FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission file number 0-22450
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For quarter ended Commission File Number
COUNTRY WORLD CASINOS, INC.
(Name of Small Business Issuer in its charter)
Nevada 13-3140389
(State of jurisdiction of incorporation) (IRS Employer I.D. Number)
200 Monument Road, Suite 10, Bala Cynwyd, Pennsylvania 19004
(Address of principal executive offices)
Registrant's telephone number (610) 617-0400
Check whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period as the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's class of
common stock. The Registrant had 13,481,687 shares of its common stock
outstanding as of December 31, 1997.
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of December 31, 1997 (Unaudited) . . . . 1 - 2
Statements of Operations for the six months ended
December 31, 1997 and 1996 and for the period
from November 9, 1982 (Date of Inception) through
December 31, 1997 (Unaudited) . . . . . . . . . . . . . 3
Statements of Stockholders' Equity (Unaudited). . . . . . 4 - 6
Statements of Cash Flows for the six months ended
December 31, 1997 and 1996 and For the period from
November 9, 1982 (Date of Inception) through
December 31, 1997 (Unaudited) . . . . . . . . . . . . . 7 - 9
Notes to Financial Statements (Unaudited) . . . . . . . . 10
Item 2. Management's Discussion and Analysis or Plan of
Operation . . . . . . . . . . . . . . . . . . . . . . . 11 - 15
Part II: OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 16 - 18
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 19
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET AS OF DECEMBER 31, 1997 (UNAUDITED)
ASSETS:
CURRENT ASSETS:
Cash $1,115
Prepaid Interest 63,333
Prepaid Expenses 5,000
Due From Parent 6,279
TOTAL CURRENT ASSETS 75,727
PROPERTY AND EQUIPMENT:
Land 7,475,475
Casino Under Development 8,377,287
Furniture and Fixtures 38,888
Total 15,891,650
Less Accumulated Depreciation 20,193
Total Property and Equipment 15,871,457
OTHER ASSETS
Deposits 35,630
TOTAL ASSETS $ 15,982,814
See Notes to Financial Statements
1
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET AS OF DECEMBER 31, 1997 (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable $1,556,298
Payroll and Property Taxes Payable 149,487
Accrued Expenses 137,550
Accrued Interest - Related Parties 221,544
Notes Payable - Related Parties (Net of
Deferred Financing Costs of $15,000) 2,515,900
Other Current Liabilities 209,171
TOTAL CURRENT LIABILITIES 4,789,950
LONG-TERM LIABILITIES:
Notes Payable 2,650,000
Notes Payable - Related Party 2,350,000
Other Liability
TOTAL LONG-TERM LIABILITIES 5,000,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock. Series A. $.001
Par Value 2,250,000 Shares Authorized,
2,250,000 Shares Issued and Outstanding
(Liquidation Preference $7,492,500) 2,250
Common Stock, $.001 Par Value, 75,000,000
Shares Authorized, 13,481,687 Issued and
Outstanding 13,482
Convertible Preferred Stock, Class B, $.25
Par Value, 5,000,000 Shares Authorized,
4,000,000 Shares Issued and Outstanding
(Liquidation Preference $1,000,000) 1,000,000
Additional Paid-in Capital 10,144,061
Deficit Accumulated During the Development Stage (4,966,929)
TOTAL STOCKHOLDERS' EQUITY 6,192,866
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,982,814
See Notes to Financial Statements
2
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM
NOVEMBER 9, 1982
(DATE OF INCEPTION)
SIX MONTHS ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996 1997
COSTS AND EXPENSES:
Research and Development Costs $ $ $ 122,000
Loss on Non-Marketable Securities 85,000
Write-Off of Loan Receivable 90,000
General and Administrative Expenses 551,769 337,434 3,788,806
Management Fee - Related Party 408,000
Depreciation 3,162 3,136 45,676
TOTALS 554,931 340,570 4,539,482
OTHER INCOME (EXPENSE):
Interest Income 14,678 22,111 109,490
Interest Expense (63,746) (628) (135,191)
Professional Fees-Due to Bankruptcy (23,083) (514,757)
Forfeited Deposit (100,000)
Other Income 45,861
TOTALS (72,151) 21,483 (594,597)
(Loss) from Continuing Operations
Before Discontinued Operations
and Extraordinary Item (627,082) (319,087) (5,134,079)
DISCONTINUED OPERATIONS:
Gain on Disposal of Subsidiaries 389,286
(Loss from Discontinued Operations (389,286)
Total Discontinued Operations
(LOSS) BEFORE EXTRAORDINARY ITEM (627,082) (319,087) (5,134,079)
EXTRAORDINARY ITEM:
Extraordinary Gain on Forgiveness
of Debt 167,152
NET (LOSS) $ (627,082) $ (319,087) $ (4,966,927)
PER SHARE DATA:
Net (Loss) Per Common Share $ (0.05) (0.04)
WEIGHTED AVERAGE NUMBER OF SHARES 13,305,310 6,694,097
See Notes to Financial Statements
3
<PAGE>
<TABLE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Preferred Stock Common Stock Additional During the Stock-
Series A Series B Subscribed Paid-In Development holders'
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
,
November 9, 1982
(Date of Inception) $ $ $ $ $ $ $
Issuance of Shares for Cash
($.51 Per Share) 2,971 15 1,510 1,525
Issuance of Common Stock to the
Public ($12.50 Per Share) 1,474 8 644,992 645,000
Deferred Offering Costs (115,690) (115,690)
Cancellation of Common Stock (800) (4) 4
Issuance of Shares for Services
($.18 Per Share) 85,714 429 14,571 15,000
Issuance of Common Stock at a
Discount ($.02 Per Share) 1,339,212 6,696 13,304 20,000
Capital Contribution 2,850 2,850
Net Loss for the Period From
November 9, 1982 (Date of
Inception) Through
June 30, 1992 (221,169) (221,169)
BALANCE - JUNE 30, 1992 1,428,571 7,144 561,541 (221,169) 347,516
Issuance of Common Stock at
a Discount for Services
($.02 Per Share, May 1993 714,287 3,571 8,929 12,500
Net Loss for Year Ended
June 30, 1993 (373,401) (373,401)
BALANCE - JUNE 30,
1993 - FORWARD $ $ 2,142,858 $10,715 $ $ 570,470 $ (594,570) $ (13,385)
</TABLE>
See Notes to Financial Statements
4
<PAGE>
<TABLE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Preferred Stock Common Stock Additional During the Stock-
Series A Series B Subscribed Paid-In Development holders'
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JUNE 30, 1993 -
FORWARDED $ $ 2,142,858 $ 10,715 $ $ 570,470 $(594,570) $ (13,385)
Change in Par Value from $.005
to $.001 (8,572) 8,572
Issuance of Shares for Cash
September 1993 ($1.00 Per Share) 600,000 600 599,400 600,000
Issuance of Shares for Cash
September 1993 ($1.00 per Share 1,500,000 1,500 1,498,500 1,500,000
Issuance of Convertible
Preferred Stock for
Acquisition of Land
Valued at $1.00 Per
Share Issued July
1993 2,250,000 2,250 2,247,750 2,250,000
Issuance of Stock to Related
Party for Cash and Services
Pursuit to Exercise of
Options ($1.00 Per Share) 250,000 250 249,750 250,000
Purchase and Cancellation of
Treasury Stock ($1.00 Per Share (125,000) (125) (124,875) (125,000)
Issuance of Stock for Cash
(140,000 Shares and 60,662
Shares Issued December 1993
and January 1994, Respectively)
at $2.50 Per Share 200,000 200 499,800 500,000
Balance of Common Stock for
Acquisition of Land Valued at
$1.00 Per Share Issued June 1994 250,000 250 249,750 250,000
Issuance of Common Stock for
Cash and Services Pursuant
to Exercise of Options (75,000
Shares and 20,000 Shares Issued
April and June 1994 Respectively
at $2.50 Per Share) 95,000 95 237,405 237,500
Issuance of Common Stock for
Services Rendered Valued at
$2.50 Per Share Issued April 1994 200,000 200 499,800 500,000
Subscription of Common Stock
Pursuant to Private Placement
Offering ($3.00 Per Share) 262,667 263 787,737 788,000
Net Loss for Year Ended
June 30, 1994 (1,490,785) (1,490,785)
BALANCE - JUNE 30, 1994 -
FORWARD 2,250,000 $ 2,250 $ 5,113,520 $ 5,113 262,667 $ 263 $7,324,059 $(2,085,355) $5,246,330
</TABLE>
See Notes to Financial Statements
5
<PAGE>
<TABLE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated Total
Preferred Stock Common Stock Additional During the Stock-
Series A Series B Subscribed Paid-In Development holders'
Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
,
BALANCE - JUNE 30,
1994 - FORWARDED 2,250,000 $ 2,250 $ 5,113,520 $ 5,113 262,667 $ 263 $7,324,059 $(2,085,355) $5,246,330
Issuance of Common Stock
Pursuant to Private
Placement Offering
($2.67 Per Share) 460,000 460 1,229,040 1,229,500
Issuance of Stock for Outstanding
Note Issued April 20, 1995
($.20 Per Share) 5,000,000 5,000 1,009,451 1,014,451
Convert Subscribed Stock to
Common and Record Fees 262,667 263 (262,667) (263)
Net Loss for Year Ended
June 30, 1995 (757,659) (757,659)
BALANCE-JUNE 30, 1995 2,250,000 $ 2,250 10,836,187 10,836 9,562,550 (2,843,014) 6,732,622
Net Loss for Year Ended
June 30, 1996 (416,440) (416,440)
BALANCE-JUNE 30, 1996 2,250,000 $ 2,250 10,836,187 10,836 9,562,550 (3,259,454) 6,316,182
Issuance of Preferred Stock -
Class B in Exchange for
Related Party Debt ($.25
Per Share) April 1997 4,000,000 1,000,000 1,000,000
Common Stock Issued in
Exchange for Debt ($.25
Per Share) April 1997 1,250,000 1,250 248,750 250,000
Warrants Issued for 1,000,000
Shares of Common Stock in
Connection with Norlar, Inc.
Debt Financing ($.06 Per Warrant 60,000 60,000
Net Loss for Year Ended
June 30, 1997 (1,080,391)(1,080,391)
BALANCE-JUNE 30, 1997 2,250,000 2,250 4,000,000 1,000,000 12,086,187 12,086 9,871,300 (4,339,845) 6,545,791
Issuance of Common Stock for
Services Rendered Valued
at $.20 per Share, July 1997 1,000,000 1,000 199,999 200,000
Issuance of Common Stock in
Exchange for Debt and
Services to be Rendered
($.1875 Per Share) September
1997 395,500 396 73,761 74,157
Net Loss for the Six Months
Ended December 31, 1997 (627,082) (627,082)
BALANCE-DECEMBER
31, 1997 2,250,000 $ 2,250 4,000,000 $1,000,000 13,481,687 $13,482 $ $10,145,061 $(4,966,927) $6,192,866
</TABLE>
See Notes to Financial Statements
6
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD FROM
NOVEMBER 9, 1982
(DATE OF INCEPTION)
SIX MONTHS ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996 1997
OPERATING ACTIVITIES:
Continuing Operations:
(Loss) Before Extraordinary
Item $ (627,082) $ (319,087) $(5,134,079)
Adjustments to Reconcile Net
(Loss to Net Cash (Used for)
Operating Activities:
Depreciation 3,162 3,136 45,676
Amortization of Discount 45,000 60,000
Common Stock Issued for Interest 14,451
Common Stock Issued for Services 22,544 860,044
Loss on Marketable Securities (85,000)
Write Off of Loan Receivable (900,000)
Extraordinary Item 167,152
Accrued Interest Related Parties 52,514
Allocation of Management Fees 408,000
Changes in Assets and Liabilities:
(Increase) Decrease in:
Noncurrent Assets (35,000) (35,000)
Prepaid Interest 9,807 (725,640)
Prepaid Expenses (5,000) 375,000 (5,000)
Increase (Decrease) in:
Accounts Payable 1,518,183 214,379 1,556,298
Payroll and Property Taxes
Payable 54,026 149,487
Accrued Interest 45,601 221,544
Accrued Expenses 108,772 (470,705) 137,551
Discontinued Operations:
Net (Loss) (389,286)
Adjustment to Reconcile Net (Loss) to Net Cash
(Used for) Operating Activities:
Gain on Disposal of Assets 389,286
Total Adjustments 1,767,095 2,706,884
NET CASH USED FOR OPERATING
ACTIVITIES - FORWARD $1,140,013 $(1,707,124) $2,427,195
See Notes to Financial Statements
7
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD FROM
NOVEMBER 9, 1982
(DATE OF INCEPTION)
SIX MONTHS ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996 1997
NET CASH USED FOR OPERATING ACTIVITIES -
FORWARDED $1,140,013 $(1,707,124) $(2,427,195)
INVESTING ACTIVITIES:
Purchase of Land and Payment
of Casino Development Costs (2,404,687) (200,097) (7,619,558)
(Purchase) Disposal of Furniture
and Fixtures 5,209 (52,197)
Investment in Patents (62,000)
Deposits and Other (630)
(Increase) Decrease in Restricted Cash (451,896)
NET CASH USED FOR INVESTING
ACTIVITIES (2,399,478) 1,165,220 (7,734,385)
FINANCING ACTIVITIES:
Payment of Capital Lease Obligation (4,233)
Proceeds from Long-Term Borrowings 419,581 6,419,581
Advances to/from Related Party 836,038 148,350 1,973,662
Repayments on Long-Term
Borrowings-Subject to
Compromise (1,110,837) (3,450,000)
Proceeds from Stock and Warrant
Issuance 5,220,835
Capital Contribution 2,850
NET CASH (USED FOR) PROVIDED FOR
FINANCING ACTIVITIES 1,255,619 (962,487) 10,162,695
Net (Decrease) Increase in Cash (3,846) 5,456 1,115
Cash - Beginning of Period (4,961) 6,291
Cash - End of Periods $ 1,115 $ 11,747 $ 1,115
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the six months ended December 31, 1997 and 1996 was $0
and $1430 respectively, net of interest capitalized. No income taxes were
paid during the six months ended December 31, 1997 and 1996.
See Notes to Financial Statements
8
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW (UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
See Notes to Financial Statements
9
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
[1] Summary of Significant Accounting Policies
Significant accounting policies of Country World Casinos, Inc. are set
forth in the Company's Form 10-KSB for the period ended June 30, 1997, as
filed with the Securities and Exchange Commission.
[2] Business of Reporting
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements include
all adjustments (consisting of normal recurring items) which are considered
necessary for a fair presentation. Operating results for the three months
ended December 31, 1997 and 1996 are not necessarily indicative of the results
that may be expected for the year June 30, 1998. It is suggested that these
financial statements be read in conjunction with the financial statement and
notes for the period ended June 30, 1997, included in the Country World
Casinos, Inc. Form 10-KSB.
[3] Earnings Per Share
Earnings per share are based on 13,305,310 and 6,694,097 shares
outstanding for the six months ended December 31, 1997 and 1996,
respectively. Such amounts of shares represent the weighted average number of
shares outstanding for the periods. The effect of outstanding warrants and
convertible preferred stock were not included in the calculations.
10
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CERTAIN STATEMENTS INCLUDED HEREIN OR INCORPORATED BY REFERENCE CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). THE COMPANY DESIRES TO TAKE
ADVANTAGE OF CERTAIN "SAFE HARBOR" PROVISIONS OF THE REFORM ACT AND IS
INCLUDING THIS SPECIAL NOTE TO ENABLE THE COMPANY TO DO SO. FORWARD-LOOKING
STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS PART INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH WOULD CAUSE THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS
TO DIFFER MATERIALLY FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING
STATEMENTS.
In order to begin the process of timely completing its goals the Company
has contracted with Colorado Gaming Development Company, Inc., Semple Brown
Roberts, P.C. and PCL Construction Services, Inc., all of Denver, Colorado to
design and construct the planned casino and hotel complex. In addition, the
Company has signed a management agreement with Signature Hospitality
Resources, Inc. of Denver, Colorado to manage its Radisson Black Hawk Hotel, a
separate agreement to use the national flag of Radisson on the hotel and a
management agreement with Luciani & Associates, LLC. of Atlantic City, New
Jersey, to manage the casino operations. All parties will assist the
architect in design of their respective operations.
The Company is engaged in the design, development and construction of the
Radisson Hotel and Country World Casino (the "Hotel Casino") in Black Hawk,
Colorado. The planned Hotel Casino will be a seven story complex, featuring
five stories of hotel rooms above a two-story, 75,000 square foot casino, and
an underground parking garage. Other amenities will include one or more full
service restaurants, a buffet, entertainment lounge and retail shops. When
completed as planned, the Hotel Casino will be largest hotel and casino
complex in Colorado. Construction and opening of the Hotel Casino is
dependent upon the Company's ability to successfully raise the required
capital. The Company plans to seek $79,500,000 of debt financing from
institutional investors through the issuance of notes secured by a first deed
of trust on the Hotel Casino property and by a security interest in the
revenues from the operation of the Hotel Casino. There can be no assurance,
however, that the Company will be successful in raising such financing or that
the proceeds of such financing will be sufficient to complete construction and
provide working capital for the opening and operation of the Hotel Casino.
The casino level of the project, at approximately 75,000 square feet,
will be the largest in Colorado and will be capable of accommodating 1,800
slot machines and 32 gaming tables. The Company will open the facility with
1,000 slot machines, 20 blackjack tables and 12 poker tables,
11
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
and may add up to 800 additional slot machines if management determines that
the additional gaming devices will produce equal per square foot revenue and
will not create excess capacity. The Company expects that slot machines will
be the greatest source of its gaming revenues. Slot machines are less labor
intensive and require less square footage than table games, and also generate
higher profit margins.
The Country World Casino's atmosphere will feature a country western
music theme similar to the rock and roll music theme successfully employed by
the Hard Rock Cafe. The Casino decor will include memorabilia from the great
country singers, both past and present, with a star walk of their own. The
country western music theme has not been established in the Black Hawk/Central
City, Colorado gaming market, and therefore will give the Country World Casino
its own unique identity. Management believes that as casinos have become more
numerous, the gaming industry has begun to recognize that popular themes and
amenities such as quality dining and hotel accommodations play an important
role in attracting customers to casinos. The theme is intended to appeal to
the Hotel Casino's target customer base, which consists primarily of residents
of the Denver metropolitan area as well as other Colorado communities located
within driving distance of Black Hawk.
The Radisson Black Hawk Hotel will provide overnight accommodations with
290 standard rooms and 35 suites, making it the first destination resort of
its kind in Black Hawk. Complimenting both the casino and hotel will be a
three story underground parking facility for 865 cars featuring both valet and
self parking options, and the only covered on-site bus turnaround currently
available in Black Hawk for the convenience of day trip customers.
Black Hawk is a picturesque mountain town approximately 40 miles west of
Denver. In the past year, Black Hawk hosted approximately 3 million visitors
and generated almost 60% of the state's gaming revenues. The 112,000 square
foot Hotel Casino site on the northern most end of the Black Hawk gaming
district is in a most highly visible location as it is in a direct line of
site to all visitors approaching Black Hawk's main intersection on State
Highway 119. The seven story structure will tower high above all existing
facilities. The Black Hawk and nearby Central City casino market includes
many small, privately held gaming facilities that the Company believes offer
limited amenities and are characterized by a shortage of convenient on-site
parking. There are a few large facilities currently operating with varying
levels of services and amenities, as well as new facilities planned. The
Country World Casino's country western music theme, country hospitality, ample
parking, modern hotel accommodations and a full line of amenities, will set it
apart from, and should give it a competitive advantage over, the other casinos
in the Black Hawk/Central City market.
The Hotel Casino complex will be designed and constructed pursuant to a
guaranteed maximum price agreement which is to be finalized prior to
construction. The design and construction team consists of Semple Brown
Roberts, P.C., a Denver based architectural firm (the "Architect") and PCL
Construction Services, Inc., a multi-billion dollar North American
construction
12
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
firm with U.S. headquarters located in Denver. The Architect is the designer
of Fitzgerald's Casino in Black Hawk, while the Contractor's gaming credits
include the MGM Grand Hotel Casino and Stratosphere Tower in Las Vegas,
Nevada, as well as the Chinook Winds Gaming and Convention Center in Lincoln
City, Oregon.
Gaming operations at the Country World Casino will be under the
management of Luciani & Associates, LLC of Atlantic City, New Jersey (the
"Casino Manager"), who are leaders in casino design, management and security
services.
Hotel operations will be under the management of Signature Hospitality
Resources, Inc. of Denver, Colorado (the "Hotel Manager'), which provides a
full range of hotel and resort support services including operations, sales,
marketing, food, beverage, human resources, MIS and technical services.
The Company has incurred substantial net losses to date. Insofar as the
Company has not completed its casino facility, it has received no revenues
from operations from these planned business activities. The Company's
financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company's ability to
continue in existence is dependent upon its ability to obtain additional
long-term financing and achieve profitable operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset or liability amounts which might be necessary
should the Company be unable to continue in existence.
During the six months ended December 31, 1997, the Company had general
and administrative expenses of $551,769, depreciation expense of $3,162,
interest expense of $63,746 and legal fees incurred for its bankruptcy
proceedings of $23,083. The Company remains in the development stage and has
incurred a loss from inception thorough December 31, 1997 of $4,966,927.
The Company's ability to obtain the financing and to proceed with its
plans for a gaming facility had been affected by the Company's disputes with
New Allied, which had culminated in litigation and foreclosure proceedings on
the Property in 1995, and the Company's filing of a bankruptcy petition under
Chapter 11.
During the fiscal year ended June 30, 1995 and 1996, the Company had
disagreements with
New Allied. As a result of New Allied's unwillingness to cooperate with the
Company, New Allied's failure to secure a release of the $475,000 first deed
of trust on the Property, New Allied's misrepresentations to the Company and
subsequent legal problems involving New Allied, the Company instituted
litigation against New Allied.
New Allied commenced foreclosure proceedings involving the Property. Due
to the
13
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 were stayed from commencing or continuing
any action or enforcing any judgment of 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).
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 (the "Kennedy
Funding Loan").
In connection with this financing, the Company made a Promissory Note
effective May 20, 1996 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. In
May 1997, the Company issued a promissory note and second deed of trust on the
property to Norlar, Inc. for a maximum of $600,000, or so much thereof as may
have been advanced by maker, for general corporate purposes. As of September
1997, the Company owed approximately $600,000 on the Norlar Note. In October
1997, the Company issued a second promissory note and a fourth deed of trust
on the property to Norlar, Inc., again for a maximum of $600,000. As of
December 1997, the Company owed approximately $206,000 on the Norlar Note. In
addition, for each $100,000 Norlar, Inc. has loaned to the Company, it has
authorized the issuance of 500,000 warrants to purchase shares of common stock
at $0.20 per share. Norlar, Inc. is a closely-held corporation beneficially
owned by Larry Berman and his wife. Mr. Berman is Chairman and Chief
Executive Officer of the Company. The loan will bear interest at 12% per annum
and is to be repaid upon the earlier to the sale of the property or the
contemplated refinance of the property.
In September 1996, the Bankruptcy Court held hearings to determine the
amounts due to New Allied as well as other issues. The Company utilized the
proceeds from the $5 million Kennedy Funding Loan in accordance with the
Court's Order and paid New Allied and all unsecured creditors in full, as
determined by the Court.
14
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In addition to obtaining the necessary financing, the Company must obtain
from the Colorado Gaming Commission approval to commence gaming operations.
The Commission's action is predicated upon approval of the applications of all
of the Company's principals. The Company is taking the steps necessary to go
forward with its submission to state authorities of its gaming application in
1998 and receive the required approvals to engage in gaming operations within
the State of Colorado. However, there can be no assurance that the Company
will be successful in its efforts. Management believes that the length of time
and disposition of the gaming approval process cannot be accurately predicted
at this point, but that the process could be time consuming and expensive.
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is the plaintiff and a counterclaim defendant in a lawsuit
pending in Denver, Colorado District Court, Case No. 95CV2310, entitled
Country World Casinos, Inc., a Nevada corporation, Plaintiff, v. Tommyknocker
Casino Corp., a Colorado corporation and New Allied Development Corporation, a
Colorado corporation, Defendants, v. Country World Casinos, Inc., a Nevada
Corporation, Holly Products, Inc., a New Jersey corporation, Ronald G. Nathan,
Sal Lauria, Roger D. Leclerc, William H. Patrowicz and David Singer,
counterclaim Defendants. This lawsuit was commenced by the Company on May 26,
1995. In the Company's Amended Complaint, the Company asserted eight claims
against New Allied Development Corporation ("New Allied") and its subsidiary
Tommyknocker Casino Corp. ("TKCC").
In its complaint, the Company sought a declaration that it was not
obligated to make any additional payments to TKCC under a certain promissory
note executed by the Company in connection with its purchase of the Black Hawk
property, until such time as TKCC secured the release of a prior deed of
trust. The Company also sought recovery of more than $656,000 paid to or on
behalf of TKCC to clean up and remediate environmental contamination on the
property purchased from TKCC in August 1993. The Company sought to recover
all or part of this amount from TKCC under the following legal theories: (1)
that the environmental contamination on the property constitutes an
encumbrance, which is in breach of the covenant against encumbrances contained
in the warranty deed by which TKCC conveyed the property to the Company; (2)
that TKCC and New Allied made fraudulent misrepresentations to the Company
regarding the costs of the environmental clean up and remediation and that the
Company is entitled to recover damages resulting from this misrepresentations,
as well as exemplary damages; (3) that TKCC and New Allied made negligent
misrepresentations to the Company regarding the costs of the environmental
clean up and remediation and that the Company is entitled to recover damages
resulting from these misrepresentations, as well as exemplary damages; (4)
that TKCC's and New Allied's actions violated their duties of good faith and
fair dealing; (5) that the misrepresentations of TKCC and New Allied
constitute deceptive trade practices in violation of the Colorado Consumer
Protection Act; and (6) that any agreement under which the Company purportedly
agreed to pay for the environmental remediation and clean up costs (which
agreement the Company denies exists) is void and unenforceable under various
principles of law, including the statute of frauds and CERCLA.
On or about June 15, 1995, following the Company's commencement of the
lawsuit described above, TKCC filed a notice of election to foreclose on its
note and deed of trust which were secured by the Company's Black Hawk
property. The Company denied that it was in default under the note because of
TKCC's prior breach of the terms of the note by its failure to secure the
immediate release of the first deed of trust on the property upon its receipt
of $725,000 in January 1995. A Denver District Court Magistrate ruled that
since the Company has not paid to TKCC the monthly installments under the note
since May 1995, the Company was in default, despite TKCC's failure to secure
the release of the first deed of trust. The Magistrate's Order is neither
appealable nor binding in any subsequent proceeding.
15
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
On October 12, 1995, the Company filed a Chapter 11 Petition in
bankruptcy in the United States Bankruptcy in the United States Bankruptcy
Court for the District of Colorado, Case No. 95-
20563 RJB. The filing of the Company's bankruptcy petition stayed TKCC's
pending foreclosure sale of the Black Hawk property. The Bankruptcy Court
ruled that the Company was obligated to pay the principal amount of the note
plus accrued interest, but not certain default interest claimed by TKCC to be
owing. The Bankruptcy Court also ruled against the Company on the claims
pertaining to the cost of environmental clean-up. The Company paid New Allied
approximately $2,300,000 and all prior deeds of trust were released. The
Company has filed an appeal of the Bankruptcy Court's ruling. New Allied has
crossed appealed the denial of late payment fees and interest. Such appeals
are pending.
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").
In September 1996, the Bankruptcy Court held hearings to determine the
amounts due to New Allied as well as other issues. The Company utilized the
proceeds from the $5 million Kennedy loan in accordance with the Court's Order
and paid New Allied and all unsecured creditors in full, as determined by the
Court.
The Company disagreed with the amounts deemed by the Bankruptcy Court to
be owed to New Allied and in December 1996 filed an appeal of the Court's
ruling. New Allied cross appealed and such appeals are pending.
In March 1997, the Court ordered the dismissal of the Company from
Chapter 11 but retained jurisdiction over the appeals.
The pending lawsuit between the Company and New Allied and TKCC was
stayed upon the filing of the Company's bankruptcy petition. That stay was
lifted when the bankruptcy case was dismissed in March 1997, and the Company
is now moving forward with these proceedings.
The Company is seeking a court order requiring TKCC and New Allied to
sell to the Company their 2.5 million shares of voting stock in the Company at
the price set forth in ss.47.1-4.508 Rule 4.5 of the Colorado Gaming
Regulations on the basis that New Allied and TKCC might possibly be unsuitable
to hold voting securities in a licensed casino. As part of the consideration
given by the Company to TKCC to purchase the Black Hawk property, the Company
issued to TKCC 2,250,000 shares of non-voting preferred stock in the Company.
That preferred stock was subsequently given voting rights. In a subsequent
real estate purchase transaction, the Company issued to New Allied 250,000
share of common stock.
TKCC and New Allied have filed an answer to some of the Company's claims,
denying liability.
In addition, TKCC and New Allied have filed counterclaims against the Company,
as well
16
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
as against Holly Products, Inc. ("Holly"), the majority shareholder in the
Company, Ronald G. Nathan ("Nathan"), Sal Lauria ("Lauria"), and David Singer
("Singer") former directors of the Company, and Roger G. Leclerc ("Leclerc")
and William H. Patrowicz ("Patrowicz"), who are currently officers and
directors of the Company. TKCC alleges that the Company has breached an
agreement to file a registration statement for the preferred stock given to
TKCC as part of the consideration for purchase of the Black Hawk property.
The Company has filed an answer denying liability on this counterclaim. The
Federal Bankruptcy Court ruled that the Company was not in breach of its
agreement.
TKCC and New Allied have asserted that the Company, as well as Holly,
Nathan, Lauria, Leclerc, Patrowicz and Singer, breached their fiduciary duties
by the issuance of five million shares of common stock in the Company to
Holly. TKCC and New Allied seek actual and exemplary damages allegedly caused
by said alleged wrongful issuance of stock. TKCC and New Allied seek an
injunction requiring the Company and it board of directors to cancel the five
million shares of stock issued to Holly.
The Company, as well as Leclerc, Holly, Patrowicz and Singer, have filed
answers denying any wrongful conduct or any liability to TKCC or New Allied
resulting from said issuance of stock to Holly and have affirmatively asserted
that said issuance of stock was proper. Neither Nathan nor Lauria has been
served with the summons and counterclaim and have not yet appeared in this
lawsuit.
The Company is a defendant in a lawsuit pending in Travis County, Texas
District Court, Cause No. 95-04782, 200th Judicial District, entitled James
Hamilton, Plaintiff v. Robert Todd Financial Corporation; Dean Anthony
Esposito; Marco Guy Fiore, Jr.; Robert Bobak Fallah; Optex Biomedical Inc.;
Pacific Rim Entertainment, Inc.; Country World Casinos, Inc., Defendants. The
Plaintiff James Hamilton ("Hamilton") contends that Defendants Robert Todd
Financial Corporation, and its agents and/or employees, Defendants Dean
Anthony Esposito, Marco Guy Fiore, Jr. and Robert Bobak Fallah, made
misrepresentations regarding the Company's stock, which allegedly induced
Hamilton's purchase of said stock. Hamilton alleges that Defendants Robert
Todd Financial Corporation, Dean Anthony Esposito, Marco Guy Fiore, Jr. and
Robert Bobak Fallah, were authorized agents of the Company, and therefore,
Hamilton alleges that the Company is liable for the alleged wrongful conduct
of said Defendants.
The Company has filed a Special Appearance and Answer, objecting to the
jurisdiction of the Travis County, Texas District Court, as well as denying
all material allegations of Hamilton's Original Petition.
During 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.
17
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has not made payments on a $725,000 note due to NADC secured
by a deed of trust on the Property. The Company is engaged in negotiations
with NADC regarding this matter and other matters involving them. No
assurance can be given that an agreement will be concluded, or if concluded,
that the terms will be favorable to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
19
<PAGE>
COUNTRY WORLD CASINOS, INC.
(A DEVELOPMENT STAGE COMPANY)
SIGNATURES
In accordance with the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COUNTRY WORLD CASINOS, INC.
By: /s/ William H. Patrowicz
William H. Patrowicz, Secretary & Treasurer
Date: February 14, 1998
20
<PAGE>
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