================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-KSB/A
- --------------------------------------------------------------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended October 31, 1996
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)
- --------------------------------------------------------------------------------
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 [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB
[X]
State the registrant's revenues for its most recent fiscal year: $10,615,318.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on January 24, 1997 was approximately $51,806,567 based upon the
average reported closing bid and asked price of such shares. As of January 24,
1997, there were 34,537,711 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement from Annual Meeting of Shareholders dated September 19, 1996
================================================================================
<PAGE>
PART II
Item 6. Management Discussion and Analysis of Financial Condition and Results of
Operations
Management has made several restatements and reclassifications to the Company's
1996 fiscal year financial statements. A detailed description of the
restatements is discussed in the "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" on
page F-14 hereof.
Results of Operations
During the fiscal year ended October 31, 1996, the Company formed a wholly owned
subsidiary, Double Eagle Resorts, Inc., to conduct business as the Double Eagle
Hotel & Casino in Cripple Creek, Colorado. Effective August 1, 1996, the Company
transferred assets and liabilities, related to the Double Eagle, in the net
amount of $15,315,296 to the subsidiary in a tax-free exchange. On July 27, 1996
the Company opened the hotel and Lombard's Restaurant (at the Double Eagle) for
business and, upon receiving its gaming license from the Colorado State Division
of Gaming, opened the casino and bars on August 29, 1996. The Company's results
of operations for 1996 include a full year of Creeker's and two months of
activities for the Double Eagle.
The Company reported net operating revenues for fiscal 1996 of $10,615,318, an
increase of $6,408,383, or 152% from the $4,206,935 recorded in 1995. Of the
increase, $3,947,536, or 62% of the total increase, was attributable to two
months of operations of the Double Eagle Hotel & Casino. Although, income from
operations, before pre-opening expenses, amounted to $1,155,390, representing a
1,139% increase over the $93,200 reported in 1995, the Company reported a net
loss of ($4,651,368) or ($0.1445) per share compared to a net loss of ($462,059)
or ($0.0150) per share in fiscal year 1995. Contributing to the loss was a
one-time charge for pre-opening expenses of $2,298,763, an increase in interest
expenses of $2,426,678 (both associated with building and opening the Double
Eagle), and an imputed non-cash dividend of $700,000 related to the beneficial
conversion features of the Series One Preferred Stock. The increase in interest
expense included a one-time charge of $900,000 related to the beneficial
conversion features of the convertible debentures [See Note B to the
Consolidated Financial Statements].
Casino. Fiscal 1996 casino revenues increased $5,678,424, up 142% from fiscal
1995 casino revenues of $4,006,694 to $9,685,118. The two months of operations
of the Double Eagle casino provided $3,228,098 of the increase. Casino costs and
expenses increased 42% with the opening of the Double Eagle from $2,085,345 to
$2,957,923 in fiscal 1996. While the Double Eagle accounted for 57% of the
casino revenue growth, it accounted for most of the $872,578 increase in casino
expenses. Creeker's casino revenues grew by over 61%, while casino expenses
remained relatively flat with a 2% increase from fiscal 1995 to fiscal 1996.
Management attributes this improvement to aggressive marketing and successful
promotions, as well as, the selection and addition of new gaming devices with
bill validators. As of October 31, 1996, Creeker's had 234 gaming devices and
two blackjack tables while the Double Eagle had 746 gaming devices and five
blackjack tables.
Hotel and Gift Shop. Revenues from the hotel and gift shop amounted to $507,825,
representing approximately 5% of total operating revenues in fiscal 1996. The
158-room hotel was open for three months while the gift shop was open for one
month during the fiscal year. Hotel and gift shop expenses of $398,263
constituted 78% of the revenues, due primarily to salaries and other start-up
expenses.
-2-
<PAGE>
Restaurant and Bar. Restaurant and bar revenues improved by 92%, up $174,502 to
$363,200 in fiscal 1996, net of promotional allowances of $385,432 and $214,518
in fiscal 1996 and 1995, respectively. Just over $130,000 of the increase was
provided by three months of operations of the new Lombard's Restaurant, located
in the Double Eagle. Lombard's is a 100-seat, up-scale restaurant serving
made-to-order meals from its American-Continental menu. Food and beverage costs
and expenses rose by 116%, up $650,773 to $1,210,615, with restaurant and bar
operations at the Double Eagle accounting for 63% of the increase.
General and Administrative. General and administrative expenses increased 237%,
up $2,648,073 to $3,765,232 for fiscal 1996. Approximately $672,104, or 25% of
the increase, was directly attributable to the new operations at the Double
Eagle. Marketing and promotional expenses of $670,000 at Creeker's constituted
another 25% of the total increase, with the balance attributable to increases in
payroll and certain overhead costs at the corporate offices and Creeker's.
Pre-Opening Expenses. As a result of opening the Double Eagle Hotel & Casino in
fiscal 1996, the Company recognized $2,298,763 in pre-opening expenses. These
charges had been incurred in connection with the development and opening of that
property. Approximately $1,500,000, or 65% of the total pre-opening expenses, is
due to the establishment of initial progressive jackpot liability reserves,
while the balance is composed of the pre-opening payroll, gaming taxes,
marketing costs and supplies.
Depreciation. Depreciation expense increased 221%, up $776,506 to $1,127,895 for
fiscal 1996, with 74% of the increase, approximately $575,000, primarily due to
capital spending associated with the Double Eagle. The remaining increase of
approximately $202,000 is attributable to the addition of new gaming devices at
Creeker's.
Interest Expense. Interest expense increased $2,426,678, or 437%, from $555,259
reported in fiscal 1995 to $2,981,937 in fiscal 1996. Approximately $1,526,678
of increase was attributable to additional debt secured to finance the Double
Eagle as well as equipment financing, and $900,000 related to the beneficial
conversion features of the convertible debentures.
Liquidity and Capital Resources
The Company's primary 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 October 31, 1996 the Company had cash and cash equivalents totaling
$2,828,994 and $1,000,000 available under a revolving line of credit. Cash flow
from operations for fiscal 1996 was $2,495,032, while cash flow from financing
activities totaled $19,817,736. Net cash used in the purchase and construction
of land, building and capitalized expenditures for property and equipment of
$21,058,919 was funded by the infusion of $18,395,000 in debt and $4,275,000 in
equity capital during fiscal 1996.
Additionally, the Company entered into eight equipment financing agreements to
fund the acquisition of gaming and associated equipment. The outstanding balance
under these equipment financing agreements at October 31, 1996 was $7,320,941.
Under the terms of six agreements, repayments of principal and interest are due
in 36 monthly installments, while two agreements require repayments of principal
and interest in 60 monthly installments. All equipment financing agreements are
secured by the equipment financed under such agreements. The obligations under
the financing agreements are guaranteed by the Company.
-3-
<PAGE>
The $1,000,000 revolving line of credit requires interest payable monthly at the
prime rate plus 1% and contains certain financial and other covenants. These
covenants require the Company to use the line of credit only to fund the
progressive jackpot liabilities at the Double Eagle Hotel & Casino. The line of
credit is secured by a second deed of trust on the hotel/casino. There was no
outstanding balance under the line at October 31, 1996.
The Company has demonstrated its ability to raise debt and equity capital, as
needed, over the past four years and may seek to raise additional equity capital
in the future, although there are no present plans to do so. However, the
Company intends to seek permanent debt financing in order to take out more
expensive construction debt. Specifically, the Company anticipates refinancing
its near-term obligations of approximately $13,700,000 during the second fiscal
quarter. 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.
Item 7. Financial Statements
The consolidated financial statements and supplementary data are as set forth in
"INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" on page F-1 hereof.
-4-
<PAGE>
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 22nd day of April,
1999.
COLORADO CASINO RESORTS, INC.
By: /s/ Rudy S. Saenz
---------------------
Rudy S. Saenz
President and Chief Executive Officer,
Director (Principal Executive Officer)
/s/ Farid E. Tannous
---------------------
Farid E. Tannous
Treasurer and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated.
April 22, 1999 /s/ Rudy S. Saenz
---------------------------
Rudy S. Saenz
President and Chief Executive Officer,
Director
April 22, 1999 /s/ Gilbert M. Sisneros
----------------------------
Gilbert M. Sisneros
Vice President, Director
April 22, 1999 /s/ Michael S. Smith
----------------------------
Michael S. Smith
Secretary and General Counsel,
Director
April 22, 1999 /s/ Farid E. Tannous
-----------------------------
Farid E. Tannous
Treasurer and Chief Financial Officer
-5-
<PAGE>
COLORADO CASINO RESORTS, INC.
TABLE OF CONTENTS
Page
-----------------
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-10
<PAGE>
COLORADO CASINO RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
The accompanying notes are an integral part
of these consolidated financial statements
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors
Colorado Casino Resorts, Inc.
Colorado Springs, Colorado
We have audited the accompanying consolidated balance sheets of Colorado Casino
Resorts, Inc. and Subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended October 31, 1996 and 1995 and the ten-month short year ended
October 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Colorado Casino Resorts, Inc. and Subsidiaries as of October 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for the
years ended October 31, 1996 and 1995 and the ten-month short year ended October
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note A, Colorado Casino Resorts, Inc., merged with Creeker's,
Inc., effective March 15, 1995, in a transaction accounted for as a pooling of
interests. The financial statements for the ten months ended October 31, 1994
have been restated to reflect the pooling of interests.
As discussed in Note B to the financial statements, the October 31, 1996
consolidated financial statements have been restated to correct errors relating
to the accounting for convertible securities issued by the Company, the
accounting for interest on related-party debt, and the accounting for a capital
lease agreement of the Company.
Richey, May & Co., P.C. (formerly Williams, Richey & Co., P.C.)
Englewood, Colorado
December 19, 1996 (Except for Notes A, B, G and K as to
which the date is January 25, 1999)
F-1
<PAGE>
COLORADO CASINO RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
ASSETS (As Restated)
------ 1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and temporary investments ........... $ 2,828,994 $ 1,375,145
Certificate of deposit, restricted ....... -- 450,000
Inventory ................................ 251,662 49,885
Advances to officers ..................... 379,617 114,617
Other current assets ..................... 553,992 87,885
------------ ------------
TOTAL CURRENT ASSETS .................. 4,014,265 2,077,532
------------ ------------
REAL ESTATE HELD FOR FUTURE DEVELOPMENT ........ 4,504,970 4,504,970
------------ ------------
LAND, BUILDING AND EQUIPMENT
Land ..................................... 7,071,644 7,071,644
Building ................................. 23,085,250 1,625,154
Furniture and equipment .................. 12,061,514 2,244,529
Construction in process .................. -- 3,301,432
Accumulated depreciation ................. (1,570,629) (533,606)
------------ ------------
TOTAL LAND, BUILDING AND EQUIPMENT .. 40,647,779 13,709,153
------------ ------------
OTHER ASSETS
Deposits, land and building option ....... 25,000 25,000
Debt issue costs ......................... 224,195 --
Other .................................... 64,288 8,176
------------ ------------
TOTAL OTHER ASSETS .................. 313,483 33,176
------------ ------------
TOTAL ASSETS ................................... $ 49,480,497 $ 20,324,831
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
OCTOBER 31,
<TABLE>
<CAPTION>
(As Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable .................................................. $ 649,895 $ 52,975
Progressive jackpot liabilities ................................... 1,995,388 263,788
Accrued other expenses ............................................ 675,063 199,373
Interest payable .................................................. 557,098 62,325
Interest payable, related parties ................................. 832,945 --
Note payable ...................................................... -- 500,000
Current portion, long-term debt,
related party .................................................. 7,676,209 64,681
Current portion, long-term debt ................................... 6,015,931 279,794
Current portion, capital lease obligations ........................ 1,636,904 --
------------ ------------
TOTAL CURRENT LIABILITIES .................................... 20,039,433 1,422,936
LONG-TERM DEBT, RELATED PARTY ........................................... 412,125 665,603
LONG-TERM DEBT .......................................................... 8,238,993 4,318,684
CONVERTIBLE DEBENTURE, RELATED PARTY .................................... 4,500,000 4,500,000
INTEREST PAYABLE, CONVERTIBLE DEBENTURE, RELATED PARTY .................. 699,739 376,297
CONVERTIBLE DEBENTURES .................................................. 2,500,000 --
CAPITAL LEASE OBLIGATIONS ............................................... 4,912,834 --
------------ ------------
TOTAL LIABILITIES .............................................. 41,303,124 11,283,520
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE N)
STOCKHOLDERS' EQUITY
Preferredconvertible stock, Series One, $10 par value, 5,000,000
shares authorized, 250,000 and 650,000
issued and outstanding, respectively .................. 2,500,000 6,500,000
Common stock, $.001 par value, 100,000,000 shares
authorized, 34,537,711 and 30,845,000 issued and
outstanding, respectively ............................. 34,537 30,845
Paid-in capital ....................................... 12,067,270 4,283,532
Accumulated deficit ............................................ (6,424,434) (1,773,066)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................................... 8,177,373 9,041,311
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 49,480,497 $ 20,324,831
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-3
<PAGE>
COLORADO CASINO RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(As Restated) Ten-Months
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Casino ........................... $ 9,685,118 $ 4,006,694 $ 1,485,985
Hotel and gift shop .............. 507,825 -- --
Restaurant and bar ............... 363,200 188,698 172,544
Miscellaneous .................... 59,175 11,543 --
------------ ------------ ------------
Total revenue ........... 10,615,318 4,206,935 1,658,529
------------ ------------ ------------
EXPENSES
Casino ........................... 2,957,923 2,085,345 1,129,819
Hotel and gift shop .............. 398,263 -- --
Restaurant and bar ............... 1,210,615 559,842 182,599
General and administrative ....... 3,765,232 1,117,159 266,824
Preopening costs ................. 2,298,763 -- --
Depreciation ..................... 1,127,895 351,389 108,506
------------ ------------ ------------
Total expenses .......... 11,758,691 4,113,735 1,687,748
------------ ------------ ------------
Income (Loss) From Operations ............. (1,143,373) 93,200 (29,219)
------------ ------------ ------------
NONOPERATING
INCOME (EXPENSES)
Interest income .................. 173,942 -- --
Interest expense ................. (1,321,431) (147,717) (216,023)
Interest expense, related parties (1,660,506) (407,542) (133,207)
------------ ------------ ------------
Total nonoperating income
(expense) ...... (2,807,995) (555,259) (349,230)
------------ ------------ ------------
Net Loss .................................. (3,951,368) (462,059) (378,449)
Preferred Stock Dividend .................. (700,000) -- --
============ ============ ============
Net Loss Applicable to Common Stock ....... $ (4,651,368) $ (462,059) $ (378,449)
============ ============ ============
Net Loss Per Common Share ................. $ (0.1445) $ (0.0150) $ (0.0135)
============ ============ ============
Weighted Average Common Shares
Outstanding ...................... 32,170,990 30,747,582 27,960,986
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-4
<PAGE>
COLORADO CASINO RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996 (As Restated) AND 1995
TEN MONTHS ENDED OCTOBER 31, 1994
Preferred Stock Common Stock
--------------------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 ...................... -- $-- 25,000,000 $ 25,000 $ 1,976,953 $ (762,160) $ 1,239,793
Paid-In Capital, Debt Converted to Equity ....... -- -- -- -- 582,424 -- 582,424
Issuance of Common Stock in Exchange for
Common Stock in Lyric Development Co. .......... -- -- 1,000,000 1,000 (1,000) -- --
Common Stock Issued for Cash at $0.50 Per
Share .......................................... -- -- 500,000 500 249,500 -- 250,000
Common Stock Issued for Services at $0.75
Per Share ...................................... -- -- 100,000 100 74,900 -- 75,000
Common Stock Issued for Cash at $0.25 Per
Share .......................................... -- -- 2,400,000 2,400 597,600 -- 600,000
Common Stock Issued for Cash at $2.50 Per
Share .......................................... -- -- 40,000 40 99,960 -- 100,000
Common Stock Issued for Cash at $.25 Per
Share .......................................... -- -- 1,600,000 1,600 398,400 -- 400,000
Net Loss ........................................ -- -- -- -- -- (378,449) (378,449)
-- -- ----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 31, 1994 ....................... -- -- 30,640,000 30,640 3,978,737 (1,140,609) 2,868,768
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-5
<PAGE>
COLORADO CASINO RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED OCTOBER 31, 1996 (As Restated) AND 1995
TEN MONTHS ENDED OCTOBER 31, 1994
Preferred Stock Common Stock
------------------------------------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock Options Exercised at $1 Per
Share .................................. -- -- 5,000 5 4,995 --
Common Stock Issued at $1.50 Per Share .. -- -- 200,000 200 299,800 --
Preferred Stock Issued at $10 Per Share 650,000 6,500,000 -- -- -- --
Distribution to Former S-Corporation
Stockholders ........................... -- -- -- -- -- (170,398)
Net Loss ................................ -- -- -- -- -- (462,059)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 31, 1995 ............... 650,000 6,500,000 30,845,000 30,845 4,283,532 (1,773,066)
Common Stock Issued at $2.03 Per Share .. -- -- 614,770 614 1,124,386 --
Convertible Preferred Stock, Series
Two, Issued at $10 Per Share ........... 350,000 3,150,000 -- -- 700,000 (700,000)
Conversion of Series Two, Preferred Stock
into Common Stock ...................... (350,000) (3,150,000) 2,056,308 2,057 3,147,943 --
Intrinsic Value of Beneficial Conversion
Feature of Convertible Debentures ...... -- -- -- -- 900,000 --
Conversion of Convertible Debentures into
Common Stock ........................... -- -- 1,021,633 1,021 1,911,409 --
Conversion of Series One, Preferred Stock
into Debt .............................. (400,000) (4,000,000) -- -- -- --
Net Loss ................................ -- -- -- -- -- (3,951,368)
=========== =========== =========== =========== =========== ===========
BALANCE, OCTOBER 31, 1996 ............... 250,000 $ 2,500,000 34,537,711 $ 34,537 $12,067,270 $(6,424,434)
=========== =========== =========== =========== =========== ===========
Total
-----------
<S> <C>
Common Stock Options Exercised at $1 Per
Share .................................. 5,000
Common Stock Issued at $1.50 Per Share .. 300,000
Preferred Stock Issued at $10 Per Share 6,500,000
Distribution to Former S-Corporation
Stockholders ........................... (170,398)
Net Loss ................................ (462,059)
-----------
BALANCE, OCTOBER 31, 1995 ............... 9,041,311
Common Stock Issued at $2.03 Per Share .. 1,125,000
Convertible Preferred Stock, Series
Two, Issued at $10 Per Share ........... 3,150,000
Conversion of Series Two, Preferred Stock
into Common Stock ...................... --
Intrinsic Value of Beneficial Conversion
Feature of Convertible Debentures ...... 900,000
Conversion of Convertible Debentures into
Common Stock ........................... 1,912,430
Conversion of Series One, Preferred Stock
into Debt .............................. (4,000,000)
Net Loss ................................ (3,951,368)
===========
BALANCE, OCTOBER 31, 1996 ............... $ 8,177,373
===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-6
<PAGE>
COLORADO CASINO RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(As Restated) Ten Months
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss ............................... $ (3,951,368) $ (462,059) $ (378,449)
Non-cash items-
Depreciation and amortization ...... 1,127,895 351,389 108,506
Amortization of debt issue costs ... 1,500,939 -- --
(Gain) loss on sale of fixed assets (14,467) 13,136 --
Common stock for services .......... -- -- 75,000
Interest converted to debt or equity 326,492 415,816 45,852
(Increase) decrease in:
Inventory .......................... (201,777) (20,204) (29,681)
Other current assets ............... (466,107) (38,904) (2,012)
Other assets ...................... 41,497 -- --
(Decrease) increase in:
Accounts payable ................... 596,920 27,025 21,391
Interest payable, related parties .. 832,945 -- --
Accrued other expenses ............. 2,702,063 226,367 159,181
------------ ------------ ------------
Net cash provided (used) by
operating activities ..... 2,495,032 512,566 (212)
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase/construction of land,
building, and equipment ........... (21,058,919) (4,088,492) (311,469)
Proceeds from sale of fixed assets ..... 30,000 29,100 --
Certificate of deposit, restricted ..... 450,000 (450,000) --
Deposits, purchase options ............. -- (50,000) (50,000)
Advances to officers ................... (280,000) (94,617) (20,000)
------------ ------------ ------------
Net cash used by investing
activities ............... (20,858,919) (4,654,009) (381,469)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
COLORADO CASINO RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(As Restated) Ten Months
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Advances from officers ............ 15,000 -- 435,000
Repayments, advances from officers -- (120,000) (480,633)
Borrowings, note payable .......... -- 500,000 --
Repayments, note payable .......... (500,000) (93,000) --
Borrowings, long-term debt ........ 10,040,000 -- 405,000
Borrowings, long-term debt, related
party ........................ 8,355,000 -- --
Repayments, long-term debt ........ (342,130) (2,046,957) (644,997)
Repayments, long-term debt, related
party ........................ (1,000,000) -- (66,574)
Distributions, prior S-Corp
stockholders ................. -- (170,398) --
Debt and stock issue costs ........ (1,025,134) -- --
Issuance of common stock .......... 1,125,000 305,000 1,350,000
Issuance of preferred stock ....... 3,150,000 6,500,000 --
------------ ------------ ------------
Net cash provided by financing
activities ................... 19,817,736 4,874,645 997,796
------------ ------------ ------------
INCREASE IN CASH AND
CASH EQUIVALENTS .................... 1,453,849 733,202 616,115
CASH AND CASH EQUIVALENTS,
BEGINNING ........................... 1,375,145 641,943 25,828
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
ENDING .............................. $ 2,828,994 $ 1,375,145 $ 641,943
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-8
<PAGE>
COLORADO CASINO RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(As Restated) Ten Months
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for debt ......... $1,912,430 $-- $ 657,424
========== ========== ==========
Common stock issued for property
and services .................... $-- $-- $ 75,000
========== ========== ==========
Preferred stock converted to
common stock .................... $3,150,000 $-- $--
========== ========== ==========
Preferred stock converted to debt .... $4,000,000 $-- $--
========== ========== ==========
Land, building and equipment
financed through debt ............... $7,023,135 $4,262,717 $4,856,651
========== ========== ==========
Debt, refinanced ..................... $-- $1,180,919 $--
========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-9
<PAGE>
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Organization and Operations
---------------------------
Colorado Casino Resorts, Inc. (the Company or CCRI), (formerly Airline
of the Virgin Islands, Inc.) was originally incorporated under the laws
of the Virgin Islands on March 25, 1982, and was reincorporated in the
state of Texas on March 15, 1993. On January 14, 1994, the Company
completed a merger with Lyric Development Company, Inc., (Lyric) whereby
the Company (which had no assets or liabilities and 1,000,000 shares of
common stock issued and outstanding prior to the reorganization) issued
an additional 5,000,000 shares of common stock to the stockholders of
Lyric in exchange for 100% of the outstanding common stock of Lyric. The
transaction has been accounted for as a recapitalization of Lyric with
Lyric's accumulated deficit and operations being carried forward. During
the year ended October 31, 1995, Lyric and its subsidiaries were
liquidated into CCRI.
During the year ended October 31, 1996, the Company formed a wholly
owned subsidiary, Double Eagle Resorts, Inc. Effective August 1, 1996,
the Company transferred assets and liabilities, related to the Double
Eagle Hotel & Casino, in the net amount of $15,315,296 to the subsidiary
in a tax-free exchange.
The Company through its wholly owned subsidiaries, Creeker's, Inc.
(Creeker's) and Double Eagle Resorts, Inc. (Double Eagle), own and
operate a casino and a hotel/casino in Cripple Creek, Colorado.
Creeker's casino has 234 slot machines and two blackjack tables. The
Double Eagle's hotel/casino has 158 hotel rooms, 746 slot machines and
five blackjack tables. The Double Eagle hotel opened on July 27, 1996
and the casino opened on August 29, 1996.
Business Combination
--------------------
Effective March 15, 1995, the Company issued 20,000,000 shares of its
common stock in exchange for all of the outstanding stock of Creeker's
in a merger accounted for as a pooling of interests. Financial
statements for periods prior to the combination have been restated to
reflect the pooling of interests. Concurrent with the merger, Creeker's
became a subsidiary of the Company and conformed its fiscal year to that
of the Company. Creeker's briefly operated a casino at another location
from late 1991 through mid-1993. The current casino began operations in
April, 1994. Included in consolidated results of operations for the year
ended October 31, 1995, are the following results of the previously
separate companies for the period November 1, 1994 to April 30, 1995:
<TABLE>
<CAPTION>
CCRI Creeker's Intercompany Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 32,391 $ 1,596,108 $ (19,641) $ 1,608,858
===================================================================================
Net Income (Loss) $ (558,831) $ 161,756 $ -- $ (397,075)
==================================================================================
</TABLE>
The following is a reconciliation of revenue and earnings previously
reported by the Company for the ten months ended October 31, 1994 with
the combined amounts currently presented in the financial statements for
that period:
<TABLE>
<CAPTION>
CCRI Creeker's Intercompany Consolidated
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 9,500 $ 1,649,029 $ -- $ 1,658,529
===============================================================================
Net income (loss) $ (555,947) $ 177,498 $ -- $ (378,449)
==============================================================================
</TABLE>
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Company's wholly-owned subsidiaries, Creeker's Inc.
and Double Eagle Resorts, Inc. All intercompany balances and
transactions have been eliminated.
F-10
<PAGE>
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Certificate of Deposit, Restricted
----------------------------------
The certificate of deposit was restricted under a letter of credit
agreement with the City of Cripple Creek to ensure completion of the
hotel/casino construction. The certificate of deposit was released from
restriction upon completion of construction.
Inventory
---------
Inventory consists of food, beverages, and gift shop items and is
recorded at the lower of cost (first-in, first-out method) or market.
Real Estate Held For Future Development
---------------------------------------
In August 1994, the Company acquired the Myers Avenue property from a
real estate partnership (a related party effective with the acquisition
of Creeker's). The property consists of 40,705 square feet of land
located 80 yards west of the Creeker's casino parking lot and has a
carrying value of $4,504,970 at October 31, 1996 and 1995. The property
was appraised May 26, 1995, for $6,500,000 and is being held for future
development.
Land, Building and Equipment
----------------------------
Real estate held for future development is recorded at the lower of cost
or fair value.
Impairment of real estate or other long-lived assets is evaluated
whenever there is an indication that there is (a) a significant decrease
in market value, (b) a significant change in the extent or manner in
which an asset is used, (c) a significant adverse change in legal
factors or the business climate, (d) an accumulation of costs
significantly in excess of the amount originally expected to acquire or
construct, or (e) a forecast that demonstrates continuing expected
losses associated with the asset. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized. During
the years ended October 31, 1996 and 1995, there were no changes in
condition that indicated that the carrying amounts of real estate or
other long-lived assets may not be recoverable.
Furniture and equipment are being depreciated over their estimated
useful lives using accelerated methods. Building and improvements are
being depreciated over their estimated useful lives on a straight-line
basis. Building includes $1,301,049 of capitalized interest of which
$1,241,199 and $59,850 was incurred for the years ended October 31, 1996
and 1995, respectively. Land, building and equipment used in operations
consist of the following:
F-11
<PAGE>
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------------------
<TABLE>
<CAPTION>
(As Restated)
October 31, October 31, Estimated
1996 1995 Useful Life
----------- ----------- ----------
<S> <C> <C> <C>
Land ................................. $ 7,071,644 $ 7,071,644
Buildings and improvements ........... 23,085,250 1,752,059 39 Years
Gaming equipment ..................... 6,123,908 1,571,765 4-7 Years
Surveillance equipment ............... 587,550 99,199 5 Years
Coin handling equipment .............. 388,033 91,858 7 Years
Transportation equipment ............. 96,292 -- 5 Years
Signs ................................ 748,523 -- 7 Years
Kitchen, bar and
restaurant equipment ............... 300,627 45,189 7 Years
Hotel furnishings .................... 2,663,614 -- 7 Years
Office, computer, audio equipment .... 1,152,967 309,613 5-7 Years
Construction in process .............. -- 3,301,432
----------- -----------
Total land, building and equipment ... 42,218,408 14,242,759
Less accumulated depreciation ........ 1,570,629 533,606
----------- -----------
$40,647,779 $13,709,153
=========== ===========
</TABLE>
Debt Issue Costs
----------------
Debt issue costs are being amortized over the life of the related loans
using the effective interest method. Debt issue costs of $825,134 less
accumulated amortization of $600,939 are included in other assets at
October 31, 1996.
Stockholders' Equity
--------------------
Effective September 30, 1994, the stockholders of Creeker's contributed
as additional paid-in capital, debt and related interest payable owed to
them by Creeker's in the amount of $582,424.
During the year ended October 31, 1995, Creeker's made distributions of
$170,398 to the former S-Corporation stockholders to meet their
estimated tax obligations for taxable S-Corporation earnings passed
through to them.
The Company has authorized 5,000,000 shares of Series One preferred
convertible non-voting stock. The preferred stock will be automatically
converted into units upon the closing of the Company's next public
offering of common stock units, provided such closing occurs within two
years from the date of issue of the preferred stock. Said units will be
identical to the units offered to the public and should consist of at
least one share of common stock and one redeemable common stock purchase
warrant.
The preferred stock will be convertible at a conversion rate of three
units for each amount of par value of preferred stock equal to the
initial public offering price per unit. If the preferred stock is not
automatically converted within two years, it may be converted, at the
option of the holder, into four units, with each unit consisting of one
share of common stock and one redeemable common stock purchase warrant.
Each warrant obtained on optional conversion will entitle the holder
thereof to purchase one share of Common Stock for a period of three
years commencing with the date of optional conversion at a price of four
dollars. During the exercise period of the warrants, each warrant shall
be redeemable by the Company at a redemption price of $.10 per warrant
upon 30 days prior written notice to each warrant holder provided,
however, that the closing average bid price of the Company's common
stock, for a period of 20 consecutive trading days prior to any such
call for redemption, shall have been 150% or more of the effective
exercise price of the warrants.
F-12
<PAGE>
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
------------------------------------------------------
The Series One convertible preferred stockholders are entitled to a
cumulative annual dividend equal to six percent of the par value of the
preferred stock. Upon either an automatic or optional conversion of the
preferred stock (as described below) all cumulative dividends are
forfeited. Cumulative preferred dividends in arrears at October 31, 1996
and 1995, would be $179,270 and $99,270, respectively.
During the year ended October 31, 1996, the Company issued 350,000
shares of Series Two, $10 Par Value, Convertible Preferred Stock, for
$3,150,000 (net of issuance costs). The Series Two, Preferred Stock was
converted into 2,056,308 shares of common stock at 80% of the market
price (average closing bid for the five days prior to conversion) during
the year ended October 31, 1996.
Revenues
--------
Casino revenues are the net winnings from gaming activities, which is
the difference between gaming wins and losses.
Promotional Allowances
----------------------
Bar and restaurant revenue does not include the retail amount of food
and beverage provided gratuitously to customers, which amounted to
$385,432 and $214,518 for the years ended October 31, 1996 and 1995,
respectively.
Preopening Costs
----------------
Preopening costs consist of those direct incremental costs incurred
prior to commencement of hotel/casino operations and are expensed as
incurred.
Income Taxes
------------
The Company and its subsidiaries file consolidated income tax returns.
Creeker's revoked its S-Corporation status effective January 1, 1995,
filed a short period return for the period January 1, 1995 to March 31,
1995 and filed a consolidated return with the Company effective for the
period ended October 31, 1995.
An income tax provision is provided for the tax effect of transactions
reported in the financial statements. The provision consists of taxes
currently due plus deferred taxes related to differences between the
basis of assets and liabilities for financial and income tax reporting.
The deferred taxes represent the future tax return consequences of the
differences, which will be either taxable or deductible when the related
assets or liabilities are recovered or settled. A valuation allowance is
provided for deferred tax assets not expected to be realized.
Net Loss Per Share
------------------
Net loss per share is computed by dividing the net loss per common share
by the weighted average number of common shares outstanding during each
period. Common stock equivalents have been excluded since they are
antidilutive. Cumulative Series One, Preferred Stock dividends in
arrears have been excluded from the net loss calculation since they are
forfeitable upon automatic or optional conversion to common stock.
Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be
cash and cash equivalents. Total interest paid amounted to $972,058,
$232,583, and $162,912, for the years ended October 31, 1996 and 1995,
and the ten months ended October 31, 1994, respectively.
The Company and its subsidiaries maintain cash balances at several
financial institutions located in Colorado. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation up to $100,000.
At October 31, 1996, the Company's uninsured cash balances total
$1,531,834.
F-13
<PAGE>
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------------
Recently Issued Accounting Standards
------------------------------------
The Company anticipates adopting the disclosure requirements, but not
the optional recognition requirements of recently issued FAS 123
Accounting for Stock-Based Compensation (effective for fiscal years
beginning after December 15, 1995) in fiscal 1997. Stock-based
compensation expense will continue to be recognized in accordance with
APB 25 Accounting for Stock Issued to Employees. Pro forma disclosures
of net income and earnings per share as though the recognition
requirements of the Standard had been adopted will be required beginning
in fiscal 1997.
Reclassifications
-----------------
Certain reclassifications have been made to prior years' balances to
conform to the current financial statement presentation.
B. RESTATEMENT FOR CORRECTION OF ERRORS
------------------------------------
The financial statements for the year ended October 31, 1996 have been
restated to reflect the recording of adjustments for corrections of
errors as follows:
During the year ended October 31, 1996, the Company issued $4,500,000 in
convertible debentures and $3,500,000 in convertible preferred stock. The
debentures and preferred stock were convertible at 80% of the market
price of the common stock ("a beneficial conversion feature"). In
accordance with EITF D-60, the beneficial conversion feature should be
recognized and measured by allocating a portion of the proceeds equal to
the difference between the discounted conversion price and the market
price of the Company's common stock at the date of issuance to paid-in
capital. For debt securities, the discount resulting from the allocation
of proceeds to the beneficial conversion feature increases the effective
interest rate of the debt security and should be reflected as interest
expense. For preferred stock, the discount should be reflected as a
dividend to the preferred stockholders.
The October 31, 1996 financial statements have been restated to account
for the beneficial conversion feature in accordance with EITF Topic D-60.
The amount of the beneficial conversion features, related to the
convertible debentures and convertible preferred stock issued during the
year ended October 31, 1996, has been calculated to be $900,000 and
$700,000, respectively. Accordingly, $900,000 has been allocated as
additional paid-in capital and as a charge to interest expense and
$700,000 has been allocated as additional paid-in capital and an imputed
non-cash dividend for the year ended October 31, 1996.
Effective August 1, 1996, the Company entered into an agreement to lease
694 gaming devices. The Company classified the lease as a capital lease
and recorded an asset and corresponding liability of $4,892,735 for the
present value of the future minimum lease payments (including the lease
purchase option). Since the purchase option was not a "bargain purchase
option", the present value of the purchase option should not have been
capitalized as part of the capital lease asset and corresponding
liability. Accordingly, the October 31, 1996 financial statements have
been restated to reduce the capital lease asset and corresponding
liability by $771,203. Additionally, interest expense and accrued other
expenses have been decreased by $20,865 and depreciation expense and
accumulated depreciation increased by $50,527 for the year ended October
31, 1996.
F-14
<PAGE>
B. RESTATEMENT FOR CORECTION OF ERRORS (Continued)
-----------------------------------------------
The Company has determined that the interest expense and interest payable
on the related-party debt in Note E had been calculated incorrectly for
the fiscal year ended October 31, 1996. Accordingly, the interest expense
and interest payable has been decreased by $309,510 for the fiscal year
ended October 31, 1996.
The above corrections increased the net loss from $3,330,761 to
$3,951,368, the net loss applicable to common shareholders from
$3,330,761 to $4,651,368 and the net loss per common share from $0.1035
to $0.1445 for the year ended October 31, 1996.
C. ADVANCES TO OFFICERS
--------------------
Advances to officers are unsecured, due on demand and bear interest at
2% over the prime rate. Officers advanced funds to the Company in the
amount of $15,000, $None, and $435,000 for the years ended October 31,
1996 and 1995, and the ten months ended October 31, 1994. The Company
advanced funds to officers in the amount of $280,000, $214,617, and
$500,633 for the years ended October 31, 1996 and 1995, and the ten
months ended October 31, 1994. Outstanding advances to officers amounted
to $379,617 and $114,617 at October 31, 1996 and 1995, respectively.
D. NOTES PAYABLE
-------------
Note payable consisted of an unsecured note payable, corporation, dated
October, 1995 with interest payable at 20% per annum, due on demand,
repaid November, 1995.
The Company has a $1,000,000 revolving line of credit with a financial
institution under a loan agreement dated August 22, 1996 expiring March
24, 1997, with interest payable monthly at the prime rate plus 1%. The
line of credit is secured by a second deed of trust on the hotel/casino
and may only be used to fund the Company's progressive jackpot
liabilities. There was no outstanding balance under the line at October
31, 1996.
E. LONG-TERM DEBT, RELATED PARTIES
-------------------------------
Long-term debt, related parties consists of the following at October 31:
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Notes payable, stockholder, dated November, 1995-March, 1996, extended
April 12, 1996, interest at 14.10% per annum, due January 15, 1997 or upon
permanent financing, collateralized by Creeker's, Inc. common stock $ 2,087,500 $--
Notes payable, stockholder, dated November, 1995-March, 1996 extended
April 12, 1996, interest at 20.10% per annum, due January 15, 1997 or upon
permanent financing, collateralized by Creeker's,
Inc. common stock 5,267,500 --
Note payable, related real estate partnership, unsecured, dated September,
1992, payable in monthly installments of $17,777 including interest at 16%
per annum, with a final payment due
November 1, 1997 733,334 730,284
------------------ ----------------
8,088,334 730,284
Less current portion 7,676,209 64,681
------------------ ----------------
$ 412,125 $665,603
================== ================
</TABLE>
Total related party interest expense under all debt arrangements
(including the convertible debenture) amounted to $1,660,506, $407,542,
and $133,207 for the years ended October 31, 1996 and 1995 and the ten
months ended October 31, 1994, respectively.
F-15
<PAGE>
F. LONG-TERM DEBT
--------------
Long-term debt consists of the following at October 31:
<TABLE>
<CAPTION>
1996 1995
----------- -------------
<S> <C> <C>
Mortgage payable, individual, dated October, 1992 modified August, 1995,
payable in monthly installments of $3,400, including interest at 8% per
annum, with a final principal payment due November, 1999, collateralized
by deed of trust
$285,070 $298,022
Mortgage payable, individual, dated September, 1995, payable in monthly
installments of $7,875, including interest at 9% per annum, due August,
2000, collateralized by deed of trust
1,050,000 1,050,000
Mortgage payable individual, dated October, 1995, currently payable in
monthly installments of $14,764 including interest at 8% per annum,
interest rate adjustable to prime plus 2% on March, 1999, and every 3.5
years thereafter, not to exceed 12% or be less than 4%, remaining
principal due November, 2025, collateralized by deed of trust
2,055,484 2,066,704
Note payable, corporation, dated April, 1996, extended December, 1996
payable in minimum monthly installments of $46,166, interest payable at
12% per annum, remaining balance due April, 1997, collateralized by deed
of trusts and personal property
5,540,000 --
Note payable, corporation, redemption of preferred stock, unsecured, dated
July, 1996, interest payable at 18% per annum, principal and
interest due July, 1998 4,000,000 --
Note payable, corporation, dated October, 1995, payable in monthly
installments of $31,092 including interest at 11% per annum, with a final
payment due October, 1998, collateralized by gaming equipment
949,576 1,180,919
Notes payable, various corporations, dated March , 1995 to July, 1996,
payable in aggregate monthly installments of $18,550 including interest at
10.50% to 12% per annum, due January 1997 to July, 1999, collateralized by
various equipment
374,794 2,833
------------ -------------
14,254,924 4,598,478
Less current portion 6,015,931 279,794
------------ -------------
$8,238,993 $4,318,684
============ =============
</TABLE>
F-16
<PAGE>
F. LONG-TERM DEBT (Continued)
--------------------------
Future maturities of long-term debt are as follows at October 31, 1996:
<TABLE>
<CAPTION>
Years Ended October 31, Unrelated Related Party Total
------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
1997 $6,015,931 $7,676,209 $13,692,140
1998 4,832,276 412,125 5,244,401
1999 119,968 -- 119,968
2000 1,291,068 -- 1,291,068
2001 18,176 -- 18,176
Thereafter 1,977,505 -- 1,977,505
------------------ ------------------ ------------------
$14,254,924 $8,088,334 $22,343,258
================== ================== ==================
</TABLE>
G. CAPITAL LEASE OBLIGATIONS
--------------------------
<TABLE>
<CAPTION>
Capital lease obligations consist of the following at October 31, 1996:
(As Restated)
1996
-----------------
<S> <C>
Gaming equipment lease payable in monthly installments of $136,894
including interest imputed at 12% per annum. The lease expires in November,
1999 and is collateralized by gaming equipment with an approximate cost of
$4,121,532 and a book value of $3,892,558. $4,121,532
Equipment lease payable in monthly installments of $23,404 including
interest imputed at 14.39% per annum. The lease expires in August, 2001 and
is collateralized by various equipment, furniture and fixtures with an
approximate cost of $1,121,659 and a book value of $1,038,014. 1,076,443
Equipment leases payable in aggregate monthly installments totaling
$25,917 including interest imputed at 8% and 12% per annum. The leases
expire in August to October, 1999 and are collateralized by various
equipment with an approximate cost of $748,523 and a book value of
$717,574.
744,140
Equipment lease payable in monthly installments of $7,369 including
interest imputed at 8.87% per annum. The lease expires August, 1999 and is
collateralized by computer equipment with an approximate cost of $231,127
and a book value of $209,795. 220,837
Equipment leases payable in aggregate monthly installments totaling $4,909
including interest imputed at 12% per annum. The leases expire July to
September, 2001 and are collateralized by telephone and audio equipment
with an approximate cost of $215,660 and a book value of $204,877.
213,906
Equipment lease payable in monthly installments of $1,273 including
interest imputed at 13.85% per annum. The lease expires June, 1999 and is
collateralized by radio equipment with an approximate cost of $37,200 and
a book value of $32,506.
33,709
F-17
<PAGE>
G. CAPITAL LEASE OBLIGATIONS (continued)
--------------------------------------
(As Restated)
1996
----------------
<S> <C>
Vehicle lease payable in monthly installments of $2,755 including interest
imputed at 8.16% per annum. The lease expires October, 1999 and is
collateralized by vehicles with an approximate cost of $96,292 and a book
value of $91,477. 96,292
Equipment leases payable in aggregate monthly installments totaling $1,568
including interest imputed at 12% per annum. The leases expire May to
October, 1999 and are collateralized by computer equipment with an
approximate cost of $48,003 and a book value of $45,603. 42,879
-----------------
Total lease obligations 6,549,738
Less current portion 1,636,904
=================
$4,912,834
=================
</TABLE>
Future minimum lease payments under the leases are as follows at October
31, 1996:
<TABLE>
<CAPTION>
Years Ended October 31, Amount
----------------------- ------
<S> <C>
1997 $2,471,500
1998 2,471,500
1999 2,140,666
2000 362,200
2001 301,830
-------------------
Total future lease payments 7,747,696
Less amount representing interest 1,197,958
===================
$6,549,738
===================
</TABLE>
H. 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 principal amount of $4,500,000. The
convertible debenture bears interest at 7.05% per annum, with the
principle balance and any accrued interest due August 20, 1999 and is
collateralized by deeds of trust on the related property. The debenture
is convertible into 9,000,000 shares of Company common stock. The
conversion cannot be exercised prior to November 1, 1997. The balance of
accrued interest payable amounted to $699,739 and $376,297 at October
31, 1996 and 1995, respectively.
F-18
<PAGE>
I. CONVERTIBLE DEBENTURES
----------------------
Convertible debentures consist of the following at October 31, 1996:
<TABLE>
<S> <C>
10% Convertible Debenture, dated January, 1996, interest payable quarterly in
arrears, convertible in $10,000 increments at 80% of the market price of the
Company's common stock for the three business days prior to the date of the
holder's election to convert, any remaining principal balance on the first
anniversary date will automatically convert into common stock in the same manner $1,000,000
10% Convertible Debenture, dated March, 1996, interest payable quarterly in
arrears, convertible in $50,000 increments at the lesser of $4.50 per share or 80%
of the market price of the Company's common stock for the three business days prior
to the date of the holder's election to convert, any remaining principal balance on
the second anniversary date will automatically convert into common stock in the
same manner 1,500,000
--------------------
$2,500,000
====================
</TABLE>
J. STOCK OPTIONS
-------------
The following schedule details activity related to options and warrants
to officers and employees of the Company for the years ended October 31,
1996 and 1995, and the ten months ended October 31, 1994:
<TABLE>
<CAPTION>
Weighted Avg.
Shares Exercise Price
---------------- -------------------------
<S> <C> <C>
Options Outstanding, December 31, 1993 and
October 31, 1994 400,000 $1.00
Exercised (5,000) $1.00
Forfeited (155,000) $1.00
----------------
Options Outstanding, October 31, 1995 240,000 $1.00
Granted 817,500 $2.00
================
Options Outstanding, October 31, 1996 1,057,500 $1.77
================
</TABLE>
F-19
<PAGE>
J. STOCK OPTIONS (continued)
-------------------------
The following options and warrants are outstanding at October 31, 1996:
<TABLE>
<CAPTION>
Weighted Avg.
Number of Exercise Expiration
Shares Price Total Date
----------------- ----------------- --------------------------
-------------------
Options
-------------------
<S> <C> <C> <C> <C>
170,500 $2.00 341,000 August, 2000
165,500 $2.00 331,000 August, 2001
240,000 $1.00 240,000 August, 2002
165,500 $2.00 331,000 August, 2002
165,500 $2.00 331,000 August, 2003
150,500 $2.00 301,000 August, 2004
=================== ================= =================
1,057,500 $1.77 $1,875,000
=================== ================= =================
Warrants
-------------------
30,000 $3.00 $90,000 May, 1998
30,000 $3.00 90,000 January, 2001
=================== ================= =================
60,000 $3.00 $180,000
=================== ================= =================
</TABLE>
Total options and warrants exercisable at October 31, 1996 amounted to
20,000 shares for $3.00 per share.
K. INCOME TAXES
The tax effect of significant temporary differences and carrybacks which
gave rise to the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
(As Restated)
October 31, October 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Deferred Tax Assets-
Net operating loss carryforwards $1,107,000 $380,000
Cash basis tax assets 809,000 183,000
Capitalized construction carrying costs 127,000 50,000
----------------- -----------------
2,043,000 613,000
Valuation Allowance (2,043,000) (613,000)
================= =================
Net Deferred Tax Asset $NONE $NONE
================= =================
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
(As Restated) Ten Months
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994
------------------ ---------------- ------------------
<S> <C> <C> <C>
Deferred Federal Tax (Benefit) $(1,315,000) $(233,100) $(185,400)
Deferred State Tax (Benefit) (115,000) (25,900) (20,600)
Valuation Allowance 1,430,000 259,000 206,000
================== ================ ==================
Income Tax Expense $NONE $NONE $NONE
================== ================ ==================
</TABLE>
F-20
<PAGE>
K. INCOME TAXES (continued)
------------------------
The provision for income taxes differs from the amount of income tax
determined by applying the applicable statutory federal and state income
tax rates as a result of the following differences:
<TABLE>
<CAPTION>
(As Restated)
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994
------------------ ---------------- ------------------
<S> <C> <C> <C>
Federal tax at statutory rates $(1,315,000) $(157,100) $(128,700)
State tax, net of federal benefit (115,000) (15,900) (13,300)
(Tax) passed through to former S-
Corporation stockholders -- (86,000) (64,000)
Adjustment of the valuation
allowance 1,430,000 259,000 206,000
------------------ ---------------- ------------------
Income tax provision $NONE $NONE $NONE
================== ================ ==================
</TABLE>
At October 31, 1996, the Company has estimated net operating loss
carryforwards of approximately $2,954,000 available to offset taxable
income through 2011.
L. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying value of cash, temporary investments, short term
receivables and payables and long-term debt approximates their fair
value as of October 31, 1996 and 1995.
M. CURRENT VULNERABILITY DUE TO CONCENTRATIONS
-------------------------------------------
The majority of the Company's revenues are from slot machines and the
majority of the Company's customers are located in the Colorado Springs,
Colorado area. The Company is dependent on continued Limited Stakes
Gaming regulations, which allow gaming only in the mountain towns of
Cripple Creek, Black Hawk and Central City, Colorado, to maintain its
customer base.
N. COMMITMENTS AND CONTINGENCIES
-----------------------------
Leases
------
Creeker's exercised its option under a lease to purchase its casino land
and building on October 31, 1995, for $2,500,000. Total building rent
expense prior to exercising the option amounted to $225,000, and
$133,335 for the year ended October 31, 1995, and the ten months ended
October 31, 1994.
The Company leases office space under a non-cancelable lease agreement
expiring July 1998. Total rent expense amounted to $17,285, $13,500, and
$5,940 for the years ended October 31, 1996 and 1995, and the ten months
ended October 31, 1994. Future minimum lease payments are as follows:
Year Ended October 31 Amount
- --------------------------------------- ----------------
1997 $28,308
1998 21,231
================
$49,539
================
Land Option
-----------
Creeker's continues to have the option, under the building lease, to
purchase the parking lot behind the building for $750,000. The Company
may exercise the option at any time prior to the expiration of the
agreement on April 1, 1997.
F-21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,828,994
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 251,662
<CURRENT-ASSETS> 4,014,265
<PP&E> 40,647,779
<DEPRECIATION> 1,570,629
<TOTAL-ASSETS> 49,480,497
<CURRENT-LIABILITIES> 20,039,433
<BONDS> 0
0
2,500,000
<COMMON> 34,537
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,480,497
<SALES> 10,615,318
<TOTAL-REVENUES> 10,615,318
<CGS> 3,332,813
<TOTAL-COSTS> 11,758,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,807,995
<INCOME-PRETAX> (4,651,368)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,651,368)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,651,368)
<EPS-PRIMARY> 0.145
<EPS-DILUTED> 0.145
</TABLE>
