-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LTekaxTvAiflZcFivTLRhPyGjShdFEyH13hN9iuomGTMSMaeUuFPDHYYWeDXrk3H 8K50+bWAsaEryC67YncaKg== 0001024432-99-000003.txt : 19990330 0001024432-99-000003.hdr.sgml : 19990330 ACCESSION NUMBER: 0001024432-99-000003 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COUNTRY WORLD CASINOS INC CENTRAL INDEX KEY: 0000713443 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 133140389 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-22450 FILM NUMBER: 99575353 BUSINESS ADDRESS: STREET 1: 4155 E JEWELL AVE STREET 2: STE 1000 CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3036395001 MAIL ADDRESS: STREET 1: 4155 E JEWELL AVE SUITE 1000 STREET 2: 4155 E JEWELL AVE SUITE 1000 CITY: DENVER STATE: CO ZIP: 80222 10KSB/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________ FORM 10-KSB/A-1 (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1998 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 0-22450 COUNTRY WORLD CASINOS, INC. (Name of Small Business Issuer in its charter) Nevada 13-3140389 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 200 Monument Road, Suite 10, Bala Cynwyd, Pennsylvania 19004 (Address of Principal Executive Offices)(Zip Code) Issuer's Telephone Number, Including Area Code: (610) 617-9990 Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: $.001 Par Value Common Stock (Title of Class) Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or 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 the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB. State the issuer's revenues for its most recent fiscal year. $ None The aggregate market value of the approximately 5,831,234 shares of the Company's voting stock held by non-affiliates, computed at the average bid and asked prices of such stock in the over-the-counter market, as quoted on the Electronic Bulletin Board on September 30, 1998 was approximately $495,655. Issuers Involved in Bankruptcy Proceedings During the Past Five Years Check whether the issuer has filed all documents and reports to be filed by Section 12, 13 or 5(d) of the Exchange Act of the distribution of securities under a plan confirmed by a court. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: At September 30, 1998, there were outstanding 54,331,687 shares of the issuer's Common Stock, par value $.001. -2- PART I Description of Business Item 1 General Development of Business Country World Casinos, Inc., the Registrant (the "Company" or "Country World") was incorporated on November 9, 1982 under the name, Innovative Medical Technology, Inc. The Company was organized to engage in the medical industry. The Company effected a public offering in 1983. The Company was essentially inactive until 1990 when it undertook the manufacturing of monolithic composite panels for use in the construction of semi-truck trailers, shipping containers and industrial buildings. The Company discontinued this business in September 1992. In 1993, the Company changed the focus of its planned business operations to the construction of a large, full service, first class casino in Black Hawk, Colorado. In August 1993, the Company completed the acquisition from New Allied Development Corporation and its subsidiary, Tommyknocker Casino Corp., of certain real property located in Black Hawk, Colorado known as Mill Sites 12 and 13, and the Smith Lode Mining Claim, U.S. Survey No. 502 (the "Property"). Except as specifically provided elsewhere herein to the contrary, New Allied Development Corporation and Tommyknocker Casino Corp. will be referred to hereinafter collectively as "New Allied." Since the Company's purchase of the Property in August 1993, the Company's activities have focused on obtaining the necessary financing and making preparations for construction of the casino on the Property. In July 1997, the Company signed a financing agreement with U2 Consulting, LLC., an affiliate of Pacific Genesis, Inc. and Western Equities, Inc., to raise $79.5 million through the issuance of corporate bonds. The parties had 180 days to provide for the financing, were unable to complete same and said agreement with U2 Consulting was terminated in December 1997. In January 1998, the Company again began the process of acquiring financing. After much discussion and many contacts with a wide range of financing groups, the Company has entered into three separate agreements to provide the necessary financing. Although the Company is confident in the abilities of these three organizations to provide the necessary capital, there can be no assurance that any funds will be provided immediately or in the future. Each of the three agreements, which are strictly confidential until completed, obligates the respective parties to provide at least $80 million for the development and construction of the project. Each agreement provides for distinctly different means of raising the required funds, as well as distinctly different means of repayment and different levels of equity participation. Once financed, the Company's ability to operate the casino will be dependent upon substantial other conditions, including the obtaining of licenses and compliance with governmental regulations, grading and -3- construction of the casino, obtaining the necessary permits and approvals from the City of Black Hawk and other regulatory bodies, procuring gaming equipment on satisfactory terms, and accomplishing these objectives in a timely manner. In order to begin the process of timely completing its goals, in July 1997, the Company contracted with Colorado Gaming Development Company, Inc., Semple Brown Roberts, P.C. and PCL Construction Services, Inc., all of Denver, Colorado to design and construct the planned casino and hotel complex. In addition, the Company signed a management agreement with Signature Hospitality Resources, Inc. of Denver, Colorado to manage its Radisson Black Hawk Hotel, a separate agreement to use the national flag of Radisson on the hotel and contract with Luciani & Associates, LLC of Atlantic City, New Jersey, to manage the casino operations. All parties assisted the architect in design of their respective operations. The Agreement with Luciani & Associates, LLC has expired and they advised the Company of such in writing in February 1998. Once financing has been secured, the Company will attempt to negotiate a new agreement, either with Luciani & Associates or others yet to be determined. The Company is engaged in the design, development and construction of the Hotel and Casino (the "Hotel Casino") in Black Hawk, Colorado. The revised plan for the Hotel Casino will be an eight level complex, featuring three stories of hotel rooms above a two-story, 75,000 square foot casino, and a three story parking garage. Other amenities will include one or more full service restaurants, a buffet, entertainment lounge and retail shops. When completed as planned, the Hotel Casino will be largest hotel and casino complex in Colorado. Construction and opening of the Hotel Casino is dependent upon the Company's ability to successfully raise the required capital discussed above. The casino level of the project, at approximately 75,000 square feet, will be the largest in Colorado and will be capable of accommodating 1,800 slot machines and 32 gaming tables. The Company will open the facility with 1,000 slot machines, 20 blackjack tables and 12 poker tables, and may add up to 800 additional slot machines if management determines that the additional gaming devices will produce equal per square foot revenue and will not create excess capacity. The Company expects that slot machines will be the greatest source of its gaming revenues. Slot machines are less labor intensive and require less square footage than table games, and also generate higher profit margins. The Country World Casino's atmosphere will feature a country western music theme similar to the rock and roll music theme successfully employed by the Hard Rock Cafe. The Casino decor is planned to include memorabilia from the great country singers, both past and present. The country western theme has not been established in the Black Hawk/Central City, Colorado gaming market, and therefore will give the Country World Casino its own unique identity. Management believes that as casinos have become more numerous, the gaming industry has begun to recognize that popular themes and amenities such as quality dining and hotel accommodations play an important role in attracting customers to casinos. The theme is intended to appeal to the Hotel Casino's target customer base, which consists primarily of residents of the Denver metropolitan area as well as other Colorado communities located within driving distance of Black Hawk. -4- The Hotel and Casino will provide overnight accommodations with 200 +/- rooms and suites, making it one of the first destination resort of its kind in Black Hawk. Complimenting both the casino and hotel will be a three story underground parking facility for approximately 1,000 cars featuring both valet and self parking options, and the only covered on-site bus turnaround currently available in Black Hawk for the convenience of day trip customers. Black Hawk is a picturesque mountain town approximately 40 miles west of Denver. In the past year, Black Hawk hosted approximately 3 million visitors and generated almost 60% of the state's gaming revenues. The 536,000 square foot Hotel Casino facility on the northern most end of the Black Hawk gaming district will be in a most highly visible location as it is in a direct line of site to all visitors approaching Black Hawk's Gregory Street intersection on State Highway 119. The eight story structure will tower high above all existing facilities. The Black Hawk and nearby Central City casino market includes many small, privately held gaming facilities that the Company believes offer limited amenities and are characterized by a shortage of convenient on-site parking. There are a few large facilities currently operating with varying levels of services and amenities, as well as new facilities planned. The Country World Casino's country western music theme, country hospitality, ample parking, modern hotel accommodations and a full line of amenities, will set it apart from, and should give it a competitive advantage over, the other casinos in the Black Hawk/Central City market. The Hotel Casino complex will be designed and constructed pursuant to a guaranteed maximum price agreement which is to be finalized prior to construction. The design and construction team consists of Semple Brown Roberts, P.C., a Denver based architectural firm (the "Architect") and PCL Construction Services, Inc., a multi-million dollar North American construction firm with U.S. headquarters located in Denver. The Architect is the designer of Fitzgerald's Casino in Black Hawk, while the Contractor's gaming credits include the MGM Grand Hotel Casino and Stratosphere Tower in Las Vegas, Nevada, as well as the Chinook Winds Gaming and Convention Center in Lincoln City, Oregon. Gaming operations at the Country World Casino were to be under the management of Luciani & Associates of Atlantic City, New Jersey, who are leaders in casino design and management services. At this time, the agreement has expired, however once financing has been secured, the Company will attempt to negociate a new agreement or seek another management company. Hotel operations will be under the management of Signature Hospitality Resources, Inc. of Denver, Colorado (the "Hotel Manager'), which provides a full range of hotel and resort support services including operations, sales, marketing, food, beverage, human resources, MIS and technical services. The Hotel Manager's current portfolio of facilities under management includes 16 hotel and resort properties, comprising 4,398 rooms, in eight states and the Caribbean. Signature's executive team represents over 120 years of combined hospitality related experience, spanning 200 properties in 34 states and three countries. -5- Colorado Gaming Regulations The State of Colorado created the Division of Gaming (the "Division") within the Department of Revenue to license, implement, regulate and supervise the conduct of limited gaming under the Colorado Limited Gaming Act and the regulations promulgated thereunder (the "Colorado Gaming Act"). The Director of the Division, under the supervision of a five-member Colorado Limited Gaming Control Commission (the "Colorado Gaming Commission"), has been granted broad power to ensure compliance with the Colorado Gaming Act. The Director may inspect, without notice, 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 against licensees and their employees. He also may conduct detailed background investigations of persons who loan money to the Company. The Colorado Gaming Commission is empowered to issue five types of gaming and gaming related licenses. The licenses are revocable and non-transferrable. The failure or inability of the Company or the Casino Manager to obtain and maintain the necessary gaming licenses could prevent the Company from operating the Casino and could have a material adverse effect on the Company. All persons employed by the Company and the Casino Manager and involved, directly or indirectly, in gaming operations in Colorado also are required to obtain a Colorado gaming license. All licenses must be renewed annually. The Company's President, Roger Leclerc currently holds a key employee license which entitles him to operate a casino in the State of Colorado. The Company, its Chairman and Chief Executive Officer, Larry Berman, and its Secretary/Treasurer, William Patrowicz will apply for their respective licenses at the conclusion of financing to coincide with the start of construction. As a general rule, under the Colorado Gaming Act, it is a criminal violation for any person to have a legal, beneficial, voting or equitable interest, or right to receive profits, in more than three retail gaming licenses in Colorado. The Colorado Gaming Commission has ruled that a person does not have an interest in a licensee for purposes of the multiple-license prohibition if: (i) such person has less than a five percent (5%) interest in an institutional investor which has an interest in a publicly traded licensee or publicly traded company affiliated with a licensee (such as the Company); (ii) a person has a five percent (5%) or more financial interest in an institutional investor, but the institutional investor has less than a five percent (5%) interest in a publicly traded licensee or publicly traded company affiliated with a licensee; (iii) an institutional investor has less than a five percent (5%) financial interest in a publicly traded licensee or publicly traded company affiliated with a licensee;(iv) an institutional investor possesses securities in a fiduciary capacity for another person, and does not exercise voting control over five percent (5%) or more of the outstanding voting securities of a publicly traded licensee or of a publicly traded company affiliated with a licensee; (v) a registered broker or dealer retains possession of securities of a publicly traded licensee or of a publicly traded company affiliated with a licensee for its customers in street name or -6- otherwise, and exercises voting rights for less than five percent (5%) of the publicly traded licensee's voting securities or of a publicly traded company affiliated with a licensee; (vi) a registered broker or dealer acts as a market maker for the stock of a publicly traded licensee or of a publicly traded company affiliated with a licensee and possesses a voting interest in less than five percent (5%) of the stock of the publicly traded licensee or of a publicly traded company affiliated with a licensee; (vii) an underwriter is holding securities of a publicly traded licensee or of a publicly traded company affiliated with a licensee as part of an underwriting for no more than 90 days if it exercises voting rights of less than five percent (5%) of the outstanding securities of a publicly traded licensee or of a publicly traded company affiliated with a licensee; (viii) a stock clearinghouse holds voting securities for third parties, if it exercises voting rights with respect to less than five percent (5%) of the outstanding securities of a publicly traded licensee or of a publicly traded company affiliated with a licensee; or (ix) a person owns less than five percent (5%) of the voting securities of the publicly traded licensee or publicly traded company affiliated with a licensee. Hence, the Company's and its stockholders' business opportunities in Colorado are limited to such interests that comply with the statute and Commission's rule. Although attorneys for the Colorado legislature initially expressed concern that the promulgation of the above-described regulation was beyond the Colorado Gaming Commission's statutory delegated authority, they appear to have retreated from this position. Therefore, unless the Colorado legislature repeals the regulation, it is likely that it will continue in effect. In addition, pursuant to the Colorado Gaming Act, no manufacturer or distributor of slot machines may have an interest in any casino operator, allow any of its officers to have such an interest, employ any person if such person is employed by a casino operator, or allow any casino operator or person with a substantial interest therein to have an interest in a manufacturer's or distributor's business. The Colorado Gaming Commission has ruled that a person does not have a "substantial interest" if it directly or indirectly has less than five percent (5%) of such voting securities of a licensee. Under the Colorado Gaming Act, any person or entity having any direct or indirect interest in a gaming licensee or an applicant for a gaming license, including, but not limited to, the Company and stockholders of the Company, maybe required to supply the Colorado Gaming Commission with substantial information, including, but not limited to, background information, source of funding information, a sworn statement that such person or entity is not holding his interest for any other party, and finger prints. Such information, investigation and licensing as an "associated person" automatically will be required of all persons (other than certain institutional investors discussed below) which directly or indirectly own ten percent (10%) or more of a direct or indirect legal, beneficial or voting interest in the Company. Such persons must report their interest and file appropriate applications within 45 days after acquiring such interest. Persons directly or indirectly having a five percent (5%) or more interest (but less than 10%) in the Company, must report their interest to the Colorado Gaming Commission within ten (10) days after acquiring such interest and may be required to provide additional information and to be found suitable. If certain institutional investors provide certain information to the Colorado Gaming Commission, such investors, at the Colorado Gaming Commission's discretion, may be permitted to own up to 14.99% of the Company, before being required to be found suitable. All licensing and investigation fees will have to be paid for by the person in question. The associated person investigation fee currently is $48 per hour. -7- The Colorado Gaming Commission also has the right to request information from any person directly or indirectly interested in, or employed by, a licensee, and to investigate the moral character, honesty, integrity, prior activities, criminal record, reputation, habits and associations of (i) all persons licensed pursuant to the Colorado Limited Gaming Act, (ii) all officers, directors and stockholders of a licensed privately held corporation, (iii) all officers, directors and stockholders holding either a five percent (5%) or greater interest or a controlling interest in a licensed publicly traded corporation, (iv) all general partners and all limited partners of a licensed partnership, (v) all persons which have a relationship similar to that of an officer, director or stockholder of a corporation (such as members and managers of a limited liability company), (vi) all persons supplying financing or loaning money to any licensee connected with the establishment or operation of limited gaming, and (vii) all persons having a contract, lease or ongoing financial or business arrangement with any licensee, where such contract, lease or arrangement relates to limited gaming operations, equipment, devices or premises. For purposes of the Colorado Gaming Act, a note secured by a deed of trust on casino property is considered a "lease." In addition, under the Colorado Gaming Act regulations, every person who is a party to a "gaming contract" with an applicant for a license, or with a licensee, upon the request of the Colorado Gaming Commission or the Director, promptly must provide to the Colorado Gaming Commission or Director all information which may be requested concerning financial history, financial holdings, real and personal property ownership, interests in other companies, criminal history, personal history and associations, character, reputation in the community, and all other information which might be relevant to a determination whether a person would be suitable to be licensed by the Colorado Gaming Commission. Failure to provide all information requested constitutes sufficient grounds for the Director or the Colorado Gaming Commission to require a licensee or applicant to terminate its "gaming contract" (as defined below) with any person who failed to provide the information requested. In addition, the Director or the Colorado Gaming Commission may require changes in "gaming contracts" before an application is approved or participation in the contract is allowed. A "gaming contract" is defined as an agreement in which a person does business with or on the premises of a licensed entity. An application for licensure or suitability may be denied for any cause deemed reasonable by the Colorado Gaming Commission or the Director, as appropriate. Specifically, the Colorado Gaming Commission and the Director must deny a license to any applicant who (i) fails to prove by clear and convincing evidence that the applicant is qualified; (ii) fails to provide information and documentation requested; (iii) fails to reveal any fact material to qualification, or supplies information which is untrue or misleading as to a material fact pertaining to qualification; (iv) has been, or has any director, officer, general partner, stockholder, limited partner or other person who has a financial or equity interest in the applicant who has been, convicted of certain crimes, including the service of a sentence upon conviction of a felony in a correctional facility, city or county jail, or community correctional facility or under the state board of parole or any -8- probation department within ten years prior to the date of the application, gambling-related offenses, theft by deception or crimes involving fraud or misrepresentation, is under current prosecution for such crimes (during the pendency of which license determination may be deferred), is a career offender or a member or associate of a career offender cartel, or is a professional gambler; or (v) has refused to cooperate with any state or federal body investigating organized crime, official corruption or gaming offenses. If the Colorado Gaming Commission determines that a person or entity is unsuitable to own interests in the Company, then the Company may be sanctioned, which may include the denial or revocation of the approvals and licenses required to operate the Casino. The Colorado Gaming Commission does not need to approve in advance a public offering of securities, but rather requires a filing of notice and additional documents with regard to such public offering prior to such public offering. Under the regulations, the Colorado Gaming Commission may, in its discretion, require additional information and prior approval of such public offering. In addition, the Colorado Gaming Act regulations prohibit a licensee or affiliated company thereof, such as the Company, from paying dividends, interest or other remuneration to any unsuitable person, or recognizing the exercise of any voting rights by any unsuitable person. Further, the Company may repurchase the shares of anyone found unsuitable at the lesser of the cash equivalent to the original investment in the Company or the current market price. Further, the regulations require anyone with a material involvement with a licensee, including a director or officer of a holding company, such as the Company, to file for a finding of suitability if required by the Colorado Gaming Commission. In addition to its authority to deny an application for a license or suitability, the Colorado Gaming Commission has jurisdiction to disapprove a change incorporate position of a licensee and may have such authority with respect to any entity which is required to be found suitable by the Colorado Gaming Commission. The Colorado Gaming Commission has the power to require the Company to suspend or dismiss managers, officers, directors and other key employees or sever relationships with other persons who refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities, and may have such power with respect to any entity which is required to be found suitable. Once the Company obtains the required gaming licenses, a person or entity will not be permitted to sell, lease, purchase, convey or acquire a controlling interest in the Company without the prior approval of the Colorado Gaming Commission, and the Company will be prohibited from selling any interest in the Casino without the prior approval of the Colorado Gaming Commission. The Casino may operate only between 8:00 am. to 2:00 am., and may permit only individuals 21 years or older to gamble. Only slot machines, blackjack and poker, with a maximum single bet of $5.00, are permitted. A Colorado casino may not provide credit to its gaming patrons. The Casino must not exceed certain gaming square footage limits as a total of each floor and the full building. -9- Gaming Taxes The Colorado Constitution permits a gaming tax of up to 20% on adjusted gross gaming proceeds. The Colorado Gaming Commission has set a gaming tax rate of 2% on adjusted gross gaming proceeds of up to and including $2 million, 4% from $2 million to $4 million, 14% from $4 million to $5 million, 18% from $5 million to $10 million, and 20% above $10 million for the period ended June 30, 1998. The Colorado Gaming Commission also has imposed an annual device fee of $75 per gaming device. The Colorado Gaming Commission may revise the gaming tax rate and device fee from time to time. Black Hawk has imposed an annual device fee of $700 per gaming device and may revise the same from time to time. Other Regulations The sale of alcoholic beverages is subject to licensing, control and regulation by the Colorado Liquor Agencies. All persons who directly or indirectly own 10% or more of the Company must file applications and possibly be investigated by the Colorado Liquor Agencies. The Colorado Liquor Agencies also may investigate those persons who, directly or indirectly, loan money to or have any financial interest in liquor licensees. All licenses are revocable and not transferable. The Colorado Liquor Agencies have the full power to limit, condition, suspend or revoke any such license and any such disciplinary action could (and revocation would) have a material adverse effect upon the operations of the Company. No person with an interest in any holder of a hotel and restaurant liquor license can have an interest in a liquor licensee which holds anything other than a hotel and restaurant liquor license, and specifically cannot have an interest in an entity which holds a gaming tavern license. The Company's operations will be subject to a wide variety of other federal, state and local laws and government regulations that could increase its costs of construction and its operating expenses. Such regulations include architectural and requirements, building codes, health and safety laws, environmental laws, minimum wage and employment laws, and laws such as the Americans With Disabilities Act that require public facilities such as the Company's Hotel and Casino to be assessable and usable by people in wheel chairs. Slot machines are the most popular gaming devices in Colorado, and the Company expects that slot machines will be the greatest source of its gaming revenues. Slot machines are less labor intensive and require less square footage than table games, and also generate higher profit margins. Slot machines in Colorado permit play in denominations of nickels, quarters, half dollars, dollars and five dollars. Casinos are permitted to provide "progressive jackpots" that increase with continued play at the designated slot machines. Slot machines come in both the mechanical spinning reels variety and video slot machines. Twenty-five varieties of poker are authorized for play in Colorado casinos. Sixteen varieties of poker are "traditional" games in which the players play against each other to win a "pot" built upon their own wagers. These games include a variety of five-card draw, five-card and seven-card stud, and "hold 'em" games. In those games, the casino takes a fee or "rake" from each pot. Nine other poker games the players play against the casino to win payout. The casino does not take a "rake" from the pot in those games, but rather retains players' losses. -10- Five varieties of blackjack or "21" are authorized for play in Colorado casinos. Under Colorado rules, dealer must draw to hands of 16 or less and must stand on hands of 17 or higher. Players are allowed to split pairs, double down (doubling the wager after seeing the first two cards, but drawing not more than one additional card) and purchase "insurance". An "insurance" wager may be made when the dealer's face up card is an ace. The insurance wager is up to 50% of the original wager and entitles the player to 2 to 1 payout if the dealer has a 10 or face card in the whole (a natural 21), but the insurance wager is lost if the dealer's whole card has a value other than 10. ITEM 2. DESCRIPTION OF PROPERTY The Company's Property is located in the town of Black Hawk. The town of Black Hawk is part of the Central City and Black Hawk National historic Landmark, established in 1989 by the United States Department of Interior, National Park Service. In conformance with this designation, the town of Black Hawk in October 1990 established the Architectural and Design Review Guidelines, authorizing the town to regulate historical and architectural matters within the town. These guidelines are used by Black Hawk's Historic Architectural Review Commission ("HARC") to evaluate and approve all applications for construction. Furthermore, the amendment to the Colorado Constitution authorizing limited stakes gaming provides that such gaming shall be conducted in structures which conform, as determined by the respective municipal governing body, to the architectural styles and designs common to the area prior to World War I and which conform to the requirements of applicable respective municipal ordinances, regardless of the age of the structure. Accordingly, the Company is designing its building in conformance with the requirements of HARC, and the building design will reflect the architectural style consistent with the guidelines. The site is located on Colorado State Highway 119, approximately one-quarter mile past the Gregory Street turn-off that leads to Central City through Black Hawk. As such, the Company's casino facility will not be contiguous to the many casinos which are located on Gregory Street and Main Street in Black Hawk. The facility will be designed to allow for a maximum exposure to approaching traffic, and will be in a direct site line from the turn from the Highway into the town of Black Hawk. The Company believes that it is this ability, and ease of access that should provide the Company a competitive benefit as compared to the other casinos which are located in the central portion of town. Moreover, many casinos in Black Hawk/Central City lack contiguous or convenient parking and, as a result, have had difficulty in attracting and retaining customers. In contrast, the Company's site will offer convenient valet and self parking to its customers, as well as the only covered on-site bus turnaround to date for the convenience of day trip customers. Competition Most of the 32 casinos in the Black Hawk/Central City market are small facilities that provide limited or no parking and do not provide hotel accommodations. Presently, the largest hotel in the Black Hawk/Central City -11- market is the 118 room Harvey's Wagon Wheel located in Central City, which has on-site parking for 195 cars. In contrast, the Company's Hotel Casino will have 200+/- hotel rooms and suites and will have a parking garage that can accommodate approximately 1,000 cars. Several of the larger casinos are planning to expand their facilities to provide additional casino space, hotel rooms and parking, and several new casinos are either planned, under construction, or recently opened, including the Black Hawk/Jacobs Casino which will include 1,000 gaming devices and parking for 280 cars with provision for a 50 room hotel. Now under construction, the Isle of Capri, will purportedly have more than 1,100 slot machines, 24 card tables (for blackjack and poker) and a parking garage for 1,000 cars. The Isle of Capri Casino will not initially provide any hotel accommodations, although it purportedly will be designed to permit the construction of a hotel on top of the casino. Riviera Holdings Corporation has recently broke ground to construct a large casino with 1,000 slot machines and parking for 500 cars. The following table presents certain information about the six largest casinos currently operating in the Black Hawk/Central City market, which control approximately 61% of the slot machines, 65% of the blackjack tables and 100% of the poker games in the Black Hawk/Central City market. Size Date Number of Gaming Devices* Casino Sq. Ft.* Opened Slots Blackjack Poker Harvey's Wagon Wheel 40,000 12/94 850 18 9 Colorado Central Station 44,300 12/93 720 10 9 Bullwhackers 33,200 7/92 649 8 6 Canyon Casino 62,600 12/93 607 8 -- Gilpin Hotel/ Black Hawk Gaming 35,300 1/95 520 8 8 Fitzgeralds Casino 26,700 2/95 492 6 5 *Estimated The Company plans to attain a competitive advantage over the established casinos by offering superior lodging, an entertainment lounge, indoor self-parking, and dining facilities, as well as a casino that is larger than the rest. In comparison to the casinos that are presently operating in the Black Hawk/Central City market, and those that are planned, the Company's Hotel Casino will offer a 75,000 square foot casino featuring 1,000 mechanical and video slot machine, 20 blackjack tables, and 12 poker tables, all located on a single level. Guests will be able to access the Company's Hotel Casino directly from State Highway 119, without having to drive through Main Street or Gregory Street, which are the two main streets that comprise the town of Black Hawk. The location of the Hotel Casino at the north end of the town will enable guests to avoid traffic congestion on the two main streets of the town. There is presently a shortage of parking space in Black Hawk and Central City, especially parking spaces located close to the casinos. The Company's Hotel Casino will have an underground parking garage that will be sheltered from inclement weather and will permit customers to quickly park and retrieve their cars. Valet parking will also be provided. In addition, the Company plans to build a covered bus stop and turn-around that will facilitate access to the -12- Hotel Casino by customers on one-day, over-night or weekend excursions. The Company may also sponsor charter bus services from the Denver metropolitan area as a promotional consideration. The Black Hawk Gaming Market Black Hawk, Colorado is a picturesque mountain town approximately 40 miles west of Denver and approximately one mile from Central City. The Black Hawk/Central City casino industry draws its customers primarily from the Denver metropolitan area. The Company's Hotel Casino will target middle to upper income customers who seek a quality gaming experience, convenient parking and overnight accommodations. Statistics released by the Denver Regional Council of Governments ("DRCOG") in September 1992 indicate that the eight county Denver metropolitan area had a population of nearly 2,000,000 people at January 1, 1992. The DRCOG estimates that the population of the region will grow by more than 300,000 during the ten year period ending in the year 2000 and will exceed 2,700,000 by the year 2020. According to information provided by the Colorado Department of Revenue Division of Gaming, based upon unaudited information reported by the owners of gaming establishments, during the 12 months ended June 30, 1996, the Black Hawk/Central City casinos generated more than $300,000,000 of gaming revenues. Gaming revenues in the Black Hawk/Central City market were derived from slot machines, black jack and poker in the following amounts: slot machines -- $278,901,209; blackjack -- $13,089,446; and poker -- $8,866,760. Food and beverage sales (including complimentary sales) for the 12 months exceeded $25,000,000. Gaming revenues in the Black Hawk/Central City market have grown steadily since gaming began in 1991. The following table shows the growth in Black Hawk/Central City gaming revenues for the last six full 12 month periods ended September 30, 1997, as reported by the Colorado Department of Revenue Division of Gaming. The Company believes that growth in gaming revenues will continue to increase in the Black Hawk area sufficient in number to support the Company's Hotel Casino, as well as new casinos and hotels planned by other operators. Management also believes that the Company's planned theme, parking, hotel accommodations, entertainment and other amenities will draw additional customers. Twelve Months Ended September 30, (In Millions) 1992 1993 1994 1995 1996 1997 $110 $177.9 $229.5 $280.6 $288.8 $319.6 -13- ITEM 3. LEGAL PROCEEDINGS The Company was the plaintiff and a counterclaim defendant in a lawsuit pending in Denver, Colorado District Court, Case No. 95CV2310. This lawsuit was commenced by the Company on May 26, 1995. The lawsuit between the Company and New Allied and TKCC was stayed upon the filing of the Company's bankruptcy petition in October 1995. That stay was lifted when the bankruptcy case was dismissed in March 1997, and the Company moved forward with these proceedings. The Company filed for Summary Judgment in this matter and hearings were held September and October 1998. Such Summary Judgement was granted in favor of the Company in October 1998. In addition, the Company filed an appeal of the Bankruptcy Court's ruling. New Allied cross appealed. Such appeals were denied by the United States District Court in August 1998 and the appeals matters are continuing as the Company has appealed this matter to a higher court unopposed. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fiscal year covered by this Report to a vote of security holders. -14- PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market and is quoted and is listed on the Electronic Bulletin Board under the symbol, "CWRC". The market for the Company's Common Stock must be characterized as a limited market due to the relatively low trading volume. Set forth in the following table are high and low bid quotations for the Company's common stock for the fiscal years ended June 30, 1997 and 1998. The quotations represent inter-dealer quotations without retail markups, markdowns or commissions and may not represent actual transactions. Quarter Ended High Low September 30, 1996 .41 .12 December 31, 1996 .38 .19 March 31, 1997 .38 .15 June 30, 1997 .40 .20 September 30, 1997 .15 .13 December 31, 1997 .34 .25 March 31, 1998 .24 .11 June 30, 1998 .19 .10 At June 30, 1998, there were approximately 1,090 record holders of the Company's Common Stock. The Company has not paid or declared cash distributions or dividends on its common stock and does not intend to pay cash dividends in the foreseeable future. Future cash dividends will be determined by the Company's Board of Directors based on the Company's earnings (if any), financial condition, capital requirements and other relevant factors. The Company may not pay dividends on its common stock without the consent of the holders of at least a majority of the outstanding Series A preferred stock. In addition, the holders of the Series A preferred stock shall be entitled to receive dividends, when and if declared by the Board of Directors of the Company, on an equal share-per-share basis with all outstanding shares of the Company's common stock. -15- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION CERTAIN STATEMENTS INCLUDED HEREIN OR INCORPORATED BY REFERENCE CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). THE COMPANY DESIRES TO TAKE ADVANTAGE OF CERTAIN "SAFE HARBOR" PROVISIONS OF THE REFORM ACT AND IS INCLUDING THIS SPECIAL NOTE TO ENABLE THE COMPANY TO DO SO. FORWARD-LOOKING STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS PART INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH WOULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING STATEMENTS. Since the Company's purchase of the Black Hawk Property in August 1993, the Company's activities have focused on obtaining the necessary financing and making preparations for construction of the casino on the Property. In July 1997, the Company signed a financing agreement with U2 Consulting, LLC., an affiliate of Pacific Genesis, Inc. and Western Equities, Inc., to raise $79.5 million through the issuance of corporate bonds. The parties had 180 days to provide for the financing, were unable to complete same and said agreement with U2 Consulting was terminated in December 1997. In January 1998, the Company again began the process of acquiring financing. After much discussion and many contacts with a wide range of financing groups, the Company has entered into three separate agreements to provide the necessary financing. Although the Company is confident in the abilities of these three organizations to provide the necessary capital, there can be no assurance that any funds will be provided immediately or in the future. Each of the three agreements, which are strictly confidential until completed, obligates the respective parties to provide at least $80 million for the development and construction of the project. Each agreement provides for distinctly different means of raising the required funds, as well as distinctly different means of repayment and different levels of equity participation. Once financed, the Company's ability to operate the casino will be dependent upon substantial other conditions, including the obtaining of licenses and compliance with governmental regulations, grading and construction of the casino, obtaining the necessary permits and approvals from the City of Black Hawk and other regulatory bodies, procuring gaming equipment on satisfactory terms, and accomplishing these objectives in a timely manner. In order to begin the process of timely completing its goals, in July 1997 the Company contracted with Colorado Gaming Development Company, Inc., Semple Brown Roberts, P.C. and PCL Construction Services, Inc., all of Denver, Colorado to design and construct the planned casino and hotel complex. In addition, the Company signed a management agreement with Signature Hospitality -16- Resources, Inc. of Denver, Colorado to manage its Radisson Black Hawk Hotel, a separate agreement to use the national flag of Radisson on the hotel and a contract with Luciani & Associates, LLC of Atlantic City, New Jersey, to manage the casino operations. All parties assisted the architect in design of their respective operations. The Agreement with Luciani & Associates, LLC has expired and they advised the Company of such in writing in February 1998. Once financing has been secured, the Company will attempt to negotiate a new agreement, either with Luciani & Associates or others yet be determined. The Company is engaged in the design, development and construction of the Radisson Hotel and Country World Casino (the "Hotel Casino") in Black Hawk, Colorado. The revised plan for the Hotel Casino will be an eight level complex, featuring three stories of hotel rooms above a two-story, 75,000 square foot casino, and a three story parking garage. Other amenities will include one or more full service restaurants, a buffet, entertainment lounge and retail shops. When completed as planned, the Hotel Casino will be largest hotel and casino complex in Colorado. Construction and opening of the Hotel Casino is dependent upon the Company's ability to successfully raise the required capital discussed above. The casino level of the project, at approximately 75,000 square feet, will be the largest in Colorado and will be capable of accommodating 1,800 slot machines and 32 gaming tables. The Company will open the facility with 1,000 slot machines, 20 blackjack tables and 12 poker tables, and may add up to 800 additional slot machines if management determines that the additional gaming devices will produce equal per square foot revenue and will not create excess capacity. The Company expects that slot machines will be the greatest source of its gaming revenues. Slot machines are less labor intensive and require less square footage than table games, and also generate higher profit margins. The Country World Casino's atmosphere will feature a country western music theme similar to the rock and roll music theme successfully employed by the Hard Rock Cafe. The Casino decor is planned to include memorabilia from the great country singers, both past and present. The country western theme has not been established in the Black Hawk/Central City, Colorado gaming market, and therefore will give the Country World Casino its own unique identity. Management believes that as casinos have become more numerous, the gaming industry has begun to recognize that popular themes and amenities such as quality dining and hotel accommodations play an important role in attracting customers to casinos. The theme is intended to appeal to the Hotel Casino's target customer base, which consists primarily of residents of the Denver metropolitan area as well as other Colorado communities located within driving distance of Black Hawk. The Hotel will provide overnight accommodations with 200 +/- rooms and suites, making it one of the first destination resort of its kind in Black Hawk. Complimenting both the casino and hotel will be a three story underground parking facility for approximately 1,000 cars featuring both valet and self parking options, and the only covered on-site bus turnaround currently available in Black Hawk for the convenience of day trip customers. -17- Liquidity & Capital Resources The Company's ability to obtain the financing and to proceed with its plans for a gaming facility had been affected by the Company's disputes with New Allied, which had culminated in litigation and foreclosure proceedings on the Property in 1995, and the Company's filing of a bankruptcy petition under Chapter 11. The Bankruptcy Case was dismissed in March 1997 and Summary Judgement was granted in favor of the Company with regard to all other litigation issues. In March 1996, the Company borrowed $5 million from Kennedy Funding, Inc. The Company issued a Promissory Note effective May 20, 1996 payable at the rate of 15% per annum until May 19, 1997 (the "First Year Interest Obligation") and at a rate of 24% per annum thereafter. Payments of principal and interest are payable as follows: (a) the First Year Interest Obligation was prepaid at closing; (b) commencing on May 19, 1997 and for each month thereafter, the Company is to make interest only payments, in advance, in the amount of 2% of the then existing principal balance due under the Note; and (c) the entire outstanding principal balance, together with all accrued and unpaid interest, if not previously paid, shall be finally due and payable on May 19, 1999. The holder of the Note may accelerate the due date for the entire balance of principal, interest and other sums due upon maturity in the event of default under the Note. The default rate of interest is 24% during the first loan year and 36% thereafter. The Note is secured by a first deed of trust on the Property. In May 1997, the Company issued a promissory note and second deed of trust on the property to Norlar, Inc. for a maximum of $600,000 (First Norlar Note), or so much thereof as may have been advanced by maker, for payments due on the Kennedy loan and for general corporate purposes. As of June 1998, the Company owed $600,000 on the First Norlar Note. In October 1997, the Company issued a second promissory note (Second Norlar Note) and a fourth deed of trust on the property to Norlar, Inc., again for a maximum of $600,000. As of June 1998, the Company owed $600,000 on the Second Norlar Note. In April 1998, the Company issued a third promissory note (Third Norlar Note) and fifth deed of trust on the property to Norlar, Inc. again for a maximum of $600,000. As of August 1998, the Company owed $600,000 on the Third Norlar Note. In August 1998, the Company issued a fourth promissory note (Fourth Norlar Note) and sixth deed of trust on the property to Norlar, Inc. again for $600,000. As of September 1998, the Company owed $177,773 on the Fourth Norlar note. In addition, for each $100,000 Norlar, Inc. has loaned to the Company, it has authorized the issuance of 500,000 warrants to purchase shares of common stock at $0.20 per share. Norlar, Inc. is a closely-held corporation beneficially owned by Larry Berman and his wife. Mr. Berman is Chairman and Chief Executive Officer of the Company. The loans bear interest at 12% per annum and is to be repaid upon the earlier of the sale of the property, refinance of the property or the financing of the project. In September and October of 1997, PCL Construction Services, Inc. advanced the Company $998,000 to begin the development and design process in advance of funding. As of June 1998, the Company owes PCL Construction approximately $1,075,000, including interest. -18- In July 1997, the Company issued 1,000,000 shares of its common stock to Eastern Equities Consultants, Ltd. As full and final compensation for the placement of financing. In September 1997, the Company issued 395,000 shares of common stock to Sommer & Schneider LLP, its securities attorneys, for payment of legal fees and a six month retainer. In March 1998, the Company issued 850,000 shares for the same purpose as described above. In May 1998, the Company issued 100,000 shares of Series B preferred stock to Gold Coast Consortium to retire an outstanding debt owed by the Company. Gold Coast Consortium is a company owned by the spouse of Mr. Roger Leclerc, the Company's President. In July 1998, the Company settled an ongoing dispute with New Allied Development Corporation with regard to a piece of property outside the gaming district in Black Hawk, Colorado. Title to such property was returned to New Allied, therefore reducing the Company's debt by $750,000, plus applicable taxes due. Results of Operations The Company has had no revenues from operations. The Company continues to incur losses of approximately $100,000 per month to service the debt to Kennedy Funding, Inc. and other ongoing obligations such as rent and utilities for the Company's corporate office. This estimated loss of $1,200,000 in the fiscal year ended June 30, 1998 compares to a loss of operations of $1,080,391 for the year ended June 30, 1997. The ability of the Company to achieve revenues in the future will be dependent upon realization of its plans to develop a gaming and hotel complex on the property. ITEM 7. FINANCIAL STATEMENTS See attached pages F1 - F9 for unaudited financials which fairly represent the Company's status for the year ended June 30, 1998. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -19- PART 111 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE COMPANY; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The following persons serve as officers and directors or the Company: Name Position Larry S. Berman Chairman of the Board and Chief Executive Officer Roger D. Leclerc President and Director William H. Patrowicz Secretary, Treasurer and Director The following is brief biographical information concerning the Company's officers, directors and significant employees: Larry S. Berman, age 62, has served as Chief Executive Officer of the Company since June 1995. Mr. Berman served as Chairman of the Board of Directors and Secretary of Holly Holdings, Inc. from June 1992 until December 1997. Since 1982, Mr. Berman has been Vice President of Coastal Leasing and Investment, Inc. where he is responsible for restructuring and otherwise assisting companies to raise debt and equity funds. Roger D. Leclerc, age 48, has served as President of the Company since December 1994. Prior thereto Mr. Leclerc served as the Company's project manager for its proposed facility since May 1994. Prior to his involvement with the Country World Casino project, Mr. Leclerc was the General Manager for the Bull Durham Casino in Black Hawk. Immediately prior thereto, he served as a General Manager of the Miner's Pick Casino in Central City. From March 1990 to June 1992, he was the General Manager of A&L Enterprises Inc. in Deadwood, South Dakota, which operated Ms. Kitty's Wilderness Edge Casino and Days Inn Hotel and Casino. William H. Patrowicz, age 50, has served as Secretary, Treasurer or the Company since April 1995 and was formerly President of Holly Holdings, Inc. from June 1992 to March 1998. From 1982 to December 1991, Mr. Patrowicz was employed by Gunnebo Fastening Corp., as Senior Vice President of Operations. Section 16(a) of the Exchange Act requires the Company's officers and directors and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership to the Securities and Exchange Commission. Officers, directors and greater than 10% stockholders are required by the regulations of the Commission to furnish the Company with copies of all Section 16(a) reports received by it, the Company believes that all filing requirements applicable to its current officers and directors were complied with for the fiscal year ended June 30, 1998. The Company is unaware of the compliance of its 10% shareholders and its former officers and directors. -20- ITEM 10. EXECUTIVE COMPENSATION The following table sets forth all cash compensation paid by the Company to each Executive Officer whose total annual salary and bonus exceeded $100,000, including all cash compensation paid the Company's Chief Executive Officer. Name and Principal Fiscal Salary Other Annual Position Year $ Bonus Compensation None The Company has no stock option, defined benefit or restricted stock award plans. The Company estimates that Mr. Berman and Mr. Patrowicz spend substantially all of their time in management activities relating to the Company. Neither party, although holding employment contracts, has received any payment for current or previously rendered services to date. Consideration for remuneration will be addressed after completion of the Company's financing activities. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the persons known to the Company to own beneficially more than 5% of the outstanding share of common stock on June 30, 1998 and information as of June 30, 1998 with respect to the ownership of common stock by each director of the Company and by all officers and directors as a group. Name of Shares Beneficially Beneficial Owner Owned Percent Western Equities, Inc. 16,000,000 29.4% Holly Holdings, Inc. 8,850,453 16.3% Larry S. Berman 19,380,000 35.7% Roger D. Leclerc 0 0% William H. Patrowicz 4,120,000 7.6% All Officers and Directors 23,500,000 43.3% as a Group (3 Persons) ___________ -21- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The sole holder of the Company's Series A Convertible Preferred stock, New Allied, acquired its shareholdings in connection with a sale to the Company in August 1993, of the Property upon which the Company proposes to construct its casino and hotel complex. New Allied also received cash and a promissory note (secured by a deed of trust on the Property) in connection with this transaction. In June 1994, the Company completed the acquisition of an additional 375,000 square feet of vacant land located in close proximity to the land which is the site for the proposed casino and hotel complex. The Company paid $200,000 to New Allied, delivered a promissory note in the amount of $725,000 and issued 250,000 shares of its common stock. In April 1997, the Company elected and New Allied has accepted a return of the property for the balance due on the note as it is of no value to the Company within its current plans. In July 1998, such transaction was completed. During the fiscal year ended June 30, 1995, the Company borrowed $1,000,000 from Holly, which indebtedness plus accrued interest was then canceled by the issuance to Holy of 5,000,000 shares of the Company's common stock. The Company also agreed with Holly that Holly would have the right to purchase up to an additional 20,000,000 shares of common stock at $0.20 per share if additional funding were provided within a reasonable time and progress continued to be made concerning financing for the proposed casino and hotel complex. In April 1997 Holly exercised its right under said agreement and converted $250,000 of its debt into 1,250,000 shares of the Company's common stock. Holly had continually provided advances to the Company throughout the bankruptcy proceedings. Prior to the conversion of debt to equity by Holly and assumption of certain parties' debt by the Company, the Company was indebted to Holly in the amount of approximately $1,449,588. In May 1997, the Company eliminated $1,000,000 of its debt to its shareholder, Holly Holdings, Inc. in an exchange of debt with two directors of the Company and a non-affiliate of the Company. As of June 1998, the Company is no longer indebted to Holly. In April 1997, the Company filed with the State of Nevada, under Section 78.1055, a Designation of Rights Privileges and Preferences for 5,000,000 shares of Class B preferred stock. In May 1997, the Company issued 4,000,000 shares to two directors and a non-affiliate of the Company in exchange for $1,000,000 in debt to the parties. The terms of the class B preferred stock rank it junior to all classes of the Company's stock now issued and on parity with any class of capital stock hereafter created. The Class B preferred stock shall be voted with the common stock as a single class and shall not be entitled to vote as a separate class nor shall the Class B preferred be entitle to receive dividends of any kind. Each share of Class B preferred stock can be converted into common stock of the corporation one year after the date of issuance at the rate for 10 for 1 and the holders are entitled to vote the underlying shares as if converted. In May 1998, all such shares were converted to common stock. In March 1996, the Company borrowed $5 million from Kennedy Funding, Inc. The Company delivered to the lender a Promissory Note effective May 20, 1996 payable at the rate of 15% per annum until May 19, 1997 (the "First Year Interest Obligation") and at a rate of 24% per annum thereafter. Payments of principal and interest are payable as follows: (a) the First Year Interest -22- Obligation was prepaid at closing; (b) commencing on May 19, 1997 and for each month thereafter, the Company is to make interest only payments, in advance, in the amount of 2% of the then existing principal balance due under the Note; and (c) the entire outstanding principal balance, together with all accrued and unpaid interest, if not previously paid, shall be finally due and payable on May 19, 1999. The holder of the Note may accelerate the due date for the entire balance of principal, interest and other sums due upon maturity in the event of default under the Note. The default rate of interest is 24% during the first loan year and 36% thereafter. The Note is secured by a first deed of trust on the Property. In May 1997, the Company issued a promissory note and second deed of trust on the property to Norlar, Inc. for a maximum of $600,000 (First Norlar Note), or so much thereof as may have been advanced by maker, for payments due on the Kennedy loan and for general corporate purposes. As of June 1998, the Company owed $600,000 on the First Norlar Note. In October 1997, the Company issued a second promissory note (Second Norlar Note) and a fourth deed of trust on the property to Norlar, Inc., again for a maximum of $600,000. As of June 1998, the Company owed $600,000 on the Second Norlar Note. In April 1998, the Company issued a third promissory note (Third Norlar Note) and fifth deed of trust on the property to Norlar, Inc. again for a maximum of $600,000. As of August 1998, the Company owed $600,000 on the Third Norlar Note. In August 1998, the Company issued a fourth promissory note (Fourth Norlar Note) and sixth deed of trust on the property to Norlar, Inc. again for $600,000. As of September 1998, the Company owed $177,773 on the Fourth Norlar note. In addition, for each $100,000 Norlar, Inc. has loaned to the Company, it has authorized the issuance of 500,000 warrants to purchase shares of common stock at $0.20 per share. Norlar, Inc. is a closely-held corporation beneficially owned by Larry Berman and his wife. Mr. Berman is Chairman and Chief Executive Officer of the Company. The loans bear interest at 12% per annum and is to be repaid upon the earlier of the sale of the property, refinance of the property or the financing of the project. In September and October of 1997, PCL Construction Services, Inc. advanced the Company $998,000 to begin the development and design process in advance of funding. As of June 1998, the Company owes PCL Construction approximately $1,075,000, including interest. In July 1997, the Company issued 1,000,000 shares of its common stock to Eastern Equities Consultants, Ltd. as full and final compensation for the placement of financing. In September 1997, the Company issued 395,500 shares of its Common Stock to Sommer & Schneider LLP, its securities attorneys, for payment of legal fees and a six month retainer. In March 1998, the Company issued 850,000 shares of its Common Stock to Sommer & Schneider LLP, its securities attorneys, for payment of legal fees and a six month retainer. In May 1998, the Company issued 100,000 shares of Series B preferred stock to Gold Coast Consortium to retire an outstanding debt owed by the Company. Gold Coast Consortium is a company owned by the spouse of Mr. Roger Leclerc, the Company's President. -23- In July 1998, the Company settled an ongoing dispute with New Allied Development Corporation with regard to a piece of property outside the gaming district in Black Hawk, Colorado. Title to such property was returned to New Allied, therefore reducing the Company's debt by $750,000, plus applicable taxes due. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K None -24- SIGNATURES In accordance with the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. COUNTRY WORLD CASINOS, INC. Dated: March 29, 1999 By: /s/ Roger D. Leclerc Roger D. Leclerc, President In accordance with the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and int he capacities and on the dates indicated. Dated: March 29, 1999 /s/ Larry S. Berman Larry S. Berman, Chairman & CEO Dated: March 29, 1999 /s/ Roger D. Leclerc Roger D. Leclerc, President and Director Dated: March 29, 1999 /s/ William H. Patrowicz William H. Patrowicz, Secretary, Treasurer and Director -25- COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF JUNE 30, 1998 ASSETS: CURRENT ASSETS: Cash 181 Prepaid Expenses 76,290 Due From Shareholder 13,233 Due From Officers 93,000 TOTAL CURRENT ASSETS 182,704 PROPERTY AND EQUIPMENT: Land 7,475,475 Casino Under Development 9,957,873 Furniture and Equipment 38,888 Total 17,472,236 Less: Accumulated Depreciation 23,355 TOTAL PROPERTY AND EQUIPMENT 17,448,881 OTHER ASSETS: Deposits 35,630 TOTAL ASSETS 17,667,215 The Accompanying Notes are an Integral Part of these Financial Statements. F-1 COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF JUNE 30, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts Payable 3,311,096 Payroll and Property Taxes Payable 154,452 Accrued Expenses 26,183 Note Payable - Stockholder 725,000 Notes Payable - Related Party (Net of Deferred Financing Cost of $45,000) 2,472,200 Accrued Interest - Related Parties 289,582 Other Current Liabilities 9,172 TOTAL CURRENT LIABILITIES 6,987,685 LONG-TERM DEBT: Notes Payable 2,650,000 Notes Payable 2,350,000 TOTAL LONG-TERM DEBT 5,000,000 OTHER LIABILITIES -- Stockholders' Equity: Convertible Preferred Stock, Series A, $.001 Par Value, 2,250,000 Shares Authorized, 2,250,000 Shares Issued and Outstanding (Liquidation Preference $7,492,500) 2,250 Convertible Preferred Stock, Class B, $.25 Par Value, 5,000,000 Shares Authorized, 100,000 Shares Issued and Outstanding 25,000 Common Stock, $.001 Par Value, 75,000,000 Shares Authorized, 54,331,687 Issued and Outstanding 54,331 Additional Paid-in Capital 11,176,474 Deficit Accumulated During the Development Stage (5,578,525) TOTAL STOCKHOLDERS' EQUITY 5,679,530 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 17,667,215 The Accompanying Notes are an Integral Part of these Financial Statements. F-2 COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE PERIOD FROM NOVEMBER 9, 1982 (DATE OF INCEPTION) YEARS ENDED THROUGH JUNE 30, JUNE 30, 1 9 9 8 1 9 9 8 1 9 9 7 (UNAUDITED) COSTS AND EXPENSES: Research and Development Costs $ -- $ -- $122,000 Professional Fees - Due to Bankruptcy 23,082 339,843 514,756 General and Administrative Expenses 1,082,265 282,414 4,319,302 Management Fee - Related Party 8,321 408,000 416,321 Depreciation Expense 7,905 6,867 50,419 TOTALS 1,121,573 1,037,124 5,422,798 OTHER INCOME (EXPENSE): Interest Income 14,678 27,443 109,490 Interest Expense (279) (3,931) (4,210) Interest Expense - Related Party (131,505) (67,514) (199,019) Rental Income -- -- 45,126 Loss on Non-Marketable Securities -- -- (85,000) Write off of Loan Receivable -- -- (90,000) Forfeited Deposit -- -- (100,000) Other Income -- 735 735 TOTALS (117,106) (43,267) (322,878) (LOSS) FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (1,238,679) (1,080,391) (5,745,676) DISCONTINUED OPERATIONS: Gain on Disposal of Subsidiaries -- -- 389,286 (Loss) from Discontinued Operation -- -- (389,286) TOTAL DISCONTINUED OPERATIONS -- -- -- (LOSS) BEFORE EXTRAORDINARY ITEM (1,238,679) (1,080,391) (5,745,676) EXTRAORDINARY ITEM: Extraordinary Gain on Forgiveness of Debt, Primarily Related Party -- -- 167,152 NET (LOSS) $(1,238,679) $(1,080,391) $(5,578,524) PER SHARE DATA: (Loss) Per Share Before Extraordinary Item $ (.06) $ (.10) Extraordinary Item Per Share -- -- NET (LOSS) PER COMMON SHARE $ (.06) $ (.10) WEIGHTED AVERAGE NUMBER OF SHARES 20,365,771 10,985,493 The Accompanying Notes are an Integral Part of these Financial Statements. F-3 COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY Deficit Accumulated Total Preferred Stock Common Stock Additional During the Stock- Series A Series B Subscribed Paid-In Development holders' Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity , November 9, 1982 (Date of Inception) -- $ -- -- $ -- -- $ -- -- $ -- $ -- $ -- $ -- Issuance of Shares for Cash ($.51 Per Share) -- -- -- -- 2,971 15 -- -- 1,510 -- 1,525 Issuance of Common Stock to the Public ($12.50 Per Share -- -- -- -- 1,474 8 -- -- 644,992 -- 645,000 Deferred Offering Costs -- -- -- -- -- -- -- -- (115,690) -- (115,690) Cancellation of Common Stock -- -- -- -- (800) (4) -- -- 4 -- -- Issuance of Shares for Services ($.18 Per Share) -- -- -- -- 85,714 429 -- -- 14,571 -- 15,000 Issuance of Common Stock at a Discount ($.02 Per Share) -- -- -- -- 1,339,212 6,696 -- -- 13,304 -- 20,000 Capital Contribution -- -- -- -- -- -- -- -- 2,850 -- 2,850 Net Loss for the Period From November 9, 1982 (Date of Inception) Through June 30, 1992 -- -- -- -- -- -- -- -- -- (221,169) (221,169) Balance - June 30, 1992 -- -- -- -- 1,428,571 7,144 -- -- 561,541 (221,169) 347,516 Issuance of Common Stock at a Discount for Services ($.02 Per Share, May 1993 -- -- -- -- 714,287 3,571 -- -- 8,929 -- 12,500 Net Loss for Year Ended June 30, 1993 -- -- -- -- -- -- -- -- -- (373,401) (373,401) Balance - June 30, 1993 - Forward -- $ -- -- $ -- 2,142,858 $10,715 -- $ -- $570,470 $(594,570) $(13,385) See Notes to Financial Statements
The Accompanying Notes are an Integral Part of these Financial Statements. F-4 COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY Deficit Accumulated Total Preferred Stock Common Stock Additional During the Stock- Series A Series B Subscribed Paid-In Development holders' Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity Balance - June 30, 1993 - Forward -- $ -- -- $ -- 2,142,858 $10,715 -- $ -- $570,470 $(594,570) $(13,385) Change in Par Value from $.005 to $.001 -- -- -- -- -- (8,572) -- -- 8,572 -- -- Issuance of Shares for Cash September 1993 ($1.00 Per Share) -- -- -- -- 600,000 600 -- -- 599,400 -- 600,000 Issuance of Shares for Cash September 1993 ($1.00 per Share -- -- -- -- 1,500,000 1,500 -- -- 1,498,500 -- 1,500,000 Issuance of Convertible Preferred Stock for Acquisition of Land Valued at $1.00 Per Share Issued July 1993 2,250,000 2,250 -- -- -- -- -- -- 2,247,750 -- 2,250,000 Issuance of Stock to Related Party for Cash and Services Pursuit to Exercise of Options ($1.00 Per Share) -- -- -- -- 250,000 250 -- -- 249,750 -- 250,000 Purchase and Cancellation of Treasury Stock ($1.00 Per Share -- -- -- -- (125,000) (125) -- -- (124,875) -- (125,000) Issuance of Stock for Cash (140,000 Shares and 60,662 Shares Issued December 1993 and January 1994, Respectively) at $2.50 Per Share -- -- -- -- 200,000 200 -- -- 499,800 -- 500,000 Balance of Common Stock for Acquisition of Land Valued at $1.00 Per Share Issued June 1994 -- -- -- -- 250,000 250 -- -- 249,750 -- 250,000 Issuance of Common Stock for Cash and Services Pursuant to Exercise of Options (75,000 Shares and 20,000 Shares Issued April and June 1994 Respectively at $2.50 Per Share) -- -- -- -- 95,000 95 -- -- 237,405 -- 237,500 Issuance of Common Stock for Services Rendered Valued at $2.50 Per Share Issued April 1994 -- -- -- -- 200,000 200 -- -- 499,800 -- 500,000 Subscription of Common Stock Pursuant to Private Placement Offering ($3.00 Per Share) -- -- -- -- -- -- 262,667 263 787,737 -- 788,000 Net Loss for Year Ended June 30, 1994 -- -- -- -- -- -- -- -- -- (1,490,785) (1,490,785) Balance - June 30, 1994 - Forward 2,250,000 $2,250 -- $ -- 5,113,520 $5,113 262,667 $263 $7,324,059 $(2,085,355) $5,246,330 See Notes to Financial Statements
The Accompanying Notes are an Integral Part of these Financial Statements. F-5 COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY Deficit Accumulated Total Preferred Stock Common Stock Additional During the Stock- Series A Series B Subscribed Paid-In Development holders' Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity Balance - June 30, 1994 - Forward 2,250,000 $2,250 -- $ -- 5,113,520 $5,113 262,667 $263 $7,324,059 $(2,085,355) $5,246,330 Issuance of Common Stock Pursuant to Private Placement Offering ($2.67 Per Share) -- -- -- -- 460,000 460 -- -- 1,229,040 -- 1,229,500 Issuance of Stock for Outstanding Note Issued April 20, 1995 ($.20 Per Share) -- -- -- -- 5,000,000 5,000 -- -- 1,009,451 -- 1,014,451 Convert Subscribed Stock to Common and Record Fees -- -- -- -- 262,667 263 (262,667) (263) -- -- -- Net Loss for Year Ended June 30, 1995 -- -- -- -- -- -- -- -- -- (757,659) (757,659) Balance - June 30, 1995 2,250,000 $2,250 -- --10,836,187 10,836 -- -- 9,562,550 (2,843,014) 6,732,622 Net Loss for Year Ended June 30, 1996 -- -- -- -- -- -- -- -- -- (416,440) (416,440) Balance - June 30, 1996 2,250,000 $2,250 -- --10,836,187 10,836 -- -- 9,562,550 (3,259,454) 6,316,182 Issuance of Preferred Stock - Class B in Exchange for Related Party Debt ($.25 Per Share) April 1997 -- -- 4,000,000 1,000,000 -- -- -- -- -- -- 1,000,000 Common Stock Issued in Exchange for Debt ($.25 Per Share) April 1997 -- -- -- -- 1,250,000 1,250 -- -- 248,750 -- 250,000 Warrants Issued for 1,000,000 Shares of Common Stock in Connection with Norlar, Inc. Debt Financing ($.06 Per Warrant -- -- -- -- -- -- -- -- 60,000 -- 60,000 Net Loss for Year Ended June 30, 1997 -- -- -- -- -- -- -- -- -- (1,080,391) (1,080,391) Balance - June 30, 1997 2,250,000 2,250 4,000,000 1,000,000 12,086,187 12,086 -- -- 9,871,300 (4,339,845) 6,545,791 Issuance of Common Stock for Services Rendered Valued at $.20 per Share, July 1997 -- -- -- -- 1,000,000 1,000 -- -- 199,999 -- 200,000 Issuance of Common Stock in Exchange for Debt and Services to be Rendered ($.1875 Per Share) September 1997 -- -- -- -- 395,500 396 -- -- 73,761 -- 74,157 Issuance of Common Stock for Services Rendered and Debt Exchange ($0.86 Per Share) March 1998 -- -- -- -- 85,000 850 -- -- 72,413 -- 72,263
The Accompanying Notes are an Integral Part of these Financial Statements. F-6 COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY Deficit Accumulated Total Preferred Stock Common Stock Additional During the Stock- Series A Series B Subscribed Paid-In Development holders' Shares Amount Shares Amount Shares Amount Shares Amount Capital Stage Equity Net Loss for the Year Ended June 30, 1998 -- -- -- -- -- -- -- -- -- (1,238,679) (1,238,679) Issuance of Stock for Services April 1998 -- -- 100,000 25,000 -- -- -- -- -- -- 25,000 Convert Preferred to Common Stock April 1998 -- --(4,000,000)(1,000,000)40,000,000 40,000 -- -- 960,000 -- -- Balance - June 30, 1998 2,250,000 $2,250 100,000 $25,000 54,331,687 $54,332 -- $ -- $11,176,474 $(5,578,524) $5,679,530 The Accompanying Notes are an Integral Part of these Financial Statements. F-7
COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM NOVEMBER 9, 1982 (DATE OF INCEPTION) YEARS ENDED THROUGH JUNE 30, JUNE 30, 1 9 9 8 1 9 9 8 1 9 9 7 (UNAUDITED) OPERATING ACTIVITIES: Continuing Operations: (Loss) Before Extraordinary Item $(1,238,679) $(1,080,391) $(5,745,676) Adjustments to Reconcile Net (Loss) to Net Cash (Used for) Operating Activities: Depreciation 7,905 6,867 50,419 Amortization of Discount-Related Party 45,000 15,000 60,000 Common Stock Issued for Interest -- -- 14,451 Preferred Stock Issued for Services 25,000 -- 862,500 Loss on Nonmarketable Securities -- -- (85,000) Write off of Loan Receivable -- -- (90,000) Extraordinary Item, Primarily Related Party -- -- 167,152 Accrued Interest - Related Party -- 52,214 52,514 Allocation of Management Fees- Related Party -- 408,000 408,000 Due from Officers (93,000) -- (93,000) Due from Shareholder (13,233) -- (13,233) Changes in Assets and Liabilities: (Increase) Decrease in: Prepaid Interest (11,850) (73,140) (748,780) Increase (Decrease) in: Accounts Payable (3,372,981) (109,294) 3,311,096 Payroll and Property Taxes Payable 58,991 95,461 154,452 Accounts Payable - Liabilities Subject to Compromise -- (366,735) -- Accrued Interest - Related Parties 113,639 29,357 289,582 Accrued Interest - Liabilities Subject to Compromise -- (225,135) -- Accrued Expenses (2,609) (71,306) 26,179 Accrued Expenses - Subject to Compromise -- (41,937) -- Discontinued Operations: Net (Loss) -- -- (389,286) Adjustments to Reconcile Net (Loss) to Net Cash (Used for) Operating Activities: Gain on Disposal of Assets -- -- 389,286 Total Adjustments (3,426,533) (280,348) 4,366,322 Net Cash Provided (Used) by Operating Activities - Forward $(2,187,854) $(1,360,739) $(3,567,208) The Accompanying Notes are an Integral Part of these Financial Statements. F-8 COUNTRY WORLD CASINOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM NOVEMBER 9, 1982 (DATE OF INCEPTION) YEARS ENDED THROUGH JUNE 30, JUNE 30, 1 9 9 8 1 9 9 8 1 9 9 7 (UNAUDITED) Net Cash Used for Operating Activities - Forward $ 2,487,854 $(1,360,739) $(1,379,354) INVESTING ACTIVITIES: Purchase of Land and Payment of Casino Development Costs (4,569,002) (126,860) (9,783,873) Purchase of Furniture and Equipment 5,209 -- (52,197) Investment in Patent -- -- (62,000) Deposits and Other (35,000) (190) (35,630) (Increase) Decrease in Restricted Cash -- 49,994 -- Net Cash Used for Investing Activities (4,598,793) (77,056) (9,933,700) FINANCING ACTIVITIES: Payment of Capital Lease Obligation -- (1,515) (4,233) Proceeds from Long-Term Borrowings 34,224 -- 6,034,224 Advances from Parent -- 896,978 1,254,003 Disbursement to Parent (196,878) (316,379) (513,257) Proceeds from Related Party Notes 2,317,200 200,000 2,517,200 Repayments on Long-Term Borrowings -- (1,109,837) (3,450,000) Proceeds from Stock and Warrant Issuance 251,613 -- 5,472,448 Capital Contribution -- -- 2,850 NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 2,406,159 (330,753) 11,313,235 NET (DECREASE) INCREASE IN CASH (4,780) (1,768,548) 181 CASH - BEGINNING OF PERIODS 4,961 1,773,509 -- CASH - END OF PERIODS $ 181 $ 4,961 $ 181 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid in fiscal years ended June 30, 1998 and 1997 was $279 and $3,931, respectively, net of interest capitalized. No income taxes were paid during the fiscal years ended June 30, 1998 and 1997. The Accompanying Notes are an Integral Part of these Financial Statements. F-9 EX-27 2
5 YEAR JUN-30-1998 JUN-30-1998 181 0 0 0 0 182,704 17,448,881 23,355 17,667,215 6,987,685 0 0 2,250,000 54,331,687 0 17,667,215 0 0 0 1,121,573 117,106 0 131,784 (1,238,679) 0 (1,238,679) 0 0 0 (1,238,679) (.06) (.06)
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