As filed with the Securities and Exchange Commission on June 1,
1996
Registration No. 0-20217
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INITIAL PUBLIC OFFERING
UNDER
FORM SB-2
CONTINENTAL WELLNESS CASINOS, INC.
(Name of small business issuer in its charter)
1820 E. Garry Avenue Suite 109
Santa Ana, California 92705
(714) 477-0370
__________________________________________________________________
(Address, and telephone number, of principal
executive offices and principal place of business)
Fred Cruz, M.D.
President and Chief Executive
1820 E. Garry Avenue Suite 109
Santa Ana, California 92705
________________________________________________________________________
(Name, address, and telephone number of agent for service)
Copy to:
Lewis Akmakjian, Manager
Toluca Pacific Securities Corporation
124 E. Olive Avenue
Burbank, California 91502
(213) 849-5811
________________________________________________________________________
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this registration
statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to rule 415 under the Securities Act of
1933, please check the following box : {X}
________________________________________________________________________
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered Be Registered Per Security(1) Offering price(1) Registration Fee
Common Stock Purchase 8,000,000 (2) (3) (4)
Warrants (2) . . . . .
Class "A"
Common Stock, $.003 par 8,000,000 $5.00 $2,500.00(3)
value(3) . . .
Class "A"
Total . . . . . . . . . . $40,000,000 $2,500.00(4)
<FN>
(1)Estimated solely for the purpose of calculating the registration fee.
(2)Represents 8,000,000 Common Stock Purchase Warrants (the "Warrants" to
be distributed pro-rata to the shareholders of record of the Company on the
effective date of this Registration Statement, at the rate of one Warrant
for each four shares of Common Stock held.
(3)Represents 8,000,000 shares of Common Stock, par value of $.003 per
share, issuable upon exercise of the Warrants. Also registered hereunder are
an indeterminate number of shares of Common Stock that may become issuable
pursuant to antidilution adjustments.
(4)Paid with original filing.
</FN>
</TABLE>
____________________________
____________________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registration
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, JUNE 1, 1996
Prospectus
CONTINENTAL WELLNESS CASINOS, INC.
8,000,000 Shares
Continental Wellness Casinos, Inc., a Colorado corporation (the
"Company") is hereby offering for sale 8,000,000 shares of its common stock,
par value $.003 per share (the "Common Stock"), issuable upon exercise of
8,000,000 Common Stock Purchase Warrants ("Warrants") being distributed to the
shareholders of the Company at the rate of one warrant for each four shares
owned of record on the date of this Prospectus. Each Warrant entitles the
holder to receive one share of Common Stock at a price of $5.00 per share of
the Class "A" Common Shares, commencing on the date of this Prospectus, until
December 31, 1996.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
THE COMPANY HAS ENGAGED IN NO OPERATIONS TO DATE. AN INVESTMENT IN THE
SECURITIES OF THE COMPANY IS HIGH SPECULATIVE AND SHOULD BE MADE ONLY BY
THOSE PERSONS WHO CAN AFFORD A LOSS OF THEIR ENTIRE INVESTMENT.
See "Risk Factors" and "Dilution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Underwriting Discounts Proceeds
Price to Public And Commissions(1) To Company(2)
Per Share $ 5.00 $ -- $ 5.00
Total $ 40,000,000.00 $ -- $40,000,000.00
<FN>
(1)The Shares are being offered on a straight best efforts, no minimum
basis by the Company upon exercise of the Warrant. No person has agreed to
exercise any Warrants or to purchase or take down any of the Shares. There
can be no assurance that any or all of the Warrants will be exercised. The
Company has the right to reduce the exercise price of the Warrants at any
time. The Company may extend the Warrant exercise period until one year from
the date of this Prospectus, and may vary the terms of the Warrants in any
extension period.
(2)Before deducting approximately $40,000 for legal, accounting and other
expenses of the offering.
</FN>
</TABLE>
The date of this Prospectus is __________________, 1996
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). The Company has also filed a
Registration Statement on Form SB-2 with the Commission with respect to the
offering made by this Prospectus. This Prospectus does not include all of the
information included in the Registration Statement. Copies of the
Registration Statement, as well as such reports and proxy statements and
other information filed by the Company with the Commission, can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its
Regional Offices located at 7 World Trade Center, New York 10048, and at
Citibank Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission, Washington, D.C. 20549,
during regular business hours.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in its
entirety by such reference. The Company will provide, without charge upon
oral or written request of any person, a copy of any information incorporated
by reference herein. Such request should be directed to the Company
at 25872 Evergreen Road, Laguna Hills, California 92653-5402, telephone
(714) 951-6314.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including
notes thereto appearing elsewhere in this Prospectus. The
information in this Prospectus gives effect to the Company
sale of securities but does not give effect to the exercise
of any Warrants. Each prospective investor is urged to read
this Prospectus in its entirety.
The Company
The Company is engaged in the mining development industry. Since
October 22, 1974, the Company has owned and operated thirty-nine (39) mines
and one (1) mill site at Quincy, Plumas County, California and is engaged in
the exploration of said mines for the production of Precious metals like
gold, silver and Platinum Group. In addition the company will be engaged in
the hotel and casino industry at Las Vegas, Nevada by acquiring The Maxim
Hotel and Casino Las Vegas, Nevada the Company intends to convert all the
hotel rooms into a Life Extension Membership Club or a Wellness Resort for
the purpose of extending the life of our members by a program of Preventive
Medicine which includes Genes Testing, Exercise and Nutrition which will
extend the life of our members up to one hundred (100) years, health
permitting.
The Company believes that its competitive advantage lies in its ability
to provide relatively low cost Preventive Medicine with respect to the
ability of our members to receive a comprehensive Life Extension Program
with a free vacation for one (1) week at Las Vegas Famous Resort and the
opportunity of full reimbursement for the cost of the program from their
insurance carrier.
The Company will operate the Casino at the Maxim Hotel and Casino upon
receiving full approval from Nevada Gaming Control and the Casino will
produce great revenues for the Company. The Casino industry is one of the
most profitable industries in the national market.
The executive offices of the Company are located at 25872 Evergreen
Road, Laguna Hills, California 92653-5402, telephone (714) 951-6314.
The Offering
Securities Offered . . . 8,000,000 shares of Common Stock are offered upon
exercise of 8,000,000 Common Stock Purchase Warrants ("Warrants").
The Warrants will be distributed pro-rata to all shareholders of
record as of the date of this Prospectus, on the basis of one Warrant for each
four shares held as of such date. See "Description of Securities" and
"Plan of Distribution."
Common Stock Outstanding Before Offering: . .90,028.877
Common Stock Outstanding After Offering:. . 106,028,877
Use of Proceeds. . . . . The net proceeds of this offering, estimated to be
$35,710,000 if all the Warrants are exercised, will be used to retire working
capital indebtedness, pay marketing costs, and for working capital purposes.
See "Use of Proceeds."
Risk Factors . . . . . . Investment in the securities offered hereby involves
a high degree of risk and immediate substantial dilution. See "Risk Factors."
Electronic Bulletin Board symbol . . . .CWCI (applied for)
<PAGE>
RISK FACTORS
The securities offered hereby are speculative, and prospective investors
should be aware that purchase of these securities involves a high degree of
risk. Accordingly, the securities should be purchased only by persons who can
afford to lose their entire investment. The following special risks, among
others, should be considered:
1. Limited History of Business Operations. The Company has limited
operating history, having commenced operations in 10-22-74. There can be no
assurance that the Company will continue to be profitable in the future.
Because of its limited operating history, the Company's use of proceeds from
this offering could vary from the estimates given under the caption "Use of
Proceeds." See "Use of Proceeds."
2. Sufficiency of Funds. The business of casinos, hotel and life
extension can require significant amounts of capital. Management believes
that the proceeds of this offering will be sufficient to satisfy its
anticipated cash requirements for at least the 12 months following the
completion of this offering; however, there can be no assurance that any or
all of the Warrants will be exercised and in such event the Company may need
further financing for purchase of equipment and for working capital purposes
and to continue growth of its operations, of which there can be no assurance,
and there is no assurance that the Company will be able to obtain
additional financing on satisfactory terms. No arrangements have been made
at this time to raise capital other than through this offering and the Company
has not engaged in discussions with any institutional or private lenders
for such financing. See "Use of Proceeds" and "Business." Any such
financing may involve the issuance of additional shares of Common Stock
without the prior notification or approval of shareholders, including the
purchasers in this offering.
3. Competition. Competition is intense in the hotel and casino
industries. The Company competes not only with similar enterprises in the
area, but also with similar companies all over the world. Many of the
Company's competitors have substantially greater financial and managerial
resources than the Company. See "Business - Competition."
4. Dependence on Key Personnel. The Company is dependent upon members
of management with respect to administration, production and marketing. The
loss of the services of any of these individuals would materially and
adversely affect the proposed activities of the Company. The Company has no
employment contract with any member of management and has not obtained and
does not intend to obtain key man life insurance on the life of any
member of management. See "Management."
5. Control by Insiders. At the completion of this offering, directors
and officers of the Company and other principal stockholders and their
families will own 61% of the shares of the Company's outstanding Common
Stock, or approximately 61,000,000 of the outstanding voting stock, which
will likely give them a controlling interest in the Company's Common Stock and
the ability to elect the entire Board of Directors. See "Principal
Stockholders."
6. Investment by Current Stockholders. The Company's current
stockholders purchased their 90,028,877 shares of Common Stock for aggregate
consideration of cash and services or $.25 per share. These stockholders do
not intend to contribute additional amounts of ash or other property to the
Company in the future.
7. Limited Public Market. The market for the Company's Common Stock
has been limited and sporadic, and there can be no assurance that a trading
market will develop following this offering, or if such a trading market
develops, that it will be sustained. No person has agreed to make a market
in the Common Stock, and market making activities could be discontinued at
any time.
8. Dilution. Purchasers of the Shares offered by this Prospectus will
experience immediate and substantial dilution in that the net tangible book
value of the Common Stock outstanding after the offering will be substantially
less than the per share public offering price of the Shares offered hereby.
See "Dilution."
9. Shares Eligible for Future Sale. Upon sale of the 8,000,000 Shares
offered hereby, the Company will have outstanding 90,028,877 shares of Common
Stock, including 72,661,029 shares of Common Stock which are "restricted
securities," as defined under Rule 144 promulgated under the Securities Act
of 1933. Such shares will be subject to resale restrictions and will be
ineligible for sale in the public market until June 1955, after which sales
may be made pursuant to Rule 144 under the Securities Act. Sales of
substantial amounts of the Common Stock of the Company in the public market
could adversely affect prevailing market prices. See "Description of
Securities--Shares Eligible for Future Sale."
10. Foreign Operations. The Company does not conduct any foreign
operations or business outside of the United States.
11. Currency Fluctuation/Exchange Rates. The Company had no currency
fluctuation or foreign exchange rate to report.
12. Current Registration Statement and Blue Sky Qualification Required
for Exercise of Warrants. In order for a holder of a Warrant to exercise it,
there must be a current registration statement on file with the Securities
and Exchange Commission and various state securities regulatory authorities
to continue registration of the Shares underlying the Warrant. The Company
has undertaken to keep (and intends to keep) the registration
statement filed in connection with this offering effective with respect to
the Warrants with the Securities and Exchange Commission and state securities
authorities for so long as the Warrants remain exercisable. However,
maintenance of an effective registration statement will subject the Company to
substantial continuing expenses for legal and accounting fees and there can
be no assurance that the Company will be able to maintain a current
registration statement until December 31, 1996 when the Warrants expire.
Moreover, Blue Sky Qualification of the Warrants and the underlying Shares will
be undertaken only in those states in which the Company's
shareholders reside as of the date of this prospectus. If the Warrants are
acquired in over the counter purchases or otherwise by residents of
jurisdictions where the Shares underlying the Warrants were not registered or
otherwise qualified for sale, such persons would not be able to exercise
their Warrants unless the Shares issuable thereunder were registered in the
applicable jurisdiction or an exemption from such registration were
available, of which there can be no assurance. The Company will use its best
efforts to register the Shares underlying the Warrants in all states where
Warrant holders reside, unless the cost of such registration, in relation to
the number of Warrants potentially exercisable, is clearly disproportionate.
In addition, due to the Company's limited history or operations, it is possible
that one or more states where Warrant holders reside will not permit
demonstrated or other criteria complied with. The value of the Warrants may
be affected adversely by the Company's inability to maintain an effective
registration statement with respect to the underlying Shares or by the
non-qualification of the underlying Shares in the state of such holder's, or a
potential purchaser's residence. Holders of Warrants may contact the
Company in order to ascertain the states in which the Shares underlying the
Warrants will be qualified for sale.
13. Arbitrary Offering Price. The exercise price and other terms of
the Warrants have been determined arbitrarily by the Company and do not bear
any relationship to the assets, results of operations, or book value of the
Company, or any other established criteria of value. Purchasers of
the Shares underlying the Warrants will be exposed to a substantial risk of a
decline in the market price of the Common Stock after this offering, if a
market develops. See "Plan of Distribution." The Company is applying for
listing on NASDAQ National Market and the Pacific Stock Exchange.
14. Risks of Low priced Stocks. The Common Stock is not eligible for
quotation on the Automated Quotation System of the National Association of
Securities Dealers, Inc. ("NASDAQ") Trading, if any, in the Common Stock will
be conducted in the over-the-counter market in the so-called "pink
sheets," or the NASD's "Electronic Bulletin Board." Consequently, an investor
may find it difficult to dispose of, or to obtain accurate quotations as to
the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, or the
Company having $2,000,000 in net tangible assets, trading in the Common
Stock is covered by Rule 15c2-6 promulgated under the Securities Exchange
Act of 1934 for non-NASDAQ and non-exchange listed securities. Under such
rule, broker/dealers who recommend such securities to persons other than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with an et worth in excess of
$1,000,000 or an annul income exceeding $200,000 or $300,000
jointly with their spouse) must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement
to a transaction prior to sale. Securities are also exempt from this rule
if the market price is at least $5.00 per share, or for warrants, if the
warrants have an exercise price of at least $5.00 per share.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure related to the market for penny stocks and for trades
in any stock defined as a penny stock. The Commission has adopted
regulations under such Act which would define a penny stock to be
any NASDAQ or non-NASDAQ equity security that has a market price or exercise
price of less than $5.00 per share and allow for the enforcement against
violators of the proposed rules. In addition, unless except, the rules
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule prepared by the Commission explaining important concepts
involving the penny stock market, the nature of such market, terms used in such
market, the broker/dealer's duties to the customer, a toll-free telephone
number for inquiries about the broker/dealer's disciplinary history, and the
customer's rights and remedies in case of fraud or abuse in the sale.
Disclosure must also be made about commissions payable to both the broker/
dealer and the registered representative, current quotations for the securities,
and if the broker/dealer is the sole market-maker, the broker/dealer must
disclose this fact and its control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny
stocks.
While many NASDAQ stocks are covered by the definition of
penny stock, transactions in NASDAQ stock are exempt from all but the sole
market-maker provision for (I) issuers who have $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three
years), (ii) transactions in which the customer is an institutional accredited
investor and (iii) transactions that are not recommended by the
broker/dealer. In addition, transactions in a NASDAQ security directly with the
NASDAQ market-maker for such securities, are subject only to the sole
market-maker disclosure, and the disclosure with regard to commissions to be
paid to the broker/dealer and the registered representatives.
Finally, all NASDAQ securities are exempt if NASDAQ raises
its requirements for continued listing so that any issuer with less
than $2,000,000 in net tangible assets or stockholder's equity would
be subject to delisting. These criteria are more stringent than the recent
increase in NASDAQ's maintenance requirements.
For as long as Company's securities are subject to the rules on penny
stocks, the market liquidity for the Company's securities will be severely
affected by limiting the ability of broker/dealers to sell the Company's
securities and the ability of purchasers in this offering to sell their
securities in the secondary market.
15. No Cash Dividends. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. To date, the Company has not paid any cash
dividends. The Board does not intend to declare any cash dividends in the
foreseeable future, but instead intends to retain all earnings, if any, for
use in the Company's business operations. Since the Company may be required
to obtain additional financing, it is likely that there will be
restrictions on the Company's ability to declare any dividends. See "Market
Price of Common Stock" and "Description of Securities."
DILUTION
The difference between the public offering price per share
of Common Stock and the pro form net tangible book value per share of
Common Stock after this offering constitutes the dilution to investors in this
offering. Net tangible book value per share is determined by dividing the
net tangible book value of the Company (total tangible assets
less total liabilities) by the number of outstanding shares of Common Stock.
At October 31, 1995, the Company's Common Stock had a net
tangible book value of $30,421,000 or $0.78 per share. After giving effect to
the receipt of the net proceeds from the sale of all Shares offered hereby,
at a public offering price of $5.00 per Share, the pro forma net tangible
book value of the Company at December 31, 1996 would have been $70,421,000 or
$1.84 per share, representing an immediate increase in net tangible book
value of $96 per share to the present stockholders, and immediate
dilution of $1.08 per share to public investors. The following table
illustrates dilution to public investors on a per share basis, assuming all
Warrants are exercised. To the extent less than all Warrants are exercised,
net proceeds to the Company will be less and dilution to investors in this
offering will be proportionately greater.
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share . . . . . . . . . . . . $5.00
Net tangible book value per share before offering. $0.78
Increase per share attributable to public investors . . $0.76
Pro forma net tangible book value per share after offering. 1.84
Dilution per share to public investors. . . . $1.08
</TABLE>
The following table sets forth with respect to the present stockholders
and public investors, a comparison of the number of shares of Common Stock
owned by the present stockholders, the number of shares of Common Stock to be
purchased from the Company by the purchasers of the 8,000,000 Shares offered
hereby and the respective aggregate consideration paid to the Company and the
average price per share.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Percent
Percent Total of Total Average
Shares of Total Consi- Consi- Price
Stockholders Purchased Shares deration deration Per Share
Present Stockholders 8,000,000 100% $40,000,000 100% $5.00
Public Investors 8,000,000 100% 40,000,000 100% $5.00
Total 16,000,000 100% $80,000,000 100% $5.00
</TABLE>
<PAGE>
MARKET PRICE OF COMMON STOCK
The Common Stock has traded on the "pink sheets" maintained by the
National Quotation Bureau and on the NASD's Electronic Bulletin Board since
April 5, 1990. The following table gives the high and low bid prices since
April 5, 1990, as reported by the market makers of the Common Stock. These
prices are without retail mark up of markdowns and commissions, and may not
reflect actual transactions. The Company does not believe that trading of
its common stock currently is reflective of an established trading market.
<TABLE>
<CAPTION>
<S> <C> <C>
Period Low Bid High Bid
1990
Second Quarter
(Commencing) $.50 $.75
Third Quarter .50 .75
Fourth Quarter .50 .75
1991
First Quarter -- --
Second Quarter -- --
Third Quarter -- --
Fourth Quarter -- --
1992
First Quarter -- --
Second Quarter -- --
Third Quarter -- --
Fourth Quarter -- --
1993
First Quarter -- --
Second Quarter -- --
</TABLE>
The Common Stock does not currently trade. As of January 1, 1994,
there were approximately 115 holders of Company common stock.
The Company has not paid any dividends on its common stock. The
Company currently intends to retain any earnings for use in its business, and
therefore does not anticipate paying cash dividends in the foreseeable future.
<PAGE>
USE OF PROCEEDS
If all 8,000,000 Warrants are exercised, of which there can be no
assurance, the net proceeds to the Company will be approximately $7,200,000
after deducting offering expenses of approximately $800,000. The Company
intends to utilize the net proceeds during the 12-month period following the
offering as follows. If less than all of the Warrants are exercised, the
proceeds of this offering will be sed first to purchase equipment, and for
consolidation of assembly operations, and then pro-rata for the other
purposes set forth herein.
<TABLE>
<CAPTION>
<S> <C>
Equipment $ 2,488,700
Accounts Payable 30,226,000
Working Capital 3,081,900
Consolidation of Assembly Operations 1,080,000
Accrued Salaries 38,600
Additional Sales Personnel 1,035,000
Accrued Indebtedness 9,500
Total $37,960,000
Equipment includes the following:
Auto Insertion PCR Gene Testing $ 150,000
Chemical Analyzer 25,000
Semi Auto Medic Equipment/Used (3) 30,000
Medical Supporting Equipment 1,040,000
Printing Equipment (1) 100,000
Preparation Equipment (1) 20,000
Marketing Equipment 20,000
Medical Publications 7,500
Medical tech Manuals 5,000
Laboratory Miscellaneous Equipment 15,000
Refrigeration Equipment 8,000
Total Medical Equipment $ 1,420,500
Computer PC 486DX 33Mhz
4MB Ram 200Mb Hard Disk (8) $ 302,000
Printers (4) 112,700
Laser Printers (2) 211,300
Peripherals 203,000
Software 200,000
Total Computer Equipment $ 1,029,100
Other Office Equipment 39,100
Total Equipment $ 2,488,700
</TABLE>
The purchase of the above equipment will enable the Company to bid on
additional larger Life Extension projects.
Accounts Payable includes the purchase of Maxim Hotel and Casino.
Consolidation of Assembly Operations represents the cost of leasehold
improvements and moving expenses to consolidate the contract medical
operations for Life Extension Program at the Maxim Hotel and Casino, Las
Vegas, Nevada.
Accrued Salaries includes amounts due to indirect and managerial
personnel.
Additional Sales Personnel includes the cost of advertisement, travel
and training of personnel for the states of California, Oregon,
Washington, Nevada, Utah, Colorado, Arizona, New Mexico, and Texas.
Accrued indebtedness includes amounts due to lawyers and accountants.
The Company does not intend to use the proceeds of this offering to pay down
its note.
Pending use of all the proceeds, the Company will make temporary
investments of the proceeds, including but not limited to interest bearing
savings accounts, certificates of deposit, money market certificates and
other liquid assets.
The foregoing list of expenditures is an estimate and will vary due to
changing circumstances, such as variations in additional contracts which may
be acquired. Any change in the application of proceeds will occur solely in
the discretion of the Company's Board of Directors.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary of significant Accounting Policies Nature of the Business
Continental Wellness Casinos, Inc., a Colorado corporation was incorporated
October 29, 1974. The company is engaged in the discovery and development of
previous metals mining properties located in Quincy, Plumas County,
California which consists of 750 acres of land where 39 unpatented mines
claims are located. All assessment work has been done at the mines and all
the reports had been filed with the Bureau of Land Management, Sacramento,
California and the County of Plumas in accordance with the mining rules and
regulations. The company has a permit to operate on small scale, the mines
from the United Sates Forestry Department, Quincy, California. The company is
intent on going in a big mining venture to recover the gold and silver in the
proven reserves as soon as the price of gold increases in value.
The Company is in the process of getting their Live Longer Center, a
Longevity Members Association which the purpose is to make people live longer
by using preventive Medicine with the genes testing for discovery of
predominant illness in the different subjects and repair said genes by
genetic engineering followed with a program of exercise and nutrition.
The member signs for a period of ten years and receives one week of care at
the center. The cost for this program is $1,000.00 per year per member and
the fee is refundable by the member group insurance and it is also tax
deductible making it a good way to slow down the cost of medical treatments
that is out of control. For the starting of this program the company is using
the real estate that was acquired.
The Company has no other proposed sources of credit or cash other than
from its operations and as proposed by this offering. In the event less than
all of the Warrants are exercised, the Company will be required to seek
additional debt or equity financing. There can be no assurance that
such financing can be obtained. The Company may also sell its New Jersey
property to obtain cash for operations.
Income taxes are provided on income for the period in which items of
income and expense are earned or incurred regardless of when they are
recorded for income tax purposes. In December 1994 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards Number
109, "Accounting for Income Taxes" (FASB 109). Adoption of FASB 109 is
required for fiscal years beginning after December 15, 1994. The Company has
adopted FASB 109 for its fiscal year ended December 31, 1995. The
adoption of FASB 109 is not expected to have an adverse impact on the
Company's financial position.
<PAGE>
BUSINESS
The Basic Plan
A. Basic Strategy - Wellness Resort and Casino, Las Vegas, Nevada is a
wholly owned subsidiary of Continental Wellness Casinos, Inc., a publicly
traded company (CWCI) which operates a Life Extension Club where the members
are trained in how to live a longer life and a healthy life free of any
diseases.
B. Overview of the Wellness Resort or Life Extension Club in the United
States. The Life Extension Program in the United States are very limited and
people like to live longer and the market is there for the first company that
starts this project to benefit from the need of the program because of the
large cost of medical cases that amount to about 908 Billion and continues to
increase with no end in site.
C. Characteristic of the Life Extension - The Life Extension Program that we
are engaged in consists of Preventive Medicine by using the latest medical
approved techniques in the field of Genes Technology and by testing
the genes of all our members with the PCR machine the detection of illness
producing genes can be repaired and many of the illnesses associated with
that gene can be prevented. By the use of proper supplements needed by the
human body we can produce a better human specimen that is free of any type of
disease and with the proper nutrition to accompany these supplements the body
can build strong to combat all the pollutants and interferences to body type
we can build a strong and healthy body capable to live to 100 years
or more because the human body was built to live to 120 years so any
death before that is considered premature death.
D. Recommendation - The Wellness Resort will establish a membership program
where the members sign a contract for 10 years which is refundable by their
group insurance plan and tax deductible in full.
The Life Extension Program and Membership Club
A. Source of Revenue:
1. The signing of members from our list of available members that
desire to join the Life Extension Club at the rate of $1,000 per year and
payable 10 years in advance.
2. The signing of members through our marketing company in New York
that had promised 25,000 leaders per month.
3. The signing of members from recommendations by other members will produce
many leads because everybody desires to visit Las Vegas, Nevada, the
entertainment capital of the world and receive a one week vacation free
because their group insurance will pay for their membership fees.
B. Costs - The total cost for the Life Extension Club is $1,000 for one unit
which consists of staying in the Wellness Resort Hotel and Casino for one
week and receiving all the training of how to live longer and healthier but
they must sign for ten (10) years and pay $10,000 for the 10 years. However,
this program is fully refundable by their group insurance medical policy and
is tax deductible.
C. Net Revenue - Considering that the Maxim Hotel and Casino that we are
using for our program has a combined total of 1,000 rooms, 2,000 club members
per week with a total of 104,000 week units at $1,000 per week unit will
bring a net revenue of $104,000,000.00 per year. However, the members are
paying 10 years in advance for a grand total of $1.04 billion of total
revenue that we will receive.
D. Risk - There is no risk in this membership club because the members
monies will be fully guaranteed and protected by a policy of Lloyds of London
Insurance against all risk.
E. Products - We will offer a great amount of products and other services to
our members which will produce additional revenues to our company.
F. Pro Forma Financials - The following pages contain the pro forma
financials which are predicated results of start-up companies. The personnel
expenses are forecasted to increase as the volume builds but in stair step
fashion. Volumes forecasted are predicated on values actually received by the
Wellness Resort.
WELLNESS RESORT HOTEL AND CASINO, LAS VEGAS, NEVADA
PRO FORMA PROFIT AND LOSS STATEMENT
YEAR ONE - ENDING DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
JAN FEB MAR APR MAY JUN JUL
REVENUE (In 000)
Member's Fee 52,000 52,000 52,000 52,000 52,000 52,000 52,000
Cost
Personnel
Doctors 200 200 200 200 200 200 200
Processing 25 25 25 25 25 25 25
Equipment 5,000 0 0 0 0 0 0
Hotel Cost 14,000 0 0 0 0 0 0
Salaries Others 300 300 300 300 300 300 300
Total 19,525 525 525 525 525 525 525
Overhead
Advertising 25 25 25 25 25 25 25
Insurance 30 30 30 30 30 30 30
Total Overhead 55 55 55 55 55 55 55
Net Profit-Loss 32,420 51,420 51,420 51,420 51,420 51,420 51,420
</TABLE>
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial Statement and supplementary data of Continental Wellness
Casinos Inc. Are located in adjacent pages and are listed and included under
items, Exhibits are incorporated herein by reference.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are no disagreements with accountants on accounting and financial
disclosure.
MANAGEMENT
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Title
Fred Cruz, M.D. 73 President, Chief Executive Officer and Director
Mel Cruz 44 Vice President of Finance, Chief Financial Officer and
Director
Kari L. Cruz 64 Vice President, Secretary and Director
</TABLE>
Identified herein are all directors and executive officers of the
Company. The information set forth as to each Director and Executive Officer
has been furnished by such person.
Fred Cruz, M.D., 73, is and has been since October 1987, a director,
chairman of the board, and president of the company. Dr. Cruz held two
doctorate degrees, Doctor of Podiatric Medicine and Doctor of Medicine. Dr.
Cruz had operated many medical clinics in the State of California and
at present is retired from his profession but he has engaged in many business
ventures and has been working with precious metals for the last 30 years.
Robert A. Govin, 68, is and has been a director, officer of the Company
since August 22, 1992. Govin has been in real estate as a broker and
investor for more than 30 years and at the present is retired.
Ronald P. Girskis, 33, is and has been a director and officer of the
Company since August 22, 1992. Girskis is an accountant and works for a
restaurant chain in the Los Angeles area.
Rick J. Eriksen, 38, is and has been a director and officer of the
Company since August 22, 1992. Eriksen is a real estate agent working for
the largest timeshare developer and one of the biggest hotel chains in the
world.
Kari L. Cruz, 63, is and has been a director and officer of the Company
since August 22, 1992. Cruz held a degree in business from a college in
Norway and has been employed by various concerns in accounting, and business
related occupations.
Mel Cruz, 44, is and has been a director and officer of the Company
since December 1, 1992. Cruz has been working for the United States Navy
Shipyard at Mare Island, California as an estimator on the ship repairs
business for the last 24 years.
Ronald F. Cruz, 46, is and has been a director and officer of the
Company since March 15, 1993. Cruz has been working for the United States
Navy Shipyard, Mare Island, California as a civil service employee in the
capacity of estimator for ship repairs for the last 25 years.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid or accrued
including bonuses paid or accrued, to the following persons during 1992, for
services rendered in all capacities to the Company.
Number of Individual Capacities in which Cash
or Number in Group served during 1995 Compensation
None None None
The Company pays no compensation to directors for services
as director.
<PAGE>
PRINCIPAL STOCKHOLDERS
Grand American Bank Trust owns approximately 64% of the Company's Class
"A" common stock as of October 31, 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address Number of Percent Before Percent After
of Beneficial Owner of Shares Offering Offering
Grand American Bank Trust 63,008,512(1) 70% 64%
25872 Evergreen Road Class "A"
Laguna Hills, CA 92653
Frank Coberly 10,806,960(1) 12% 11%
950 N. Cascade Dr. Apt. 201 Class "A"
Woodburn, OR 97071-3152
V.G. Kelly & D. Kelly Trust 3,130,933(2) 3.5% 3.2%
936 West 21st Street Class "A"
Santa Ana, CA 92706
Joseph Witzman 3,266,960(3) 3.6% 3.3%
5946 Soledad Mountain Road Class "A"
La Jolla, CA 92037
Forbes Family Trust 2,000,000(2) 2.2% 2%
All Officers and Directors as a group 0 0% 0%
<FN>
(1) Purchase for cash or equivalent.
(2) Purchase by surrendering debt of the company.
(3) Purchase with cash and part given as gift.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
The Company is authorized to issue 50,000,000 shares of no par value
Class "B" shares. The Company gave authority to its Board of Directors to
issue such Class "B" stock in one or more series, and to fix the number of
shares in each series, and all designations, relative rights, preferences
and limitations of the stock issued in each series. As of April 13, 1994,
the Board of Directors have exercised the authority granted.
The Company issued to Joseph Witzman 3,266,960 Class "B" common shares
of no par value in exchange the cancellation of some of the Company debt and
said Class "B" Common Shares were restricted shares that bear a ledger and
are subject to the provisions of Securities and Exchange Commission Rule 144.
The holder of said securities has promised to abide by the restrictions of
Securities and Exchange Commission Rule 144.
The Company also issued to Joseph Witzman 3,266,960 Class "A" common
shares of $.003 par value in exchange of the cancellation of the balance of
the Company debt and said Class "A" common shares were restricted shares that
bear a ledger and are subject to the provisions of Securities and Exchange
Commission Rule 144. The holder of Class "A" common shares has
promised to abide by the restrictions invoked by the Securities
and Exchange Commission rule 144.
PLAN OF DISTRIBUTION
The Shares of Common Stock are being offered on a "straight best
efforts, no minimum basis" upon exercise of 8,000,000 Common
Stock Purchase Warrants (the "Warrants") at a price of $5.00 per share. No
person has agreed to take down or purchase any of the Shares and there can
be no assurance that any Warrants will be exercised.
A total of 8,000,000 Warrants are being distributed to the
Company's shareholders of record as of the effective date of this
Prospectus, at the rate of one Warrant for each four shares held of record.
The development of a trading market following the completion of this
offering will be dependent on broker-dealers in initiating quotations in
inter-dealer quotation mediums, in maintaining a trading position, and in
otherwise engaging in a market making activity in the Company's
Common Stock. No broker-dealer has agreed to engage in such activities, and
there is no assurance that any broad trading market for the Company's Common
Stock willdevelop following the offering.
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
500,000,000 shares of common stock, $.003 par value per share, of which
90,038,877 shares were outstanding as of June 1, 1996. Holders of shares of
common stock are entitled to one vote for each share on all matters to be
voted on by the stockholders. Holders of common stock have no cumulative
voting rights. Holders of shares of common stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion, from funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of shares of common stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of common stock
have no preemptive rights to purchase the Company's common stock.
There are no conversion rights or redemption or sinking fund provisions
with respect to the common stock. All of the outstanding shares of common stock
are, and the shares offered by this Prospectus will be, fully paid and
non-assessable.
Warrants
The Common Stock Purchase Warrants (the "Warrants") are to be issued in
fully registered form. Warrants will be distributed to each shareholder of
record on the effective date of this Prospectus at the rate of one Warrant
for each four shares owned. The following discussion of the Warrants
does not purport to be complete and is qualified in its entirety by reference
to the form of Warrant, a copy of which is filed as an exhibit to the
Registration Statement. See "Additional Information."
The holder of each Warrant is entitled to purchase one share of Common
Stock at an exercise price of $5.00, at any time until December 31, 1996
provided that at such time a current prospectus relating to the Common Stock
is in effect and the Common Stock is qualified for sale or exempt from
qualifications under applicable state securities laws. The Warrants are
immediately transferrable upon issuance. The Company may in its sole
discretion reduce the exercise price or extend the exercise period for the
Warrants.
The Warrants may be exercised upon surrender of the certificate therefor
on or prior to the expiration date at the offices of the Company with the
form of "Election to Purchase" on the reverse side of the certificate filled
out and executed as indicated, accompanies by payment (in the form of a
certified or cashier's check payable to the order of the Company) of the full
exercise price for the number of Warrants being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, sale of substantially all of the
Company's assets at less than market value, sale of stock at below market
price, and for other unusual events (other than employee benefit and stock
option plans for employees or consultants to the company).
The holder of a Warrant will not possess any rights as a stockholder of
the Company unless and until he exercises the Warrant.
Other than as set forth above, there are no options or warrants
presently outstanding for shares of the Common Stock.
The transfer agent for the common stock and the warrant agent is
American Securities Transfer, Inc., P.O. Box 1596, Denver, CO 80201.
Shares Eligible for Future Sale
Upon sale of the 8,000,000 shares offered hereby, the Company will have
outstanding 98,028,877 shares of Common Stock. Of the above shares only
those shares sold in this offering by the Company and 17,367,800 currently
publicly traded shares, will be freely tradeable without restriction
under the Securities Act of 1933, as amended (the "Act"), unless acquired by
"Affiliates" of the Company as that term is defined by the Act, following
which such shares will be subject to resale restrictions but may be eligible
for sale in the public market pursuant to Rule 144 under the Act.
In general, under Rule 144 as currently in effect a person (or persons
whose shares are aggregated) who has beneficially owned shares acquired
privately or indirectly from the Company or from an Affiliate, for at least
two years, or who is an Affiliate, is entitled to sell within any
three-month period a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of the Company's Common Stock or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
Affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned restricted shares for at least three years, is entitled to
sell all such shares under Rule 144 without regard to the volume
limitations, current public information requirements, manner of sale
provisions, or notice requirements.
Sales of substantial amounts of the Common Stock of the Company in the
public market could adversely affect prevailing market prices.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by the law firm of Hand & Hand, Dana Point, California.
EXPERTS
The audited financial statements included in this Prospectus and
elsewhere in this Registration Statement, to the extent and for the period
indicated in their reports, which appear elsewhere, have been audited by Luis
R. Hidalgo, Jr., CPA & Company, certified public accountants, and are included
herein in reliance upon the authority of such firm as experts in giving said
reports.
<PAGE>
CONTINENTAL WELLNESS CASINOS, INC.
FINANCIAL STATEMENTS INDEX
Report of Luis R. Hidalgo CPA and Grant Thornton, CPA,
Audited Financial Statements . . . . . . . . . . . . . F1
Consolidated Balance Sheets as of June 15, 1996 and October 31, 1995
audited as of June 15, 1996 and October 31, 1995. . . . . .. F2
Consolidated Statements of Income and Retained Earnings
for the Maxim Hotel and Casino years ended June 30,1995
and 1994, months ended June 30, 1995 and 1994 . . . . . . .. F4
Consolidated Statements of Cash Flows for the Maxim Hotel and Casino
for the years ended June 30, 1995 and 1994, months ended
June 30, 1995 and 1994, . . . . . . . . . . . . . . . F5
Statement of Stockholders' Equity . . . . . . . . . . . . . F6
Notes to the Consolidated Financial Statements. . . . . . . F7
<PAGE>
CONTINENTAL WELLNESS CASINOS, INC.
BALANCE SHEETS
JUNE 15, 1996 AND OCTOBER 31, 1995
<PAGE>
CONTINENTAL WELLNESS CASINOS, INC.
JUNE 15, 1996 AND OCTOBER 31, 1995
CONTENTS
Pages
Independent Auditor's Report 1
Financial Statements
Balance Sheets 2
Notes to Financial Statements 3
<PAGE>
LUIS R. HIDALGO
CERTIFIED PUBLIC ACCOUNTANT
2056 Stevely Avenue Long Beech, CA 90815
Telephone (310) 430-4249 Fax(310) 430-3382
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Continental Wellness Casinos, Inc.
Laguna Hills, California
I have audited the accompanying balance sheets of Continental Wellness
Casinos, Inc as of June 15, 1996 and October 31, 1995. These financial
statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. These standards require that I plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Continental Wellness Casinos,
Inc as of June 15, 1996 aud October 31, 1995 in conformity with generally
accepted accounting principles.
s/Luis R. Hidalgo
LUIS R. HIDALGO
Certified Public Accountant
July 5, 1996
<PAGE>
CONTINENTAL WELLNESS CASINOS, INC.
BALANCE SHEETS
June 15, 1996 and October 15, 1995
<TABLE>
<CAPTION>
1996
1995
(Dollars
In Thousands)
<S> <C> <C>
ASSETS
Gold in storage (Note 2) $ 27,317 $ 27,317
Deferred charges and other assets
Deferred mining exploration costs (Note 3) 3,253 3,253
Deferred promotion and operating expenses 81 __________
Total assets $ 30,651 $ 30,570
STOCKHOLDERS' EQUITY
Common stock, Class "A" $0.003 par value
Authorized shares-500,000,000 in 1996;
100,000,000 in 1995
Issued and outstanding-90,028,877 in 1996;
38,803,405 in 1995. $ 270 $ 116
Common stock, Class "B" no par value
Authorized shares-50,000,000 in 1996 and 1995.
Issued and outstanding-3,266,960 in 1996 and 1995 33 33
Capital in excess of par 30,348 30,421
Total stockholders' equity $ 30,651 $ 30,570
</TABLE>
See accompanying notes to Financial Statements.
<PAGE>
CONTINENTAL WELLNESS CASINOS, INC
NOTES TO FINANCIAL STATEMENTS
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of Business -
The Company is engaged in the mining development industry. Since October 22,
1974, the Company has owned aud operated thirty-nine (39) mines aud one (I)
mill site at Quincy, Plumas County, California, and is engaged in the
exploration of said mines for the production of precious metal like gold and
silver. The company also applied for a license in Las Vegas, Nevada to
conduct Life Extension programs, and to operate hotels and casinos.
Currency Transactions - There are 110 assets and liabilities of operations
outside tile United States which need to be translated into U. S. dollars
using exchange rates.
Development Costs - The Company will not capitalize property taxes on its
mining properties until the mines are ready for operation and development.
2.GOLD IN STORAGE AT BONDED WAREHOUSE:
On October 9, 1990, the Company deposited at NDS, United States Customs
Bonded Warehouse located at 19801 So. Santa Fe Ave., Rancho Dominguez,
California, 90221, six (6) 55 gallon-drum containers of gold dust
(powder form) 999.5 pure weighing 76,112 troy ounces with a value of
$27,316,600 based on the gold floor price of $358.90 per troy ounce. The
market values of gold per troy ounce as of June 15, 1996 and October 31, 1995
are $384.70 and $384.30, respectively. At these prices, the gold in storage
would carry fair market values of $29,280,286 in 1996 and $29,249,841 in 1995.
3.DEFERRED MINING EXPLORATION COSTS
Deferred mining exploration costs were incurred in prior years with the
amounts being estimated based on the prevailing costs of milling exploration
at that time due to the absence of supporting documentation. On April 13,
1994, the Company issued shares of stocks valued at $3,252,669 to pay
for its obligation arising thereto.
4.RELATED PARTY TRANSACTIONS
Grand American Bank Trust owns approximately 71% of the Company's Class "A"
common stock as of June 15, 1996.
5.PROVEN GOLD AND SILVER RESERVE:
The process of estimating mineral reserves is very complex, requiring
significant subjective decision in the evaluation of available geological,
engineering, and economic data for each reserve. The data for a given
reserve may change substantially over time as a result of additional
development activity, production under varying economic conditions, etc.
Consequently, material revision to the existing reserve estimates
may occur in the future. Although, every reasonable effort was made to ensure
that the reserve estimates reported represent the most accurate assessment
possible, the significance of the subjective decision required, the
variances in the available data for various reserves, make these estimated
generally less precise than other estimates in connection with financial
disclosure. Proven reserves are estimated quantities of gold and silver which
geological and engineering data demonstrate, with reasonable certainty, to be
recoverable in future years from known reserves under existing economic and
operating conditions.
Stickel aud Associates, independent consultants in applied geology,
geophysics and engineering, has estimated 7,000,000 troy ounces
of gold and 19,000,000 troy ounces of silver. The values of these reserves
based on average market prices as of June 15, 1996 and October 31, 1996
are as follows:
<TABLE>
<CAPTION>
6-15-96 10-31-95
(Dollars in Thousands)
<S> <C> <C>
Gold 7,000,000 troy ounces
@$384.70/troy ounce $2,692,906
@$384.30/troy ounce $2,690,100
Silver 19,000,000 troy ounces
@$5.05/ troy ounce 95,950
@$5.34/troy ounce __________ __101,460
$2,788,856 $2,791,560
</TABLE>
6. STOCKBROKER'S EQUITY
The Company is authorized to issue 50,000,000 shares of no par value
Class "B" shares. The Company gave authority to its Board of Directors to
issue such Class "B" stock in one or more series, and to fix the number of
shares in each series, and all designations, relative rights, preferences and
limitations of the stock issued in each series. As of April 13, 1994, the
Board of Directors had exercised the authority granted.
7.CONTINGENCIES
The Company is not involved in any legal proceedings which considered to
be ordinary routine litigation incident to its business.
8.TAXES
The Company has not filed a federal income tax return because there are
no earnings to report.
9.The Secretary of State of Colorado Corporation Office approved the
following on June 6, 1996:
a) The name Grand American International Corporation be changed to
Continental Wellness Casinos, Inc.
b) The authorized capital stock, common shares Class "A" of the Company
be increased from 100,000,000 shares to 500,000,000 shares with a $0.003 par
value per share.
Continental Wellness Casinos Inc. (letterhead)
THE COMPANY IS IN THE PROCESS OF CLOSING THE ACQUISITION
OF THE MAXIM HOTEL AND CASINO LAS VEGAS, NEVADA AND FUNDS
RAISED FROM THIS OFFERING WILL BE USED TO PAY THE COST OF
SAID ACQUISITION. FOR THE ABOVE REASON THE FINANCIAL
STATEMENT OF BABY GRAND CORPORATION DBA MAXIM HOTEL AND
CASINO ARE BEING INCLUDED ON THE MATERIAL COVERING THIS
OFFERING. AFTER THE ACQUISITION IS COMPLETED THEN THE
FINANCIAL STATEMENTS OF THE TWO COMPANIES WILL BE
CONSOLIDATED.
<PAGE>
(Cover Page)
Grant Thornton
Grant Thornton LLP Accountants and
Management Consultants
The U.S. Member Firm of
grant Thornton International
BABY GRAND CORP.
dba MAXIM HOTEL & CASINO
Financial Statements
and
Report of Independent Certified Public Accountants
June 30, 1995 and 1994
<PAGE>
(letterhead) 150 Almaden Boulevard
P.O. Box 6779
San Jose, CA 95150-6779
408 275-9000
FAX 408 275.0582
Report of Independent Certified Public Accountants
Grant Thornton
Grant Thornton LLP Accountants and
Management Consultants
Board of Directors The U.S. Member Firm of
Baby Grand Corp. Grant Thornton International
dba Maxim Hotel & Casino
We have audited the balance sheets of Baby Grand Corp., dba Maxim Hotel &
Casino (a wholly-owned subsidiary of Cedar Development Co.), as of June 30,
1995 and 1994, and the related statements of earnings, changes in deficit in
shareholder's equity and cash flows for the years then ended. 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 Baby Grand Corp., dba Maxim
Hotel and Casino, as of June 30, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As disclosed in Note S to the financial statements, the Nevada Federal Court
entered an Order Appointing Receiver and Granting Injunctive Relief (The
Order). The Order stayed certain powers of the Receiver, but allows the
Receiver to review the assets, observe the operations and inspect certain
books and records of the Company. The appointment of the receiver is a
result of the Federal Deposit Insurance Corporation (FDIC) taking action
against John B. Anderson (Anderson) the sole owner of the Company's parent,
Cedar Development Co., and certain related entities, which includes
the Company, but not as a named defendant, for non payment of debt obligations
of Anderson due to predecessors of the FDIC. As a result of this action,
Anderson has until January 12, 1996, unless extended by written agreement, to
attempt to negotiate aud execute an agreement for resolution of the FDIC
claim. If a written settlement is reached, Anderson will have an additional
sixty days from the date of execution of the settlement agreement, unless
extended by written agreement, to perform under the settlement agreement. If
a settlement is not readied or satisfied, a change in control of the Company
will take place. A change in control could cause the Company's secured long-
term debt to become immediately due and payable. The ultimate outcome of this
issue cannot presently be determined. Accordingly, the financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
s/Grant Thornton LLP
San Jose, California
September 8,1995 (except for Note S, as to which the date is November 9, 1995)
<PAGE>
BABY GRAND CORP.
dba MAXIM HOTEL & CASINO
(A wholly-owned subsidiary of Cedar Development Co.)
BALANCE SHEETS
June 30,
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
CURRENT ASSETS
Cash and cash equivalents $4,047,000 $2,938,900
Accounts receivable - trade 1,093,600 860,800
Inventories 613,800 627,100
Prepaid expenses and deposits 926,400 925,500
Total current assets 6,680,800 5,352,300
PROPERTY AND EQUIPMENT - AT COST, less
accumulated depreciation of
$24,548,500 in 1995 and $22,768,100
in 1994 38,419,100 37,789,600
OTHER ASSETS
Residence 750,000 750,000
Deferred loan fees - net 21,500 22,400
Land option 1,000,000
Investment in affiliate 127,000
771,500 1,899,400
$45,871,400 $45,041,300
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BABY GRAND CORP.
dba MAXLM HOTEL & CASINO
(A wholly-owned subsidiary of Cedar Development Co.)
BALANCE SHEETS - CONTINUED
June 30,
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
1995 1994
CURRENT LIABILITIES
Current maturities of long-term debt:
<S> <C> <C>
Secured $339,500 $465,900
Unsecured 418,400 502,000
Affiliate 275,800
Contracts payable 727,900 304,000
1,761,600 1,271,900
Accounts payable, trade 1,779,400 1,135,800
Accrued Liabilities 3,167,200 3,026,700
Other current liabilities 271,100 324,000
3,438,300 3,350,700
Total current liabilities 6,979,300 5,758,400
LONG-TERM DEBT - NET OF CURRENT MATURITIES
Secured 41,776,000 41,947,800
Unsecured 4,000,000 4,418.400
Affiliate 2,333,000 2,750,000
Contracts Payable 474,200
48,583,200 49,116,200
DEFICIT IN SHAREHOLDER'S EQUITY
Common stock, $5 par value; authorized
1,100,000 shares issued 462,560 shares 2,312,800 2,312,800
Additional paid-in capital 17,073,600 17,073,600
Accumulated deficit (29,077,500) (29,219,700)
(9,691,100) (9,833,300)
$45,871,400 $45,041,300
</TABLE>
<PAGE>
BABY GRANI) CORP.
(1I)a MAXIM HOTEL & CASINO
(A w1~olly-owned subsidiary of Cedar Development Co.)
STATEMENTS OF EARNINGS
Year euded June 30,
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
REVENUES
Casino $36,719,800 $39,271,100
Rooms 11,860,200 10,579,100
Food and beverage 13,245,000 13,646,400
61,825,000 63,496,600
Less promotional allowances 7,094,300 6,146,300
54,730,700 57,350,300
Gift shop 1,380,300 1,785,400
Other 1,775,100 1,292,900
57,886,100 60,428,600
COSTS AND EXPENSES
Casino 17,594,500 17,851,100
Rooms 6,435,400 6,607,300
Food and beverage 14,943,600 15,278,400
Gift shop 1,047,300 1,408,100
Selling, general and administrative 10,822,200 10,604,100
Guest entertainment 905,900 963,600
Provision for doubtful accounts 205,400 279,700
51,954,300 52,992,300
Operatiug income before depreciation and amortization 5,931,800 7,436,300
Depreciation and amortization 1,774,700 I ,822,800
E~rnings from operations 4,157,100 5,613,500
OTHER INCOME (EXPENSE)
Interest (net) (3,745,400) (3,788,300)
Settlement Expenses (75,000) (831,700)
Investor's share of (loss) of investee (127,000) (425,000)
Other (67,500) 23,500
(4,014,900) (5,021,500)
NET F~RNlNGS $142,200 $592,000
</TABLE>
<PAGE>
BABY GRAND CORP.
dba MAXIM HOTEL & CASINO
(A wholly-owned subsidiary or Cedar Development Co.)
STATEMENT OF CHANGES IN DEFICIT IN SHAREHOLDER'S EQUITY
Years ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
Additional
Common paid-in
(Accumulated
stock capital
deficit) Total
<S> <C> <C> <C> <C>
Balauce at July 1, 1993 $2,312,800 $17,073,600 ($19,811,700) ($10,425,300)
Net earnings for the year 592,000 592,000
Balance at June 30, 1994 2,312,800 17,073,600 29,219,700 9,833,200
Net earilings for the year 142,200 142,200
Balauce at June 30, 1995 $2,312,800 $17,073,600 ($29,077,500) ($ 9,691,100)
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
BABY GRAND CORP.
dba MAXIM hOTEL & CASINO
(A wholly-owued subsidiary of Cedar Development Co.)
STATEMENTS OF CASH FLOWS
Year ended June 30,
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net earnings $142,200 $592,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and ainortization 1,774,700 1,823,700
Investor's share in net loss of investee 127,000 425,000
Settlement fees 75,000 400,000
CI)allges in assets and liabilities:
Accounts receivable (232,800) 75,600
Inventories 13,300 (87,500)
Prepaid expeuses and deposits 18,200
Accounts payable 643,600 (30,400)
Accrued liabilities 235,800 (436,800)
Net cash provided by operating activities 2,778,800 2,779,800
Cash flows from investing activities:
Procecds from safe of land option 685,000
Purchase of fixtures and equipment (686,600) (1,116.000)
Net cash used in investing activities (1,600) (1,116,000)
Cash flows froni finaucing activities:
Payments on contracts and long-term debt (1,669,100) (1,530,600)
NET INCREASE IN CASII AND CASII EQUIVALENTS 1,108,100 133,200
Cash aud cash equivalents at beginning of year 2,938,900 2,805,700
Cash and cash equivalents at end of year $4,047,000 $2,938,900
</TABLE>
<PAGE>
BABY GRAND CORP.
dba MIAXIM HOTEL & CASINO
(A wholly-owned subsidiary of Cedar Development Co.)
STATEMENTS OF CASh FLOWS - CONTINUED
Year ended June 30,
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
SuppIementa1 disclosures of cash flow information:
Cash paid during the year for interest $3,780,400 $3,813,900
</TABLE>
Supplemental disclosure of noncash investing and financing activity:
During the fiscal year ended June 30, 1995 and 1994 the Company incurred
contracts payable and long-term debt of $1,717,600 and $596,200
respectively, in connection with the purchase of equipment.
<PAGE>
Baby Grand Corp.
dba Maxim Ilotel & Casinio
(A wholly-owned subsidiary of Cedar Developineut Co.)
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 and 1994
NOTF A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in
the preparation of the accompanying financial statements follows.
1.Organization
Baby Grand Corp. dba The Maxim Hotel & Casino (tile Company), a
wholly-owned subsidiary of Cedar Development Company (CDC), is in the hotel
and gaming business in Las Vegas, Nevada.
The Company does not consolidate the accounts of its wholly-owned inactive
subsidiary, Paloma Ranch Development Corporation (PRDC) (See note A6).
2.Accounting for Casino Revenue and Promotional Allowances
In accordance with common industry practice, the Company
recognizes as casino revenue the net win from gaining activities, which is
the difference between gaming wins and losses. The retail value of
accommodations, food and beverages furnished without charge to customers is
included in gross revenues and then deducted as promotional allowances. The
cost of promotional allowances are charged to the operations to which they
relate.
3.Inventories
Inventories are stated at the lower of cost or market; cost is determined
principally on a first-in, first-out basis,
4.Property and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
principally on a straight-line basis, while accelerated methods are used for
tax purposes. The estiiiiated lives used in determining depreciation
are:
Buildings 40 years
Furniture, fixtures and equipment 5-10 years
<PAGE>
Baby Grand Corp.
dba Maxim hotel & Casino
(A wholly-owned subsidiary or Cedar Developinent Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
4.Property and Equipmeent - continued
Maintenance, repairs and minor renewals are charged to operations as
incurred. Improvements and major renewals of facilities are capitalized.
Upon retirement or other disposition, the cost of die asset and the related
accumulated depreciation taken prior to disposition are removed from the
accounts and any resultant gain or loss is charged to operations.
5.Income taxes
For income tax purposes, the Company's earnings are included in the
consolidated tax return of its parent, CDC. Accordingly, all benefits from
operating losses and all tax expense generated from operating profits are
reported in the consolidated tax return of CDC. Taxes are allocated among the
members of the consolidated group, based on their relative taxable income,
only in the event that the consolidated group has tax expense.
For tIle years ended June 30, 1995 and 1994 there is no provision
for income tax in the accompanying financial statements as no material tax
expense of the consolidated group was attributable to the Company.
6.Investments
The Company accounts for its investment in its wholly-owned inactive
subsidiary, PRDC, at cost. The Company accounts for its investment in Dunes
hotels and Casinos Inc. (DHC) on the equity method.
Investments are written down to estimated realizable value if impairment
is considered to be other than temporary (See Note I).
7.Loan Fees
Loan fees are amortized on a straight-line basis over the term of the
related loan.
8.Statements of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
9.Reclassification
Certain accoulits in the prior year financial statements have been
reclassified to conform with current year presentation. The reclassifications
had no effect on the reported net loss or accumulated deficit.
<PAGE>
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary or Cedar Developmeut Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30,1995 and 1994
NOTE B - BANKRUPTCY PROCEEDING
The Company filed a petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Nevada, Case No. BK 5-92-20989-RCJ, on March 10, 1992. On October 13, 1992,
tile Company filed its flust Amended Plan of Reorganization which was
outlined on November 10, 1992. On December 20, 1994, a Notice of Final Decree
was recorded in the United States Bankruptcy Court for the District of Nevada
indicating that the Company's Chapter 11 bankruptcy case was officially closed.
NOTE C - CASh
The Company has certain restricted cash deposits, which represent amounts
pledged as security for certain obligations, including workers' coinpensation
and casino activities. The following is a summary at June 30:
1995 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Restricted $ 351,400 $ 517,500
Unrestricted 3,695,600 2,421,400
$4,047,000 $2,938,900
NOTE D - TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the
following at June 30:
1995 1994
Casino $1,124,900 $1,322,600
Hotel 346,700 345,600
Other 102,000 31,700
1,573,600 1,699,900
Less allowance for doubtful accounts (a) 480,OO0 839,100
$1,093,600 $ 860,800
</TABLE>
(a)The allowance for doubtful accounts includes an allowance for doubtful
casino receivables of $440,000 and $737,900 at June 30,1995 and 1994,
respectively.
<PAGE>
Baby Grand Corp.
dba Maxim hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE E - INVENTORIES
Inventories consisted of the fol1o~ving at June 30:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Food and beverage $242,900 $217,400
Gift Shop 260,900 299,700
Supplies 110,000 110,000
$613,800 $627,100
NOTE F PREPAID EXPENSES AND DEPOSITS
Prepaid expenses and deposits consisted of
the following at June 30:
1995 1994
Gross with tax $416,800 $454,100
Licenses 286,500 277,800
Insurance 70,200 69,500
Supplies and proruotional expenses 57,200 58,400
Other 95,700 65,700
$926,400 $925,500
NOTE G - PROPERTY AND EQUIPMENT
Property and equipment consisted of the
following at June 30:
1995 1994
Land and land improvements $ 7,069,400 $7,150,700
Building 36,923,100 36,438,700
Gaming equipnlent and slot machines 8,282,200 6,727,900
Furniture and fixtures 9,304,400 8,860,000
Data processing 1,228,500 1,169,500
Other 160,000 210,900
62,967,600 60,557,700
Less accumulated depreciation 24,548,500 22,768,100
</TABLE>
<PAGE>
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE H - LAND OPTION
On April 30, 1993, the Company paid $1,000,000 to Los Rios Farms, Inc (Los
Rios) for an option to acquire approximately 1,690 acres of farmland in
Northern California, which property was, at one time, owned by Maxim
Development Company, an entity related to the Company through common
ownership. Los Rios used the proceeds to acquire the property for a total
purchase price of $2,450,000. Los Rios conducts farming operations on the
subject property.
On November 9, 1993, Bank One Arizona, N.A. (the Company's secured lender at
that date, Bank One) declared the Company to be in default of its secured
and unsecured obligations to Bank One (the Bank One Notes) as a result of the
purchase of the option. Bank One alleged that the purchase of the option was
a violation of certain loan covenants, although at no time was the Company in
default on any monetary covenants under the Bank One Notes.
On February 9, 1995, the Company sold the option to M & R Investment Company,
Inc. (MRI), an entity related to the Company through common ownership, for
$1,043,902 of which $685,000 was paid in cash and the remainder was paid by
granting an i(nillediate credit for all of the installment payments due under
the MRI Note from March 1, 1995 through September 1, 1995, as well as a
credit of $8,903 toward the payment due on October 1, 1995. Installment
payments will resume under the MRI Note with the balance of the payment due
on October 1, 1995 (See Note L). Additionally, upon certain conditions
atid the consent of Bank One and the Nevada Gaming Control Board, MRI can
require the Company to repurchase the option. The Company also agreed to
use its best efforts to obtain refinancing of the Bank One Notes, plus an
amount to prepay the MRI Note, each of which are subject to tile conselit of
the Nevada Gaming Control Board.
As a result of the sale of the option, all alleged events of default were
cured under the 13ank One Notes and the MRI Note.
NOTE I - INVESTMENT IN AFFILIATE
The investment consists of approximately 20% of the outstanding common stock
of DHC as of June 30, 1995 and 1994. The Company and certain other companies
related through common ownership collectively own a controlliug interest in
DHC. Accordingly, the Company accounts for its investment by the equity
method. As of June 30, 1995, the Company has written the investment down to
- -0 (zcro).
<PAGE>
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE J - SECURED LONG-TERM DEBT
On April 10, 1995, West Coast Mortgage holdings, Inc. (WCMII) purchased the
Bank One Notes for an undisclosed amount.
Secured long-terni debt consisted of the following at June 30:
1995 1994
(I)Secured notes payable to West Coast
Mortgage Holdings, Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
Note A $34,707,100 $34,707,100
Note B 6,618,500 6,618,500
forbearance Fees 44,400 265,700
(2)Clark County Nevada, payable in 36 monthly
installments of $22,110 including interest at 8%
per annum. 87,000 334,500
(3)Adjustable rate mortgage note on residence
(9.375% at June 30, 1995 and 9.99% at June 30,
1994); payable in monthly installinents of $3,448,
including interest. final payment Is due December
2018. 373,900 378,000
(4)Adjustable rate mortgage note on residcnce
(10.99% at itine 30, 1995 and 10.99% at June 30,
1994); payable in monthly installments of $1,557,
including interest. Final payment is due
December 2003. 102,900 109,900
(5)10% note payable on telephone equipment,
payable in monthly installments of $1,035
Final payment is due December, 1999. 169,700
(6)10% note payable on security equipment,
payable in monthly installments of $250.
Final payment is due May, 1999. 12,000
42,115,500 42,413,700
Less current maturities 339,500 465,900
$41,776,000 $41,947,800
</TABLE>
(1)Secured notes payable to WCMII:
"Note A" - Note in the origlual amount of $35,000,000 with interest at the
rate of 10% per annum, payable in equal monthly installments of $307,150,
commencing December 31, 1992, based on a thirty year amortization, with the
final payment of unpaid principal and unpaid interest due December 31, 1997,
collateralized by a first deed of trust and security agreement OR the Maxim
hotel and Casino property.
<PAGE>
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE J - SECURED LONG-TERM DEBT - CONTINUED
"Note B" - Note in the original amount of $6,618,500, non-interest bearing,
does not require any installment payments, and is due on December 31, 1997.
Note B is collateralized by a deed of trust and security agreement on the
Maxim hotel and Casino property. In the event Note A is fully paid on or
before December 31, 1997, Note B will be canceled.
Forbearance Fees - Required payments on Note A shall be applied first to the
payment of interest accrued on Note A. The balance of the Note A payments
will be applied to the payment of the forbearance fees relating to the Bank
One litigation, referred to OR the following page, until they are paid in full.
The amended and restated loan agreement (A/R Loan Agreement) with Bank One,
now WCMH, contains the following financial covenants and restrictions:
Financial covenants:
The Company shall make capital expenditures during each fiscal year in a
minimum amount of 1% of gross revenue, exclusive of complimentaries, for
fiscal 1993 and 1994 and 11/2 % of gross revenue, exclusive of
complimentaries, for each year thereafter.
The Company will not declare, pay or make any distributions or stock
acquisitions unless each of the following conditions are satisfied:
(a) Payment of all non-insider Unsecured Claims or June 30, 1994, whichever
is last to occur
(b) Completion of the room renovations as set forth in the Room Renovation
Budget
(c) Distributions can only be made at the end of each fiscal year from
"excess cash" as defined in the agreemeent.
(d )Any distribution will not cause the Distribution Coverage Ratio to be
less than 1.0
(e) Any distribution will not cause the Company's tangible net worth deficit
to be greater than $13,473,l05.
The above items are to be calculated annuallya tthe end of each fiscal year.
<PAGE>
Baby Grand Corp.
db4, Maxim hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE J - SECURED LONG-TERM DEBT - CONTINUED
The aggregate maturities of the Company's secured long-term debt subsequent
to June 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 339,500
1997 309,800
1998 40,963,700
1999 63,300
2000 38,100
Thereafter 401,100
$ 42,115,500
</TABLE>
On Novetuber 9, 1993, Batik One recorded a notice of default against the
Company alleging a violation of certain covenants arising out of the Company's
acquisition of an option to purchase real property (Refer to Note II). In May
1994, the litigation between the Company and Bank One was settled (the Bank
One Settlement). At the same time MRI settled its action in intervention
against the Company (the MRI Settlement). Terms of the Bank One Settlement
required, among other things, that (the Company pay Bank One's litigation
expenses, which expenses approximated $300,000. Terms of the MRI Settlement
required, among other things, that the Company pay MRI1s litigation expenses,
which expenses approximated $100,000. The $100,000 was added to the amount
owing MRI by the Company (Refer to Note L). In addition, the Bank One
Settlement required the Company to cause to have deposited into its accounts
$1,000,000 plus accrued interest from April 30, 1993, (the Option Liquidation
Amount) on or before January 31, 1995. The sale of the option on February 9,
1995, satisfied the Company's obligation as required by the Bank One Settlement
(See Note 11). On February 9, 1995, Batik One, MRI and the Company entered
into a Second Settlement and Forbearance Agreement (the Second Settlement
Agreement). The Second Settlement Agreement required the Company to pay Bank
One a $75,000 forbearance fee. Each Forbearance Fee which becomes due and
payable shall be paid from the next payments received by Bank One under Note
A, which payments shall be applied as follows:
(a) First, to the payment of interest on the unpaid balance of the principal
sum of Note A; (b) Secondly, to the payment of any Forbearance Fee which is
due aud payable; (c) Thirdly, to the payment of (the Default Expenses, if any
remain unpaid; and (d) Fourtlily, to (lie reduction of principal of Note A.
As of June 30, 1995, the Company owed $44,400 to WCMII for forbearance
fees.
Total expenses related to (lie Bank One litigation ($75,000 in 1995 and
$831,700 in 1994) include the amounts owing to Bank Oiie, now WCMH, and MRI
and are included in Other Income (Expense) in (the accompanying Statement of
Earnings.
<PAGE>
Baby Grand Corp).
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE K - UNSECURED LONG-TERM DEBT
Unsecured long-term debt consists of a note payable to WCMII in the original
amount of $7,000,000. The note is non-interest bearing. The balance
outstanding at June 30, 1995 and 1994, was $4,418,400 and $4,920,000,
respectively. Per the terms of the note, once the Company has paid $3,000,000
on the note, and there is no event of default existing under the A/R Loan
Agreement, the balance of $4,000,000 will be forgiven. The note is payable in
monthly installments of $41,837.
NOTE L - LONG-TERM DEBT - AFFILIATE
As of June 30, 1995 the Company was indebted to MRI in the principal amount
of $2,608,900. The obligation arose out of certain loans made by MRI to
the Company prior to the Company's Chapter 11 proceeding. Pursuant to the
Company's approved plan of reorganization, MRI amended and restated the
aggregate $2,650,000 indebtedness into a new promissory note (the New MRI
Note), which l)Cars interest at the rate of 9% per annum from December 1,
1992. The New MRI Note is secured by a pledge of 1,280,756 shares of DHC
stock. DH is the parent of MRI. Commencing oil the first business day of
Ma(cll 1995, the note is payable in equal monthly installments of $50,000 until
December 1, 1997, at which time tlie entire balance of unpaid principal and
interest is fully due and payable. (Refer to Note) re; Settlement expenses
added to the New MRI Note.) (See Note II re: MRI purchase of option.)
The aggregate maturities on the debt to MRI subsequent to June 30, 1995 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 275,800
1997 410,600
1998 1,922,500
$2,608,900
</TABLE>
NOTE M - ACCRUED LlABILIT1ES
Accrued liabilities consisted of the following at June 30:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Salaries and wages $ 635,700 $ 564,100
Interest 160,000 308,200
Employee taxes and benefits 459,200 627,400
Vacation liability 803,500 786,500
Clip liability 193,300 125,200
Token liability 338,200 397,000
Gaming taxes 250,000
Other 327,300
3,167,200 $3,026,700
</TABLE>
<PAGE>
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE N - OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at June 30:
1995 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Advance registr~tion deposits $38,600 $44,900
Customer deposits 85,500 75,600
Progressive slots 89,900 113,900
Other 57,100 89,600
$271,100 $324,000
</TABLE>
NOTE O - MEDICAL SELF-INSURANCE
The Company has established a self-insurance program for medical coverage
employees. Each employee is covered up to a maximum of $50,000 per year.
Medical expenses exceeding this limit are then covered by an outside
insurance company. The Company has estimated the liability for unprocessed
claims to be approximately $120,000 and $90,000 at June 30, 1995 and 1994,
respectively. Such liabilities are included in accrued liabilities at year-
end.
NOTE P - MULTIEMPLOYER PLAN
The Company participates in defined benefit multiemployer plans which provide
benefits to substantially all union employees. These plans are not
administered by die Company and contributions are determined in accordance
with negotiated labor contracts. Contributions to the plans represent
pension benefits. Contributions to the plans in 1995 and 1994 aggregated
$631,400 and $657,300, respectively.
The Multiemployer Pension Plan Amendments Act of 1989 (the Act) significantly
increased the pension responsibilities of participating employers. Under the
provisions of the Act, if the plans terminate or the Company withdraws, the
Company could be subject to a substantial "withdrawal liability".
Manageent is not in a position to estimate the Company's withdrawal
liability, if any, as of June 30, 1995. Management has no ititention of
undertaking any action which could subject the Company to this potential
obligation.
<PAGE>
Baby Grand Corp.
dba Maxim Hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS CONTINUED
June 30, 1995 and 1994
NOTE Q - COMMITMENTS
The Company leases various types of equipment, primarily on a month-to-month
basis, in the operations of its business, all of which are considered
operating leases. Total rental expense for the years ended June 30, 1995 and
1994 aggregated approximately $190,000 and $165,000, respectively.
NOTE R - RESIDENCE
The Company owns the residence occupied by John B. Anderson, Chairman of the
Board and President of the Company (Anderson). The Company charges Anderson
an annual rent of $36,000, which is considered compensation to Anderson.
Rental income is included in Other Income and the related compensation is
included in Selling, General and Administrative expenses.
NOTE S - STOCK OWNERSHiP
Federal DeDosit Insurance Corporation. et al. v. John B. Anderson and Edith
Anderson. Cedar Development Co., J.A., Inc. and J.B.A. Investment. Inc., Case
No. CV-S-95-679-PMP (LRL) filed July 14, 1995 in the United States District
Court. District of Nevada (the Nevada Federal Court). In 1986, a Stipulated
Judgment was entered in a Nevada state court against John B. and Edith
Anderson ((lie Andersons) in favor of Eureka Federal Savings and Loan
Association, now known as Eurekabank (Eureka), in the original amount of
$33,700,000. In 1989, the Andersons entered into that certain Debtor-Creditor
Agreement (the DCA) which purported to define the terms under which the
Atidersons would repay tile judgment. The Federal Deposit Insurance
Corporation (FDIC), as assignee of Eureka, makes various claims, arising out
of the Stipulated Judgment and the DCA, and seeks various remedies against
the named defendants, including specific performance of the DCA, the
appointment of a receiver, injunctive relief, judicial foreclosure and
enforcement of the Stipulated Judgment. The Company is not a named defendant.
On September 12, 1995, pursuant to stipulation (the Stipulation) between the
Andersons, the named defendants and the FDIC, the Nevada Federal Court
entered an order (the Order) appointing a receiver over the assets, including
the Company's common stock, of the Andersons and the named defendants and
granting certain injunctive relief. The Order stayed certain powers of the
receiver, during the negotiation period as defined in the following
paragraph, but granted the receiver the right to review the assets, observe
the operations, and inspect certain books and records, including the Company's,
relating to the assets of the Andersons and the named defendants. The Order,
which incorporates the Stipulation, also provides for entry of a consent
judgment against the Andersons and the named defendants under certain
conditions as more fully explained in the following paragraph.
<PAGE>
Baby Ga~nd Corp.
dba Niaxim Hotel & Casino
(A wholly-owned subsidiary or Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE S - STOCK OWNERSHIP - CONTINUED
The Andersons, the Anderson Parties, as defined in the DCA, and the FDIC
shall, for a period of sixty (60) days from the date of the entry of the
Order, unless extended by written agreement, (the Negotiation Peri(XI), attempt
to negotiate and execute a written agreement for resolution of the FDIC
claims against the Andersons and the Anderson Parties (Settlement Agreement).
If a Settlement Agreement is executed by the FDIC and the Andersons on or
before the last day of the Negotiation Period, the Andersons and the Anderson
Parties shall have an additional sixty (60) days from the date of execution
of the Settlement Agreement, unless extended by written agreement, in which to
satisfy all of the terms, conditions and requirements of such Settlement
Agreement (the Closing Period). On November 9, 1995, Mr. Anderson and the FDIC
agreed to an extension of the initial 60 day negotiation period to January 12,
1996, which extension was submitted to and approved by the Nevada Federal
Court. In the event that the Andersons, the Anderson Parties and the FDIC are
unable to execute a Settlement Agreetnent, the FDIC may submit the Consent
Judgment to the Nevada Federal Court for linmediate entry. If a Settlement
Agreement is reached, but the Andersons and the Anderson Parties are unable
to comply with all terms, conditions and requirements of the Settlement
Agreement on or before the last day of the Closing Period, the FDIC may
submit the Consent Judgment to the Nevada Federal Court for immediate entry.
The Company is an Anderson Party for purposes of the DCA.
Because the Company is a wholly-owned subsidiary of one of the named
defendants, Cedar Development Co., the entry of the Consent Judgment by the
Nevada Federal Court could result in the loss of the Company's gaming license,
the transfer of controi of the Company to the receiver, or other material
effects, depending on the actions the receiver takes with regard to the stock
of the Company.
On September 28, 1995, the Nevada Gaming Commission approved the application
of the receiver to act as such under the Company's gaming license.
WCMII declared the Company to be in default under the WCMII notes as a result
of the appointment of a receiver. The Coinpaiiy has responded to WCMII
stating its belief that no event of default has occurred or will occur with
respect to the appointment of a receiver unless the Anderson Parties and the
FDIC are unable to reach a Settlement Agreement as discussed above. The
Company believes that under Nevada law, if WCMII iiitends to exercise its
default remedies against the Company, WCMll must cause to be recorded a
statutorily required notice of breach which will then continence a
statutorily mandated time period of in excess of three months before a non-
judicial trustee sale of the Company's primary asset can occur. The Company
has not been notified that WCMII has recorded any statutorily requited
notice.
The Company is unable to predict whether the Andersons will be able to
achieve a Settlemetit Agreement, will be able to perform under the terms of any
such Settlement Agreement, or the other circumstances utider which the Cousent
Judgment could be entered.
<PAGE>
Baby Grand Corp.
dba Maxim hotel & Casino
(A wholly-owned subsidiary of Cedar Development Co.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1995 and 1994
NOTE T - ShAREHOLDER DISTRIBUTIONS
Anderson has been limited by the Nevada Gaming Control Board (NGCB) to annual
distributions not to exceed $200,000 in any fiscal year, on a combined basis,
from both the Company and its affiliate, J.A., Inc. During the year ended
June 30, 1995, Anderson has received the maximum distribution allowed by the
NGCB.
NOTE U - LITIGATION
The Company is involved in various litigation and arbitration proceedings
arising in the normal course of business. Management believes the ultimate
resolution of the litigation and arbitration against the Company will not
have a material adverse effect on the Company.
No dealer, salesman or other person has been authorized in connection with
this offering to give any information or to make any representation other
than as contained in this prospectus and, if given or made, such information
or representation must not be relied upon as having been authoriazed by the
Company. This prospectus does not constitute an offer to sell or the
soliciation of an offer to buy any securities covered by this prospectus in
any state or other jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such stare or jurisdiction.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION PAGE
ADDITIONAL INFORMATION 2
PROSPECTUS SUMMARY 3
RISK FACTORS 4
DILUTION 7
MARKET PRICE OF COMMON STICK 8
USE OF PROCEEDS 9
MANAGEMENT'S DISCUSSION AND ANALYSIS 10
BUSINESS 12
MANAGEMENT 15
PRINCIPAL STOCKHOLDERS 16
CERTAIN TRANSACTIONS 17
PLAN OF DISTRIBUITON 18
DESCRITPION OF SECURITIES 19
LEGAL MATTERS 20
EXPERTS 20
FINANCIAL STATEMENTS INDEX 21
</TABLE>
CONTINENTIAL WELLNESS CASINOS, INC.
8,000,000 SHARES OF COMMON STOCK
__________, 1993
PART II
Item 27. Exhibits
2. Plan of Purchase, Sale, Reorganization, Arrangement,
Liquidation, or Succession.
2.1 Agreement for Purchase of Shares dated __________ between
the Company and the shareholders of _______________
3. Certificaiton of Incorporiation and Bylaws
3.1 Amendment and Restated Articles of Incorporation(1)
3.1 Bylaws, as amended(1)
5. Opinion of Agent or underwriter.
10. Material Contracts
10.1 None available
10.2 None available
10.3 None available
22. Subsidiaries(1)
N/A
24. Consents of Experts and Counsel
24.1 Consent of Accountants(2)
24.2 Consent of Counsel
25. Powers of Attorney
25.1 Powers of Attorney are included on signature page
__________________
(1) Filed with original filing
(2) Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San
Diego, State of California on August 16, 1993.
CONTINENTAL WELLNESS CASINOS, INC.
By: s/Fred Cruz,
______________________________
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the follwoing persons in the
capacities indicated on August 16, 1993.
By: s/Fred Cruz President, CEO & Director
FRED CRUZ, M.D. (Principal executive officer)
By: s/Mel Cruz Chief Financial Officer and Director
MEL CRUZ (Principal accounting and financial officer)
By: s/Kari L. Cruz Executive Vice President, Secretary & Director
KARI L. CRUZ
*By signing hereto the undersigned hereby executes this Registration
Statement on behalf of the above persons.
By: s/Rick Eriksen
RICK ERIKSEN
(The following exhibits are being submitted under separate cover to the SEC
using form SE.)
CONTINENTAL WELLNESS CASINOS, INC.
REGISTRATION STATEMENT OF FORM SB-2
EXHIBIT INDEX
Exhibit Page in Manually
Number Description Signed Original
2.1 Geological studies of the mines at Quincy,
Plumas County California by Stickel and
Associates
3.1 Amended and Restated ARticles of Incorporation(1)
3.2 Bylaws, as amended(1)
5 Opinion of Counsel as to legality of securities
being registered(1)
10.1 Brochure of the Maxim Hotel and Casino, Las Vegas,
Nevada
10.2 Form of Common Stock Class "A"
10.3 Form of Common STock Class "B"
22. Subsidiaries(1)
24.1 Consent of Accountants(2)
24.2 Consent of Counsel included in Exhbiit 5 hereto
25.1 Powers of attgorney are included on signature page
26.1 SEC Form 8-K Change in Company Name.
___________
(1) Filed with original filing.
(2) Filed herewith.
