U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark 1) X Quarterly Report Under Section 13 or 15(d) of The Securities
--- Exchange Act of 1934
For the quarterly period ended March 31, 1996
---------------------------
Transition Report Under Section 13 or 15(d) of The Securities
Exchange Act of 1934 (No Fee Required) for the Transition
Period from ________ to ________
Commission file number 0-22450
COUNTRY WORLD CASINOS, INC.
---------------------------
(Name of Small Business Issuer in its Charter)
Nevada 13-3140389
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4155 E. Jewell Avenue
Suite 1000
Denver, Colorado 80222
--------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 639-5001
3200 Cherry Creek South Drive, Suite 450,
Denver, Colorado 80202
---------------------------------------------
(Former name, former address and formal fiscal
year, if changed since last report)
Check whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period as the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS.
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
The Registrant had 10,836,187 shares of its common stock outstanding as of
August 23, 1996.
Transitorial Small Business Disclosure Format (Check one): Yes No X
----- -----
<PAGE>
COUNTRY WORLD CASINOS, INC.
Index
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Plan of Operation 3
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 6
Item 3. Defaults Upon Senior Securities 6
SIGNATURES 7
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements are attached as pages F-1 through F-18.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION.
Country World Casinos, Inc., the Registrant (the "Company" or "Country
World") was incorporated on November 9, 1982 under the name, Innovative Medical
Technology, Inc. The Company was organized to engage in the medical industry.
The Company effected a public offering in 1983. The Company was essentially
inactive until 1990 when it undertook the manufacturing of monolithic composite
panels for use in the construction of semi-truck trailers, shipping containers
and industrial buildings. The Company discontinued this business in September
1992.
In 1993, the Company changed the focus of its planned business operations
to the construction of a large, full service, first-class casino in Black Hawk,
Colorado. In August, 1993, the Company completed the acquisition from New Allied
Development Corporation and its subsidiaries, Tommyknocker Casino Corp.
(collectively "NADC") of certain real property located in Black Hawk, Colorado
known as Mill Sites 12 and 13, and the Smith Lode Mining Claim, U.S. Survey No.
502 (the "Property").
Since the Company's purchase of the Property in August 1993, the Company's
activities have focused on obtaining the necessary financing and making
preparations for construction of the casino on the Property. The Company has
been able to obtain sufficient financing to make significant preparation for
construction of the casino, but sufficient financing has not been obtained to
commence construction of this project. The Company's efforts have included the
completion of an extensive excavation project consisting of the removal of
approximately 60,000 cubic yards of rock and dirt, preparation of working
drawings for the foundation of the project, design of the interior casino and
entertainment areas of the project, work with the Colorado Department of
Transportation for the redesign of Highway 119, the main access road to the
Property, and work with the Black Hawk-Central City Sanitation District for a
sewer tap and with the City of Black Hawk's Water District to provide a water
tap to the Property. Although these efforts have not been completed, the Company
believes that, if financing were obtainable, it should be in a position to
construct an entertainment and gaming facility on the Property.
In the fiscal year ended June 30,1995, the Company borrowed $1,000,000 from
Holly Products, Inc. ("Holly"). On April 20, 1995, the Company issued 5,000,000
shares of its common stock to Holly in exchange for the cancellation of the
$1,000,000 indebtedness, plus interest. The Company also agreed to grant Holly
the right to purchase up to an additional 20,000,000 shares of common stock at
$.20 per share (a total of $4,000,000) if such funding was provided within a
reasonable time and progress continued to be made concerning financing for the
casino project. The Company and Holly agreed that Holly would provide $250,000
to the Company by no later than June 30, 1995, for which the Company would issue
1,250,000 shares of its common stock. Holly did not provide the $250,000 to the
Company by June 30, 1995; however, subsequent to the advancement of the
$1,000,000 referred to above, Holly has provided financing of approximately
$100,000 to the Company through March 31, 1996.
The Company is in need of substantial, additional financing in order to
complete construction and to commence operation of the casino. There can be no
assurance that the Company will be able to obtain the necessary financing. In
addition, the Company's ability to operate the casino will be dependent upon
substantial other conditions, including the obtaining of licenses and compliance
with governmental regulations, grading and construction of the casino, obtaining
the necessary permits and approvals from the City of Black Hawk and other
3
<PAGE>
regulatory bodies, procuring gaming equipment on satisfactory terms, and
accomplishing these objectives in a timely manner. It will be extremely
difficult for the Company to accomplish these objectives in order to commence
operations of the casino in the current fiscal year.
During the fiscal year ended June 30, 1995, the Company's disagreements
with New Allied intensified. As a result of NADC's unwillingness to cooperate
with the Company, NADC's failure to secure a release of the $475,000 first deed
of trust on the Property, NADC's misrepresentations to the Company and
subsequent legal problems involving NADC, the Company instituted litigation
against NADC.
NADC commenced foreclosure proceedings involving the Property. Due to the
pendency of these proceedings, on October 12, 1995, the Company filed a
Voluntary Petition Under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court, District of Colorado (Case No. 95 20563 RJB). As a result, all
creditors of the Company are stayed from commencing or continuing any action or
enforcing any judgment or lien against the Company or property of the Company,
except as otherwise authorized pursuant to Title 11 U.S.C. 362(b). Relief may be
sought by the filing of a complaint in the Bankruptcy Court, pursuant to Title
11 U.S.C. 362(d). At present, the effects of the bankruptcy proceeding on the
long term outlook for the Company, and the ability of the Company to resolve
disputes with NADC and to commence development of the Property, are unclear.
In March 1996 the Bankruptcy Court granted the Company's motion to approve
$5 million in financing, which financing was obtained on May 31, 1996. The $5
million financing was obtained from a group of lenders led by Kennedy Funding,
Inc. and Anglo-American Financial as agent ("Kennedy"). The lending group
included Norlar, Inc. Norlar, Inc. is a closely-held corporation beneficially
owned by Larry Berman and his wife. Mr. Berman is a director of the Company, and
an officer, director and principal shareholder of Holly.
In connection with this financing, the Company made a Promissory Note
effective May 20, 1996 payable to Kennedy in the principal amount of $5 million
with interest payable at the rate of 15% per annum until May 19, 1997 (the
"First Year Interest Obligation") and at a rate of 24% per annum thereafter.
Payments of principal and interest are payable as follows: (a) the First Year
Interest Obligation was prepaid at closing; (b) commencing on May 19, 1997 and
for each month thereafter, the Company is to make interest only payments, in
advance, in the amount of 2% of the then existing principal balance due under
the Note; and (c) the entire outstanding principal balance, together with all
accrued and unpaid interest, if not previously paid, shall be finally due and
payable on May 19, 1999. The holder of the Note may accelerate the due date for
the entire balance of principal, interest and other sums due upon maturity in
the event of default under the Note. The default rate of interest is 24% during
the first loan year and 36% thereafter. The Note is secured by a first deed of
trust on the Property, and any buildings, fixtures and any materials which are
now or may hereafter be located on the Property. The Note has been guaranteed by
Holly. In addition, Holly and the Company have entered into an environmental
indemnity agreement with Kennedy pursuant to which they will defend and hold
harmless the co-lenders from any environmental claims.
The Company received net proceeds of approximately $2,850,500 after payment
of loan commitment fees, loan servicing fees and points to Kennedy of
approximately $812,000 (of which $235,000 was received by Norlar, Inc.), the
First Year Interest Obligation of $750,000 (of which $352,500 was received by
Norlar, Inc.) and $610,000 for release of the prior first deed of trust on the
Property. The holder of that deed of trust was the holder of a note which had
not been paid by NADC.
Pursuant to the Order of the Bankruptcy Court, the Company will receive a
credit for the amount paid to the holder of the note from NADC as a direct
offset against the Note made by the Company to NADC. The note from the Company
to NADC was secured by a second deed of trust against the Property. The net
proceeds received by the Company from the loan closing have been paid into an
interest bearing account pending further order of the Bankruptcy Court. The
Company and NADC have a dispute as to the payoff balance on the note due to NADC
by the Company. NADC claims that it is owed $3,357,370. The Company believes
that NADC is entitled to $1,567,026 of this amount, and disputes the remaining
4
<PAGE>
$1,790,344. A claims hearing will be held by the Bankruptcy Court to determine
the amount to be paid to NADC, and the note to NADC will be cancelled.
Gaming has become increasingly popular in the United States, with
substantial new operations commenced in various locales throughout the United
States since 1990. The first full year of gaming operations in Colorado was
1992. However, because of the increased popularity of gaming and the
proliferation of gaming establishments throughout the United States, competition
for funds for new operations is intense. The Company is exploring potential
financing alternatives, including equity offerings, borrowings, joint ventures,
etc. It is presently unknown whether the Company will be able to complete its
casino plans and commence operations. The Company has incurred substantial net
losses, and has a working capital deficiency of approximately $4,400,861 at
March 31, 1996. Insofar as the Company has not completed its casino facility, it
has received no revenues from operations from these planned business activities.
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company's ability to
continue in existence is dependent upon its ability to obtain additional
long-term financing, achieve profitable operations and to finalize a plan
satisfactory to interested parties in the bankruptcy proceeding. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset or liability amounts which might be necessary
should the Company be unable to continue in existence.
During the nine months ended March 31, 1996, the Company had no revenues
and costs and expenses of $300,371. The Company's loss was $112,855 or $.02 per
share, after a prior period adjustment of $187,500. The Company remains in the
development stage and has incurred a loss since inception of $2,955,869. The
ability of the Company to achieve revenues in the future will be dependent upon
realization of its plans to develop a gaming and entertainment facility on the
Property.
5
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
I. The Company is the plaintiff and a counterclaim defendant in a lawsuit
pending in Denver, Colorado District Court, Case No. 95CV2310, entitled Country
World Casinos, Inc., a Nevada corporation, Plaintiff, v. Tommyknocker Casino
Corp., a Colorado corporation and New Allied Development Corporation, a Colorado
corporation, Defendants, v. Country World Casinos, Inc., a Nevada Corporation,
Holly Products, Inc., a New Jersey corporation, Ronald G. Nathan, Sal Lauria,
Roger D. Leclerc, William H. Patrowicz and David Singer, Counterclaim
Defendants. This action has been stayed due to the filing of the Company's
Petition in Bankruptcy in the United States Bankruptcy Court for the District of
Colorado on October 12, 1995, Case No. 95-20563RJB which is currently pending.
The District Court litigation and the bankruptcy petition arise as a result of
disputes with New Allied Development Corporation and its subsidiary,
Tommyknocker Casino Corp. (collectively "NADC"). NADC had previously attempted
to foreclose on the Company's Black Hawk, Colorado property. NADC holds a note
from the Company, which is secured by a second deed of trust on the property. As
with the Denver, Colorado district court litigation, the foreclosure action was
automatically stayed under the bankruptcy laws due to the filing of the petition
in bankruptcy by the Company.
As discussed in "Management's Discussion and Analysis of Financial
Condition or Plan of Operation" in this Report, the Company obtained $5,000,000
in financing which is secured by First Deed of Trust on the Company's Black
Hawk, Colorado property. Pursuant to order of the Bankruptcy Court, NADC's
security interest has been cancelled. The payoff balance on the note due to NADC
is in dispute and a claims hearing will be held by the Bankruptcy Court to
determine the amount to be paid to NADC.
The Company has filed a Plan of Reorganization and a Disclosure Statement
for the Plan of Reorganization with the Bankruptcy Court. The hearing will be
conducted before the Bankruptcy Court to consider the adequacy of the Disclosure
Statement on September 10, 1996.
In the fiscal year ended June 30, 1994, the Company was informed by the
Securities and Exchange Commission (the "SEC") that the SEC had instituted a
formal order of investigation concerning the possibility of violations of the
federal securities laws by the Company. In August 1996, the Company was advised
that the investigation had been terminated and that, at this time, no
enforcement action has been recommended by the staff of the SEC.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See discussion above regarding the note from the Company to NADC.
6
<PAGE>
SIGNATURES
In accordance with the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
COUNTRY WORLD CASINOS, INC.
Dated: August 27, 1996 By: /S/ ROGER D. LECLERC
-------------------------------
Roger D. Leclerc, President
and Chief Financial Officer
<PAGE>
COUNTRY WORLD CASINOS, INC.
Financial Statements
March 31, 1996
<PAGE>
COUNTRY WORLD CASINOS, INC.
Table of Contents
Page
----
Financial Statements:
Accountants Report ....................................... F-1
Balance Sheet............................................. F-2
Statements of Operations.................................. F-3
Statements of Stockholders' Equity........................ F-4
Statements of Cash Flows.................................. F-7
Notes to Financial Statements.............................. F-8
<PAGE>
To the Board of Directors and Stockholders
Country World Casinos, Inc.
Denver, CO
I have compiled the accompanying balance sheet of Country World Casinos, Inc. (a
development stage company) as of March 31, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the nine
months then ended in accordance with Statements on Standards for Accounting and
Review issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. I have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on it.
The accompanying statements have been prepared assuming that the Company will
continue as a going concern. The ability of the Company to continue as a going
concern depends on the Company's ability to obtain additional long-term debt
and/or equity financing. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The accompanying financial statements have been prepared assuming that Country
World Casinos, Inc. will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has filed for Bankruptcy under Chapter 11,
is in the development stage, and has suffered recurring losses from operations
and has a working capital deficiency of $4,400,861 that raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are discussed in Note 2. The financial statements do
not include any adjustments that might result from this uncertainty.
Gene Fuehrer & Associates
Certified Public Accountant
August 6, 1996
Englewood, CO
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Balance Sheet
-------------
March 31,
1996
----------
(Unaudited)
Assets
Current assets:
Cash $ 4,169
Accounts Receivable 12,661
-----------
16,830
Property and Equipment (Notes 3 and 4)
Land 7,475,475
Casino under development 3,516,433
Furniture and equipment 34,659
-----------
11,026,567
Less accumulated depreciation (10,181)
-----------
11,016,386
-----------
Other assets
Deposits and other 4,243
-----------
Total assets $11,037,459
===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt
(Notes 3 and 4) $ 3,387,865
Accounts payable 539,182
Advances - stockholders 93,035
Accrued interest 315,762
Other accrued expenses 81,847
-----------
Total current liabilities 4,417,691
-----------
Commitments and contingency (Notes 3, 7 and 8)
Stockholders' equity (Notes 2, 3 and 5)
Preferred stock, $.001 par value, 25,000,000
shares authorized
Convertible Preferred, 2,250,000 shares
issued and outstanding (Liquidation
preference $7,492,500) 2,250
Common stock, $.001 par value, 50,000,000
shares authorized, 10,836,187 issued
and outstanding 10,836
Additional paid-in capital 9,562,551
Deficit accumulated during the development stage (2,955,869)
-----------
Total stockholders' equity 6,687,580
-----------
Total liabilities and stockholders' equity $11,037,459
===========
See notes to financial statements
F-2
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Statement of Operations
-----------------------
<TABLE>
<CAPTION>
For the Period
From November 9, 1982
(Date of Inception)
For Nine Months Ended Through
March 31, 1996 March 31, 1996
-------------- --------------
<S> <C> <C>
Costs and expenses
Research and development costs $ - $ 122,000
Bad debt expense - 175,000
General and administrative expenses 296,691 2,859,132
Depreciation expense 3,680 10,182
----------- -----------
Total $ 300,371 $3,166,314
----------- ----------
Other income (expense)
Other income - 45,727
Interest income 16 60,066
Gain on forgiveness of debt - 17,152
Forfeited deposit (Note 3) - (100,000)
----------- ----------
Total 16 $ 22,945
----------- ----------
Loss from continuing operations (300,355) (3,143,369)
Prior period adjustment 187,500 187,500
Discontinued operations (Note 7)
Gain on disposal of subsidiaries - 389,286
(Loss) from discontinued operations - (389,286)
----------- ----------
Net (loss) income $ (112,855) $(2,955,869)
=========== ===========
Net (loss) income per share $ (.02) $ (.44)
============ ===========
Weighted average number of shares
(Note 5) 6,694,097 6,694,097
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Statement of Stockholder's Equity
From November 9, 1982 (Date of Inception) Through March 31, 1996
Common Stock Deficit
--------------------------------------- Accumulated
Preferred Stock Subscribed Additional During the
----------------- ---------------- Paid-In Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 9, 1982
(date of inception) - $ - - $ - - $ - $ - $ - $ -
Issuance of shares
for cash - - 104,000 520 - - 1,005 - 1,525
Issuance of common
stock to the public - - 51,600 258 - - 644,742 - 645,000
Deferred offering
costs - - - - - - (115,690) - (115,690)
Cancellation of
common stock - - (28,000) (140) - - 140 - -
Issuance of shares
for services - - 3,000,000 15,000 - - - - 15,000
Issuance of common
stock at a discount - - 46,872,400 234,362 - - (214,362) - 20,000
Capital contribution - - - - - - 2,850 - 2,850
Net loss for the
period from November 9,
1982 (date of
inception) through
June 30, 1992 - - - - - - - (221,169) (221,169)
------- ------- ----------- -------- ------ ----- --------- -------- --------
Balance - June 30, 1992 - - 50,000,000 250,000 - - 318,685 (221,169) 347,516
Issuance of common stock
at a discount
for services (Note 5) - - 25,000,000 125,000 - - (112,500) - 12,500
Net loss for year
ended June 30, 1993 - - - - - - - (373,401) (373,401)
------- ------- ----------- ---------- ------ ----- --------- -------- --------
Balance - June 30, 1993 - - 75,000,000 375,000 - - 206,185 (594,570) (13,385)
Reverse stock split
1:35 (Note 5) - - (72,857,142) (364,285) - - 364,285 - -
Change in par value
from $.005 to
$.001 (Note 5) - - - (8,572) - - 8,572 - -
Issuance of stock
for cash (Note 5) - - 600,000 600 - - 599,400 - 600,000
Issuance of stock
for cash (Note 5) - - 1,500,000 1,500 - - 1,498,500 - 1,500,000
Continued on next page.
See Notes to financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Statement of Stockholder's Equity
From November 9, 1982 (Date of Inception) Through March 31, 1996
Continued from previous page.
Common Stock Deficit
--------------------------------------- Accumulated
Preferred Stock Subscribed Additional During the
----------------- ---------------- Paid-In Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Convertible
Preferred Stock for
acquisition of land
valued at $1.00 per
share(Note 5) 2,250,000 2,250 - - - - 2,247,750 - 2,250,000
Issuance of stock for
cash and services
pursuant to exercise
of options (Note 5) - - 250,000 250 - - 249,750 - 250,000
Purchase and
cancellation of
treasury stock
(Note 5) - - (125,000) (125) - - (124,875) - (125,000)
Issuance of stock
for cash (Note 5) - - 200,662 200 - - 499,800 - 500,000
Issuance of common
stock for acquisition
of land valued at
$1.00 per share
(Note 5) - - - 250 - - 249,750 - 250,000
Issuance of common
stock for cash and
services pursuant
to exercise of
options (Note 5) - - 95,000 95 - - 237,405 - 237,500
Issuance of common
stock for services
rendered valued at
$2.50 per share
(Note 5) - - 200,000 200 - - 499,800 - 500,000
Subscription of
common stock pursuant
to private placement
offering (Note 5) - - - - 262,667 263 787,737 - 788,000
Net loss for year
ended June 30, 1994 - - - - - - - (1,490,785) (1,490,785)
------- ------- -------- --------- -------- ------- -------- ---------- ----------
Balance -
June 30, 1994 2,250,000 $2,250 5,113,520 $5,113 262,667 $263 $7,324,059 $(2,085,355) $5,246,330
Subscription of
common stock
pursuant to private
placement offering
(Note 5) - - - - 460,000 460 1,379,540 - 1,380,000
Issuance of stock
for outstanding note - - 5,000,000 1,000 - - 1,013,452 - 1,014,452
Convert subscribed
stock to common
and record fees - - 722,667 4,723 (722,667) (723) (154,500) - (150,500)
Net loss for twelve
months ended
June 30, 1995 - - - - - - - (757,659) (757,659)
------- ------- ---------- -------- -------- ------- -------- ---------- ---------
Balance -
June 30, 1995 2,250,000 $2,250 $10,836,187 $10,836 0 $ 0 $9,562,551 $(2,843,014) $6,732,623
See notes to financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Statement of Stockholder's Equity
From November 9, 1982 (Date of Inception) Through March 31, 1996
Continued from previous page.
Common Stock Deficit
--------------------------------------- Accumulated
Preferred Stock Subscribed Additional During the
----------------- ---------------- Paid-In Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
------ ------ ------ ------ ------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss for nine
months ended
March 31, 1996 - - - - - - - (112,855) (112,855)
Balance -
March 31, 1996 2,250,000 $2,250 $10,836,187 $10,836 0 $ 0 $9,562,551 $(2,955,869) $6,619,768
========= ====== =========== ======= ==== ===== ========== ============ ==========
See notes to financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Statements of Cash Flows
------------------------
For the Period From
November 9, 1982
(Date of Inception)
For Nine Months Ended Through
March 31, 1996 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Continuing operations
Net (loss) $(112,855) $(2,955,869)
Adjustments to reconcile net (loss) to net cash from
operating activities -
Depreciation 3,680 32,929
Common stock issued for interest - 14,451
Common stock issued for services - 837,500
Decrease in accounts receivable 3,475 (12,661)
Decrease in noncurrent assets - 237,000
Increase in accounts payable (129,412) 539,182
Increase in accrued expenses 259,577 397,609
Discontinued operations
Net (loss) - (389,286)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities -
Gain on disposal of assets - 389,286
Changes in assets and liabilities - -
------------ -----------
Total cash (used in) provided by operating activities 24,465 (909,859)
------------ -----------
Cash flows from investing activities:
Purchase of land and casino development costs (151,105) (4,316,910)
Purchase of furniture, vehicle and equipment - (57,406)
Investment in non-marketable securities - (85,000)
Loans receivable - (90,000)
Investment in patent- (62,000)
Deposits and other (440) (4,243)
------------ -----------
Total cash used in investing activities: (151,545) (4,615,559)
------------ -----------
Cash flows from financing activities:
Proceeds advances stockholders 93,035 93,035
Proceeds from long-term debt - 1,000,000
Repayments on long-term borrowings - (787,136)
Proceeds from stock issuance - 5,220,835
Capital contribution - 2,850
------------ -----------
Total cash provided by (used in) financing activities: 93,035 5,529,584
------------ -----------
Net (decrease) increase in cash (34,042) 4,169
Cash - beginning of period 38,211 -
------------ -----------
Cash - end of period $ 4,169 $ 4,169
============ ===========
</TABLE>
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
- -----------------------------------------------------------------------
During the year ended June 30, 1995, the Company converted a note payable
($1,000,000) plus accrued interest ($14,451) totaling $1,014,451 into 5,000,000
common shares.
During the year ended June 30, 1994 the Company issued common stock of $250,000
and Convertible Preferred stock of $2,250,000 and incurred $4,175,000 of debt to
acquired land with a cost of $6,675,000 (Note 3).
See notes to financial statements
F-7
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies and Business Activity
- -------------------------------------------------------------------------
Organization and Business
- -------------------------
Country World Casinos, Inc. (formerly Monolite Industries) (the "Company"), a
Nevada corporation, was incorporated on November 9, 1982, and is in the
development stage. The original planned operation of the Company was for the
purpose of development, licensing and production of products on a subcontracting
basis, and the sale of products and devices in or related to the medical and/or
biotechnical fields. In May of 1990, the Company acquired another company
through the issuance of 40,000,000 shares of its common stock. This acquisition
was accounted for using the pooling of interests method. The newly merged entity
formed a subsidiary on November 29, 1990, called Trail-Lite, Inc. The planned
operation through the new subsidiary was for the purpose of manufacturing
monolithic composite panels. In September 1992, the Company disposed of its
subsidiary, Trail-Lite, Inc. (Note 8).
In fiscal year 1994, the Company changed its focus of business operations and in
two separate transactions, acquired approximately 79,000 and 375,000 square feet
of vacant land located in the city of Black Hawk, Gilpin County, Colorado. As of
March 31, 1996, the Company has not realized any revenue from its planned
operations and, accordingly, is considered to be in the development stage.
Concentration of Credit Risk
- ----------------------------
The Company maintains cash balances in bank deposit accounts, which, at times,
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
Hotel and Casino Under Development
- ----------------------------------
The Company has purchased land and has begun construction of a hotel and casino.
The land and development costs are recorded at cost and no depreciation will be
taken until such time as the Company places the casino into operation.
Furniture and Equipment
- -----------------------
Furniture and equipment is stated at cost and will be depreciated on a
straight-line basis over their estimated useful lives.
Loss Per Share
- --------------
Loss per share of common stock was computed based on the weighted average number
of common shares outstanding during the period. Common stock equivalents are not
included as their effect would be antidilutive.
F-8
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies and Business Activity
- --------------------------------------------------------------------------------
(cont.)
- -------
Statement of Cash Flows
- -----------------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents for purposes of
statement of cash flows.
Note 2 - Continued Operations and Realization of Assets
- -------------------------------------------------------
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company incurred net losses
of approximately $2,888,000 for the period from November 9, 1982 (date of
inception) through March 31, 1996. The Company filed for bankruptcy under
Chapter 11 on October 12, 1995. The Company is currently looking for the
required funding to complete the construction of the casino and hotel described
in (Note 3). These factors, among others, indicate the Company's ability to
continue in existence is dependent upon its ability to obtain additional
long-term debt and/or equity financing and achieve profitable operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset or liability amounts which
might be necessary should the Company be unable to continue in existence.
Note 3 - Casino Under Development
- ---------------------------------
On August 6, 1993, the Company closed on an acquisition of approximately 79,000
square feet of vacant land located within the city of Black Hawk, Gilpin County,
Colorado. The Company paid $550,000 cash, delivered a promissory note (Note 5)
in the amount of $3,450,000, and delivered 2,250,000 shares of its Convertible
Preferred stock (Note 6) which is convertible to common stock on a 1 for 1
basis. The acquisition of the land is subject to a first deed of trust in the
amount of $475,000. The Company is obligated to file a registration statement to
cover the distribution of the Convertible Preferred stock to the shareholders of
the selling entity, which is a publicly-held corporation based in Denver,
Colorado.
On June 28, 1994, the Company closed on an acquisition to an additional 375,000
square feet of vacant land located in close proximity to the original land
purchased. The Company paid $200,000 cash, delivered a promissory note (Note 5)
in the amount of $725,000, and delivered 250,000 shares of its common stock
(Note 6).
F-9
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 3 - Casino Under Development (continued)
- ---------------------------------------------
The Company is in the process of constructing a casino on the land and intends
to construct a hotel subsequent to the completion of the casino. On July 11,
1994, the Company entered into a contract to construct the casino. The Company
has capitalized the following costs related to the casino construction through
December 31, 1995:
Interest on long-term debt $ 670,541
Architectural fees and fees for construction
and design services 2,845,892
----------
$3,516,433
==========
In December of 1993, the Company entered into a letter of intent to acquire an
existing casino in Black Hawk County and paid the seller a $100,000
non-refundable deposit which was to be applied against the purchase price at
closing. As of June 30, 1994, the letter of intent had expired and the $100,000
was expensed.
Note 4 - Long-Term Debt
- -----------------------
$3,450,000 note payable - stockholder,
interest at 8%, payable in equal monthly
installments over ten (10) years commencing
with the earliest of the completion of the
casino or 15 months from August 6, 1993. The
note is collaterized by a second deed of
trust on real property with a net book value
of $6,250,000 $2,662,865
$725,000 note payable - stockholder, interest
at 8%, payable in monthly installments over
ten (10) years starting 15 months after the
June 28, 1994 closing. The note is
collaterized by a first deed of trust on real
property with a net book value of
approximately $1,175,000 725,000
----------
3,387,865
Less current portion 3,387,865
----------
-0-
==========
As of June 30, 1995, the Company was in default of the $3,450,000 note, and it
is accordingly considered current. The first payment on the $725,000 note due
September 28, 1995 was not made, and accordingly, the entire amount is also
considered current (Note 10).
F-10
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholders' Equity
- -----------------------------
Issuance of Common Stock at a Discount
- --------------------------------------
On May 31, 1993, the Company authorized the issuance of its remaining
authorized, but unissued, common stock to the Company's former president as
compensation, which the Company valued at $12,500. Since the par value of the
25,000,000 shares issued was $.005 per share, the stock was issued at less than
its par value. Theses 25,000,000 shares, even though issued below par, are fully
paid and non-assessable according to legal counsel for the Company, under the
Laws of the State of Nevada as long as the action is ratified by the Board of
Directors and has otherwise complied with applicable law. Legal counsel cites
NRS Sections 78.211, 78.220 and 78.215. In addition, legal counsel states such
discounts do not make the stock assessable, and cites NRS Section 78.220.
Reverse Stock Split
- -------------------
During the year ended June 30, 1993, the Company declared a 1 for 35 reverse
stock split. This split was effective with the commencement of business on
August 9, 1993, with respect to all shares which were issued and outstanding as
of August 6, 1993. The Company also changed its par value per share of common
stock from $.005 to $.001 per share. All share and per share amounts have been
restated to retroactively reflect the stock split.
Preferred Stock
- ---------------
The Company amended its Articles of Incorporation to provide for 25,000,000
shares of preferred stock, $.001 par value, with such rights, preferences,
designations and to be issued in such series as to be determined by the
Company's Board of Directors.
In August 1993, the Board of Directors created a series of Class A convertible
preferred (Convertible Preferred) stock valued at $1.00 per share. The maximum
issuable shares under the series is 2,250,000 shares. Holders of the Convertible
Preferred shares shall be entitle to dividends as declared by the Board of
Directors.
The Convertible Preferred stockholders, in the event of liquidation of the
Company will receive an amount equal to $3.33 per share plus declared and unpaid
dividends
before any holder of common stock.
Each Convertible Preferred share is convertible into one share of common stock
anytime after distribution or automatically upon the conversion of the majority
of the Convertible Preferred stock or in the event of a public offering of the
Company's common stock at not less than $6.66 per share, or at the time of
registration.
F-11
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholders' Equity (continued)
- -----------------------------------------
Casino Property
- ---------------
In connection with the acquisition of Casino property, the Company issued
2,250,000 shares of convertible preferred stock to a third party. The Casino
property was independently appraised at $11,850,000 prior to the acquisition. At
the date of the acquisition, the Company's stock was selling at $1.00 per share
and therefore, the transaction was recorded at the fair value of the stock,
$1.00 per share as determined by the Board of Directors.
In order to raise funds to make the down payment for the purchase of the casino
property (Note 3), the Company has sold 600,000 shares of its common stock at
$1.00 per share in conjunction with two private placement offerings. The shares
are restricted.
Sales of Common Stock
- ---------------------
In August 1993, the Company sold five units of Company stock to offshore
investors for $300,000 per unit. Each unit consisted of 300,000 shares of the
Company's common stock and warrants to purchase 300,000 shares of common stock
at $3.50 per share within two years of August 31, 1993.
During November and December of 1993, the Company sold an additional 140,000
shares of common stock at $2.50 per share for a total of $350,000, pursuant to a
private offering. During January 1994, the Company sold an additional 60,662
shares at $2.47 per share for a total of $150,000 pursuant to a private
offering.
Issuances of Stock for Services
- -------------------------------
The Company entered into a management agreement with a company owned by certain
stockholders and officers of the Company (Note 8). In conjunction with the
agreement, the Company paid the related company approximately $146,000 in fees,
granted an option to acquire 250,000 shares of common stock at $.01 and granted
a warrant to purchase 1,000,000 shares of common stock at $3.50 per share.
The related company exercised its option to purchase the 250,000 shares at $.01
with the difference between fair market value of the stock on the date of grant
of $1 and the exercise price of $.01 or $247,500, capitalized in construction in
progress. Subsequently, the agreement with the company was terminated and the
former President and Secretary/Treasurer of the Company resigned. As stipulated
in the agreement, the Company repurchased 125,000 shares of common stock at $.01
and canceled the shares.
F-12
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholders' Equity (continued)
- -----------------------------------------
The financial statements reflect a reduction of $247,500 in construction in
progress ($123,750 against additional paid in capital for the difference between
the fair market value of the 125,000 shares repurchased and the original
exercise price and $123,750 as compensation expenses as the construction project
will no longer benefit from the management agreement). Additionally, the
1,000,000 share warrant was canceled.
In April 1994, the Company issued 200,000 shares of common stock in conjunction
with a financial advisory and investment banking agreement (Note 5). The shares
had a fair market value of $2.50 resulting in compensation expense to the
Company of $500,000.
Additional Land Acquisition
- ---------------------------
In August 1993, the Company entered into a letter of intent to acquire vacant
land with an independently appraised value of $1,089,000 when the fair market
value of the Company's common stock was $1. The Company closed the acquisition
in June 1994, and in conjunction with the acquisition, issued 250,000 shares of
common stock to the seller. The transaction was recorded at the fair market
value of the stock at the date the letter of intent was signed, $1 per share, as
determined by the Board of Directors.
Exercise of Options
- -------------------
Two stockholders and officers of the Company exercised options to acquire 95,000
shares of common stock for $.25. The options were granted at a time when the
fair market value of the stock was $2.50. The difference between the fair market
value and the exercise price of $.25 is reflected as compensation expense in the
financial statements.
Private Placement Offering
- --------------------------
In June 1994, the Company has undertaken a private placement offering for up to
5,000,000 shares of common stock at $3 per share. At December 31, 1995, the
Company had received $2,017,500, net of offering costs of $150,000 for 722,667
shares.
Options
- -------
The Company has granted options/warrants to purchase shares of the Company's
common stock to certain key members of management and in connection with the
sale of common stock to offshore investors. The options/warrants expire through
May 31, 1999.
F-13
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholder's Equity (continued)
- -----------------------------------------
The following summarizes the status of options and warrants granted and
exercisable at June 30, 1995:
Number of
Options and Exercise
Warrants Price
----------- ---------------
Outstanding, June 30, 1993 - -
Options and warrants granted 4,390,000 $ .01 to $6.00
Options exercised (250,000) $ .01
Warrants exercised (1,000,000) $ 3.50
-----------
Outstanding, June 30, 1994 3,140,000
Options Expired (840,000) $ .25 to $6.00
-----------
Outstanding, June 30, 1995 2,300,000 $ 3.50 to $5.00
=========
Note 6 - Income Taxes
- ---------------------
Effective July 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using expected tax rates in
effect for the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
The Company has not generated taxable income since its inception, and therefore,
no provision for income taxes has been made.
At June 30, 1995, the Company had net operating loss carry forwards for income
tax purposes of approximately $2,843,000 which expire through 2011. The net
operating losses are limited due to a more than 50% change in ownership. The
Company has approximately $966,000 deferred tax asset as a result of the net
operating losses which has been fully impaired due to uncertainty as to its
utilization.
F-14
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 7 - Discontinued Operations
- --------------------------------
On September 15, 1992, the Company entered into an agreement to transfer
ownership in its subsidiary, Trail-Lite, Inc. for a general release agreement of
existing claims. This represented a reduction of accounts payable, short-term
borrowings and other related debt in the amount of $389,286, which is the full
amount of losses incurred by the Company to date from the operations of the
subsidiary.
The decision was precipitated by the large losses incurred from the business of
manufacturing monolithic composite panels. Based on the initial operations of
the business, the Board of Directors and management determined that profitable
operations would not be realized from the business as it was currently
structured and decided to sell the subsidiary. Management determined the
subsidiary had no value and they were transferred to an entity controlled by the
prior principal shareholders, officer and director of the Company for the
related debt that had been incurred.
Note 8 - Commitments and Contingency
- ------------------------------------
Consulting Agreements
- ---------------------
In September 1993, the Company entered into a consulting agreement with a
company to assist and advise the Company in construction and development of the
hotel and casino project as well as selection of the general contractor,
architect, interior designer and engineers. The Company began paying the company
$5,000 per month in October, 1993 for six months and capitalized the costs as
construction in progress. In addition, the Company was to issue 50,000 shares of
common stock to the company. On March 10, 1994, the Company renegotiated the
consulting and construction management agreement and the 50,000 shares of stock
previously due were canceled. Further, compensation for the consultant services
pursuant to the agreement shall be paid equal to five percent of the gross
expenditures (excluding any expenditures for the acquisition or leasing of
gaming devices) paid or incurred by the Company (including the value of any
in-kind services or materials contributed by any person) through completion of
construction with respect to any project of the Company for which consultant
provides services to or on behalf of the Company pursuant to the agreement. This
consulting agreement has expired.
In April 1994, the Company entered a three year agreement with an entity to
advise the Company in financial matters. The agreement requires the Company to
make equal monthly payments over three years of $2,770 and to issue 200,000
shares of the Company's common stock. This agreement was canceled.
F-15
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 8 - Commitments and Contingency (continued)
- ------------------------------------------------
Employee Agreement
- ------------------
In May, 1994, the Company entered into a three year, $120,000 per year
employment agreement with an officer of the Company. The agreement granted the
officer options to purchase 800,000 shares of the Company's common stock over a
5 year period at exercise prices ranging from $.25 to $6.00 per share.
Employment was terminated during the year ended June 30, 1995 and pursuant to
the employment agreement, the options expired 30 days after termination.
Lease
- -----
The Company entered into a lease for a term of three years beginning January 1,
1994. The monthly rental will be $3,803 per month. The Company paid $47,370 and
$22,818 in net expense for the years ended June 30, 1995 and 1994, respectively.
Under Chapter 11 the Company has cancelled the lease.
SEC Investigation
- -----------------
In the fiscal year ended June 30, 1994, the Company was informed by the
Securities and Exchange Commission (the "SEC") that the SEC had instituted a
formal order of investigation concerning the possibility of violations of the
federal securities laws by the Company. To the best of the Company's knowledge,
the investigation by the SEC is continuing, and the Company has not been
notified of any action being instituted by the SEC against the Company.
Consequently, the Company is unable to assess the ultimate effect of this
action. Although no member of the Company's current management was affiliated
with the Company during the time period the SEC is investigating, the pendency
of such investigation, and the initiation of any action by the SEC, has impeded,
and could continue to impede, the Company's efforts to obtain financing, and
accomplish other tasks necessary to commence operations.
Note 9 - Related Party
- ----------------------
In May 1995, the Company entered into a management agreement with the majority
shareholder whereby the Company owes the related party $15,000 per week for a
management fee. As of June 30, 1995, the Company had not paid any amounts
related to the contract and accordingly owed the related party $150,000. This
agreement has been cancelled because of the Chapter 11 filing. It has been
agreed that there is no monies due the related party.
F-16
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 9 - Related Party (continued)
- ----------------------------------
Consulting Agreements
- ---------------------
The Company entered into an agreement with a company related through common
ownership to serve as consultants with respect to the operation of the casino in
Black Hawk, Colorado. The agreement required the Company to pay the related
entity $20,000 per month for its services (which includes reimbursement for
expenses) through December 31, 1993, at which time the monthly payment increased
to $27,500. The agreement granted an option for 250,000 shares of common stock
at an exercise price of $.01 per share and a warrant to purchase 1,000,000
shares of common stock with an exercise price of $3.50 per share. On March 2,
1994, the agreement was terminated.
Funding
- -------
The Company entered into an agreement with a majority stockholder whereby the
majority stockholder will receive the right to purchase up to 20,000,000 shares
of common stock at $.20 per share if specified funding is provided according to
the agreement.
Note 10 - NOTE DEFAULT
- -----------------------
In July 1995, the note holder on the $3,450,000 note payable (Note 4) has
declared the note in default and has begun foreclosure proceedings on the real
property collateralizing the note. In addition, the payments due on the $725,000
note have not been made and accordingly the note is considered in default. The
Company filed a lawsuit against New Allied Development Corporation and its
wholly owned subsidiary, Tommyknocker Casino Corp. ("NADC"). In 1993, the NADC
sold to the Company the land in Black Hawk, Colorado upon which the Company
plans to construct a gaming entertainment facility. The Company believes that
NADC committed wrongful acts in connection with the land purchase. In addition
to cash, NADC received preferred stock and a promissory note (the "Note") from
the Company. The Note is secured by a second deed of trust on the Black Hawk
property. It was provided in the Note that when certain payments had been made
by the Company to NADC, NADC would obtain the release of the first deed of trust
which secures a pre-existing indebtedness of NADC in the original principal
amount of $475,000. The first deed of trust has not been released. NADC has
declared the Company in default on the Note. In the lawsuit, the Company has
requested a declaration that the Company is not obligated to make any additional
payments to NADC under the Note until NADC has secured the release of the first
deed of trust. The Company also seeks other relief against NADC.
F-17
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 11 - Subsequent Events
- ---------------------------
In March 1996 the Bankruptcy Court approved $5 million in financing, which
financing was obtained on May 31, 1996.
The Company received net proceeds of approximately $2,850,500 after payment of
loan commitment fees, loan servicing fees and points to Kennedy Funding, Inc. of
approximately $812,000, the First Year Interest Obligation of $750,000 and
$610,000 for release of the prior first deed of trust on the Property. The
holder of that deed of trust was the holder of a note which had not been paid by
NADC.
Pursuant to the Order of the Bankruptcy Court, the Company will receive a credit
for the amount paid to the holder of the note from NADC as a direct offset
against the Note made by the Company to NADC. The note from the Company to NADC
was secured by a second deed of trust against the Property. The net proceeds
received by the Company from the loan closing have been paid into an interest
bearing account pending further order of the Bankruptcy Court. The Company and
NADC have a dispute as to the payoff balance on the note due to NADC by the
Company. A claims hearing will be held by the Bankruptcy Court to determine the
amount to be paid to NADC, and the note to NADC will be canceled.
F-18
<PAGE>
SIGNATURES
In accordance with the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COUNTRY WORLD CASINOS, INC.
Dated: August 23, 1996 BY: /S/ ROGER D. LECLERC
--------------------------------------
Roger D. Leclerc, President
and Chief Financial Officer
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