under a management
agreement for a fee based upon a percentage of revenues.
The Company also owns approximately 150 acres of real property in the
vicinity of Black Hawk, Colorado, and contemplates the completion of additional
acquisitions by the end of July 1998. The Company intends to develop a
commercial and residential real estate project on the property.
The Company's internally generated cash flows from operations have
historically been and continue to be insufficient for its cash needs. The
Company has historically relied upon equity and debt financing to fund
operations. The Company's current cash forecasts indicate that there will be
negative cash flows from operations for the balance of the current fiscal year.
It is likely that the Company will be required to seek debt or equity financing,
curtail operations, or sell assets in order to bring its cash flow into balance;
however, there are currently no specific plans or commitments with respect
thereto. Management's strategy is to raise additional funds through the sale of
Company debt and equity securities, including those held by affiliates of the
Company. In the event that such actions are required, there can be no assurances
that the Company will be successful in any such effort.
The short term viability of the Company is dependent upon the Company's
ability to raise sufficient capital to meet its cash requirements. In addition,
the Company and its venture partner, Casino America, are in the process of
developing a casino as described above; however, there is no assurance that the
development of a successful casino will be completed. The ownership and
operation of gaming facilities are subject to extensive state and local
regulations. There is no assurance that the Company or its partner will be able
to comply or conduct business in accordance with applicable regulations. The
long term viability of the Company is dependent upon successful completion and
operaiton of a casino hotel complex. The factors described above raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. If the Company is unable to continue
as a going concern, the values realized from the Company's assets may be less
than the carrying amounts reported in its financial statements. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND EQUIVALENTS. Interest bearing deposits and other investments,
with original maturities of three months or less, are considered cash and cash
equivalents.
MINING PROPERTIES AND CLAIMS. As of March 31, 1998 and 1997, management
believes the net realizable value of the mineral reserves is in excess of the
Company's cost in the claims.
REAL ESTATE HELD FOR DEVELOPMENT. Property held for development consists
of undeveloped land located in and around Black Hawk, Colorado and Nevada
County, California. The Company has capitalized certain direct costs of
pre-development activities together with capitalized interest. Real estate held
for development is carried at the lower of cost or net realizable value.
IMPACT OF NEW ACCOUNTING STANDARDS. During the year ended March 31, 1998,
the Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" and has applied its provisions to all years presented
in these financial statements. SFAS No. 128 requires primary earnings per share
("EPS") to be replaced with basic EPS. Basic EPS is computed by dividing
reported earnings available to all common shareholders by the weighted average
number of shares outstanding without consideration of common stock equivalents
or other potentially dilutive securities. Fully diluted EPS gives effect to
common stock equivalents and other potentially dilutive securities outstanding
during the period. Dilutive per share information is not presented since the
effect would be antidilutive.
During June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." These statements are
effective for years beginning after December 15, 1997. SFAS No. 130 established
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. SFAS No. 131
establishes standards for reporting financial and descriptive information
regarding an enterprise's operating segments. These statements increase
financial reporting disclosures and will have no impact on the Company's
financial position or results of operations.
FURNITURE, FIXTURES AND EQUIPMENT. The Company depreciates furniture,
fixtures, and equipment over their estimated useful lives, ranging from 2 to 7
years, using the straight-line method. Expenditures for furniture, fixtures, and
equipment are capitalized at cost. When items are retired or otherwise disposed
of, income is charged or credited for the difference between net book value and
proceeds realized thereon. Ordinary maintenance and repairs are charged to
expense, and replacements and betterments are capitalized.
COMMON STOCK SPLIT. The Company's Board of Directors approved and declared
a three-for-one reverse stock split of the Company's authorized, issued and
outstanding shares of common stock, par value $.04 per share, effective
September 23, 1996. Holders of the Common Stock were not entitled to cumulative
voting. The stock split was accompanied by an increase in the par value of the
common stock from $.04 per share to $.12 per share. All references in the
consolidated financial statements referring to shares, share prices, per share
amounts and stock plans have been adjusted retroactively for the three-for-one
reverse stock split.
LOSS PER SHARE DATA. Loss per share is based on the weighted average
number of common shares outstanding during each year.
RECLASSIFICATIONS. Certain prior-year balances have been reclassified to
conform to current year presentations.
CONSOLIDATION. These financial statements are consolidated for all wholly
owned subsidiaries as of March 31, 1998 and 1997. All significant intercompany
transactions and balances have been eliminated in the financial statements.
FINANCIAL INSTRUMENTS AND CREDIT RISK. Financial instruments which
potentially subject the Company to credit risk include cash and cash
equivalents. Cash is deposited in demand accounts in federally insured domestic
institutions and money market accounts in an independent brokerage firm.
Although balances in these accounts may exceed the federally insured limits, the
terms of these deposits are on demand to minimize risk. The Company has not
incurred losses related to these deposits.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. ISLE OF CAPRI BLACK HAWK
On April 25, 1997, the Isle of Capri Black Hawk, a Colorado limited
liability company, was formed. The Isle of Capri Black Hawk is owned by Casino
Colorado, a wholly owned subsidiary of Casino America and Black Hawk Gold, a
wholly owned subsidiary of Nevada Gold. The Isle of Capri Black Hawk is a
development stage company and has not commenced gaming operations. The principal
purpose of the Isle of Capri Black Hawk is to develop and operate a casino
entertainment complex in Black Hawk, Colorado, which is anticipated to open in
December 1998 or January 1999. The Company's capital contribution to the limited
liability company was 4 lots within the City of Black Hawk that are zoned for
gaming and adjacent totalling approximately 6.5 acres, all with a value of $7.9
million. The real estate was subject to notes payable and accrued interest of
approximately $400,000 that was paid by the Isle of Capri Black Hawk. The
Company's initial interest in the Isle of Capri Black Hawk was 45%.
On August 20, 1997, the Isle of Capri Black Hawk and Isle of Capri Capital
Corp., a wholly owned subsidiary of the Isle of Capri Black Hawk, that had no
operations, assets or liabilities, issued $75,000,000 of 13% First Mortgage
Notes due 2004, with contingent interest, in order to finance the construction
and development of the Casino.
The rights and obligations of Casino Colorado and BlackHawk Gold are
governed in part by the Amended and Restated Operating Agreement of the Isle of
Capri Black Hawk (the "Agreement") dated as of July 1997. The Agreement provides
that the Isle of Capri Black Hawk will continue until December 31, 2096, or
until such date that dissolution may occur. Pursuant to the Agreement, Casino
Colorado contributed cash, land purchase rights and development costs to the
Isle of Capri Black Hawk and BlackHawk Gold contributed cash and land to the
Isle of Capri Black Hawk.
On July 29, 1997, Casino Colorado, Casino America, BlackHawk Gold and
Nevada Gold also entered into a Members Agreement (the "Members Agreement")
which addressed the development of the Casino, management of the Isle of Capri
Black Hawk, additional capital contributions, and other matters. On August 20,
1997, pursuant to the Members Agreement, Casino Colorado purchased from
BlackHawk Gold a 4.2% ownership interest (the "Transferred Interest") in the
Isle of Capri Black Hawk for $700,000 and BlackHawk Gold had 180 days within
which to reacquire all or a portion of the Transferred Interest for $700,000
together with interest. In addition, pursuant to the Members Agreement,
BlackHawk Gold had the right to sell up to an additional 4.8% ownership interest
in the Isle of Capri Black Hawk to Casino Colorado (the "Put"), for up to
$800,000, and to repurchase, within 180 days, any ownership interest sold
pursuant to the Put, with the repurchase price being the price for which such
ownership interest was sold, together with interest. Pursuant to the Put, Casino
America purchased from BlackHawk Gold (i) an additional .8% interest on November
13, 1997 for $133,333 and (ii) an additional 4.0% ownership interest on February
16, 1998 for $666,667, exhausting BlackHawk Gold's right to sell any additional
interest under the terms of the Put. BlackHawk Gold subsequently repurchased
from Casino America Colorado a 4.0% ownership interest out of the Transferred
Interest for $715,000, which includes interest. As a result, BlackHawk Gold
restored its ownership interest in the Isle of Capri Black Hawk to 40%. Profits
and losses of the Isle of Capri Black Hawk are allocated in proportion to
ownership interests.
The Company's 40% ownership of the Isle of Capri Black Hawk is being
accounted for using the equity method of accounting. The Company's investment in
the Isle of Capri Black Hawk is stated at cost, adjusted for its equity in the
undistributed earnings or losses of the project. The following is a summary of
condensed financial information pertaining to the Isle of Capri Black Hawk as of
March 29, 1998:
(in thousands)
--------------
Current assets $ 1,194
Property and Equipment 37,597
Other assets 56,503
-----------
$ 95,294
===========
Current liabilities $ 7,702
Long-term debt 75,000
Stockholders' Equity 12,592
-----------
$ 95,294
===========
Interest income $ 1,988
Interest expense 4,401
===========
Net loss $ (2,413)
===========
At March 31, 1998, BlackHawk Gold had the right to repurchase the .8%
ownership interest and the 4.0% ownership interest purchased by Casino Colorado
on November 13, 1997 and February 16, 1998, respectively, under the 180 day
repurchase provision of the Put. The 180-day period for repurchase of the .8%
ownership interest expired on May 12, 1997 and the gain resulting from the sale
has been recognized in the Company's March 31, 1998 financial statements. The
180-day repurchase period on the ownership interest sold to Casino Colorado on
February 16, 1998 expires on August 15, 1998 and the $591,404 gain relating to
the sale has been deferred in the Company's March 31, 1998 financial statements.
In the event management of BlackHawk Gold is successful in its intent to
repurchase this 4.0% interest before August 15, 1998, BlackHawk Gold's ownership
will be increased to 44%.
4. REAL ESTATE AND ASSETS HELD FOR DEVELOPMENT
GOLD MOUNTAIN DEVELOPMENT, LLC
In September 1995, through real property exchanges and execution of a
Promissory Note, the Company completed acquisition of Gold Mountain Development,
LLC ("GMD"), a Colorado limited liability company, making it a wholly owned
subsidiary. As a result of this acquisition, the Company owns approximately 150
acres in the vicinity of Black Hawk, Colorado. The Company also has an option to
acquire an additional 18 acres from an affiliate of the Secretary of the Company
for a nominal value.
In July 1996, President Clinton signed legislation authorizing the Bureau
of Land Management ("BLM") to exchange 133 separate tracts of federal public
land consisting of over 300 acres near Black Hawk for two privately-owned
ranches in Colorado of approximately 8,700 total acres to be preserved as a
federal public wilderness area. The two ranches have been purchased by a third
party and will be acquired by the BLM, which is in the final phases of
reappraisal of the federal tracts and completion of a historical structures
survey prior to final closing of the exchange. The Company, upon completion of
the BLM acquisition and exchange of real properties and with the exercise of its
option to acquire the additional 18 acres, will have approximately 170 nearly
contiguous acres that management believes will be valued at approximately $3
million available for development adjacent to Black Hawk, Colorado.
The casinos currently operating in Black Hawk employ in excess of 5,000
individuals. Because there is limited residential housing available in Black
Hawk, these employees generally commute daily for distances of twenty-five miles
or more each way. With the exception of existing casinos, there are also no
commercial facilities in Black Hawk to provide amenities for Black Hawk
residents.
The Company intends to proceed with the development of a master-planned
residential and commercial property project adjacent to Black Hawk, Colorado.
Sales of pad sites may be made to assist in the funding of the project and the
Company may be required to obtain a partner and complete the project as a joint
venture.
SUNRISE LAND AND MINERALS CORPORATION
As of March 31, 1995, the Company entered into an agreement to purchase
100% of the outstanding common stock of Sunrise Land and Minerals Corporation
("SLMC") in exchange for a seller financed non-recourse note. The Company
retired the short-term non-recourse note associated with the SLMC purchase on
August 23, 1996, through the issuance of 166,667 restricted shares of the
Company's common stock
SLMC, organized as a Nevada corporation in September 1990, owns 300 acres
of land in Nevada County, California, including all surface, mineral, water,
air, and timber rights. SLMC has been inactive since its acquisition in 1995.
Nevada Gold's focus on gaming and real estate development projects in Black
Hawk, Colorado precluded the development and expansion of a business role for
SLMC. Now that Nevada Gold's casino project has been funded and is under
construction and the initial acquisition phase of its real estate development
project has been completed, the Company intends to direct its attention to
subsidiary operations.
The Company intends to evaluate the highest and best use of SLMC's land.
In addition to potential sales of sand, gravel, clay, and decorative rock from
the property, there is also potential for real estate development on the
property.
5. MINING PROPERTIES AND CLAIMS
Over a twenty-year period when Nevada Gold was solely a mining concern,
the Company acquired approximately 2,000 acres of land in fee simple and
approximately 7,000 acres of BLM mining claims in Goldfield Mining District in
the state of Nevada. Effective November 1, 1996, the Company entered into a
lease with Sagebrush Exploration, Inc., ("Sagebrush") to explore, develop, and
mine these properties. Sagebrush has been in default of this lease since July
1997. Management is currently evaluating the potential for new leases.
Goldfield Resources, which was originally incorporated under another name
in 1995, was inactive until June 1998, when the corporation's name was changed
and it was reinstated as an active corporation. The Board of Directors approved
the transfer of land and BLM mining claims in the state of Nevada to Goldfield
in exchange for shares of common stock of Goldfield, The redirection of Nevada
Gold's business from mining to gaming and real estate development created an
opportunity for the formation of a subsidiary whose sole business is the
development of the mining claims, particularly at a time when the price of gold
is developing an upward trend that could make gold mining economically feasible.
Goldfield will not be directly involved in mining operations. Its business
purpose will be to secure mining leases for its properties and retain royalty
interests under the leases. This could permit Goldfield to benefit financially
from mining operations without incurring the significant labor and machinery
costs of operating mining projects. If the price of gold increases, Goldfield
could be in a position to be a participant in possible mergers and acquisitions
because of the size of its holdings of mining claims.
6. SHORT TERM NOTES PAYABLE
The following notes will become due and payable on or before March 31, 1999:
1998 1997
-------- -------
Notes payable to affiliate, bearing interest at
12%, payable on demand ............................... $ 162,791 $ 0
Note payable to director, bearing interest at
12%, payable on demand ............................... 76,800 0
Earnest money promissory obligations, dated
10/20/95, due on 9/30/97 ............................ 40,000 40,000
Notes payable to individuals, eight in the
amount of $25,000 each and three
notes in the amount of $50,000 each ..................
The notes bear interest at a rate of 12%
per annum, and mature 10/24/97, secured
by gaming lots that are owned by the
Company. Notes aggregating $150,000 have
been assigned to an affiliate of the Company ......... 0 350,000
Notes payable, maturing on dates ranging
from 9/30/97 to 2/17/98, calling for
interest ranging from 12% to 18%, secured
by stock owned by an affiliate of the Company ........ 0 972,904
Notes payable to affiliates consisting of two
individual notes bearing interest at 10%, all
payable on demand .................................... 0 79,347
Note payable to an individual, dated 12/5/95,
calling for interest of 12%,
principal and interest is due 10/3/97,
secured by patented mining claims .................... 0 25,000
Notes payable, calling for interest ranging
from 10% to 21%, principal and interest due
on demand or maturing on various dates
through 4/1/97, secured by land or furniture
and fixtures ......................................... 0 27,116
Earnest money promissory note, dated 10/20/95,
due on 5/10/97 ...................................... 0 10,000
---------- --------
Total short-term notes payable ....................... $ 279,591 $1,504,367
========== ========
7. LONG TERM DEBT
MORTGAGES PAYABLE.
Mortgages payable are comprised of ten mortgage notes, all secured by real
property, consisting of undeveloped land in the city of Black Hawk, Colorado, or
in an adjacent area in the county of Gilpin. The mortgage terms as of March 31,
1998 and 1997 are as follows:
1998 1997
---------- ---------
Notes payable, interest at 8%, payable in
monthly payments ranging from $177 to
$1,658, through December 2003 ..................... $ 163,899 $ 212,466
Note payable, interest at 8%, payable in
semi-annual payments of $822, through
February, 2004 .................................... 7,920 8.868
--------- ---------
Total mortgages payable ............................ 171,819 221,334
Current portion of mortgages payable ............... (60,796) (44,702)
--------- ---------
Long term mortgages payable ........................ $ 111,023 $ 176,632
========= =========
The aggregate principal maturities on long term mortgages for the years
ending March 31, are as follows:
1999 $ 60,796
2000 21,206
2001 23,005
2002 24,935
2003 27,035
Thereafter 14,842
---------
Total $171,819
OTHER LONG-TERM NOTES AND CAPITAL LEASES PAYABLE.
Long-term notes and capital leases payable as of March 31, 1998 and 1997
are as follows:
1998 1997
---------- ----------
Capital leases for acquisition of computers,
principal and interest payments in the amounts
of $1,345 monthly, maturity 2001 ................. $ 34,109 $ 41,286
Capital lease for acquisition of furniture,
principal and interest payments in the amount
of $3,138 monthly, maturity 1998 ................... 0 28,469
Note payable to individual dated 7/15/94,
calling for interest of 8%, principal
and interest payments in monthly amounts
of $2,000, maturity 9/30/97 ....................... 0 30,303
Note payable dated 8/20/97, calling for
interest at the higher of 14.5% or
Casino America's highest cost of funds
plus two percentage points, maturity 8/20/2000 .... 500,000 0
--------- ---------
Total other long term notes and capital
leases payable ..................................... 534,109 100,058
Current portion of other long-term
notes and capital leases payable ................... (12,391) (67,790)
--------- ---------
Other long term notes and capital
leases payable ..................................... $ 521,718 $ 32,268
========= =========
The Company entered into capital leases for four computers and office
furniture. The computer lease expires in 2001. The office furniture lease
expired in 1998. Future minimum lease payments for capital leases for the years
ending March 31, are as follows:
1999 $ 17,978
2000 16,138
2001 10,758
--------
44,874
Interest and sales tax (10,765)
Net Present Value $ 34,109
8. TAXES BASED ON INCOME
The Company adopted SFAS No. 109, "Accounting for Income Taxes", effective
April 1, 1993. Under SFAS No. 109, deferred tax liabilities are determined based
on the difference between financial statement and tax bases of all assets and
liabilities, measured by using the enacted statutory tax rates.
SFAS No. 109 also provides for the recording of a deferred tax asset for
net operating loss carryforwards. For the years ended March 31, 1998 and 1997,
the Company had net operating loss carryforwards amounting to $5,341,064 and
$4,270,977 respectively. The loss carryforwards expire in the years ending March
31, as follows:
1999 $ 63,406
2000 103,298
2001 340,495
2002 206,292
2003 310,240
2004 76,101
2005 348,266
2006 278,648
2008 12,130
2009 111,926
2010 425,947
2011 602,051
2012 1,295,568
2013 1,166,696
-------------
$5,341,064
The loss carryforwards are subject to certain limitations under the
Internal Revenue Code. The Company has recorded a deferred tax asset in each
year amounting to $1,815,962 and $1,452,132 as of March 31, 1998 and 1997,
respectively, as a result of the future tax benefit of the net operating loss
carryforward, determined by applying the enacted statutory rate of 34 percent to
such carryforwards. However, the Company believes that the utilization of these
net operating loss carryforwards could be significantly limited due to a change
in ownership in 1994. The Company also has recorded a deferred tax asset for
compensation expense in connection with the issuance of stock options and for
losses of its equity investment that are not currently deductible for Federal
income tax purposes. Since the ability of the Company to realize the deferred
tax assets is not certain, a valuation allowance has been recorded for both
years in an amount equal to the deferred tax assets.
MARCH 31, MARCH 31,
1998 ACTIVITY 1997
----------- --------- -----------
Deferred tax assets:
Net operating loss carryforwards .... $ 1,815,962 $ 363,830 $ 1,452,132
Stock options ....................... 259,443 150,431 109,012
Losses of equity investment ......... 30,311 330,311 0
----------- --------- -----------
Total deferred tax assets ....... 2,405,716 844,572 1,561,144
Valuation allowance for deferred
tax assets .......................... (2,405,716) (844,572) (1,561,144)
----------- --------- -----------
Net deferred tax assets ............. $ 0 $ 0 $ 0
=========== ========= ===========
Reconciliations between the statutory federal income tax (benefit) rate and the
Company's effective income tax (benefit) rate as a percentage of loss from
operations were as follows:
YEAR ENDED MARCH 31,
----------------------------------------
1998 1997
------------------- -------------------
PERCENT DOLLARS PERCENT DOLLARS
------- --------- ------- ---------
Tax benefit at statutory
federal rate ........................ (34%) $(877,419) (34) $(548,446)
Permanent differences:
Expired NOL & other .............. 1% 32,847 1% 23,948
Increase in valuation allowance
related to current year net
operating loss ................. 14% 363,830 26% 415,486
Stock options .................... 6% 150,431 7% 109,012
Equity in losses of Isle of
Capri Black Hawk ................ 13% 330,311 0 0
------- --------- ------- ---------
Effective income tax benefit rate .... 0% $ 0 0% $ 0
======= ========= ======= =========
9. STOCK OPTIONS AND WARRANTS
Options granted during the year ended March 31, 1998 for investor
relations totaled 529,444. Of the options granted, 150,000 options are
exercisable immediately, 85,000 options are exercisable in December 2000 and
44,444 options are exercisable in December 2001. The remaining 250,000 options
are exercisable upon the Company's receipt of equity offering or financing in
accordance with the terms of the agreements.
Options granted during the year ended March 31, 1997, in lieu of cash for
services rendered, are as follows:
Options issued for Compensation Number
SERVICE OF SHARES
---------------------------------------- ---------
Management 33,336
Investment Bankers 233,334
Geological Consulting 14,209
Financial Advisory Services 666,667
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". Accordingly, compensation expense of $442,444 and $320,625 has
been recorded in 1998 and 1997, respectively, in accordance with the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations and SFAS
No.
123 for equity awards to nonemployees.
Information regarding the options for 1998 and 1997 is as follows:
1998 1997
---------- ----------
Options outstanding, beginning of year 1,127,546 184,501
Options granted 529,444 947,546
Options exercised - (3,334)
Options expired or cancelled (680,000) (1,167)
----------- ----------
Options outstanding, end of year 976,990 1,127,546
----------- ----------
Options exercisable, end of year 597,546 1,127,546
----------- ----------
Options available for grant, end of year - -
=========== ==========
Weighted average option exercise price information for 1998 and 1997 is
as follows:
1998 1997
--------- -------
Outstanding at beginning of year $2.19 $2.97
Granted during the year 2.34 2.04
Exercised during the year .00 1.00
Expired or cancelled during the year 2.25 1.00
Outstanding at end of year 2.21 2.19
Exercisable at end of year 2.06 2.19
Significant option groups outstanding at March 31, 1998 and related
weighted average price and life information is as follows:
Options Options Exercise Remaining
GRANT DATE OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
April 1994 66,667 66,667 $1.50 1
September 1995 30,000 30,000 2.25 9 months
November 1995 70,000 70,000 4.50 8 months
April 1996 280,879 280,879 1.54 1
December 1997 529,444 150,000 2.34 3.2
32
<PAGE>
The weighted average fair value at date of grant for options granted
during 1998 and 1997 was $1.59 and $1.70 per option, respectively. The fair
value of options at date of grant was estimated using the Black-Scholes model
with the following weighted average assumptions:
1998 1997
--------- -------
Expected life (years) 3.5 years 3 years
Interest rate 5.70% 5.41%
Dividend yield - -
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant date in 1998 and 1997 consistent with the
provisions of SFAS No. 123, the Company's net loss would have increased to the
proforma amounts indicated below:
1998 1997
----------- -----------
Net loss - as reported $2,580,644 $1,613,078
Net loss - proforma 2,580,644 1,925,798
Loss per share - as reported .32 .20
Loss per share - proforma .32 .23
In connection with the investment banking agreement signed in October
1993, the Company issued stock options during the fiscal year ended March 31,
1995, to its investment bankers, providing for the issuance of 66,667 shares of
stock, at an option price of $1.50 per share. This option was granted on April
1, 1994, and expires on April 1, 1999, and the Company issued 33,334 stock
options in association with the assistance of that certain debt offering funded
by the Company's investment bankers to remediate the gaming lots. The option
price is $2.25 per share, and originally expired on August 1, 1997. The Company
extended the maturity date on 30,000 of these options to December 31, 1998.
During the year ending March 31, 1997, in connection with an investment
banking agreement, the Company issued 233,334 stock options at an option price
of $1.50, expiring April 11, 1999.
Additionally, 14,209 stock options were issued to a Director for services
related to the environmental remediation project, at an option price of $1.50,
expiring April 11, 1999.
The Company granted options to purchase 666,667 shares of common stock at
$2.25 a share for financial advisory services during 1996, which were cancelled
on December 9, 1997.
10. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has entered into
transactions with officers, directors and other related entities. The majority
of such transactions include loans made or received from the related party. The
following summarizes such transactions during the years ended March 31, 1998 and
1997.
During the year ended March 31, 1998, Clay County Holdings, Inc., an
affiliate of the Secretary of the Company, loaned GMD $377,900 and Paul Burkett,
a director of the Company, loaned GMD $76,800. In addition, the Company paid off
a working capital loan in the amount of $7,708 from ADT Resources, a wholly
owned subsidiary of Aaminex Capital Corporation ("Aaminex"), an affiliate of the
President.
The Company shares office space and other office expenses with Aaminex.
The Company's President is also the President of Aaminex. Under the terms of a
management agreement, the Company is obligated to pay $8,333 per month to
Aaminex for the full-time services of Mr. Winn. Management fees under the
agreement totaled $100,000 annually during the years ended March 31, 1998 and
1997. The fees were accrued and converted to Preferred Stock of the Company
until December 1997, at which time direct payment of management fees began.
Effective December 31, 1996, the Board of Directors and the holders of the
Company's common stock having at least a majority of the voting power of the
shares, approved and authorized the issuance of 500,000 shares of Preferred
Stock, $10 par value per share. The Company has issued 141,490 shares of 12%
cumulative preferred stock, $10 par value, which are callable by the Company.
These shares were issued in exchange for short-term notes payable to Clay County
Holdings, Inc., an affiliate of the Secretary of the Company, and accrued
management fees due to Aaminex. Undeclared cumulative dividends were $173,077
and $27,030 on the preferred stock shares outstanding at March 31, 1998 and
1997, respectively.
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of Nevada Gold are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- ------ --------
<S> <C>
H. Thomas Winn 58 Chairman of the Board, Chief Executive Officer,
President, and Chief Financial Officer of Nevada Gold
Paul J. Burkett 76 Vice-President and Director of Nevada Gold
David K. McCaleb 35 Secretary of Nevada Gold
William G. Jayroe 41 Director of Nevada Gold
Hubert T. Wen 38 Director of Nevada Gold
</TABLE>
H. THOMAS WINN has served as the chairman, Chief Executive Officer,
president, and a director of Nevada Gold since January 1994. Mr. Winn has served
as chairman and president of Aaminex Capital Corporation since 1983. Aaminex
Capital Corporation is a financial consulting and venture capital firm, involved
in real estate, mining, and environmental activities.
PAUL J. BURKETT has been a director of Nevada Gold since 1976 and has also
served on the Board of Directors of Aaminex Capital Corporation since 1976. Mr.
Burkett has been involved in the mining industry for over 40 years. His business
for the past five years has concentrated on independent mining and real estate
ventures.
WILLIAM G. JAYROE has served as a director of Nevada Gold since 1994. Mr.
Jayroe has served as president and Chief Executive Officer of Flotek Industries,
Inc., whose securities are registered under Section 12 of the Securities
Exchange Act.
HUBERT T. WEN has been president of Tempest, Inc., an apartment investor,
based in Houston, Texas for the past five years, and is currently an associate
with the Grub & Ellis Company. Mr. Wen has extensive and diverse experience in
the real estate industry, ranging from residential property investment and
development to high-rise Class A commercial office building management and
leasing.
DAVID K. MCCALEB has served as Secretary of Nevada Gold since 1994. For
the prior two years, he operated McCaleb & Associates, a Houston-based
accounting and consulting firm. Previously, Mr. McCaleb spent five years in the
banking industry. He received a Bachelor of Science degree in Finance from the
University of Houston in 1991. Although employed on a full-time basis by another
corporation, Mr. McCaleb remains as Secretary of the Company.
Mr. Winn is the father-in-law of Mr. McCaleb. There is no other family
relationship between any other Executive Officers and Directors.
ELIZABETH A. WOODS joined the Company as Treasurer/Chief Financial Officer
in November 1996, and was previously with Post Oak Bank in Houston for 13 years,
where she served as Senior Vice President and Controller. Mrs. Woods submitted a
resignation effective July 10, 1998 because of personal reasons and has no
disagreements with the Company on any matter related to its operations,
policies, or practices. The Company is currently interviewing potential
replacements.
Directors serve until the expiration of their term at the annual meeting
of shareholders. Non-employee directors of Nevada Gold receive $500 per meeting
attended and are reimbursed for reasonable travel expenses. Non-employee
directors of Nevada Gold receive $250 for attending Committee Meetings.
Directors who are also employees of the Company do not receive separate
compensation for their services as a Director. All officers serve at the
discretion of the Board of Directors.
COMMITTEES OF THE BOARD
The Board of Directors of the Company presently has the following standing
committees:
(A) AUDIT COMMITTEE, currently comprised of Messers. Jayroe and Wen. The
Audit Committee is authorized to nominate the Company's independent auditors and
has oversight responsibility to review the scope and results of the audit
engagement. The Committee is authorized to review and assess the Company's
internal controls to evaluate business risk and to ensure compliance with laws
and regulations. The Audit Committee is also authorized to review financial
statements to reduce the risk of material misstatements and to review the
accounting principles that are used.
(B) COMPENSATION COMMITTEE, currently comprised of Messrs. Burkett and
Wen. The Compensation Committee recommends compensation levels for Executive
Officers and Directors of the Company.
(C) TECHNICAL COMMITTEE, currently comprised of Messrs. Burkett, Wen, and
Winn. The Technical Committee is responsible for mining and real property
activities of the Company.
ITEM 11. EXECUTIVE COMPENSATION
Executive Officer and other Officers of the Company who received total
annual salary and bonus for the fiscal year, ended March 31, 1998, in excess of
$100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- --------------------------
NAME AND PRINCIPAL FISCAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY(1) BONUS COMPENSATION(2) OPTIONS COMPENSATION
- ------------------ ------- -------- ------ --------------- --------- -------------
<S> <C>
H. Thomas Winn, 1998 - - - - - -
President 1997 - - - 8,334 -
1996 - - - 10,000 -
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Beginning in January 1994, the Company entered into a Management Agreement
with Aaminex Capital Corporation ("Aaminex"), an affiliate of Mr. Winn, for Mr.
Winn's services as President of the Company. From January through June 1994, the
Management Agreement provided for a fee to Aaminex of $5000 per month and from
July 1994 to the present, the Agreement provides for a fee of $8333 per month.
Management fees were accrued and converted to Preferred Stock of the Company
until December 1997, at which time payments for the management fees were paid on
a monthly basis. See Item 13 "Certain relationships and related transactions."
(2) Mr. Winn did not receive perquisites or other personal benefits, securities,
or property, valued in excess of 10% of the total of the reported annual salary
and bonus.
WARRANTS AND OPTIONS
No options or warrants were granted to Mr. Winn in the last fiscal year.
Mr. Winn did not receive any long-term incentive awards or other benefits.
The Company does not have any pension plans.
37
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
NUMBER OF
UNEXERCISED VALUE OF
SECURITIES UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
NAME ON EXERCISE VALUE REALIZED AT FISCAL YEAR END AT FISCAL YEAR END
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. Thomas Winn 0 0 18,334 $2,864.81
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 30, 1998
with respect to beneficial ownership of the outstanding common stock by (i)
those stockholders known to the Company (whose address is shown), that are the
beneficial owners of 5% or more of the Company's outstanding voting stock (ii)
each Director of the Company, (iii) all named Executive Officers, and (iv) all
Directors and Officers, as a group.
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned of Class
- ----------------------------------- ------------------- ---------
Winstock Mining Corporation (US) 1,662,913 18.4 %
1506 - 2008 Fullerton Avenue
North Vancouver, British Columbia V7P 3G7
H. Thomas Winn (1) 1,528,039 16.9 %
3040 Post Oak Blvd., Suite 675
Houston, Texas 77056
David K. McCaleb (2) 2,754,013 30.4 %
3040 Post Oak Blvd., Suite 675
Houston, Texas 77056
Paul J. Burkett (3) 247,364 2.7 %
P.O. Box 761
Goldfield, Nevada 89013
Hubert T. Wen (4) 122,434 1.4 %
P.O. Box 571595
Houston, Texas 77257-1595
William G. Jayroe (5) 32,088 .4 %
7030 Empire Central Drive
Houston, Texas 77040
Aaminex Capital Corp (1) 1,509,705 16.7 %
3040 Post Oak Blvd., Suite 675
Houston, Texas 77056
Clay County Holdings, Inc. (2) 2,753,012 30.4 %
3040 Post Oak Blvd., Suite 675
Houston, Texas 77056
All Directors and Officers
as a group (6 persons) 4,720,092 52.1%
38
<PAGE>
- ----------------------------------------------------------------------------
(1) Except for options to purchase 18,334 shares, all of the shares listed are
controlled directly or indirectly through Aaminex Capital Corporation, of
which H. Thomas Winn is President. 1,333,334 of these shares are the subject
of an option agreement to exercise the shares held by Winstock Mining Corp.
(U.S.). As long as the option remains contingent and unexercised, Mr. Winn
exercises no voting or investment power, with respect to the shares subject
to the options. The shares listed are the same shares owned by Winstock
Mining Corporation (U.S.). The information in this table shall not be
construed as a statement that Mr. Winn is the beneficial owner of the
securities covered by the statement for purposes of Section 13(d) or 13(g)
of the Securities Act of 1933.
(2) Mr. McCaleb, the Secretary of the company, is also the President of Clay
County Holdings, Inc. Except for 1,001 shares owned personally by Mr.
McCaleb or his wife, the shares indicated are the shares held by Clay County
Holdings, Inc. as set forth above in the table of Beneficial owners. Mr.
McCaleb is the son-in-law of H. Thomas Winn, the President of the Company.
(3) Included in Mr. Burkett's beneficial ownership are options to purchase
18,334 shares.
(4) Included in Mr. Wen's beneficial ownership are options to purchase 5,000
shares.
(5) Included in Mr. Jayroe's beneficial ownership are options to purchase 12,084
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended March 31, 1998, Clay County Holdings, an affiliate
of the Secretary of the Company loaned GMD $377,900 and Paul Burkett, a director
of the Company, loaned GMD $76,800. In addition, the Company paid off a working
capital loan in the amount of $7,708 from ADT Resources, a wholly owned
subsidiary of Aaminex Capital Corporation ("Aaminex"), an affiliate of the
President.
The Company shares office space and other office expenses with Aaminex.
The Company's President is also the President of Aaminex. Under the terms of a
management agreement, the Company is obligated to pay $8,333 per month to
Aaminex for the full-time services of Mr. Winn. Management fees under the
agreement totaled $100,000 annually during the years ended March 31, 1998 and
1997. The fees were accrued and converted to Preferred Stock of the Company
until December 1997, at which time direct payment of the management fees began.
Effective December 31, 1996, the Board of Directors and the holders of the
Company's common stock having at least a majority of the voting power of the
shares, approved and authorized the issuance of 500,000 shares of Preferred
Stock, $10 par value per share. The Company has issued 141,490 shares of 12%
cumulative preferred stock, $10 par value, which are callable by the Company.
These shares were issued in exchange for short-term notes payable to Clay County
Holdings, Inc., an affiliate of the Secretary of the Company, and accrued
management fees due to Aaminex. Undeclared cumulative dividends were $173,077
and $27,030 on the preferred stock shares outstanding at March 31, 1998 and
1997, respectively
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
REFERENCE - Data submitted herewith and under Item 8
17 Reports of independent public accountants
19 Consolidated balance sheets
20 Consolidated statements of operations
21 Consolidated statements of stockholders' equity
24 Consolidated statements of cash flows
25 Notes to consolidated financial statements
38
<PAGE>
(B) REPORTS ON FORM 8-K
None
(C) EXHIBITS
*3.1 - Articles of Incorporation
*3.1a - Amendment to Articles of Incorporation
*3.2 - By-laws
*4.1 - Deed of Trust
*4.2 - Master Secured Note
*4.3 - Note Participation Agreement
*10.1 - Operating Agreement Caesar's Black Hawk, LLC.
*10.2 - Operating Agreement of ICB LLC
*10.3 - Amended and Restated Operating Agreement of
Isle of Capri Black Hawk, LLC
*10.4 - Members Agreement
*10.5 - License Agreement
27 - Financial Data Schedule
- --------------------------
* Previously filed
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized
NEVADA GOLD & CASINOS, INC.
By: /s/ H. THOMAS WINN July 14, 1998
H. Thomas Winn, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following person on behalf of the Registrant and
in the capacity and on the date indicated.
NAME & POSITION DATE
/s/ H. THOMAS WINN
H.Thomas Winn, President and July 14, 1998
Chief Financial Officer
/s/ PAUL J. BURKETT
Paul J. Burkett, Director July 14, 1998
Vice President - Mining
/s/ WILLIAM G. JAYROE July 14, 1998
William G. Jayroe, Director
/s/ HUBERT T. WEN July 14, 1998
Hubert T. Wen, Director
40
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