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 September 30, 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 Identification No.)
incorporation or organization)
13576 West Utah Avenue
Lakewood, CO 80228
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 912-5776
4155 E. Jewell Avenue, Suite 1000, Denver, Colorado 80222
---------------------------------------------------------
(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
February 18, 1997.
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
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 casino in Black Hawk, Colorado. In August, 1993, the
Company completed the acquisition from New Allied Development Corporation and
its subsidiary, 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 a gaming facility on the Property.
In the fiscal year ended June 30,1995, the Company borrowed $1,000,000 from
Holly Holdings, Inc., formerly known as 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 $433,000 to the Company through December 31,
1996. In addition, as noted below, Holly has agreed to provide additional
financing to the Company.
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
regulatory bodies, procuring gaming equipment on satisfactory terms, and
accomplishing these objectives in a timely manner. The Company does not expect
to accomplish these objectives in the current fiscal year.
3
<PAGE>
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.
In 1995 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
addition, NADC has filed a Motion to Convert with the Bankruptcy Court seeking
to convert the Chapter 11 case to a Chapter 7 case. See Part II, Item 1. If NADC
is successful in the Motion to Convert, the assets of the Company will be
liquidated and it would be unlikely that the common shareholders would receive
any proceeds from this liquidation. The Company opposes the Motion to Convert
and, as more fully set forth below, has submitted a Plan of Reorganization to
the Bankruptcy Court.
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. Norlar, Inc.'s
participation or percentage of the $5 million financing is 47% or $2,350,000.
The other participants are unrelated to the Company or 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.
In February 1997, the Company submitted its Third Amended Plan of
Reorganization (the "Plan") and a Fourth Amended Disclosure Statement regarding
the Plan. The primary purpose of the Plan is to maintain ownership of the
Property through a refinancing of the Property and to pay allowed claims against
the bankruptcy estate of the Company in full. If the Company is successful in
its Plan, the Company will have no unsecured debt other than to Holly and will
have a $5 million secured loan on the Property.
Norlar has agreed with the other participants in the $5 million loan to
subordinate Norlar's interest to the other participants for the benefit of the
Company. Norlar has agreed and it is proposed in the Plan, that all of Norlar's
4
<PAGE>
monthly payments which would be due on its 47% interest in the $5 million loan
be deferred until the Property is refinanced, sold, foreclosed upon or otherwise
liquidated. Accordingly, the Company would be required, commencing May 19, 1997,
to make monthly interest-only payments on the remaining 53% of the $5 million
loan owed to the non-Norlar participants. Therefore, the Company's requirements
would be $53,000 per month.
It is proposed in the Plan that the Company will continue to seek
construction financing or joint-venture agreements in order to develop the
Property. Notwithstanding this ultimate objective, it is proposed in the Plan
that the Company undertake interim restructuring to fulfill the financial
requirements of the Plan.
It is provided in the Plan that the Company will utilize the remaining cash
on hand from the $5 million refinancing of the Property (approximately
$460,000), plus a $1 million cash infusion by Holly to pay all allowed claims in
accordance with the terms of the Plan. Holly has agreed to provide $1 million on
a phased-in basis, with an initial payment of $750,000 to be made on or before
February 28, 1997. Holly has agreed to pay the remaining $250,000 to the Company
on or before November 19, 1997. The Company has agreed with Holly to reduce this
agreement for the cash infusion to written documents, and to apply to the
Bankruptcy Court for approval of the financial transaction with full disclosure
to all creditors and parties in interest regarding the specific terms of the
cash infusion. Monies from Holly would be paid into a special bank account being
established by the Company at its bank, Norwest Bank of Glendale, for the
purpose of funding the Plan. The Company believes that its cash on hand and the
$1 million cash infusion will be sufficient to fund the Plan and to pay the
interest-only payments of $53,000 per month on the $5 million loan, commencing
May 19, 1997, through May 19, 1998.
The Company will continue to seek construction financing and permanent
"take-out" financing, or a joint-venture partner in order to develop the
Property by the construction of a gaming facility. If the Company should fail in
its efforts to obtain such financing, it is provided in the Plan that the
Company will market the Property for sale in order to liquidate the Property.
This back-up option establishes a firm cut-off date of December 31, 1997 within
which the Company is to secure construction financing and permanent take-out
financing or obtain a joint-venture partner for the development of the Property.
If the Company is unable to meet these conditions, the Company proposes in the
Plan to list the Property for sale pursuant to a public sale. As part of the
Plan, the Company would seek the approval of the Bankruptcy Court for the sale.
It is further provided in the Plan that if the Company is unable to close the
sale on the Property by April 30, 1998, that the case will be converted into a
Chapter 7 case, with a trustee appointed to liquidate the Property.
The Company has made several unsuccessful efforts to obtain financing,
construction financing, "take-out" financing, or joint venture agreements in an
attempt to develop the Property. The Company is currently engaged in discussions
with a development firm regarding development of Property, but no assurance can
be given that arrangements will be made with this firm, or if arrangements are
made, that they will be on terms favorable to the Company. There can no
assurance that the Company will be successful in its efforts to obtain financing
for development of the Property, or in the development or any actual operation
of the Property.
The Company has incurred substantial net losses, and had a working capital
deficiency of approximately $1,753,686 at December 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 three months ended September 30, 1996, the Company had interest
income of $9,236, interest expense of $134, general and administrative expenses
of $50,523 and depreciation expense of $1,262. The Company's loss was $42,683,
or $.01 per share. The Company remains in the development stage and had incurred
5
<PAGE>
a loss from inception through September 30, 1996 of $3,303,370. The ability of
the Company to achieve revenues in the future will be dependent upon realization
of its plans to develop a gaming facility on the Property.
6
<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"). A claims hearing was held in
September 1996 to determine the amount of NADC's allowed secured debt in the
proceeds of the Company's financing of the Property. Prior to the hearing, the
Company had paid to NADC the undisputed portion of its secured debt against the
Property in the amount of $998,391. In November 1996, the Bankruptcy Court
issued its Memorandum Opinion and Order determining the method and amount of
NADC's secured claim. The amount of $1,308,726, as authorized by the Bankruptcy
Court, has been paid by the Company to NADC, for a total of $2,307,117. In
November 1996, the Bankruptcy Court ordered that NADC was paid in full. The
payment was without prejudice to the right of the Company to seek a
reconsideration and without prejudice to appeal the Order.
In December 1996, the Company filed a Motion for Reconsideration of the
Order of the Bankruptcy Court, as well as a notice of appeal. The Bankruptcy
Court denied the Motion for Reconsideration. In December 1996 NADC filed a
cross-appeal of the Order of the Bankruptcy Court. This appeal has been made to
the United States District Court for the District of Colorado and has been
assigned case number 96-AP- 2823.
In February 1997, the Company filed its Third Amended Plan of
Reorganization and its Fourth Amended Disclosure Statement for the Plan of
Reorganization.
NADC has filed a Motion to Convert the Company's pending bankruptcy case
pursuant to Chapter 11 to a Chapter 7 bankruptcy proceeding. The Bankruptcy
Court will conduct a hearing on this Motion to Convert on March 3, 1997. The
Company opposes this Motion to Convert. If the Motion to Convert is successful,
a Chapter 7 Trustee would be appointed to liquidate the assets of the Company,
including the Property. In that event, it would be unlikely that the common
shareholders of the Company would receive any proceeds.
7
<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: February 18, 1997 By: /S/ ROGER D. LECLERC
-------------------------------
Roger D. Leclerc, President
and Chief Financial Officer
8
<PAGE>
COUNTRY WORLD CASINOS, INC.
Financial Statements
September 30, 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>
[Letterhead of Gene Fuehrer & Assocites Omitted]
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 September 30, 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year 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 $1,826,560 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
Certified Public Accountant
January 28, 1997
Englewood, CO
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Balance Sheet
-------------
Assets
Current assets:
Cash $ 7,431
Cash in Escrow 1,792,770
------------
1,800,201
Property and Equipment (Notes 3 and 4)
Land 7,475,475
Casino under development 5,097,202
Furniture and equipment 48,068
------------
12,620,745
Less accumulated depreciation (15,396)
------------
12,605,349
Other assets
Prepaid interest (Note 4) 500,000
Deposits 440
------------
Total assets $ 14,905,990
============
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Balance Sheet
-------------
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (Notes 3 and 4) $ 1,804,647
Accounts payable 649,104
Advances - stockholders 366,418
Accrued interest 740,965
Other accrued expenses 65,627
-----------
Total current liabilities 3,626,761
Long term liabilities
Notes Payable (Notes 4 and 10) 5,006,963
-----------
Total liabilities 8,633,724
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 9,562,550
Deficit accumulated during the development stage (3,303,370)
------------
Total stockholders' equity 6,272,266
------------
Total liabilities and stockholders' equity $ 14,905,990
============
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 Three Months Ended Through
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Costs and expenses
Research and development costs $ - $ 122,000
Bad debt expense - 175,000
General and administrative expenses 50,523 3,027,893
Depreciation expense 1,262 15,397
------------ ------------
Total $ 51,785 $ 3,340,156
Other income (expense)
Other income - 45,727
Interest expense (134) (2,098)
Interest income 9,236 76,005
Gain on forgiveness of debt - 17,152
Forfeited deposit (Note 3) - (100,000)
------------ ------------
Total 9,102 $ 36,786
------------
Loss from continuing operations (42,683) (3,303,370)
Discontinued operations (Note 7)
Gain on disposal of subsidiaries - 389,286
(Loss) from discontinued operations - (389,286)
------------ -------------
Net (loss) income $ (42,683) $ (3,303,370)
============ ============
Net (loss) income per share $ (.01) $ (.49)
============ ============
Weighted average number of shares
(Note 5) 6,694,097 6,694,097
============ ============
See notes to financial statements
F-3
</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 September 30, 1996
Common Stock
--------------------------------------------------------
Preferred Stock Subscribed
---------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
November 9, 1982 (date of inception) - $ - -- $ - - $ -
Issuance of shares for cash - - 104,000 520 - -
Issuance of common stock to the public - - 51,600 258 - -
Deferred offering costs - - - - - -
Cancellation of common stock - - (28,000) (140) - -
Issuance of shares for services - - 3,000,000 15,000 - -
Issuance of common stock at a discount - - 46,872,400 234,362 - -
Capital contribution - - - - - -
Net loss for the period from November 9,
1982 (date of inception) through
June 30, 1992 - - - - - -
------ ------ ---------- -------- ----- -------
Balance - June 30, 1992 - - 50,000,000 250,000 - -
Issuance of common stock at a discount
for services (Note 5) - - 25,000,000 125,000 - -
Net loss for year ended June 30, 1993 - - - - - -
------ ------ ---------- -------- ----- -------
Balance - June 30, 1993 - - 75,000,000 375,000 - -
Reverse stock split 1:35 (Note 5) - - (72,857,142) (364,285) -
Change in par value from $.005 to
$.001 (Note 5) - - - (8,572) - -
Issuance of stock for cash (Note 5) - - 600,000 600 - -
Issuance of stock for cash (Note 5) - - 1,500,000 1,500 - -
Continued on next page
</TABLE>
See Notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Statement of Stockholder's Equity
From November 9, 1982 (Date of Inception) Through September 30, 1996
Deficit
Accumulated
Additional During the
Paid-In Development
Capital Stage Total
---------- ----------- -----
<S> <C> <C> <C>
November 9, 1982 (date of inception) $ -- $ -- $ --
Issuance of shares for cash 1,005 -- 1,525
Issuance of common stock to the public 644,742 -- 645,000
Deferred offering costs (115,690) -- (115,690)
Cancellation of common stock 140 -- --
Issuance of shares for services -- -- 15,000
Issuance of common stock at a discount (214,362) -- 20,000
Capital contribution 2,850 -- 2,850
Net loss for the period from November 9,
1982 (date of inception) through -- (221,169) (221,169)
June 30, 1992 ----------- ----------- -----------
Balance - June 30, 1992 318,685 (221,169) 347,516
Issuance of common stock at a discount
for services (Note 5) (112,500) -- 12,500
Net loss for year ended June 30, 1993 -- (373,401) (373,401)
----------- ----------- -----------
Balance - June 30, 1993 206,185 (594,570) (13,385)
Reverse stock split 1:35 (Note 5) 364,285 -- --
Change in par value from $.005 to
$.001 (Note 5) 8,572 -- --
Issuance of stock for cash (Note 5) 599,400 -- 600,000
Issuance of stock for cash (Note 5) 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 September 30, 1996
Continued from previous page.
Common Stock
---------------------------------------------------
Preferred Stock Subscribed
---------------------- -----------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- --------- --------- ---------
<S> <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 - - - -
Issuance of stock for cash and
services pursuant to exercise
of options (Note 5) - - 250,000 250 - -
Purchase and cancellation of
treasury stock (Note 5) - - (125,000) (125) - -
Issuance of stock for cash (Note 5) - - 200,662 200 - -
Issuance of common stock for acquisition
of land valued at $1.00 per share (Note 5) - - 250,0009 250 - -
Issuance of common stock for cash and
services pursuant to exercise of options
(Note 5) - - 95,000 95 - -
Issuance of common stock for services
rendered valued at $2.50 per share (Note 5) - - 200,000 200 - -
Subscription of common stock pursuant to
private placement offering (Note 5) - - - - 262,667 263
Net loss for year ended June 30, 1994 - - - - - -
-------- ------- --------- ------- -------- --------
Balance - June 30, 1994 2,250,000 $2,250 5,113,520 $ 5,113 262,667 $263
Subscription of common stock pursuant
to private placement offering (Note 5) - - 460,000 460 - -
Issuance of stock for outstanding note - - 5,000,000 5,000 - -
Convert subscribed stock to common
and record fees - - 262,667 263 (262,667) (263)
Net loss for twelve months ended
June 30, 1995 - - - - - -
--------- -------- ---------- ------- -------- -------
Balance - June 30, 1995 2,250,000 $ 2,250 10,836,187 $10,836 0 $ 0
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 September 30, 1996
Continued from previous page.
Deficit
Accumulated
Additional During the
Paid-In Development
Capital Stage Total
---------- ------------ -----
<S> <C> <C> <C>
Issuance of Convertible Preferred
Stock for acquisition of land
valued at $1.00 per share
(Note 5) 2,247,750 - 2,250,000
Issuance of stock for cash and
services pursuant to exercise
of options (Note 5) 249,750 - 250,000
Purchase and cancellation of
treasury stock (Note 5) (124,875) - (125,000)
Issuance of stock for cash (Note 5) 499,800 - 500,000
Issuance of common stock for acquisition
of land valued at $1.00 per share (Note 5) 249,750 - 250,000
Issuance of common stock for cash and
services pursuant to exercise of options 237,405 - 237,500
(Note 5)
Issuance of common stock for services
rendered valued at $2.50 per share (Note 5) 499,800 - 500,000
Subscription of common stock pursuant
private placement offering (Note 5) 787,737 - 788,000
Net loss for year ended June 30, 1994 - (1,490,785) (1,490,785)
---------- ---------- ----------
Balance - June 30, 1994 $7,324,059 $(2,085,355) $5,246,330
Subscription of common stock pursuant
to private placement offering (Note 5) 1,229,040 - 1,229,040
Issuance of stock for outstanding note 1,009,451 - 1,014,451
Convert subscribed stock to common
and record fees - - -
Net loss for twelve months ended
June 30, 1995 - (757,659) (757,659)
---------- ---------- ----------
Balance - June 30, 1995 $9,562,550 $(2,843,014) $6,732,622
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 September 30, 1996
Continued from previous page.
Common Stock
--------------------------------------------------------
Preferred Stock Subscribed
---------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net loss for twelve months
ended June 30, 1996 - - - - - -
Balance - June 30, 1996 2,250,000 $2,250 10,836,187 $10,836 0 $ 0
--------- ------ ---------- ------- ----------- ------
Net Loss for three months
ended Sept. 30, 1996 - - - - - -
Balance September 30, 1996 2,250,000 2,250 10,836,187 10,836 0 0
========= ===== ========== ====== = =
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Statement of Stockholder's Equity
From November 9, 1982 (Date of Inception) Through September 30, 1996
Continued from previous page.
Deficit
Accumulated
Additional During the
Paid-In Development
Capital Stage Total
---------- ----------- -----
<S> <C> <C> <C>
Net loss for twelve months
ended June 30, 1996 - (417,673) (417,673)
Balance - June 30, 1996 $9,562,550 $(3,260,687) $6,314,949
--------- ----------- ----------
Net Loss for three months
ended Sept. 30, 1996 - (42,683) (42,683)
---------- --------
Balance September 30, 1996 9,562,550 (3,303,370) 6,272,266
========= ========== =========
</TABLE>
See notes to financial statements
F-6
<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 Three Months Ended Through
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Continuing operations
Net (loss) $ (45,294) $(3,305,981)
Adjustments to reconcile net (loss) to net cash from
operating activities -
Depreciation 1,262 38,144
Common stock issued for interest - 14,451
Common stock issued for services - 837,500
Decrease in noncurrent assets - 237,000
Decrease in accounts payable (2,112) 652,465
Increase in accrued expenses 144,437 806,592
Increase in prepaid expenses 187,500 (500,000)
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 290,017 (1,219,829)
Cash flows from investing activities:
Purchase of land and casino development costs (320,751) (5,858,427)
Purchase of furniture, vehicle and equipment - (70,815)
Investment in non-marketable securities - (85,000)
Loans receivable - (90,000)
Investment in patent- (62,000)
Deposits and other - (440)
Cash into escrow 24,443 (1,792,770)
------------ -----------
Total cash used in investing activities: (296,308) (7,959,452)
Cash flows from financing activities:
Proceeds advances stockholders 41,350 326,418
Proceeds from long-term debt - 6,010,690
Repayments on long-term borrowings (33,918) (2,374,080)
Proceeds from stock issuance - 5,220,835
Capital contribution - 2,850
----------- ------------
Total cash provided by (used in) financing activities: 7,432 9,186,713
----------- ------------
Net (decrease) increase in cash 1,140 7,431
Cash - beginning of period 6,291 -
----------- -------------
Cash - end of period $ 7,431 $ 7,431
=========== =============
</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 owed to a
shareholder, into 5,000,000 common shares. (Note 1)
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
September 30, 1996, the Company has not realized any revenue from its planned
operations and, accordingly, is considered to be in the development stage.
The Company is a majority-owned subsidiary of Holly Products, Inc. (Note 5)
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.
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.)
- --------------------------------------------------------------------------------
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.
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 $3,303,000 for the period from November 9, 1982 (date of
inception) through September 30, 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 $2,212,060
Architectural fees and fees for construction
and design services 2,885,142
----------
$5,097,202
==========
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 $1,076,164
$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
$5,000,000 note payable - interest at
15% until May 19, 1997 and at 24%
thereafter. Interest for the first year
was paid in advance at closing. The
principal is due May 19, 1999. The note
is collaterized by a first deed of trust
on real property with a net book value
of $6,250,000. The financing was
obtained from a group of lenders which
included Norlar, Inc, a related party.
The Norlar, Inc. portion of the
financing amounted to $2,350,000. 5,000,000
F-10
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
$10,445 note payable - interest at 15%
payable in equal monthly installments
over four (4) years. The note is
collaterized by a copy machine 10,446
---------
6,811,610
Less current portion 1,804,647
---------
5,006,963
=========
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 and Note 11).
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
- ---------------
In July 1993, 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.
F-11
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholders' Equity (continued)
- -----------------------------------------
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 entitled 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.
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.
F-12
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholders' Equity (continued)
- -----------------------------------------
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.
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.
Issuance/Exchange of Stock
- --------------------------
Holly Products, Inc. (Note 1) acquired 2,250,453 shares of the Company's common
stock from certain existing shareholders of Country World, in exchange for
744,592 shares of its common stock. Holly Products, Inc. also acquired 16,667
shares of Country World common stock in a separate transaction for $50,000. As
of June 30, 1996 Holly Products, Inc. owned 66.9% of the outstanding shares of
Country World common stock and 55.4% of the total voting stock (common and
preferred) of Country World.
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,
F-13
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 5 - Stockholder's Equity (continued)
- -----------------------------------------
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.
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, 1996, the Company had net operating loss carry forwards for income
tax purposes of approximately $3,261,000 which expire through 2012. The net
operating losses are limited due to a more than 50% change in ownership. The
Company has approximately $1,110,000 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.
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. In August 1996, the
Company was notified that the SEC has discontinued their investigation and that
no enforcement action has been recommended by the staff of the SEC.
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 canceled because of the Chapter 11 filing. It has been agreed
that there is no monies due the related party.
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.
F-16
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
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.
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.
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.
F-17
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 10 - Note Default (continued)
- ----------------------------------
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. The claims
hearing has been held; however the court has not made a ruling. (Note 11)
Note 11 - Subsequent Events
- ---------------------------
In November 1996, the Company received final rulings from the court regarding
the NADC dispute (Note 10). The Company, in November 1996, tendered an amount of
approximately $1,309,000 to NADC in what it believes is full settlement of the
remaining amount of the $3,450,000 note including accrued interest.
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STTEMENTS AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1800201
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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