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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________ to ____________.
Commission file number 0-28068
COLORADO GAMING & ENTERTAINMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1242693
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12596 WEST BAYAUD AVE, SUITE 450, LAKEWOOD, COLORADO 80228
(Address of principal executive offices) (Zip Code)
(303) 716-5600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes __X__ No _____
Number of shares of common stock outstanding at May 14, 1999: 100
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Colorado Gaming & Entertainment Co.
Form 10-Q
Index
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - as of March 31, 1999 and 1
December 31, 1998
Consolidated Statements of Operations - for the three months 2
ended March 31, 1999 and 1998.
Consolidated Statements of Cash Flows - for the three months 3
ended March 31, 1999 and 1998.
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis 6-9
PART II OTHER INFORMATION 10-11
SIGNATURES 12
</TABLE>
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Colorado Gaming & Entertainment Co.
Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------------------- -------------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 3,444 $ 4,022
Accounts receivable, net 636 607
Inventories 94 188
Prepaid expenses 564 765
-------------------------- ------------------------
Total current assets 4,738 5,582
Property, equipment and leasehold improvements, net 38,906 38,950
Excess reorganization value and goodwill, net 19,408 19,699
Other assets, net 611 641
-------------------------- ------------------------
Total assets $ 63,663 $ 64,872
-------------------------- ------------------------
-------------------------- ------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of credit facility (see Note 2) $ 1,000 $ 1,000
Accounts payable 321 718
Accrued interest 2,304 662
Accrued expenses 3,385 3,883
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Total current liabilities 7,010 6,263
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Senior secured notes payable 52,738 52,738
Other notes payable and credit facility, net of current portion 5,504 5,142
-------------------------- ------------------------
Total non-current liabilities 58,242 57,880
-------------------------- ------------------------
Total liabilities 65,252 64,143
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Common stock, $.01 par value, 20 million shares
authorized, 100 issued and outstanding, respectively -- --
Additional paid-in capital 5,583 5,583
Retained earnings (deficit) (7,172) (4,854)
-------------------------- ------------------------
Total stockholders' deficit (1,589) 729
-------------------------- ------------------------
Total liabilities and stockholders' equity (deficit) $ 63,663 $ 64,872
-------------------------- ------------------------
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</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these consolidated balance sheets.
2
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Colorado Gaming & Entertainment Co.
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue:
Casino $ 9,869 $ 13,400
Food and beverage 591 946
Other 7 38
--------------- ----------------
Gross revenue 10,467 14,384
Less: promotional allowances (287) (406)
--------------- ----------------
Net revenue 10,180 13,978
Operating Expenses:
Casino 3,849 3,355
Gaming taxes 2,101 2,390
Food and beverage 814 990
General and administrative:
Casino 746 800
Corporate 252 728
Marketing 1,843 1,721
Depreciation and amortization 1,100 934
Pre-opening -- 23
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Total operating expenses 10,705 10,941
Income (loss) from operations (525) 3,037
Interest expense (1,798) (1,702)
Interest income 9 11
---------------- -----------------
Income (loss) before income tax provision (2,314) 1,346
Income tax provision -- (580)
--------------- ----------------
Net income (loss) $ (2,314) $ 766
--------------- ----------------
--------------- ----------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
3
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Colorado Gaming & Entertainment Co.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
----------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,314) $ 766
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,100 934
Deferred income tax expense -- 580
Noncash compensation expense -- 100
Loss (gain) on disposition of assets 50 (15)
Change in working capital and other 1,073 1,372
----------------- ----------------
Net cash provided by (used in) operating (91) 3,737
activities
CASH FLOWS USED IN INVESTING ACTIVITIES:
Expenditures for acquisitions and
capital improvements (849) (6,254)
Net change in restricted funds -- (1)
----------------- ----------------
Net cash used in investing activities (849) (6,255)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from credit facility 500 5,766
Repayments of other notes payable and credit
facility (138) (308)
----------------- ----------------
Net cash provided by financing activities 362 5,458
INCREASE (DECREASE) IN CASH (578) 2,940
CASH, at beginning of period 4,022 4,228
----------------- ----------------
CASH, at end of period $ 3,444 $ 7,168
----------------- ----------------
----------------- ----------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
4
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Colorado Gaming & Entertainment Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(1) ORGANIZATION AND BASIS OF PRESENTATION
Colorado Gaming & Entertainment Co. and its subsidiaries
(collectively referred to as "CG&E" or the "Company"), a wholly-owned
subsidiary of Ladbroke Group plc, was incorporated in August 1993 to develop,
own and operate gaming and related entertainment facilities. The Company owns
and operates, through wholly-owned subsidiaries, BWBH, Inc. ("Bullwhackers
Black Hawk") and Silver Hawk Casino, Inc. (the " Silver Hawk Casino") in the
historic mining towns of Black Hawk, Colorado. On February 13, 1998, the
Company purchased the assets comprising Bullwhackers' Bullpen Sports Casino
(the "Bullpen"), a 260 slot machine expansion to Bullwhackers Black Hawk, and
commenced operations on May 1, 1998. Millsite 27, Inc., also a wholly-owned
subsidiary, owns a parking lot, with a capacity of approximately 500 cars,
directly between, and is used by, Bullwhackers Black Hawk and the Silver Hawk
Casino. Until March 1999, through another wholly-owned subsidiary, BWCC, Inc.
("Bullwhackers Central City"), the Company operated a casino in the adjacent
historical mining town of Central City. On March 10, 1999, the Company closed
Bullwhackers Central City due to declining business volumes and a lack of
profitability.
INTERIM REPORTING
The accompanying unaudited consolidated financial statements and
related notes of the Company have been prepared in accordance with generally
accepted accounting principles for interim financial reporting. In the
opinion of management, all adjustments considered necessary for fair
presentation of financial position, results of operations and cash flows have
been included. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with
the 1999 presentation. Such reclassifications had no impact on the Company's
net income.
(2) NOTES PAYABLE
CREDIT FACILITY
On June 7, 1996, the Company entered into a $12.5 million revolving
credit facility (the "Credit Facility") with Foothill Capital Corporation.
Under terms of the Credit Facility, borrowings accrue interest at prime plus
2.375% (10.125% as of March 31, 1999). The Credit Facility matures on June 7,
2001 with two one-year extension options. On February 1, 1999, Ladstock
Holding Corporation ("Ladstock"), an affiliate of the Company's parent,
purchased the outstanding balances of the Credit Facility and the senior
lender assigned the Credit Facility to Ladstock. Accordingly, Ladstock is now
the Company's senior lender on terms that are at this time identical to the
Credit Facility. As of March 31, 1999, the Company had an outstanding balance
of approximately $5.8 million on the Credit Facility.
OTHER NOTES
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As of December 31, 1998 the Company had an outstanding unsecured
promissory note to Capital Associates International, Inc. ("CAI") in
principal amount of $670,000, accruing interest at the rate of 9% per annum.
In February 1999, Ladstock purchased the outstanding note from CAI,
accordingly, this note is currently an obligation to an affiliate company,
Ladstock.
(3) TAXES
For the three months ended March 31, 1999, the Company recorded no
deferred income tax expense or benefit.
The net deferred tax assets is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Current:
Accrued vacation & gaming liabilities $ 243 $ 230
Non-Current:
Difference in depreciable asset basis 753 626
Recognition of legal settlement 246 246
Impairment of assets 2,827 2,827
Net operating loss carryforwards 5,448 4,813
-------------- -------------
Net deferred tax assets 9,517 8,742
Valuation allowance (9,517) (8,742)
-------------- -------------
$ -- $ --
-------------- -------------
-------------- -------------
</TABLE>
The net deferred tax asset valuation allowance is equal to the full
amount of the gross deferred tax asset because the realization of such asset
is dependent upon future taxable income, which is uncertain. The Company
currently has net operating losses ("NOL's") totaling approximately $14.5
million, which expire beginning in 2008.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
The discussion below and under Item 5 of Part II of this Report on
Form 10-Q and elsewhere herein contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Such Section 21E provides certain "safe harbor" protections for
forward-looking statements in order to encourage companies to provide
prospective information about their businesses. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, competition, growth opportunities, source and uses of
capital, future development or expansion activities, and underlying
assumptions and other statements which are other than statements of
historical facts. Such statements may be identified by the use of
forward-looking terminology such as "might," "may," "would," "could,"
"expect," "anticipate," "estimate," "likely," "believe," or "continue" or the
negative thereof or other variations thereon or comparable terminology. Such
forward-looking statements involve a number of risks, uncertainties and other
factors that may significantly affect the Company`s liquidity and results of
operations in the future and, accordingly, actual results may differ
materially from those expressed in any forward-looking statements.
The forward-looking statements set forth in this Report on Form 10-Q
are based upon various assumptions, many of which are based, in turn, upon
further assumptions, including, without limitation, management's examination
of historical operating trends, data contained in the Company's records, and
other data available from third parties. Although the Company believes that
such assumptions were reasonable when made, because such assumptions are
inherently subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond the Company's control,
there can be no assurance, and no representation or warranty is made, that
management's expectations, beliefs, or projections will result or be achieved
or accomplished. In addition to the other factors and matters discussed
elsewhere herein, factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the
forward-looking statements include: (i) leverage and debt service, (ii)
financing and refinancing efforts, (iii) competition, (iv) inclement weather,
(v) changes in general economic conditions in the Denver metropolitan area,
(vi) changes in state and local gaming laws, regulations or tax rates, (vii)
risks related to development and construction activities, (viii) changes in
management or control of the Company, (ix) significant changes in competitive
factors affecting the Company, (x) significant changes from expectations in
actual capital expenditures and operating expenses, and (xi) occurrences
affecting the Company's ability to obtain funds from operations, debt or
equity to finance needed capital expenditures and other investments.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1998
The Company's net revenue decreased $3.8 million or 27%, from $14.0
million for the first quarter of 1998 to $10.2 million for the first quarter
of 1999. The negative results were largely affected by the addition of two
new large competitors that entered the Black Hawk market in the second half
of 1998. The two new competitors provide an additional 35% increase in gaming
device capacity in the Black Hawk market. Bullwhackers Black Hawk's net
revenues were $2.0 million, or 19%, less than the first quarter of 1998.
Given the fact that Bullpen expansion provides an additional 40% increase in
gaming device capacity at Bullwhackers Black Hawk for the first quarter of
1999, and net revenues were substantially lower in the first quarter of 1999
as compared to the first quarter of 1998, management is disappointed in the
results of the Bullpen expansion. Additionally, management and believes that
the increased competition will continue to negatively affect Bullwhackers
Black Hawk's net revenues.
Bullwhackers Central City's net revenues decreased $1.4 million, or
60%, in the first quarter of
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1999 as compared to the first quarter of 1998. The decrease in net revenues
is a result of the overall decline of the casinos located on Main Street in
Central City, suffering further competitive pressures as a result of the new
properties which commenced operations in Black Hawk within the last year,
and, therefore the property closed on March 10, 1999. Additionally, results
suffered subsequent to the announcement in February of 1999 of the property
closing.
The Silver Hawk Casino net revenues also decreased, by $400,000, or
27%, in the first quarter of 1999 as compared to the first quarter of 1998.
The decrease in the Silver Hawk Casino was also affected by the increased
competition, however, net revenues have stabilized at the current time due to
an implementation of a new bussing program which commenced operations in
mid-February of 1999.
For further discussion of competition in the Black Hawk and Central
City market and management's plans to address the situation, see the
COMPETITIVE OUTLOOK discussion elsewhere in Management's Discussion and
Analysis.
Expenses directly related to casino operations, including gaming
taxes, increased $200,000, or 4%, to $5.9 million for the first quarter of
1999, as compared to $5.7 million for the first quarter of 1998. The increase
in casino expenses is due to increased staffing and other costs associated
with the addition of the Bullpen expansion in the current year period and
from the overall competitive environment in the Black Hawk market which has
led to increasing labor costs. In addition, the Company incurred
approximately $90,000 of severance costs associated with closing of
Bullwhackers Central City. Increased casino expense at Bullwhackers Black
Hawk was somewhat offset by a decrease in casino expenses at both
Bullwhackers Central City and Silver Hawk Casino, as a result of reduced
staffing and other costs in relation to the decrease in business volumes and
closing of Bullwhackers Central City.
Food and beverage expense decreased 18% to $814,000 for the first
quarter of 1999, as compared to $990,000 for the first quarter of 1998. This
decrease in expense is a result of the elimination of certain discounted food
offerings to entice gaming patrons, which were offered in 1998, and to a
lesser extent the closing of Central City's restaurant in January 1999.
Marketing expense increased 7% to $1.8 million for the first quarter
of 1999, as compared to $1.7 million for the first quarter of 1998. The
increase in marketing expense is primarily due to increased marketing
expenses at both Bullwhackers Black Hawk and the Silver Hawk due to increased
efforts to generate revenues in an increasingly competitive market and due to
costs associated with the two bussing programs. This increase is somewhat
offset by a decrease in marketing expense at Bullwhackers Central City, as a
result of lower business volumes at the property and closing in March.
Corporate expenses decreased 65% to $252,000 for the first quarter
of 1999, as compared to $728,000 for the first quarter of 1998. The higher
expenses in the prior year period were due to certain incentive compensation
expenses totaling $240,000, which ceased upon the Ladbroke merger. In
addition, the decrease in corporate expense is due to the restructuring of
the corporate function, including the resignation of the former President,
resulting in $75,000 less in payroll expense in the 1999 quarter. The 1998
period also reflects $50,000 of legal and other professional fees relating to
the Merger and $75,000 of legal fees and other costs related to the Lady Luck
settlement which occurred in the first quarter of 1999. Management expects
these corporate expenses to continue to decrease.
Depreciation and amortization expense increased 18% to $1.1 million
for the first quarter of 1999, as compared to $934,000 for the first quarter
of 1998. The increase in depreciation and amortization charges is due to
additional depreciation and amortization charges relating to the purchase of
the assets comprising the Bullpen.
LIQUIDITY AND CAPITAL RESOURCES
8
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DEBT
On June 7, 1996, the Company entered into a $12.5 million revolving
credit facility (the "Credit Facility") with Foothill Capital Corporation.
Under terms of the Credit Facility, borrowings accrue interest at prime plus
2.375% (10.125% as of March 31, 1999). The Credit Facility matures on June 7,
2001 with two one-year extension options. On February 1, 1999, Ladstock
purchased the outstanding balances of the Credit Facility and the senior
lender assigned the Credit Facility to Ladstock. Accordingly, Ladstock is now
the Company's senior lender on terms that are at this time identical to the
Credit Facility. As of March 31, 1999, the Company had an outstanding balance
of approximately $5.8 million on the Credit Facility.
Y2K ISSUES
Until recently, most computer programs were written to store only
two digits of date-related information in order to more efficiently handle
and store data. Computer programs which are date-sensitive may recognize a
date using "00" as the year 1900 rather than the year 2000, which could
result in major computer system or program failures or miscalculations or
equipment malfunctions. This is referred to as the "Year 2000" issue ("Y2K").
The Company recognizes that the impact of the Y2K issue extends beyond
traditional computer hardware and software to equipment used in operations,
such as the Company's slot tracking system, as well as to third parties. The
Y2K issue is being addressed within the Company by its information technology
department and progress is reported periodically to management. Since 1997,
the Company has been reviewing all internal, external and third party
information technology ("IT") systems related to its business. The Company
has completed an internal IT evaluation with satisfactory results and is
currently reviewing external and third party IT systems for Y2K compliance.
External and third party evaluations include requiring compliance
certificates from vendors, suppliers and significant businesses related to
the Company. The Company estimates it will complete external and third party
evaluations by the second or third quarter of 1999. To date, all evaluations
have uncovered minimal exposure to Y2K problems. However, there can be no
guarantee that the systems of other companies on which the Company's systems
and business rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
system, would not have a material adverse effect on the Company. Many of the
external parties that the Company relies on provide commodity goods or
services that are widely available from a range of vendors; therefore, third
party impact on the Company is expected to be minimal. The Company currently
estimates that the cost to rectify any internal Y2K issues will be
approximately $90,000, which would include replacing hardware systems and
upgrading software. Current estimates of the Company's expenses for
addressing external or third party Y2K issues are not expected to be
material; however, the Company continues to review and monitor compliance.
The total cost of the Company's Y2K efforts are not expected to be material
with respect to the Company's operations, liquidity or capital resources.
Management does not believe the Company will have to modify or replace any
significant portions of its computer applications in order for the computer
systems to function properly with respect to the dates in the year 2000 and
thereafter. However, a "worst case" scenario may include the temporary
disruption of operations, including the inability to access the Company's
slot tracking system. A significant disruption may have a material adverse
impact upon the Company's operating results. The Company's contingency plan
includes the following:
- Regular back up of all scientific and business related electronic
data;
- Archival of critical business paperwork; and,
- Upgrading security systems to be Y2K compliant (included in above
dollar amount).
The Company's Y2K related costs are not expected to be material to
the Company's consolidated results of operations. The Company will continue
to evaluate all IT systems for Y2K compliance throughout 1999.
9
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There is still uncertainty around the scope of the Y2K issue. At
this time the Company cannot quantify the potential impact of potential Y2K
failures. The Company's Y2K program and contingency plans are being developed
to address issues within the Company's control and to reduce the level of the
Company's uncertainty about its Year 2000 issues. The program and contingency
plans minimizes, but does not eliminate, the issues of external parties.
The costs of the project, estimated completion dates, worst case
scenario and other forward looking statements above are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no
guarantees that these estimates will be achieved or that events will occur as
projected and actual results and events could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes, the success of the Company's suppliers and other external parties with
which the Company interacts in addressing their Year 2000 issues, and similar
uncertainties.
COMPETITIVE OUTLOOK
For the quarter ended March 31, 1999, the Company's operating loss
was $525,000 compared to operating income of $3.0 million in the first
quarter of 1998. Cash flow from operations for the quarter ended March 31,
1999, was a negative $91,000 compared to a positive cash flow of $3.7 million
in the prior year period. These results illustrate the deterioration in the
Company's operating results and cash flows which have been occurring since
the third quarter of 1998. The opening of two major new competitors in the
Black Hawk market in June and December 1998 has significantly impacted the
Company's operating results for the last six months of 1998, the first
quarter of 1999 and will likely continue to negatively impact the operating
results for the remaining quarters of 1999. The Company's operating margins
have deteriorated due to declining revenue levels and increasing operating
and marketing costs. Additionally, in late 1999, two additional large
competitors are scheduled to open casinos in Black Hawk. It is likely that
this additional capacity will continue to dilute the Company's market share
of revenues and, accordingly, may adversely impact the Company's operating
profits in 1999 and beyond. Furthermore, should the operating trends and
results experienced in the second half of 1998 and the first quarter of 1999
continue or worsen, the Company will not be able to generate cash flow from
operations to meet minimum debt service requirements in 1999. Accordingly,
the Company would be reliant on its Credit Facility to meet such debt service
requirements. While these results are substantially below prior year levels,
they are an improvement over the fourth quarter of 1998 at both Bullwhackers
Black Hawk and the Silver Hawk. Additionally, the first quarter results were
negatively affected by poor results and other costs associated with closing
Bullwhackers Central City.
Given the deteriorating financial results, management has devised
various plans and operating strategies intended to improve the Company's
performance, some of which were implemented during the first quarter of 1999.
The operating plan includes a) closing Bullwhackers Central City, and
focusing all of its efforts and managerial resources on its Black Hawk
properties, b) reconfiguring the Bullpen expansion to improve the overall
layout and efficiency of Bullwhackers Black Hawk, c) eliminating discounted
food offerings as an enticement for gaming patrons, d) implementing training
programs to position the property on the basis of service excellence, e)
reconfiguring or eliminating inefficient bus programs, and f) substantially
reducing the Company's corporate expense. While management believes this is a
viable operating plan, there is no assurance that such initiatives will be
effective in improving the Company's financial performance. Additionally, the
competitive environment in Black Hawk may become increasingly severe,
particularly if two new projects currently under construction commence
operations in late 1999, as scheduled.
10
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1996, BWCC, Inc. signed a non-binding memorandum of
understanding ("MOU") with Gold Coin, Inc., a wholly-owned subsidiary of Lady
Luck Gaming Corporation, to explore the possibility of physically combining
Bullwhackers Central City with the adjacent casino operated as Lady Luck Gold
Coin Gambling Hall & Saloon and owned by Gold Coin, Inc. The prospective
transaction was subject to a number of contingencies, including the execution
and delivery of definitive agreements setting forth the final agreed upon
terms and conditions of the transaction. While the parties continued to
negotiate over unresolved issues contained in the drafts of the definitive
agreements, market conditions and other events affecting the Central City
market continued to change and decline significantly. Despite continued
efforts to satisfactorily resolve the open issues in light of the foregoing,
no final, definitive agreements were executed and delivered, and the
prospective transaction was never consummated.
In March 1998, Lady Luck Central City, Inc., formerly known as Gold
Coin, Inc., filed a complaint in the District Court for the County of
Jefferson, State of Colorado, Case No. 98 CV 672, captioned as LADY LUCK
CENTRAL CITY, INC. V. BWCC, INC., D/B/A BULLWHACKERS CENTRAL CITY, COLORADO
GAMING & ENTERTAINMENT, CO., AND LADBROKE GROUP PLC. In 1999, the Company
negotiated a Settlement Agreement in order to avoid further expenses,
inconvenience, and other distraction of litigation. Both parties agreed to
fully dismiss and release each other from all claims. The settlement is for
$300,000, which is accrued for in the Company's consolidated balance sheet.
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. The
Company's management believes that the ultimate resolution of currently
pending legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
A. COMPETITION. Competition in the Black Hawk and Central City
gaming market, which forms the primary gaming market in Colorado, is intense.
The Company believes that its primary competition are other casinos operating
in Black Hawk and Central City. Experienced, nationally recognized casino
operators from other areas of the country have entered, or have recently
announced plans to enter, the Colorado gaming market, including Harvey's,
Isle of Capri, Riviera Holdings, Inc., Hyatt, Anchor Gaming and Fitzgerald's,
many of which have substantially greater financial and marketing resources
than the Company. Because Colorado does not limit the total number of gaming
licenses available for issuance in Colorado and there are no minimum facility
size requirements, the Company expects the number of gaming facilities and
gaming devices to continue to increase in Black Hawk.
In June 1998, a joint venture between Black Hawk Gaming &
Development Co., the owner and operator of the Gilpin Hotel Casino, and
Jacobs Entertainment commenced casino operations of a property named "The
Lodge", which is a 35,000 square foot casino, 500 covered parking spaces and
approximately 800 slot machines. In December 1998, the Isle of Capri Black
Hawk, which is owned by subsidiaries of Isle of Capri, Inc. and Nevada Gold &
Casinos, Inc., commenced operations. The Isle of Capri Black Hawk is a 55,000
square foot casino with 1,100 slot machines, 14 table games, three restaurant
offerings and 1,000 on-site covered parking spaces. The new gaming capacity
(a 35% increase over prior year) that entered the Black Hawk market in the
second half of 1998 may dilute existing operators' win per unit and revenue,
11
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including the Company's. Such increase in capacity has had a material adverse
affect on the Company's results of operations. Management believes the new
properties adversely affected the Company's revenues and operating results in
1998, and will continue to affect the Company's performance in 1999.
In addition, a number of other casino projects have begun
construction in Black Hawk. Riviera Holdings, Inc. commenced construction of
a casino scheduled to open in late 1999, which is expected to include 1,000
slot machines and a 500 space covered parking garage. Additionally, Bullseye
Gaming has commenced construction of the Black Hawk Brewery Casino and is
scheduled to open in late 1999, which will offer 600 slot machines and 500
parking spaces. Fitzgeralds has also announced an expected expansion of
approximately 50% of their current gaming area as well as 70-80 hotel rooms.
Various other projects have been announced, proposed, discussed or rumored
for the Black Hawk market, including large projects known as "Country World"
and the "St. Moritz - Hyatt". The new capacity, actual and proposed, have all
been announced for the town of Black Hawk. The majority of these projects are
along the southern end of Black Hawk at the first two major intersections of
State Highway 119, providing these projects with the initial opportunity to
capture visitors to Black Hawk from the Denver metropolitan area. In
contrast, Bullwhackers Black Hawk and the Silver Hawk Casino are located at
the northern end of Black Hawk at the third major intersection off State
Highway 119. The projects currently under construction and, or the announced
projects may have a material adverse impact of the Company's results from
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Colorado Gaming & Entertainment Co. has duly caused this report to be signed
by the undersigned thereunto duly authorized.
COLORADO GAMING & ENTERTAINMENT CO.
/s/ Richard Rabin
------------------
Richard Rabin
President and Chief Operating Officer
Date: May 14, 1999
/s/ Robert J. Stephens
-----------------------
Robert Stephens
Senior Vice President of Finance
(Principal Financial Officer)
Date: May 14, 1999
13
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