<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended: Commission file number:
JULY 31, 1996 0-14939
CROWN CASINO CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 63-0851141
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4040 N. MACARTHUR BLVD., SUITE 100, IRVING, TEXAS
(Address of principal executive offices)
75038-6424
(Zip Code)
(214) 717-3423
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Title of Each Class September 10, 1996
------------------- ------------------
<S> <C>
Common stock, par value $.01 per share 11,113,759
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS CROWN CASINO CORPORATION
<TABLE>
<CAPTION>
July 31, 1996 April 30,
(Unaudited) 1996
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 596,101 $ 668,853
Receivables 67,600 742,246
Prepaid expenses 35,212 49,766
Marketable equity securities 12,025,000
Debt securities 19,250,000
------------- -------------
Total current assets 31,973,913 1,460,865
------------- -------------
Property and equipment:
Furniture, fixtures and equipment 1,970,779 1,892,666
Land held for development 16,169,709 16,169,709
------------- -------------
18,140,488 18,062,375
Less accumulated depreciation (238,714) (194,179)
------------- -------------
17,901,774 17,868,196
------------- -------------
Note receivable from LRGP 20,000,000
------------- -------------
$ 49,875,687 $ 39,329,061
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,699 $ 72,773
Accrued liabilities 815,512 819,018
Income taxes payable 225,000
Capital lease obligations 4,833 6,329
Current portion of long-term debt 69,679 62,676
------------- -------------
Total current liabilities 1,197,723 960,796
------------- -------------
Long-term debt, less current portion 891,375 918,564
Deferred income taxes 4,745,000 4,000,000
Investment in SCGC 3,297,043
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized; none issued or outstanding
Common stock, par value $.01 per share, 50,000,000 shares authorized
11,558,659 issued and outstanding (11,650,559 at April 30, 1996) 115,587 116,506
Additional paid-in capital 41,548,420 41,784,088
Unrealized loss on securities (495,000)
Retained earnings (accumulated deficit) 1,872,582 (11,747,936)
------------- -------------
Total stockholders' equity 43,041,589 30,152,658
------------- -------------
$ 49,875,687 $ 39,329,061
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
1996 1995
------------- -------------
<S> <C> <C>
Revenues $ - $ -
Costs and expenses:
General and administrative 601,918 614,794
Gaming development 18,556 64,954
SCGC pre-opening and development 536,110
Depreciation and amortization 44,535 43,527
------------- -------------
665,009 1,259,385
------------- -------------
Other income (expense):
Interest expense (25,111) (965,417)
Interest income 601,095 495,679
Equity in loss of SCGC (940,035)
Gain on sale of SCGC 14,934,543 21,512,640
------------- -------------
15,510,527 20,102,867
------------- -------------
Income before income taxes 14,845,518 18,843,482
Provision for income taxes 1,225,000 8,098,000
------------- -------------
Net income $ 13,620,518 $ 10,745,482
============= =============
Earnings per share $ 1.16 $ .87
============= =============
Weighted average common and common
equivalent shares outstanding 11,781,160 12,318,684
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS CROWN CASINO CORPORATION
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
1996 1995
------------- -------------
<S> <C> <C>
Operating activities:
Net income $ 13,620,518 $ 10,745,482
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 44,535 43,527
Amortization of debt issuance costs/discount 389,360
Deferred income taxes 1,000,000 8,098,000
Equity in loss of SCGC 940,035
Gain on sale of SCGC (14,934,543) (21,512,640)
Changes in assets and liabilities, net of disposition:
Receivables 674,646 (212,189)
Prepaid expenses 14,554 (511,753)
Accounts payable and accrued liabilities (381,080) 1,428
Income taxes payable 225,000
------------- -------------
Net cash provided (used) by operating activities 263,630 (2,018,750)
------------- -------------
Investing activities:
Purchase of assets (78,113) (4,130,293)
------------- -------------
Net cash used by investing activities (78,113) (4,130,293)
------------- -------------
Financing activities:
Issuance of common stock 23,215
Purchase of common stock (236,587)
Advances from LRGP 4,627,897
Payments of debt and capital lease obligations (21,682) (40,386)
------------- -------------
Net cash provided (used) by financing activities (258,269) 4,610,726
------------- -------------
Decrease in cash and cash equivalents (72,752) (1,538,317)
Cash and cash equivalents at: Beginning of period 668,853 1,692,440
------------- -------------
End of period $ 596,101 $ 154,123
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CROWN CASINO CORPORATION
(UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1996
NOTE A - BASIS OF PRESENTATION
Crown Casino Corporation and subsidiaries (the "Company") is in the business of
owning, operating and developing casino properties. Presently the Company owns
an 18.6 acre tract of land in the gaming district of Las Vegas, Nevada, which
may be used in the development of a hotel and casino, and in June 1996 the
Company entered into a definitive asset purchase agreement to acquire the
Mississippi Belle II, Inc. ("MBII") riverboat casino located in Clinton, Iowa
(see Note C). On June 9, 1995 the Company sold a 50% interest in St. Charles
Gaming Company, Inc. ("SCGC"), which owns and operates a riverboat casino
located in Calcasieu Parish, Louisiana, to Louisiana Riverboat Gaming
Partnership ("LRGP") (see Note B). SCGC was originally acquired by the Company
in June 1993 and remained in the development stage until opening its riverboat
casino in July 1995. On May 3, 1996 the Company sold its remaining 50%
interest in SCGC to Casino America, Inc. ("Casino America"). The Company is
actively pursuing gaming opportunities in these and other jurisdictions.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended July 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended April 30, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended April 30, 1996.
NOTE B - SALE OF SCGC
On June 9, 1995 pursuant to a definitive stock purchase agreement, the Company
sold a 50% interest in SCGC to 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 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.
Casino America has agreed to register the 1,850,000 shares issued to the
Company in order that, providing such registration statement is effective, the
Company may sell such shares in the open market. The Company has given Casino
America an irrevocable proxy on the Casino America stock held by the Company,
and the right of first refusal to purchase any Casino America stock the Company
plans to sell in a single transaction of 500,000 shares or more, or in a series
of related transactions to a single purchaser within a 120 day period. In
connection with a rights offering declared by Casino America, the Company was
granted the right to purchase 684,786 shares of Casino America common stock at
a price of $5.875 per share. On August 6, 1996 the Company exercised its right
and purchased 684,786 shares of Casino America common stock for an aggregate
exercise price of $4,023,118.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and issued $315 million of
5
<PAGE> 6
12 1/2% senior secured notes due 2003 (the "Casino America Bonds"), a portion
of the proceeds of which was used to pay off Note A. As a result of the Casino
America transactions, Note B has become an unsecured, subordinated obligation
of Casino America, with interest payable monthly and principal due in seventeen
equal fully amortizing quarterly payments beginning in June 1997 with final
maturity in June 2001. The subordination language of Note B requires principal
and interest payments to be made according to the terms of the note unless
there is a payment default of (i) principal on, or (ii) interest on and a
resulting acceleration of, the Casino America Bonds, in which case payments to
the Company would be suspended during the pendency of such default.
Prior to June 9, 1995 SCGC's operating results were consolidated with the
Company. From June 9, 1995 (the date of sale of the first 50% interest in
SCGC) through May 2, 1996 (the day prior to the sale of the Company's remaining
50% interest in SCGC) the Company accounted for its investment in SCGC on the
equity method, and accordingly has included its proportionate share of SCGC's
operating results in its consolidated results of operations. SCGC's operating
results for the two days ended May 2, 1996 were not material. The Company's
gain before income taxes on the sale of SCGC is calculated as follows (in
thousands):
<TABLE>
<CAPTION>
Sale of Sale of
First 50% Second 50%
(June 1995) (May 1996)
----------- ----------
<S> <C> <C>
Consideration received in sale $ 21,000 $ 12,025
The Company's negative basis in stock sold 889 3,297
Transaction and other costs (376) (388)
-------- --------
Gain before income taxes on sale of SCGC $ 21,513 $ 14,934
======== ========
</TABLE>
Upon closing of the sale of its remaining 50% interest in SCGC on May 3, 1996,
the Company's investment in SCGC was eliminated. Other than a guarantee of
certain leases, for which the Company has been indemnified by LRGP and Casino
America, the Company is not liable for any obligations of SCGC.
During the three months ended July 31, 1995 the Company included approximately
$2 million of net costs and expenses, or approximately $.16 per share,
attributable to SCGC in its consolidated results of operations.
NOTE C - ACQUISITION OF MBII
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. The MBII riverboat casino, located in
Clinton, Iowa, has been owned and operated by members of the Kehl family
(Robert J. Kehl is a director of the Company), and has been profitable since
its opening in June of 1991. The MBII riverboat contains approximately 485
slot machines, 20 table games, and has on-board dining and entertainment
facilities. In connection with the agreement the Company will enter into
employment agreements with certain members of the Kehl family whereby MBII's
existing management will continue to operate the Clinton facility. For the
year ended December 31, 1995 MBII had revenues and pretax profits of $30.5
million and $9.5 million, respectively.
The agreement contemplates closing of the transaction no later than November
15, 1996, unless extended by the parties. Closing is subject to certain
conditions including financing arrangements and obtaining 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. In
September 1996 the Company executed a commitment letter with a major bank for a
$20 million loan, at the rate of prime plus 1%, to be used in the purchase of
MBII.
6
<PAGE> 7
NOTE D - COMMON STOCK
In March 1996 the Company's Board of Directors approved a program to repurchase
up to 500,000 shares (which was amended to 1,000,000 shares in May 1996) of the
Company's common stock from time to time in the open market. Through July 31,
1996 the Company had repurchased 116,900 shares pursuant to this program. The
timing and amount of future share repurchases, if any, will depend on various
factors including market conditions, available alternative investments and the
Company's financial position.
The weighted average common and common equivalent shares outstanding used in
the calculation of earnings per share includes 165,331 and 635,029 common
equivalent shares for the three months ended July 31, 1996 and 1995,
respectively.
NOTE E - EQUITY AND DEBT SECURITIES
Equity and debt securities consisted of the following at July 31, 1996:
<TABLE>
<CAPTION>
Fair Market Unrealized
Value Cost Basis Loss
------------ ------------ -----------
<S> <C> <C> <C>
Casino America common stock (1,850,000 shares) $ 12,025,000 $ 12,025,000 $ -
Note A receivable from LRGP 10,000,000 10,000,000 -
Note B receivable from LRGP 9,250,000 10,000,000 (750,000)
------------ ------------ -----------
$ 31,275,000 $ 32,025,000 (750,000)
============ ============
Tax benefit for unrealized loss at 34% 255,000
-----------
Net unrealized loss included in stockholders' equity $ (495,000)
===========
</TABLE>
The cost basis of the 1,850,000 shares of Casino America common stock held by
the Company was determined based upon the average of the high and low bid
prices of such stock as quoted on the NASDAQ National Market System on the date
of closing (May 3, 1996), discounted to reflect that such shares were not
registered. The fair market value of the 1,850,000 shares of Casino America
common stock was determined based upon the average of the high and low bid
prices of such stock as quoted on the NASDAQ National Market System on July 31,
1996, discounted to reflect that such shares were not registered. Included in
the 1,850,000 shares of Casino America common stock owned by the Company are
85,000 shares which are held by an escrow agent as a deposit in connection with
the proposed acquisition of MBII (see Note C).
The fair market value of Note B at July 31, 1996 is not readily determinable
since such note was issued in a private transaction and is not traded, nor is
the Company aware of a security with similar terms that does trade. However,
on August 6, 1996, in connection with Casino America's issuance of the Casino
America Bonds, Note A was paid off and Note B became an obligation of Casino
America. Interest on Note B is payable monthly at 11 1/2% per annum, and
principal is due in seventeen equal fully amortizing payments beginning in June
1997 with final maturity in June 2001. Based upon the 12 1/2% yield of the
Casino America Bonds at issuance, and factoring in an estimated premium for the
differences in security, ranking and liquidity, management believes the fair
market value of Note B was approximately $9,250,000 at July 31, 1996. The fair
market value of Note A was deemed to be equal to its face value on July 31,
1996 since its payoff was imminent on such date.
During the three months ended July 31, 1996 management determined, principally
as a result of entering into a definitive asset purchase agreement to acquire
MBII (see Note C), that the Company was likely to sell or otherwise dispose of
Notes A and B prior to their scheduled maturity in June 2001. Accordingly,
such securities are deemed "available-for-sale" and are carried at their
estimated fair market value, with any unrealized gains or losses being reported
as a separate component of stockholders' equity.
7
<PAGE> 8
NOTE F - COMMITMENTS AND CONTINGENCIES
Litigation
On September 21, 1994 an action was filed against the Company and SCGC in the
24th Judicial District Court for the Parish of Jefferson, Louisiana by Avondale
Industries, Inc. ("Avondale"). In this action Avondale alleges that the
Company was contractually obligated to Avondale for the construction of SCGC's
riverboat vessel based upon a letter of intent (allegedly reaffirming a
previous agreement entered into between Avondale and SCGC). Avondale alleges
that the Company breached a duty to negotiate in good faith toward the
execution of a definitive vessel construction contract. Alternatively,
Avondale alleges that a separate oral contract for the construction of the
vessel existed and that the Company committed unspecified unfair trade
practices and made certain misrepresentations. Avondale seeks unspecified
damages including "all lost profits and lost overhead" and attorneys fees.
Avondale has claimed its lost profits and lost overhead amount to approximately
$2.5 million. The Company intends to vigorously contest liability in this
matter. While no assurance can be given as to the ultimate outcome of this
litigation, management believes that this litigation will not have a material
adverse effect on the Company.
Severance Agreements
In July 1996 the Board of Directors of the Company authorized the Company to
enter into severance agreements with three of its executive officers which
provide for payments to the executives in the event of their termination after
a change in control, as defined, of the Company. These agreements will
provide, among other things, for a compensation payment equal to 2.99 times the
annual compensation paid to the executive as well as accelerated vesting of
options under the Company's incentive stock option plan.
Louisiana Local Option Referendums
As of August 6, 1996 the Company was the holder of 2,534,786 shares of Casino
America common stock and a $10 million note receivable from Casino America.
Casino America currently operates four gaming facilities, two in Mississippi
and two in Louisiana. In April 1996 Louisiana gaming statutes were modified to
provide for a local option vote to decide whether or not to continue riverboat
gaming, video draw poker and the New Orleans land-based casino. The vote will
be conducted on a parish-by-parish basis in November 1996 with separate votes
for each form of gaming. The discontinuation of riverboat gaming in Bossier
Parish or Calcasieu Parish would have a material adverse effect on Casino
America and, to the extent the Company continues to hold a material amount of
securities of Casino America, the Company. Based upon published polls, the
Company believes that the vote to continue riverboat gaming in the two parishes
in which Casino America operates will be approved, although there can be no
assurance as to the outcome of the referendums.
NOTE G - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures are as follows for the three months ended
July 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended
July 31,
1996 1995
----------- -----------
<S> <C> <C>
Note received for sale of first 50% interest in SCGC $20,000,000
Stock received for sale of second 50% interest in SCGC $12,025,000
Interest paid, net of amount capitalized 33,493 1,045,162
</TABLE>
8
<PAGE> 9
CROWN CASINO CORPORATION
PRO-FORMA FINANCIAL INFORMATION
PREPAYMENT OF NOTE A AND CASINO AMERICA STOCK PURCHASE
On or about August 6, 1996 Casino America acquired the remaining interest in
Louisiana Riverboat Gaming Partnership 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.
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 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.
The pro-forma information is 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.
9
<PAGE> 10
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.
10
<PAGE> 11
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.
11
<PAGE> 12
CROWN CASINO CORPORATION
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES)
BALANCE SHEET
<TABLE>
<S> <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>
STATEMENT 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>
<S> <C>
Eliminate existing interest expense $ 125
Interest expense on $20,000 of bank debt at 9.25% (463)
Amortization of debt issuance costs (33)
-------
$ (371)
=======
</TABLE>
12
<PAGE> 13
j - To adjust interest income as follows:
<TABLE>
<S> <C>
To eliminate interest income on Note A $ (288)
To eliminate MBII interest income on a note receivable not being purchased (132)
-------
$ (420)
=======
</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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere in this report.
OVERVIEW
The Company owns an 18.6 acre tract of land in the gaming district of Las
Vegas, Nevada which may be used in the development of a hotel and casino, and
in June 1996 the Company entered into a definitive asset purchase agreement to
acquire the Mississippi Belle II, Inc. ("MBII") riverboat casino located in
Clinton, Iowa. The Company is also actively pursuing other gaming
opportunities in these and other jurisdictions.
In June 1993 the Company completed the acquisition of 100% of the outstanding
common stock of St. Charles Gaming Company, Inc. ("SCGC"), a Louisiana
corporation, which had received preliminary approval from the Louisiana
Riverboat Gaming Commission to construct and operate a riverboat gaming casino.
In March 1994 SCGC received a license from the Louisiana Riverboat Gaming
Enforcement Division of the Office of State Police. In January 1995 SCGC made
the strategic decision to relocate the site for its planned Louisiana riverboat
casino from St. Charles Parish (near New Orleans) to Calcasieu Parish in the
southwest part of the state near the Texas border.
In June 1995 the Company sold a 50% interest in SCGC to Louisiana Riverboat
Gaming Partnership ("LRGP"), a joint venture then owned 50% by Casino America,
Inc. ("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 note (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 the Company
recorded a pretax gain of approximately $21.5 million. In July 1995 SCGC's
riverboat casino opened for business in Calcasieu Parish, Louisiana as an Isle
of Capri(SM) themed property.
In May 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.
In August 1996 Casino America acquired the remaining interest in LRGP it did
not already own and issued $315 million of 12 1/2% senior secured notes due
2003 (the "Casino America Bonds"), a portion of the proceeds of which was used
to pay off Note A. As a result of the Casino America transactions, Note B has
become an unsecured, subordinated obligation of Casino America, with interest
payable monthly and principal due in seventeen equal fully amortizing quarterly
payments beginning in June 1997 with final maturity in June 2001. The
subordination language of Note B requires principal and interest payments to be
made according to the terms of the note unless there is a payment default of
(i) principal on, or (ii) interest on and a resulting acceleration of, the
Casino America Bonds, in which case the payments to the Company would be
suspended during the pendency of such default.
The original Casino America warrant received in the sale of the first 50% of
SCGC and the additional Casino America warrant received in the sale of the
remaining 50% of SCGC, both of which expire in May 2001, may only be exercised
by converting all or a portion of the principal amount of Note B based upon a
$12 per share exercise price.
In connection with a rights offering declared by Casino America, the Company
was granted the right to purchase 684,786 shares of Casino America common stock
at a price of $5.875 per share. On August 6, 1996 the Company exercised its
right and purchased 684,786 shares of Casino America common stock for an
aggregate exercise price of $4,023,118.
In June 1996 the Company entered into a definitive asset purchase agreement to
acquire the assets and operations of the MBII riverboat casino located in
Clinton, Iowa for a purchase price of $40 million. The MBII riverboat contains
approximately 485 slot machines, 20 table games and has on-board dining and
entertainment facilities. For the year ended December 31, 1995 MBII had
revenues and pretax profits of $30.5 million and $9.5 million, respectively.
See Note C.
14
<PAGE> 15
RESULTS OF OPERATIONS
Prior to June 9, 1995 SCGC's operating results were consolidated with the
Company. From June 9, 1995 (the date of sale of the first 50% interest in
SCGC) to May 2, 1996 (the day prior to the sale of the Company's remaining 50%
interest in SCGC), the Company accounted for its investment in SCGC on the
equity method, and accordingly has included its proportionate share of SCGC's
operating results in its consolidated results of operations. Accordingly,
operating results for the current and prior fiscal quarters are not entirely
comparable.
THREE MONTHS ENDED JULY 31, 1996 COMPARED TO THE THREE MONTHS ENDED
JULY 31, 1995
General and administrative expenses for the three months ended July 31, 1996
decreased $12,876 compared to the same period in the prior fiscal year. The
decrease was a result of lower legal and consulting costs, partially offset by
higher travel, rent and franchise taxes. Gaming development costs for the
three months ended July 31, 1996 decreased $46,398 compared to the same period
in the prior fiscal year principally as a result of the Company ceasing to
pursue a riverboat gaming license in the State of Illinois. SCGC pre-opening
and development costs for the three months ended July 31, 1996 decreased
$536,110 compared to the same period in the prior fiscal year as a result of
the Company no longer consolidating SCGC's operating results from and after
June 9, 1995.
Interest expense for the three months ended July 31, 1996 decreased $940,306
compared to the same period in the prior fiscal year. The decrease was the
result of the Company no longer consolidating SCGC's operating results from and
after June 9, 1995. Interest income for the three months ended July 31, 1996
increased $105,416 compared to the same period in the prior fiscal year. The
increase was the result of interest being recognized in the current fiscal
period on $20 million of notes receivable from LRGP for a full fiscal quarter,
whereas in the prior fiscal period such $20 million receivable was not
outstanding during the entire period.
LIQUIDITY AND CAPITAL RESOURCES
As of August 6, 1996 after (i) the sale of the Company's remaining 50% interest
in SCGC, (ii) receiving a $10 million prepayment on Note A, and (iii)
purchasing an additional 684,786 shares of Casino America common stock, the
Company's sources of liquidity included (a) $6.1 million in cash, (b) the sale
of all or a portion of the Company's 2,534,786 shares of Casino America common
stock (which stock was valued at approximately $18.4 million on such date), (c)
the sale of Note B, (d) the sale of the Company's Las Vegas land, and (e) the
issuance of debt and/or equity. See "Overview".
In August 1996 Casino America filed a registration statement with the
Securities and Exchange Commission to register the 1,850,000 shares of Casino
America common stock received by the Company in the sale of the Company's
remaining 50% interest in SCGC, which registration statement has not as yet
been declared effective. During the effectiveness of such registration
statement the Company may sell such shares in the open market. The 684,786
shares of Casino America common stock purchased by the Company pursuant to the
Casino America rights offering are freely tradable shares and may be sold by
the Company at any time.
In connection with the proposed acquisition of the MBII riverboat casino the
Company anticipates raising the $40 million 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 Casino America common stock, (iv) the sale of
the Company's Las Vegas land, and/or (v) the sale of Note B.
In March 1996 the Company's Board of Directors approved a program to repurchase
up to 500,000 shares (which was amended to 1,000,000 shares in May 1996) of the
Company's common stock from time to time in the open market. At July 31, 1996
the Company had repurchased 116,900 shares pursuant to this program. The
timing and amount of future share repurchases, if any, will depend on various
factors including market conditions, available alternative investments and the
Company's financial position.
Management of the Company continues to evaluate the potential development of a
hotel and casino project on the Company's 18.6 acre tract of land in Las Vegas.
Management is considering a variety of scenarios with respect to the operation
and ownership of the proposed hotel and casino, including a potential joint
venture relationship, but currently has no definitive development plan in
place. In connection with the stock purchase agreement with LRGP, the Company
granted LRGP a right of first refusal, which expires in June 1998, to develop
such project with the Company in the event the Company chooses to
15
<PAGE> 16
develop such project on a joint venture basis. In addition to seeking an
acceptable joint venture arrangement, the Company has considered selling its
Las Vegas land and has had discussions with certain parties in that regard,
although no agreement has been reached with any party respecting such a sale.
16
<PAGE> 17
CROWN CASINO CORPORATION
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 21, 1994 an action was filed against the Company and SCGC in the
24th Judicial District Court for the Parish of Jefferson, Louisiana by Avondale
Industries, Inc. ("Avondale"). In this action, Avondale alleges that the
Company was contractually obligated to Avondale for the construction of SCGC's
riverboat vessel based upon a letter of intent (allegedly reaffirming a
previous agreement entered into between Avondale and SCGC). Avondale alleges
that the Company breached a duty to negotiate in good faith toward the
execution of a definitive vessel construction contract. Alternatively,
Avondale alleges that a separate oral contract for the construction of the
vessel existed and that the Company committed unspecified unfair trade
practices and made certain misrepresentations. Avondale seeks unspecified
damages including "all lost profits and lost overhead" and attorneys fees.
Avondale has claimed its lost profits and lost overhead amount to approximately
$2.5 million. The Company intends to vigorously contest liability in this
matter. While no assurance can be given as to the ultimate outcome of this
litigation, management believes that this litigation will not have a material
adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 Financial data schedule (filed herewith)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed in the first quarter
of the current fiscal year.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CROWN CASINO CORPORATION
By: /s/ MARK D. SLUSSER
------------------------------------
Mark D. Slusser
Chief Financial Officer, Vice
President Finance and Secretary
(Principal Financial and Accounting
Officer)
Dated: September 12, 1996
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 596,101
<SECURITIES> 12,025,000
<RECEIVABLES> 19,317,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,973,913
<PP&E> 18,140,488
<DEPRECIATION> (238,714)
<TOTAL-ASSETS> 49,875,687
<CURRENT-LIABILITIES> 1,197,723
<BONDS> 0
<COMMON> 115,587
0
0
<OTHER-SE> 42,926,002
<TOTAL-LIABILITY-AND-EQUITY> 49,875,687
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 620,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,111
<INCOME-PRETAX> 14,845,518
<INCOME-TAX> 1,225,000
<INCOME-CONTINUING> 13,620,518
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,620,518
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
