<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) OCTOBER 8, 1996
--------------------------------
CROWN CASINO CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 63-0851141 0-14939
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4040 NORTH MACARTHUR BOULEVARD, SUITE 100, IRVING, TEXAS 75038
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (972) 717-3423
------------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 11, 1996, Crown Casino Corporation (the "Company") entered into a
definitive Asset Purchase Agreement to acquire the assets and operations of
Mississippi Belle II, Inc. ("MBII"), which operates a riverboat casino in
Clinton, Iowa, for a purchase price of $40 million. The principal shareholders
of MBII are the adult children of Robert J. Kehl, a director of the Company.
In connection with the Agreement, the Company is expected to enter into
employment agreements with certain members of the Kehl Family (other than
Robert J. Kehl) whereby MBII's existing management will continue to operate the
Clinton, Iowa facility. Closing of the transaction is subject to certain
conditions, including completion of financing arrangements and receiving the
approval of the Iowa Racing and Gaming Commission. In connection with the
agreement the Company made a deposit by placing 85,000 shares of Casino America
common stock owned by the Company in an escrow account. If the Company fails
to close the acquisition, under certain circumstances, it could forfeit up to
$750,000. The Agreement contemplates a closing no later than November 15, 1996,
subject to extension by agreement of the parties.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
The following financial statements of Mississippi Belle II,
Inc. are hereby filed with this Report:
Independent Auditors' Report
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the years ended December
31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December
31, 1995, 1994, and 1993
Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Notes to Financial Statements
Balance Sheet as of July 31, 1996 (unaudited)
Statements of Operations for the seven months ended
July 31, 1996 and 1995 (unaudited)
Statements of Cash Flows for the seven months ended
July 31, 1996 and 1995 (unaudited)
Notes to Financial Statements (unaudited)
(b) Pro Forma financial information.
The following pro forma financial statements of the Company
are hereby filed with this Report:
Introduction to Pro Forma Financial Statements
Pro Forma Consolidated Balance Sheet (unaudited) as
of July 31, 1996
Pro Forma Consolidated Statement of Operations
(unaudited) for the year ended April 30, 1996
Pro Forma Consolidated Statement of Operations
(unaudited) for the three months ended July
31, 1996
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibits:
2.1 - Asset Purchase Agreement dated June 11, 1996 by and
between Crown Casino Corporation, Mississippi Belle
II, Inc., Roberts River Rides, Inc., Kenneth J.
Bonnet, Christina M. Kehl, Daniel J. Kehl, Kevin A.
Kehl, Robert A. Kehl and Cynthia A. Winter, including
Guaranty Agreement (incorporated by reference from
Annual Report on Form 10-K for the year ended April
30, 1996, Exhibit 2.3).
24.1 - Consent of Honkamp Krueger & Co.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
By: \s\ Mark D. Slusser
----------------------------
Mark D. Slusser
Chief Financial Officer
Dated: October 8, 1996
-----------------------------
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Mississippi Belle II, Inc.
Clinton, Iowa
We have audited the accompanying balance sheets of Mississippi Belle II, Inc.
as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Mississippi Belle II, Inc., as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
Dubuque, Iowa Honkamp Krueger & Co.
January 31, 1996
F-1
<PAGE> 5
MISSISSIPPI BELLE II, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,161,853 $ 1,533,483
Other current assets 263,590 204,031
Due from affiliates 19,886 156,116
Notes receivable from related parties 1,200,000 7,370,000
------------- -------------
Total current assets 4,645,329 9,263,630
------------- -------------
Property and equipment:
Property and equipment 5,345,102 4,566,524
Less accumulated depreciation (1,009,188) (278,650)
------------- -------------
4,335,914 4,287,874
------------- -------------
Long-term notes receivable, less current maturities 4,279,695
------------- -------------
$ 13,260,938 $ 13,551,504
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,527,137 $ 1,417,428
Deferred revenue 48,916 51,231
Due to affiliates 199,974
Notes payable to related parties 50,000
Current maturities of long-term debt 1,021,443 678,151
------------- -------------
Total current liabilities 2,647,496 2,346,784
------------- -------------
Long-term debt, less current maturities 6,211,812 5,821,849
Stockholders' equity:
Common stock, no par value, authorized
50,000 shares, issued 6,250 shares 625,000 625,000
Retained earnings 3,776,630 4,757,871
------------- -------------
Total stockholders' equity 4,401,630 5,382,871
------------- -------------
$ 13,260,938 $ 13,551,504
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 6
MISSISSIPPI BELLE II, INC.
Statements of Operations
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Revenue:
Casino $ 28,333,936 $ 15,197,869 $ 8,896,822
Food and beverage 1,929,189 961,145 694,924
Other 233,690 235,693 321,582
------------- ------------- ------------
30,496,815 16,394,707 9,913,328
------------- ------------- ------------
Costs and expenses:
Casino 18,109,085 8,801,185 5,510,703
Food and beverage 1,150,554 722,795 554,505
General and administrative 1,168,378 1,293,803 505,447
Depreciation 730,888 371,639 438,608
------------- ------------- ------------
21,158,905 11,189,422 7,009,263
------------- ------------- ------------
Other income (expense):
Interest income 835,021 193,720 15,716
Interest expense (653,880) (242,372) (19,179)
Gain (loss) on sale of assets (150) 16,960
Leasehold abandonment (291,478)
------------- ------------- ------------
180,991 (323,170) (3,463)
------------- ------------- ------------
Net income $ 9,518,901 $ 4,882,115 $ 2,900,602
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 7
MISSISSIPPI BELLE II, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Operating activities:
Net income $ 9,518,901 $ 4,882,115 $ 2,900,602
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 730,888 371,639 438,608
Leasehold abandonment 291,478
(Gain) loss on sale of assets 150 (16,960)
Changes in assets and liabilities:
Other current assets (59,559) (151,291) 18,587
Due from/to affiliates (63,744) 174,926 (339,046)
Accounts payable and accrued liabilities 109,709 957,826 215,842
Deferred revenue (2,315) 16,291 6,615
------------- ------------- ------------
Net cash provided by operating activities 10,234,030 6,526,024 3,241,208
------------- ------------- ------------
Investing activities:
Purchase of property and equipment (782,078) (3,131,488) (512,758)
Sale of equipment 3,000 31,585
Advances on notes receivable from related parties (276,000) (16,349,546) (489,194)
Payments received on notes receivable from related parties 2,166,305 9,468,740
------------- ------------- ------------
Net cash provided (used) by investing activities 1,111,227 (9,980,709) (1,001,952)
------------- ------------- ------------
Financing activities:
Issuance of common stock 625,000
Purchase of common stock (1,650,000)
Payment of dividends (10,500,142) (964,999) (1,921,052)
Issuance of long-term debt 1,500,000 6,500,000
Payments on long-term debt (766,745)
Issuance of (payments on) short-term debt 50,000 (885,000) 885,000
------------- ------------- ------------
Net cash provided (used) by financing activities (9,716,887) 4,650,001 (2,061,052)
------------- ------------- ------------
Net increase in cash and cash equivalents 1,628,370 1,195,316 178,204
Cash and cash equivalents at: Beginning of period 1,533,483 338,167 159,963
------------- ------------- ------------
End of period $ 3,161,853 $ 1,533,483 $ 338,167
============= ============= ============
Supplemental disclosure of cash flow information:
Interest paid $ 685,614 $ 154,694 $ 18,706
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 8
MISSISSIPPI BELLE II, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Total
Common Retained Stockholders'
Stock Earnings Equity
-------------- ----------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1992 $ 85,000 $ 1,426,205 $ 1,511,205
Net income 2,900,602 2,900,602
Dividends paid (1,921,052) (1,921,052)
Redemption of 350 shares of stock (85,000) (1,565,000) (1,650,000)
Issuance of 6,250 shares of stock 625,000 625,000
-------------- ----------------- ---------------
Balance at December 31, 1993 625,000 840,755 1,465,755
Net income 4,882,115 4,882,115
Dividends paid (964,999) (964,999)
-------------- ----------------- ---------------
Balance at December 31, 1994 625,000 4,757,871 5,382,871
Net income 9,518,901 9,518,901
Dividends paid (10,500,142) (10,500,142)
-------------- ----------------- ---------------
Balance at December 31, 1995 $ 625,000 $ 3,776,630 $ 4,401,630
============== ================= ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 9
Mississippi Belle II, Inc.
Notes to Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Mississippi Belle II, Inc. (the "Company") is involved in the
operation of a riverboat casino in Clinton, Iowa.
Casino Revenue
Casino revenue is the net win from gaming activities, which is the
difference between gaming wins and losses.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with original maturities of three months or less to be cash
equivalents.
Allowance for Doubtful Accounts
Accounts receivable balances were $62,811 and $59,569 at December 31,
1995 and 1994, respectively. These balances are included in "other
current assets" on the balance sheet. Generally accepted accounting
principles require an allowance for doubtful accounts to be provided
for in the financial statements when the possibility of bad debts
included in accounts receivable is deemed to be material. Based on
past experience and management's analysis of accounts receivable at
December 31, 1995, and December 31, 1994, the estimate of bad debts
pertaining to such accounts receivable is deemed to be immaterial.
Therefore, an allowance for doubtful accounts is not provided for in
these financial statements.
Property and Equipment
Property and equipment are carried at cost and are depreciated over
their estimated useful lives, ranging from 5 to 39 years, using the
straight-line method.
Income Taxes
The Company, with the consent of its shareholders, has elected under
the Internal Revenue Code and similar provisions of the Iowa income
tax law, to be an S Corporation. In lieu of corporation income taxes,
the shareholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, these statements do
not include any provision for corporation income taxes.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform with the 1995 financial statement
presentation.
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 disclosure of contingent assets and liabilities at the
date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Values
Statement of Financial Accounting Standards No., 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair
value information about financial instruments, whether or not
recognized in the statement of financial condition. Statement No. 107
excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements.
The Company estimates that the fair value of all financial instruments
at December 31, 1995 and 1994, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheets. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgement is
required in interpreting market data to develop the
F-6
<PAGE> 10
estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize
in a current market exchange.
NOTE 2. - CLINTON COUNTY GAMING ASSOCIATION, LTD. CONTRACT
The Company has negotiated a contract extension with Clinton County Gaming
Association, Ltd. ("CCGA") whereby, in return for the right to operate an
excursion gambling riverboat for three excursion seasons (commencing May 1,
1994 and expiring April 30, 1997) under gambling licenses held by the CCGA, the
Company pays CCGA an annual fee calculated as follows:
<TABLE>
<S> <C>
$ .54 For each of the first 50,000 passengers
1.08 For each of the next 50,000 passengers
1.35 For each passenger thereafter
</TABLE>
For the three years ended December 31, 1995, 1994 and 1993 the Company paid
CCGA fees of $896,708, $546,869, and $273,976, respectively.
NOTE 3. - LONG-TERM DEBT AND PLEDGED ASSETS
On October 31, 1994, the Company entered into a joint credit agreement with
Robert's River Rides, Inc. ("RRR"), an affiliate of the Company by virtue of
common ownership, and Clinton National Bank. The Company and RRR are the joint
borrowers and Clinton National Bank is the lender. The Company is carrying the
full amount of the debt on its balance sheet. RRR's share of the debt is
included on the balance sheet of the Company as a note receivable due from RRR.
(see Note 4).
Long-term debt at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Note payable, Clinton National Bank, due in
monthly installments of $105,998. This note
carries a variable interest rate at 0.50% over
the predominant national prime rate as published
in the Wall Street Journal (9.25% as of December
31, 1995). This note matures November 1, 2001,
at which time all unpaid principal and interest is
due, and is secured by (i) a preferred ship mortgage
on the vessel, (ii) the assignment of leases, (iii) the
personal guarantee of the shareholders, and (iv)
substantially all other assets of the Company. $ 5,777,735 $ 6,500,000
Note payable, East Dubuque Savings Bank, due
in monthly installments of $32,170. This note
carries a variable interest rate at 1.5% over the
First National Bank of Chicago prime rate (10.0%
as of December 31, 1995). This note matures
October 1, 2000, at which time all unpaid principal
and interest is due. The note is secured by (i) all assets
of the Company, (ii) the stock of Kehl Development
Corporation, and (iii) the assets of RRR under a third
party pledge agreement. 1,455,520
----------- ------------
7,233,255 6,500,000
Less current maturities 1,021,443 678,151
----------- ------------
$ 6,211,812 $ 5,821,849
=========== ===========
</TABLE>
F-7
<PAGE> 11
At December 31, 1995 maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------------
<S> <C>
1996 $ 1,021,443
1997 1,122,098
1998 1,232,686
1999 1,354,187
2000 1,391,320
Thereafter 1,111,521
------------
$ 7,233,255
============
</TABLE>
NOTE 4. - RELATED PARTY TRANSACTIONS
The Company has leased an excursion riverboat known as M/V Mississippi Belle II
from RRR. The term of the lease expires December 31, 1997. Under the
agreement, annual rent is $1,800,000 payable at $150,000 per month. Under the
terms of the lease, the Company incurred the costs of equipping the boat for
gambling activities.
Notes receivable from related parties at December 31, 1995 consisted of one
note due from an affiliate related through common ownership. The note,
representing RRR's share of the long-term debt under a joint credit agreement
with Clinton National Bank (see Note 3), is unsecured, due on demand, and bears
interest at a fixed annual rate of 9.25%. The balance of the note was
$5,479,695 and $5,750,000 at December 31, 1995 and 1994, respectively.
The Company also held a second note in the amount of $1,620,000 at December 31,
1994, which was unsecured, due on demand, and subject to a variable interest
rate of .5% over the national prime rate as published in the Wall Street
Journal. The note was paid off during 1995.
Notes payable to related parties at December 31, 1995 consisted of amounts due
to shareholders of $50,000. Interest is payable annually at the rate of prime
plus 1/2%, adjusted on January 1, April 1, July 1, and October 1 of each year,
with interest calculated on a 360-day year. The notes are payable on demand.
Payments to RRR, an affiliated company with common ownership, were as follows
for the three years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Management fees $ 200,000
Rent of office and storage space $ 9,163 $ 9,996 53,996
Contract fees for reservation system 120,000
Food and beverage purchases 41,638 554,504
Rent of riverboat 1,539,120 430,890 318,000
------------ ----------- ------------
$ 1,548,283 $ 482,524 $ 1,246,500
============ =========== ============
</TABLE>
F-8
<PAGE> 12
NOTE 5. - RECONCILIATION OF CASINO RECEIPTS TO AMOUNT REPORTED TO THE IOWA
RACING AND GAMING COMMISSION
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Casino revenue per statements of operation $ 28,333,936 $ 15,197,869 $ 8,896,822
Slot machine drop count adjustment to actual
taken into 1995 income on the operating
statement and reported to IRGC in January,
1996. 20,100
Slot machine drop count adjustment to actual
taken into 1994 income on the operating
statement and reported to IRGC in January,
1995. 9,319 (9,319)
Slot machine drop count adjustment to actual
taken into 1993 income on the operating
statement and reported to IRGC in January,
1994. 18,008 (18,008)
Progressive slot liability and bad beat adjustment
not included in computation of casino receipts
reported to the IRGC. 44,456 21,650 1,165
Correction of Carribean Stud revenue reported in
error on December 26, 1994, weekly tax report.
Corrected on January 29, 1995, weekly tax report. (2,199) 2,199
Correction of error in reporting of the nickel drop
on the October 4, 1994, weekly tax report. (6,885) 6,885
------------- ------------- -------------
Casino receipts reported to IRGC $ 28,398,727 $ 15,237,292 $ 8,879,979
============ ============= ============
</TABLE>
NOTE 6. - PENSION PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code. Under the plan, employees may
elect to defer up to fifteen percent (15%) of their salary, subject to Internal
Revenue Service limits. The Company contributes a matching fifty percent (50%)
of the first two percent (2%) of employee contributions. In addition, the plan
allows for the Company to make discretionary contributions based on the
participants' salary. Company matching contributions to the plan amounted to
approximately $12,000, $12,500 and $-0- for the years ended December 31, 1995,
1994 and 1993, respectively. There were no discretionary contributions to the
401(k) plan during the years ended December 31, 1995, 1994 or 1993.
NOTE 7. - UNINSURED BALANCES
The Company maintains cash balances at several area banks. Cash accounts at
banks are insured by the Federal Deposit Insurance Corporation ("FDIC") for up
to $100,000. Amounts in excess of insured limits were approximately $1,380,000
at December 31, 1995. Management believes that credit risk related to deposits
in excess of FDIC limits is minimal.
F-9
<PAGE> 13
NOTE 8. - LEASING ARRANGEMENTS
The Company leases various equipment and the riverboat known as M/V Mississippi
Belle II under operating leases. Equipment leases call for payments to be made
ranging from $500 to $3,500 per month with leases expiring in 1996 and 1997.
The riverboat lease expires in 1997, and calls for payments of $150,000 per
month. The future minimum rental payments required under these leases during
the years ending December 31, are summarized as follows:
1996 $ 2,069,230
1997 2,068,420
------------
$ 4,137,650
============
Rent expense was $1,588,220, $456,981 and $409,595 for the years ended December
31, 1995, 1994 and 1993, respectively.
F-10
<PAGE> 14
MISSISSIPPI BELLE II, INC.
BALANCE SHEET
JULY 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 2,905,556
Other current assets 634,362
Due from affiliates 3,041
Current portion of note receivable from RRR 1,200,000
-------------
Total current assets 4,742,959
-------------
Property and equipment:
Property and equipment 5,644,270
Less accumulated depreciation (1,452,257)
-------------
4,192,013
-------------
Note receivable from RRR, less current maturities 3,993,159
-------------
$ 12,928,131
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,517,955
Deferred revenue 35,623
Notes payable to related parties 180,000
Current maturities of long-term debt 840,101
-------------
Total current liabilities 2,573,679
-------------
Long-term debt, less current maturities 4,486,279
Stockholders' equity:
Common stock, no par value, authorized
50,000 shares, issued 6,250 shares 625,000
Retained earnings 5,243,173
-------------
Total stockholders' equity 5,868,173
-------------
$ 12,928,131
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 15
MISSISSIPPI BELLE II, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Seven Months Ended July 31,
1996 1995
------------- ------------
<S> <C> <C>
Revenue:
Casino $ 17,122,377 $ 16,609,967
Food and beverage 1,047,655 1,163,977
Other 105,304 141,900
------------- ------------
18,275,336 17,915,844
------------- ------------
Costs and expenses:
Casino 10,975,023 10,033,199
Food and beverage 638,542 689,615
General and administrative 844,966 576,183
Depreciation 444,305 730,782
------------- ------------
12,902,836 12,029,779
------------- ------------
Other income (expense):
Interest income 300,098 447,937
Interest expense (321,707) (357,026)
------------- ------------
(21,609) 90,911
------------- ------------
Net income $ 5,350,891 $ 5,976,976
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 16
MISSISSIPPI BELLE II, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Seven Months Ended July 31,
1996 1995
------------- -----------
<S> <C> <C>
Operating activities:
Net income $ 5,350,891 $ 5,976,976
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 444,305 730,782
(Gain) loss on sale of assets 672 (920)
Changes in assets and liabilities:
Other current assets (370,772) 3,628
Due from/to affiliates 16,845 (408,432)
Accounts payable and accrued liabilities (9,182) (528,591)
Deferred revenue (13,293) (18,229)
------------- -----------
Net cash provided by operating activities 5,419,466 5,755,214
------------- -----------
Investing activities:
Purchase of property and equipment (303,196) (380,201)
Sale of equipment 2,120 3,000
Advances on notes receivable from related parties (3,344,500)
Payments received on notes receivable from related parties 286,536 2,029,905
------------- -----------
Net cash provided (used) by investing activities (14,540) (1,691,796)
------------- -----------
Financing activities:
Payment of dividends (3,884,348) (3,947,373)
Issuance of long-term debt 1,500,000
Payments on long-term debt (1,906,875) (503,045)
Issuance of (payments on) short-term debt 130,000
------------- -----------
Net cash used by financing activities (5,661,223) (2,950,418)
------------- -----------
Net increase (decrease) in cash and cash equivalents (256,297) 1,113,000
Cash and cash equivalents at: Beginning of period 3,161,853 1,533,483
------------- -----------
End of period $ 2,905,556 $ 2,646,483
============= ===========
Supplemental disclosure of cash flow information:
Interest paid $ 335,828 $ 431,933
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 17
Mississippi Belle II, Inc.
Notes to Financial Statements
FOR THE SEVEN MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Mississippi Belle II, Inc. (the "Company") is involved in the
operation of a riverboat casino in Clinton, Iowa.
Casino Revenue
Casino revenue is the net win from gaming activities, which is the
difference between gaming wins and losses.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased
with original maturities of three months or less to be cash
equivalents.
Allowance for Doubtful Accounts
Accounts receivable balances were $87,792 and $54,543 at July 31, 1996
and 1995, respectively. These balances are included in "other
current assets" on the balance sheet. Generally accepted accounting
principles require an allowance for doubtful accounts to be provided
for in the financial statements when the possibility of bad debts
included in accounts receivable is deemed to be material. Based on
past experience and management's analysis of accounts receivable at
July 31, 1996 and 1995, the estimate of bad debts pertaining to such
accounts receivable is deemed to be immaterial. Therefore, an
allowance for doubtful accounts is not provided for in these financial
statements.
Property and Equipment
Property and equipment are carried at cost and are depreciated over
their estimated useful lives, ranging from 5 to 39 years, using the
straight-line method.
Income Taxes
The Company, with the consent of its shareholders, has elected under
the Internal Revenue Code and similar provisions of the Iowa income
tax law, to be an S Corporation. In lieu of corporation income taxes,
the shareholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, these statements do
not include any provision for corporation income taxes.
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 disclosure of contingent assets and liabilities at the
date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair Values
Statement of Financial Accounting Standards No., 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of fair
value information about financial instruments, whether or not
recognized in the statement of financial condition. Statement No. 107
excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements.
The Company estimates that the fair value of all financial instruments
at July 31, 1996 does not differ materially from the aggregate
carrying values of such financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgement is
required in interpreting market data to develop the estimates of fair
value, and, accordingly, the estimates are not necessarily indicative
of the amounts that the Company could realize in a current market
exchange.
F-14
<PAGE> 18
NOTE 2. - CLINTON COUNTY GAMING ASSOCIATION, LTD. CONTRACT
The Company has negotiated a contract extension with Clinton County Gaming
Association, Ltd. ("CCGA") whereby, in return for the right to operate an
excursion gambling riverboat for three excursion seasons (commencing May 1,
1994 and expiring April 30, 1997) under gambling licenses held by CCGA, the
Company pays CCGA an annual fee calculated as follows:
$ .54 For each of the first 50,000 passengers
1.08 For each of the next 50,000 passengers
1.35 For each passenger thereafter
For the seven months ended July 31, 1996 and 1995 the Company paid CCGA fees of
$494,273 and $504,827, respectively.
NOTE 3. - LONG-TERM DEBT AND PLEDGED ASSETS
On October 31, 1994, the Company entered into a joint credit agreement with
Robert's River Rides, Inc. ("RRR"), an affiliate of the Company by virtue of
common ownership, and Clinton National Bank. The Company and RRR are the joint
borrowers and Clinton National Bank is the lender. The Company is carrying the
full amount of the debt on its balance sheet. RRR's share of the debt is
included on the balance sheet of the Company as a note receivable due from RRR.
(see Note 4).
<TABLE>
<S> <C>
Long-term debt at July 31, 1996 was as follows:
Note payable, Clinton National Bank, due in
monthly installments of $105,998. This note
carries a variable interest rate at 0.50% over
the predominant national prime rate as published
in the Wall Street Journal (8.75% as of July
31, 1996). This note matures November 1, 2001,
at which time all unpaid principal and interest is
due, and is secured by (i) a preferred ship mortgage
on the vessel, (ii) the assignment of leases, (iii) the
personal guarantee of the shareholders, and (iv)
substantially all other assets of the Company. $ 5,326,380
Note payable, East Dubuque Savings Bank, due
in monthly installments of $32,170. This note
carries a variable interest rate at 1.5% over the
First National Bank of Chicago prime rate (9.75%
as of July 31, 1996). The note matures
October 1, 2000, however, such note was
retired early in May 1996.
------------
5,326,380
Less current maturities 840,101
------------
$ 4,486,279
============
</TABLE>
F-15
<PAGE> 19
At July 31, 1996 maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Calendar
Year Amount
---- -----------
<S> <C>
1996 $ 340,103
1997 946,732
1998 957,414
1999 1,044,382
2000 1,138,750
Thereafter 898,999
-----------
$ 5,326,380
===========
</TABLE>
NOTE 4. - RELATED PARTY TRANSACTIONS
The Company has leased an excursion riverboat known as M/V Mississippi Belle II
from RRR. The term of the lease expires December 31, 1997. Under the current
agreement, annual rent is $1,800,000, payable at $150,000 per month, plus
applicable sales tax. Under the terms of the lease, the Company incurred the
costs of equipping the boat for gambling activities.
Note receivable from RRR at July 31, 1996 represents RRR's share of the debt
under a joint credit agreement with Clinton National Bank (see Note 3). The
note is unsecured, due on demand, and bears interest at a fixed annual rate of
9.25%. The balance of the note was $5,193,159 at July 31, 1996.
Notes payable to related parties at July 31, 1996 consisted of amounts due to
shareholders of $180,000. Interest is payable annually at the rate of prime
plus 1/2%, adjusted on January 1, April 1, July 1, and October 1 of each year,
with interest calculated on a 360-day year. The notes are payable on demand.
Payments to RRR, an affiliated company with common ownership, were as follows
for the seven months ended July 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Rent of office and storage space $ 1,400 $ 9,239
Rent of riverboat 1,113,000 897,820
------------ ------------
$ 1,114,400 $ 907,059
============ ============
</TABLE>
NOTE 5. - PENSION PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code. Under the plan, employees may
elect to defer up to fifteen percent (15%) of their salary, subject to Internal
Revenue Service limits. The Company contributes a matching fifty percent (50%)
of the first two percent (2%) of employee contributions. In addition, the plan
allows for the Company to make discretionary contributions based on the
participants' salary. There were no matching or discretionary contributions to
the 401(k) plan during the seven months ended July 31, 1996 and 1995.
F-16
<PAGE> 20
NOTE 6. - UNINSURED BALANCES
The Company maintains cash balances at several area banks. Cash accounts at
banks are insured by the Federal Deposit Insurance Corporation ("FDIC") for up
to $100,000. Amounts in excess of insured limits were approximately $2,805,556
at July 31, 1996. Management believes that the credit risk related to deposits
in excess of FDIC limits is minimal.
NOTE 7. - LEASING ARRANGEMENTS
The Company leases various equipment and the riverboat known as M/V Mississippi
Belle II under operating leases. Equipment leases call for payments to be made
ranging from $500 to $3,500 per month with leases expiring in 1996 and 1997.
The riverboat lease expires in 1997, and calls for payments of $150,000 per
month, plus applicable sales tax. The future minimum rental payments required
under these leases as of July 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Calendar
Year Amount
---- ------------
<S> <C>
1996 $ 895,740
1997 2,068,420
------------
$ 2,964,160
============
</TABLE>
Rent expense was $1,146,363 and $925,870 for the seven months ended July 31,
1996 and 1995, respectively.
F-17
<PAGE> 21
CROWN CASINO CORPORATION
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
SALE OF SCGC
On June 9, 1995 pursuant to a definitive stock purchase agreement, the Company
sold a 50% interest in St. Charles Gaming Company, Inc. ("SCGC") to Louisiana
Riverboat Gaming Partnership ("LRGP"), a joint venture then owned 50% by Casino
America and 50% by Louisiana Downs, Inc. LRGP owns the Isle of Capri(SM)
dockside riverboat casino in Bossier City, Louisiana. The purchase price
consisted of (i) a five-year $20 million non-recourse note with interest
payable monthly at 11.5% per annum and secured by LRGP's 50% interest in SCGC
(the "LRGP Note"), (ii) $1 million cash, and (iii) a warrant (which may only be
exercised by converting a portion of the LRGP Note) to purchase 416,667 shares
of Casino America common stock at $12 per share. In connection with this
transaction, in June 1995, the Company recorded a gain before income taxes of
approximately $21.5 million.
On May 3, 1996 the Company sold its remaining 50% interest in SCGC to Casino
America for (i) 1,850,000 shares of Casino America common stock, (ii) the
exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note
B ("Note B"), each in the principal amount of $10 million and bearing interest
at 11.5% per annum, and (iii) an additional five- year warrant to purchase up
to another 416,667 shares of Casino America common stock (bringing the total
number of shares purchasable pursuant to warrants by the Company to 833,334) at
an exercise price of $12 per share. In connection with this transaction, in
May 1996, the Company recorded a gain before income taxes of approximately
$14.9 million.
PREPAYMENT OF NOTE A AND CASINO AMERICA STOCK PURCHASE
On or about August 6, 1996 Casino America acquired the remaining interest in
LRGP it did not already own and issued $315 million of senior secured notes, a
portion of the proceeds of which was used to pay off Note A in the amount of
$10 million. Also on such date, pursuant to a rights offering declared by
Casino America, the Company exercised its right and purchased 684,786 shares of
Casino America common stock for an aggregate exercise price of $4,023,118. As
a result of the Casino America transactions, Note B has become an unsecured,
subordinated obligation of Casino America.
PENDING ACQUISITION OF MISSISSIPPI BELLE II
On June 11, 1996 the Company entered into a definitive asset purchase agreement
to acquire the assets and operations of Mississippi Belle II, Inc. ("MBII") for
a purchase price of $40 million. MBII has been operating a riverboat casino
in Clinton, Iowa since June of 1991. Closing of the transaction is subject to
certain conditions including financing arrangements and obtaining the approval
of the Iowa Racing and Gaming Commission. The Company anticipates raising the
purchase price from some combination of (i) the issuance of $20 million of
debt to a bank for which the Company has received a commitment letter, (ii)
cash on hand, (iii) the sale of all or a portion of the Company's 2,534,786
shares of Casino America common stock, (iv) the sale of the Company's Las Vegas
land, and/or (v) the sale of Note B. For purposes of these pro forma financial
statements, it is assumed that the Company's sources of cash to pay the
purchase price will come from (i) issuing $20 million of debt to a bank, (ii)
selling all of its Casino America common stock at market value, and (iii) using
cash on hand for the balance of the purchase price. There can be no assurance
that the purchase of MBII will be completed, or that the sources of cash to pay
the purchase price will not differ from the assumptions used herein.
PRO FORMA FINANCIAL STATEMENTS
The following Pro Forma Consolidated Balance Sheet of the Company as of July
31, 1996 gives effect to (i) the prepayment of Note A, (ii) the purchase of
684,786 shares of Casino America common stock, and (iii) the acquisition of
MBII, as if such transactions had occurred on such date.
The following Pro Forma Consolidated Statement of Operations of the Company for
the year ended April 30, 1996 gives effect to (i) the prepayment of Note A,
(ii) the purchase of 684,786 shares of Casino America common stock, and (iii)
the acquisition of MBII, as if such transactions had occurred on May 1, 1995.
P-1
<PAGE> 22
The following Pro Forma Consolidated Statement of Operations of the Company for
the three months ended July 31, 1996 gives effect to (i) the prepayment of Note
A, (ii) the purchase of 684,786 shares of Casino America common stock, and
(iii) the acquisition of MBII, as if such transactions had occurred on May 1,
1996.
While the Pro Forma Statement of Operations of the Company for the year ended
April 30, 1996 assumes certain events occurred on May 1, 1995, they do not
assume the first and second sale of 50% of SCGC occurred on such date, even
though a portion of the proceeds from the sale of SCGC is assumed to be used in
the purchase of MBII.
The pro forma financial statements are based on the historical financial
statements of the Company and MBII giving effect to the transactions described
above and the adjustments described in the accompanying Notes to Pro-Forma
Consolidated Financial Statements, and may not be indicative of the results
that actually would have occurred had the transactions taken place on the dates
indicated or the results which may be obtained in the future.
P-2
<PAGE> 23
CROWN CASINO CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
UNAUDITED
JULY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Note A
Prepayment
Historical and Stock Acquisition Pro Forma
Crown Purchase of MBII Consolidated
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 596 $ 5,977 (a) $ (3,924)(f) $ 2,649
Other current assets 103 300 403
Marketable equity securities 12,025 4,451 (b) (16,476)
Debt securities 19,250 (10,000)(c) 9,250
--------- --------- --------- --------
Total current assets 31,974 428 (20,100) 12,302
--------- --------- --------- --------
Property and equipment:
Furniture, fixtures and equipment 1,971 5,700 7,671
Riverboat 10,000 10,000
Land, buildings and improvements 1,700 1,700
Land held for development 16,170 16,170
--------- --------- --------- --------
18,141 17,400 35,541
Less accumulated depreciation (239) (239)
--------- --------- --------- --------
17,902 17,400 35,302
--------- --------- --------- --------
Goodwill and other 22,700 22,700
--------- --------- --------- --------
$ 49,876 $ 428 $ 20,000 $ 70,304
========= ======== ========= ========
Current liabilities:
Accounts payable and accrued liabilities $ 898 $ 898
Income taxes payable 225 $ 1,746 (d) 1,971
Debt and capital lease obligations 75 $ 2,600 2,675
--------- --------- --------- --------
Total current liabilities 1,198 1,746 2,600 5,544
--------- --------- --------- --------
Long-term debt, less current portion 891 17,400 18,291
Deferred income taxes 4,745 (1,600)(d) 3,145
Stockholders' equity 43,042 282 (e) 43,324
--------- --------- -------- --------
$ 49,876 $ 428 $ 20,000 $ 70,304
========= ========= ======== ========
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements.
P-3
<PAGE> 24
CROWN CASINO CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1996
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Historical Pro Forma
Crown MBII Adjustments Consolidated
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 28,776 $ 28,776
Food and beverage 1,855 1,855
Other 171 171
--------- ---------
30,802 30,802
--------- ---------
Costs and expenses:
Casino 18,669 $ (1,662)(g) 17,007
Food and beverage 1,108 1,108
General and administrative $ 3,042 1,360 4,402
Gaming development 216 216
SCGC pre-opening and development 536 536
Bourbon Street acquisition abandonment 665 665
Depreciation and amortization 131 566 1,710 (h) 2,407
--------- --------- -------- ---------
4,590 21,703 48 26,341
--------- --------- -------- ---------
Other income (expense):
Interest expense (1,009) (660) (1,323)(i) (2,992)
Interest income 2,293 749 (1,851)(j) 1,191
Equity in loss of SCGC (2,408) (2,408)
Gain on sale of first 50% of SCGC 21,513 21,513
--------- --------- -------- ---------
20,389 89 (3,174) 17,304
--------- --------- -------- ---------
Income before income taxes 15,799 9,188 (3,222) 21,765
Provision for income taxes 3,500 2,386 (k) 5,886
--------- --------- -------- ---------
Net income $ 12,299 $ 9,188 $ (5,608) $ 15,879
========= ========= ======== =========
Earnings per share $ 1.03 $ 1.33
========= =========
Weighted average common and common
equivalent shares outstanding 11,982 11,982
========= =========
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements.
P-4
<PAGE> 25
CROWN CASINO CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1996
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Historical Pro Forma
Crown MBII Adjustments Consolidated
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 7,249 $ 7,249
Food and beverage 479 479
Other 65 65
-------- ---------
7,793 7,793
-------- ---------
Costs and expenses:
Casino 4,652 $ (477)(g) 4,175
Food and beverage 292 292
General and administrative $ 602 346 948
Gaming development 19 19
Depreciation and amortization 44 190 379 (h) 613
--------- -------- -------- ---------
665 5,480 (98) 6,047
--------- -------- -------- ---------
Other income (expense):
Interest expense (25) (125) (371)(i) (521)
Interest income 601 132 (420)(j) 313
Gain on sale of remaining 50% of SCGC 14,935 14,935
--------- -------- -------- ---------
15,511 7 (791) 14,727
--------- -------- -------- ---------
Income before income taxes 14,846 2,320 (693) 16,473
Provision for income taxes 1,225 651 (k) 1,876
--------- -------- -------- ---------
Net income $ 13,621 $ 2,320 $ (1,344) $ 14,597
========= ======== ======== =========
Earnings per share $ 1.16 $ 1.24
========= =========
Weighted average common and common
equivalent shares outstanding 11,781 11,781
========= =========
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Statements.
P-5
<PAGE> 26
CROWN CASINO CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES)
BALANCE SHEET
<TABLE>
<S> <C> <C>
a - Proceeds from the prepayment of Note A $ 10,000
Purchase of 684.8 shares of Casino America common stock (4,023)
--------
$ 5,977
========
b - Market value per share of Casino America common stock $ 6.50
Number of Casino America shares purchased 684.8
--------
$ 4,451
========
c - To reflect the prepayment of Note A.
d - Reclassification of deferred income taxes to income taxes payable upon the
prepayment of Note A which for income tax purposes has been treated
as an installment sale. $ 1,600
Income tax on unrealized gain of Casino America common stock ($428 x 34%) 146
--------
$ 1,746
========
e - Unrealized gain on the purchase of Casino America common stock $ 428
Less income tax on unrealized gain at 34% (146)
--------
$ 282
========
f - Payment of purchase price of MBII $(40,000)
Payment of debt issuance costs (400)
Proceeds from bank borrowings 20,000
Proceeds from sale of Casino America common stock 16,476
--------
Cash on hand used in acquisition $ (3,924)
========
</TABLE>
STATEMENTS OF OPERATIONS
g - To eliminate rent paid by MBII to lease the riverboat from a related
party. Since the riverboat will be acquired by the Company in the
acquisition the rent payments will be eliminated.
h - To adjust MBII depreciation and amortization to reflect a stepped-up
basis in the assets of MBII upon its acquisition by the Company.
i - To adjust MBII interest expense as follows:
<TABLE>
<CAPTION>
3 Month 12 Month
Period Period
---------- ----------
<S> <C> <C>
Eliminate existing interest expense $ 125 $ 660
Interest expense on $20,000 of bank debt at 9.25% (463) (1,850)
Amortization of debt issuance costs (33) (133)
------- -------
$ (371) $(1,323)
======= =======
</TABLE>
P-6
<PAGE> 27
j - To adjust interest income as follows:
<TABLE>
<CAPTION>
3 Month 12 Month
Period Period
---------- ----------
<S> <C> <C>
To eliminate interest income on Note A $ (288) $ (1,102)
To eliminate MBII interest income on a note
receivable not being purchased (132) (749)
------- ---------
$ (420) $ (1,851)
======= ========
</TABLE>
k - To record a provision for income taxes on the income before income
taxes of MBII and the adjustments described above based upon a 40%
effective income tax rate. MBII is currently a subchapter S
corporation and does not pay corporate income taxes. Upon completing
the acquisition the Company anticipates it will cause MBII to become a
subchapter C corporation and file a consolidated income tax return
with the Company.
P-7
<PAGE> 28
EXHIBIT INDEX
Exhibit 24.1 Consent of Honkamp Krueger & Co.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS EXHIBIT 24.1
We consent to the inclusion of our report dated Janaury 31, 1996, on the
financial statements of Mississippi Belle II, Inc. for the years ended December
31, 1995, 1994 and 1993, in the current report of Crown Casino Corporation on
Form 8-K dated on or about October 8, 1996.
Dubuque, Iowa Honkamp Krueger & Co.
October 7, 1996
