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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal quarter ended July 31, 1998
Commission File Number: 0-24846
COLORADO CASINO RESORTS, INC.
(Exact name of Registrant as specified in its Charter)
Texas 84-1303693
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
304 South 8th Street
Suite 201
Colorado Springs, CO 80905
(719) 635-7047
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, $0.001 Par Value
(Title of Class)
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Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: 38,665,632 shares of common
stock, $0.001 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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<PAGE>
<TABLE>
<CAPTION>
COLORADO CASINO RESORTS, INC. & SUBSIDIARIES
INDEX
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of July 31, 1998.............................. 3
Consolidated Statement of Operations for the Quarter and Nine Months Ended
July 31, 1998 and July 31, 1997 ......................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
July 31, 1998 and July 31, 1997.......................................... 5
Notes to Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
as well as Future Plans.................................................. 7
Part II. Other Information
Item 1. Legal Proceedings............................................................ 13
Item 2. Changes in Securities........................................................ 13
Item 3. Defaults upon Senior Securities.............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders.......................... 13
Item 5. Other Information............................................................ 13
Item 6. Exhibits and Reports......................................................... 13
Signatures................................................................................ 14
</TABLE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
refer to events that could occur in the future or may be identified by the use
of words such as "intend," "plan," "believe," "anticipate," correlative words,
and other expressions indicating that future events are contemplated. Such
statements are subject to inherent risks and uncertainties, and actual results
could differ materially from those projected in the forward-looking statements
as a result of certain of the risk factors set forth following and elsewhere in
this Quarterly Report on Form 10-QSB.
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<PAGE>
Colorado Casino Resorts, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS July 31, October 31,
1998 1997
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<S> <C> <C>
CURRENT ASSETS
Cash & cash equivalents ............................... $ 1,696,976 $ 1,962,486
Inventory ............................................. 131,081 182,641
Other ................................................. 446,578 567,678
------------
------------
TOTAL CURRENT ASSETS ............................... 2,274,635 2,712,805
------------ ------------
PROPERTY, PLANT & EQUIPMENT
Land .................................................. 16,106,628 16,106,628
Building and improvements ............................. 23,644,286 23,637,572
Furniture, fixtures & equipment ....................... 12,431,080 8,520,407
Accumulated depreciation & amortization ............... (4,873,012) (3,259,534)
------------ ------------
TOTAL PROPERTY, PLANT & EQUIPMENT .................. 47,308,982 45,005,073
------------ ------------
OTHER ASSETS .......................................... 483,324 657,976
------------ ------------
TOTAL ASSETS ....................................... $ 50,066,941 $ 48,375,854
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses ...................................... 2,430,492 1,827,187
Accrued interest payable, related party ............... 1,221,559 506,593
Due to officers ....................................... -- 62,745
Current portion, long-term debt ....................... 3,248,431 1,220,964
Current portion, capital lease obligations ............ 517,608 630,425
------------ ------------
TOTAL CURRENT LIABILITIES .......................... 13,768,090 4,247,914
------------ ------------
CONVERTIBLE DEBENTURE, RELATED PARTY .................. 5,425,528 5,516,988
LONG-TERM DEBT, RELATED PARTY ......................... 7,825,083 7,879,324
LONG-TERM DEBT ........................................ 24,919,775 20,851,322
OBLIGATION UNDER CAPITAL LEASE ........................ 1,207,752 2,065,010
------------ ------------
TOTAL LIABILITIES .................................. 46,796,228 40,560,558
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STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 100,000,000
shares authorized, 38,665,632 and 38,665,632
issued and outstanding, respectively .............. 38,666 38,666
Paid-in capital ....................................... 15,777,125 15,777,125
Retained earnings (accumulated deficit) ............... (12,545,078) (8,000,496)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ......................... 3,270,713 7,815,296
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ........... $ 50,066,941 $ 48,375,854
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
Colorado Casino Resorts, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Nine Months Quarter Nine Months Quarter
Ended Ended Ended Ended
July 31, July 31, July 31, July 31,
1998 1998 1997 1997
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Casino ............................. 12,953,011 4,955,845 13,785,817 5,913,089
Hotel and gift shop ................ 1,677,149 771,244 1,784,651 821,816
Restaurant and bars ................ 1,566,947 663,228 1,338,968 589,747
Other .............................. 415,087 208,116 31,902 31,902
------------ ------------ ------------ ------------
TOTAL OPERATING REVENUE ......... 16,612,194 6,598,433 16,941,338 7,356,554
------------ ------------ ------------ ------------
OPERATING EXPENSES
Casino ............................. 6,035,558 2,034,051 6,237,799 2,438,581
Hotel and gift shop ................ 801,270 271,863 1,024,888 365,612
Restaurant and bars ................ 2,070,939 780,556 2,075,647 907,339
Marketing/General and administrative 6,311,067 3,009,537 5,340,735 1,982,162
Depreciation and amortization ...... 1,613,478 516,704 2,071,787 781,252
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSE ......... 16,832,312 6,612,711 16,750,856 6,474,946
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS ......... (220,118) (14,278) 190,482 881,608
------------ ------------ ------------ ------------
NONOPERATING INCOME (EXPENSE)
Interest expense ................... 4,324,465 2,068,203 3,867,576 1,250,913
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ..... (4,544,583) (2,082,481) (3,677,094) (369,305)
------------ ------------ ------------ ------------
INCOME TAXES .......................... -- -- -- --
------------ ------------ ------------ ------------
NET LOSS .............................. $ (4,544,583) $ (2,082,481) $ (3,677,094) $ (369,305)
============ ============ ============ ============
NET LOSS PER SHARE .................... $ (0.1175) $ (0.0539) $ (0.1003) $ (0.0101)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING .......... 38,666,000 38,666,000 36,668,000 36,668,000
------------ ------------ ------------ ------------
</TABLE>
[THIS SECTION INTENTIONALLY LEFT BLANK]
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
Colorado Casino Resorts, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended Nine Months Ended
July 31, July 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ................................................... $ (4,544,583) $ (3,677,094)
Noncash items
Depreciation and amortization ........................ 1,613,478 2,071,787
Amortization of debt issue costs ..................... 593,675 369,500
(Increase) decrease in:
Inventory ............................................ 51,560 59,248
Other current assets ................................. 121,100 324,417
Other assets ......................................... (419,023) (578,097)
(Decrease) increase in:
Accrued expenses ..................................... 603,305 (537,381)
Interest payable, related party ...................... 714,966 340,014
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Net cash provided (used) by operating activities (1,265,522) (1,627,606)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land, building and equipment ................... (3,917,387) (1,609,038)
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Net cash provided (used) by investing activities (3,917,387) (1,609,038)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances (Repayments) from (to) officers ................... (62,745) 383,691
Borrowings, long-term debt and capital leases .............. 16,792,873 3,432,714
Repayments, long-term debt and capital leases .............. (11,667,028) (397,596)
Repayments, long-term debt, related party .................. (145,701) --
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Net cash provided (used) by financing activities 4,917,399 3,418,809
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INCREASE (DECREASE) IN CASH AND EQUIVALENTS ................ (265,510) 182,165
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CASH AND EQUIVALENTS, BEGINNING ............................ 1,962,486 2,828,994
------------ ------------
CASH AND EQUIVALENTS, ENDING ............................... $ 1,696,976 $ 3,011,159
============ ============
</TABLE>
[THIS SECTION INTENTIONALLY LEFT BLANK]
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
COLORADO CASINO RESORTS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A: Summary of Significant Accounting Policies
The Company's accounting policies are outlined in the audited financial
statements included with the Company's most recent 10KSB. There have been no
changes in accounting principles or practices in the current fiscal year.
Note B: Long Term Debt
During the nine months ended July 31, 1998, the Company made total repayments of
$11,812,729, with $11,667,028 on long-term debt and capital leases and $145,701
on long-term debt, related party.
During the third quarter, the Company received an eighteen-month extension of
the maturity dates on promissory notes held by two lenders totaling $6.35
million. The maturity date of the set of notes held by the first lender, with an
aggregate face amount of $2.35 million, were made coterminous and extended to a
new maturity date of May 28, 2000; and the maturity date of the note held by a
second lender, with the face amount of $4.0 million, was extended from July 29,
1999 to October 29, 2000.
During the third quarter, the Company secured a $15 million Revolving Credit
Facility with Foothill Capital Corporation, a subsidiary of Norwest Bank, which
bears interest at the rate of Prime + 2% and expires on July 31, 2003. At July
31, 1998, the Company had net borrowings under this Revolving Credit Facility of
$13.38 million, principally to refinance high-interest mortgages and provide
general working capital. The Revolving Credit Facility is secured by first trust
deeds on real property of the Double Eagle. The Company has agreed to maintain
certain financial and non-financial covenants customary with lending
arrangements of this type. The Company has remained in compliance with the
covenants throughout the term of the credit facility.
Note C: Convertible Debenture, Related Party
On August 18, 1994, the Company purchased real property, currently being held
for future development, from a related party in exchange for a convertible
debenture in the amount of $4,500,000. The convertible debenture bears interest
at 7.05% per annum, with the principal balance and any accrued interest due
August 20, 1999 and is collateralized by deeds of trust on the related property.
During the nine months ended July 31, 1998, $91,460 of accrued interest was
applied against a related party liability, reducing the balance (including
interest added to principal) to $5,425,528.
Note D: Advances to/from Officers
During the nine months ended July 31, 1998, the Company advanced to officers a
total of $458,990. The officers repaid a total of $658,990 to the Company
leaving balance of $None remaining as a receivable to the Company at July 31,
1998.
Note E: Income Taxes
The Company has an estimated deferred tax benefit of $1.79 million for the nine
months ended July 31, 1998 which has been offset in full by a valuation
allowance due to the availability of a net operating loss carryforward at July
31, 1998.
[THIS SECTION INTENTIONALLY LEFT BLANK]
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<PAGE>
COLORADO CASINO RESORTS, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLANS FOR FUTURE OPERATIONS
OVERVIEW AND PLAN OF OPERATION
Colorado Casino Resorts, Inc., ("CCRI" and/or the "Company") is in the business
of developing and operating casino and hotel resort properties. Through its
wholly owned subsidiaries, Creeker's, Inc. and Double Eagle Resorts, Inc., CCRI
is the owner of Creeker's Casino ("Creeker's") and the Double Eagle Hotel &
Casino (the "Double Eagle"), both located in Cripple Creek, Colorado.
During the nine months ended July 31, 1998, the Company reported net operating
revenues of $16.61 million, a decrease of $329,000 or -1.9% from the $16.94
million reported during the same period in 1997. The decrease in revenue is
primarily attributed to management's decision to increase slot machine payout
percentages (reduce hold percentages) at the Double Eagle in order to increase
slot play. As a result, the Company realized a 15.3% increase in handle
(coin-in) while capturing more than its fair market share of slot win. The
Company reported a net loss of $(4.54) million, or $(0.12) per share, for the
nine months ended July 31, 1998 compared to a net loss of $(3.68) million, or
$(0.10) per share, reported for the same period last year. EBITDA (earnings
before interest taxes depreciation and amortization) totaled $1.39 million, down
$(869,000) or -38.4% lower than the $2.26 million reported during the same
period last year, impacted primarily by the reduced hold percentages.
Although the Company's business is not considered to be seasonal, the highest
levels of business activity in Colorado occur during the tourist season (i.e.,
from May through September). Its base level (i.e., November through May) is
fairly constant although inclement weather conditions during this period could
have an adverse effect on business levels in Colorado.
Business and Marketing Strategy
The Company's business strategy is to offer casino gaming and a full range of
amenities in a friendly atmosphere that caters to middle and upper-middle income
customers. Incorporating the distinction between Creeker's Casino and the Double
Eagle Hotel & Casino in its marketing efforts, management believes it is able to
increase gaming activity at its respective casinos by attracting customers from
two market segments.
Creeker's Casino
Creeker's Casino, resembling a Victorian-style historic structure of the late
1800's, is located at the corner of 3rd Street and Bennett Avenue in the center
of town. Creeker's offers its customers a friendly, "down-to-earth" atmosphere
in which to enjoy gaming activities. Within its 19,000-square foot casino, it
offers 234 slot machines, two blackjack tables, two bars, a restaurant featuring
buffet-style meals, and entertainment areas. Creeker's offers a "down-to-earth"
atmosphere which appeals to many "day-trippers" who enjoy a cozier environment
and the personal touch offered by its friendly employees.
Double Eagle Hotel & Casino
Through the Double Eagle Hotel & Casino, the Company established the first major
hotel and casino serving the greater Colorado Springs area with a growing
population base, approaching one million. Unlike existing gaming facilities in
the Cripple Creek area, which offer limited or no overnight accommodations,
inconvenient parking and few non-gaming amenities, the Double Eagle features 158
hotel rooms and suites, four parking lots with a total of 650 spaces, free valet
parking and shuttle transportation, and a 45,000-square foot casino offering 659
slot machines and five blackjack tables. The facility also includes a 100-seat
restaurant, Lombard's Bar & Grill, two bars and a gift shop. Located on the
southwest corner of Bennett Avenue and 5th Street, where Route 67 and Bennett
Avenue intersect, the Double Eagle provides superior access and visibility to
motorists entering and exiting the City of Cripple Creek. With the largest
number of rooms and elegant suites in Cripple Creek, free valet parking under a
covered car port, and an exciting and lively atmosphere, the Double Eagle
attracts customers who enjoy spending multiple days of gaming within a facility
which offers the hospitality and convenience of first-class accommodations.
-7-
<PAGE>
Effective Marketing and Promotion. The Company's marketing strategy has been to
aggressively promote its two properties to customers in the identified market
segments. Through the use of radio and print advertising, promotional coupons
and special events designed uniquely to address each market segment, management
attracts players to its respective properties. Promotional allowances, such as
complimentary rooms, food, beverage and entertainment are used at both casinos
to reward and retain its customers. Specifically, Creeker's promotes coupons for
free bus transportation, discounts on buffet meals, and cash and prizes while
the Double Eagle offers discounted and complimentary hotel rooms, complimentary
dinners at Lombard's Bar & Grill, and cash sweepstakes to attract respective
customers.
As part of an aggressive marketing plan to attract gaming patrons and to capture
market share, the management of the Company increased the payout percentages on
all gaming devices at the Double Eagle. Although the Company experienced a
- -11.7% reduction in casino slot win during the third quarter ended July 31,
1998, the handle at the Double Eagle increased by 15.3% during the same three
months. As a result, in the month of July, the Double Eagle was successful in
capturing more than its fair market share of casino revenues. Management expects
to implement a similar strategy at Creeker's Casino.
Management continues to reinforce its commitment to a high growth strategy by
improving its overall image and effectiveness through new and innovative
marketing programs. During the third quarter, ZLR & Associates, the Company's
marketing and advertising agency, introduced a new image and logo for the Double
Eagle. A comprehensive advertising and marketing plan was assembled, and
currently being implemented, to include high exposure advertising and direct
mail programs. Player development through database management is also being
employed to increase return visits by rated players.
Emphasis on Slot Play. Responding to the increased popularity of slot machines
over the past several years and recognizing that most revenues are generated by
slot machines in a limited stakes market, the Company has focused its gaming mix
toward slot, keno, and video poker machines. To maximize capacity utilization,
management chose to reduce the number of slot machines at the Double Eagle,
improving the casino floor layout while increasing payout percentages. During
the third quarter, management increased payout percentages of all gaming devices
at the Double Eagle by an average of 3%, increasing the number of jackpots won
by players. As a result, the Company realized an increase in handle while
capturing 15% market share of slot win. Over time and in conjunction with
aggressive marketing programs, management expects to capture a larger share of
the Cripple Creek market as play increases at the Double Eagle. The Company
continues to monitor payout percentages of its slot machines to ensure that they
remain competitive.
Increased slot play is also encouraged through the use of the slot club. The
slot club and the use of a computerized player tracking system, which monitors
the wagering of its members, provides the Company with information which assists
management in planning and directing its marketing efforts to its customers. As
members of the slot club, patrons are encouraged to insert their frequent player
card into slot, keno, and video poker machines while playing in the casino to
earn points. Using the tracking system to track wagering, management rewards
members of the slot club based on their point totals with various cash and gift
prizes.
Customer Service. Management is placing greater emphasis on customer service
through extensive employee training and education programs. These programs are
designed to ensure customers are provided a friendly, safe, and service-driven
environment in which gaming becomes a fun and exciting activity. During the
third quarter, the Company retained Alliance, Inc., a professional consulting
firm to provide and implement "quality control" and customer service training
programs.
Management and Key Personnel. The Company continues to make significant
investments in key management and personnel through benefits packages and bonus
programs. Employee benefits, which include medical, dental and vision plans, in
addition to on-the-job training and advancement opportunities are offered to
attract and retain qualified individuals.
Future Plans. Management believes that an integral component of attracting
patrons in Cripple Creek is adequate, nearby parking. The Company is proceeding
with its plans to construct a multi-level parking garage, which is expected to
accommodate more than 400 automobiles, directly adjacent to the Double Eagle.
During the quarter, the Company retained an architect to commence design of the
structure, which includes provisions for a convention facility, kitchen and
health spa on the mezzanine level. This building will be connected, via
sky-bridge, directly to the main level of the Double Eagle Hotel & Casino,
providing patrons quick and convenient access from the parking garage to the
property. Construction is expected to begin during the first quarter in Fiscal
1999 with completion slated for early Summer `99.
-8-
<PAGE>
COMPANY REVENUE
The Company reported net operating revenues for the nine months ended July 31,
1998 of $16.61 million, a decrease of $329,000 or -1.9% from the $16.94 million
reported during the same period in 1997. Casino revenues decreased by nearly
$833,000, down -6.0% from the $13.79 million recorded for the same nine-month
period last year to $12.95 million in Fiscal 1998. Revenues from the hotel and
gift shop also decreased -6.0% to $1.68 million from the $1.78 million reported
for the nine months ended July 31, 1997. However, restaurant and bar revenues
improved by 17.0%, up almost $228,000 to $1.57 million from $1.34 during the
nine months of Fiscal 1998.
During the nine months, the Company reported over $415,000 in other revenues
primarily resulting from parking operations and the amusement arcade.
Acquisitions
There were no acquisitions of any significance during this quarter.
Sale of Stock
There was no sale of stock during this quarter.
Results of Operations
Quarter Ended July 31, 1998 Compared to Quarter Ended July 31, 1997
The Company reported net operating revenues for the quarter ended July 31, 1998
of $6.60 million, a decrease of $758,000, or -10.3% from the $7.36 million
recorded in 1997. Generating approximately 75% of the total revenues for the
quarter, the Company's casino operations produced revenues of $4.96 million,
down sharply by over $957,000 from the $5.91 million reported during the same
period last year. Total operating expenses were $6.61 million for the quarter
ended July 31, 1998, increasing by $138,000 from $6.47 million reported for the
same three months in 1997. Total operating expenses as a percentage of total
revenues increased to 100.2% from 88.0% recorded in the same period of Fiscal
1997.
Casino. Casino revenues decreased by more than $957,000, down -16.2% from $5.91
million reported for the third quarter in 1997 to nearly $4.96 million for the
same period in 1998. The reduction in casino revenues was primarily a result of
management's decision to increase pay-out percentages on all gaming devices at
the Double Eagle. The immediate reduction in revenues is expected to be offset
by the increase in handle, improving revenues over the longer term. Costs and
expenses of casino operations were $2.03 million for the three months ended July
31, 1998, a decrease of nearly $405,000 or -16.6% from $2.44 million for the
same period in Fiscal 1997.
During the third quarter, the Company completed the purchase of gaming devices
from IGT for the Double Eagle, which were previously under an operating lease. A
reduction in payroll expense also contributed to the net decrease in costs and
expenses. Casino costs and expenses as a percentage of casino revenues remained
relatively flat at 41.0% in 1998 compared to 41.2% during the same period in
1997.
Hotel and Gift Shop. Revenues from the hotel and gift shop amounted to over
$771,000 for the third quarter of 1998, down -6.2% from the $822,000 reported
during the same period last year. The decrease in revenue was primarily due to
management's decision to reduce room rates in order to increase mid-week
occupancy levels. During the three months ended July 31, 1998, hotel and gift
shop revenues accounted for 11.7% of total consolidated revenues. Costs and
expenses of hotel and gift shop operations were $272,000 for the quarter, a
decrease of nearly $94,000 or -25.6% from $366,000 reported in 1997. Hotel and
gift shop costs and expenses as a percentage of hotel and gift shop revenues
decreased to 35.2% from 44.5% during the same period in 1997.
Restaurant and Bar. Restaurant and bar revenues improved by 12.5%, up over
$73,000 to $663,000 for the quarter ended July 31, 1998. The increase in
revenues was primarily attributed to improved sales of items on revised
restaurant and bar menus. Costs and expenses of restaurant and bars were
$781,000 for the three months in 1998, down -14% compared to the $907,000
recorded for the same quarter in 1997. Restaurant and bar costs and expenses as
a percentage of restaurant and bar revenues decreased to 117.7% from 153.9%
during the same period in 1997.
-9-
<PAGE>
Marketing/General and Administrative. Marketing and general and administrative
expenses were $3.01 million for the three months ended July 31, 1998, up sharply
by $1.03 million, or 51.8% from $1.98 million reported for the same period in
1997. During the quarter, and in conjunction with management's decision to
increase pay-out percentages on all Double Eagle gaming devices, the Company
increased its marketing and advertising expenditures, including retainer
payments and related expenses made to ZLR & Associates. General and
administrative expenses increased as a result of a one-time charge of $135,639
to bad debt expense and an increase in payroll and compensation costs. In
addition, salaries and wages of the parking/valet department employees were
included in general and administrative during Fiscal 1998. Marketing and general
and administrative expenses as a percentage of total revenues increased to 45.6%
for the third quarter in 1998 from 26.9% for the same quarter in 1997.
Depreciation and Amortization. Depreciation and amortization was $517,000 for
the three months ended July 31, 1998, a decrease of nearly $265,000 or -33.9%
from $781,000 for the same period in 1997. During the nine months ended July 31,
1998, the depreciation and amortization expense was lower compared to the same
period in Fiscal 1997 because the lease for gaming equipment from IGT was
recorded as an operating lease (off-balance sheet financing) compared to a
capital lease in Fiscal 1998.
Income (Loss) from Operations. As a result of factors discussed above, a loss
from operations of $(14,278) was reported for the quarter ended July 31, 1998,
an decrease of over $(895,000) from an income of $882,000 reported during the
same period in 1997. As a percentage of total revenues, loss from operations
decreased to -0.2% during the three months in Fiscal 1998 from a gain of 12.0%
during the same period in 1997.
Interest Expense. Interest expense was $2.07 million for the quarter ended July
31, 1998, an increase of over $817,000 or 65.3% from $1.25 million recorded for
the same period in 1997. The net increase in interest expense is primarily due
to a one-time expense of $608,826 to fully amortize debt issue costs in
connection with a loan payoff, and an additional note incurred in connection
with the purchase of the IGT gaming devices.
Net Loss. The net loss for the Company was $(2.08) million for the three months
ended July 31, 1998, an increase of more than $(1.71) million from a loss of
$(369,000) reported for the same quarter in 1997.
Nine Months Ended July 31, 1998 Compared to Nine Months Ended July 31, 1997
The Company reported net operating revenues for the nine months of Fiscal 1998
of $16.61 million, a decrease of almost $329,000, or -1.9% from the $16.94
million recorded in 1997. Generating approximately 78% of the total revenues,
the Company's casino operations produced revenues of nearly $13.0 million, down
nearly $833,000 from the $13.8 million reported during the same period last
year. Total operating expenses were $16.83 million for the nine months ended
July 31, 1998, remaining relatively flat compared to $16.75 million reported for
the same nine months in 1997. Total operating expenses as a percentage of total
revenues increased slightly to 101.3% from 98.9% recorded in the same period of
Fiscal 1997.
Casino. Casino revenues decreased nearly $833,000, down -6.0% from $13.79
million during the nine months in 1997 to nearly $13.0 million for the same
period in 1998. This reduction was primarily a result of management's decision
in the third quarter to increase pay-out percentages on all gaming devices at
the Double Eagle. The reduction in revenues is expected to be offset by the
increase in handle, which is anticipated to increase revenues over the longer
term. Costs and expenses of casino operations were $6.04 million for the nine
months ended July 31, 1998, a decrease of $202,000 or -3.2% from $6.24 million
for the same period in Fiscal 1997. During the third quarter, the Company
completed the purchase of gaming devices from IGT for the Double Eagle, which
were previously under an operating lease. A reduction in payroll expense also
contributed to the net decrease in costs and expenses. Casino costs and expenses
as a percentage of casino revenues increased to 46.6% in 1998 from 45.3% during
the same period in 1997.
Hotel and Gift Shop. Revenues from the hotel and gift shop amounted to over
$1.68 million for the nine months of 1998, down -6.0% from the $1.78 million
reported during the same period last year. The decrease in revenue was primarily
due to management's decision to reduce room rates in order to increase mid-week
and off-season occupancy levels. Hotel and gift shop revenues accounted for
10.0% of total consolidated revenues. Costs and expenses of hotel and gift shop
operations
-10-
<PAGE>
were over $801,000 for the nine months of 1998, a decrease of nearly
$224,000 or -21.8% from $1.02 million reported in 1997. Hotel and gift shop
costs and expenses as a percentage of hotel and gift shop revenues decreased to
47.8% from 57.4% during the same period in 1997.
Restaurant and Bar. Restaurant and bar revenues improved by 17.0%, up nearly
$228,000 to $1.57 million for the nine months ended July 31, 1998. The increase
in revenues was primarily attributed to improved sales of items on revised
restaurant and bar menus introduced during the third quarter. Costs and expenses
of restaurant and bars were $2.07 million for the nine months in 1998, down
slightly compared to the $2.075 million recorded in 1997. Restaurant and bar
costs and expenses as a percentage of restaurant and bar revenues decreased to
132.2% from 155.0% during the same period in 1997.
Marketing/General and Administrative. Marketing and general and administrative
expenses were $6.31 million for the nine months ended July 31, 1998, up
$970,000, or 18.2% from $5.34 million reported for the same period in 1997.
During the third quarter, and in conjunction with an aggressive marketing
campaign, the Company increased its marketing and advertising expenditures,
including retainer payments and related expenses made to ZLR & Associates.
General and administrative expenses increased as a result of a $135,639 one-time
write-down of for bad debt expense and an increase in payroll and compensation
costs. Salaries and wages of the parking/valet department employees were
included in general and administrative during Fiscal 1998. Marketing and general
and administrative expenses as a percentage of total revenues increased to 38.0%
for the nine months in 1998 from 31.5% for the same period in 1997.
Depreciation and Amortization. Depreciation and amortization was $1.61 million
for the nine months ended July 31, 1998, a decrease of over $458,000 or -22.1%
from $2.07 million for the same period in 1997. During the nine months ended
July 31, 1998, the depreciation and amortization expense was lower compared to
the same period in Fiscal 1997 because the lease for gaming equipment from IGT
was recorded as an operating lease (off-balance sheet financing) compared to a
capital lease in Fiscal 1998.
Income (Loss) from Operations. As a result of factors discussed above, a loss
from operations of $(220,000) was reported for the nine months ended July 31,
1998, an decrease of nearly $(411,000) from an income of $190,000 reported
during the same period in 1997. As a percentage of total revenues, loss from
operations decreased to -1.3% during the nine months in Fiscal 1998 from a gain
of 1.1% during the same period in 1997.
Interest Expense. Interest expense was $4.32 million for the nine months ended
July 31, 1998, an increase of nearly $457,000 or 11.8% from $3.87 million
recorded for the same period in 1997. The net increase in interest expense is
primarily due to a one-time expense of $608,826, during the third quarter, to
fully amortize debt issue costs in connection with a loan payoff, and an
additional note incurred in connection with the purchase of the IGT gaming
devices.
Net Loss. The net loss for the Company was $(4.54) million for the nine months
ended July 31, 1998, an increase of more than $(867,000) or 23.6% from a loss of
$(3.68) million reported in the nine months of 1997.
Liquidity and Capital Resources
The Company's principal sources of liquidity and capital resources to date have
been cash flow from operations, borrowings under various credit arrangements,
and equity capital from private placements.
At July 31, 1998, the Company had cash and cash equivalents totaling $1.69
million and additional liquidity under a $15 million Revolving Credit Facility
("Bank Revolver") with Foothill Capital Corporation, Inc., a subsidiary of
Norwest Bank. Net cash used by operating activities for the nine months of
Fiscal 1998 was $(1.27) million compared to $(1.63) million during the nine
months in Fiscal 1997. Net cash used by investing activities for the nine months
ended July 31, 1998 included property and equipment additions of $3.92 million,
of which $3.23 million was used for the purchase of gaming devices from
International Game Technology (IGT). The Company had net borrowings under its
Bank Revolver with Foothill Capital of $13.38 million, principally to refinance
$10.20 million in high-interest mortgages and provide general working capital.
Net cash provided by financing activities amounted to $4.92 million in the nine
months of 1998 compared to $3.42 million for the same period in 1997.
During the third quarter, the Company secured a $15 million Bank Revolver,
expiring on July 31, 2003, which bears interest at the rate of Prime + 2%. The
Bank Revolver is secured by first trust deeds on real property of the Double
Eagle. The Company has agreed to maintain certain financial and non-financial
covenants customary with lending arrangements of this type. The Company has
remained in compliance with the covenants throughout the term of the credit
facility.
-11-
<PAGE>
The Company has demonstrated its ability to raise debt and equity capital, as
needed, in the past and may seek to raise additional equity capital in the
future in order to finance expansion projects. The Company is proceeding with
its plans to seek permanent debt financing in order to refinance high-interest
debt and to undertake a capital expenditure program to include the construction
of a parking garage, with a convention center and health spa, and to provide
additional food outlets at its Double Eagle property. It is expected that
substantially all of the assets of the two Cripple Creek properties would be
pledged as security for repayment of the debt. It is likely that the terms of
the debt would place certain restrictions on the Company's ability to pay
dividends and incur additional debt, and would require the Company to maintain
certain financial ratios. There can be no assurance that the financing can be
obtained on terms acceptable to the Company.
Other than the proposed capital expenditure projects, all of which are dependent
on additional financing, most of the Company's near-term growth opportunities
are to a large degree discretionary and are not expected to require significant
investment or commitment of the Company's financial resources.
At July 31, 1998, management believes that the Company has sufficient financial
resources, from expected operating cash flows together with borrowing capacity
under its credit facility, to meet its foreseeable obligations.
The accompanying unaudited condensed consolidated 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 Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normally recurring accruals) considered necessary for a fair presentation
have been included.
Operating results for the nine months ended July 31, 1998 are not necessarily
indicative of the results that may be expected for the Fiscal year ending
October 31, 1998. For further information, refer to the consolidated statements
and footnotes included in the Registrant's annual report on Form 10-KSB for the
year ending October 31, 1997.
**********
-12-
<PAGE>
COLORADO CASINO RESORTS, INC. & SUBSIDIARIES
OTHER INFORMATION
PART II. Other Information
Item 1. Legal Proceedings
The Company is party to various lawsuits relating to routine
matters incidental to its business. Management does not believe
that the outcome of any such litigation, in aggregate, will have
a material adverse effect on the Company.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports - None.
-13-
<PAGE>
COLORADO CASINO RESORTS, INC. & SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 14th day of September,
1998.
COLORADO CASINO RESORTS, INC.
September 14, 1998 By: /s/ Rudy S. Saenz
--------------------------
Rudy S. Saenz
President and Chief Executive Officer,
Director (Principal Executive Officer)
September 14, 1998 /s/ Farid E. Tannous
---------------------------
Farid E. Tannous
Treasurer and Chief Financial Officer
(Principal Financial Officer)
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