1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended: Commission file number: JANUARY 31, 1997 0-14939 CROWN CASINO CORPORATION (Exact name of registrant as specified in its charter) TEXAS 63-0851141 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4040 N. MACARTHUR BLVD., SUITE 100, IRVING, TEXAS (Address of principal executive offices) 75038-6424 (Zip Code) (972) 717-3423 (Registrant's telephone number, including area code) 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. <TABLE> <CAPTION> Outstanding at Title of Each Class March 20, 1997 ------------------- -------------- <S> <C> Common stock, par value $.01 per share 10,414,585 </TABLE>
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS CROWN CASINO CORPORATION <TABLE> <CAPTION> January 31, 1997 April 30, (Unaudited) 1996 ---------------- ------------- ASSETS <S> <C> <C> Current assets: Cash and cash equivalents $ 21,689,268 $ 668,853 Receivables 328,566 742,246 Prepaid expenses 17,121 49,766 Land held for sale 16,169,709 ------------- ------------- Total current assets 38,204,664 1,460,865 ------------- ------------- Property and equipment: Furniture, fixtures and equipment 1,610,500 1,892,666 Land held for development 16,169,709 ------------- ------------- 1,610,500 18,062,375 Less accumulated depreciation (188,414) (194,179) ------------- ------------- 1,422,086 17,868,196 ------------- ------------- Note receivable from LRGP 20,000,000 ------------- ------------- $ 39,626,750 $ 39,329,061 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 87,909 $ 72,773 Accrued liabilities 336,706 819,018 Capital lease obligations 1,671 6,329 Current portion of long-term debt 62,676 Income taxes payable 435,000 ------------- ------------- Total current liabilities 861,286 960,796 ------------- ------------- Long-term debt, less current portion 918,564 Deferred income taxes 2,250,000 4,000,000 Investment in SCGC 3,297,043 Commitments and contingencies Stockholders' equity: Preferred stock, par value $.01 per share, 1,000,000 shares authorized; none issued or outstanding Common stock, par value $.01 per share, 50,000,000 shares authorized 10,414,585 issued and outstanding (11,650,559 at April 30, 1996) 104,146 116,506 Additional paid-in capital 38,537,853 41,784,088 Accumulated deficit (2,126,535) ( 11,747,936) ------------- ------------- Total stockholders' equity 36,515,464 30,152,658 ------------- ------------- $ 39,626,750 $ 39,329,061 ============= ============= </TABLE> See accompanying notes to consolidated financial statements. 2
3 CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION (UNAUDITED) <TABLE> <CAPTION> Three Months Ended January 31, 1997 1996 ------------- ------------- <S> <C> <C> Revenues $ - $ - Costs and expenses: General and administrative 659,023 657,758 Write-down of land held for sale 49,822 Depreciation and amortization 38,978 29,497 Gaming development 2,108 45,419 Gaming acquisition abandonment 696,009 652,908 ------------- ------------- 1,396,118 1,435,404 ------------- ------------- Other income (expense): Interest expense (18,946) (17,396) Interest income 297,600 576,489 Equity in loss of SCGC (983,451) Loss on sale of securities (4,728,488) ------------- ------------- (4,449,834) (424,358) ------------- ------------- Loss before income taxes (5,845,952) (1,859,762) Benefit for income taxes (2,315,000) (331,300) ------------- ------------- Net loss $ (3,530,952) $ (1,528,462) ============= ============= Loss per share $ (.34) $ (.13) ============= ============= Weighted average common and common equivalent shares outstanding 10,424,961 11,725,559 ============= ============= </TABLE> See accompanying notes to consolidated financial statements. 3
4 CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION (UNAUDITED) <TABLE> <CAPTION> Nine Months Ended January 31, 1997 1996 ------------- ------------- <S> <C> <C> Revenues $ - $ - Costs and expenses: General and administrative 2,189,476 1,895,787 Write-down of land held for sale 49,822 Depreciation and amortization 130,452 102,050 Gaming development 40,933 172,096 SCGC pre-opening and development 536,110 Gaming acquisition abandonment 696,009 652,908 ------------- ------------- 3,056,870 3,408,773 ------------- ------------- Other income (expense): Interest expense (68,713) (983,189) Interest income 1,252,299 1,660,787 Gain on sale of SCGC 14,934,543 21,512,640 Equity in loss of SCGC (2,569,204) Loss on sale of securities (5,254,858) Other income 500,000 ------------- ------------- 11,363,271 19,621,034 ------------- ------------- Income before income taxes 8,306,401 16,212,261 Provision (benefit) for income taxes (1,315,000) 7,723,500 ------------- ------------- Net income $ 9,621,401 $ 8,488,761 ============= ============= Earnings per share $ .86 $ .70 ============= ============= Weighted average common and common equivalent shares outstanding 11,179,023 12,106,161 ============= ============= </TABLE> See accompanying notes to consolidated financial statements. 4
5 CONSOLIDATED STATEMENTS OF OPERATIONS CROWN CASINO CORPORATION (UNAUDITED) <TABLE> <CAPTION> Nine Months Ended January 31, 1997 1996 ------------- ------------- <S> <C> <C> Operating activities: Net income $ 9,621,401 $ 8,488,761 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 130,452 102,050 Amortization of debt issuance costs/discount 389,360 Deferred income taxes (1,750,000) 7,723,500 Gain on sale of SCGC (14,934,543) (21,512,640) Equity in loss of SCGC 2,569,204 Write-down of assets 696,009 702,730 Loss on sale of securities 5,254,858 Changes in assets and liabilities, net of disposition: Receivables 413,680 (1,121,059) Prepaid expenses 32,645 (614,230) Accounts payable and accrued liabilities 15,324 (297,890) Income taxes payable (435,000) ------------- ------------- Net cash used by operating activities (955,174) (3,570,214) ------------- ------------- Investing activities: Purchase of assets (875,060) (4,294,133) Sale of assets 325,000 Purchase of securities (4,023,118) Sale of securities 11,593,260 Sale/collection of notes receivable 19,200,000 Sale of SCGC 1,000,000 ------------- ------------- Net cash provided (used) by investing activities 26,220,082 (3,294,133) ------------- ------------- Financing activities: Issuance of common stock 23,215 Purchase of common stock (3,258,595) (50,937) Issuance of debt 1,000,000 Payments of debt and capital lease obligations (985,898) (52,769) Advances from LRGP 4,627,897 ------------- ------------- Net cash provided (used) by financing activities (4,244,493) 5,547,406 ------------- ------------- Increase (decrease) in cash and cash equivalents 21,020,415 (1,316,941) Cash and cash equivalents at: Beginning of period 668,853 1,692,440 ------------- ------------- End of period $ 21,689,268 $ 375,499 ============= ============= </TABLE> See accompanying notes to consolidated financial statements. 5
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CROWN CASINO CORPORATION (UNAUDITED) FOR THE NINE MONTHS ENDED JANUARY 31, 1997 NOTE A - CHANGE IN BUSINESS OF THE COMPANY Through October 1996 Crown Casino Corporation and subsidiaries (the "Company") had been engaged in the business of owning, operating and developing casino gaming properties. In November 1996 the Board of Directors of the Company reached a decision to discontinue operating in the casino gaming industry and seek an acquisition or merger in another field. The Board cited several factors contributing to its decision including (i) the limited growth prospects for casino gaming, (ii) increasing competitive pressures in virtually all gaming markets, (iii) the low valuation small and mid cap gaming companies receive in the public market, and (iv) the risk of increasing federal and state regulation and taxes. As a result of the Board's decision, the Company abandoned the proposed acquisition of the Mississippi Belle II, Inc. riverboat casino located in Clinton, Iowa (see Note E). Further, the Company now plans to sell its 18.6 acre tract of land in the gaming district of Las Vegas, Nevada which had previously been held for development. In December 1996 the Company entered into a definitive asset purchase agreement to acquire substantially all the assets and operations of CH Medical, Inc. d/b/a Cardio Systems and certain affiliated assets and operations for $40 million in cash, a $5 million subordinated note and the assumption of certain liabilities. Cardio Systems operates in the medical industry, see Note C. NOTE B - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended January 31, 1997 are not necessarily indicative of the results that may be expected for the year ended April 30, 1997. 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 April 30, 1996. NOTE C - ACQUISITION OF CARDIO SYSTEMS On December 20, 1996 the Company entered into a definitive asset purchase agreement to acquire substantially all the assets and operations of CH Medical, Inc. d/b/a Cardio Systems and certain affiliated assets and operations (collectively, "Cardio Systems") for $40 million in cash, a $5 million subordinated note and the assumption of certain liabilities. Cardio Systems designs, manufactures, markets and distributes specialized frameless air support therapy mattress systems used in the treatment and prevention of decubitus ulcers and pulmonary disorders. Cardio Systems, which has been a supplier to the medical industry since 1971, provides sales, rental and technical assistance to hospitals, nursing homes and the home health care market from approximately 70 offices throughout the United States, and has two manufacturing and production facilities in Carrollton, Texas. Closing of the transaction is subject to certain conditions including the completion of due diligence procedures. While the Company's agreement to acquire Cardio Systems remains in force, the Company has also had discussions with the owner of Cardio Systems regarding the possibility of restructuring the transaction to include a stock component, although no agreement has been reached in that regard. NOTE D - SALE OF SCGC On June 9, 1995, pursuant to a definitive stock purchase agreement, the Company sold a 50% interest in St. Charles Gaming Company, Inc. ("SCGC"), which owns and operates a riverboat casino located in Calcasieu Parish, Louisiana, to Louisiana Riverboat Gaming Partnership ("LRGP"), a joint venture then owned 50% by Casino America, Inc. ("Casino America") and 50% 6
7 by Louisiana Downs, Inc. SCGC was originally acquired by the Company in June 1993 and remained in the development stage until opening its riverboat casino in July 1995. The purchase price consisted of (i) a five-year $20 million non- recourse note with interest payable monthly at 11.5% per annum and secured by LRGP's 50% interest in SCGC (the "LRGP Note"), (ii) $1 million cash, and (iii) a non-detachable five-year warrant to purchase 416,667 shares of Casino America common stock at $12 per share. In connection with this transaction the Company recorded a gain before income taxes of approximately $21.5 million. On May 3, 1996 the Company sold its remaining 50% interest in SCGC to Casino America for (i) 1,850,000 shares of Casino America common stock, (ii) the exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note B ("Note B"), each in the principal amount of $10 million and bearing interest at 11.5% per annum, and (iii) an additional non- detachable five-year warrant to purchase up to another 416,667 shares of Casino America common stock at an exercise price of $12 per share. In connection with this transaction, in May 1996, the Company recorded a gain before income taxes of approximately $14.9 million. In August 1996 Casino America acquired the remaining interest in LRGP it did not already own and issued $315 million of senior secured notes, a portion of the proceeds of which was used to pay off Note A. Late in October 1996 the Company sold Note B at a discount of $800,000, resulting in net proceeds of $9,200,000 which was received in November 1996. In connection with a rights offering declared by Casino America, the Company was granted the right to purchase 684,786 shares of Casino America common stock at a price of $5.875 per share. In August 1996 the Company exercised its right and purchased 684,786 shares of Casino America common stock for an aggregate exercise price of $4,023,118. In October 1996 the Company sold 649,700 shares of the Casino America common stock it had acquired in the rights offering for net proceeds of $4,090,615 (or approximately $6.30 per share) resulting in a gain before income taxes of $273,630. The balance of the Casino America common stock owned by the Company (1,885,086 shares) was sold in November 1996 for net proceeds of $7,502,645 resulting in a loss before income taxes of $4,728,488 million. Prior to June 9, 1995 SCGC's operating results were consolidated with the Company. From June 9, 1995 (the date of sale of the first 50% interest in SCGC) through May 2, 1996 (the day prior to the sale of the Company's remaining 50% interest in SCGC) the Company accounted for its investment in SCGC on the equity method, and accordingly has included its proportionate share of SCGC's operating results in its consolidated results of operations. SCGC's operating results for the two days ended May 2, 1996 were not material. The Company's gain before income taxes on the sale of SCGC is calculated as follows (in thousands): <TABLE> <CAPTION> Sale of Sale of First 50% Second 50% (June 1995) (May 1996) ----------- ---------- <S> <C> <C> Consideration received in sale $ 21,000 $ 12,025 The Company's negative basis in stock sold 889 3,297 Transaction and other costs (376) (388) -------- -------- Gain before income taxes on sale of SCGC $ 21,513 $ 14,934 -------- -------- </TABLE> Upon closing of the sale of its remaining 50% interest in SCGC on May 3, 1996, the Company's investment in SCGC was eliminated. Other than a guarantee of certain leases, for which the Company has been indemnified by LRGP and Casino America, the Company is not liable for any obligations of SCGC. During the nine months ended January 31, 1996 the Company included approximately $3.5 million of net costs and expenses, or approximately $.29 per share, attributable to SCGC in its consolidated results of operations. NOTE E - ABANDONED ACQUISITION OF MBII In June 1996 the Company entered into a definitive asset purchase agreement to acquire the assets and operations of Mississippi Belle II, Inc. ("MBII") for a purchase price of $40 million. As discussed in Note A, in November 1996 the Board of Directors of the Company made the decision to exit the casino gaming industry and seek an acquisition or merger in another field. As a result of the Board's decision, the Company abandoned the proposed acquisition of MBII and wrote-off $696,009 of costs, including a $500,000 non-refundable deposit. 7
8 NOTE F - COMMON STOCK The Company's Board of Directors has approved a stock repurchase program which, as amended, provides authorization for the Company to repurchase up to 2,000,000 shares of the Company's common stock from time to time in the open market, or in negotiated private transactions. Through January 31, 1997 the Company had repurchased 1,260,974 shares pursuant to this program. The timing and amount of future share repurchases, if any, will depend on various factors including market conditions, available alternative investments and the Company's financial position. The weighted average common and common equivalent shares outstanding used in the calculation of earnings per share includes 160,392 and 389,328 common equivalent shares for the nine months ended January 31, 1997 and 1996, respectively. NOTE G - COMMITMENTS AND CONTINGENCIES Litigation On September 21, 1994 an action was filed against the Company and SCGC in the 24th Judicial District Court for the Parish of Jefferson, Louisiana by Avondale Industries, Inc. ("Avondale"). In this action Avondale alleges that the Company was contractually obligated to Avondale for the construction of SCGC's riverboat vessel based upon a letter of intent (allegedly reaffirming a previous agreement entered into between Avondale and SCGC). Avondale alleges that the Company breached a duty to negotiate in good faith toward the execution of a definitive vessel construction contract. Alternatively, Avondale alleges that a separate oral contract for the construction of the vessel existed and that the Company committed unspecified unfair trade practices and made certain misrepresentations. Avondale seeks unspecified damages including "all lost profits and lost overhead" and attorneys fees. Avondale has claimed its lost profits and lost overhead amount to approximately $2.5 million. The Company intends to vigorously contest liability in this matter. While no assurance can be given as to the ultimate outcome of this litigation, management believes that the resolution of this litigation will not have a material adverse effect on the Company. Severance Agreements In July 1996 the Board of Directors of the Company authorized the Company to enter into severance agreements with its three executive officers which provide for payments to the executives in the event of their termination after a change in control, as defined, of the Company. The agreements provide, among other things, for a compensation payment equal to 2.99 times the annual compensation paid to the executive, as well as accelerated vesting of options under the Company's incentive stock option plan, in the event of such executive's termination in connection with a change in control. NOTE H - SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow disclosures are as follows for the nine months ended January 31, 1997 and 1996: <TABLE> <CAPTION> Nine Months Ended January 31, 1997 1996 ----------- ----------- <S> <C> <C> Note received for sale of first 50% interest in SCGC $20,000,000 Stock received for sale of second 50% interest in SCGC $12,025,000 Interest paid, net of amount capitalized 68,713 1,062,934 </TABLE> 8
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements appearing elsewhere in this report. OVERVIEW In November 1996 the Board of Directors of the Company reached a decision to discontinue operating in the casino gaming industry and seek an acquisition or merger in another field. As a result of the Board's decision, the Company has abandoned the proposed acquisition of the Mississippi Belle II, Inc. ("MBII") riverboat casino located in Clinton, Iowa. Further, the Company now plans to sell its 18.6 acre tract of land in the gaming district of Las Vegas, Nevada which had previously been held for development. In December 1996 the Company entered into a definitive asset purchase agreement to acquire substantially all the assets and operations of CH Medical, Inc. d/b/a Cardio Systems and certain affiliated assets and operations (collectively, "Cardio Systems") for $40 million in cash, a $5 million subordinated note and the assumption of certain liabilities. GAMING HISTORY AND TRANSACTIONS In June 1993 the Company completed the acquisition of 100% of the outstanding common stock of St. Charles Gaming Company, Inc. ("SCGC"), a Louisiana corporation, which had received preliminary approval from the Louisiana Riverboat Gaming Commission to construct and operate a riverboat gaming casino. In March 1994 SCGC received a license from the Louisiana Riverboat Gaming Enforcement Division of the Office of State Police. In January 1995 SCGC made the strategic decision to relocate the site for its planned Louisiana riverboat casino from St. Charles Parish (near New Orleans) to Calcasieu Parish in the southwest part of the state near the Texas border. In June 1995 the Company sold a 50% interest in SCGC to Louisiana Riverboat Gaming Partnership ("LRGP"), a joint venture then owned 50% by Casino America, Inc. ("Casino America") and 50% by Louisiana Downs, Inc. The purchase price consisted of (i) a five-year $20 million non-recourse note (the "LRGP Note"), (ii) $1 million cash, and (iii) a non-detachable five-year warrant to purchase 416,667 shares of Casino America common stock at $12 per share. In connection with this transaction the Company recorded a gain before income taxes of approximately $21.5 million. In July 1995 SCGC's riverboat casino opened for business in Calcasieu Parish, Louisiana. In May 1996 the Company sold its remaining 50% interest in SCGC to Casino America for (i) 1,850,000 shares of Casino America common stock, (ii) the exchange of the $20 million LRGP Note for LRGP Note A ("Note A") and LRGP Note B ("Note B"), each in the principal amount of $10 million and bearing interest at 11.5% per annum, and (iii) an additional non- detachable five-year warrant to purchase up to another 416,667 shares of Casino America common stock at an exercise price of $12 per share. In connection with this transaction, in May 1996, the Company recorded a gain before income taxes of approximately $14.9 million. In August 1996 Casino America acquired the remaining interest in LRGP it did not already own and issued $315 million of senior secured notes, a portion of the proceeds of which was used to pay off Note A. Late in October 1996 the Company sold Note B at a discount of $800,000, resulting in net proceeds of $9,200,000 which was received in November 1996. In connection with a rights offering declared by Casino America, the Company was granted the right to purchase 684,786 shares of Casino America common stock at a price of $5.875 per share. In August 1996 the Company exercised its right and purchased 684,786 shares of Casino America common stock for an aggregate exercise price of $4,023,118. In October 1996 the Company sold 649,700 shares of the Casino America common stock it had acquired in the rights offering for net proceeds of $4,090,615 (or approximately $6.30 per share), resulting in a gain before income taxes of $273,630. The balance of the Casino America common stock owned by the Company (1,885,086 shares) was sold in November 1996 for net proceeds of $7,502,645 resulting in a loss before income taxes of $4,728,488. In June 1996 the Company entered into a definitive asset purchase agreement to acquire the assets and operations of the MBII riverboat casino located in Clinton, Iowa for a purchase price of $40 million. As discussed above, in November 1996 the Board of Directors of the Company reached a decision to discontinue operating in the casino gaming industry and seek an acquisition or merger in another field. As a result of the Board's decision, the Company abandoned the proposed acquisition of MBII and wrote-off $696,009 of costs, including a $500,000 non-refundable deposit. 9
10 RESULTS OF OPERATIONS Prior to June 9, 1995 SCGC's operating results were consolidated with the Company. From June 9, 1995 (the date of sale of the first 50% interest in SCGC) to May 2, 1996 (the day prior to the sale of the Company's remaining 50% interest in SCGC), the Company accounted for its investment in SCGC on the equity method, and accordingly has included its proportionate share of SCGC's operating results in its consolidated results of operations. As a result, operating results for the current and prior fiscal periods are not entirely comparable. THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE THREE MONTHS ENDED JANUARY 31, 1996 General and administrative expenses for the three months ended January 31, 1997 remained relatively flat as compared to the same period in the prior fiscal year. Decreases in compensation and travel costs were offset by increases in consulting fees. Gaming development costs for the three months ended January 31, 1997 decreased $43,311 compared to the same period in the prior fiscal year as a result of the Company's decision to exit the casino gaming industry. Interest expense for the three months ended January 31, 1997 was substantially unchanged compared to the same period in the prior fiscal year. Interest income for the three months ended January 31, 1997 decreased $278,889 compared to the same period in the prior fiscal year. The decrease was principally the result of earning interest at 11.5% per annum on the $20 million LRGP Note in the prior fiscal period, as compared to earning approximately 5.3% per annum in certain money market funds during the current fiscal period. NINE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THE NINE MONTHS ENDED JANUARY 31, 1996 General and administrative expenses for the nine months ended January 31, 1997 increased $293,689 compared to the same period in the prior fiscal year. The increase was primarily attributable to increased consulting and transportation costs, partially offset by a decrease in compensation costs. Gaming development costs for the nine months ended January 31, 1997 decreased $131,163 compared to the same period in the prior fiscal year as a result of the Company's decision to exit the casino gaming industry and the elimination of certain personnel. Interest expense for the nine months ended January 31, 1997 decreased $914,476 compared to the same period in the prior fiscal year. The decrease was principally the result of the Company no longer consolidating the operating results of SCGC from and after June 9, 1995 as SCGC was formerly responsible for substantially all of the Company's consolidated interest expense. Interest income for the nine months ended January 31, 1997 decreased $408,488 compared to the same period in the prior fiscal year. The decrease was principally the result of the prepayment of Note A by Casino America in August 1996 and the sale of Note B in October 1996 both of which had been earning interest at 11.5% per annum. The proceeds from such notes were placed in money market funds which currently earn interest at approximately 5.3% per annum. Other income pertains to a fee earned by the Company in assisting another company complete an acquisition. LIQUIDITY AND CAPITAL RESOURCES In connection with the proposed acquisition of Cardio Systems and the Company's payment of the $40 million cash portion of the purchase price, the Company's sources of liquidity include (i) approximately $21.7 million of cash on hand, (ii) the potential sale of the Company's Las Vegas land, (iii) the issuance of bank or other debt financing, and (iv) the issuance of equity. The Company has had discussions with certain banks and believes it can obtain debt financing for a substantial portion of the purchase price. Furthermore, while the Company's agreement to acquire Cardio Systems remains in force, the Company has also had discussions with the owner of Cardio Systems regarding the possibility of restructuring the transaction to include a stock component, although no agreement has been reached in that regard. The Company's Board of Directors has approved a stock repurchase program which, as amended, provides authorization for the Company to repurchase up to 2,000,000 shares of the Company's common stock from time to time in the open market, or in negotiated private transactions. Through January 31, 1997 the Company had repurchased 1,260,974 shares pursuant to this program. The timing and amount of future share repurchases, if any, will depend on various factors including market conditions, available alternative investments and the Company's financial position. FORWARD-LOOKING INFORMATION Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its management) contain or will contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as 10
11 amended. Such forward-looking statements address, among other things, the Company's plans to acquire Cardio Systems and the potential sale of the Company's Las Vegas land. Such forward-looking statements are based upon management's current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These uncertainties and risks include, but are not limited to, those relating to the Company's proposed acquisition of Cardio Systems including results to be obtained from completion of due diligence procedures, the ability of the Company to obtain adequate financing for such proposed acquisition, the potential unavailability of buyers for the Company's Las Vegas land, and the impact of litigation. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. 11
12 CROWN CASINO CORPORATION FORM 10-Q PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On September 21, 1994 an action was filed against the Company and SCGC in the 24th Judicial District Court for the Parish of Jefferson, Louisiana by Avondale Industries, Inc. ("Avondale"). In this action, Avondale alleges that the Company was contractually obligated to Avondale for the construction of SCGC's riverboat vessel based upon a letter of intent (allegedly reaffirming a previous agreement entered into between Avondale and SCGC). Avondale alleges that the Company breached a duty to negotiate in good faith toward the execution of a definitive vessel construction contract. Alternatively, Avondale alleges that a separate oral contract for the construction of the vessel existed and that the Company committed unspecified unfair trade practices and made certain misrepresentations. Avondale seeks unspecified damages including "all lost profits and lost overhead" and attorneys fees. Avondale has claimed its lost profits and lost overhead amount to approximately $2.5 million. The Company intends to vigorously contest liability in this matter. While no assurance can be given as to the ultimate outcome of this litigation, management believes that the resolution of this litigation will not have a material adverse effect on the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 2.4 Asset Purchase Agreement dated December 20, 1996 by and between the Company and CH Medical, Inc., d/b/a Cardio Systems, affiliates of Cardio Systems, CH Administration, Inc., CH Production, Inc., CH Industries, Inc. and Charles E. Hasty (1). 10.11 Form of Severence Agreement between the Company and Edward R. McMurphy, T.J. Falgout, III, and Mark D. Slusser (1). 27 Financial data schedule (1). (b) Reports on Form 8-K: There were no reports on Form 8-K filed in the third fiscal quarter of the current year. _______________________ (1) Filed herewith. 12
13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CROWN CASINO CORPORATION By: \s\ Mark D. Slusser ---------------------------------- Mark D. Slusser Chief Financial Officer, Vice President Finance and Secretary (Principal Financial and Accounting Officer) Dated: March 20, 1997 13
14 EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION ------- ----------- <S> <C> 2.4 Asset Purchase Agreement dated December 20, 1996 by and between the Company and CH Medical, Inc., d/b/a Cardio Systems, affiliates of Cardio Systems, CH Administration, Inc., CH Production, Inc., CH Industries, Inc. and Charles E. Hasty (1). 10.11 Form of Severence Agreement between the Company and Edward R. McMurphy, T.J. Falgout, III, and Mark D. Slusser (1). 27 Financial data schedule (1). </TABLE> - -------------------- (1) Filed herewith.