SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996 Commission File No. 0-22290
CENTURY CASINOS, INC.
(Name of small business issuer in its charter)
Delaware 84-1271317
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 203, 26 South Tejon Street, Colorado Springs, Colorado 80903
(Address of principal executive offices) (Zip code)
(719) 473-7770
(Issuer's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act: None.
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value, and 1994 Class I Warrants
(Title of classes)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
State the issuer's revenues for its most recent fiscal year: $11,478,042
The aggregate market value of the voting common stock held by non-affiliates of
the registrant on March 13, 1997, was approximately $14,052,000 based upon the
average of the reported closing bid and asked price of such shares on Nasdaq for
that date. As of March 13, 1997, there were 15,861,885 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference from the
Registrant's Definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
1996.
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Item 1. Business.
General
Century Casinos, Inc. and its subsidiaries (the "Company"), own and operate
a limited-stakes gaming casino in Cripple Creek, Colorado; act as concessionaire
of a small casino on a luxury cruise ship; and are pursuing a number of
additional gaming opportunities in the United States and internationally. Prior
to July 1, 1996, the Company's operations in Cripple Creek, Colorado, consisted
of Legends Casino ("Legends"), which the Company acquired on March 31, 1994,
through a merger with Alpine Gaming, Inc. ("Alpine"). On July 1, 1996, the
Company acquired the net assets of Gold Creek Associates, L.P. ("Gold Creek"),
the owner of Womack's Saloon & Gaming Parlor ("Womacks"), which is adjacent to
Legends. Following the Company's acquisition of Womacks, interior renovations
were undertaken on both properties to facilitate the operation and marketing of
the combined properties as one casino under the name "Womacks Casino." The
Company's operating revenue for 1996, 1995 and 1994 was derived principally from
its casino operations in Cripple Creek. See the Consolidated Financial
Statements included herein.
The Company was formed to acquire equity and other participation interests
in, and to obtain management contracts with respect to, gaming establishments,
with a primary focus on gaming markets in the United States. The Company,
formerly known as Alpine, is a result of a business combination completed on
March 31, 1994, pursuant to which Century Casinos Management, Inc. ("Century
Management") shareholders acquired approximately 76% of the then issued and
outstanding voting stock of the Company and all officer and board positions of
the Company were assumed by the management team of Century Management. See
"Change of Control" below for a more detailed description of the transaction.
Effective June 7, 1994 the Company reincorporated in Delaware under the name
"Century Casinos, Inc." Because the Company is the result of the transaction
discussed above, the Company's business has been combined with that of Century
Management, and references herein to the Company refer to the combined entities,
unless the context otherwise requires.
Century Management was founded in 1992 by a team of career gaming
executives who had worked primarily for an Austrian gaming company that owned
and operated casinos throughout the world. These persons included the chief
executive officer, the deputy to the chief executive officer, a managing
director and the head of international finance and control. See Item 9 herein.
The Company generally seeks to enter into gaming operations in areas with
attractive demographic attributes, high population density, local tourism and/or
predictable traffic patterns with a long-term objective of maintaining a policy
of geographic diversification of its projects. The Company's primary economic
analysis covers the potential market area surrounding a proposed gaming
location, although it takes into consideration the economic conditions in any
community in which it intends to establish a gaming facility, as many of the new
gaming jurisdictions have approved gaming as a means to revitalize local
economies. Management believes that there are a number of gaming opportunities
in the United States and internationally, and that the Company will have
opportunities to acquire casino sites that have underperformed financially,
although favorable outcomes of these opportunities cannot be assured.
The Company has developed a brand name concept for gaming operations --
Legends(R). The Company owns the trademark under the name Legends(R) in the
United States and similar rights in 20 other countries.
Information contained in this Form 10-KSB contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which can be identified by the use of words such as "may," "will,"
"expect," "anticipate," "estimate" or "continue," or variations thereon or
comparable terminology. In addition, all statements other than statements of
historical facts that address activities, events or developments that the
Company expects, believes or anticipates, will or may occur in the future, and
other such matters, are forward-looking statements.
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The future results of the Company may vary materially from those
anticipated by management, and may be affected by various trends and factors
which are beyond the control of the Company. These risks include the competitive
environment in which the Company operates, the Company's dependence upon the
Cripple Creek, Colorado gaming market, the effects of governmental regulation
and other risks described herein.
Change of Control
On March 31, 1994 the Company completed a Plan of Reorganization and
Agreement (the "Reorganization Agreement") with Alpine Acquisition, Inc., a
Delaware corporation ("Merger Subsidiary") and Century Management, a Delaware
corporation. Pursuant to the Reorganization Agreement, the Company created the
Merger Subsidiary to effectuate a merger of the Merger Subsidiary into Century
Management. Under the Reorganization Agreement, each holder of Century
Management common stock received shares of the Company's common stock for shares
of the common stock of Century Management on a one-for-one basis. In total,
6,213,971 shares of the Company's common stock were issued; former Century
Management stockholders acquired approximately 76% of the then outstanding
shares of the Company's common stock. For accounting purposes, Century
Management is considered to have acquired the Company, since Century
Management's stockholders hold a majority of the common stock of the combined
entity. This transaction was accounted for under the purchase method of
accounting. For further information see the Consolidated Financial Statements
included herein. The Plan was negotiated and executed by the parties at arms'
length, and the consideration in the transaction was determined by weighing each
corporation's present and future prospects, tangible assets and management
capabilities, along with the trading price of the Company's common stock. As
part of the transaction, the Board of Directors of the Company was restructured
such that effective March 31, 1994 all Board seats became held by directors and
executive officers of Century Management. Prior to the execution of the
Reorganization Agreement, no relationship existed between the Company and
Century Management or any of their respective affiliates, directors or officers,
or any associates of such persons.
Property and Project Descriptions
Womacks Casino, Cripple Creek, Colorado.
On July 1, 1996, the Company purchased substantially all of the assets, and
assumed substantially all of the liabilities, of Gold Creek, the owner of a
casino known as Womacks, which is located in Cripple Creek, Colorado. The
purchase price was approximately $13.6 million and consisted of a base cash
payment of $5 million plus $425,000 for the amount of working capital of Womacks
as of the closing date, a promissory note of $5.2 million issued to Gold Creek
and the assumption of existing debt of Gold Creek of approximately $3 million.
Additionally, the agreement provides that two years after the closing of the
transaction, the Company will issue 1,060,000 shares of its common stock, valued
at $1.8 million based on the July 1, 1996 trading price, to two principals of
the seller who entered into consulting contracts with the Company at the
closing. The number of shares to be issued is subject to upward adjustment,
determined by a formula, to the extent that the trading price of the Company's
stock is less than $1.58 at the time of issuance, and subject to downward
adjustment to the extent that the trading price exceeds $4.00. For further
information concerning the acquisition of Womacks, please see Note 3 to the
Consolidated Financial Statements.
Following the Company's acquisition of Gold Creek, the Womacks property was
consolidated with the Company's Legends Casino, and the combined properties have
been operated and marketed since then as one casino under the name "Womacks
Casino." Management implemented certain consolidation, expansion and capital
improvement programs in connection with the combined casinos. The Company (i)
created openings in the common walls in order to open up and integrate the
gaming areas of Legends Casino and Womacks; (ii) expanded the existing player
tracking system of Womacks to include all of the Legends Casino gaming devices;
(iii) added and promoted gaming activities on second floor areas; and (iv) made
general interior enhancements. Also, approximately 75 new gaming devices were
installed. At some time in the future management may consider expanding Womacks,
although no plans are being made at this time. Although the Company has
considered the purchase of adjacent property for development of a hotel, the
Company is not actively pursuing such efforts at this time.
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Womacks has a total of 573 slot and video devices and nine gaming tables.
It has approximately 40,000 square feet of floor space. Womacks has 150 feet of
frontage on Bennett Avenue, the main gaming thoroughfare in Cripple Creek and
110 feet of frontage on Second Street. Womacks and Legends both began gaming
operations in July 1992.
Management believes that an integral component of attracting gaming patrons
in Cripple Creek is adequate, nearby parking spaces. Management believes that it
has secured or will be able to secure adequate parking for the operations of
Womacks. The Company presently controls approximately 240 parking spaces. Of
this number, 110 spaces are held pursuant to an agreement, see "--Parking Lease
and Option to Purchase." An additional 30 spaces are leased pursuant to a
lease/purchase agreement which expires on August 31, 1997, but which provides
for automatic renewal, as well as an extension for the purchase option, for an
additional six month term, unless terminated by either party 30 days prior to
the expiration date. The purchase price for the property is $785,000. The
remaining parking spaces are subject to month to month lease agreements.
Management believes that it could obtain satisfactory parking spaces if existing
arrangements were terminated or became inadequate.
Marketing Strategy. The marketing strategy of Womacks highlights promotion
of the Womacks Gold Club. The Gold Club is a players club comprising a database
which contains profiles on over 40,000 members. Gold Club members receive
benefits from membership, such as cash, merchandise, food and lodging. Those who
qualify for VIP status receive additional benefits in addition to regular club
membership. Status is determined through player tracking. Members receive
monthly newsletters of upcoming events and parties, and, depending on player
ranking, also receive invitations to special events and monthly coupons.
In January 1997 the Company entered into a three-year advertising agreement
with Western Pacific Airlines ("WestPac"), under which the entire exterior of
one of WestPac's aircraft prominently displays the logos and color scheme of
Womacks and the Company. WestPac operates flights nationwide out of its hub in
Colorado Springs, which is located in the primary market area for Womacks
Casino. The agreement also provides for various other joint marketing and
advertising activities. Please see Note 7 to the Consolidated Financial
Statements of the Company for further information.
Also, on February 1, 1997, Womacks became a co-sponsor of the Ramblin'
Express shuttle service to Cripple Creek. Ramblin' Express buses depart from
three locations in Colorado Springs every hour from 8:00 a.m. to 10:00 p.m. Upon
arrival at Womacks Casino, passengers receive valuable coupons, including buffet
tickets.
The Cripple Creek Market. Cripple Creek, Colorado is a small mountain town
located approximately 45 miles southwest of Colorado Springs on the western
boundary of Pikes Peak. Cripple Creek is an historic mining town, originally
founded in the late 1800's following a large gold strike. Cripple Creek is a
tourist town and its heaviest traffic is in the summer months. Traffic generally
decreases to its low point in the winter months.
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Cripple Creek is one of three Colorado historical cities where casino
gaming is legal, the others being Black Hawk and Central City. Cripple Creek
operated approximately 33% of the gaming devices and generated 25% of gaming
revenues for these three cities during the year ended December 31, 1996. As of
December 31, 1996, there were approximately 25 casinos operating in Cripple
Creek.
The tables below set forth information obtained from the Colorado Division
of Gaming regarding gaming revenue by market and slot machine data for Cripple
Creek from calendar 1993 through 1996.
Gaming Revenue by Market
<TABLE>
<CAPTION>
% Change % Change % Change % Change
Over Over Over Over
1993 Prior Year 1994 Prior Year 1995 Prior Year 1996 Prior Year
---- ---------- ---- ---------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CRIPPLE CREEK $ 68,736,000 30.9% $ 82,319,000 19.8% $ 94,019,000 14.2% $103,373,000 10.0%
Black Hawk .. $101,586,000 80.8% $173,704,000 71.0% $195,857,000 12.8% $219,911,000 12.3%
Central City $ 78,965,000 10.7% $ 69,702,000 (11.7)% $ 94,468,000 35.5% $ 88,870,000 (5.9)%
</TABLE>
Cripple Creek Slot Data
<TABLE>
<CAPTION>
% Change % Change % Change % Change
Over Over Over Over
1993 Prior Year 1994 Prior Year 1995 Prior Year 1996 Prior Year
---- ---------- ---- ---------- ---- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Slot
Revenue $63,194,000 31.8% $75,979,000 20.2% $87,311,000 14.9% $97,024,000 11.1%
Average Number
of Slots 3,437 24.5% 3,285 (4.4)% 3,843 17.0% 4,175 8.6%
Average Win Per
Slot Per Day $50 6.4% $63 26.0% $62 (1.6)% $63 1.6%
</TABLE>
Gaming in Colorado is "limited stakes," which restricts any single wager to
a maximum of $5.00. While this limits the revenue potential of table games,
management believes that slot machine play, which accounts for over 90% of total
gaming revenues, is currently impacted only marginally by the $5.00 limitation.
The Company faces intense competition from other casinos in Cripple Creek,
including a handful of casinos of similar size and many other smaller casinos.
There can be no assurance that other casinos in Cripple Creek will not undertake
expansion efforts similar to those recently made by the Company, thereby further
increasing competition, or that large, established gaming operators will not
enter the Cripple Creek market. The Company seeks to compete against these
casinos through promotion of Womacks Gold Club and superior service to players.
Management believes that the casinos which will be more successful and best able
to take advantage of the market potential of Cripple Creek will be the larger
casinos that have reached a certain critical mass.
The Company competes, to a lesser extent, with approximately 19 casinos in
Black Hawk and approximately 12 casinos in Central City. Black Hawk and Central
City are also small mountain tourist towns which adjoin each other and are
approximately 30 miles from Denver and a two and one-half hour drive from
Cripple Creek. The main market for Cripple Creek is the Colorado Springs
metropolitan area, and the main market for Black Hawk and Central City is the
Denver metropolitan area.
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In addition, there is intense competition among companies in the gaming
industry generally, and many gaming operators have greater name recognition and
financial and marketing resources than the Company. The Company competes with
many established gaming operators in gaming venues other than Cripple Creek.
Many of these operators have greater financial, operational and personnel
resources than the Company. There can be no assurance that the number of casino
and hotel operations will not exceed market demand or that additional hotel
rooms or casino capacity will not adversely affect the operations of the
Company.
Description of Property. Womacks is located at 200 to 220 East Bennett
Avenue in Cripple Creek, Colorado.
The lots comprising 200 East Bennett Avenue are owned by a subsidiary of
the Company, subject to a real estate sales contract which secures a promissory
note issued to the previous holder of the property. The note bears interest at
13.3% per year and has a principal amount of $504,274 as of December 31, 1996.
The lots comprising 210 East Bennett Avenue are owned by a subsidiary of the
Company and are subject to several encumbrances, including a security interest
granted to Gold Creek. See Notes 3 and 5 to the Consolidated Financial
Statements of the Company for further information.
The Company holds a leasehold interest in the real property and
improvements located at 220 East Bennett Avenue. An unaffiliated third party, as
fee owner of the property, granted first and second deeds of trust for the
benefit of Park State Bank ("Park") and Community Banks of Colorado Cripple
Creek ("Community"), respectively. The third party then leased the property to
Teller Realty, Inc. ("Teller") and granted to Teller an option to acquire the
fee interest in the property. Teller subsequently executed a sublease to the
property with Gold Creek, and granted to Gold Creek a suboption to purchase the
property through Teller's purchase option. The Company's wholly-owned subsidiary
which purchased Womacks, WMCK Acquisition Corp. ("WMCK") has executed separate
subordination, non-disturbance and attornment agreements with each of Park and
Community, pursuant to which WMCK has agreed that its interest in the sublease
is subordinate to the liens arising out of the deeds of trust in the fee estate
in favor of Park and Community. In return, Park and Community have each agreed
(i) not to disturb WMCK's possessory rights in and to the property, and (ii) to
honor the sublease and suboption, should either foreclose on their respective
lien, so long as WMCK is not in default under the sublease, and so long as WMCK
attorns to Park, Community or any purchaser at a foreclosure. The sublease, as
assigned to WMCK, provides for monthly rental payments of $16,000, and expires
on June 20, 2005 unless terminated earlier by WMCK with 12 months' notice. The
suboption may be exercised at the expiration of the sublease at an exercise
price of $1,500,000. Teller, the third party, Gold Creek and WMCK have executed
a four-party agreement evidencing the assignment of the sublease and suboption,
as well as the consent to these assignments. None of the above entities other
than WMCK is affiliated with the Company.
The real property and improvements at 208 East Bennett Avenue were leased
by Gold Creek from Louie D. Carleo d/b/a/ L.D.C. Properties ("Carleo").
Subsequently, Carleo executed a deed of trust on the fee interest to secure a
promissory note issued to Community. Carleo then conveyed the fee interest in
the property, subject to the lease and the deed of trust, to T.J.L. Enterprises,
Inc. ("TJL"). Gold Creek conveyed its interest in the lease to WMCK, and TJL and
WMCK have executed a new lease on the property. WMCK and Community have executed
a subordination, non-disturbance and attornment agreement pursuant to which WMCK
has agreed that its interest in the lease is subordinate to Community's lien
arising out of the deed of trust in the fee estate, and Community has agreed not
to disturb WMCK's possessory rights in and to the property should Community
foreclose on its lien, so long as WMCK is not in default under the lease, and so
long as WMCK attorns to Community or any purchaser at foreclosure. The terms of
the final lease between TJL and WMCK provide for monthly rental payments of
approximately $14,600, and the lease expires in 2006. In addition, the lease
provides WMCK with an option to purchase the property at any time from July 1,
1997 through the end of the lease term for approximately $2,000,000. None of the
above entities other than WMCK is affiliated with the Company.
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Parking Lease and Option to Purchase. In October 1995, an unaffiliated
third party entered into an agreement with a subsidiary of the Company, Century
Casinos Cripple Creek, Inc. ("CCC") to assign to CCC a parking lease ("Lease"),
with an option to purchase ("Option") relating to approximately 110 contiguous
parking spaces in Cripple Creek. The lease and option expire on September 30,
1998. The initial payment was $246,000 and CCC agreed to pay an additional
$88,400 if the Option is exercised. Lease payments are $15,000 per quarter. The
Option exercise price is $3,250,000.
Additional Projects of the Company
In addition to its operating project in Cripple Creek, Colorado, the
Company has a number of potential gaming projects in various stages of
development. In addition to the capital needs of these potential projects (which
may require outside financing), there are various other risks which, if they
materialized, could materially adversely affect a proposed project or eliminate
its feasibility altogether. For example, in order to conduct gaming operations
in most jurisdictions, the Company must first obtain gaming licenses or receive
regulatory clearances. To date the Company has obtained gaming licenses or
approval to operate gaming facilities in Colorado, Louisiana and on an American
Indian reservation in California. While management believes that the Company is
licensable in any jurisdiction, each licensing process is unique and requires a
significant amount of funds and management time. The licensing process in any
particular jurisdiction can take significant time and expense through licensing
fees, paying for background investigation costs, fees of counsel and other
associated preparation costs. Moreover, should the Company proceed with a
licensing approval process with industry partners, such industry partners will
be subject to regulatory review as well. The Company seeks to satisfy itself
that industry partners are licensable, but cannot assure that such partners
will, in fact, be licensable. Additional risks before commencing operations
include the time and expense incurred and unforeseen difficulties in obtaining
suitable sites, liquor licenses, building permits, materials, competent and able
contractors, supplies, employees, gaming devices and related matters. In
addition, certain licenses include competitive situations where, even if the
Company is licensable, other factors such as the economic impact of gaming and
financial and operational capabilities of competitors must be analyzed by
regulatory authorities. All of these risks should be viewed in light of the
Company's limited staff and limited capital.
Also, the Company's ability to expand to additional locations will depend
upon a number of factors, including, but not limited to: (i) the identification
and availability of suitable locations, and the negotiation of acceptable
purchase, lease, joint venture or other terms; (ii) the securing of required
state and local licenses, permits and approvals, which in some jurisdictions are
limited in number; (iii) political factors; (iv) the risks typically associated
with any new construction project; (v) the availability of adequate financing on
acceptable terms; and (vi) for locations outside the United States, all the
risks of foreign operations, including currency controls, unforeseen local
regulations, political instability and other related risks. Certain
jurisdictions issue licenses or approval for gaming operations by inviting
proposals from all interested parties, which may increase competition for such
licenses or approvals. The development of dockside and riverboat casinos may
require approval from the Army Corps of Engineers and will be subject to
significant Coast Guard regulations governing design and operation. Most of
these factors are beyond the control of the Company. As a result, there can be
no assurance that the Company will be able to expand to additional locations or,
if such expansion occurs, that it will be successful. Further, the Company
anticipates that it will continue to expense certain costs, which were
substantial in 1994, 1995 and 1996 and may continue to be substantial in the
future, in connection with the pursuit of expansion projects, and may be
required to write off any capitalized costs incurred in connection with these
ventures. In 1996 the Company terminated its pursuit of a previously disclosed
gaming development project in Louisiana (due to the local citizenry rejecting a
gaming initiative), and the Company terminated its previously disclosed casino
marketing agreement with HFS Gaming Corp.
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The following describes other activities of the Company.
Casino Management Agreement-Rhodes, Greece. The Company has executed a
casino management consulting agreement with Rhodes Casino, S.A., a consortium
including Playboy Enterprises, Inc., under which the Company, as an independent
contractor, will supply services and assistance in establishing a casino on the
island of Rhodes, Greece. The consortium has been awarded the exclusive license
for casino gaming on Rhodes for a 12-year period commencing when the casino
begins operations. The Company's management consulting agreement with the
consortium, which has an initial term running through the third anniversary of
the casino opening, provides for fees to the Company of $200,000 for services to
be rendered in the pre-opening phase, $300,000 per year during the first three
years of operation and $50,000 per year thereafter, if renewed. The Company is
not required to commit any capital in connection with the proposed activities
under the agreement. In the fourth quarter of 1996, the Company received $50,000
with respect to pre-opening phase services. Although the consortium has
indicated a target opening date for the casino of late 1997, the Company
believes that such target date may be optimistic, and it cannot predict whether
the casino opening will occur in 1997.
South Africa. Recently enacted legislation in South Africa provides for the
award of up to 40 casino licenses throughout the country. The Company has
entered into agreements with three local consortia to provide consulting
services during the application phase, as well as casino management services
should the Company's partners be awarded one or more licenses. The first
application has been filed by the Company's partners in the province of
Mpumalanga and was put on the short list of finalists. In January 1997 the
Mpumalanga provincial gaming board indicated that another group (including MGM
Grand) had been given preferred applicant status, and this group is presently
negotiating with the gaming board for the award of a license. In the event the
gaming board and the preferred applicant do not reach agreement, the gaming
board could consider other finalists for the license. The second application
could be filed with the gaming board in the province of Gauteng in 1997 for a
hotel/casino resort in the greater Johannesburg area. The Gauteng gaming board,
however, has not yet set a definitive date for the filing of applications. If
successful in this application, the Company would be required to make an
investment of approximately $2 million for a 3% equity interest in the licensee.
Later in 1997 the Company expects the filing of the third application in the
Northern Province for a hotel/casino resort close to the Pietersburg
metropolitan area. The Company cannot predict whether any licenses will
ultimately be awarded to the Company's partners.
Cruise Vessels - Concession Agreements. The Company has been acting as
casino concessionaire for Silver Seas Cruises, Ltd. ("Silver Seas"), a cruise
vessel operator which presently operates two luxury vessels. Silver Seas
commenced operating the vessel known as the Silver Cloud in April 1994 and the
vessel known as the Silver Wind in January 1995. The concessionaire agreements
require the Company to guarantee to Silver Seas $1.00 per adult passenger per
gaming day (defined as a cruising day on which the slot machines are operated in
excess of four hours), with the next $1.50 of gross gaming revenues per adult
passenger per gaming day being retained by the Company. Any such gross gaming
revenues in excess of $2.50 per adult passenger per gaming day are split 50% to
the Company and 50% to Silver Seas. The Company is responsible for all gaming
related operating expenses of these casinos. The Company operates the casinos on
its own behalf and for its own account and provides all necessary gaming
equipment (three gaming tables and approximately 20 gaming machines per vessel,
respectively), together with the casino bankroll. Furthermore, the Company
covers all casinorelated operating expenses such as payroll for casino
employees, travel expenses, recruitment fees, printing costs for necessary
paperwork and concession fees. The concession agreement for the Silver Cloud
expires in April 1997; the concession agreement for the Silver Wind expires in
January 1998. The Company has been informed by Silver Seas that the Silver Cloud
agreement will not be renewed in April 1997. The Company understands that the
casino concession may be awarded to an affiliate of Silver Seas. The Company
believes that it is likely that the agreement for the Silver Wind will not be
renewed when it expires in January 1998. Please see "Item 6 - Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion of the impact of the termination of these agreements.
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Nonoperating Casino in Wells, Nevada. In 1994, the Company purchased the
Ranch House Casino in Wells, Elko County, Nevada from an unaffiliated party. The
total purchase price of $850,000 was determined based on arm's length bargaining
with the seller. In May 1995, the Company made a down payment of $150,000. The
remaining balance of $700,000 was evidenced by a note secured by the property.
In 1996 the Company and the seller revised the terms of the note. The Company
made principal payments totaling $237,493 and paid interest of $87,507 through
December 31, 1996. Under the revised terms, the Company is required to make
monthly payments of $25,000 including interest at 6.02% per year until March
1998 when the remaining principal of $110,100 is due. In addition to the casino
facility itself, the Company acquired seven acres of land directly across the
street from the casino for a purchase price of $69,000. The property, closed
since 1992 but in operable condition, is an 18,000 square foot building with
approximately 6,000 square feet of gaming space. Management currently does not
intend to pursue a gaming license with respect to the facility, and is seeking a
sale or lease of the casino and land.
Sale of Interest in Riverboat Project in Indiana. On December 21, 1995, the
Company sold its 80% interest in Pinnacle Gaming Development Corporation
("Pinnacle"), to Switzerland County Development Corporation (the "Buyer"). The
Buyer is an affiliate of Hilton Gaming Corporation and Boomtown, Inc. Pinnacle
had applied for a gaming license from the Indiana Gaming Commission and a
certificate of suitability from Switzerland County, Indiana to develop and
operate a riverboat casino project in the county. Pinnacle has incurred various
costs and expenses including payments for the options, license application
expenses, and professional fees. All of Pinnacle's operations since its
inception have been related to its efforts to obtain the gaming license. Through
the date of the Company's sale of its Pinnacle stock, the Company had incurred
approximately $500,000 in costs and expenses related to Pinnacle.
The agreement for sale of the Pinnacle stock to the Buyer provides for a
potential total purchase price payable to the Company of $3,440,000, of which
$80,000 was paid on December 21, 1995. The agreement is subject to numerous
terms which could result in its termination and excuse the Buyer from paying the
remainder of the purchase price. These terms essentially require that a gaming
license and certificate of suitability be awarded to Pinnacle and that the
project commence operations for the Buyer to be required to pay the full
purchase price. Switzerland County remains one of two Indiana counties in
competition for the remaining Ohio River license to be granted. The stock
agreement requires the Buyer to continue the efforts to obtain a gaming license,
but the likelihood of Pinnacle being awarded a gaming license cannot be
predicted.
The remainder of the potential purchase price, beyond the $80,000 paid at
closing, is scheduled to be paid as follows: (i) $400,000 seven days after
receipt of a certificate of suitability from Indiana regulatory authorities;
(ii) $1,040,000 seven days after the ground breaking for the project; and (iii)
$32,000 per month for 60 months (or a total of $1,920,000) following the opening
of the project for business. No interest will be accrued for the unpaid portion
of the purchase price, although late payments will bear interest. After the
project commences gaming operations, the Company may require the Buyer to prepay
the monthly payments, discounted to present value on the date of the prepayment
at the rate of 12% per year. The Buyer also has the option to prepay all or part
of the monthly payments, discounted at the rate of 12%.
9
<PAGE>
The Buyer may terminate the agreement (a) for a number of enumerated
reasons, or (b) for no reason, but in the latter case must pay a termination fee
to the Company of $200,000 if the agreement is terminated 60 days or more before
the state hearings on the gaming license, $320,000 if terminated less than 60
days before the hearings but before award of a certificate of suitability, and
$160,000 if terminated after the award of a certificate of suitability but
before its actual receipt thereof by Pinnacle. The Buyer may terminate the
agreement without incurring any obligation or a termination fee for a number of
reasons, including: (i) laws or regulations are enacted increasing the number of
riverboat or other gaming licenses in Indiana or Kentucky or in nearby counties,
permitting additional license applications in Switzerland County or nearby
counties, or placing a moratorium on gambling, or imposing additional
requirements which reduce the profitability of gaming in such areas; or (ii) the
two remaining gaming licenses to be granted in Indiana (as of December 1995) are
awarded to other applicants, the Indiana Gaming Commission indicates that a
certificate of suitability will not be awarded to Pinnacle, or Pinnacle does not
receive the certificate within 12 months of the date of the agreement (which
date has passed); or (iii) the prime rate of interest increases to 10% or more;
or (iv) there is a material default or breach of the agreement by the Company,
or the Company fails to provide a title policy as required by the agreement.
In January 1997 the parent company of Hilton Gaming Corporation, Hilton
Hotels Corporation ("Hilton"), announced a hostile takeover bid seeking control
of a business competitor, ITT Corporation ("ITT"). Two effects of this proposed
takeover directly affect the contractual relationship between the Company and
the Buyer: first, the proposed acquisition places in peril the ability of the
Buyer to engage in commercially reasonable efforts to pursue the Indiana gaming
license application, and; second, a successful acquisition by the Buyer would
implicate the "10% interest rule" in Indiana, mandating that a license owner
hold no more than a 10% interest in any other Indiana gaming license (an ITT
business unit, Caesars, owns a controlling interest in the gaming license issued
for the Harrison County, Indiana site).
Because of the actual and potential adverse affects of the Hilton business
strategy, the Company initiated an action, in January 1997 for declaratory
judgment in the United States District Court for the Southern District of
Indiana. The complaint seeks a declaration of the rights and obligations of the
parties to the Pinnacle Stock Purchase Agreement, and requests compensation
should the court find the Buyer to be in breach of its contractual obligations
to the Company. It is expected that the defendants will respond with a motion to
dismiss, or an alternative motion to stay consideration on the merits pending
the outcome of the Hilton takeover bid. The Company has been in communication
with representatives of the defendants concerning the possibility of a
negotiated settlement. Management believes that the litigation presents no
materially adverse consequences to the Company.
Payments Relating to Former Indian Tribal Management Agreement-California.
In August 1995, the Company terminated its management agreement with the Soboba
Band of Mission Indians (the "Tribe") with respect to Legends Casino at Soboba
in Riverside County, California. In connection with the termination, an
unaffiliated third party issued a promissory note to the Company for $3,100,000
payable over three years in monthly installments, based on percentage of gross
revenue from certain operations of the facility. The Company received payments
on the note in 1996 of $947,954 and $48,183 in 1995.
The Company's unrecovered capitalized costs associated with the Soboba
contract at December 31, 1996 were $844,367. The Company recognizes payments
received on the note as reductions of its capitalized costs. Since payments are
based on revenue generated by the facility, satisfaction of the note, and the
Company's recovery of its capitalized costs, is dependent upon the continued
successful operation of the facility. The Company periodically evaluates the
recoverability of the remaining capitalized costs and if it becomes probable
that all or a portion of such costs are not recoverable, the Company will record
a charge to operations. Payments in excess of total capitalized costs will be
recognized as income if, and when, received. The Company is aware that there is
an unresolved dispute within the State of California between the state
government and Indian tribes regarding the types of gaming devices that may be
operated at casinos on Indian tribal lands. An adverse outcome could potentially
affect the recoverability of the Company's remaining capitalized costs. The
Company cannot predict the likelihood of an outcome adverse to the Company;
however, management believes that the Company's remaining capitalized costs at
December 31, 1996 are fully recoverable.
10
<PAGE>
Portage des Sioux, Missouri. In 1994, the Company entered into a riverboat
development agreement with the City of Portage des Sioux, Missouri. The
agreement provided that the Company would be the developer and operator for the
development of a riverboat gaming enterprise, and that the City would not
actively pursue additional or alternative casino operations. The Company elected
not to renew this agreement, which expired on February 25, 1997. Although the
Company maintains current a gaming application filed in November 1994 with the
Missouri Gaming Commission, management believes that consideration of the
Company's application is unlikely in the foreseeable future.
Employees
The Company employs approximately 200 persons on an equivalent full-time
basis, including cashiers, dealers, food and beverage service personnel,
facilities maintenance staff, and accounting and marketing personnel. No labor
unions represent any employee group. A standard package of employee benefits is
provided to full-time employees along with training and job advancement
opportunities.
Seasonality
The Company's business is not considered to be seasonal; however, the
anticipated highest levels of business activity, at least in Colorado, will
occur in the tourist season (i.e., from May through September). Its base level
(i.e., November through May) is expected to remain fairly constant although
weather conditions during this period could have a significant impact on
business levels in Colorado.
GOVERNMENTAL REGULATION
The Company's gaming operations are subject to strict governmental
regulations at federal, state and local levels. Statutes and regulations can
require the Company to meet various standards relating to, among other matters,
business licenses, registration of employees, floor plans, background
investigations of licensees and employees, historic preservation, building, fire
and accessibility requirements, payment of gaming taxes, and regulations
concerning equipment, machines, tokens, gaming participants, and ownership
interests. Civil and criminal penalties can be assessed against the Company
and/or its officers or stockholders to the extent of their individual
participation in, or association with, a violation of any of the state and local
gaming statutes or regulations. Such laws and regulations apply in all
jurisdictions within the United States in which the Company may do business.
Management believes that the Company is in compliance with applicable gaming
regulations. For purposes of the discussion below, the term "the Company"
includes its applicable subsidiaries.
Colorado Regulation
The Colorado Limited Gaming Control Commission ("Commission") has adopted
regulations regarding the ownership of gaming establishments by publicly held
companies (the "Regulations"). The Regulations require the prior clearance or
notification of the Commission before any public offering of any securities of
any gaming licensee or any affiliated company. The Regulations require all
publicly traded or publicly owned gaming licensees to comply with numerous
regulatory gaming requirements. These requirements include, but are not limited
to, those listed below.
11
<PAGE>
A publicly traded gaming licensee that sends to the holders of its voting
securities any proxy statements subject to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or an information statement
subject to Regulation 14C of the 1934 Act, must file such material with the
Colorado Division of Gaming (the "Colorado Division").
Whenever any document is furnished to the holders of voting securities of a
publicly traded gaming licensee or filed by a publicly traded gaming licensee
with the SEC, the publicly traded gaming licensee is required to file a true
copy of that document with the Colorado Division. Whenever a publicly traded
gaming licensee receives any material document filed with the SEC by any other
person relating to the publicly traded gaming licensee, it must file a true copy
of the document with the Colorado Division. Each publicly traded gaming licensee
must file with the Colorado Division, on an annual basis, a list of the holders
of its voting securities.
Each publicly traded gaming licensee is required to report promptly to the
Colorado Division the election or appointment of any director, any executive
officer and any other officers actively and directly engaged in the
administration or supervision of the gaming activities at any licensed gaming
establishment.
The following provisions are required to be included in the certificate of
incorporation for every publicly traded gaming licensee or holding company which
has a gaming license in the State of Colorado.
(i) The entity is precluded from issuing any voting securities except
in accordance with the provisions of the Colorado Limited Gaming
Act ("Gaming Act") and the regulations promulgated thereunder.
The issuance of any voting securities in violation of the Gaming
Act is ineffective and such voting securities are deemed not to
be issued and outstanding until (a) the entity ceases to be
subject to the jurisdic tion of the Commission, or (b) the
Commission, by affirmative action, validates the issuance or
waives any defect in the issuance.
(ii) No voting securities issued by the entity and no interest in the
entity can be transferred in any manner except in accordance with
the provisions of the Gaming Act and its regulations. Any
transfer in violation of the Gaming Act is ineffective until (a)
the entity ceases to be subject to the jurisdiction of the
Commission, or (b) the Commission, by affirmative action,
validates the transfer or waives the defect in the transfer.
(iii)If the Commission at any time determines that a holder of voting
securities of the entity is unsuitable to hold the securities,
then the issuer of the securities may, within 60 days after the
finding of unsuitability, purchase the securities of the un
suitable person at the lesser of (i) the cash equivalent of such
person's investment in the entity, or (ii) the current market
price of the date of finding of unsuitability, unless the
securities are transferred to a suitable person, as determined by
the Commission, within 60 days after the finding of
unsuitability. Until the securities are owned by persons found by
the Commission to be suitable to own them, (a) the entity is not
required or permitted to pay any dividend or interest with regard
to the securities, (b) the holder of the securities is not
entitled to vote on any matter as the holder of the securities
and such securities shall not for any purpose be included in the
voting securities of the entity, and (c) the entity is precluded
from paying any remuneration in any form to the holder of the
securities.
The Company has the above provisions in its Certificate of Incorporation.
12
<PAGE>
The Colorado regulations for publicly traded gaming licensees (the
"Regulations") also require each person who individually or in association with
others acquires, directly or indirectly, beneficial ownership of 5% or more of
any class of voting securities of a publicly traded gaming licensee to notify
the Colorado Division within 10 days after the person acquired 5% or more of the
securities. The person who acquires 5% or more of the securities shall provide
any additional information requested by the Colorado Division and be subject to
a finding of suitability as required by the Colorado Division. Publicly traded
gaming licensees are also required to notify each person subject to the
Regulations of the Colorado Division's requirements as soon as the gaming
licensee becomes aware of the acquisition.
Each person who, individually or in association with others, acquires,
directly or indirectly, the beneficial ownership of 10% or more of any class of
voting securities of a publicly traded gaming licensee required to contain the
above charter provisions is required to apply to the Commission for a finding of
suitability within 10 days after acquiring 10% or more of the securities. A
publicly traded gaming licensee is also required to notify each person subject
to the Regulations of its requirements as soon as the gaming licensee becomes
aware of the acquisition. However, the obligations of the person subject to the
Regulations are independent of and unaffected by the gaming licensee's failure
to give the notice.
Any person found unsuitable by the Commission is not permitted ownership of
any voting security of a publicly traded gaming licensee, subject to the
provisions of the Regulations, and must be removed immediately from any position
as a director, officer or employee of the publicly traded gaming licensee.
The State of Colorado created the Colorado Division within the Department
of Revenue to license, implement, regulate and supervise the conduct of limited
gaming. The Director of the Colorado Division, under the supervision of a
five-member Colorado Commission, has been granted broad power to ensure
compliance with the law, and regulations adopted thereunder. The Director may
inspect, without notice, premises where gaming is being conducted; he may seize,
impound or remove any gaming device. He may examine and copy any licensee's
records, may investigate the background and conduct of licensees and their
employees, and may bring disciplinary actions. He may also conduct detailed
background checks of persons who loan money to the Company.
The Commission is empowered to issue five types of gaming and gaming
related licenses. The Colorado Division has broad discretion to revoke, suspend,
condition, limit or restrict a license at any time. The license of the Company
must be renewed each year. All licenses are revocable, non-transferable and
valid only for the particular location initially authorized. No person, such as
the Company, can have an ownership interest in more than three retail licenses.
Hence, the Company's business opportunities in Colorado could be limited
accordingly. All of the Company's employees must apply for and receive a support
gaming license prior to commencing employment. The Commission has adopted
comprehensive rules and regulations which require the Company to maintain
adequate books and records and these rules also prescribe minimum operating,
security and payoff procedures. The Commission has the power to deny any license
or renewal thereof to any person it considers to be "unsuitable," a broad,
discretionary standard. The Commission has also promulgated a list of excluded
persons; it is unlawful for any person on this list to enter licensed premises
or to hold shares in a licensee. Rules regarding gaming, cheating and other
fraudulent practices have also been adopted, which rules the Company is
obligated to police and enforce.
Other state regulatory agencies also impact the Company's operations,
particularly its license to serve alcoholic beverages. Rules and regulations in
this regard are strict, and loss or suspension of a liquor license could
significantly impair, if not ruin, a licensee's operation. Local building,
parking and fire codes and similar regulations could also impact the Company's
operations and proposed development of its properties.
13
<PAGE>
Item 2. Properties.
The Company maintains its corporate offices at 26 South Tejon Street, Suite
203, Colorado Springs, Colorado, pursuant to a lease with an unaffiliated party.
The lease term runs through September 1999, and monthly lease payments are
$2,600. The Company remains obligated under an office lease for its former
corporate offices in Denver, Colorado. This lease expires in September 1998. The
Company has sublet this space to an unaffiliated third party for the remainder
of the lease term. The Company pays monthly rent of $6,162 and receives monthly
payments of $5,225 from the subtenant. The Company has the right to terminate
the lease effective September 1997 for a termination fee of approximately
$10,000. If the Company exercises this right, the sublease would terminate as
well. See "Item 1. Business -Property and Project Descriptions" herein for a
description of the Company's other properties.
Item 3. Legal Proceedings.
Other than as set forth above in Item 1, the Company is not a party to any
litigation which is individually or in the aggregate material to the Company.
Item 4. Submission of Matters to a Vote of Securityholders.
The 1996 annual meeting of stockholders of the Company was held on November
25, 1996. At the annual meeting, the two Class II directors to the Board, Peter
Hoetzinger and James D. Forbes, were elected to the Board for a three-year term,
and a proposal to increase the number of shares of Common Stock reserved for
issuance under options which may be granted under the Employees' Equity
Incentive Plan (2,500,000 shares to 3,500,000 shares) was adopted by
stockholders of the Company. On the proposal to elect the Class I directors, the
votes were: James D. Forbes, 10,124,647 for, 1,490 against, and 19,399
abstained; Peter Hoetzinger, 10,124,547 for, 1,590 against, and 19,399
abstained. On the proposal with respect to the amendment to the Employees'
Equity Incentive Plan, the results were: 7,166,050 for, 130,135 against, and
12,000 abstained.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock began trading in the Nasdaq SmallCap Market on November
10, 1993. The following table sets forth the low and high bid price per share
quotations as reported on the NASDAQ SmallCap Market of the Common Stock for the
periods indicated. These quotations reflect inter-dealer prices, without retail
markup, mark down or commission and may not necessarily represent actual
transactions. Actual prices may vary.
Quarter Ended Low High
March 31, 1995 $1.62 $2.50
June 30, 1995 $1.88 $2.38
September 30, 1995 $1.50 $2.38
December 31, 1995 $1.25 $2.25
March 31, 1996 $1.50 $2.13
June 30, 1996 $1.13 $2.00
September 30, 1996 $1.25 $1.69
December 31, 1996 $1.06 $1.81
At December 31, 1996, the Company had approximately 200 holders of record
of its Common Stock; management estimates that the number of beneficial owners
is approximately 1,000.
14
<PAGE>
At the present time, management of the Company intends to use any earnings
which may be generated to finance the growth of the Company's business.
Accordingly, while payment of dividends rests within the discretion of the Board
of Directors, no dividends have been declared or paid by the Company, and it
does not presently intend to pay dividends. One of the Company's debt agreements
restricts payment of cash dividends. There can be no assurance that dividends
will be paid.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Business Environment and Risk Factors
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere herein.
The Company's future operating results may be affected by various trends and
factors which are beyond the Company's control. These include, among other
factors, the competitive environment in which the Company operates, present
dependence upon the Cripple Creek, Colorado gaming market, changes in the rates
of gaming-specific taxes, shifting public attitudes toward the socioeconomic
costs and benefits of gaming, actions of regulatory bodies, dependence upon key
personnel, the speculative nature of gaming projects the Company may pursue,
risks associated with expansion, and other uncertain business conditions that
may affect the Company's business.
With the exception of historical information, the matters discussed below
under the headings "Results of Operations" and "Liquidity and Capital Resources"
may include forward-looking statements that involve risks and uncertainties. The
Company cautions the reader that a number of important factors discussed herein,
and in other reports filed with the Securities and Exchange Commission, could
affect the Company's actual results and cause actual results to differ
materially from those discussed in forwardlooking statements.
Results of Operations
As discussed more fully in Note 3 to the financial statements, on July 1,
1996, the Company acquired the assets of Gold Creek Associates, L.P. ("Gold
Creek"), owner of Womack's Saloon & Gaming Parlor ("Womacks") in Cripple Creek,
Colorado. Following the Company's acquisition of Gold Creek, the Womacks
property was consolidated with the Company's Legends casino. Subsequent to June
30, 1996, the combined properties have been operated and marketed as one casino
under the name Womacks Casino. The accompanying financial statements include the
results of operations acquired form Gold Creek for the period subsequent to June
30, 1996. Consequently, results of operations for 1996 cannot be readily
compared with those of 1995.
Net operating revenue increased to $11,478,042 in 1996 from $4,222,088 in
1995, primarily as a result of the acquisition of Gold Creek on July 1, 1996.
Casino revenue was $10,984,499 in 1996 and $4,003,485 in 1995. The Company's
share of the Cripple Creek market increased from 4.3% in December 1995 to 17.8%
in December 1996, following the acquisition. On a pro forma basis, the combined
casino increased its market share in Cripple Creek to 16.0% in 1996 from 13.6%
in the prior year. The Company's Cripple Creek operations now offer 573 slot
machines and nine table games versus 189 slot machines and three table games at
the end of 1995. In addition to the increased revenue from the combined Womacks
properties, revenue from the Company's cruise ship casinos grew 27% to $546,956
in 1996. The operating margin for the cruise ship casinos was $130,378 in 1996
and $27,933 in 1995. The revenue growth for the cruise ship casinos is chiefly
attributable to the Silver Wind, which began operating in the first quarter of
1995 and gradually improved its performance throughout the remainder of its
first year. The Company has been advised by the cruise ships' management company
that the Company's concession agreement for the Silver Cloud, which expires in
April 1997, will not be renewed. The Silver Cloud produced net operating revenue
of $218,495 and an operating margin of $34,481 in 1996. (The concession
agreement for the Silver Wind is presently due to expire in January 1998 and the
Company believes it is likely that this agreement will not be renewed.) Gross
margin from company-wide casino activities improved from 47% in 1995 to 58% in
1996. The margin improvement is largely attributable to the operating synergies
and cost reductions realized from the Gold Creek acquisition and the
consolidation of the two Cripple Creek properties under the Womacks name.
15
<PAGE>
Food and beverage revenue increased 71% from 1995 to 1996 due to the larger
scale of operations resulting from the Gold Creek acquisition. Womacks currently
staffs a full-service restaurant and five bars. In anticipation of the Gold
Creek acquisition, Legends scaled back its restaurant operations during the
first quarter of 1996 and discontinued them completely in the second quarter.
The cost of food and beverage promotional allowances, which are included in
casino costs, increased to $439,811 in 1996 from $349,087 in 1995. However, this
represents a decrease as a percentage of the retail value of the promotions, due
to the writeoff of food costs associated with changing the Legends restaurant
concept during 1995.
The increase in other revenue was primarily due to receipt of payments
related to casino management contracts. The Company received $50,000 pursuant to
its management contract for the Rhodes, Greece casino and received a one-time
payment of $66,000 from a consulting contract in South Africa which has since
expired. Womacks' parking lot revenue and gift shop sales account for most of
the remaining increase.
General and administrative expenses increased from $3,223,922 in 1995 to
$4,254,666 in 1996, but as a percentage of net operating revenue decreased from
76% to 37%. An increase in these expenses at the Cripple Creek casino, following
the Gold Creek acquisition, was partially offset by a lower level of
expenditures related to riverboat gaming development projects in Indiana, in
which the Company sold its interest in December 1995, and in Missouri. General
and administrative expenses for Cripple Creek were higher due to the increased
size of operations, but declined as a percentage of net operating revenue from
22% in 1995 to 20% in 1996. The 1996 amount also includes $150,000 of up-front
costs related to the Company's three-year advertising agreement with Western
Pacific Airlines.
Depreciation increased from $456,636 in 1995 to $894,561 in 1996 primarily
as a result of the Gold Creek acquisition, and to a lesser extent due to the
addition of gaming equipment in the first half of 1996 and interior renovations
to the combined Cripple Creek properties in the second half of 1996. The
increase in amortization expense of $246,714 principally relates to the
amortization of goodwill recognized in the Gold Creek acquisition.
Interest expense increased from $209,945 to $577,914 as a result of the
seller-financed portion of the Gold Creek purchase price, existing debt of Gold
Creek assumed by the Company, a convertible promissory note issued to a private
investor and additional vendor-financed equipment acquisitions. The other items
included in the caption "Other income (expense), net" in the consolidated
statements of operations, for both 1996 and 1995, are described in Note 9 to the
consolidated financial statements
Liquidity and Capital Resources
At December 31, 1996 the Company had cash and cash equivalents totaling
$4,556,540 and a net working capital position of $1,259,310. Net cash provided
by operations was $2,635,788 in 1996, as compared with net cash used in
operations of $1,308,497 in 1995. The Company invested almost $7,000,000 of cash
to acquire the assets of Gold Creek and to upgrade and combine the Cripple Creek
properties. In addition to operating cash flow, the Company also raised
$5,856,785 in two private stock placements and issued a convertible debenture of
$500,000 during 1996, the proceeds from which were used to complete the Gold
Creek acquisition.
16
<PAGE>
The Company has received a commitment letter from a commercial bank to
refinance substantially all of the Company's debt through a reducing revolving
credit facility. The facility would be for $13,000,000, to be amortized on an
eight and one-half year basis with all outstanding principal due at the end of
the fourth year. Borrowings under the facility would be secured by substantially
all of the Company's real and personal property in Cripple Creek. The Company
would be subject to certain financial covenants and restrictions on capital
expenditures and paying dividends. The Company believes that the contemplated
refinancing would, among other benefits, afford the Company more flexibility in
further developing the profit potential of its Cripple Creek properties as well
as in the pursuit of gaming opportunities in other markets. Finalization of the
agreement is subject to satisfactory completion of due diligence procedures by
the bank and, consequently, there can be no assurance that the refinancing will
be completed.
The Company is presently pursuing several gaming opportunities in South
Africa, as more fully discussed in Note 7 to the consolidated financial
statements. In connection with one of its partner's anticipated license
applications, should a license ultimately be awarded and the project financing
fully secured, the Company would be required to make an equity investment of
approximately $2 million in the licensee. The likelihood or timing of this
potential investment cannot be predicted with certainty; however, management
believes that an equity investment, if any, would not be required before late
1997. In the absence of completing the refinancing described in the preceding
paragraph, a portion of the Company's consolidated cash balance at March 31,
1997 would be restricted to satisfy a working capital covenant of a subsidiary.
Management believes that cash flow generated from operations, supplemented with
outside financing, if required, would be sufficient to fund the possible equity
investment.
Regardless of whether the contemplated bank refinancing is completed, and
subject to the possible restriction on the Company's ability to fund its
contingent equity investment in South Africa from its existing cash resources,
as described in the previous paragraph, the Company believes that its present
cash and working capital positions, together with expected cash flows from
operations, are sufficient to meet its nearand medium-term obligations and
contemplated capital expenditures. Due to an existing debt covenant, which
requires a subsidiary of the Company to maintain a specified level of working
capital, the Company's ability to pursue other new gaming opportunities that
require significant capital investment could be limited.
Item 7. Financial Statements.
See "Index to Financial Statements" on page F-1 hereof.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
17
<PAGE>
CENTURY CASINOS, INC.
INDEX TO FINANCIAL STATEMENTS
Page Number
-----------
Independent Auditors' Report F2
Consolidated Balance Sheet as of December 31, 1996 F3
Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995 F4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1996 and 1995 F5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996 and 1995 F6
Notes to Consolidated Financial Statements F8
-F1-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Century Casinos, Inc.
We have audited the accompanying consolidated balance sheet of Century Casinos,
Inc. and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the two years
in the period 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Century Casinos, Inc. and
subsidiaries at December 31, 1996, and the results of their operations and their
cash flows for the two years in the period then ended in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 28, 1997
-F2-
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 4,556,540
Prepaid expenses and other ....................................... 791,632
------------
Total current assets ........................................ 5,348,172
PROPERTY AND EQUIPMENT, net ........................................... 12,566,108
GOODWILL, net of accumulated amortization of $2,386,277 ............... 13,857,545
OTHER ASSETS .......................................................... 1,064,292
------------
TOTAL ................................................................. $ 32,836,117
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt, including $280,240 to related party $ 1,959,080
Accounts payable and accrued liabilities .............................. 2,129,782
------------
Total current liabilities ........................................ 4,088,862
LONG-TERM DEBT, including $140,120 to related party ................. 8,249,356
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock; $.01 par value; 20,000,000 shares
authorized; no shares issued and outstanding
Common stock; $.01 par value; 50,000,000 shares
authorized; 15,861,885 shares issued and outstanding ........ 158,619
Additional paid-in capital ....................................... 24,820,275
Foreign currency translation ..................................... (13,854)
Accumulated deficit .............................................. (4,467,141)
------------
Total shareholders' equity ................................. 20,497,899
------------
TOTAL ................................................................. $ 32,836,117
============
</TABLE>
See notes to consolidated financial statements.
-F3-
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING REVENUE:
Casino ................................ $ 10,984,499 $ 4,003,485
Food and beverage ..................... 543,379 318,013
Hotel ................................. 31,443 --
Other ................................. 350,728 85,687
------------ ------------
11,910,049 4,407,185
Less promotional allowances ........... (432,007) (185,097)
------------ ------------
Net operating revenue ............ 11,478,042 4,222,088
------------ ------------
OPERATING COSTS AND EXPENSES:
Casino ................................ 4,660,482 2,131,901
Food and beverage ..................... 323,454 220,688
Hotel ................................. 8,326 --
General and administrative ............ 4,254,666 3,223,922
Depreciation and amortization ......... 1,936,065 1,251,426
------------ ------------
Total operating costs and expenses 11,182,993 6,827,937
------------ ------------
INCOME (LOSS) FROM OPERATIONS .............. 295,049 (2,605,849)
OTHER INCOME (EXPENSE), net ................ (1,541,191) 3,517,913
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES .......... (1,246,142) 912,064
PROVISION FOR INCOME TAXES ................. 49,000 300,000
------------ ------------
NET INCOME (LOSS) .......................... $ (1,295,142) $ 612,064
============ ============
INCOME (LOSS) PER SHARE .................... $ (0.09) $ 0.06
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ........................... 13,902,150 10,471,052
============ ============
</TABLE>
See notes to consolidated financial statements.
-F4-
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional Foreign
---------------------- Paid-in Currency Accumulated
Shares Amount Capital Translation Deficit Total
---------- --------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ................. 9,278,652 $ 92,787 $ 15,188,947 $ (2,443) $ (3,784,063) $ 11,495,228
Exercise of warrants ......................... 51,000 510 -- -- -- 510
Private placement ............................ 1,460,000 14,600 2,043,960 -- -- 2,058,560
Foreign currency translation ............... -- -- -- (5,980) -- (5,980)
Net income .................................. -- -- -- -- 612,064 612,064
---------- --------- ------------ -------- ------------ ------------
BALANCE AT DECEMBER 31, 1995 ................ 10,789,652 107,897 17,232,907 (8,423) (3,171,999) 14,160,382
Private placement ............................ 1,000,000 10,000 1,365,665 -- -- 1,375,665
Private placement ............................ 4,072,233 40,722 4,428,898 -- -- 4,469,620
Contingent shares to be issued July 1, 1998 in
connection with Gold Creek acquisition ..... -- -- 1,788,750 -- -- 1,788,750
Warrants issued to consultant ................ -- -- 4,055 -- -- 4,055
Foreign currency translation ................. -- -- -- (5,431) -- (5,431)
Net loss ..................................... -- -- -- -- (1,295,142) (1,295,142)
---------- --------- ------------ -------- ------------ ------------
BALANCE AT DECEMBER 31, 1996 ................. 15,861,885 $ 158,619 $ 24,820,275 $(13,854) $ (4,467,141) $ 20,497,899
========== ========= ============ ======== ============ ============
</TABLE>
See notes to consolidated financial statements.
-F5-
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income (loss) ............................................... $(1,295,142) $ 612,064
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation .......................................... 894,561 456,636
Amortization .......................................... 1,041,504 794,790
Gain from termination of gaming development projects .. -- (3,681,107)
Noncash consulting fees ............................... 140,555 136,500
Loss on note receivable ............................... 422,476 --
Costs associated with terminated debt offering ........ 65,800 --
Loss on disposition of assets and other noncash charges 413,094 160,934
Deferred tax provision ................................ 32,000 264,000
(Gain) loss from foreign currency transactions ........ (741) 54,608
Changes in operating assets and liabilities:
Prepaid expenses and other assets ................... 46,671 (398,856)
Accounts payable and accrued liabilities ............ 875,010 291,934
----------- -----------
Net cash provided by (used in) operations ........... 2,635,788 (1,308,497)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Gold Creek, net of cash acquired ................. (5,309,027) --
Expenditures for gaming development projects and other .......... (104,923) (2,281,669)
Purchases of property and equipment ............................. (1,554,115) (561,024)
(Purchases) redemptions of short-term investment securities ..... 747,588 (747,588)
Purchase of note receivable ..................................... (1,337,500) --
Sale of note receivable ......................................... 1,231,119 --
Principal payments received on note receivable .................. 24,668 15,020
Proceeds from terminated gaming development projects ............ 947,954 4,128,183
Proceeds received from disposition of assets .................... 33,761 59,599
----------- -----------
Net cash provided by (used in) investing activities ... (5,320,475) 612,521
----------- -----------
</TABLE>
-Continued on following page-
-F6-
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ..................... 800,000 --
Principal repayments on borrowings ........... (1,449,029) (279,647)
Proceeds from sales of common stock .......... 5,856,785 2,059,070
----------- -----------
Net cash provided by financing activities 5,207,756 1,779,423
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS ............. 2,523,069 1,083,447
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .... 2,033,471 950,024
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......... $ 4,556,540 $ 2,033,471
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
1996 1995
----------- -----------
Equipment acquired through long-term financing $ 355,615 $ 398,352
Acquisition of nonoperating casino for note payable -- $ 700,000
</TABLE>
See Note 3 for details of noncash transactions related to Gold Creek
acquisition.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid by the Company was $563,698 in 1996 and $124,161 in 1995.
Income taxes paid by (refunded to) the Company were $(1,125) in 1996 and
$37,500 in 1995.
See notes to consolidated financial statements.
-F7-
<PAGE>
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Century Casinos, Inc. and subsidiaries (the "Company") own and operate a
limited-stakes gaming casino in Cripple Creek, Colorado; act as concessionaire
of a small casino on a luxury cruise ship; and are pursuing a number of
additional gaming opportunities in the United States and internationally. Prior
to July 1, 1996, the Company's operations in Cripple Creek, Colorado, consisted
of Legends Casino ("Legends"), which the Company acquired on March 31, 1994,
through a merger with Alpine Gaming, Inc. ("Alpine"). On July 1, 1996, the
Company acquired the net assets of Gold Creek Associates, L.P. ("Gold Creek"),
the owner of Womack's Saloon & Gaming Parlor ("Womacks"), which is immediately
adjacent to Legends (see Note 3). Following the Company's acquisition of
Womacks, interior renovations were undertaken on both properties to facilitate
the operation and marketing of the combined properties as one casino under the
name Womacks Casino. The accompanying financial statements include the results
of operations acquired from Gold Creek for the period subsequent to June 30,
1996.
The Company's operating revenue for 1996 and 1995 is derived principally from
its casino operations in Cripple Creek.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The accompanying consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Use of Estimates - The preparation of the accompanying financial statements in
accordance with generally accepted accounting principles requires the use of
estimates by management in determining the reported amount of certain assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
Cash Equivalents - All highly liquid investments with a maturity of three months
or less at the time of purchase are considered to be cash equivalents.
Fair Value of Financial Instruments - In accordance with the reporting and
disclosure requirements of Statement of Financial Accounting Standards ("SFAS")
No. 107, "Disclosures about Fair Value of Financial Instruments," the Company
calculates the fair value of financial instruments and includes this additional
information in the notes to its financial statements when the fair value does
not approximate the carrying value of those financial instruments. Fair value is
determined using quoted market prices whenever available. When quoted market
prices are not available, the Company uses alternative valuation techniques such
as calculating the present value of estimated future cash flows utilizing
risk-adjusted discount rates. The Company's carrying value of financial
instruments approximates fair value at December 31, 1996.
-F8-
<PAGE>
Property and Equipment - Property and equipment are stated at cost. Depreciation
of assets in service is provided using the straight-line method over the
estimated useful lives or the applicable lease term, if shorter.
Goodwill - Goodwill represents the excess of purchase price over net
identifiable assets acquired. Goodwill recognized in the Alpine acquisition,
which is not deductible for income tax purposes, is being amortized on a
straight-line basis over 10 years. Goodwill recognized in the Gold Creek
acquisition is being amortized on a straight-line basis over 15 years and is
deductible for tax purposes.
Impairment of Long-Lived Assets - The Company reviews long-lived assets for
possible impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. If there is an indication of
impairment, which is estimated as the difference between anticipated
undiscounted future cash flows and carrying value, the difference is charged to
operations. Estimates of future cash flows are inherently subjective and are
based on management's best assessment of expected future conditions.
Revenue Recognition - Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses. Consulting fees are
recognized as revenue as services are provided.
Promotional Allowances - Food and beverage furnished without charge to customers
is included in gross revenue at a value which approximates retail and then
deducted as complimentary services to arrive at net revenue. The estimated cost
of such complimentary services is charged to casino operations and was $439,811
in 1996 and $349,087 in 1995.
Foreign Currency Translation - Adjustments resulting from the translation of the
accounts of the Company's Austrian subsidiary from the local functional currency
to U.S. dollars are recorded as a separate component of shareholders' equity.
Adjustments resulting from the translation of transactions which are denominated
in a currency other than U.S. dollars are recognized in the statement of
operations.
Income Taxes - The Company follows Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the liability
approach to computing deferred income taxes. The liability method provides that
deferred tax assets and liabilities are recorded based on the difference between
the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
Stock-Based Compensation - The Company follows the intrinsic value based method
for valuing stock options or similar equity instruments granted to employees, as
permitted by SFAS No. 123, "Accounting for Awards of Stock-Based Compensation."
The intrinsic value based method generally provides that no compensation expense
is recognized when the option exercise price is equal to or greater than the
trading price of the stock on the date of grant. The Company follows the fair
value based method for valuing stock options or similar equity investments
granted to non-employees.
Reclassifications - Certain reclassifications have been made in the 1995
financial statements to conform with the 1996 presentation.
-F9-
<PAGE>
3. ACQUISITION OF WOMACKS AND RELATED FINANCING
On July 1, 1996, the Company purchased substantially all of the assets, and
assumed substantially all of the liabilities, of Gold Creek, the owner of
Womacks in Cripple Creek, Colorado. The total purchase price was approximately
$14.2 million, consisting of a base cash payment of $5 million plus $425,000 for
the amount of working capital as of the closing date, a promissory note of $5.2
million issued to Gold Creek, the assumption of existing debt of Gold Creek of
approximately $3 million, and direct out-of-pocket costs of approximately
$600,000. Additionally, the agreement provides that two years after the closing
of the transaction, the Company will issue 1,060,000 shares of its common stock,
valued at $1.8 million based on the July 1, 1996 trading price, to two
principals of the seller who entered into consulting contracts with the Company
at closing. The number of shares to be issued is subject to upward adjustment,
determined by a formula, to the extent that the trading price of the Company's
stock is less than $1.58 at the time of issuance, and subject to downward
adjustment to the extent that the trading price exceeds $4.00. Based upon the
closing price of the Company's common stock on December 31, 1996, the number of
shares to be issued would have been 1,249,850. No adjustment has been made in
the accompanying financial statements for the potential increase in the number
of such shares to be issued.
The promissory note issued to Gold Creek bears interest at 9% and provides for
monthly payments of only interest through December 1997; thereafter, monthly
principal payments of $43,121, plus interest on the unpaid principal, are
required, with a final principal payment of $2,328,000 in July 2003. The note is
secured by substantially all of the tangible assets purchased, subject to
existing encumbrances, and the Company is required to meet certain financial
covenants. The Company is also restricted from paying dividends until the note
has been paid in full.
In addition to the financing provided by Gold Creek, additional funds required
to complete the acquisition were raised through private sales of 4,072,233
shares of the Company's common stock at an average price of $1.43 per share,
with proceeds, net of selling commissions, of approximately $4,470,000. In
connection with sales of common stock by a placement agent, the Company issued
warrants to the placement agent to purchase 150,000 shares of its common stock
at $2.36 per share. The warrants expire in June 2001.
On May 30, 1996, the Company issued a convertible debenture in the principal
amount of $500,000 to a private investor. The proceeds were used in financing
the Gold Creek acquisition. The debenture bears interest at 10.5%, payable
quarterly. The holder has the option to convert, in one or more transactions,
all or a portion of the outstanding principal into the Company's common stock at
$1.84 per share, subject to a minimum per conversion transaction of $50,000. The
Company has the option to prepay the debenture, in whole or in part, after the
first anniversary date at 132% of the outstanding principal. The prepayment
amount declines to 127% after the second anniversary date, 122% after the third
anniversary date and 116% after the fourth anniversary date. The entire unpaid
principal is due on May 30, 2001.
In anticipation of completing the Gold Creek acquisition and to facilitate
closing the transaction, the Company purchased in May 1996, from an unaffiliated
third party, a 9% first mortgage note on the Womacks casino property for
$1,337,500. The principal amount of the note, the obligation for which was
assumed by the Company in the Gold Creek acquisition, was $1,248,000 at the date
of purchase by the Company. In September 1996 the Company sold the note to a
commercial bank for net proceeds of $1,231,119. The premium of $89,500
previously paid by the Company to purchase the note was charged to operations in
the third quarter of 1996. The Company remains obligated under the original
terms of the note, which matures in July 1999.
-F10-
<PAGE>
The Company has accounted for the Gold Creek acquisition using the purchase
method of accounting, whereby the total purchase price, including direct
out-of-pocket costs of the acquisition, has been allocated to identifiable
assets acquired and liabilities assumed based on their estimated fair market
value. The excess of the purchase price over the fair value of identifiable net
assets ("goodwill") will be amortized to expense ratably over 15 years.
The Company's allocation of purchase price and direct costs of the acquisition
is as follows:
Cash $ 304,815
Other current assets 214,154
Property and equipment 6,924,678
Goodwill 8,810,389
Current liabilities (238,850)
Long-term debt (2,969,622)
------------
$ 13,045,564
============
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consists of the following:
Estimated
Service Life
in Years
--------
Land $ 3,066,283
Buildings and improvements 4,347,508 7 - 31
Gaming equipment 4,159,221 3 - 7
Furniture and office equipment 481,342 5 - 7
Other 1,019,219 3 - 7
------------
13,073,573
Less: accumulated depreciation (1,427,969)
------------
11,645,604
Nonoperating casino and land 920,504
------------
Property and equipment, net $ 12,566,108
============
-F11-
<PAGE>
5. LONG-TERM DEBT
Long-term debt at December 31, 1996, consists of the following:
<TABLE>
<S> <C>
Note payable secured by assets purchased from Gold Creek (see Note 3) $ 5,174,540
Note payable secured by first mortgage on Womacks building in Cripple Creek;
payable in monthly installments of $14,945, including interest at 9%;
maturing in July 1999 with a balloon payment of $1,010,853 1,208,014
Note payable to bank, secured by second mortgage on Womacks building in
Cripple Creek; payable in monthly installments of $8,262, including
interest at a floating rate; maturing in July 1999 230,438
Note payable secured by first mortgage on Legends building in Cripple Creek;
payable in monthly installments of $9,936, including interest at 13.3%;
maturing in January 2003 504,274
Note payable secured by nonoperating casino property in Wells, Nevada;
payable in monthly installments of $25,000, including interest at 6.02%;
maturing in March 1998 with a balloon payment of $110,100 462,507
Notes payable secured by gaming and other equipment 1,681,070
Note payable, unsecured; payable in monthly installments of $1,660,
including interest at 12%; maturing in June 1998 27,233
Convertible debenture (see Note 3) 500,000
Note payable to founding shareholder, unsecured; noninterest-bearing 420,360
------------
Total long-term debt 10,208,436
Less current portion (1,959,080)
------------
Long-term portion $ 8,249,356
============
</TABLE>
The Company has acquired certain of its gaming and other equipment subject to
vendor financing. The financing agreements provide for: a floating interest rate
of prime plus 2%, which approximated 10.25% at December 31, 1996, on principal
amounts totaling $285,924; and fixed rates of 10% to 12% on principal amounts
totaling $1,395,146.
Scheduled maturities of long-term debt are as follows:
1997 $ 1,959,080
1998 1,609,412
1999 1,707,072
2000 599,934
2001 1,111,598
Thereafter 3,221,340
------------
Total $ 10,208,436
============
-F12-
<PAGE>
6. SHAREHOLDERS' EQUITY
In connection with a purchase of the Company's common stock in 1994, the Company
granted to an unaffiliated third party options to acquire 230,000 shares of
common stock at $3.00 per share in the event the trading price of the common
stock reaches $10.00 (115,000 shares may be purchased) and $13.00 (the remaining
115,000 shares may be purchased). The Company has the right to require the third
party to exercise the options if these conditions are met. The options expire in
March 1999.
In connection with the business combination with Alpine, warrants were granted
to certain key Alpine employees to purchase 235,000 shares of common stock at an
exercise price of $3.49. Warrants for 150,000 shares remain outstanding at
December 31, 1996. The warrants expire in March 1999. Warrants to purchase
1,000,000 shares of common stock at an exercise price of $2.25, which were
issued in conjunction with a private placement of common stock in July 1994,
expire June 30, 1999.
In early 1995 the Company completed a private placement of 1,460,000 units at
$1.50 per unit, each unit consisting of one share of common stock and one
warrant to purchase one share of common stock at an exercise price of $2.50 per
share, exercisable until December 31, 1999. The Company, at its option, may
redeem the warrants in the event its common stock trades at a price above $6.00
per share for a minimum of five consecutive trading days for a redemption price
of $0.01 per warrant. Net proceeds to the Company were $2,058,560.
Additionally, in early 1995 the Company entered into a consulting agreement with
a third party whereby the consultant will assist the Company, from time to time,
in seeking investors and business opportunities. The agreement provides that,
upon the consummation of certain transactions, the Company will issue to the
consultant warrants to purchase the Company's common stock. The number of shares
and exercise price are determined based on a formula, which depends upon the
type and size of transaction consummated and the recent trading price of the
common stock. In connection with the 1995 private placement discussed above, the
Company on March 20, 1995 issued warrants to the consultant for 71,428 shares
exercisable at $1.05 per share. The warrants have a five-year term from the date
of issue. The consulting agreement may be terminated by either party upon 30
days notice.
In January 1996 the Company completed a private placement of 1,000,000 shares of
its common stock at $1.50 per share. Net proceeds to the Company were
$1,375,665.
In December 1996 the Company issued warrants to purchase 450,000 shares of its
common stock to a consulting firm in connection with a two-year agreement,
whereby the consulting firm will provide the Company with institutional and
individual contacts in the investment community. The warrants were issued in
increments of 150,000 shares with exercise prices of $1.75, $2.25 and $2.75 per
share and expiration dates of December 1997, June 1998 and December 1998,
respectively. The estimated fair value of the warrants at issuance was $97,327,
which will be charged ratably to earnings, with a corresponding credit to
additional paid-in capital, over the term of the consulting contract.
-F13-
<PAGE>
In April 1994 the Board of Directors of the Company adopted the Employee's
Equity Incentive Plan (the "Plan"), which was amended effective November 22,
1995, and further amended November 25, 1996. The Plan provides for the grant of
awards to eligible employees in the form of stock, restricted stock, stock
options, stock appreciation rights, performance shares or performance units, all
as defined in the Plan. The Plan provides for the issuance of up to 3,500,000
shares of common stock through the various forms of award permitted. Through
December 31, 1995, only stock option awards had been granted under the Plan.
Stock options may be either incentive stock options, for which the option price
may not be less than fair market value at the date of grant, or nonstatutory
options, which may be granted at any option price. All options must have an
exercise period not to exceed ten years. Except for certain options granted in
1995 coincident with Plan amendments, options generally vest in annual one-third
increments beginning with the date of grant. Transactions regarding the Plan are
as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Incentive Stock Options:
Outstanding at January 1 . 2,266,000 $ 1.50 1,675,000 $ 3.33
Granted .................. 105,400 $ 1.54 2,268,500 $ 1.51
Cancelled or forfeited ... -- -- (1,677,500) $ 3.33
--------- ---------
Outstanding at December 31 2,371,400 $ 1.50 2,266,000 $ 1.50
========= =========
Options exercisable at December 31 2,321,133 1,986,000
========= =========
</TABLE>
Summarized information regarding options outstanding at December 31, 1996, is as
follows:
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price At Year End Term in Years at Year End
----- ----------- ------------- -----------
$1.50 2,331,900 8.7 2,281,633
$1.63 30,000 9.0 30,000
$2.25 9,500 8.6 9,500
--------- ---------
2,371,400 8.7 2,321,133
========= =========
-F14-
<PAGE>
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for the Plan. Accordingly, no compensation cost
has been recognized in the accompanying financial statements. Had compensation
cost for the Plan been determined based on the fair value at the grant dates for
awards under the Plan, consistent with the method recommended, but not required,
by SFAS No.123, the Company's net income (loss) and earnings (loss) per share
would have been adjusted to the pro forma amounts indicated below:
1996 1995
---- ----
Net income (loss) As reported $ (1,295,142) $ 612,064
Pro forma $ (1,660,324) $ 620,689
Earnings (loss) per share As reported $ (0.09) $ 0.06
Pro forma $ (0.12) $ 0.06
The fair value of options granted under the Plan was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
1996 1995
---- ----
Weighted-average fair value of
options granted during the year $1.16 $1.35
Weighted-average risk-free interest rate 6.1% 6.0%
Weighted-average expected life 10 yrs. 10 yrs.
Weighted-average expected volatility 74% 94%
Weighted-average expected dividends $0 $0
7. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Concession Agreements - The Company has been acting as concessionaire to a
shipping management company to provide unlimited-stakes gaming operations on two
luxury cruise ships, the Silver Cloud and Silver Wind. The Company operates the
casinos for its own account and pays the management company a concession fee
based on passenger count and gross gaming revenue. The agreements expire in
April 1997 and January 1998, respectively. The Company has been advised by the
management company that it will not renew the agreement with the Company for the
Silver Cloud. The Company understands that the casino concession may be awarded
to an affiliate of the management company. The Company believes it is likely
that the agreement for the Silver Wind will not be renewed when it expires in
January 1998.
In the fourth quarter of 1996, the Company entered into an agreement with an
unaffiliated third party to manage casinos aboard several cruise ships. The
third party is presently negotiating for the purchase of the cruise ships from
their current owner. The Company has invested $75,000, with a commitment to
invest an additional $125,000, in the third party upon completion of the
acquisition. The Company's investment would represent an approximate one percent
equity interest in the third party. If the acquisition is not consummated, the
third party has agreed to repurchase the Company's equity investment at cost.
-F15-
<PAGE>
WestPac Advertising Agreement - The Company has entered into a three-year
advertising agreement, beginning in January 1997, with Western Pacific Airlines,
Inc. ("WestPac"), whereby the entire exterior of one of WestPac's aircraft
prominently displays the logos and color scheme of Womacks Casino and its
corporate parent, Century Casinos. WestPac operates flights nationwide out of
its hub in Colorado Springs, which is located in the primary market area for
Womacks Casino in Cripple Creek. The agreement also provides for various other
joint marketing and advertising activities. The Company recognized an expense of
$150,000, representing the full cost of painting the logos on the aircraft, in
1996, prior to the commencement of the three-year term. The Company is also
required to make payments for advertising rights of $100,000 per year to
WestPac.
Casino Management Agreement-Rhodes, Greece - The Company has executed a casino
management consulting agreement with Rhodes Casino, S.A., a consortium including
Playboy Enterprises, under which the Company, as an independent contractor, will
supply services and assistance in establishing a casino on the island of Rhodes,
Greece. The consortium has been awarded the exclusive license for casino gaming
on Rhodes for a 12-year period. The Company's management consulting agreement
with the consortium, which has an initial term running through the third
anniversary of the casino opening, provides for fees to the Company of $200,000
for services to be rendered in the pre-opening phase, $300,000 per year during
the first three years of operation and $50,000 per year thereafter, if renewed.
The Company is not required to commit any capital in connection with the
proposed activities under the agreement. In the fourth quarter of 1996, the
Company received $50,000 with respect to pre-opening phase services. Although
the consortium has indicated a target opening date for the casino of late 1997,
the Company believes that such target date is aggressive and cannot predict with
reasonable certainty whether the casino opening will occur in 1997.
South Africa - Recently enacted legislation in South Africa provides for the
award of up to 40 casino licenses throughout the country. The Company has
entered into agreements with three local consortia to provide consulting
services during the application phase, as well as casino management services
should the Company's partners be awarded one or more licenses. The first
application has been filed by the Company's partners in the province of
Mpumalanga and has been put on the short list of finalists. In January 1997 the
provincial gaming board indicated that another group (including MGM Grand) has
been given preferred applicant status, and this group is presently negotiating
with the gaming board for the award of a license. In the event the parties do
not reach agreement, the gaming board could consider other finalists for the
license. The second application could be filed with the gaming board in the
province of Gauteng as early as the second quarter of 1997 for a hotel/casino
resort in the greater Johannesburg area. The Gauteng gaming board, however, has
not yet set a definitive date for the filing of applications. If successful in
this application, the Company would be required to make an investment of
approximately $2 million for a 3% equity interest in the licensee. Later in 1997
the Company expects the filing of the third application in the Northern Province
for a hotel/casino resort close to the Pietersburg metropolitan area. The
Company cannot reasonably predict whether any licenses will ultimately be
awarded to the Company's partners.
Riverboat Development Agreement-Indiana - In December 1995 the Company sold its
80% interest in Pinnacle Gaming Development Corp. ("Pinnacle") to an affiliate
of Hilton Gaming Corporation and Boomtown, Inc. ("Hilton/Boomtown"). Pinnacle
had been pursuing a riverboat gaming license application in Switzerland County.
Upon signing the agreement, the Company received a cash payment of $80,000 and
recognized a gain on the sale of its investment of $26,627. The agreement
provides for additional payments to the Company of up to approximately $3.3
million upon the occurrence of certain events. The agreement may be terminated
by the buyer under specified circumstances, some of which provide for
termination payments to the Company. The Company will recognize future payments,
if any, from the buyer as income when earned.
-F16-
<PAGE>
In January 1997, Hilton Hotels Corporation ("Hilton"), the parent company of
Hilton Gaming Corporation, announced a hostile takeover bid seeking to acquire a
controlling interest in a business competitor, ITT Corporation ("ITT"). Two
effects of this proposed merger directly affect the contractual relationship
between the Company and Hilton/Boomtown: first, the proposed acquisition
jeopardizes the ability of Hilton/Boomtown to engage in commercially reasonable
efforts to pursue the Switzerland County gaming license, and; second, a
successful acquisition of ITT by Hilton would implicate the "10% interest rule"
in Indiana, which mandates that a license owner hold no more than a 10% interest
in any other Indiana gaming license (an ITT business unit, Caesars, owns a
controlling interest in the gaming license issued for the Harrison County,
Indiana site).
Because of the actual and potential adverse effects of the Hilton business
strategy, the Company initiated an action for declaratory judgment in the United
States District Court for the Southern District of Indiana. The complaint seeks
a declaration of the rights and obligations of the parties to the Pinnacle Stock
Purchase Agreement, and requests compensation should the court find Hilton or
Hilton/Boomtown to be in breach of its contractual obligations to the Company.
It is expected that the defendants will respond with a motion to dismiss, or an
alternative motion to stay consideration on the merits pending the outcome of
the Hilton takeover bid.
The Company has been in communication with representatives of the defendants
concerning the possibility of a negotiated settlement. At this time the
litigation presents no materially adverse consequences to the Company.
Indian Tribal Management Agreement-California - In August 1995 the Company
terminated its management agreement with the Soboba Band of Mission Indians with
respect to the Legends Casino at Soboba in Riverside County, California. In
connection with the termination, an unaffiliated third party issued a promissory
note to the Company for $3,100,000 payable over three years in monthly
installments, based on a percentage of gross revenue from certain operations of
the facility. The Company received payments on the note of $947,954 in 1996 and
$48,183 in 1995.
The Company's unrecovered capitalized costs associated with the Soboba contract
at December 31, 1996 are $844,367. The Company recognizes payments received on
the note as reductions of its capitalized costs. Since payments are based on
revenue generated by the facility, satisfaction of the note, and the Company's
recovery of its capitalized costs, is dependent upon the continued successful
operation of the facility. The Company periodically evaluates the recoverability
of the remaining capitalized costs and if it becomes probable that all or a
portion of such costs are not recoverable, the Company will record a charge to
operations. Payments in excess of total capitalized costs will be recognized as
income if, and when, received. The Company is aware that there is an unresolved
dispute within the State of California between the state government and Indian
tribes regarding the types of gaming devices that may be operated at casinos on
Indian tribal lands. An adverse outcome could potentially affect the
recoverability of the Company's remaining capitalized costs. The Company cannot
predict the likelihood of an outcome adverse to the Company; however, management
believes that the remaining capitalized costs at December 31, 1996 are fully
recoverable.
Operating Lease Commitments - The Company has entered into certain noncancelable
operating leases for real property, equipment and vehicles. Future minimum lease
payments under these leases are $807,083 in 1997, $802,480 in 1998, $692,911 in
1999, $487,717 in 2000, $367,200 in 2001 and $1,066,200 thereafter. Rental
expense was $387,410 in 1996 and $125,297 in 1995.
-F17-
<PAGE>
Stock Redemption Requirement - Colorado gaming regulations require the
disqualification of any shareholder who may be determined by the Colorado
Division of Gaming to be unsuitable as an owner of a Colorado casino. Unless a
sale of such common stock to an acceptable party could be arranged, the Company
would repurchase the common stock of any shareholder found to be unsuitable
under the regulations. The Company could effect the repurchase with cash,
Redemption Securities, as such term is defined in the Company's Articles of
Incorporation, or a combination thereof.
8. INCOME TAXES
The provision for income taxes consists of the following:
1996 1995
-------- ---------
Currently payable:
Federal $ 17,000 $ 27,000
State -- 9,000
-------- ---------
17,000 36,000
Utilization of acquired net operating loss carryforward
recorded as a reduction to goodwill 32,000 264,000
-------- ---------
$ 49,000 $ 300,000
======== =========
The provision for income taxes differs from the amount of income tax calculated
by applying the U.S. statutory federal income tax rate (34% for the income tax
bracket applicable to the Company) to pretax income as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Federal income tax provision (benefit) at statutory rate $(423,688) $ 310,102
Increase (decrease) due to:
Goodwill amortization ............................. 252,111 255,507
Income of foreign subsidiary ...................... (24,507) (2,208)
State income taxes, net of federal benefit ........ (18,681) 55,831
Alternative minimum tax ........................... 17,000 27,000
Other nondeductible expenses ...................... 3,612 --
Change in valuation allowance ..................... 243,153 (346,232)
--------- ---------
Provision for income taxes ............................. $ 49,000 $ 300,000
========= =========
</TABLE>
-F18-
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets and
liabilities at December 31, 1996, consist of the following:
Deferred tax assets:
Net operating loss carryforward .................. $ 304,863
Property, plant and equipment .................... 298,089
Deferred costs from terminated management contract 162,282
Unrealized loss on note receivable ............... 157,584
Accrued liabilities and other .................... 477,389
-----------
1,400,207
Deferred tax liabilities:
Prepaid expenses ................................. (80,385)
-----------
Net deferred tax assets ............................... 1,319,822
Valuation allowance ................................... (1,319,822)
-----------
$ --
===========
At December 31, 1996 the Company has a net operating loss carryforward for
income tax purposes of approximately $817,000, which expires in 2009. A
valuation allowance has been recorded to offset the amount of net deferred tax
assets due to the uncertainty of realizing the related tax benefits.
9. OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Interest income .............................................. $ 188,411 $ 187,710
Interest expense ............................................. (577,914) (209,945)
Costs associated with sale of mortgage note receivable ....... (97,909) --
Costs associated with terminated debt offering ............... (318,502) --
Loss on note receivable ...................................... (422,476) --
Gain on termination of riverboat management agreement ........ -- 3,928,479
Equity in operating losses and writeoff of investment in China -- (273,999)
Gain on sale of investment in Pinnacle ....................... -- 26,627
Loss on disposal of equipment ................................ (263,542) (86,351)
Other ........................................................ (49,259) (54,608)
----------- -----------
$(1,541,191) $ 3,517,913
=========== ===========
</TABLE>
In the first quarter of 1995 the Company reached agreement to terminate its
management agreement with respect to its Louisiana riverboat project and
received a cash payment of $4 million. After the writeoff of previously deferred
project costs and other associated expenses related to the termination, the
Company recognized a gain of $3,928,479.
-F19-
<PAGE>
10. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
Pro forma results of operations for the years ended December 31, 1996 and 1995,
as if the acquisition of Gold Creek (see Note 3) had occurred on January 1,
1995, are as follows:
1996 1995
------------ ------------
Casino revenue .................. $ 17,155,000 $ 13,644,000
Other operating revenue ......... 634,000 463,000
Operating costs and expenses .... (13,442,000) (13,004,000)
Depreciation and amortization ... (2,525,000) (2,468,000)
Other income (expense), net ..... (2,009,000) 2,672,000
------------ ------------
Income (loss) before income taxes (187,000) 1,307,000
Provision for income taxes ...... 207,000 302,000
------------ ------------
Net income (loss) ............... $ (394,000) $ 1,005,000
============ ============
Income (loss) per share ......... $ (0.02) $ 0.06
============ ============
The foregoing pro forma financial information reflects the combined historical
financial information of the Company and Gold Creek, as adjusted for additional
interest expense resulting from certain financing transactions associated with
the acquisition, as well as additional depreciation and amortization charges
resulting from application of purchase accounting to the net assets acquired.
Other income, net, for 1995 includes a nonrecurring gain of $3,928,000 from the
termination of a riverboat management contract. Income (loss) per share assumes
that all common stock outstanding after the acquisition, including shares the
Company is obligated to issue to two principals of Gold Creek's general partner
two years following the acquisition, had been outstanding for all of 1996 and
1995. The increase in the pro forma effective tax rate from 1995 to 1996 results
from the assumed use of available NOLs, which would be completely utilized on a
pro forma basis at the end of 1996. (For historical financial reporting
purposes, however, the Company has approximately $817,000 of NOLs available for
utilization beyond 1996.) The foregoing pro forma financial information is not
necessarily indicative of results that would have been achieved had the
acquisition occurred at the beginning of either period, nor is the pro forma
information indicative of future operating results of the Company subsequent to
July 1, 1996, the date of the acquisition.
-F20-
<PAGE>
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1997 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1996, under the
captions "Information Concerning Directors and Executive Officers" and
"Compliance with Section 16(a) of the Securities Exchange Act."
Item 10. Executive Compensation.
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1997 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1996, under the
caption "Information Concerning Directors and Executive Officers."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1997 Annual Meeting of Stockholders to be
filed with the Commission within 120 days of December 31, 1996, under the
caption "Voting Securities."
Item 12. Certain Relationships and Related Transactions.
The information in this item is incorporated by reference from the
Company's Definitive Proxy material in respect of the 1997 Annual Meeting of
Stockholders to be filed with the Commission within 120 days of December 31,
1996, under the caption "Certain Relationships and Related Transactions."
Item 13. Exhibits and Reports on Form 8-K.
a. Exhibits Filed Herewith or Incorporated by Reference to Previous
Filings with the Securities and Exchange Commission:
1. The following exhibits were included with the filing of the Company's
Registration Statement #33-67370-D effective November 10, 1993 and are
hereby incorporated by reference:
Exhibit No. Description
4.3 Form of Convertible Promissory Note.
10.1 Contract to Buy and Sell Real Estate - Long Branch Casino.
10.2 Real Estate Contract Modification and Promissory Note Extension
Agreement - Long Branch Casino.
10.3 Assumption Agreement and Consent.
10.5 Lease Agreement between Remington Gaming, Inc. and Registrant.
10.6 Installment Sales Contract between Remington Gaming, Inc. and
Firestone Financial Corp.
18
<PAGE>
10.7 Lease Agreement between Remington Gaming, Inc. and PDS Leasing
Corporation.
10.8 Agreement between Remington Gaming, Inc. and IGT-Colorado
Corporation.
10.9 Business Lease Agreement between Remington Gaming, Inc. and LFC
Inc.
10.11 Consulting Agreement between Consultant and Registrant.
10.12 Registration Rights Agreement between Consultant and Registrant.
- -------------------
2. The following exhibits were included with the filing of the Alpine's
Form 10-KSB for the year ended December 31, 1993 and are hereby
incorporated by reference:
Exhibit No. Description
10.14 Plan of Reorganization and Agreement Among Alpine Gaming, Inc.,
Alpine Acquisition, Inc. and Century Casinos Management, Inc. -
Filed with Form 8-K dated December 24, 1993 and incorporated by
reference therein.
10.15 Amendments One, Two and Three to Plan of Reorganization and
Agreement Among Alpine Gaming, Inc., Alpine Acquisition, Inc. and
Century Casinos Manage ment, Inc.
10.16 Consulting Agreement - Dr. Alfred Liebich.
10.18 Switzerland County/Vevay Town Cooperation Agreement dated
September 14, 1993.
10.19 Land Purchase Option - James A. Glatthaar.
10.20 Option to Lease and Land Lease - James Chaskel.
10.21 Agreement among Century Casinos Management, Inc., Pinnacle
Development Group and The Benefit Group, Inc. dated December 13,
1993.
10.22 Commercial Contract to Buy and Sell Real Estate - Central City,
Colorado - C.C. Traders, Inc.; Deed of Trust and Security
Agreement - C.C. Traders, Inc.; Secured Promissory Note - C.C.
Traders, Inc.; Assignment of Right of Action/Bill of Sale - C.C.
Traders, Inc.; Addendum to Commercial Contract to Buy and Sell
Real Estate - C.C. Traders, Inc.
10.23 Concession Agreement - Silver Cloud and Silver Wind - Silver Sea
Cruises.
10.27 Management Agreement - Soboba Bingo Hall - Soboba Band of Mission
Indians.
10.28 Missouri Riverboat Agreement - City of Portage des Sioux.
10.29 Subscription Agreement - Registration Rights Agreement -
Hospitality Franchise Systems, Inc.
19
<PAGE>
10.30 Soboba Debt Financing Commitment - Hospitality Franchise Systems,
Inc.
10.31 Marketing Services Agreement - Hospitality Franchise Systems,
Inc.
10.33 Warrant to purchase common stock - Stephan J. Ossello.
10.34 Warrant to purchase common stock - Andrew J. Bartoletti.
10.35 Warrants to purchase common stock - Christopher S. Wrolstad.
10.36 Office Lease and Amendment Thereto - Century Casinos Management,
Inc.
10.39 Letter Agreement - Orion Corporate Funding; Representation Letter
and Release.
10.42 Agreement Among Century Casinos Management, Inc.; Century Casinos
Missouri, Inc. (a corporation to be formed) and The Benefit
Group, Inc. dated March 18, 1994.
- --------------------
3. The following exhibits were filed with the Form 10-KSB for the Fiscal
Year Ended December 31, 1994 and are hereby incorporated herein by
reference:
Exhibit No. Description
10.45 Agreements regarding Wells, Nevada Nonoperating Gaming Facility.
10.47 Amendment to Agreement - Missouri - Casino Development
Corporation.
10.48 Amended Management Contract - Soboba Indian Tribe,
10.49 Buyout Agreement - St. Charles Gaming Company.
10.50 Amendment Agreements - Hospitality Franchise Systems, Inc. and
Affiliate - August 25, 1994 and February 2, 1995.
- -------------------
4. The following exhibits were filed with the Form 10-KSB for the Fiscal
Year Ended December 31, 1995 and are incorporated herein by reference:
Exhibit No. Description
3.1 Certificate of Incorporation (filed with Proxy Statement in
respect of 1994 Annual Meeting of Stockholders and incorporated
herein by reference).
3.2 Bylaws (filed with Proxy Statement in respect of 1994 Annual
Meeting of Stockholders and incorporated herein by reference).
10.51 Asset Purchase Agreement dated as of September 27, 1995 by and
among Gold Creek Associates, L.P., WMCK Acquisition Corp. and
Century Casinos, Inc., including Exhibits and Schedules, along
with First Amendment thereto.
20
<PAGE>
10.52 Agreement dated August 18, 1995 between SSK Game Enterprises and
Century Casinos Management, Inc., including: Exhibit A, Gaming
Machine Lease and Purchase Agreement; Exhibit B, Promissory Note;
and Agreement and Release between The Soboba Bank of Missouri
Indians and Century Casinos Management, Inc.
10.53 Assignment and Assumption of Lease dated October 12, 1995 between
Cripple Creek Properties, Inc., Star Casinos International, Inc.
and Century Casinos Cripple Creek, Inc., including short form
Assignment and Assumption of Lease and Assignment and Assumption
of Lease made November 1995 between Century Casinos Cripple
Creek, Inc. and Gold Creek Associates, L.P., d/b/a Womacks Saloon
and Gaming Parlor.
10.54 Letter Agreement dated November 8, 1995 between Oppenheimer &
Co., Inc. and Century Casinos, Inc.
10.55 Agreement dated May 5, 1995 between Dain Bosworth Incorporated
and Century Casinos, Inc., as modified on August 8, 1995.
10.56 Casinos Management Consulting Agreement by and between Rhodes
Casino, S.A. and Century Casinos, Inc.
10.57 Stock Purchase Agreement dated December 21, 1995 between
Switzerland County Development Corp. ("Buyer") and Century
Casinos Management, Inc. and Cimarron Investment Properties Corp.
("Sellers").
10.58 Consultancy Agreement - Chalkwell Limited.
- -------------------
5. The following exhibits were filed with the Form 8-K Current Report
dated July 1, 1996 and are hereby incorporated by reference:
Exhibit No. Description
10.59 Second Amendment to Asset Purchase Agreement dated as of April
10, 1996, among Gold Creek Associates, L.P., WMCK Acquisition
Corp. and Century Casinos, Inc.
10.60 Promissory Note dated March 19, 1992, made by Chrysore, Inc. in
the original amount of $1,850,000 payable to R. & L Historic
Enterprises, together with Assignment dated September 14, 1992 of
said Promissory Note to TJL Enterprises, Inc. and Assignment
dated May 16, 1996 of said Promissory Note to Century Casinos,
Inc.
10.61 Promissory Note dated July 1, 1996, made by WMCK Acquisition
Corp. in the original principal amount of $5,174,540 payable to
Gold Creek Associates, L.P., together with Guaranty dated July 1,
1996, of said Promissory Note by Century Casinos, Inc.
21
<PAGE>
10.62 Building Lease dated as of July 1, 1996, among TJL Enterprises,
Inc., WMCK Acquisition Corp. and Century Casinos, Inc., together
with Memorandum of Building Lease with Option to Purchase dated
as of July 1, 1996, among the same parties.
10.63 Four Party Agreement, Assignment and Assumption of Lease, Consent
to Assignment of Lease, Confirmation of Option Agreement and
Estoppel Statements dated as of July 1, 1996, among Harold
William Large, Teller Realty, Inc., Gold Creek Associates, L.P.,
and WMCK Acquisition Corp.
10.64 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and James A. Gulbrandsen.
10.65 Consulting Agreement dated as of July 1, 1996, between WMCK
Acquisition Corp. and Gary Y. Findlay.
10.66 Stock Transfer and Registration Rights Agreement dated as of July
1, 1996, between Century Casinos, Inc. and James A. Gulbrandsen
and Gary Y. Findlay.
- -------------------
6. The following exhibits are filed herewith:
Exhibit No. Description
10.67 Office Lease - 26 South Tejon Street, Colorado Springs, Colorado.
21 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
b. Reports on Form 8-K Filed During the Registrant's Fourth Fiscal
Quarter:
No reports on Form 8-K were filed by the Company during the last
quarter of its fiscal year ended December 31, 1996.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Colorado Springs, State of Colorado on March 24, 1997.
CENTURY CASINOS, INC.
By:/s/ James D. Forbes
----------------------
James D. Forbes, President
/s/ Brad Dobski
---------------
Brad Dobski, Chief Accounting
Officer (Principal Financial and
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James D. Forbes and Norbert Teufelberger, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all pre-effective and post-effective amendments to
this Form 10- KSB, and to file the same, with all exhibits thereto, and other
documentation in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agent, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on March 24, 1997.
Signature
Title
/s/ Erwin Haitzmann Chairman of the Board
- -------------------
Erwin Haitzmann
/s/ Peter Hoetzinger Vice Chairman of the Board
- -------------------
Peter Hoetzinger
/s/ James D. Forbes President and Director
- -------------------
James D. Forbes
/s/ Norbert Teufelberger Director
- -------------------
Norbert Teufelberger
23
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10.67 Office Lease - 26 South Tejon Street, Colorado Springs, Colorado,
filed herewith.
21 Subsidiaries of the Registrant, filed herewith.
23.1 Consent of Independent Accountants, filed herewith.
24
EXHIBIT 10.67
Office Lease - 26 South Tejon Street, Colorado Springs, Colorado
BUSINESS LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into this 15th day of August, 1996,
by and between Centre Development Company of Colorado Springs, LLC, a Colorado
Limited Liability CO hereinafter called "Landlord", and Century Casinos,
hereinafter called "Tenant".
WITNESSETH:
The Landlord does hereby lease to Tenant and the Tenant does hereby take
and hire from the Landlord, the following described real property situated in
the County of El Paso, and State of Colorado, to-wit: 2,310 square feet at 26/28
South Tejon Street, Colorado Springs, Colorado. (hereinafter referred to as the
Leased Premises) upon the following expressed terms and conditions, to-wit:
1. The term of this Lease shall commence on the 15th day of September,
1996, and shall continue for a period of three (3) year(s) thereafter, expiring
on the 30th day of September, 1999.
The Tenant agrees to pay the Landlord as rent for the Leased Premises the
total sum of ninety three thousand five hundred fifty-five Dollars ($93,555.00),
which sum of money shall be payable in the following manner:
monthly rental in the amount of $2,598.75
3. The Tenant expressly covenants and agrees to use the Leased Premises for
the following purpose: general office, and for no other purpose whatsoever,
without the prior written consent of the Landlord to such change in use of the
Leased Premises.
4. This Lease may not be assigned or the Leased Premises sublet during the
term of this lease without the prior written consent of the Landlord to such
assignment or subletting; provided, however, that consent to assignment of this
Lease or subletting of the Leased Premises shall not be unreasonably withheld by
the Landlord if such assignment shall be to a financially responsible assignee,
and provided, further, the assignee shall, in consideration of such consent,
become personally responsible for the performance of this Lease and no
assignment hereof shall relieve the original Tenant of personal responsibility
herein.
5. The Landlord shall pay all real property taxes for the Leased Premises
during the term of this Lease, and the Tenant shall pay all personal property
taxes accruing during the term of this Lease, for personal property owned by the
Tenant and kept on the Leased Premises.
6. All utilities used on the Premises during the term of this Lease shall
be paid for by the Tenant.
7. The Landlord agrees to carry sufficient fire and extended coverage
insurance on the Leased Premises during the term of this Lease to cover the cost
of rebuilding or repairing the Leased Premises in the event of total or partial
destruction thereof. The Tenant agrees to carry and maintain public liability
insurance for the Leased Premises in such amount and with such company as the
Landlord and Tenant may agree upon during the term of this Lease.
8. The Landlord shall be responsible for the exterior maintenance of the
Leased Premises during the term of this Lease, and the maintenance of any
parking lot facility contiguous thereto which is used in conjunction with the
Leased Premises. All maintenance, repairs, alterations or additions to the
interior of the premises shall be made by the Tenant.
Initials: TENANT_________ LANDLORD_________
<PAGE>
2
9. The Landlord may enter upon and inspect the Leased Premises at all
reasonable times during the term thereof.
10. Following termination of the Term, if Landlord so requests in writing,
Tenant shall immediately and at its own expense remove its exterior signs and
any additions, fixtures and installations placed in the Premises by, through, or
under Tenant and designated in such request, and repair any damage occasioned by
any such removal. Tenant shall surrender the premises broom clean and in good
condition and repair, except only reasonable wear and tear and conditions for
which Tenant is not responsible hereunder. All improvements placed upon the
Leased Premises of a permanent nature by the Tenant shall be and become the
property of the Landlord at the expiration of this Lease, and the Landlord shall
be under no obligation to reimburse the Tenant for any sums of money so expended
in making permanent improvements on the Leased Premises; provided, however, that
at the expiration of the term of this Lease the Tenant shall be entitled to
remove the following items installed, or to be installed on the premises by the
Tenant, and the provisions of this paragraph shall not be construed to prevent
the removal of said items, to-wit:_____________________________________________
______________________________________________________________________________.
11. Should the Leased Premised be destroyed or rendered uninhabitable
through no act or fault of the Tenant, either by fire, act of God, or otherwise,
then this Lease may be forthwith terminated by the Tenant, at his option, unless
the Landlord, at his own expense, shall reconstruct said premises and render it
suitable for the Tenant's business within a period of ninety (90) days, it being
understood by the parties hereto that the rentals shall be suspended during the
period of time when said premises are rendered uninhabitable and unusable for
the Tenant's business.
12. The Tenant promises and agrees that if default be made in the payment
of rents or in the performance of any other conditions of the Lease, that this
Lease may be forthwith terminated at the election of Landlord and that the
Tenant will immediately surrender and deliver up possession of the Leased
Premises to the Landlord upon receiving written notice from the Landlord of the
breach of conditions of this Lease and election of the Landlord to so terminate
the Lease. In the event of such default by the Tenant, then the Landlord,
besides other rights or remedies he may have, shall have the immediate right of
re-entry and the right to remove all persons and property from the Leased
Premises at the expense of the Tenant. Should the Landlord elect to re-enter, as
herein provided, or should he take possession pursuant to legal proceedings or
pursuant to any notice provided for by law, he may either terminate this Lease,
or he may, from time to time, without terminating this Lease, re-let or re-lease
the Leased Premises or any part thereof for such amount of rental and upon such
terms and conditions as the Landlord, in his sole discretion and judgment, may
deem advisable, and he may make such alterations, improvements and repairs to
the Leased Premises as he may deem advisable. No such re-letting or re-leasing
of the Leased Premises by the Landlord, under the circumstances set forth in
this paragraph, shall be construed as an election on the Landlord's part to
terminate or cancel this Lease, unless a written notice of such termination or
cancellation is mailed by the Landlord to the Tenant at the address of the
Leased Premises, nor shall such re-letting or re-leasing relieve the Tenant from
liability to the Landlord for any and all damages, of whatsoever type or nature,
which the Landlord may have or will suffer or incur as a result of the Tenant's
breach of any of the terms, covenants, provisions and conditions herein
contained. Notwithstanding any such re-letting or re-leasing without termination
of this Lease by the Landlord, the Landlord may at any time thereafter elect to
terminate the Lease for such previous breach of the Tenant. In the event it
should become necessary for the Landlord to employ an attorney to enforce any of
the provisions hereof, or to enforce any of them in legal proceedings, Landlord
shall be entitled to recover of Tenant his costs in such behalf expended, plus a
reasonable attorney's fee.
Initials: TENANT_________ LANDLORD_________
<PAGE>
3
13. In the event this Lease is terminated by reason of the default of
Tenant, it is understood and agreed that the Landlord shall be entitled to
retain any advance rental deposit herein made, to partially compensate Landlord
for damages suffered by reason of such default. Nothing herein contained shall
be construed, however, as precluding the Landlord from recovering from Tenant
any further or additional damages which he may have suffered by reason of such
default of the Tenant as provided in paragraph 12 hereof.
14. Upon expiration of the term of this Lease, or any extension thereof,
the Tenant agrees to surrender and deliver up possession of the Leased Premises
to the Landlord in as good condition and repair as the same are at this time,
ordinary wear and tear expected. In the event the Leased Premises shall be
damaged beyond reasonable wear and tear, the Tenant agrees to immediately pay
the Landlord such sum of money as shall be reasonably expended by the Landlord
in restoring the Leased Premises to its former condition.
15. Should the Tenant continue in possession of the Leased Premises after
the expiration of this Lease, without a written extension or renewal hereof,
such possession shall be on a month-to-month basis only and then at a monthly
rate herein specified.
16. The failure of Landlord to insist, in any one or more instances, upon a
strict performance of any of the obligations, covenants or agreements herein
contained, or the failure of Landlord in any one or more instances to exercise
any option, privilege or right herein contained, shall in no way be construed to
constitute a waiver, relinquishment or release of such obligations, covenants or
agreements and no forbearance by the Landlord of any default hereunder shall in
any manner be construed as constituting a waiver of such default.
17. Not used.
18. If the Tenant shall be declared insolvent or bankrupt, or if any
assignment of his property shall be made for the benefit of his creditors or
others, or if the Tenant's leasehold interest herein shall be levied upon under
execution, or taken by virtue of any writ of any Court of Law, or if a Trustee
in Bankruptcy or a receiver is appointed for the property of the Tenant, then
and upon the happening of any one of these events, the Landlord may, at his
option, immediately, with or without notice, terminate and cancel this Lease,
and immediately retake possession of the Leased Premises without thereby
occasioning any forfeiture of the obligations of the Tenant previously accrued
under this Lease.
19. In the event all or any part of the Leased Premises shall be taken by
right of eminent domain, or in the event the Landlord makes a conveyance of all
or any part of the Leased Premises in lieu of a taking by right of eminent
domain, then this Lease shall, at the option of the Landlord, cease and
terminate. In such event, the Tenant shall not be required to make any further
rental payments to the Landlord and the Tenant shall have the right to remove
from the Leased Premises any and all furniture, machinery and fixtures set forth
in paragraph 10 hereof. In such event of a taking of all or part of the Leased
Premises by right of eminent domain or a conveyance in lieu of such taking, the
Landlord shall receive the entire award or price which the condemning or taking
governmental authority will pay for the Lease Premises.
Initials: TENANT_________ LANDLORD_________
<PAGE>
4
20. This Lease Agreement is further subject to any and all special
conditions which are contained on this Lease in the appropriate space provided
therefore.
21. Wherever used herein, the singular shall include the plural, and the
use of any gender shall be applicable to all genders.
22. This Lease shall bind and benefit alike the heirs, successors and
assigns of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have set their hands and affixed
their seals on the day and year first above written.
TENANT LANDLORD
By: /S/ James D. Forbes By: /S/ Tom Phelan
- ----------------------- ------------------
James D. Forbes (President) Tom Phelan
Address: Address:
Century Casinos, Inc. 4720 Forge Rd #106
50 South Steele Street #755 Colorado Springs, CO 80907
Denver, CO 80209
ADDITIONAL PROVISIONS
1. Termination Clause
The tenant has the option after year two of the lease to terminate the
remaining term by paying the unamortized balance of the tenant improvement
amount.
2. Parking
The tenant will have two reserved spaces included as part of this lease, at
no extra cost.
3. Finish Requirements
The landlord will deliver a clean, ready to use suite, with sufficient
electrical outlets.
4. Options
The tenant has 3 one year options to renew lease at same rate.
5. Security Deposit
With lease execution, tenant shall deposit one month's rent.
Initials: TENANT_________ LANDLORD_________
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Country
Name of Incorporation
Century Casinos Management, Inc. Delaware
Century Casinos - Nevada, Inc. Nevada
Century Management und BeteiligungsGmbH Austria
Century Casinos Cripple Creek, Inc. Colorado
Century Casinos Missouri, Inc. Missouri
WMCK Acquisition Corp. Delaware
WMCK Venture Corp. Delaware
Century Casinos Africa (Pty) Limited South Africa
EXHIBIT 23.1
Consent of Independent Accountants
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-83688 on Form S-3 and in Registration Statement No. 33-13601 on Form S-8 of
Century Casinos, Inc. of our report dated February 28, 1997, appearing in this
Annual Report on Form 10-KSB of Century Casinos, Inc. for the year ended
December 31, 1996.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 28, 1997
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