UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB ___X___ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996. _______ 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 0-22290 CENTURY CASINOS, INC. (Exact name of registrant as specified in its charter) DELAWARE 84-1271317 (State of incorporation) (IRS Employer ID No.) 50 South Steele Street, Suite 755, Denver, CO 80209 (Address of principal executive offices) (303) 388-5848 (Phone Number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of common stock, $.01 par value, outstanding as of August 2, 1996: 15,861,885 -1-
<TABLE> <CAPTION> CENTURY CASINOS, INC. FORM 10-QSB INDEX Page Number <S> <C> PART I FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated Balance Sheet as of June 30, 1996 3 Consolidated Statements of Operations for the Three Months Ended 4 June 30, 1996 and 1995 Consolidated Statements of Operations for the Six Months Ended June 5 30, 1996 and 1995 Consolidated Condensed Statements of Cash Flows for the Six Months 6 Ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis 9 PART II OTHER INFORMATION 12 SIGNATURES </TABLE> -2-
<TABLE> <CAPTION> CENTURY CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited) - --------------------------------------------------------------------------------------------------------------- June 30, 1996 ------------- <S> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,753,412 Prepaid expenses and other 729,138 ----------------- Total current assets 8,482,550 PROPERTY AND EQUIPMENT, net 4,651,135 GOODWILL, net 5,749,700 DEFERRED COSTS, terminated management agreement 1,341,794 OTHER ASSETS 2,750,991 ----------------- TOTAL $ 22,976,170 ================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 805,025 Accounts payable and accrued expenses 1,143,905 ----------------- Total current liabilities 1,948,930 LONG-TERM DEBT, less current portion 2,094,345 SHAREHOLDERS' EQUITY: Preferred stock; $.01 par value; 20,000,000 shares authorized; no shares issued or outstanding Common stock; $.01 par value; 50,000,000 shares authorized; 15,861,885 shares issued and outstanding 158,619 Additional paid-in capital 23,056,784 Foreign currency translation adjustment (10,514) Accumulated deficit (4,271,994) ----------------- ----------------- Total shareholders' equity 18,932,895 ----------------- TOTAL $ 22,976,170 ================= See notes to consolidated financial statements. -3-
CENTURY CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - ----------------------------------------------------------------------------------------------------------------------- For the Three Months Ended June 30, ----------------------------------- 1996 1995 ---- ---- <S> <C> <C> OPERATING REVENUE: Casino $ 1,209,387 $ 853,411 Food and beverage 52,624 90,103 Other 20,878 22,439 ---------------- ---------------- 1,282,889 965,953 Less promotional allowances (49,644) (45,617) ---------------- ---------------- Net operating revenue 1,233,245 920,336 ---------------- ---------------- OPERATING COSTS AND EXPENSES: Casino 448,954 505,121 Food and beverage 4,839 81,976 General and administrative 705,400 854,282 Depreciation and amortization 325,592 313,610 ---------------- ---------------- Total operating costs and expenses 1,484,785 1,754,989 ---------------- ---------------- LOSS FROM OPERATIONS (251,540) (834,653) OTHER EXPENSE, net (468,160) (44,525) ---------------- ---------------- LOSS BEFORE INCOME TAXES (719,700) (879,178) PROVISION FOR INCOME TAXES ================ ================ NET LOSS $ (719,700) $ (879,178) ================ ================ LOSS PER SHARE $ (0.06) $ (0.08) ================ ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,281,992 10,789,652 ================ ================ See notes to consolidated financial statements. -4-
CENTURY CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - -------------------------------------------------------------------------------------------------------------------------- For the Six Months Ended June 30, --------------------------------- 1996 1995 ---- ---- <S> <C> <C> OPERATING REVENUE: Casino $ 2,310,199 $ 1,631,269 Food and beverage 109,805 163,235 Other 39,441 40,974 ---------------- ---------------- 2,459,445 1,835,478 Less promotional allowances (92,339) (82,159) ---------------- ---------------- Net operating revenue 2,367,106 1,753,319 ---------------- ---------------- OPERATING COSTS AND EXPENSES: Casino 927,596 960,494 Food and beverage 25,259 161,864 General and administrative 1,416,081 1,731,907 Depreciation and amortization 640,706 613,625 ---------------- ---------------- Total operating costs and expenses 3,009,642 3,467,890 ---------------- ---------------- LOSS FROM OPERATIONS (642,536) (1,714,571) OTHER INCOME (EXPENSE), net (457,459) 3,842,157 ---------------- ---------------- INCOME (LOSS) BEFORE INCOME TAXES (1,099,995) 2,127,586 PROVISION FOR INCOME TAXES 337,000 ================ ================ NET INCOME (LOSS) $ (1,099,995) $ 1,790,586 ================ ================ INCOME (LOSS) PER SHARE $ (0.09) $ 0.18 ================ ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,942,415 10,152,452 ================ ================ See notes to consolidated financial statements. -5-
<CAPTION> CENTURY CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - --------------------------------------------------------------------------------------------------------------------------- For the Six Months Ended June 30, --------------------------------- 1996 1995 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATIONS $ (91,545) $ (1,117,385) ----------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES (604,795) 2,594,717 ----------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES 6,416,281 1,895,380 ----------------- ---------------- INCREASE IN CASH AND CASH EQUIVALENTS 5,719,941 3,372,712 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,033,471 950,024 ----------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,753,412 $ 4,322,736 ================= ================ </TABLE> SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid by the Company was $76,613 and $64,421 for the six months ended June 30, 1996 and 1995. Income taxes paid by the Company were $9,800 and $0 for the six months ended June 30, 1996 and 1995. See notes to consolidated financial statements. -6-
CENTURY CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Century Casinos, Inc. and subsidiaries (the "Company") own and operate a limited-stakes gaming casino in Cripple Creek, Colorado ("Legends Casino"), act as concessionaire of two small casinos on cruise ships, and are pursuing a number of additional gaming opportunities throughout the United States and internationally. On July 1, 1996, the Company acquired the net assets of Gold Creek Associates, L.P., the operator of Womack's Saloon & Gaming Parlor in Cripple Creek, Colorado (see Note 5). The accompanying consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for fair presentation of financial position, results of operations and cash flows have been included. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the Year Ended December 31, 1995. 2. INCOME TAXES The Company has not recorded an income tax benefit for the three-month and six-month periods ended June 30, 1996, or for the three-month period ended June 30, 1995 because of limitations on recognizing the benefits of available net operating loss ("NOL") carryforwards. The provision for income taxes of $337,000 for the six-month period ended June 30, 1995, consists of estimated alternative minimum tax ("AMT") of $70,000, due to limitations on the utilization of NOLs for AMT purposes, a provision and corresponding reduction in the deferred tax valuation allowance of $167,000 related to the anticipated utilization of NOLs not acquired in the Alpine business combination, and a provision of $267,000 for the anticipated utilization of a portion of the NOLs acquired in the Alpine business combination. The reversal of that portion of the valuation allowance corresponding to the acquired NOLs is required to be recorded as a reduction to the carrying amount of goodwill. 3. INCOME (LOSS) PER SHARE Income (loss) per share for the Company for the three-month and six-month periods ended June 30, 1996 and 1995, is based upon the weighted average number of common shares outstanding during the period. Outstanding warrants and options have not been considered in the calculation as their effect would be antidilutive for both periods. 4. PRIVATE PLACEMENT In the first quarter of 1996 the Company completed a private placement of 1,000,000 shares of its common stock at $1.50 per share. Net proceeds of the private placement to the Company, after commissions and direct expenses, were $1,383,165. The Company completed additional private placements of its common stock in the second quarter of 1996 (see Note 5). -7-
5. ACQUISITION OF CASINO AND RELATED FINANCING On July 1, 1996, the Company purchased substantially all of the assets, and assumed substantially all of the liabilities, of Gold Creek Associates, LP ("Gold Creek"), the operator of Womack's Saloon & Gaming Parlor ("Womack's") in Cripple Creek, Colorado. The total purchase price was approximately $13.5 million, consisting of a base cash payment of $5 million plus $320,000 for the amount of estimated working capital as of the closing date, a promissory note of $5.2 million issued to Gold Creek and the assumption of existing debt of Gold Creek of approximately $3 million. The working capital portion of the purchase price is subject to final determination 60 days after the closing date. Additionally, the agreement provides that two years after the closing of the transaction, the Company will issue 1,060,000 shares of its common stock, valued at approximately $2 million based on recent trading prices, to two principals of the seller who have entered into consulting contracts with the Company at closing. The number of shares to be issued is subject to upward adjustment, determined by a formula, to the extent that the trading price of the Company's stock is less than $1.58 at the time of issuance, and subject to downward adjustment to the extent that the trading price exceeds $4.00. The promissory note issued to Gold Creek bears interest at 9% and provides for monthly payments of only interest for 18 months; thereafter, monthly principal payments of $43,121, plus interest on the unpaid principal, are required, with a final balloon principal payment of $2,328,000 due July 2003. The note is secured by substantially all of the tangible assets purchased, subject to existing encumbrances, and the Company is required to meet certain financial covenants. The Company is also restricted from paying dividends until the note has been paid in full. In addition to the financing provided by Gold Creek, additional funds required to complete the acquisition were raised through private sales of 4,072,233 shares of the Company's common stock at an average price of $1.43 per share, with proceeds, net of selling commissions, of approximately $4,552,000. In connection with sales of common stock by a placement agent, the Company issued warrants to the placement agent to purchase 150,000 shares of its common stock at $2.36 per share. The warrants have a term of 5 years. The Company also issued on May 30, 1996, a convertible debenture in the principal amount of $500,000 to a private investor. The debenture bears interest at 10.5%, payable quarterly. The holder has the option to convert, in one or more transactions, all or a portion of the outstanding principal into the Company's common stock at $1.84 per share, subject to a minimum per conversion transaction of $50,000. The Company has the option to prepay the debenture, in whole or in part, after the first anniversary date at 132% of the outstanding principal. The prepayment amount declines to 127% after the second anniversary date, 122% after the third anniversary date and 116% after the fourth anniversary date. The entire unpaid principal is due on May 30, 2001. In anticipation of completing the Gold Creek acquisition, the Company purchased in May 1996, from an unaffiliated third party, a 9% first mortgage note on the Womack's casino property for $1,337,500. The principal amount of the note, which is included in debt assumed by the Company in the Gold Creek acquisition, was $1,248,000 at the date of purchase by the Company. The premium of $89,500 paid by the Company to purchase the note is being amortized to expense ratably over the remaining term of the note, which matures in July 1999. The Company will account for the Gold Creek acquisition using the purchase method of accounting, whereby the total purchase price, including direct out-of-pocket costs of the acquisition, will be allocated to the assets purchased and liabilities assumed based on their estimated fair values. The excess of the the purchase price over the identifiable net assets, which excess the Company preliminarily estimates will approximate $9 million, will be amortized to expense ratably over 15 years. -8-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations Three Months Ended June 30, 1996 vs. 1995 Net operating revenue for the three months ended June 30, 1996, was $1,233,245 compared with $920,336 for the 1995 period, an increase of 34%. Casino revenue increased 42% to $1,209,387, and comprised a 38% increase in casino revenue from the Company's Legends casino in Cripple Creek and an 81% increase in casino revenue from cruise ship activities. The increase for Legends is primarily a result of the net addition of approximately 40 new slot machines and ongoing efforts to upgrade and replace the casino's existing gaming devices. The revenue increase for the cruise ships is attributable to increased passenger counts on the Silver Cloud and Silver Wind, as they have become solidly established in their markets, partially offset by a revenue decrease related to two cruise ships for which the Company has terminated its concessionaire contracts. Gross operating margin from casino activities improved from 41% to 63%. The overall reduction in casino costs results from tighter control over promotional and marketing expenditures, as well as lower cost of promotional allowances. The significant margin improvement in percentage terms also reflects the operating leverage inherent in the Company's casino operations, which provides for revenue growth at relatively little incremental cost. Food and beverage revenue, net of promotional allowances, decreased by 93% as Legends closed its restaurant in the second quarter of 1996 in anticipation of the acquisition of Womack's, which was completed on July 1, 1996. The combined properties will utilize the restaurant formerly operated by Womack's. The restaurant and bar operations are considered to be primarily an accommodation to casino players and are not expected to generate profits. Food and beverage costs exclude the estimated cost of promotional allowances provided to customers; such cost is included in casino costs. General and administrative expense decreased by $148,882, or 17%, from the 1995 period to the 1996 period as a result of lower payroll costs at the corporate level and due to the absence in the current year of costs associated with an Indiana riverboat development project and the entertainment joint venture in the People's Republic of China. The Company sold its interest in the Indiana riverboat development project and terminated its participation in the China joint venture in December 1995. Depreciation and amortization expense increased slightly as higher depreciation from the addition of new gaming machines in Legends Casino were partially offset by the absence of amortization of deferred costs related to the Company's management of a casino for the Soboba Band of Mission Indians in California. The Company effectively assigned its rights under the Soboba agreement to an unaffiliated third party in August 1995 and is recovering the remaining capitalized costs through monthly payments from the third party. Other expense, net, for the second quarter of 1996 included interest expense of $53,262; interest income of $66,260; loss on disposal of property and equipment of $175,507; and the writeoff of previously deferred costs of $306,692 related to debt financing efforts which did not result in the consummation of financing. The loss on disposal of property and equipment was primarily associated with the closing of the restaurant and general interior remodeling at Legends, and the termination of the concessionaire contract for the cruise ship Calypso. For the comparable period in 1995, other expense, net, included interest expense of $46,385; interest income of $79,005; and equity in the loss of the China joint venture of $77,860. -9-
Six Months Ended June 30, 1996 vs. 1995 Casino revenue improved 42% in 1996 versus 1995, comprising an almost identical percentage increase from both Legends Casino and from the cruise ships. The increase at Legends results from a net increase of approximately 40 slot machines over the prior year and more effective marketing efforts. Casino costs decreased slightly in absolute terms from $960,494 to $927,596, primarily as the result of lower promotion and marketing expenses, partially offset by higher device fees and gaming taxes associated with the revenue increase. The decrease in food and beverage revenue, as well as the narrowing of the loss from these operations, reflects the scaling back of the restaurant concept in late 1995 and closing of the restaurant in the second quarter of 1996. Lower payroll costs at the corporate level, and the absence of costs associated with development projects in Indiana, Louisiana and China, accounted for the substantial reduction in general and administrative expense from 1995 to 1996. Higher depreciation expense associated with the addition of new slot machines was partially offset by the absence of amortization of deferred costs related to the Soboba casino management agreement. Other expense, net, for the six months ended June 30, 1996, included interest expense of $96,791; interest income of $100,267; loss on disposal of property and equipment of $175,507; and writeoff of previously deferred debt offering costs of $306,692. Other income, net, for the year-earlier period included interest expense of $81,469; interest income of $92,702; gain on the termination of a riverboat management contract of $3,928,479; and equity in the loss of the China joint venture of $77,860. Liquidity and Capital Resources At June 30, 1996, the Company had cash and cash equivalents of $7,753,412, of which approximately $4,800,000 was paid on July 1, 1996 to close the Gold Creek acquisition. The net increase in cash for the six months ended June 30, 1996 is primarily attributable to the private placement of 1,000,000 common shares of the Company's stock at $1.50 per share in January 1996 and the private placement of 4,072,233 common shares in June 1996, at an average price of $1.43 per share, which netted $4,552,330 after commissions. The Company made escrow deposits and paid costs of approximately $215,000 in connection with the acquisition of Gold Creek. The Company also purchased the first mortgage note on the Womack's casino property from a third party for $1,337,500 and spent approximately $200,000 to refurbish Legends Casino in anticipation of completing the Gold Creek acquisition and combining the two properties. The Company received cash payments from a third party of $452,000 for the six months ended June 30, 1996, in connection with the previous assignment of the Company's Soboba casino management contract. On July 1, 1996, the Company purchased substantially all of the assets, and assumed substantially all of the liabilities, of Gold Creek. The total purchase price was approximately $13.5 million, consisting of a base cash payment of $5 million plus $320,000 for the amount of estimated working capital as of the closing date, a promissory note of $5.2 million issued to Gold Creek and the assumption of existing debt of Gold Creek of approximately $3 million. The working capital portion of the purchase price is subject to final determination 60 days after the closing date. Additionally, the agreement provides that two years after the closing of the transaction, the Company will issue 1,060,000 shares of its common stock, valued at approximately $2 million based on recent trading prices, to two principals of the seller who have entered into consulting contracts with the Company at closing. The number of shares to be issued is subject to upward adjustment, determined by a formula, to the extent that the trading price of the Company's stock is less than $1.58 at the time of issuance, and subject to downward adjustment to the extent that the trading price exceeds $4.00. -10-
The promissory note issued to Gold Creek bears interest at 9% and provides for monthly payments of only interest for 18 months; thereafter, monthly principal payments of $43,121, plus interest on the unpaid principal, are required, with a final balloon principal payment of $2,328,000 due July 2003. The note is secured by substantially all of the tangible assets purchased, subject to existing encumbrances, and the Company is required to meet certain financial covenants. The Company is also restricted from paying dividends until the note has been paid in full. In connection with sales of common stock in the second quarter of 1996, the Company issued warrants to a placement agent to purchase 150,000 shares of its common stock at $2.36 per share. The warrants have a term of five years. The Company also issued on May 30, 1996, a convertible debenture in the principal amount of $500,000 to a private investor. The debenture bears interest at 10.5%, payable quarterly. The holder has the option to convert, in one or more transactions, all or a portion of the outstanding principal into the Company's common stock at $1.84 per share, subject to a minimum per conversion transaction of $50,000. The Company has the option to prepay the debenture, in whole or in part, after the first anniversary date at 132% of the outstanding principal. The prepayment amount declines to 127% after the second anniversary date, 122% after the third anniversary date and 116% after the fourth anniversary date. The entire unpaid principal is due on May 30, 2001. Management anticipates that the acquisition of Gold Creek, together with the operating synergies and cost savings expected to be realized from the combination of the adjacent Womack's and Legends casino properties, will result in the Company generating net income in the third quarter of 1996. There can be no assurance that net income will, in fact, be achieved. Management also expects cash flow from operations to be sufficient for debt service requirements and near-term capital expenditures. The Company continues to pursue a number of gaming opportunities in the U.S. and abroad, which are generally in the early stages of negotiation with various parties. * * * * * * * * * * * * * * * * -11-
PART II OTHER INFORMATION Item 1. - Legal Proceedings The Company is not a party to, nor is it aware of, any pending or threatened litigation. Item 5. - Other Information The following financial statements and financial information are filed herewith: (i) Gold Creek Associates, L.P. (a Limited Partnership) Unaudited Balance Sheet as of June 30, 1996, Unaudited Income Statements for the Three Months Ended June 30, 1996 and 1995, Unaudited Income Statements for the Six Months Ended June 30, 1996 and 1995, and Unaudited Condensed Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995; (ii) Century Casinos, Inc. Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996, and Unaudited Pro Forma Combined Income Statement for the Six Months Ended June 30, 1996. Item 6. - Exhibits and Reports on Form 8-K On July 16, 1996, the Company filed a Form 8-K, including exhibits, dated July 1, 1996, pursuant to Item 2 of the Form 8-K requirements, with respect to the Company's acquisition of the assets of Gold Creek Associates, L.P. The following financial statements were filed with such Form 8-K: (i) Gold Creek Associates, L.P. (a Limited Partnership) Financial Statements as of and for the Two Years in the Period Ended December 31, 1995 and Independent Auditors' Report thereon; (ii) Gold Creek Associates, L.P. (a Limited Partnership) Unaudited Balance Sheet as of March 31, 1996, Unaudited Income Statements for the Three Months Ended March 31, 1996 and 1995, and Unaudited Condensed Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995; (iii) Century Casinos, Inc. Unaudited Pro Forma Combined Balance Sheet as of March 31, 1996, Unaudited Pro Forma Combined Income Statement for the Three Months Ended March 31, 1996, and Unaudited Pro Forma Combined Income Statement for the Year Ended December 31, 1995. * * * * * * * -12-
SIGNATURES: Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTURY CASINOS, INC. /s/ Brad Dobski - --------------------------- Brad Dobski Chief Accounting Officer and duly authorized officer Date: August 6, 1996
PART II, Item 5 - Other Information <TABLE> <CAPTION> GOLD CREEK ASSOCIATES, L.P. (a Limited Partnership) BALANCE SHEET (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------------- June 30, 1996 ------------- <S> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,137,287 Accounts receivable, prepaid expenses and other 169,617 --------------------- Total current assets 1,306,904 PROPERTY AND EQUIPMENT, net 6,663,816 OTHER ASSETS, net of accumulated amortization of $18,960 78,141 ===================== TOTAL $ 8,048,861 ===================== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations $ 858,883 Accounts payable and accrued liabilities 1,225,314 --------------------- Total current liabilities 2,084,197 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 2,131,940 COMMITMENTS AND CONTINGENCIES PARTNERS' CAPITAL: General partner 668,634 Limited partners 3,164,090 --------------------- Total partners' capital 3,832,724 --------------------- TOTAL $ 8,048,861 ===================== See notes to financial statements. -15-
<CAPTION> GOLD CREEK ASSOCIATES, L.P. (a Limited Partnership) STATEMENTS OF INCOME (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------------- For the Three Months Ended June 30, ----------------------------------- 1996 1995 ---- ---- <S> <C> <C> OPERATING REVENUE: Casino $ 3,320,913 $ 2,158,299 Food and beverage 166,320 129,436 Other 21,204 7,378 -------------------- ------------------ 3,508,437 2,295,113 Less promotional allowances (97,574) (84,812) -------------------- ------------------ Net operating revenue 3,410,863 2,210,301 -------------------- ------------------ OPERATING COSTS AND EXPENSES: Casino 1,959,876 1,560,584 Food and beverage 79,125 31,683 General and administrative 360,703 282,925 Depreciation and amortization 126,037 102,704 -------------------- ------------------ Total operating costs and expenses 2,525,741 1,977,896 -------------------- ------------------ INCOME FROM OPERATIONS 885,122 232,405 OTHER INCOME (EXPENSE): Interest expense (87,769) (57,261) Loss on disposal of assets (48,882) Interest income and other 48,160 9,166 -------------------- ------------------ NET INCOME $ 845,513 $ 135,928 ==================== ================== See notes to financial statements. -15-
<CAPTION> GOLD CREEK ASSOCIATES, L.P. (a Limited Partnership) STATEMENTS OF INCOME (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------------- For the Six Months Ended June 30, --------------------------------- 1996 1995 ---- ---- <S> <C> <C> OPERATING REVENUE: Casino $ 6,170,960 $ 3,872,080 Food and beverage 299,050 193,128 Other 32,703 15,704 -------------------- ------------------ 6,502,713 4,080,912 Less promotional allowances (191,902) (143,581) -------------------- ------------------ Net operating revenue 6,310,811 3,937,331 -------------------- ------------------ OPERATING COSTS AND EXPENSES: Casino 3,382,053 2,619,404 Food and beverage 123,960 35,761 General and administrative 688,800 497,569 Depreciation and amortization 253,378 205,407 -------------------- ------------------ Total operating costs and expenses 4,448,191 3,358,141 -------------------- ------------------ INCOME FROM OPERATIONS 1,862,620 579,190 OTHER INCOME (EXPENSE): Interest expense (216,768) (122,389) Loss on disposal of assets (44,591) (48,882) Interest income and other 57,578 16,039 -------------------- ------------------ NET INCOME $ 1,658,839 $ 423,958 ==================== ================== See notes to financial statements. -16-
<CAPTION> GOLD CREEK ASSOCIATES, L.P. (a Limited Partnership) CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - ------------------------------------------------------------------------------------------------------------------------- For the Six Months Ended June 30, --------------------------------- 1996 1995 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATIONS $ 2,419,390 $ 954,953 ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES (20,776) (219,408) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES (2,163,094) (908,045) ------------------ ------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 235,520 (172,500) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 901,767 499,737 ------------------ ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,137,287 $ 327,237 ================== ================== <CAPTION> SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: For the Six Months Ended June 30, --------------------------------- 1996 1995 ---- ---- <S> <C> <C> Property and equipment acquired through long-term financing $ 151,986 $ 1,269,612 Property and equipment returned to vendor in satisfaction of remaining financing obligation $ 533,442 </TABLE> SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid by the Partnership was $216,768 in 1996 and $122,389 in 1995. See notes to financial statements. -17-
GOLD CREEK ASSOCIATES, L.P. (a Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Gold Creek Associates, L.P. (a limited partnership), doing business as Womack's Saloon & Gaming Parlor (the "Partnership"), operates a casino located in Cripple Creek, Colorado. The Partnership was formed on February 15, 1992, and the casino began doing business on July 19, 1992. The Partnership expanded its gaming operations in May 1994, when it began operating the neighboring Diamond Lil's casino. In July 1995 the Partnership began operating its other neighboring casino, Wild Bill's, which was subsequently renamed Womack's Golden Horseshoe. The general partner of the Partnership is Chrysore, Inc., which holds an interest of 31.4%. The remaining 68.6% is held by approximately 30 limited partners. The accompanying financial statements and related notes have been prepared in accordance with generally accepted accounting principles for interim financial reporting. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for fair presentation of financial position, results of operations and cash flows have been included. These financial statements should be read in conjunction with the Partnership's financial statements and notes thereto for the year ended December 31, 1995. 2. EVENT SUBSEQUENT TO JUNE 30, 1996 - SALE OF ASSETS On July 1, 1996, the Partnership sold substantially all of its assets to a wholly-owned subsidiary of Century Casinos, Inc. ("Century"). The total sales price was approximately $13.5 million, consisting of a base cash payment of $5 million plus $320,000 for the amount of estimated working capital as of the closing date, a promissory note of $5.2 million issued to the Partnership and approximately $3 million of existing debt of the Partnership to be assumed by Century. The working capital portion of the sales price is subject to final determination sixty days after the closing date. Additionally, the agreement provides that two years after the closing of the transaction, Century will issue 1,060,000 shares of its common stock, valued at approximately $2 million based on recent trading prices, to two principals of the Partnership's general partner, which individuals have entered into consulting contracts with Century at closing. The number of shares to be issued is subject to upward adjustment, determined by a formula, to the extent that the trading price of Century's stock is less than $1.58 at the time of issuance, and subject to downward adjustment to the extent that the trading price exceeds $4.00. The promissory note issued to the Partnership bears interest at 9% and provides for monthly payments of only interest for eighteen months; thereafter, monthly principal payments of $43,121, plus interest on the unpaid principal, are required, with a final balloon principal payment of $2,328,000 due July 2003. The note is secured by substantially all of the tangible assets sold, subject to existing encumbrances, and Century is required to meet certain financial covenants. -18-
PRO FORMA COMBINED FINANCIAL INFORMATION (Unaudited) INTRODUCTION The accompanying pro forma combined balance sheet as of June 30, 1996 has been prepared to reflect, on a pro forma basis, the effects of the acquisition of assets and assumption of liabilities of Gold Creek Associates, L.P. ("Gold Creek") by Century Casinos, Inc. ("Century") as if the acquisition had occurred on June 30, 1996. The acquisition was consummated on July 1, 1996. The transaction is more fully described in Note 5 to Century's unaudited financial statements as of and for the three months and six months ended June 30, 1996 and 1995, included under Item 1 of this Form 10-QSB. The accompanying pro forma combined income statement for the six months ended June 30, 1996, was prepared as if the acquisition had occurred on January 1, 1996. The pro forma combined financial information is not necessarily indicative of the results which actually would have occurred had the acquisition been consummated on the dates indicated above, nor does it purport to represent the combined future financial position or results of operations. The historical financial information presented for Century and Gold Creek has been derived from their unaudited financial statements for the three months and six months ended June 30, 1996. The applicable historical Gold Creek financial statements are included elsewhere herein. -19-
<TABLE> <CAPTION> CENTURY CASINOS, INC. PRO FORMA COMBINED BALANCE SHEET (Unaudited) As of June 30, 1996 ------------------- Historical Historical Pro Forma Pro Forma Century Gold Creek Adjustments Combined ------- ---------- ----------- -------- (in thousands) <S> <C> <C> <C> <C> ASSETS Current Assets Cash, cash equivalents and short-term investment $ 7,753 $ 1,137 $ (4,820)(a) $ 3,233 (837)(a) Other 729 170 (70)(b) 829 ---------- ---------- ---------- ---------- Total current assets 8,482 1,307 (5,727) 4,062 ---------- ---------- ---------- ---------- Property and Equipment, net 4,651 6,664 370 (a) 11,685 Goodwill 5,750 8,704 (a) 14,691 237 (c) Deferred costs 1,342 1,342 Other 2,751 78 (500)(a) 928 (1,164)(b) (237)(c) ---------- ---------- ---------- ---------- TOTAL ASSETS $ 22,976 $ 8,049 $ 1,683 $ 32,708 =========== ========== ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of long-term debt $ 805 $ 859 $ (70)(b) $ 1,594 Accounts payable, accrued liabilities and other 1,144 1,225 (424)(a) 1,945 ---------- ---------- ---------- ---------- Total current liabilities 1,949 2,084 (494) 3,539 ---------- ---------- ---------- ---------- Long-term debt, net of current portion 2,094 2,132 5,174 (a) 8,236 (1,164)(b) Shareholders' equity: Common stock 159 11 (a) 170 Partners' capital 3,833 (3,833)(a) Additional paid-in-capital 23,057 1,989 (a) 25,046 Foreign currency translation adjustment (11) (11) Accumulated deficit (4,272) (4,272) ---------- ---------- ---------- ---------- Total shareholders' equity 18,933 3,833 (1,833) 20,933 ---------- ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,976 $ 8,049 $ 1,683 $ 32,708 =========== ========== ========== =========== <FN> Pro Forma Adjustments (a) To record purchase of Gold Creek assets and assumption of existing debt for cash of $5,000,000 (less previously paid escrow deposit of $500,000, plus working capital adjustment of $320,000), issuance of note to seller in principal amount of $5,174,000 and assumed issuance of Century stock (valued at $2,000,000) to two principals of seller two years after closing date of acquisition. (b) To eliminate first mortgage note obligation of Gold Creek which was purchased by Century from a third party in May 1996. (c) To reclassify out-of-pocket costs of the acquisition. </FN> -20-
<CAPTION> CENTURY CASINOS, INC. PRO FORMA COMBINED INCOME STATEMENT (Unaudited) For the Six Months Ended June 30, 1996 -------------------------------------- Historical Historical Pro Forma Pro Forma Century Gold Creek Adjustments Combined ------- ---------- ----------- -------- (in thousands, except share and per share data) <S> <C> <C> <C> <C> OPERATING REVENUE: Casino $ 2,310 $ 6,171 $ 8,481 Food and beverage 18 107 125 Other 39 33 72 ---------- ---------- ---------- ---------- Net operating revenue 2,367 6,311 8,678 ---------- ---------- ---------- ---------- OPERATING COSTS AND EXPENSES: Casino 928 3,382 4,310 Food and beverage 25 124 149 General and administrative 1,416 689 2,105 Depreciation and amortization 641 253 $ 336 (a) 1,230 ---------- ---------- ---------- ---------- Total operating costs and expenses 3,010 4,448 336 7,794 ---------- ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS (643) 1,863 (336) 884 OTHER INCOME (EXPENSE), net (457) (204) (264)(b) (925) ---------- ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES (1,100) 1,659 (600) (41) PROVISION FOR INCOME TAXES - ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (1,100) $ 1,659 $ (600) $ (41) =========== ========== ========== ========== INCOME (LOSS) PER SHARE $ (0.09) $ (0.00) =========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,942,415 16,828,479 =========== ========== ========== ========== <FN> Pro Forma Adjustments (a) To record goodwill amortization of $298,000 and additional depreciation of $38,000 on fair value step-up to property and equipment. (b) To record interest expense of $30,000 on convertible debenture and $234,000 on promissory note issued to Gold Creek. </FN> </TABLE> -21-