<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------
Date of Report (Date of earliest event reported) May 3, 1996
-----------
CASINO AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20538 41-1659606
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.
711 Washington Loop Biloxi, Mississippi 39530
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (601) 436-7000
------------------------------
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements. Page
----
St. Charles Gaming Company, Inc.
Unaudited Balance Sheet January 31, 1996....................... 1
Unaudited Statements of Operations for the nine months ended
January 31, 1996 and 1995.................................... 3
Unaudited Statements of Cash Flows for the nine months ended
January 31, 1996 and 1995.................................... 4
Notes to Unaudited Financial Statements........................ 5
St. Charles Gaming Company, Inc. Financial Statements with
Report of Independent Accountants for the eight months ended
December 31, 1995 and the year ended April 30, 1995
Balance Sheets December 31, 1995 and April 30, 1995.......... 11
Statements of Operations for the eight months ended
December 31, 1995 and the year ended April 30, 1995........ 13
Statement of Stockholders' Equity (Deficit) for the
eight months ended December 31, 1995 and the year
ended April 30, 1995....................................... 14
Statements of Cash Flows for the eight months ended
December 31, 1995 and the year ended April 30, 1995........ 15
Notes to Financial Statements................................ 16
St. Charles Gaming Company, Inc.
(A Development Stage Enterprise)
Balance Sheets April 30, 1995 and April 30, 1994............. 31
Statements of Operations for periods indicated............... 32
Statements of Cash Flows for periods indicated............... 33
Statements of Stockholders' Equity (Deficit) for the
period from June 25, 1993 (acquisition date) to
April 30, 1994 and the year ended April 30, 1995........... 34
Notes to Financial Statements................................ 35
St. Charles Gaming Company, Inc.
(A Development Stage Enterprise)
Financial Statements and Independent Auditors' Report for the
Period from January 18, 1993 (Date of Inception)
Through June 24, 1993
Balance Sheet June 24, 1993.................................. 43
Statement of Operations...................................... 44
Statement of Changes in Stockholders' Equity................. 45
Statement of Cash Flows...................................... 46
Notes to Financial Statements................................ 47
(b) Pro Forma Financial Information.
Unaudited Pro Forma Financial Data............................... 49
SIGNATURES................................................................. 55
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
UNAUDITED BALANCE SHEET
January 31, 1996
<TABLE>
<CAPTION>
January 31,
ASSETS 1996
--------------
<S> <C>
Current assets:
Cash and cash equivalents $ 2,749,721
Accounts receivable:
Gaming, net of allowance for uncollectible accounts of $48,177 337,093
Related parties 42,697
Inventories 107,995
Prepaid expenses 387,957
Debt issuance costs, net of accumulated amortization 601,064
--------------
Total current assets 4,226,527
--------------
Property and equipment:
Building 248,232
Land and land improvements 2,479,280
Leasehold improvements 17,421,874
Furniture, fixtures and equipment 10,548,508
Construction in progress 16,489,548
Riverboat and barges 18,102,403
--------------
65,289,845
Less accumulated depreciation (2,003,506)
--------------
Total net property and equipment 63,286,339
--------------
Other assets:
License costs, net of accumulated amortization 8,927,025
Noncompete agreement, net of accumulated amortization 241,677
Other 18,171
Deferred tax asset 1,367,301
--------------
Total other assets 10,554,174
--------------
Total assets $ 78,067,040
==============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
1
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
UNAUDITED BALANCE SHEET, Continued
January 31, 1996
<TABLE>
<CAPTION>
January 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1996
-------------
<S> <C>
Current liabilities:
Progressive and casino liability $ 618,558
Accounts payable:
Related parties 1,304,053
Trade 2,829,008
Accrued liabilities 4,342,091
Capital lease obligations 2,736,178
Notes payable:
Related parties 41,547,035
Other 30,021,313
-------------
Total current liabilities 83,398,236
-------------
Capital lease obligations, less current portion 1,645,767
Stockholder's deficit:
Common stock, no par value, 100,000 shares authorized,
issued and outstanding 5,600,000
Additional paid-in-capital 13,985,388
Accumulated deficit (26,562,351)
-------------
Total stockholder's deficit (6,976,963)
-------------
Total liabilities and stockholder's deficit $ 78,067,040
=============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
2
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
UNAUDITED STATEMENTS OF OPERATIONS
for the nine months ended January 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Casino $ 35,194,302
Food, beverage and other 227,626
------------
Total revenue 35,421,928
------------
Operating expenses:
Pre-opening and development 4,195,653 $ 4,667,334
St. Charles Parish site abandonment 3,131,359
Casino 6,600,940
Gaming taxes 8,457,790
Food, beverage and other 1,556,586
Marine and facilities 2,230,442
Marketing and administrative 12,861,945
Management fees to related party 940,756
Depreciation and amortization 2,261,914 83,084
------------ ------------
Total operating expenses 39,106,026 7,881,777
------------ ------------
Operating loss (3,684,098) (7,881,777)
Interest expense 4,399,699 4,783,841
Loss before income taxes (8,083,797) (12,665,618)
Benefit for income taxes (1,367,301) (2,827,483)
------------ ------------
Net loss $ (6,716,496) $ (9,838,135)
============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
3
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
for the nine months ended January 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,716,496) $ (9,838,135)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,261,914 83,084
Provision for bad debts 48,177
Amortization of debt issuance costs/discount 609,393 2,298,499
Write-down of assets 3,131,359
Deferred income taxes (1,367,301) (2,827,483)
(Increase) decrease in:
Accounts receivable (427,967)
Inventories (107,995)
Prepaid expenses 381,570 (1,072,192)
Other assets (18,171)
Increase in:
Accounts payable and accrued liabilities 6,967,457 905,719
Progressive and casino liability 618,558
------------ ----------------
Net cash provided by (used in) operating activities 2,249,139 (7,319,149)
------------ -----------------
Cash flows from investing activities:
Purchase of property and equipment (40,740,208) (7,218,983)
------------ ---------------
Net cash used in investing activities (40,740,208) (7,218,983)
------------- ---------------
Cash flows from financing activities:
Capital contributions from Crown 6,900,000
Advances from Crown 8,501
Payments to Crown (11,673,191)
Advances from LRGP 34,770,277
Issuance of debt 30,021,313 28,000,000
Debt issuance costs (864,495) (1,558,407)
Payments of debt and capital lease obligations (22,704,328) (7,068,086)
------------- ---------------
Net cash provided by financing activities 41,231,268 14,600,316
------------- --------------
Increase in cash and cash equivalents 2,740,199 62,184
Cash and cash equivalents, beginning of period 9,522 23,027
------------ --------------
Cash and cash equivalents, end of period $ 2,749,721 $ 85,211
============ ==============
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
4
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Organization and Description of Business:
----------------------------------------
St. Charles Gaming Company, Inc., a Louisiana corporation (the "Company"),
was incorporated on January 18, 1993 for the purpose of operating a
riverboat gaming casino to be based in St. Charles Parish, Louisiana (near
New Orleans). In January 1995, the Company changed its riverboat berthing
site from St. Charles Parish to Calcasieu Parish, Louisiana (near Lake
Charles).
Effective June 25, 1993, the Company was acquired by Crown Casino
Corporation ("Crown"). Effective June 9, 1995, Crown sold a 50% interest in
the Company to Louisiana Riverboat Gaming Partnership ("LRGP"), a joint
venture owned 50% by Casino America, Inc. ("Casino America") and 50% by
Louisiana Downs, Inc. Effective May 3, 1996 Casino America purchased Crown
Casino's remaining 50% interest in the Company (see Note 4). LRGP owns the
Isle of Capri dockside riverboat casino in Bossier City, Louisiana.
The Company commenced operations effective July 29, 1995. Prior to that
time, the Company's activities were focused on the pursuit of a riverboat
gaming license and other regulatory approvals, the raising of capital, the
construction of the riverboat casino and land based facilities, and the
development of the project in general.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. 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 period ended January 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended April 30, 1996. For further
information, refer to St. Charles Gaming Company Inc.'s financial
statements and footnotes for the eight months ended December 31, 1995 and
for the year ended April 30, 1995.
Accounting 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 and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
5
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS, Continued
2. Operating Environment:
---------------------
The Company operates in a highly regulated and competitive environment
which is currently facing political uncertainty. The Louisiana Riverboat
Gaming Commission and the Enforcement Division oversee virtually every
aspect of riverboat gaming in the State of Louisiana including the issuance
and renewal of riverboat gaming licenses. Management believes the Company's
license will be renewed at the end of the initial term. However, due to
other uncertainties surrounding gaming in the State of Louisiana which are
discussed below, renewal of the license cannot be guaranteed.
Additionally, the gaming industry in the State of Louisiana has recently
received national media attention primarily as a result of the commencement
of a federal investigation of certain legislative members and the recent
bankruptcy of a gaming company in the Louisiana market. In response to
these and other incidents, the Louisiana governor called a special session
of the State legislature to consider the gaming statutes governing
riverboat gaming, video-poker and the New Orleans' land-based casino. The
outcome of this session resulted in a local option vote to be conducted on
a parish by parish basis in November 1996, with separate votes for
riverboat gaming, video poker and the New Orleans land-based casino. Based
on recent published polls, management of the Company believes that the
riverboat gaming operations in Calcasieu Parish will not be negatively
impacted. However, the Company cannot accurately predict the ultimate
outcome of this election in Calcasieu Parish or how such election could
affect the Company's operations or the carrying value of certain of its
long-lived assets.
3. Debt:
----
At January 31, 1996, the Company had the following debt outstanding:
<TABLE>
<CAPTION>
<S> <C>
Senior Secured Increasing Rate Note ("New Notes" $38,400,000) $ 30,021,313
Note payable to LRGP 15,000,000
Note payable to LRGP 21,847,035
Note payable to Casino America (the "Casino America Notes") 4,700,000
-------------
$ 71,568,348
=============
</TABLE>
In June 1994, the Company issued a $28,000,000 Senior Secured Increasing
Rate Note (the "Senior Note") to an institutional investor. The Senior Note
was initially due on June 3, 1995, but was subsequently extended to
August 31, 1995 and carried a 12% coupon increasing 67 basis points each
quarter up to a maximum interest rate of 14%.
6
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS, Continued
On August 7, 1995, the Company and LRGP (collectively, the "Issuers")
jointly issued $38,400,000 of Senior Secured Increasing Rate Notes (the "New
Notes"), the proceeds of which were used to retire the Senior Note
($21,900,000) and certain LRGP obligations ($8,400,000). The balance of the
proceeds were used in the development of the Calcasieu Parish project. The
New Notes initially become due on July 27, 1996, but can be extended up to
an additional twelve months at the option of the Issuers provided no event
of default has occurred and is continuing, carry a 12% coupon which
increases 25 basis points each quarter until maturity, and provide for
contingent interest beginning in June 1996 equal to 7.5% of the Issuers'
consolidated cash flow, as defined. The New Notes are collateralized by
substantially all the assets of the Issuers and contain covenants relating
to certain business, operational and financial matters including limitations
on (i) incurring additional debt, (ii) paying dividends, (iii) merging or
consolidating with others, (iv) changes in control, (v) capital
expenditures, (vi) investments and joint ventures, and (vii) the sale of
assets, and financial covenants pertaining to (a) minimum cash flow,
(b) minimum fixed ch arge ratio, (c) maximum leverage ratio, and
(d) minimum net worth.
As of January 31, 1996, the Issuers were not in compliance with certain
financial covenants provided for in the Note Purchase Agreement pertaining
to the New Notes. However, effective May 3, 1996 the Company obtained
waivers from the institutional lender for the lack of compliance. The
violations were waived through the effective date of the waivers.
Additionally, in conjunction with the Company obtaining these waivers, the
New Note Agreement was amended to reflect less stringent financial covenants
going forward and to allow the Company to enter into and modify certain
agreements in conjunction with the Company's purchase of Crown Casino's
remaining 50% and the Grand Palais Riverboat transaction. In management's
opinion the Company will be able to comply with the terms of th e amended
agreement and as such does not currently anticipate future events of
noncompliance.
In the event the Company fails to comply with these amended covenants, the
Note Purchase Agreement provides that the lender has the right, upon the
giving of notice, to (among other things) cause an acceleration of the
maturity date of all amounts outstanding under the Note Purchase Agreement.
Management believes that the Company will be able to comply with these
amended covenants and as such acceleration of the repayment obligations is
not expected to occur. However, in the event the Company does fail to comply
with the amended and restated Note Purchase Agreement, and such repayment
obligations are accelerated, SCGC and LRGP will need to locate other sources
of capital in order to meet such repayment obligations, and there can be no
assurance that such sources will be available, or be available on terms
acceptable to LRGP and SCGC.
7
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS, Continued
In May 1995, the Company issued a promissory note to LRGP to facilitate
advances of up to $15,000,000. The note bears interest at 11.5% per annum,
and is due three business days after the New Notes are paid in full. The
proceeds from the issuance of the note have been used to develop the
Calcasieu Parish project.
In October 1995, the Company issued a promissory note to LRGP to facilitate
additional advances of up to $25,000,000. The note bears interest at 11.5%
per annum and is due in four equal quarterly installments beginning three
months after retirement of the New Notes. However, the Company shall only
be obligated to make principal and interest payments to the extent the
Company has cash available to make such payments. The proceeds are
currently being utilized to develop the Calcasieu project.
In March 1995, the Company issued promissory notes aggregating $4,700,000
to Casino America (the "Casino America Notes"). The Casino America Notes
bear interest at 11.5% per annum and are due three business days after
the New Notes are paid in full.
As noted above and in the accompanying balance sheet, the Company has
current debt obligations that significantly exceed its available cash
resources. The Company has obtained waivers for past events of
noncompliance from the institutional lender and does not currently believe
it is probable that future events of noncompliance will occur. As noted
above, the New Notes may be extended at the original maturity date pending
no additional events of noncompliance The related party notes payable are
subordinate to the New Notes. The Company is also currently considering a
restructuring of all of its current debt obligations. While management
believes such restructuring can be completed, there can be no assurance
that restructuring options will be available.
4. Litigation:
----------
On September 21, 1994, an action was filed against Crown and the Company 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 the Company's riverboat vessel based upon a letter of
intent (allegedly reaffirming a previous agreement entered into between
Avondale and the Company). 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 has specified damages of approximately
$2,500,000. In conjunction with the sale of 50% of the Company to LRGP,
Crown indemnified the Company against future losses arising from the
litigation, and as such, even though no assurance can be given as to the
ultimate outcome of this litigation, the Company believes this litigation
will not have a material adverse effect on the financial position or
results of operations of the Company.
5. Subsequent Events:
-----------------
On May 3, 1996, Casino America completed the purchase of Crown's remining
50% interest in the Company. Concurrently on the same date, Casino America
purchased all of the newly issued common stock of Grand Palais Riverboat,
Inc. ("GPRI") from bankruptcy and plans to relocate GPRI's riverboat casino
to the Company's current site in Calcasieu Parish. Casino America has
currently received all required approvals and necessary permits for
relocation of GPRI to Calcasieu Parish and anticipates such relocation to
take place during June, 1996.
8
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
for the eight months ended December 31, 1995
and the year ended April 30, 1995
9
<PAGE>
Report of Independent Accountants
To the Stockholders
St. Charles Gaming Company, Inc.:
We have audited the accompanying balance sheets of St. Charles Gaming Company,
Inc. as of December 31, 1995 and April 30, 1995, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the eight months
ended December 31, 1995 and the year ended April 30, 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 audit 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 St. Charles Gaming Company,
Inc. as of December 31, 1995 and April 30, 1995, and the results of its
operations and its cash flows for the eight months ended December 31, 1995 and
the year ended April 30, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company has significant current debt obligations that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 4. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Coopers & Lybrand L.L.P.
Dallas, Texas
March 8, 1996, except for Note 11 as to
which the date is March 26, 1996
10
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
BALANCE SHEETS
December 31, 1995 and April 30, 1995
<TABLE>
<CAPTION>
December 31, April 30,
ASSETS 1995 1995
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,117,732 $ 9,522
Accounts receivable:
Gaming, net of allowance for uncollectible accounts of $36,672 273,769
Related parties 46,329
Inventories 112,409
Prepaid expenses 461,997 769,527
Debt issuance costs, net of accumulated amortization 701,243 345,963
-------------- --------------
Total current assets 5,713,479 1,125,012
-------------- --------------
Property and equipment:
Building 248,232
Land and land improvements 2,606,148
Leasehold improvements 13,833,930
Furniture, fixtures and equipment 10,292,128 7,618,268
Construction in progress 16,219,157 1,539,627
Riverboat and barges 18,102,403 15,256,140
-------------- --------------
61,301,998 24,414,035
Less accumulated depreciation (1,693,159) (14,563)
-------------- --------------
59,608,839 24,399,472
-------------- --------------
Other assets:
License costs, net of accumulated amortization 8,957,575 9,125,000
Noncompete agreement, net of accumulated amortization 250,010 316,674
Other 18,171
Deferred tax asset 1,500,000
-------------- --------------
10,725,756 9,441,674
-------------- --------------
$ 76,048,074 $ 34,966,158
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
BALANCE SHEETS, Continued
December 31, 1995 and April 30, 1995
<TABLE>
<CAPTION>
December 31, April 30,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1995 1995
------------ ---------
<S> <C> <C>
Current liabilities:
Progressive and casino liability $ 358,062
Book overdrafts 877,280
Accounts payable:
Related parties 1,181,817
Trade 3,099,832 $ 738,861
Accrued liabilities 4,375,351 768,834
Capital lease obligations 3,471,839 2,871,104
Advances from Crown 3,076,887
Notes payable:
Related parties 37,948,630 6,779,083
Other 30,021,313 21,811,603
------------ ------------
Total current liabilities 81,334,124 36,046,372
------------ ------------
Capital lease obligations, less current portion 1,645,767 2,265,641
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value, 100,000 shares authorized,
issued and outstanding 5,600,000 5,600,000
Additional paid-in capital 13,985,388 10,900,000
Accumulated deficit (26,517,205) (19,845,855)
------------ ------------
Total stockholders' deficit (6,931,817) (3,345,855)
------------ ------------
$ 76,048,074 $ 34,966,158
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
STATEMENTS OF OPERATIONS
for the eight months ended December 31, 1995
and the year ended April 30, 1995
<TABLE>
<CAPTION>
Eight Months
Ended
December 31, Year Ended
1995 April 30, 1995
------------ --------------
<S> <C> <C>
Revenues:
Casino $ 28,638,769
Food, beverage and other 201,238
------------
Total revenue 28,840,007
Operating expenses:
Pre-opening and development 4,195,653 $ 7,676,762
Buy out of management contract 4,000,000
St. Charles Parish site abandonment 3,131,359
Casino 5,557,918
Gaming taxes 6,813,289
Food, beverage and other 1,303,945
Marine and facilities 1,918,068
Marketing and administrative 11,083,942
Management fees to related party 739,008
Depreciation and amortization 1,912,686 111,326
------------ --------------
Total operating expenses 33,524,509 14,919,447
------------ --------------
Operating loss -4,684,502 -14,919,447
Interest expense 3,486,848 6,810,357
------------ --------------
Loss before income taxes -8,171,350 -21,729,804
Benefit for income taxes -1,500,000 -2,827,483
------------ --------------
Net loss $ -6,671,350 $ -18,902,321
============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
for the eight months ended December 31, 1995
and the year ended April 30, 1995
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Depreciation Equity (Deficit)
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance at April 30, 1994 $ 5,600,000 $ 4,000,000 $ (943,534) $ 8,656,466
Capital contribution 6,900,000 6,900,000
Net loss (18,902,321) (18,902,321)
------------ ------------- ------------- -------------
Balance at April 30, 1995 5,600,000 10,900,000 (19,845,855) (3,345,855)
Capital contribution 3,085,388 3,085,388
Net loss (6,671,350) (6,671,350)
------------ ------------- ------------- -------------
Balance at December 31, 1995 $ 5,600,000 $ 13,985,388 $ (26,517,205) $ (6,931,817)
============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
STATEMENTS OF CASH FLOWS
for the eight months ended December 31, 1995
and the year ended April 30, 1995
<TABLE>
<CAPTION>
Eight Months
Ended
December 31, Year Ended
1995 April 30, 1995
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,671,350) $ (18,902,321)
Adjustments to reconcile net loss
to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,912,686 111,326
Provision for bad debts 36,672
Amortization of debt issuance
costs/discount 500,886 3,376,392
Write-down of assets 3,131,359
Deferred income taxes (1,500,000) (2,827,483)
(Increase) decrease in:
Accounts receivable (356,770)
Inventories (112,409)
Prepaid expenses 307,530 (838,971)
Other assets (18,171)
Increase in:
Accounts payable and
accrued liabilities 7,149,305 1,416,151
Progressive and casino liability 358,062
------------ --------------
Net cash provided by (used in)
operating activities 1,606,441 (14,533,547)
------------ --------------
Cash flows from investing activities:
Purchase of property and equipment (36,752,360) (8,795,064)
------------ --------------
Net cash used in
investing activities (36,752,360) (8,795,064)
------------ --------------
Cash flows from financing activities:
Book overdrafts 877,280
Capital contributions from Crown 3,522,655
Advances from Crown 8,501
Payments to Crown (6,227,703)
Advances from LRGP 31,169,547 2,079,083
Issuance of debt 30,021,313 32,700,000
Debt issuance costs (856,168) (1,633,407)
Payments of debt and
capital lease obligations (21,966,344) (7,125,522)
------------ -------------
Net cash provided by
financing activities 39,254,129 23,315,106
------------ -------------
Increase (decrease) in cash
and cash equivalents 4,108,210 (13,505)
Cash and cash equivalents,
beginning of period 9,522 23,027
------------ --------------
Cash and cash equivalents,
end of period $ 4,117,732 $ 9,522
============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Description of Business:
----------------------------------------
St. Charles Gaming Company, Inc., a Louisiana corporation (the "Company"),
was incorporated on January 18, 1993 for the purpose of operating a
riverboat gaming casino to be based in St. Charles Parish, Louisiana (near
New Orleans). In January 1995, the Company changed its riverboat berthing
site from St. Ch arles Parish to Calcasieu Parish, Louisiana (near Lake
Charles).
Effective June 25, 1993, the Company was acquired by Crown Casino
Corporation ("Crown"). Effective June 9, 1995, Crown sold a 50% interest in
the Company to Louisiana Riverboat Gaming Partnership ("LRGP"), a joint
venture owned 50% by Casino America, Inc. ("Casino America") and 50% by
Louisiana Downs, Inc. LRGP owns the Isle of Capri dockside riverboat casino
in Bossier City, Louisiana.
The Company commenced operations effective July 29, 1995. Prior to that
time, the Company's activities were focused on the pursuit of a riverboat
gaming license and other regulatory approvals, the raising of capital, the
construction of the riverboat casino and land based facilities, and the
development of the project in general. In previous financial statements,
the Company reported as a development stage enterprise .
2. Summary of Significant Accounting Policies:
------------------------------------------
Cash and Cash Equivalents
-------------------------
The Company considers cash and all highly liquid investments with an
original maturity of three months or less to be cash equivalents. In the
accompanying financial statements, net negative book balances with
individual financial institutions have been reported as book overdrafts.
The Company is required to maintain cash or cash equivalents in sufficient
amount to protect patrons against defaults in gaming debts owed by the
Company. The Company's requirements are computed in accordance with Section
2713 of the regulations of the Louisiana State Police, Riverboat Gaming
Enforcement Division At December 31, 1995, approximately $3,200,000 of cash
and cash equivalents was available to satisfy this requirement.
16
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
Inventories
-----------
Inventories, which consist primarily of food, beverage, and gift shop
items, are stated at the lower of cost (determined by the first-in,
first-out method) or market.
Debt Issuance Costs
-------------------
In conjunction with the issuance of the "New Notes" in August 1995 (see
Note 4), the Company incurred debt issuance costs of approximately
$1,200,000. These costs are being amortized over the term of the New Notes
using the effective interest method.
In connection with the issuance of the "Senior Note" (see Note 4) and
subsequent amendments to the agreement governing the Senior Note, the
Company incurred costs of $2,569,717. These costs were amortized over the
term of the Senior Note using the effective interest method and were fully
amortized upon the retirement of the Senior Note.
Property and Equipment
----------------------
Property and equipment are stated at cost. Expenditures for additions,
renewals and improvements are capitalized. During periods of construction,
interest costs associated with borrowings utilized to fund construction are
capitalized. The capitalized interest is recorded as part of the asset to
which it relates and is depreciated over the asset's estimated useful life.
Interest capitalized during the eight-month period ended December 31, 1995
and the year ended April 30, 1995 was approximately $1,631,000 and $10,000,
respectively. Costs of repairs and maintenance are expensed as incurred.
Effective July 29, 1995, the Company began depreciating gaming related
equipment and facilities. Included in furniture, fixtures and equipment is
approximately $5,900,000 of equipment acquired under capital leases.
Substantially all equipment acquired under capital leases is gaming related
equipment.
In conjunction with the sale of 50% of the Company to LRGP, management of
the Company changed the estimated useful lives of certain assets from those
previously reported to match the estimated useful lives used at LRGP's
other Louisiana riverboat casino. As the Company had not commenced
operations at the time of the sale, no depreciation had been recorded on
those assets. Accordingly, this change in estimated useful lives had no
significant impact on financial statement amounts. Depreciation is computed
using the straight-line method over the following estimated useful
lives.
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements 25 years
Building 25 years
Furniture, fixtures and equipment 5 years
Riverboat and barges 25 years
</TABLE>
17
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
Depreciation expense was $1,678,596 for the eight months ended
December 3, 1995 and $11,330 for the year ended April 30, 1995.
Included in leasehold improvements is approximately $3,500,000 of costs
incurred during the eight-month period ended December 31, 1995 for upgrades
made to improve access to the riverboat casino location. These costs arose
from widening and paving public roads and installing traffic signals. Such
areas are not owned or leased by the Company. In management's opinion,
these costs do, and will continue to contribute to the operatings of the
casino and, as such, have been capitalized .
As discussed in Note 3, the uncertainties surrounding the Company's ability
to obtain a license renewal and the uncertainty surrounding the future of
gaming in the State of Louisiana could significantly impact the carrying
value of property and equipment.
Noncompete Agreement
--------------------
In connection with the acquisition of the Company by Crown, the Company's
former owner agreed not to compete with the Company in the Louisiana market
for a period of five years. The noncompete agreement is stated at the cost
allocated to the agreement by Crown, at the time of its acquisition, net of
accumulated amortization of $249,990 and $183,326 as of December 31 and
April 30, 1995, respectively. Amortization is recorded using the straight-
line method over a period of five years.
License Costs
-------------
License costs principally represent the excess purchase price Crown paid in
acquiring the Company's net identifiable assets. In conjunction with the
sale of 50% of the Company to LRGP, management of the Company changed the
estimated useful life of the license, as previously reported, to match the
estimated useful lives utilized on other long-lived gaming related assets.
The Company began amortizing these costs effective July 29, 1995
(commencement of operations) over a 25-year period using the straight-line
method. Twenty-five years is management's best estimate of the useful life
of the license costs. The Louisiana license was issued on March 29, 1994
and has a five-year initial term, which is subject to renewal.
18
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
The license is currently in the form of a certificate of final approval
from the Louisiana Riverboat Gaming Commission ("Gaming Commission")
subject to certain conditions from the Louisiana Riverboat Gaming
Enforcement Division of the Office of State Police (the "Enforcement
Division"). The conditions to the license include (i) the Enforcement
Division's approval of the operation of the riverboat under an approved
plan of security and internal controls for a period of six months, (ii) the
exercise of due diligence in the development of its planned hotel in
Calcasieu Parish and (iii) obtaining the Enforcement Division's prior
written approval to any modifications to its plans for such hotel,
including the abandonment of any portion of the project. Upon satisfaction
of the conditions to the license, a permanent license will be issued by the
Enforcement Division.
Uncertainty exists surrounding the Company's ability to obtain a license
renewal and as further discussed in Note 3, the political uncertainty
surrounding gaming in the State of Louisiana could significantly impact the
carrying value of the license as recorded in these financial statements .
Income Taxes
------------
Through June 8, 1995, the Company was included in Crown's consolidated
federal income tax return. As a result of the sale of 50% of SCGC to LRGP,
the Company will file a separate return. The provision for income taxes in
the accompanying financial statements is computed on a separate return
basis for all periods presented.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between book bases and tax bases
of assets and liabilities. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled .
Revenue and Promotional Allowances
----------------------------------
Casino revenue is the net win from gaming activities which is the
difference between gaming wins and losses. Casino revenues are net of
accruals for anticipated payouts of progressive electronic gaming device
jackpots.
Revenue does not include the retail amount of food, beverages, and other
items provided gratuitously to customers. These amounts totaled $1,739,203
for the eight months ended December 31, 1995. The cost of sales in
providing such complementary services was approximately $608,000 of which
approximately $188,000 has been classified as food, beverage and other and
the remainder has been classified as casino expense.
19
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
Casino Pre-Opening and Development Costs
----------------------------------------
All casino pre-opening and development costs are expensed as incurred. Pre-
opening and development costs consist principally of personnel costs,
advertising, insurance, travel, consulting and professional fees.
Reclassifications
-----------------
The accompanying financial statements for the period ended April 30, 1995
reflect certain reclassifications made to conform the presentation with
classifications presented as of December 31, 1995.
Accounting 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 and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Other Accounting Issues
-----------------------
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of." This statement requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an
asset may not be recoverable. The impact of this standard, which the
Company will adopt effective May 1, 1996 has been assessed by management
and should not have a material effect on the Company's financial
statements.
3. Operating Environment:
---------------------
The Company operates in a highly regulated and competitive environment
which is currently facing political uncertainty. The Louisiana Riverboat
Gaming Commission and the Enforcement Division oversee virtually every
aspect of riverboat gaming in the State of Louisiana including the issuance
and renewal of riverboat gaming licenses. Management believes the Company's
license will be renewed at the end of the initial term. However, due to
other uncertainties surrounding gaming in the State of Louisiana which are
discussed below, renewal of the license cannot be guaranteed.
20
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
Additionally, the gaming industry in the State of Louisiana has recently
received national media attention primarily as a result of the commencement
of a federal investigation of certain legislative members and the recent
bankruptcy of a gaming company in the Louisiana market. In response to
these and other incidents, the Louisiana governor has stated he is in favor
of a state-wide referendum to modify or abolish gaming statutes governing
riverboat gaming, video-poker and the New Orleans' land-based casino.
Gaming statutes in the State of Louisiana may be modified by a
constitutional amendment requiring a majority vote of the people and by the
approval of two-thirds of the legislature or by statue requiring a majority
of the legislature. The Company cannot predict the likelihood of whether
Louisiana will adopt new, or modify existing gaming statutes or how any
change in the statutes or regulations could affect the Company's
operations.
4. Debt:
----
At December 31, 1995 and April 30, 1995, the Company had the following debt
outstanding
<TABLE>
<CAPTION>
December 31, April 30,
1995 1995
-------------- --------------
<S> <C> <C>
Senior Secured Increasing Rate Note, net of unamortized
discount of $118,397 ("Senior Notes" $28,000,000) $ 21,811,603
Senior Secured Increasing Rate Note ("New Notes"
$38,400,000) $ 30,021,313
Note payable to LRGP 15,000,000 2,079,083
Note payable to LRGP 18,248,630
Note payable to Casino America (the "Casino America Notes") 4,700,000 4,700,000
-------------- --------------
$ 67,969,943 $ 28,590,686
============== ==============
</TABLE>
In June 1994, the Company issued a $28,000,000 Senior Secured Increasing
Rate Note (the "Senior Note") to an institutional investor. The Senior Note
was initially due on June 3, 1995, but was subsequently extended to August
31, 1995 and carried a 12% coupon increasing 67 basis points each quarter
up to a maximum interest rate of 14%. The Senior Note was issued with a
warrant to purchase 508,414 shares of Crown's common stock. The proceeds
from the private placement were allocated between the Senior Note
($26,728,965) and the warrant ($1,271,035) based upon the relative fair
value of each of the securities at the time of issuance. The amount
allocated to the warrant was recorded as an increase to advances from
Crown. The resulting original issue discount was amortized over the life of
the Senior Note using the effective interest method.
21
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
On August 7, 1995, the Company and LRGP (collectively, the "Issuers") jointly
issued $38,400,000 of Senior Secured Increasing Rate Notes (the "New Notes"),
the proceeds of which were used to retire the Senior Note ($21,900,000) and
certain LRGP obligations ($8,400,000). The balance of the proceeds were used in
the development of the Calcasieu Parish project. The New Notes initially become
due on July 27, 1996, but can be extended up to an additional twelve months at
the option of the Issuers provided no event of default has occurred and is
continuing, carry a 12% coupon which increases 25 basis points each quarter
until maturity, and provide for contingent interest beginning in May 1996 equal
to 7.5% of the Issuers' consolidated cash flow, as defined. The New Notes are
collateralized by substantially all the assets of the Issuers and contain
covenants relating to certain business, operational and financial matters
including limitations on (i) incurring additional debt, (ii) paying dividends,
(iii) merging or consolidating with others, (iv) changes in control,
(v) capital expenditures, (vi) investments and joint ventures, and (vii) the
sale of assets, and financial covenants pertaining to (a) minimum cash flow,
(b) minimum fixed charge ratio, (c) maximum leverage ratio, and (d) minimum
net worth.
As of December 31, 1995, the Issuers were not in compliance with certain
financial covenants provided for in the Note Purchase Agreement pertaining to
the New Notes. Management anticipates that the Company will remain out of
compliance with respect to such covenants through the Company's fiscal year end,
April 30, 1996.
The Note Purchase Agreement provides that upon failure to comply with a covenant
as described above, the lender has the right, upon the giving of notice, to
(among other things) cause an acceleration of the maturity date of all amounts
outstanding under the Note Purchase Agreement. Management does not believe that
the continuance of the financial covenant noncompliance described above will
lead to an acceleration of the repayment obligations of the Issuers under the
Note Purchase Agreement. However, in the event that such repayment obligations
are accelerated, SCGC and LRGP will need to locate other sources of capital in
order to meet such repayment obligations, and there can be no assurance that
such sources will be available, or be available on terms acceptable to LRGP and
SCGC.
In May 1995, the Company issued a promissory note to LRGP to facilitate advances
of up to $15,000,000. The note bears interest at 11.5% per annum, and is due
three business days after the New Notes are paid in full. The proceeds from the
issuance of the note have been used to develop the Calcasieu Parish project.
22
<PAGE>
ST CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
In October 1995, the Company issued a promissory note to LRGP to facilitate
additional advances of up to $25,000,000. The note bears interest at 11.5%
per annum and is due in four equal quarterly installments beginning three
months after retirement of the New Notes. However, the Company shall only
be obligated to make principal and interest payments to the extent the
Company has cash available to make such payments. The proceeds are
currently being utilized to develop the Calcasieu project.
In March 1995, the Company issued promissory notes aggregating $4,700,000
to Casino America (the "Casino America Notes"). The Casino America Notes
bear interest at 11.5% per annum and are due three business days after the
New Notes are paid in full.
As noted above and in the accompanying balance sheet, the Company has
current debt obligations that significantly exceed its available cash
resources. As stated previously, management does not believe payment of the
New Notes will be accelerated by the lender. Further, the related party
notes payable are subordinate to the New Notes. Upon completion of the
transaction discussed in Note 11, and partial or full resolution of the
possible legislative action discussed in the second paragraph of Note 3,
management anticipates the completion of a restructuring of its debt
obligations. While management believes such restructuring can be completed,
there can be no assurance that restructuring options will be available.
At December 31, 1995, based on the interest rates and the short-term
duration of the notes, management believes the carrying value of all notes
payable approximates the estimated fair value.
5. Income Taxes:
------------
The components of the Company's income tax benefit for the eight months
ended December 31, 1995 and the year ended April 30, 1995 are as follows:
<TABLE>
<CAPTION>
December 31, April 30,
1995 1995
------------- -------------
<S> <C> <C>
Current $ - $ -
Deferred (1,500,000) (2,827,483)
------------- -------------
$ (1,500,000) $ (2,827,483)
============= =============
</TABLE>
23
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
The benefit for income taxes is different from the amount computed by applying
the federal income tax rate to the loss before income taxes for the eight months
ended December 31, 1995 and the year ended April 30, 1995 for the following
reasons:
<TABLE>
<CAPTION>
December 31, April 30,
1995 1995
------------ ----------
<S> <C> <C>
Federal statutory rate (34)% (34)%
Valuation allowance 20 26
State income tax, net of federal benefit (5) (5)
Other 1
----------- ----------
(18)% (13)%
=========== ==========
</TABLE>
Significant components of the Company's deferred tax liabilities and assets were
as follows:
<TABLE>
<CAPTION>
December 31, April 30,
1995 1995
------------ -----------
<S> <C> <C>
Deferred tax liabilities:
License costs $ 3,437,294 $ 3,442,030
Other -- 1,807
------------ -----------
Total deferred tax liabilities 3,437,294 3,443,837
------------ -----------
Deferred tax assets:
Pre-opening expenses 7,370,303 6,149,255
Net operating loss carryforwards 4,568,500 2,719,000
Other 361,524 272,571
------------ -----------
Total deferred tax assets 12,300,327 9,140,826
------------ -----------
Less valuation allowance 7,363,033 5,696,989
------------ -----------
Net deferred tax asset $ 1,500,000 $ --
============ ===========
</TABLE>
24
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
At December 31, 1995 and April 30, 1995, valuation allowances totaling
$7,363,033 and $5,696,989, respectively, were provided against the
Company's deferred tax assets to reflect the uncertainties surrounding the
realization of such deferred tax assets. Realization of the net deferred
tax asset at December 31, 1995 is dependent on the Company generating
sufficient future taxable income. Although realization is not assured,
management believes it is more likely than not that the amount of the
deferred tax asset recorded for financial statement purposes will be
realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income are reduced. At December 31, 1995 the Company had net operating loss
carryforwards for federal income tax purposes of approximately $11,625,000
which expire in 2009 through 2011. These operating loss carryforwards may
be subject to certain limitations if the proposed transaction, as discussed
in Note 11, is consummated.
6. Leases:
------
In March and July 1995, the Company entered into agreements to lease the
two parcels of land that comprise the Calcasieu Parish riverboat casino
site. The leases have an initial term of five years with seven five-year
renewal options. During the initial term, the leases require annual
aggregate rental payments of $850,000 in years one through four, and
$1,000,000 in year five, payable monthly. During the first renewal term,
the rent will be increased annually by the greater of (i) 5%, or (ii) the
percentage increase in the average consumer price index for Calcasieu
Parish, Louisiana for the previous twelve-month period. During the second
through seventh renewal terms, the lessor and the Company will attempt to
set the rent equal to 100% of the rent paid by other riverboat gaming
operators in Louisiana and Mississippi for comparable property usage, or if
no agreement can be made, then the parties will appoint real estate
appraisers to set the rent for such renewal term. However, in no event
shall the annual rent be less than $1,600,000 during the fourth and all
subsequent renewal terms. In addition, the Company will pay all real estate
taxes, except for taxes due on the unimproved value of the property.
25
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
In addition to the Calcasieu Parish site leases, the Company has entered into
various operating leases for equipment and office facilities. At December 31,
1995, future minimum lease payments to be made under the lease agreements are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 383,253
1997 226,430
1998 109,409
1999 94,426
2000 26,605
-----------
$ 840,123
===========
</TABLE>
Rent expense for the eight months ended December 31, 1995 and the year ended
April 30, 1995 was $661,974 and $61,539, respectively.
The Company has also entered into various capital leases for equipment. As of
December 31, 1995 future minimum lease payments under capital leases were as
follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
- ----------- -------------
<S> <C>
1996 $ 3,857,363
1997 1,647,787
1998 112,967
1999 33,115
-------------
Total minimum lease payments 5,651,232
Less amount representing interest 533,626
-------------
Present value of future minimum lease payments 5,117,606
Less current portion 3,471,839
-------------
Capital lease obligations, less current portion $ 1,645,767
=============
</TABLE>
26
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
7. Commitments and Contingencies:
-----------------------------
Commitments to Calcasieu Parish
-------------------------------
In January 1995, the Company made a commitment to Calcasieu Parish to
provide certain payments to the Parish above and beyond the statutory
admissions tax. The Company committed to a $1,000,000 initial payment,
which was paid upon the opening of the casino, and a $1,000,000 annual
payment for as long as the casino is operating at its site in the Parish,
but in no event less than six years. In June 1995, the Company and the
Parish entered into a definitive development agreement whereby, in
consideration for the payments to be made by the Company to the Parish, the
Parish is required to cooperate with and provide assistance to the Company
in obtaining and maintaining necessary permits and approvals to operate its
riverboat gaming casino.
Litigation
----------
On September 21, 1994, an action was filed against Crown and the Company 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 the Company's riverboat vessel based upon a letter of
intent (allegedly reaffirming a previous agreement entered into between
Avondale and the Company). 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 has specified damages of approximately
$2,500,000. In conjunction with the sale of 50% of the Company to LRGP,
Crown indemnified the Company against future losses arising from the
litigation, and as such, even though no assurance can be given as to the
ultimate outcome of this litigation, the Company believes this litigation
will not have a material adverse effect on the financial position or
results of operations of the Company.
8. Site Change and Buy Out of Management Contract:
----------------------------------------------
In January 1995, the Company made the decision to abandon its site in St.
Charles Parish, Louisiana in favor of the site currently occupied in
Calcasieu Parish, Louisiana. As a result of this decision the Company
recorded a charge of approximately $3,100,000 for the year ended April 30,
1995, which represents the write-off of previously capitalized costs
specific to the St. Charles Parish site.
27
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
In March 1995, in connection with Crown's sale of a 50% interest in the
Company's common stock to LRGP, the Company bought out its existing casino
management agreement for $4,000,000.
9. Related Party Transactions:
--------------------------
The Company entered into a management agreement with Riverboat Services,
Inc. ("RSI") a subsidiary of Casino America which has a term of 99 years
and provides for a management fee of (i) 2% of "Revenues," as defined in
the agreement (generally net gaming revenues less gaming and admission
taxes plus all other operating revenues), plus (ii) 10% of "Net Operating
Income," as defined in the agreement, provided however, the total
management fee shall not exceed 4% of "Revenues." Additionally, in
accordance with the agreement, key employees of the riverboat are employees
of RSI who pays the salaries of these employees and is reimbursed by the
Company. As of December 31, 1995, the Company had incurred management fee
costs of approximately $739,000 and had incurred salary costs and other
charges associated with these key employees of approximately $861,000. No
amounts were due or accrued to RSI at April 30, 1995.
Debartolo Properties Management, Inc., a wholly-owned subsidiary of
Debartolo, Inc. which owns 50% of LRGP is the general contractor for the
construction of the riverboat gaming site. For the eight-month period ended
December 31, 1995, approximately $220,000 was paid to Debartolo Properties
Management, Inc. and other Debartolo related companies for construction
services provided.
The Company had net advances from Crown of $3,076,887 as of April 30,
1995. Advances from Crown were used to fund the construction of the
riverboat and support pre-opening and development activities. Included in
net advances from Crown at April 30, 1995 is $1,500,000 relating to Crown
common stock issued as payment for expenses of the Company. In June 1995,
in connection with Crown's sale of a 50% interest in the Company's common
stock to LRGP, Crown contributed the balance in its advance account
($3,085,388) to the Company.
28
<PAGE>
ST. CHARLES GAMING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
10. Supplemental Cash Flow Information:
----------------------------------
Supplemental cash flow disclosures for the eight months ended December 31,
1995 and the year ended April 30, 1995 are as follows:
<TABLE>
<CAPTION>
December 31, April 30,
1995 1995
------------- -------------
<S> <C> <C>
Interest paid, net of amounts capitalized $ 1,582,952 $ 6,115,878
Noncash financing and investing activities:
Capital contribution from Crown 3,085,388 3,377,345
Equipment acquired under capital leases 135,602 5,762,267
</TABLE>
11. Proposed Transaction:
--------------------
In January 1996, Crown signed an agreement with Casino America to sell
Crown's remaining 50% interest in the Company to Casino America. Closing of
this transaction is subject to a number of conditions, including the
acquisition by Casino America of Grand Palais Riverboat, Inc. ("GPRI") from
bankruptcy and relocating its riverboat casino to the Company's current
site in Calcasieu Parish, and the procurement of required regulatory and
lender approvals. A plan of reorganization pertaining to Casino America's
acquisition of GPRI was filed in the United States Bankruptcy Court in late
January 1996 and on March 26, 1996, the United States Bankruptcy Court
confirmed such plan. Additionally, Casino America, GPRI and Crown have
filed various petitions with the Louisiana Riverboat Gaming Commission
("Gaming Commission") to approve the above transactions. On March 23, 1996,
the Gaming Commission approved the sale of GPRI to Casino America and the
relocation of its riverboat to the Company's current site in Calcasieu
Parish and Casino America's purchase of Crown's remaining 50% interest in
the Company. Management of the Company is uncertain as to when and if the
remaining required approvals will be obtained.
29
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
Report of Independent Accountants
To the Stockholders
St. Charles Gaming Company, Inc:
We have audited the accompanying balance sheets of St. Charles Gaming Company,
Inc. (A Development Stage Enterprise) as of April 30, 1995 and 1994, and the
related statements of operations, stockholder's equity, and cash flows for the
year ended April 30, 1995 and the period from June 25, 1993 (acquisition date)
to April 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 St. Charles Gaming Company,
Inc. as of April 30, 1995 and 1994, and the results of its operations and its
cash flows for the year ended April 30, 1995 and the period from June 25, 1993
(acquisition date) to April 30, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note D to these financial statements, in August 1995 the Company
and Louisiana Riverboat Gaming Partnership jointly issued $38.4 million of
Senior Secured Increasing Rate Notes. The Company believes it has failed to
meet certain financial covenants of the agreement governing the notes. The
Company and Louisiana Riverboat Gaming Partnership are conducting discussions
with the holder of the notes regarding modification of the related borrowing
agreements or obtaining waivers in order for the Company to maintain compliance
in the future. The ultimate outcome of these discussions cannot be presently
determined. Accordingly, no modifications have been made to the accompanying
financial statements regarding the possible effects of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
Dallas, Texas
August 7, 1995, except as to the third paragraph
of Note D for which the date is September 21, 1995
30
<PAGE>
St. Charles Gaming Company, Inc.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
Assets
April 30,
1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,522 $ 23,027
Prepaid expenses 779,527 55,962
---------- ----------
Total current assets 779,049 78,989
---------- ----------
Property and equipment:
Land deposit and site cost 1,261,273
Construction in progress 1,539,627
Furniture, fixtures and equipment 7,618,268 606,571
Riverboat and barges 15,256,140 9,329,024
---------- ----------
24,414,035 11,196,868
Less accumulated depreciation (14,563) (3,234)
---------- ----------
24,399,472 11,193,634
---------- ----------
Other assets:
Debt issuance costs, net 345,963
Non-complete agreement, net 316,674 416,670
License costs 9,125,000 9,125,000
---------- ----------
9,787,637 9,541,670
---------- ----------
$34,966,158 $20,814,293
========== ==========
<CAPTION>
Liabilities and Stockholder's Equity (Deficit)
<S> <C> <C>
Current liabilities
Accounts payable $ 738,861
Accrued liabilities 768,834 $ 25,754
Advances from LRGP 2,079,083
Advances from Crown 3,076,887 9,304,590
Capital lease obligations 2,871,104
Notes payable 26,511,603
---------- ----------
Total current liabilities 36,046,372 9,330,344
---------- ----------
Capital lease obligations, less current portion 2,265,641
Deferred income taxes 2,827,483
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 100,000 shares
authorized, issued and outstanding 5,600,000 5,600,000
Additional paid-in capital 10,900,000 4,000,000
Deficit accumulated during the development
stage (19,845,855) (943,534)
---------- ----------
Total stockholder's equity (deficit) (3,345,855) 8,656,466
---------- ----------
$34,966,153 $20,814,293
========== ==========
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
St. Charles Gaming Company, Inc.
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
June 25, 1993 June 25, 1993
(acquisition date) (acquisition date)
to Year ended to
April 30, 1995 April 30,1995 April 30, 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Costs and expenses:
Gaming pre-opening and development 8,858,313 7,676,762 1,181,551
Buy out of management contract 4,000,000 4,000,000
St. Charles Parish site abandonment 3,131,359 3,131,359
Depreciation and amortization 445,655 111,326 334,329
Interest expense 6,810,528 6,810,357 171
---------- ---------- ----------
23,245,855 21,729,804 1,516,051
---------- ---------- ----------
Loss before income taxes (23,245,855) (21,729,804) (1,516,051)
Benefit for income taxes (3,400,000) (2,827,483) (572,517)
---------- ---------- ----------
Net loss $(19,845,855) $(18,902,321) $ (943,534)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
St. Charles Gaming Company, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
June 25, 1993 June 25, 1993
(acquisition date) (acquisition date)
to Year ended to
April 30, 1995 April 30, 1995 April 30, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net loss $(19,845,855) $(18,902,321) $ (943,534)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 447,890 111,326 336,564
Amortization of debt issuance costs/discount 3,376,392 3,376,392
Write-down of assets 3,131,359 3,131,359
Deferred income taxes (3,400,000) (2,827,483) (572,517)
Changes in assets and liabilities:
Prepaid expenses (894,933) (838,971) (55,962)
Accounts payable and accrued liabilities 1,366,905 1,416,151 (49,246)
---------- ---------- ----------
Net cash used by operating activities (15,818,242) (14,533,547) (1,284,695)
---------- ---------- ----------
Investing activities:
Purchase of property and equipment (19,991,932) (8,795,064) (11,196,868)
Purchase of other assets (350,000) (350,000)
---------- ---------- ----------
Net cash used by investing activities (20,341,932) (8,795,064) (11,546,868)
---------- ---------- ----------
Financing activities:
Capital contributions from Crown 7,022,655 3,522,655 3,500,000
Advances from (payments to) Crown 3,076,887 (6,227,703) 9,304,590
Advances from LRGP 2,079,083 2,079,083
Issuance of debt 32,700,000 32,700,000
Debt issuance costs (1,633,407) (1,633,407)
Payments of debt and capital lease obligations (7,125,522) (7,125,522)
---------- ---------- ----------
Net cash provided by financing activities 36,119,696 23,315,106 12,804,590
---------- ---------- ----------
Decrease in cash and cash equivalents (40,478) (13,505) (26,973)
Cash and cash equivalents at:
Beginning of period 50,000 23,027 50,000
---------- ---------- ----------
End of period $ 9,522 $ 9,522 $ 23,027
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
St. Charles Gaming Company, Inc.
(A Development Stage Enterprise)
Statement of Stockholder's Equity (Deficit)
For the period from June 25, 1993 (acquisition date) to April 30, 1994 and the
year ended April 30, 1995.
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholder's
Stock Capital Deficit Equity (Deficit)
------ ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance at June 25, 1993 (before acquisition) $ 339,051 $ (60,061) $ 278,990
Acquisition adjustments 5,260,949 $ 500,000 60,061 5,821,010
--------- ---------- ----------- -----------
Balance at June 25, 1993 (after acquisition) 5,600,000 500,000 6,100,000
Capital contribution 3,500,000 3,500,000
Net loss $ (943,534) (943,534)
--------- ---------- ----------- -----------
Balance at April 30, 1994 5,600,000 4,000,000 (943,534) 8,656,466
Capital contribution 6,900,000 6,900,000
Net loss (18,902,231) (18,902,321)
--------- ---------- ----------- -----------
Balance at April 30, 1995 $5,600,000 $10,900,000 $(19,845,855) $ (3,345,855)
========= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
St. Charles Gaming Company, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
A - Organization and Description of Business
St. Charles Gaming Company, Inc., a Louisiana corporation, (the "Company") was
incorporated on January 18, 1993 for the purpose of operating a riverboat gaming
casino to be based in St. Charles Parish, Louisiana (near New Orleans). In
January 1995, the Company changed its riverboat berthing site from St. Charles
Parish to Calcasieu Parish, Louisiana (near Lake Charles). In July 1995 the
Company commenced riverboat gaming operations.
Effective June 25, 1993, the Company was acquired by Crown Casino Corporation
("Crown"). Crown completed its acquisition of the Company at a price which
exceeded the book value of the net assets of the Company at the acquisition date
and accounted for the transaction using the purchase method of accounting.
Accordingly, Crown allocated the excess purchase price to the identifiable
assets acquired and liabilities assumed. This allocation established a new basis
for the Company's assets and liabilities which is reflected in the accompanying
financial statements. The principal result of the creation of a new basis was an
increase in license costs ($9,025,000), the recording of a related deferred tax
liability ($3,400,000), the addition of a non-compete agreement ($500,000),
and an increase in common stock and additional paid-in-capital ($5,260,949 and
$500,000, respectively). The amounts recorded as common stock were attributed to
the value of the Crown shares issued in the transaction, while the amount
recorded as additional paid-in-capital was related to cash paid for the
non-compete agreement. The Company has adopted the fiscal year of Crown which
ends on April 30.
Effective June 9, 1995, Crown sold a 50% interest in the Company to Louisiana
Riverboat Gaming Partnership ("LRGP"), a joint venture owned 50% by Casino
America, Inc. ("Casino America") and 50% by Louisiana Downs, Inc. LRGP owns the
Isle of Capri dockside riverboat casino in Bossier City, Louisiana.
As the Company's planned principal operations had not yet commenced as of April
30, 1995, the Company is reporting as a development stage enterprise. Since
inception, the Company's activities have focused on the pursuit of a riverboat
gaming license and other regulatory approvals, the raising of capital, the
construction of the riverboat casino and land based facilities, and the
development of the project in general. The Company has received substantial
financial support from Crown, LRGP and Casino America.
B - Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers cash and all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Casino Pre-opening and Development Costs
All casino pre-opening and development costs are expensed as incurred.
Pre-opening and development costs consist principally of personnel costs,
advertising, insurance, travel, consulting and professional fees.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions, renewals
and improvements are capitalized. Interest costs during construction of
facilities are capitalized. Costs of repairs and maintenance are expensed as
incurred. Depreciation will be charged on gaming related equipment and
facilities beginning in July 1995 (commencement of gaming operations).
Depreciation is computed using the straight-line method over the following
estimated useful lives.
Furniture, fixtures and equipment 5 to 10 years
Riverboat and barges 15 years
35
<PAGE>
NON-COMPETE AGREEMENT
In connection with the acquisition of the Company by Crown, the Company's former
owner agreed not to compete with the Company in the Louisiana market for a
period of five years. The non-compete agreement is stated at the cost allocated
by Crown to the agreement, net of accumulated amortization of $183,326 and
$83,330 as of April 30, 1995 and 1994, respectively. Amortization is recorded
using the straight-line method over a period of five years.
DEBT ISSUANCE COSTS
In connection with the issuance of the Senior Note and amendments to the
agreement governing the Senior Note, the Company incurred debt issuance costs of
$2,569,717. These costs have been amortized over the term of the Senior Note
using the effective interest method.
LICENSE COSTS
License costs principally represent the excess purchase price Crown paid in
acquiring the Company's net identifiable tangible assets. These costs will be
amortized beginning in July 1995 (commencement of operations) over the remaining
license term using the straight-line method. The Louisiana license was issued
on March 29, 1994 and has a five year initial term, which is subject to renewal.
INCOME TAXES
The Company is included in Crown's consolidated federal income tax return. The
provision for income taxes in the accompanying financial statements is computed
on a separate return basis.
Deferred tax assets and liabilities are recognized for the future tax
consequenses attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
C - LICENSING
The Company has received a certificate of final approval from the Louisiana
Riverboat Gaming Commission ("Gaming Commission") and a license with certain
conditions from the Louisiana Riverboat Gaming Enforcement Division of the
Office of State Police (the "Enforcement Division"). The conditions to the
license include (i) the Enforcement Division's approval of the operation of the
riverboat under an approved plan of security and internal controls for a period
of six months, (ii) the exercise of due diligence in the development of its
planned hotel in Calcasieu Parish and (iii) obtaining the Enforcement Division's
prior written approval to any modifications to its plans for such hotel,
including the abandonment of any portion of the project. Upon satisfaction of
the conditions to the license, a permanent license will be issued by the
Enforcement Division.
D - DEBT
At April 30, 1995, the Company had the following debt:
Senior Note, net of unamortized discount of $118,397 $21,811,603
Notes payable to Casino America 4,700,000
----------
$26,511,603
==========
In June 1994, the Company issued a $28 million Senior Secured Increasing Rate
Note (the "Senior Note") to an institutional investor. The Senior Note was
initially due on June 3, 1995, but was subsequently extended to August 31, 1995
and carried a 12% coupon increasing 67 basis points each quarter up to a maximum
interest rate of 14%. The Senior Note was issued with a warrant to purchase
508,414 shares of Crown's common stock. The proceeds from the private placement
were allocated between the Senior Note ($26.7 million) and the warrant ($1.3
million) based upon the relative fair value of each of the securities at the
time
36
<PAGE>
of issuance. The amount allocated to the warrant has been recorded as an
increase in the advances from Crown account. The resulting original issue
discount has been amortized over the life of the Senior Note using the effective
interest method.
On August 7, 1995, SCGC and LRGP (collectively, the "Issuers") jointly issued
$38.4 million of Senior Secured Increasing Rate Notes (the "New Notes"), the
proceeds of which were used to retire the Senior Note ($21.9 million) and
certain LRGP obligations ($8.4 million). The balance of the proceeds will be
used in the development of the Calcasieu Parish project. The New Notes
initially become due on July 27, 1996, but can be extended up to an additional
twelve months at the option of the Issuers provided no event of default has
occurred and is continuing, carry a 12% coupon increasing 25 basis points each
quarter until maturity, and provide for contingent interest beginning in May
1996 equal to 7.5% of the Issuers' consolidated cash flow, as defined. The New
Notes are collateralized by substantially all the assets of the Issuers and
contain covenants relating to certain business, operational and financial
matters including limitations on (i) incurring additional debt, (ii) paying
dividends, (iii) merging or consolidating with others, (iv) changes in control,
(v) capital expenditures, (vi) investments and joint ventures, and (vii) the
sale of assets, and financial covenants pertaining to (a) minimum cash flow,
(b) minimum fixed charge ratio, (c) maximum leverage ratio, and (d) minimum net
worth. Management of the Company anticipates that the Company will fail to meet
certain financial covenants of the agreement governing the New Notes which, if
not amended or waived, would result in an event of default. The Issuers are
currently having discussions with the holder of the New Notes regarding the
anticipated event of default. While no assurance can be given that a
satisfactory waiver or amendment will be forthcoming, management of the Company
expects the Issuers will obtain such waiver or amendment to cure the anticipated
event of default.
In March 1995, the Company issued promissory notes aggregating $4.7 million to
Casino America (the "Casino America Notes"). The Casino America Notes bear
interest at 11.5% per annum and are due three business days after the New Notes
are paid in full.
In May 1995, the Company issued a promissory note to LRGP equal to the lesser of
(i) $15 million, or (ii) the aggregate unpaid principal amount of advances made
by LRGP to the Company. The note bears interest at the same rate of interest
LRGP is charged on certain bank indebtedness, and is due three business days
after the New Notes are paid in full. The proceeds from the issuance of the
note has been used to develop the Calcasieu Parish project.
In addition, LRGP has made certain advances to the Company. Interest accrues on
such advances at the rate of 11.5% per annum. There is no stated maturity date
of such advances. The proceeds from the advances have been used to develop the
Calcasieu Parish project.
E - INCOME TAXES
The components of the Company's income tax benefit for the year ended April 30,
1995 and the period from June 25, 1993 (acquisition date) to April 30, 1994 are
as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Current $ - $ -
Deferred (2,827,483) (572,517)
----------- ---------
$(2,827,483) $(572,517)
=========== =========
</TABLE>
The benefit for income taxes is different from the amount computed by applying
the statutory income tax rate to loss before income taxes for the year ended
April 30, 1995 and the period from June 25, 1993 (acquisition date) to April 30,
1994 for the following reasons:
37
<PAGE>
<TABLE>
<CAPTION> 1995 1994
---- ----
<S> <C> <C>
Federal statutory rate (34)% (34)%
Valuation allowance 26
State income tax, net of federal
benefit (5) (3)
Other (1)
---- ----
(13)% (38)%
==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets were as follows:
<TABLE>
<CAPTION> April 30, April 30,
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
License costs $3,442,030 $3,442,030
Other 1,807 1,752
--------- ---------
Total deferred tax liabilities 3,443,837 3,443,782
--------- ---------
Deferred tax assets:
Pre-opening expenses 6,149,255 488,412
Net operating loss carryforward 2,719,000 127,887
Other 272,571
--------- ---------
Total deferred tax assets 9,140,826 616,299
Less valuation allowance 5,696,989 -
--------- ---------
Net deferred tax liability $ - $2,827,483
========= =========
</TABLE>
At April 30, 1995 the Company recorded a valuation allowance equal to the excess
of deferred tax liabilities because the realization of such excess deferred tax
assets was not reasonably assured. At April 30, 1995 the Company had a net
operating loss carryforward for federal income tax purposes of approximately
$2,836,000 which expires in 2009 and 2010.
F - LEASES
In March and July 1995, the Company entered into agreements to lease the two
parcels of land that comprise the Calcasieu Parish riverboat casino site. The
leases have an initial term of five years with seven five year renewal options.
During the initial term, the leases require annual aggregate rental payments of
$850,000 in years one through four, and $1,000,000 in year five, payable
monthly. During the first renewal term, the rent will be increased annually by
the greater of (i) 5%, or (ii) the percentage increase in the average consumer
price index for Calcasieu Parish, Louisiana for the previous twelve month
period. During the second through seventh renewal terms, the lessor and the
Company will attempt to set the rent equal to 100% of the rent paid by other
riverboat gaming operators in Louisiana and Mississippi for comparable property
usages, or if no agreement can be made, then the parties will appoint real
estate appraisers to set the rent for such renewal term. However, in no event
shall the annual rent be less than $1.6 million during the fourth and all
subsequent renewal terms. In addition, the Company will pay all real estate
taxes except for taxes due on the unimproved value of the property.
38
<PAGE>
In addition to the Calcasieu Parish site leases, the Company has entered into
various operating leases for equipment and office facilities. The aggregate
rentals due under such leases were not significant at April 30, 1995. Rent
expense for the year ended April 30, 1995 and the period from June 25, 1993
(acquisition date) to April 30, 1994 was $61,539 and $15,483, respectively.
The Company has also entered into various capital leases for equipment. As of
April 30, 1995 future minimum lease payments under capital leases were as
follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ---------
<S> <C>
1996 $ 3,287,194
1997 2,227,807
1998 84,420
1999 79,476
2000 6,623
-----------
Total minimum lease payments 5,685,520
Less amount representing interest (548,775)
-----------
Present value of future minimum lease
payments 5,136,745
Less current portion (2,871,104)
-----------
Capital lease obligations, less current
portion $ 2,265,641
===========
</TABLE>
G - COMMITMENTS AND CONTINGENCIES
Commitments to Calcasieu Parish
In January 1995, the Company made a commitment to Calcasieu Parish to provide
certain payments to the Parish above and beyond the statutory admissions tax.
The Company committed to a $1 million initial payment, which was paid upon the
opening of the casino, and a $1 million annual payment for as long as the casino
is operating at its site in the Parish, but in no event less than six years. In
June 1995 the Company and the Parish entered into a definitive development
agreement whereby, in consideration for the payments to be made by the Company
to the Parish, the Parish is required to cooperate with and provide assistance
to the Company in obtaining and maintaining necessary permits and approvals to
operate its riverboat gaming casino.
Litigation
On September 21, 1994, an action was filed against Crown and the Company 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 the
Company's riverboat vessel based upon a letter of intent (allegedly reaffirming
a previous agreement entered into between Avondale and the Company). 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. The Company intends to
vigorously contest liability in this matter.
H - SITE CHANGE AND BUY OUT OF MANAGEMENT CONTRACT
In January 1995, the Company made the decision to abandon its site in St.
Charles Parish, Louisiana in favor of a new site in Calcasieu Parish, Louisiana.
As a result of this decision the Company recorded a charge of approximately
$3.1 million which represents the write-off of previously capitalized costs
specific to the St. Carles Parish site.
In March 1995, in connection with Crown's pending sale of a 50% interest in the
Company's common stock to LRGP, the Company bought out its existing casino
management agreement for $4 million and entered into
39
<PAGE>
a new management agreement with Casino America. The Casino America management
agreement has term of 99 years and provides for a management fee of (i) 2% of
"Revenues", as defined in the agreement (generally net gaming revenues less
gaming and admission taxes plus all other operating revenues), plus (ii)
10% of "Net Operating Income", as defined in the agreement, provided however,
the total management fee shall not exceed 4% of "Revenues."
I - Related Party Transactions
The Company had net advances from Crown of $3,076,887 and $9,304,590 as of April
30, 1995 and 1994, respectively. The Crown advances are noninterest bearing.
Advances from Crown have been used to fund the construction of the riverboat and
support pre-opening and development activities. Included in net advances at
April 30, 1995 is $1,500,000 relating to Crown common stock issued as payment
for expenses of the Company. In June 1995, in connection with Crown's sale of a
50% interest in the Company's common stock to LRGP, Crown contributed the
balance in its advance account to the Company.
Advances from LRGP bear interest at 11.5% per annum and are due three business
days after the New Notes are paid in full.
The Company incurred legal costs of $269,771 and $122,289 for the year ended
April 30, 1995 and the period from June 25, 1993 (acquisition date) to April 30,
1994, respectively, from a law firm of which a director of the Company is a
partner. In March 1995, this director became an executive officer of Crown.
J - Supplemental Cash Flow Information
Supplemental cash flow disclosures for the year ended April 30, 1995 and the
period from June 25, 1993 (acquisition date) to April 30, 1994 are as follows:
1995 1994
---------- ---------
Equipment acquired under capital leases $5,762,267
Interest paid, net of amount capitalized 6,115,878 $171
Non-cash capital contributions 3,377,345
K - Subsequent Events
On June 9, 1995 Crown sold a 50% interest in the Company's common stock to LRGP
for approximately $22 million total consideration.
On July 29, 1995 the Company's riverboat casino commenced gaming operations in
Calcasieu Parish, Louisiana.
On August 7, 1995, SCGC and LRGP jointly issued $38.4 million of senior secured
increasing rate notes and retired the Company's Senior Note (see Note D).
40
<PAGE>
St. Charles Gaming Company, Inc.
(A development stage enterprise)
Financial Statements and Independent Auditors' Report
For The Period From January 18, 1993 (Date of Inception)
Through June 24, 1993
41
<PAGE>
[LETTERHEAD OF FRED J. BASTIE & ASSOCIATES APPEARS HERE]
Independent Auditors' Report
Stockholder and Board of Directors
St. Charles Gaming Company, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of St. Charles Gaming Company,
Inc. (a Louisiana corporation and a development stage enterprise) as of June 24,
1993, and the related statements of operations, stockholder's equity, and cash
flows for the period from January 18, 1993 (date of inception) through June 24,
1993. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides 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 St. Charles Gaming Company,
Inc. at June 24, 1993 and the results of its operations and its cash flows for
the period from January 18, 1993 (date of inception) through June 24, 1993 in
conformity with generally accepted accounting principles.
/S/ Fred J. Bastie & Associates,P.C.
Dallas, Texas
October 22, 1993
42
<PAGE>
St. Charles Gaming Company, Inc.
(A development stage enterprise)
Balance Sheet
June 24, 1993
Assets
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash (Note b) $ 50,000
---------
Total current assets 50,000
License costs (Note b) 262,195
---------
Total assets $ 312,195
=========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 33,205
---------
Total current liabilities 33,205
Commitments (Note d)
Stockholder's equity:
Common stock, no par value, 100,000 shares
authorized, issued and outstanding 339,051
Deficit accumulated during the development stage (60,061)
---------
Total stockholder's equity 278,990
---------
Total liabilities and stockholder's equity $ 312,195
=========
</TABLE>
See accompanying notes to financial statements
43
<PAGE>
St. Charles Gaming Company, Inc.
(A development stage enterprise)
Statement of Operations
For The Period From January 18, 1993 (Date of Inception)
Through June 24, 1993
Revenue $ 0
General and administrative expenses 60,061
------
Net loss $(60,061)
-------
See accompanying notes to financial statements.
44
<PAGE>
St. Charles Gaming Company, Inc.
(A development stage enterprise)
Statement of Changes in Stockholder's Equity
For The Period From January 18, 1993 (Date of Inception)
Through June 24, 1993
<TABLE>
<CAPTION>
Accumulated
Common Stock Deficit Total
------------ ----------- -------
Shares Amount
-------------
<S> <C> <C> <C>
Balance, January 18, 1993 -- $ -- $ -- $ --
Issuance of 100,000 shares of
stock at no par value 100,000 339,051 -- 339,051
Net loss for the period -- -- (60,061) (60,061)
------- -------- --------- ---------
Balance, June 24, 1993 100,000 $339,051 $(60,061) $278,990
------- -------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
St. Charles Gaming Company, Inc.
(A development stage enterprise)
Statement of Cash Flows
For The Period From January 18, 1993 (Date of Inception)
Through June 24, 1993
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $ (60,061)
Increase in accounts payable 33,205
------
Net cash used by operating activities (26,856)
--------
Cash flows from investing activities:
Additions to license costs (262,195)
--------
Net cash used by investing activities (262,195)
---------
Cash flows from financing activities:
Capital contributions 339,051
--------
Net cash provided by financing activities 339,051
--------
Net increase in cash 50,000
Cash at beginning of period --
--------
Cash at end of period $ 50,000
-------
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
St. Charles Gaming Company, Inc.
(A development stage enterprise)
Notes to Financial Statements
June 24, 1993
NOTE A - BASIS OF PRESENTATION
- ------------------------------
St. Charles Gaming Company, Inc., a Louisiana corporation, (the "Company") was
incorporated on January 18, 1993 for the purpose of operating a riverboat gaming
casino to be based in St. Charles Parish, Louisiana. In March 1993, the Company
filed an application with the Louisiana Riverboat Gaming Commission ("Gaming
Commission") to obtain preliminary approval to operate a riverboat gaming casino
in St. Charles Parish. On June 18, 1993, the Company's application was
approved.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Cash and Cash Equivalents
- -------------------------
Cash consists of the balance in a bank account held by a related third party
(see Note C) as trustee for the Company. Subsequent to June 24, 1993, the
balance was transferred to the Company's new owner (see Note E).
For purposes of the statement of cash flows, the Company considers all
investments with a maturity of three months or less when purchased to be cash
equivalents.
License Costs:
- --------------
Costs incurred in the licensing application process are capitalized and will be
amortized over a five year period, the initial period of a Louisiana riverboat
gaming license, from the point in time a license is issued.
Income Taxes:
- -------------
At June 24, 1993, the Company had a net operating loss available for financial
statement and income tax purposes of approximately $60,000, which expires in
2008 if not fully utilized. The net operating loss may be used to offset
future taxable income subject to Section 382 of the Internal Revenue Code.
Development Stage Enterprise
- ----------------------------
The Company is considered to be in the "development stage" as substantially all
of its efforts have been expended in the license application process and planned
principal operations have not yet commenced.
47
<PAGE>
St. Charles Gaming Company, Inc.
(A development stage enterprise)
Notes To Financial Statements-Continued
June 24, 1993
NOTE C - RELATED PARTY TRANSACTIONS
- -----------------------------------
On March 25, 1993, the Company entered into an Agreement for Project Coordinator
("Agreement") with Riverboat Gaming Consultants, Inc., ("Riverboat"), a
corporation owned by an officer of the Company. The Agreement called for
Riverboat to act as project coordinator in order to assist the Company in
obtaining all necessary licenses, permits, and authorizations in order to
conduct riverboat gaming operations, in exchange for a specified fee. The
Agreement also contained certain other compensation provisions which were
contingent upon future events. This Agreement was terminated immediately
prior to the closing of the Stock Purchase Agreement discussed in Note E.
NOTE D - COMMITMENTS
- --------------------
The Company entered into a management agreement, effective March 29, 1993,
whereby it agreed to pay a casino management company a percentage of gross
gaming revenue and net operating income, as defined, in exchange for services.
The agreement expires on the earlier of seven years from the first day of actual
gaming operations, or the expiration or termination of any site lease or gaming
license rights. At June 24, 1993, no fees have been paid or accrued under this
agreement.
NOTE E - SUBSEQUENT EVENT
- -------------------------
On June 11, 1993, the sole stockholder of the Company entered into a Stock
Purchase Agreement with Crown Casino Corporation ("Crown", formerly Skylink
America Incorporated) to sell all of the issued and outstanding shares of stock
of the Company and enter into a non-competition agreement in exchange for
1,200,000 shares of Crown common stock and the payment of $500,000. The Stock
Purchase Agreement was completed on June 25, 1993.
The Agreement for Project Coordinator (Note C) was terminated immediately prior
to the closing of the Stock Purchase Agreement on June 25, 1993.
Management of Crown has committed to advance monies to the Company as necessary
to support its future working capital needs.
48
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial statements
are based on the historical financial statements of the Company adjusted to give
effect to LRGP's purchase of a 50% interest in SCGC on June 9, 1995 (the
"Initial Acquisition") and the Company's purchase, on May 3, 1996, of the 50%
interest in SCGC owned by Crown Casino (the "SCGC Acquisition"). The unaudited
pro forma condensed consolidated balance sheet as of January 31, 1996 gives
effect to the SCGC Acquisition as if such acquisition had occurred on January
31, 1996. The unaudited pro forma condensed consolidated statement of income
for the nine months ended January 31, 1996, gives effect to the Initial
Acquisition and the SCGC Acquisition as if such acquisitions had occurred on May
1, 1995. The unaudited pro forma condensed consolidated statement of income for
the year ended April 30, 1995 gives effect to the Initial Acquisition and the
SCGC Acquisition as if such acquisitions had occurred on May 1, 1994.
The Initial Acquisition and the SCGC Acquisition have been accounted for by the
Company using the purchase method of accounting. The pro forma adjustments are
based upon currently available information and certain assumptions that
management believes are reasonable. The actual purchase price adjustments will
be determined based on the fair market value of the assets and liabilities
acquired and may differ significantly from the amounts reflected in the pro
forma adjustments.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of the financial position or results of operation which
would have been achieved had the Initial Acquisition and the SCGC Acquisition
occurred on the indicated dates, nor are they necessarily indicative of the
results of future operations. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the Company's and SCGC's
financial statements and notes thereto included or incorporated by reference
herein.
On May 3, 1996, the Company purchased all of the common stock of Grand Palais
Riverboat, Inc. ("GPRI") as reorganized. The business of GPRI consisted
entirely of developing and operating the Grand Palais riverboat casino in New
Orleans, Louisiana. The Grand Palais began gaming operations on March 29, 1995
and, due to poor operating results, ceased operations on June 6, 1995. GPRI was
forced into involuntary bankruptcy on July 26, 1995 and has been completely non-
operational since closing on June 6, 1995. The Company intends to move the
riverboat and gaming equipment owned by GPRI to Lake Charles, a city on the
western border of Louisiana. Lake Charles is approximately 200 miles from New
Orleans, and the primary market for Lake Charles is the Houston, Texas
metropolitan area. Historical or pro forma financial information for GPRI has
not been provided because GPRI is not currently operating and has not been
operating since June 6, 1995, and because the pre-bankruptcy operations of GPRI
were very limited and substantially different than the post-acquisition
operations. Furthermore, disclosure of historical or pro forma financial
information of GPRI would not be relevant to understanding the current or future
operations of the Company.
49
<PAGE>
Casino America, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
January 31, 1996
<TABLE>
<CAPTION>
Purchase
As Reported (1) Adjustments Pro Forma
---------------- -------------- --------------
<S> <C> <C> <C>
Assets
Current assets $ 15,539,000 $ 15,539,000
Property and equipment - net 131,729,000 131,729,000
Other assets:
Investment in and advances to affiliates 30,044,000 12,950,000 (2) 42,994,000
Notes receivable - related party 4,700,000 4,700,000
Other investments 2,250,000 2,250,000
Property held for development or sale 15,866,000 15,866,000
Other non current assets 11,167,000 11,167,000
---------------- -------------- -------------
64,027,000 12,950,000 76,977,000
---------------- -------------- -------------
Total assets $ 211,295,000 $ 12,950,000 $ 224,245,000
================ ============== =============
Liabilities and stockholders' equity
Current liabilities $ 34,024,000 $ 34,024,000
Long-term debt, net of current maturities 131,300,000 131,300,000
Deferred income taxes 5,496,000 5,496,000
Stockholders' equity:
Common stock 150,000 18,500 (2) 168,500
Additional paid-in capital 7,796,000 12,931,500 (2) 20,727,500
Retained earnings 32,529,000 32,529,000
---------------- -------------- -------------
Total stockholders' equity 40,475,000 12,950,000 53,425,000
---------------- -------------- -------------
Total liabilities and stockholders' equity $ 211,295,000 $ 12,950,000 $ 224,245,000
================ ============== =============
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and LRGP account for their investments in SCGC using the equity
method. Summarized historical balance sheet information for SCGC is as
follows:
<TABLE>
<CAPTION>
January 31,
1996
-------------
<S> <C>
Current assets $ 4,226,527
Property and equipment, net 63,286,339
Other assets 10,554,174
-------------
Total assets $ 78,067,040
=============
Current liabilities $ 83,398,236
Long-term capital lease obligations 1,645,767
Stockholders' deficit (6,976,963)
-------------
Total liabilities and stockholders' deficit $ 78,067,040
=============
</TABLE>
(2) Reflects 1,850,000 shares of the Company's common stock, at a market value
of $7.00 per share, issued as consideration for the SCGC Acquisition.
50
<PAGE>
Casino America, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
For The Nine Months Ended January 31, 1996
<TABLE>
<CAPTION>
Purchase
As Reported (1) Adjustments Pro Forma
-------------- -------------- -------------
<S> <C> <C> <C>
Revenue $ 111,527,000 $ 111,527,000
Operating expenses 113,226,000 113,226,000
-------------- -------------- -------------
Operating loss (1,699,000) (1,699,000)
Interest expense, net (10,169,000) (10,169,000)
Equity in income (loss) of joint ventures 12,207,000 (4,264,000)(2) 7,943,000
Loss on disposal of equipment (1,121,000) (1,121,000)
-------------- -------------- -------------
Loss before income taxes (782,000) (4,264,000) (5,046,000)
Income taxes (1,387,000) 50,000 (3) (1,337,000)
-------------- -------------- -------------
Net loss $ (2,169,000) $ (4,214,000) $ (6,383,000)
============== ============== =============
Net loss per common share $(0.14) $(0.37)
Weighted average common shares 15,580,000 1,850,000 (4) 17,430,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and LRGP account for their investments in SCGC using the equity
method. Summarized historical income statement information for SCGC for the
nine months ended January 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Total revenue $ 35,421,928
Operating loss (3,684,098)
Loss before income taxes (8,083,797)
Net loss $ (6,716,496)
(2) Adjusted to reflect:
The Company's equity in SCGC's net loss $ 3,358,000
The Company's share of LRGP's equity in SCGC's
net loss for the period from May 1, 1995 to
the Initial Acquisition (June 9, 1995) 247,000
Amortization of the excess of the carrying
amount of the Company's investment in SCGC
over the Company's share of SCGC's net
assets 489,000
The Company's share of the amortization of the
excess of the carrying amount of LRGP's
investment in SCGC over LRGP's share of SCGC's
net assets, for the period from May 1, 1995
to the Initial Acquisition (June 9, 1995) 44,000
The Company's portion of the incremental interest
expense on the 11.5% $20 million note issued by
LRGP in connection with the Initial
Acquisition (June 9, 1995) 126,000
------------
$ 4,264,000
============
</TABLE>
The excess of the carrying amount of the investment in SCGC over the share
of SCGC's net assets, for both the Company and LRGP, is being amortized on
the straight-line basis over an estimated useful life of 25 years.
51
<PAGE>
(3) Reflects the income tax benefit of the incremental interest expense on the
11.5% $20 million note. The Company's equity in the net loss of SCGC and the
amortization of the Company's excess investment in SCGC are not deductible
for tax purposes.
(4) Reflects issuance of 1,850,000 shares of the Company's common stock as
consideration for the SCGC Acquisition.
52
<PAGE>
Casino America, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
For The Year Ended April 30, 1995
<TABLE>
<CAPTION>
Purchase
As Reported (1) Adjustments Pro Forma
------------- ------------- -------------
<S> <C> <C> <C>
Revenue $ 127,537,000 $ 127,537,000
Operating Expenses 107,163,000 107,163,000
------------- ------------- -------------
Operating Income 20,374,000 20,374,000
Interest expense, net (10,046,000) (10,046,000)
Equity in income (loss) of joint ventures 19,904,000 (15,746,000)(2) 4,158,000
Other (178,000) (178,000)
------------- ------------- -------------
Income before income taxes 30,054,000 (15,746,000) 14,308,000
Income taxes (11,985,000) 460,000 (3) (11,525,000)
------------- ------------- -------------
Net Income $ 18,069,000 $(15,286,000) $ 2,783,000
============= ============= =============
Net income per common and common equivalent share:
Primary $1.16 $0.16
Fully diluted $1.15 $0.16
Weighted average common and common equivalent shares:
Primary 15,604,000 1,850,000 (4) 17,454,000
Fully diluted 15,667,000 1,850,000 (4) 17,517,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and LRGP account for their investments in SCGC using the
equity method. Summarized historical income statement information for
SCGC for the year ended April 30, 1995 is as follows:
Total revenue $ --
Loss before income taxes (21,729,804)
Net loss $ (18,902,321)
SCGC's loss before income taxes includes $7.1 million related to the
buy-out of a management contract and site abandonment costs associated
with SCGC's St. Charles Parish development.
(2) Adjusted to reflect:
The Company's equity in SCGC's net loss $ 9,451,000
The Company's share of LRGP's equity in
SCGC's net loss 4,726,000
Amortization of the excess of the carrying
amount of the Company's investment in SCGC
over the Company's share of SCGC's net assets. 172,000
The Company's share of the amortization of
the excess of the carrying amount of LRGP's
investment in SCGC over LRGP's share of SCGC's
net assets 247,000
The Company's portion of the interest expense on
the 11.5% $20 million note issued by LRGP in
connection with the Initial Acquisition 1,150,000
----------
$15,746,000
The excess of the carrying amount of the investment in SCGC over the share of
SCGC's net assets for both the Company and LRGP, is being amortized on the
straight-line basis over an estimated useful life of 25 years.
53
<PAGE>
(3) Reflects the income tax benefit of the interest expense on the 11.5%
$20 million note. The Company's equity in the net loss of SCGC and the
amortization of the Company's excess investment in SCGC are not
deductible for tax purposes.
(4) Reflects issuance of 1,850,000 shares of the Company's common stock as
consideration for the SCGC Acquisition.
54
<PAGE>
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.
CASINO AMERICA, INC.
-------------------
(Registrant)
Date: June 4, 1996 By: /s/ Allan B. Solomon
----------------------------
Allan B. Solomon
Executive Vice President,
General Counsel and
Secretary
55
