PRESIDENT CASINOS INC - 10-K Annual Report

Back to GetFilings.com

1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

/ X / Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended February 29, 2000
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Commission File Number: 0-20840

PRESIDENT CASINOS, INC.
(Exact name of registrant as specified in its charter)

Delaware 51-0341200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

802 North First Street, St. Louis, Missouri 63102
Address of principal executive offices

314-622-3000
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.06 par value
Preferred Stock Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
amendment to this Form 10-K. /X/
As of May 26, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $2,160,965.*
As of May 26, 2000, the number of shares outstanding of the Registrant's
Common Stock was approximately 5,032,988.
* Calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers and directors of the Registrant, without conceding
that all such persons are "affiliates" of the Registrant for purposes of the
federal securities laws.

DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders.

2
PART I

Items 1. and 2. Business and Properties.

General

President Casinos, Inc. owns, operates and develops riverboat and/or
dockside gaming casinos through its subsidiaries (collectively, the
"Company"). The Company's current gaming facilities and operations are
summarized as follows:

Davenport, Iowa
Operating entity - The Connelly Group, L.P.
Vessel - "President"
Slots - 1,040
Gaming tables - 28
Opening of casino - April 1, 1991

Biloxi, Mississippi
Operating entity - The President Riverboat Casino-
Mississippi, Inc.
Vessel - "President Casino-Broadwater"
Slots - 947
Gaming tables - 42
Opening of casino - August 13, 1992
Opening of current facility - June 30, 1995

St. Louis, Missouri
Operating entity - President Riverboat Casino-
Missouri, Inc.
Vessel - "Admiral"
Slots - 1,227
Gaming tables - 41
Opening of casino without slots - May 27, 1994
Opening of casino with slots - December 9, 1994

In addition to its gaming operations, the Company owns and manages certain
hotel and ancillary facilities associated with its casino operations in
Davenport, Iowa and Biloxi, Mississippi and operates two non-gaming dinner
cruise, excursion and sightseeing vessels on the Mississippi River in St.
Louis, Missouri. The Company also from time to time charters certain of its
unused vessels to unrelated third parties.

The Company was incorporated in the State of Delaware in June 1992 and
completed the initial public offering of its Common Stock in December 1992.
The Company is the successor to businesses operated in St. Louis, Missouri
since 1985, Davenport, Iowa since October 1990 and Biloxi, Mississippi since
August 1992. The Company's principal executive offices are located in an
approximately 9,500 square foot building owned by the Company at 802 North
First Street, St. Louis, Missouri 63102, and its telephone number is (314)
622-3000. Information regarding the Company can be found at its web page

1

3
www.presidentcasino.com.

The financial statements accompanying this Annual Report on Form 10-K
discuss that the Company is experiencing difficulty generating sufficient cash
flow to meet its obligations and sustain its operations. The Company's
management determined that, pending a restructuring of its indebtedness, it
would not be in the best interest of the Company to make the regularly
scheduled interest payments on the Company's $75.0 million Senior Exchange
Notes and $25.0 million Secured Notes. Accordingly, the Company has not paid
the regularly scheduled interest payment of $6.4 million that was due and
payable March 15, 2000. Under the Indentures pursuant to which the Senior
Exchange Notes and Secured Notes were issued, an Event of Default occurred on
April 15, 2000, and is continuing as of the date hereof. No action has been
taken by either the Indenture Trustee or holders of at least 25% of the Senior
Exchange Notes and Secured Notes to accelerate the Senior Exchange Notes and
Secured Notes and declare the unpaid principal and interest to be due and
payable.

An informal committee (the "Committee"), representing holders of a majority
in interest of the Senior Exchange Notes and Secured Notes, has been formed.
The Committee has retained legal counsel, certain costs of which are being
borne by the Company. The Company has initiated and is continuing discussions
with representatives of the Committee concerning a restructuring of the
Company's indebtedness that may include the sale of some of the Company's
properties. The Company believes that the market value of its properties and
assets substantially exceeds the amount of its debt. Management believes this
market value is the key factor in the Company's program to resolve this matter
with the bond holders. There can be no assurances that the Company will be
successful in this restructuring, and the Company believes that the success of
such restructuring will depend in large part upon the cooperation and the
willingness of the creditors to work with the Company.

Due to cross default provisions associated with other debt agreements, the
Company is also in default on certain other debts. These debts include the
$30.0 million note and the associated $7.0 million loan fee related to the
Broadwater Property and the $3.0 million "President Casino-Mississippi" note.
These debts are also currently due and classified in current liabilities as of
February 29, 2000. Additionally, the Company did not pay the $3.7 million
note due April 15, 2000, associated with the purchase of the Biloxi casino
barge. The Company has reached an agreement in principle to extend the
payment obligations under this note and is finalizing the documentation. In
the event that these notes are accelerated, at this time the Company does not
have the resources available to repay such indebtedness. See "Liquidity and
Capital Resources in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Management is pursuing various strategic financing alternatives in order to
fund these obligations and the Company's continuing operations. The Company
is working with recognized financial advisors in the gaming industry to pursue
these alternatives, including the restructuring and refinancing of outstanding
debt obligations and/or the sale of a portion of its assets. The Company's
ability to continue as a going concern is dependent on the ability of the

2

4
Company to restructure successfully, refinance its debts or sell/charter
assets on a timely basis under acceptable terms and conditions, and the
ability of the Company to generate sufficient cash to fund future operations.
There can be no assurance in this regard.

Current Operations

Management of the Company views its operations in four operating segments:
Davenport Operations, Biloxi Operations, St. Louis Operations and Leasing
Operations, each of which is discussed more fully below. The revenues,
results of operations and identifiable assets related to each of these
segments can be found in Note 14 of the accompanying consolidated financial
statements.

Davenport, Iowa Operations

The Davenport gaming operations are managed by the Company's wholly-owned
subsidiary, President Riverboat Casino-Iowa, Inc. ("PRC Iowa"), which is the
general partner of the 95% Company-owned operating partnership, The Connelly
Group, L.P. ("TCG"). The Company began riverboat gaming operations on the
Mississippi River in Davenport on the Company-owned M/V "President" in April
1991. The Company's operating license is renewable annually at the discretion
of the Iowa Racing and Gaming Commission (the "IRGC") after receipt of a
renewal application from the Company. The license was last renewed in April
2000. Davenport, Iowa along with Bettendorf, Iowa and Rock Island and Moline,
Illinois comprise the Quad Cities metropolitan area. The Quad Cities
metropolitan area has a population of approximately 400,000 and is
approximately a three-hour drive from Chicago.

The "President," built in 1924, is a five-deck, steel-hulled passenger
vessel and is approximately 300 feet in length. During the period November
13, 1995 through April 1, 1996, the "President" underwent a $4.0 million
refurbishment and a Coast Guard mandated five-year hull inspection. During
that period the "President" was temporarily replaced with a smaller Company-
owned vessel, "President Casino-Mississippi" (see "Leasing Operations"). The
"President" must undergo its next hull inspection by March 2001. While the
"President Casino-Mississippi" is again available to temporarily replace the
"President" during its next hull inspection, the Company is contemplating
alternatives, including leasing or purchasing a new vessel.

Within a 45-mile radius, the Davenport operation competes with three other
casino operations, one of which is located directly across the Mississippi
River in Illinois. Expansion and increased marketing by these competitors
continues to escalate, resulting in increased promotional and marketing costs
for the Company. During fiscal year 1999, one of the competing Iowa casinos
added gaming space, a new hotel and other amenities. In connection with the
new facilities, the competitor increased its casino gaming positions by
approximately 14%. In September 1999, the Company received approval from the
IRGC to expand its operations by increasing the number of slot machines on its
floor from 925 machines to 1200. Management has increased its slot machines
to 1,040 and plans to complete the increase to 1,200 over the next one to two
years. The IRGC has the authority to set cruising schedules for Iowa
riverboats and to permit dockside gaming throughout the year. The Company

3

5
must currently conduct at least one cruise per day for 100 days each year, the
timing of which is set at the Company's discretion with the approval of the
IRGC. Iowa riverboats can operate while remaining dockside at all other
times. The casino is open 24 hours per day, seven days per week. Until June
1999 Iowa riverboats had an advantage over the Illinois competition because
Illinois gaming vessels were required to cruise for all gaming sessions, which
restricted patron ingress and egress. In June 1999, Illinois enacted
legislation eliminating the cruising requirements and thus eliminating the
competitive advantage of Iowa gaming vessels.

The Company owns and operates the Blackhawk Hotel through its wholly-owned
subsidiary TCG/Blackhawk, Inc. The Blackhawk Hotel, located approximately
three blocks from the "President," commenced operations in October 1990. The
Blackhawk Hotel has 191 guest rooms and suites and seven meeting rooms
encompassing nearly 15,000 square feet, including a 500-seat grand ballroom.
The hotel adjoins the city-owned RiverCenter, which offers an additional
100,000 square feet of meeting rooms and convention space. Over the past five
fiscal years three new hotels have opened in the Davenport market. During
fiscal 1999, a competing casino operator opened a 256-room hotel adjacent to
its casino. During fiscal 1997, a 163-room hotel opened directly across the
Mississippi River from the same competing casino operator. During fiscal
1996, a 221-room hotel opened between the Blackhawk Hotel and the "President."
While these and other new hotels have intensified competition for the
Blackhawk Hotel, management believes the addition of hotel rooms to the Quad
Cities market has improved the marketability of the Quad Cities for the
Company's gaming operations.

The Company leases certain levee property in Davenport from the City of
Davenport. This lease expires in 2015. The Company is required to pay
certain boarding and docking fees and a special payment in lieu of property
taxes to the City. In aggregate, the annual cost of these fees is the higher
of $830,000 or 83.2 cents per passenger for each passenger over 1,117,579.
Both the base amount and per passenger charges related to the docking fees are
subject to an annual 4% escalator.

Biloxi, Mississippi Operations

The Company began dockside gaming operations in Biloxi on August 13, 1992.
The Company manages its Biloxi gaming operations through its wholly-owned
subsidiary, The President Riverboat Casino-Mississippi, Inc. ("President
Mississippi"). Biloxi is located on the Gulf of Mexico 75 miles east of New
Orleans. The Mississippi Gulf Coast area has a population of approximately
300,000. The Company's Mississippi gaming license was last renewed in March
1999 for a two-year period.

Since gaming began in Mississippi in August 1992, competition has steadily
increased along the Mississippi Gulf Coast. There are currently twelve
casinos operating in this area. The twelfth casino opened in March 1999 and
is the largest casino in the market. The Company also faces competition from
gaming operations in the metropolitan New Orleans area and elsewhere in
Louisiana and Mississippi. The New Orleans metropolitan area currently has
four casinos in operation.

4

6
Management believes the Mississippi Gulf Coast is becoming a major
destination point for gaming entertainment. The area is becoming more widely
known with many guests coming long distances to enjoy the weather, beaches,
golfing and other entertainment. During recent years, several large gaming
companies have built large hotel/casino complexes and have captured a
significant portion of the Mississippi Gulf Coast market. Many of these
competitors have substantially greater name recognition and financial and
marketing resources than the Company. Management believes that as newer and
larger casino complexes enter the Mississippi Gulf Coast market, it will
become increasingly more difficult to compete and maintain market share.
Thus, the Company continues to study strategic alternatives related to its
Biloxi operations. See "Potential Growth Opportunities-Biloxi, Mississippi."

In February 1995, in order to provide the Company with the opportunity to
compete more effectively in the Mississippi Gulf Coast market, the Company
entered into a charter agreement to lease a dockside casino to be utilized by
the Company's Biloxi gaming operations. In June 1995, the Company replaced
the "President Casino-Mississippi" with the chartered facility, "President
Casino-Broadwater" (formerly the "Biloxi Barge"). This change allowed for an
increase in casino square footage and the addition of a full service buffet
and a steak and seafood restaurant. In August 1999, the Company purchased
"President Casino-Broadwater."

Prior to July 1997, the Company was party to an operating lease with BH
Acquisition Corporation ("BH"), a wholly-owned entity of John E. Connelly,
Chairman, Chief Executive Officer and principal stockholder of the Company,
for its Biloxi mooring site, parking facilities, offices and a warehouse.
Rent under the operating lease agreement was approximately $3.0 million
annually, on a triple net basis. In July 1997, President Broadwater Hotel,
LLC ("PBLLC"), a limited liability company in which the Company has a 100%
ownership interest, and a wholly-owned entity of Mr. Connelly which has
certain preferred rights to certain cash flows, acquired the real estate and
improvements from BH for $40.5 million. The property comprises approximately
260 acres and includes a 111-slip marina which contains the mooring site of
the Biloxi casino, two hotels with approximately 500 rooms and an adjacent 18-
hole golf course (collectively, the "Broadwater Property").

The marina at the Broadwater Property consists of both "tidelands" and
"fastlands" under the Mississippi Trust Tidelands Act (the "Tidelands Act").
The Tidelands Act provides that land designated as tidelands is deemed to be
owned by the State of Mississippi in trust. Under Mississippi law, riparian
owners of land designated as "tidelands" or "fastlands" are provided the first
opportunity to negotiate with the State of Mississippi for a lease on the
property.

During August 1992, BH entered into a ten-year lease agreement with the
State of Mississippi for the tidelands (the "Tidelands Lease") for an annual
rental fee of $295,000, subject to five year adjustments as defined by the
lease agreement. In November 1993, the Tidelands Lease was amended to allow a
new or second vessel be moored, among other items, for an annual rent of
$525,000. Effective in August 1995, in conjunction with the replacement of
the M/V "President Casino-Mississippi" with the "President Casino-Broadwater,"
BH exercised its rights under the agreement and the Company's annual rent

5

7
increased to $525,000. Effective August 1997, the state adjusted the annual
rent to $598,000 in accordance with the terms of the lease.

During December 1996, BH entered into a 40-year lease agreement (the
"Fastlands Lease") with the State of Mississippi for the fastlands for an
annual rental fee of $21,000, adjustable every five years as defined in the
lease agreement. Concurrent with the purchase of PBLLC, BH sold its interest
in the Tidelands Lease and the Fastlands Lease to PBLLC.

St. Louis, Missouri Operations

On May 1994, the Missouri Gaming Commission licensed the Company to conduct
dockside gaming operations on the Company-owned "Admiral" in St. Louis through
its wholly-owned subsidiary, President Riverboat Casino-Missouri, Inc.
("President Missouri"). The Company's initial license was subsequently
renewed and has most recently been extended through May 2002. The "Admiral,"
the vessel on which the Company conducts its St. Louis gaming operations, is
an approximately 400-foot long vessel, currently continuously docked near the
base of the Gateway Arch at a mooring site leased by the Company from the City
of St. Louis.

The Company leases two mooring sites on the St. Louis river front. The
Company's mooring site for Gateway Riverboat Cruises, which conducts the
Company's non-gaming dinner cruise, excursion and sightseeing operations, was
for an initial term of five years with four five-year renewal options.
Assuming the exercise of all options, the lease will terminate 2011. The
Company's lease for the current mooring site of the "Admiral" is for a term of
twenty five years and terminates in December 2008. The "Admiral" lease
provides for base rent plus payments of 2% of adjusted gross receipts (gross
receipts net of winnings paid to wagerers). The percentage may be adjusted
(higher or lower) to equal the gaming rentals charged to other properties in
the central river front area of St. Louis on which gaming is conducted.
Currently, the "Admiral" is the only casino in the St. Louis central river
front. Each lease grants the City the right to change or cancel the lease or
to relocate the Company's mooring locations for right-of-way, sewer or flood
wall construction purposes. Lease rates are subject to rate change every five
years as recommended by the Port Commission.

During July 1998, the Company and the City of St. Louis reached an agreement
for the relocation of the "Admiral" approximately 1,000 feet north from its
current location on the Mississippi River. It is anticipated that the new
location will enhance access to the casino, provide better parking and be less
susceptible to flooding. See "Potential Growth Opportunities-St. Louis,
Missouri."

In January 2000, in conjunction with the anticipated move of the "Admiral,"
the Company entered into a sublease agreement with the Port Authority of the
City of St. Louis for a mooring site on the St. Louis river front
approximately 1,000 feet north of the current location of the "Admiral." The
term of the lease is 25 years commencing on the day the "Admiral" moves to the
new mooring site. At such time the lease for the current mooring site of the
"Admiral" will be surrendered and shall terminate.

6

8
Rent under the terms of the new lease will consist of base rent plus a
percent of adjusted gross receipts. The base rent is $27,000 annually and is
subject to rate change every five years based on the recommendation of the
Port Commission. The percentage rent is 2% of adjusted gross receipts for any
lease year equal to or less than $80.0 million plus 3% of that portion of
adjusted gross receipts for such lease year which exceed $80.0 million but
which are equal to or less than $100.0 million plus 4% of that portion of
adjusted gross receipts for such lease year, if any, which exceed $100.0
million.

Competition is intense in the St. Louis market area. There are presently
five other casino companies operating eight casinos in the market area. Many
of these competitors have significantly greater name recognition and financial
and marketing resources than the Company. Two of these are Illinois casino
companies operating single casino vessels on the Mississippi River, one
directly across the Mississippi from the "Admiral" and the second 20 miles
upriver. There are three Missouri casino companies, each of which operates
two casino vessels approximately 20 miles west of St. Louis on the Missouri
River, one in the City of St. Charles, Missouri and two in Maryland Heights,
Missouri. The two casino companies in Maryland Heights opened in March 1997.
In April 2000, one of these two casino companies purchased the other so that
all four casinos will be operated under the same name.

Applications have been submitted to the Missouri Gaming Commission for
approval of potential new licenses at four different locations within the St.
Louis metropolitan area along the Mississippi River, three of which are within
20 miles of the "Admiral." The opening of one or more additional casinos in
the St. Louis market would increase competition and management believes would
have a negative impact on the revenues and the results of operations of the
Company.

Differences in gaming regulations in the St. Louis market between Illinois
and Missouri operators have given competitive advantages/disadvantages to the
various operators in Illinois. Missouri regulations formerly did not require
vessels to actually cruise, however, simulated cruising requirements were
imposed which restricted entry to a vessel to a 45-minute period every two
hours. Those competitors having more than one casino vessel could alternate
hourly boarding times and provide virtually continuous boarding for their
guests. Thus, they had a distinct competitive advantage over the Company,
which has only one vessel. Illinois casino vessels were formerly required to
cruise, thereby limiting ingress and egress to their casinos. In June 1999,
legislation was enacted eliminating the cruising requirements in Illinois.
This change immediately gave the Illinois operators an advantage over the
Missouri operators as Illinois patrons could enter and exit the vessel at any
time. However, this advantage was negated in August 1999, when the Missouri
Gaming Commission allowed "continuous boarding" by establishing a temporary
pilot program eliminating the boarding restrictions for the "Admiral" and
other casinos in eastern Missouri. This change to "continuous boarding" has
also enabled the "Admiral" to compete more effectively with the Missouri
operators who have more than one casino vessel. At this time, the Missouri
Gaming Commission has not given any indication as to the length of the pilot
program or as to whether it will become permanent.

7

9
In addition, the Company has operated dinner cruise, excursion and
sightseeing riverboats (d/b/a Gateway Riverboat Cruises) on the Mississippi
River at St. Louis since 1985. The Company currently owns and operates two
such vessels, the M/V "Becky Thatcher" and M/V "Tom Sawyer," each with a
capacity of approximately 350 passengers.

Leasing Operations

In addition to the vessels presently owned and used in its gaming
operations, the Company owns the "New Yorker" and "President Casino-
Mississippi." The "New Yorker" is a 308-foot long sea-worthy passenger vessel
which the Company had intended to use in a Gary, Indiana gaming development,
which was subsequently abandoned. In August 1995, the Company entered into a
charter agreement with its former Indiana partner to lease the "New Yorker"
for a five-year term at an annual rental fee of $1.5 million for the first two
years and for fair market value thereafter. The charter commenced in May 1996
and ended in February 1998.

The Company chartered the "New Yorker" from February 15, 1999 to June 15,
1999 to an unrelated third party. The charter fee was approximately $0.4
million per month. The Company is currently seeking to sell or charter this
vessel.

The "President Casino-Mississippi" was previously utilized at the Company's
Biloxi and Davenport operations. The "President Casino-Mississippi" is 292-
feet long and 65-feet wide, containing approximately 22,000 square feet of
gaming space on three decks and formerly accommodated 620 slot machines and 43
table games. The Company is currently seeking to sell or charter this vessel.

Potential Growth Opportunities

The Company continues to explore selectively gaming developments in current
and emerging gaming markets. Pursuit of such opportunities by the Company is
dependant upon a number of economic and regulatory factors including the
Company's ability to secure required federal, state and local governmental
licenses and approvals and the availability of financing for such projects on
acceptable terms. In addition, the Company is subject to intense competition
for the development of new gaming opportunities from companies that have
significantly greater financial, marketing and other resources than the
Company. Accordingly, there can be no assurance that the Company will be able
to pursue successfully other gaming opportunities or recover its investment in
any such new opportunities.

Biloxi, Mississippi

As discussed in "Current Operations-Biloxi, Mississippi" in July 1997, the
Company purchased certain real estate and improvements in Biloxi for $40.5
million. The property comprises approximately 260 acres and includes two
hotels, an adjacent 18-hole golf course and a 111-slip marina. The marina is
the site of the Company's Biloxi casino operations.

The Company believes that this site is ideal for development of
"Destination Broadwater," a full-scale luxury destination resort offering an

8

10
array of entertainment attractions in addition to gaming. Destination
Broadwater is planned to be an integrated entertainment resort situated in a
village setting surrounded by water. The plan will feature a village which
will include a cluster of casinos, hotels, restaurants, theaters and other
entertainment attractions. Management believes that with its beachfront
location and contiguous golf course, the property is the best site for such a
development in the rapidly growing Gulf Coast market.

In January 1999, the Company received the permit from the Mississippi
Department of Marine Resources ("DMR") for development of the full-scale
destination resort. This is the first of three permit approvals required of
the Joint Permit Application submitted in August 1998 to the DMR, the U.S.
Army Corps of Engineers and the Mississippi Department of Environment Quality.
The two remaining permit approvals are still pending and awaiting the
finalization of the Environmental Impact Statement ("EIS"). The Company has
received the draft of the EIS, the notice of which is expected to be posted in
the Federal Register in early June for public comment.

In March 1999, the Company announced that it had entered into contracts with
the State of Mississippi and the owners of Deer Island to purchase and convey
title to the island to the State of Mississippi. Deer Island encompasses
approximately 500 acres and is located just offshore of Biloxi. It is
primarily a wilderness which the State would preserve for use by the people of
Mississippi. The purchase and conveyance of the title are contingent on the
occurrence of various events, including the issuance to the Company of all
required federal, state, and local permits and the issuance by the State of
Mississippi of the tidelands and fast lands leases and casino license
necessary for development of Destination Broadwater.

In connection with the Company's proposed Destination Broadwater development
plan, to date, the Company has not identified any particular financing
alternatives or sources of financing as the necessary regulatory approvals
have not been obtained. There can be no assurance that the Company will be
able to obtain the regulatory approvals or the requisite financing. Should
the Company fail to raise the required capital, such failure would materially
and adversely impact the Company's business plan.

St. Louis, Missouri

During July 1998, the Company and the City of St. Louis agreed to the
relocation of the "Admiral" approximately 1,000 feet north from its current
location on the Mississippi River. The new location will improve patron
parking, ingress and egress and, among other benefits, will be less
susceptible to flooding. Agreements finalizing details related to the new
location were completed in January 2000.

The aggregate cost to build the new facility and relocate the "Admiral" is
expected to be approximately $7.9 million. Under the terms of the agreement,
the City will fund $3.0 million of the relocation costs, $2.4 million of which
will be financed through bank debt. The Company will pay for the remaining
costs. The City will repay the $2.4 million in debt from gaming taxes the
City receives based upon gaming revenues of the "Admiral". The Company has

9

11
guaranteed completion of the project and repayment of the $2.4 million bank
debt if the City fails to pay the obligation. Construction began in September
1999 and the move is expected to occur late in 2000, subject to certain
approvals, weather conditions and timely construction. The Company
anticipates funding this project from operating cash flow.

Marketing and Sales

The Company targets its marketing efforts at middle income, recreational
gaming customers. The Company relies on a mix of billboards, television,
radio and print advertisements in both the local and regional markets to
attain a high recognition level. The Company also has a preferred slot player
program, together with electronic slot player tracking, a table player
tracking and rating system, hosts, gaming tournaments, special events, direct
mailing, telemarketing and other casino marketing techniques to identify,
recognize and cultivate frequent and better casino customers. This effort is
supported by direct marketing, a targeted trade advertising schedule and
attendance at industry trade shows and sales gatherings. The Company also
utilizes its web site at www.presidentcasino.com to enhance its marketing
programs.

Regulatory Matters

Gaming Regulations

General. The ownership and operation of gaming facilities are subject to
extensive state and local regulation. The Company's Davenport gaming
operations are regulated by the Iowa Racing and Gaming Commission, the
Company's Biloxi gaming operations are regulated by the Mississippi Gaming
Commission and the Company's St. Louis gaming operations are regulated by the
Missouri Gaming Commission. As a condition to obtaining and maintaining a
gaming license, the Company must pay fees and taxes, observe detailed
regulations on operations, submit and update comprehensive applications and
submit detailed financial, operating and other reports to each such
Commission. Each such Commission has broad powers to suspend or revoke
licenses in which event local and related operations would be terminated or
suspended. In addition, substantially all of the Company's material
transactions are subject to prior notice to review by, and in some instances,
approval by such Commission. Any person acquiring 5% or more of the Common
Stock or equity securities of any gaming entity must be found suitable by the
appropriate regulatory body.

Various license fees and taxes are payable to the jurisdictions in which the
Company conducts gaming operations. These taxes are calculated in various
ways, and may be based upon (i) a percentage of the gross gaming revenues
received by the casino operation, (ii) the number of slot machines operated by
the casino, (iii) the number of table games operated by the casino and/or (iv)
passenger counts. A casino entertainment tax is also paid by the licensee
where entertainment is furnished in connection with the selling of food or
refreshments. The Company estimates that state and local gaming taxes for the
Company's Biloxi operation approximate 12% of net gaming win. In addition,
certain other fees are imposed. Iowa has a graduated tax of approximately 20%

10

12
of net gaming win and the City of Davenport charges additional fees on a per
customer and per boat basis. The Company's Davenport casino operations is
required annually to pay the City of Davenport a base amount of $0.8 million
plus 82.7 cents per passenger over 1,117,579 passengers. Both the base amount
and per passenger charges related to the docking fees are subject to an annual
4% escalator. The Missouri gaming law imposes a tax of 20% of adjusted gross
receipts from gaming activities and a $2.00 per passenger fee.

The Company, its subsidiaries, its employees and other individuals or
entities having material relationships with the Company are required to obtain
and hold various licenses and approvals in Iowa, Mississippi and Missouri and
will most likely be required to do so in each other jurisdiction in which the
Company may conduct a gaming operation. If a gaming authority were to find a
director, officer or key employee unsuitable for licensing or unsuitable to
continue to have a relationship with the Company, the Company would have to
suspend or dismiss such person. The failure of the Company, or any of its key
personnel, to obtain or retain a license in any jurisdiction could have a
material adverse effect on the Company and its prospects or its ability to
obtain or retain licenses in other jurisdictions. Generally, regulatory
authorities have broad discretion in granting, renewing and revoking licenses.
Moreover, any jurisdiction into which the Company may seek to expand its
gaming operations may require the Company to apply for and obtain regulatory
approvals with respect to the construction, design and operational features of
the vessel it intends to utilize. Obtaining such licenses and approvals may
be costly, time consuming and cannot be assured. Riverboat as well as certain
dockside operations are also subject to stringent regulation by the U.S. Coast
Guard and to marine insurance requirements, as well as state and local
requirements.

The Company may be subject to substantial fines for each violation of a
gaming law or regulation. In addition, a violation of a gaming law or
regulation may subject a license to suspension or revocation. Limitation,
conditioning or suspension of a gaming license could (and revocation of any
gaming license would) materially adversely affect the operations in that
jurisdiction.

A National Gambling Impact Study Commission (the "National Commission") has
been established by the United States Congress to conduct a comprehensive
study of the social and economic impact of gaming in the United States. On
April 28, 1999, the National Commission issued a final report of its findings
and conclusions, together with recommendations for legislature and
administrative actions. Below are some of those recommendations:

Legal gaming should be restrictive to those at least 21 years of age;
Betting on college and amateur sports should be banned;
The introduction of casino-style gambling at pari-mutual racing
facilities for the primary purpose of saving the pari-mutual facility
should be prohibited;
The types of gaming activities allowed by Indian tribes within a
given state should not be inconsistent with the gaming activities
allowed to other persons in that state; and
State, local and tribal governments should recognize that casino

11

13
gaming provides economic development, particularly for economically
depressed areas. The National Commission differentiated casino gaming
from stand-alone slot machines (i.e. in convenience stores), Internet
gaming and lotteries which the National Commission stated do not
provide the same economic development.

Any additional regulation of the gaming industry which may result from the
National Commission's findings may have an adverse effect on the gaming
industry, including that of the Company.

Iowa Gaming Regulations. In 1989, the State of Iowa enacted The Excursion
Gambling Act which legalized riverboat gaming on the Mississippi and Missouri
Rivers and certain other waterways located in Iowa. Pursuant to The Excursion
Gambling Act, the Iowa Racing and Gaming Commission (the "IRGC") was
established with jurisdiction to regulate all gaming operations in Iowa.
In May 1994, the Iowa gaming laws were amended to remove all per passenger
loss limitations, size of bet limitations and restrictions on the percentage
of space on a riverboat which may be utilized for gaming and authorized the
Iowa Commission to set cruising schedules for riverboats and to permit
dockside gaming throughout the year.

The ownership and operation of gaming facilities in Iowa are subject to
extensive state laws, regulations of the IRGC and various county and municipal
ordinances concerning, among other things, the responsibility, financial
stability and character of gaming operators and persons financially interested
or involved in gaming operations. All gaming operators must be approved and
licensed by the IRGC. Initial gaming licenses are issued for not more than
three years and are subject to annual renewals thereafter. The IRGC has broad
discretion with respect to such renewals. Licenses issued by the IRGC may not
be transferred to another person or entity. The Company is required to submit
detailed financial and operating reports to the IRGC. Contracts in excess of
$50,000 or in which the term exceeds three years and all related party
transactions must be submitted to and approved by the IRGC.

Gaming is permitted only on riverboats which recreate, as nearly as
practicable, Iowa's riverboat history and have a capacity for at least 250
persons. In addition, the licensee must utilize Iowa resources, goods and
services in the operation of the riverboat. An excursion gambling boat must
operate at least one excursion each day for 100 days during the excursion
season from April 1 through October 31. Excursions consist of a minimum of
two hours. While an excursion gaming boat is docked, passengers may embark or
disembark at any time.

Pursuant to its rule-making authority, the IRGC requires all employees of
TCG and certain key employees of the Company to be licensed by the IRGC. In
addition, anyone having a material relationship or involvement with the
Company may be required to be found suitable or to be licensed. The IRGC has
jurisdiction to disapprove a change in position by such officers or key
employees and the power to require the Company to suspend or dismiss officers,
directors or key employees or sever relationships with other persons who
refuse to file appropriate applications or whom the IRGC finds unsuitable to
act in such capacities.

12

14
The IRGC may also require any individual who has a material relationship
with the Company to be investigated and licensed or found suitable. Any
person who acquires 5% or more of the Company's equity securities must be
approved by the IRGC prior to such acquisition. The applicant stockholder is
required to pay all costs of such investigation.

Mississippi Gaming Regulations. Gaming was authorized in Mississippi in
June 1990 but gaming operations did not commence until August 1992. The
ownership and operation of casino gaming facilities in Mississippi are subject
to extensive state and local regulation. The Company is registered as a
publicly traded holding company under the Mississippi Gaming Control Act and
its gaming operations are subject to the licensing and regulatory control of
the Mississippi Gaming Commission (the "Mississippi Commission") and various
local, city and county regulatory agencies.

Licenses to conduct gaming operations in the State of Mississippi are not
transferable and are required to be renewed on a periodic basis. Each issuing
agency may at any time revoke, suspend, condition, limit or restrict a license
or deny approval to own shares of stock in the Company or a gaming entity for
any cause deemed reasonable by such agency.

The Mississippi Commission has the authority to require a finding of
suitability with respect to any stockholder regardless of such stockholder's
percentage of ownership. In this regard, the Company's Certificate of
Incorporation provides that the Company may redeem any shares of the Company's
capital stock held by any person or entity whose holding of shares may cause
the loss or non-reinstatement of a governmental license held by the Company.
Such redemption shall be at fair market value, as defined in the Company's
Certificate of Incorporation, regardless of the price the stockholder paid for
the shares. Mississippi law also contains a provision which requires the
Company to purchase for cash all shares of any stockholder found unsuitable by
the Mississippi Commission and requires such purchase to be made within ten
days of the finding of unsuitability. In either case, the stockholder is
required to pay all costs of investigation. In addition, any individual who
is found to have a material relationship to, or material involvement with, the
Company may be required to be investigated in order to be found suitable or to
be licensed as a business associate. Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of
the Company may also be deemed to have such a relationship or involvement.

In connection with its license, the Company and President Mississippi are
required to submit detailed financial, operating and other reports to the
Mississippi Commission. Substantially all loans, leases, sales of securities
and similar financing transactions entered into by President Mississippi must
be reported to or approved by the Mississippi Commission. In addition, the
Mississippi Commission regulates the Company's ability to engage in certain
types of transactions. For example, a change in control of the Company or a
plan of reorganization (as defined in the regulations) by the Company may not
occur without the prior approval of the Mississippi Commission. Similarly,
Mississippi gaming legislation requires that each person employed by President
Mississippi as a gaming employee obtain a valid work permit issued by the
Mississippi Commission.

13

15
The Mississippi Commission has the authority to approve or disapprove the
Company's future operations outside of Mississippi. The Company's Davenport
operations were reviewed and approved during its Biloxi licensing process. On
May 24, 1993, the Company received all requisite approvals from the
Mississippi Commission to conduct gaming operations in the jurisdictions in
which it was then operating or proposing to operate without further action by
the Mississippi Commission. The Company's current non-Mississippi gaming
operations do not require re-approval by the Mississippi Commission except as
part of the Company's application for renewal of its license. The Mississippi
regulations require that the Company notify the Mississippi Commission prior
to conducting gaming operations in any additional jurisdictions and provide
certain documentation to the Mississippi Commission relating to proposed
gaming operations.

A 1998 amendment to a Mississippi Commission regulation requires as a
condition of licensure or license renewal that a gaming establishment's
development plan include a 500-car or larger parking facility in close
proximity to the casino complex and infrastructure facilities, the
expenditures for which will amount to at least 100% of the higher of the
appraised value or construction cost of the casino. The regulation formerly
required infrastructure expenditures amounting to 25% of the casino cost.
Such infrastructure facilities shall include any of the following: a 250-room
or larger hotel of at least a two-star rating as defined by the current
edition of the Mobil Travel Guide, a theme park, golf courses, marinas, tennis
complex, entertainment facilities, or any other such facility as approved by
the Mississippi Commission as infrastructure. Parking facilities, roads,
sewage and water systems, or facilities normally provided by cities and/or
counties are excluded. The Mississippi Commission may in its discretion
reduce the number of rooms required, where it is shown to the Mississippi
Commission's satisfaction that sufficient rooms are available to accommodate
the anticipated visitor load, and parking spaces may also be reduced as needed
for small casinos. Because the amended regulation "grandfathers" in existing
licensees (and applicants for a license receiving a finding of site
suitability from the Mississippi Commission) prior to February 20, 1999, the
amendment imposes no new requirement on the Company.

In 1998, two referenda were proposed which, if approved, would have amended
the Mississippi Constitution to ban gaming in Mississippi and would have
required all currently legal gaming entities to cease operations within two
years of the ban. Each of the proposals were ruled illegal by Mississippi
State judges because, among other reasons, they failed to include required
information regarding the anticipated effect on government revenues. The
Mississippi Supreme Court affirmed the Circuit Court first ruling, but only on
procedural grounds.

On March 22, 1999, another such referendum was filed with the Mississippi
Secretary of State. The language of that proposal also failed to include
information regarding its anticipated effect on government revenues. That
proposal was dismissed by the court and is currently being appealed. Any such
referendum must be approved by the Mississippi Secretary of State and
signatures of approximately 98,000 registered voters must be gathered and
certified in order for such a proposal to be included on a statewide ballot

14

16
for consideration by the voters. The next election, for which the proponents
could attempt to place such a proposal on the ballot, would be November 2000.
It is possible at some point that a revised initiative will be filed which
would adequately address the issues regarding the effect on government
revenues of prohibition of gaming in Mississippi. However, while it is too
early in the process for the Company to make any predictions with respect to
whether such a referendum will appear on a ballot or the likelihood of such a
referendum being approved by the voters. If such a referendum were passed and
gaming were prohibited in Mississippi, it would have a materially adverse
effect on the Company.

Missouri Gaming Regulations. Gaming on the Missouri and Mississippi Rivers
in the State of Missouri was originally authorized pursuant to a statewide
referendum on November 3, 1992. On April 29, 1993, Missouri enacted revised
legislation (the "Missouri Gaming Law") which amended the existing
legislation. The Missouri Gaming Law also established the Missouri Gaming
Commission (the "Missouri Commission"), which is responsible for the licensing
and regulation of gaming in Missouri and has the discretion to approve license
applications for both permanently moored ("dockside") riverboat casinos and
powered ("excursion") riverboat casinos.

Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities are subject to extensive state and local regulation. The
Missouri Commission has broad discretion to revoke or suspend gaming licenses
and impose other penalties for violation of the Missouri Gaming Law and the
rules and regulations promulgated thereunder. These penalties may include
forfeiture of all gaming equipment used for improper gaming and fines of up to
three times an operator's highest daily gross adjusted receipts during the
preceding twelve months. Licenses issued by the Missouri Commission to
conduct gaming operations are subject to two year renewals and may not be
transferred or pledged as collateral. License fees are a minimum of $25,000
annually after the initial license application. In addition, each licensee
must pay the entire cost of Missouri Highway Patrol officers and gaming
enforcement agents assigned to it. Each applicant has an ongoing duty to
update the information provided to the Missouri Commission in the application.
In addition to the information required of the applicant, directors, officers
and other key persons must submit applications which include detailed personal
and financial information and are subject to thorough investigations.
Applications filed with the Missouri Commission are continuously "pending" and
any issue may be reopened at any time. The Missouri Commission has the
authority to investigate any potential violation of the Missouri Gaming Law.
In addition, the Missouri Commission may take enforcement action against a
licensee for the failure of that licensee to comply with any other law. All
gaming employees must obtain an occupational license issued by the Missouri
Commission. The Company, its subsidiaries and certain of its officers and
employees are subject to various regulations. The Missouri Gaming Law
regulations bar a licensee from taking any of the following actions without
prior notice to, and approval by, the Missouri Commission: any issuance of an
ownership interest of five percent or more of the issued and outstanding
ownership interest, any private incurrence of debt by the licensee or any
holding company of $1.0 million or more, any public issuance of debt by a
licensee or its holding company, and certain defined "significant related

15

17
party transactions." In addition, the licensee must notify the Missouri
Commission of other transactions, including the transfer of five percent or
more of an ownership interest in the licensee or holding company, and any
transaction of at least $1.0 million. The restrictions on transfer of
ownership apply to the parent as well as the direct licensee, President
Missouri.

The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer that
licensees must pay to the Missouri Commission, a 20% tax on adjusted gross
receipts (in addition to other state taxes and license fees), a minimum payout
requirement of 80% for slot machines, prohibitions against providing credit to
gaming customers (except for the use of credit cards and checks) and a
requirement that each licensee reimburse the Missouri Commission for all costs
of any Missouri Commission staff necessary to protect the public on the
licensee's riverboat. Licensees must also submit audited quarterly financial
reports to the Missouri Commission and pay the associated auditing fees. The
Missouri Gaming Law provides for a loss limit of five hundred dollars per
person per excursion and requires simulated "cruises." The internal operating
procedures and controls of each facility is subject to the approval of the
Missouri Commission. The purchase and sale of slot machines and other gaming
equipment is subject to regulation, and must be purchased from a licensed
supplier. The Missouri Commission requires comprehensive safety inspections
and compliance with local ordinances even if the U.S. Coast Guard no longer
has safety jurisdiction over a facility. The Missouri Commission regulates
security and surveillance, and the control of cash and chips. Liquor licenses
are regulated by the Missouri Commission, not local or other state agencies.
Although the Missouri Gaming Law does not limit the amount of riverboat space
that may be used for gaming, the Missouri Commission is empowered to impose
such space limitations through the adoption of rules and regulations.

Non-Gaming Regulations

The Company is subject to certain federal, state and local safety and health
laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Americans with Disabilities Act, the Clean Air Act,
Clean Water Act, Occupational Safety and Health Act, Resource and Conservation
Recovery Act and the Comprehensive Environmental Response, Compensation and
Liability Act. The Company has not made material expenditures with respect to
such laws and regulations. However, the coverage and attendant compliance
costs associated with such laws, regulations and ordinances may result in
future additional costs to the Company's operations. For example, in 1990 the
U.S. Congress enacted the Oil Pollution Act to consolidate and rationalize
mechanisms under various oil spill response laws. The Department of
Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of
financial responsibility in the amount of $5.5 million for clean-up of oil
pollution. This requirement would be satisfied by either proof of adequate
insurance (including self-insurance) or the posting of a surety bond or
guaranty.

Certain of the vessels operated by the Company must comply with U.S. Coast
Guard requirements as to safety and must hold a Certificate of Inspection.

16

18
These requirements set limits on the operation of the vessels and require that
each vessel be operated by a minimum complement of licensed personnel. Loss
of a vessel's Certificate of Inspection would preclude its use as a motorized
carrier of passengers, and as such, if the vessel was operated in a
jurisdiction which has cruising requirements, would preclude its use as a
casino. Every five years the vessels which require a Certificate of
Inspection must undergo a hull inspection, which generally requires the vessel
be dry-docked. Any such loss of service of a vessel may have an adverse
effect on the results of operations and financial position of the Company.
Certain other vessels not falling within the regulation of the U.S. Coast
Guard, and certain other facilities, are subject to local building codes and
the requirements of state authorities including applicable gaming regulatory
authorities.

Applicable provisions of the Local Option Alcoholic Beverage Control Law of
the State of Mississippi require that each employee of a licensed retailer who
handles alcoholic beverages obtain a valid permit issued by the Alcoholic
Beverage Control Division of the Mississippi State Tax Division. All
employees of President Mississippi who are required to obtain such permits
have either obtained such permits or have completed applications therefor and
are permitted to act in the positions for which they were hired pending
approval of such applications.

The Bank Secrecy Act (the "BSA"), enacted by Congress in 1985, requires
banks, other financial institutions and casinos to monitor receipts and
disbursements of currency in excess of $10,000 and report them to the United
States Department of the Treasury (the "Treasury"). In management's opinion,
the BSA may have resulted in a reduction in the volume of play by high level
wagerers. The Treasury has proposed tentative amendments to the BSA which
would apply solely to casinos and their reporting of currency transactions.
The most significant proposed change in the BSA is a reduction in the
threshold at which customer identification data must be obtained and
documented by the casino, from $10,000 to $3,000 (which may include the
aggregation of smaller denomination transactions). Additionally, the
amendments would substantially increase the record-keeping requirements
imposed upon casinos relating to customer data, currency and non-currency
transactions. Management believes the proposed amendments, if enacted in
their current form, could result in a further reduction in the volume of play
by upper-and middle-level wagerers while adding operating costs associated
with the more extensive record-keeping requirements. However, management does
not expect that the effect on operations would be material.

Employees

As of February 29, 2000, the Company had approximately 2,700 employees.

In April 1999, certain gaming, service and maintenance employees of
President Missouri ratified a three-year collective bargaining agreement
setting out wages, benefits and other terms and conditions of employment. The
labor agreement covers approximately 310 of the Company's 775 St. Louis
employees.

17

19
Item 3. Legal Proceedings.

On January 16, 1997, a case entitled "Whalen v. John E. Connelly, J. Edward
Connelly and Associates, Inc., President Casinos, Inc. and PRC-Iowa, Inc." was
filed in the Iowa District Court for Scott County by Michael L. Whalen
("Whalen"), who is a five percent limited partner in TCG. Whalen filed this
lawsuit after accepting from Della III, Inc., the former general partner,
shares of Common Stock and cash to which he was determined to be entitled
pursuant to a previous judgment. Whalen claimed in this lawsuit that because
he asked for the stock and cash while he was appealing the judgment in a
previous lawsuit and was not given the stock or cash until after the judgment
was affirmed, the named defendants committed the tort of conversion. Whalen
sought as damages the difference in the value of the stock on the date of its
"highest valuation" and the date he accepted the stock in 1996. In November
1998, the Court granted the Company's motion for summary judgment and
dismissed Whalen's claim for conversion. Whalen has appealed the Court's
decision and such appeal is now pending.

In 1994, William H. Poulos filed a class-action lawsuit in the United States
District Court for the Middle District of Florida against over thirty-eight
(38) casino operators, including the Company, and certain suppliers and
distributors of video poker and electronic slot machines. This lawsuit was
followed by several additional lawsuits of the same nature against the same,
as well as additional, defendants, all of which have now been consolidated
into a single class-action pending in the United States District Court for the
District of Nevada. Following a court order dismissing all pending pleadings
and allowing the plaintiffs to re-file a single complaint, a complaint has
been filed containing substantially the same claims, alleging that the
defendants fraudulently marketed and operated casino video poker machines and
electronic slot machines, and asserting common law fraud and deceit, unjust
enrichment and negligent misrepresentation. Various motions were filed by the
defendants seeking to have this new complaint dismissed or otherwise limited.
On December 19, 1997, the Court, in general, ruled on all motions in favor of
the plaintiffs. Discovery as to the appropriateness of the named plaintiffs
as class representatives has commenced. Although the outcome of litigation is
inherently uncertain, management, after consultation with counsel, believes
the action will not have a material adverse effect on the Company's financial
position or results of operations.

In April 1997, an action captioned "American Gaming & Entertainment, Ltd. v.
President Mississippi Charter Corporation and President Riverboat
Casino-Mississippi, Inc." was filed in the Chancery Court of Harrison County,
Mississippi by American Gaming & Entertainment, Ltd. ("AGEL"). AGEL was the
subject of bankruptcy proceedings pending in the United States Bankruptcy
Court for the Southern District of Mississippi, (the "Bankruptcy Court") and
was the owner of the "President Casino-Broadwater" which is utilized in
connection with the Company's Biloxi operations pursuant to the initial
charter agreement between AGEL and Charter Corp. The action filed by AGEL
alleged that PRC-Mississippi and Charter Corp. did not comply with their
respective obligations under the initial charter agreement. The Company
asserted that AGEL breached its obligations under the initial charter
agreement and, in connection therewith, withheld a portion of the charter

18

20
payments due to AGEL under the initial charter agreement. In October of 1998,
this action was dismissed with prejudice pursuant to a settlement agreed upon
by the parties. Pursuant to the settlement, the Company made payments
totaling $3.9 million, representing back rent of $0.2 million per month from
December 1997 through October 1998, and a lump sum payment of $1.5 million.

In addition, in the above proceeding, an action captioned "International
Game Technology v. President Casinos, Inc., President Mississippi Charter
Corporation, President Riverboat Casino-Mississippi, Inc. and President
Riverboat Casinos, Inc." was filed in the Circuit Court of Harrison County,
Mississippi, Second Judicial District, by International Game Technology
("IGT"). The action was removed to the United States District Court, Southern
District of Mississippi, Biloxi Division, on March 11, 1998, and was
subsequently referred to the United States Bankruptcy Court for the Southern
District of Mississippi where it is captioned "In re AmGam Associates, a
Mississippi General Partnership, Chapter 11 Reorganization Case No.
95-07864-SEG, Adversary Proceeding 98-05095." This action alleged that
certain subsidiaries of the Company assumed certain obligations of the owner
of the "President Casino-Broadwater" to IGT with respect to certain slot
machines. On August 10, 1999, the Company executed a purchase agreement for
the "President Casino-Broadwater." As a part of the purchase agreement,
"American Gaming & Entertainment, Ltd. v. President Mississippi Charter
Corporation and President Riverboat Casino-Mississippi, Inc.," "In re AmGam
Associates, a Mississippi General Partnership, Chapter 11 Reorganization Case
No. 95-07864-SEG, Adversary Proceeding 98-05095" and various other lawsuits
were dismissed.

A shareholder derivative suit captioned Mizel v. John E. Connelly et. al.
was filed on September 11, 1998, in the Court of Chancery of the State of
Delaware alleging that the Board of Directors of the Company failed to
exercise informed business judgment and wasted corporate assets in connection
with the July 1997 acquisition by the Company of certain real estate and
improvements in Biloxi, Mississippi, including the Broadwater Resort and
Broadwater Towers and a related golf course, from an entity wholly-owned by
Mr. Connelly, Chairman of the Board and Chief Executive Officer of the
Company. The suit requests rescission of the transaction, a constructive
trust upon all benefits received by Mr. Connelly in the transaction, the award
of damages to the Company and attorneys fees and costs. The case is in the
preliminary stages. The Company filed a motion to dismiss this action for
failure by the plaintiff to make a demand for relief upon the Board of
Directors. The Court denied the motion and discovery has commenced. Based on
management's evaluation of the lawsuit, the Company believes that it has
meritorious defenses to the allegations set forth in the suit, and intends to
defend this action vigorously. The suit is covered under the Company's
directors and officers insurance policy. Because this is a derivative action,
the result of a successful judgment would be a reimbursement to the Company
from the Directors on account of their alleged breaches of their duty to
exercise an informed business judgment and because of their waste of corporate
assets. Because the Company believes the Directors have meritorious defenses
to the allegations, it does not anticipate any material recovery in the
action.

19

21
The Company serves alcoholic beverages at its gaming facilities and has from
time to time been the subject of claims related thereto. Although the Company
believes it maintains adequate insurance to cover these types of claims, it is
often difficult to predict the outcome of such litigation and the amount of
damages which may be awarded in these types of cases. The Company does not
believe that the outcome of any pending litigation related to the Company's
serving of alcoholic beverages will have a material adverse effect on its
financial position or results of operations.

The Company is also from time to time party to litigation, which may or may
not be covered by insurance, arising in the ordinary course of its business.
Based on the advice of legal counsel, the Company does not believe that the
outcome of such litigation will have a material adverse effect on the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 2000.

Item 4A. Executive Officers of the Company.

The executive officers of the Company, together with their respective ages
and positions with the Company, are set forth below.

Name Age Positions with the Company
---- --- --------------------------
John E. Connelly 74 Chairman of the Board and Chief
Executive Officer
John S. Aylsworth 49 President, Chief Operating
Officer and Director
Terrence L. Wirginis 48 Vice Chairman of the Board,
Vice President-Marine and
Development and Director
James A. Zweifel 54 Executive Vice President and
Chief Financial Officer
- ----------------

Mr. Connelly has served as Chairman and a director of the Company and its
predecessors since their inception. Mr. Connelly has also served as Chief
Executive Officer of the Company from its inception until March 1995 and since
July 1995. Mr. Connelly served as President from July 1995 until July 1997.
Entities controlled by Mr. Connelly have owned and operated the Gateway
Clipper Fleet in Pittsburgh from its inception in 1958 through 1996, the
Station Square Sheraton Hotel in Pittsburgh from 1981 to 1998 and the
Broadwater Beach Resort from 1992 until such time as the purchase of the
property by a limited liability company in which the Company and Mr. Connelly
have interests. In 1984, Mr. Connelly founded World Yacht Enterprises, a
fleet of dinner cruise, sightseeing and excursion boats in New York City. In
1985, he started Gateway Riverboat Cruises in St. Louis, a predecessor to the
Company. Mr. Connelly is also the founder, owner and Chief Executive Officer
of J. Edward Connelly Associates, Inc., a marketing firm based in Pittsburgh,
Pennsylvania.

20

22
Mr. Aylsworth has been President and Chief Operating Officer since July
1997, Executive Vice President and Chief Operating Officer of the Company from
March 1995 until July 1997 and a director of the Company since July 1995.
Prior to joining the Company, Mr. Aylsworth served as an executive officer for
Davis Companies, located in Los Angeles, California. From January 1992
through October 1994, Mr. Aylsworth was Chief Executive Officer of The Sports
Club Company, a company which operates premier health and fitness facilities
in Los Angeles and Irvine, California. From February 1989 through December
1991, Mr. Aylsworth was Chief Financial Officer of SpectreVision Co., a
Dallas, Texas based supplier of in-room entertainment and interactive
information systems in the hotel industry.

Mr. Wirginis has served as Vice Chairman of the Board since July 1997. Mr.
Wirginis has served as Vice President, Marine and Development since August
1995 and as a director since the Company's inception. Mr. Wirginis provided
consulting services to the Company with respect to the Company's marine
operations and the development and improvement of the Company's facilities
since its inception until August 1995. The Company has been advised that Mr.
Wirginis devotes an insubstantial amount of his time to Gateway Clipper Fleet,
a company in which he has an ownership interest. Mr. Wirginis is the grandson
of Mr. Connelly.

Mr. Zweifel has been Executive Vice President and Chief Financial Officer of
the Company since July 1997. Mr. Zweifel served as Vice President and Chief
Financial Officer from November 1995 until July 1997. Prior to joining the
Company, Mr. Zweifel was Executive Director of FANS, Inc., the organization
formed to bring the Los Angeles Rams to St. Louis. From July 1992 to November
1994, Mr. Zweifel was Vice President and Controller of Clark Refining and
Marketing. From July 1988 to July 1992, Mr. Zweifel was Vice President, Chief
Financial Officer and Secretary for Engineered Support Systems, a manufacturer
of ground support systems.

21

23
PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.

The Company's Common Stock was delisted from the Nasdaq National Market
effective the close of business November 19, 1998, because the Company no
longer met certain listing requirements. The stock continues to trade on the
OTC Bulletin Board under the symbol "PREZ". Prior to being delisted, the
Company's stock had been traded on the Nasdaq National Market since December
11, 1992. Prior thereto, there was no established public trading market for
the Common Stock. The following table sets forth, for the fiscal quarters
indicated, the high and low sale or bid prices for the Common Stock, as
reported by the Nasdaq National Market or the OTC Bulletin Board:

High Low
------ -----
Fiscal 2000
First Quarter................ $ 3.2500 $ 1.3125
Second Quarter............... $ 2.1875 $ 1.0000
Third Quarter................ $ 1.9844 $ 0.8125
Fourth Quarter............... $ 1.5625 $ 0.5000

Fiscal 1999
First Quarter................ $ 3.6250 $ 1.7812
Second Quarter............... $ 3.3125 $ 1.5000
Third Quarter................ $ 1.7188 $ 0.3125
Fourth Quarter............... $ 3.7500 $ 0.5000

On May 24, 2000, there were approximately 1,503 holders of record of the
Company's Common Stock.

The Company has never paid any dividends on its Common Stock. The Company
anticipates that for the foreseeable future all earnings, if any, will be used
for the repayment of debt or retained for the operations and expansion of its
business. Accordingly, the Company does not anticipate paying any cash
dividends in the foreseeable future. The payment of dividends by the Company
is restricted under the terms of the indenture governing the Company's Senior
Exchange Notes due 2001. See "Management's Discussion and Analysis of
Financial Position and Results of Operations-Liquidity and Capital Resources."

22

24
Item 6. Selected Consolidated Financial Data.

The following selected financial data of the Company is qualified by
reference to and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere herein. The selected
consolidated statement of operations and balance sheet data are derived from
the Company's consolidated financial statements certain of which are included
elsewhere herein.

Years Ended February
28/29,
2000 1999 1998
1997 1996
------ ------ ------
- ------ ------
(in thousands, except
share data)

Consolidated Statement of Operations Data:
Total operating revenues.................. $204,549 $205,512 $187,535
$187,027 $192,685

Operating income (loss)................... $ 7,524 $ 5,857 $ 2,827 $
3,784 $(21,471)

Net income (loss)......................... $(13,373) $(14,892) $(15,037) $
(8,785) $(58,150)

Basic and dilutive loss per share......... $ (2.66) $ (2.96) $ (2.99)
$ (1.74) $(11.55)

Consolidated Balance Sheet Data:
Total assets.............................. $165,394 $172,744 $187,256
$155,904 $168,024
Current liabilities....................... $171,755 $ 27,109 $ 31,510 $
27,056 $ 29,403
Long-term liabilities..................... $ -- $139,379 $135,084
$104,862 $105,082
Stockholders' equity (deficit)............ $(19,581) $ (6,208) $ 8,684 $
23,721 $ 32,506

Gaming operations commenced in Davenport, Iowa on April 1, 1991, in Biloxi,
Mississippi on August 13, 1992 and in St. Louis, Missouri on May 27, 1994.
Hotel operations commenced in Davenport, Iowa on October 30, 1990 and in
Biloxi, Mississippi on July 27, 1997.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

The following discussion, which covers fiscal years 1998 through 2000,
should be read in conjunction with the consolidated financial statements of
the Company and the separate financial statements of The Connelly Group, L.P.
and the notes thereto included elsewhere in this report.

The Company is experiencing difficulty generating sufficient cash flow to
meet its obligations and sustain its operations. The Company's management
determined that, pending a restructuring of its indebtedness, it would not be
in the best interest of the Company to make the regularly scheduled interest
payments on its Senior Exchange Notes and Secured Notes. Accordingly, the
Company has not paid the regularly scheduled interest payment of $6.4 million
that was due and payable March 15, 2000. Under the Indentures pursuant to
which the Senior Exchange Notes and Secured Notes were issued, an Event of
Default occurred on April 15, 2000, and is continuing as of the date hereof.
No action has been taken by either the Indenture Trustee or holders of at
least 25% of the Senior Exchange Notes and Secured Notes to accelerate the
Senior Exchange Notes and Secured Notes and declare the unpaid principal and
interest to be due and payable.

23

25
An informal committee (the "Committee"), representing holders of a majority
in interest of the Senior Exchange Notes and Secured Notes, has been formed.
The Committee has retained legal counsel, certain costs of which are being
borne by the Company. The Company has initiated and is continuing discussions
with representatives of the Committee concerning a restructuring of the
Company's indebtedness that may include the sale of some of the Company's
properties. The Company believes that the market value of its properties and
assets substantially exceeds the amount of its debt. Management believes this
market value is the key factor in the Company's program to resolve this matter
with the bond holders. There can be no assurances that the Company will be
successful in this restructuring, and the Company believes that the success of
such restructuring will depend in large part upon the cooperation and the
willingness of the creditors to work with the Company.

Due to cross default provisions associated with other debt agreements, the
Company is also in default on certain other debts. These debts include the
$30.0 million note and the associated $7.0 million loan fee related to the
Broadwater Property and the $3.0 million "President Casino-Mississippi" note.
These debts are also currently due and classified in current liabilities as of
February 29, 2000. Additionally, the Company did not pay the $3.7 million
note which was due April 15, 2000, associated with the purchase of the Biloxi
casino barge. The Company has reached an agreement in principle to extend the
payment obligations under this note and is finalizing the documentation. In
the event that these notes are accelerated, at this time the Company does not
have the resources available to repay such indebtedness. See Liquidity and
Capital Resources.

Management is pursuing various strategic financing alternatives in order to
fund these obligations and the Company's continuing operations. The Company
is working with recognized financial advisors in the gaming industry to pursue
these alternatives, including the restructuring and refinancing of outstanding
debt obligations and/or the sale of a portion of its assets. The Company's
ability to continue as a going concern is dependent on the ability of the
Company to restructure successfully, refinance its debts or sell/charter
assets on a timely basis under acceptable terms and conditions and the ability
of the Company to generate sufficient cash to fund future operations. There
can be no assurance in this regard.

Overview

The Company's operating results are affected by a number of factors,
including competitive pressures, changes in regulations governing the
Company's activities, the results of pursuing various development
opportunities and general weather conditions. Consequently, the Company's
operating results may fluctuate from period to period and the results for any
period may not be indicative of results for future periods. The Company's
operations are not significantly affected by seasonality.

--Competition

Intensified competition for patrons continues to occur at each of the
Company's properties.

24

26
Since gaming began in Biloxi in August 1992, there has been steadily
increasing competition along the Mississippi Gulf Coast, in nearby New Orleans
and elsewhere in Louisiana and Mississippi. Several large hotel/casino
complexes have been built in recent years with the largest single resort in
the area opening in March 1999. There are currently twelve casinos operating
on the Mississippi Gulf Coast. See "Potential Growth Opportunities" regarding
a master plan for a destination resort the Company is developing in Biloxi,
Mississippi.

Within a 45-mile radius of the Quad Cities, the Company's Davenport casino
operations compete with three other casino operations. Expansion and
increased marketing by these competitors and changes in the Illinois gaming
laws has resulted in increased promotional and marketing costs for the
Company's Davenport operation.

Competition is intense in the St. Louis market area. There are presently
five other casino companies operating eight casinos in the market area. Two
of these are Illinois casino companies operating single casino vessels on the
Mississippi River, one directly across the Mississippi from the "Admiral" and
the second 20 miles upriver. There are three Missouri casino companies, each
of which operates two casino vessels approximately 20 miles west of St. Louis
on the Missouri River, one in the City of St. Charles, Missouri and two in
Maryland Heights, Missouri. The two casino companies in Maryland Heights
opened in March 1997. In April 2000, one of these two casino companies
purchased the other so that all four casinos will be operated under the same
name.

Applications have been submitted to the Missouri Gaming Commission for
approval of potential new licenses at four different locations within the St.
Louis Metropolitan area along the Mississippi River, three of which are within
20 miles of the "Admiral." The opening of one or more additional casinos in
the St. Louis market would increase competition and management believes would
have a negative impact on the revenues and the results of operations of the
Company.

--Regulatory Matters

Differences in gaming regulations in the St. Louis market between Illinois
and Missouri operators have given competitive advantages/disadvantages to the
various operators. Missouri regulations formerly did not require vessels to
actually cruise, however, simulated cruising requirements were imposed which
restricted entry to a vessel to a 45-minute period every two hours. Those
competitors having two casino vessels could alternate hourly boarding times
and provide virtually continuous boarding for their guests. Thus, they had a
distinct competitive advantage over the Company, which has only one vessel,
the "Admiral." Illinois casino vessels were formerly required to cruise,
thereby limiting ingress and egress to their casinos. On June 25, 1999,
legislation was enacted eliminating the Illinois cruising requirements. This
change immediately gave the Illinois operators an advantage over the Missouri
operators as Illinois patrons could enter and exit the vessel at any time.
However, this advantage was negated on August 16, 1999, when the Missouri
Gaming Commission allowed "continuous boarding" by establishing a temporary

25

27
pilot program eliminating the boarding restrictions for the "Admiral" and
other casinos in eastern Missouri. This change to "continuous boarding" also
enabled the "Admiral" to compete more effectively with the Missouri operators
who have two adjacent casino vessels. At this time, the Missouri Gaming
Commission has not given any indication as to the length of the pilot program
or as to whether it will become permanent.

Other Missouri regulations limit the loss per cruise per passenger by
limiting the amount of chips or tokens a guest may purchase during each two-
hour gaming session to $500. The "dual" casinos that some Missouri operators
use allows a guest who reaches the cruise loss limit to move to the sister
casino and continue to play. The lack of a statutory loss limit on Illinois
casinos allows them to attract higher stake players; additionally, their
guests are not burdened with the administrative requirements related to the
loss limits. Any easing of the loss limits in Missouri would be expected to
have a positive impact on the Company's St. Louis operation.

In Iowa, an excursion gaming boat must operate at least one excursion each
day for 100 days during the April 1 through October 31 excursion season.
Excursions must last a minimum of two hours. While an excursion gaming boat
is docked, passengers may embark or disembark at any time. As discussed
above, Illinois boats were required to cruise until June 1999 when such
cruising requirements were eliminated. The Company believes that the
elimination of cruising requirements in Illinois has had a negative impact on
the Davenport operations. As a result of the change in Illinois legislation,
the competitor directly across the Mississippi River in Rock Island, Illinois
is no longer required to cruise. The elimination of the cruising requirements
has provided the Rock Island casino an opportunity to expand its operation,
increasing its slot machine total from 397 to 596.

--Weather Conditions

The Company's operating results are susceptible to the effects of floods and
adverse weather conditions. On various occasions, the Company has temporarily
suspended operations as a result of such adversities. The Davenport casino
operations were temporarily suspended for thirteen days during April 1997, as
a result of flooding on the Mississippi River. Although the Company was not
forced to suspend its St. Louis operations during fiscal years 2000, 1999 and
1998 from adverse weather conditions, high waters caused reduced parking and a
general public perception of diminished access to the casino which combined to
negatively impact revenue. Additionally, the Company suspended its Biloxi
casino operations from September 25, 1998 until October 1, 1998 due to
Hurricane Georges.

- St. Louis Barge Accident

On April 4, 1998, the "Admiral" was struck by runaway river barges which
resulted in the severing of several of the vessel's mooring lines and boarding
ramps. Although the boarding ramps were lost and significant costs were
incurred returning the "Admiral" to its mooring site, the vessel sustained no
hull or structural damage and minimal damage to its bow apron. There were no
reports of serious injuries to the approximate 2,300 guests and employees

26

28
aboard. The "Admiral" was closed to the public for 26 days, reopening on
April 30, 1998. The Company maintains adequate property, liability and
business interruption insurance which minimized the financial impact of the
accident. The deductible that applied against these policies was $1.1
million. The Company is pursuing legal action against the owners of the
towboat that were involved in the accident to recover any uninsured losses.

--Potential Growth Opportunities

Biloxi, Mississippi

On July 24, 1997, the Company, through a newly created subsidiary, President
Broadwater Hotel, LLC ("PBLLC"), purchased for $40.5 million certain real
estate and improvements located on the Gulf Coast in Biloxi, Mississippi from
an entity which was wholly-owned by John E. Connelly, Chairman, Chief
Executive Officer and principal stockholder of the Company. The property
comprises approximately 260 acres and includes two hotels, a 111-slip marina
and the adjacent 18-hole Sun Golf Course (collectively, the "Broadwater
Property"). The marina is the site of the Company's casino operations in
Biloxi and was formerly leased by the Company under a long-term lease
agreement. The Company invested $5.0 million in PBLLC.

PBLLC financed the purchase of the Broadwater Property with $30.0 million of
financing from a third party lender, evidenced by a non-recourse promissory
note (the "Indebtedness") and issued a $10.0 million membership interest to
the seller. Except as set forth in the promissory note and related security
documents, PBLLC's obligations under the Indebtedness are nonrecourse and are
secured by the Broadwater Property, its improvements and leases thereon. The
Indebtedness bears interest at a variable rate per annum equal to the greater
of (i) 8.75%, or (ii) 4% plus the LIBOR 30-day rate. The membership interest
grows at the same rate. The accrued balance of the membership account and
unpaid growth as of February 29, 2000 was $12.5 million and is included on the
balance sheet in minority interest. Cash payments relating to this membership
interest have totaled $0.2 million since its inception.

PBLLC is obligated to make monthly payments of interest accruing under the
Indebtedness, and to repay the Indebtedness in full on July 22, 2000. In
addition, PBLLC is obligated to pay to the lender a loan fee in the amount of
$7.0 million which will be fully earned and nonrefundable when the
Indebtedness is repaid. As of February 29, 2000, the accrued loan fee of $6.0
million is included in current liabilities. See Liquidity and Capital
Resources for a discussion of the repayment of this obligation.

The Company is currently developing a master plan for the Broadwater
Property. Management believes that this site is ideal for the development of
"Destination Broadwater," a full-scale luxury destination resort offering an
array of entertainment attractions in addition to gaming. The plans for the
resort feature a village which will include a cluster of casinos, hotels,
restaurants, theaters and other entertainment attractions. Management
believes that with its beachfront location and contiguous golf course, the
property is the best site for such a development in the rapidly growing Gulf
Coast market.

27

29
In January 1999, the Company received the permit from the Mississippi
Department of Marine Resources ("DMR") for development of the full-scale
destination resort. This is the first of three permit approvals required of
the Joint Permit Application submitted in August 1998 to the DMR, the U.S.
Army Corps of Engineers and the Mississippi Department of Environment Quality.
The two remaining permit approvals are still pending and awaiting the
finalization of the Environmental Impact Statement ("EIS"). The Company has
received the draft of the EIS, the notice of which is expected to be posted in
the Federal Register in early June for public comment.

In March 1999, to facilitate its proposed master plan development, the
Company entered into contracts with the State of Mississippi and the owners of
Deer Island to purchase for $15.0 million and convey title to the island to
the State of Mississippi. Deer Island encompasses approximately 500 acres and
is located just offshore of Biloxi. It is primarily a wilderness which the
state would preserve for use by the people of Mississippi. This transaction
completes another essential step towards securing the necessary agreements and
approvals from the State of Mississippi for the Company's "Destination
Broadwater" development plans. The purchase and conveyance of the title are
contingent on the occurrence of various events, including the issuance to the
Company of all required federal, state and local permits and the issuance by
the State of Mississippi of the tidelands and fast lands leases and casino
licenses necessary for development of Destination Broadwater.

In connection with the Company's proposed "Destination Broadwater"
development plan, to date, the Company has not identified any particular
financing alternatives or sources as the necessary regulatory approvals have
not been obtained. There can be no assurance that the Company will be able to
obtain the regulatory approvals or the requisite financing. Should the
Company fail to raise the required capital, such failure would materially and
adversely impact the Company's business plan.

St. Louis, Missouri

Slot Upgrade Machines and Loss Limit Card Tracking System

During the summer of 1998, all Missouri casinos in the St. Louis market,
except the "Admiral," migrated from a manual/paper system of regulating the
Missouri $500 loss limit to an electronic system. This paperless loss
tracking system is more guest friendly and allows for the use of bill
validators on slot machines, a convenience that the "manual/paper" system does
not allow.

The slot machines currently offered by the "Admiral" lack bill validators
since prior to introduction of the electronic loss tracking system, bill
validators were not permitted in Missouri. As a result, the Company cannot
currently provide guests the convenience of using bill validators nor adapt to
the paperless loss tracking system, putting the "Admiral" at a significant
competitive disadvantage with the other casinos in the St. Louis market.

This competitive disadvantage will soon escalate. The Missouri Gaming
Commission is expected to allow credits generated through use of the bill

28

30
validators to go directly to the slot "credit meter" for use by the customer.
Presently in Missouri, a customer using a bill validator receives tokens in
the tray and then must feed these tokens into the machine. The regulatory
change will provide a significant added convenience to slot players.

In March 2000, the Company purchased 850 previously owned slot machines that
are equipped with bill validators and are fitted to operate with an electronic
loss limit system that the Company is installing. It is anticipated that the
installation of these slot machines and the new system will be completed
during the fall of 2000. Management believes when completed, the Company will
be better positioned to compete in the St. Louis market.

Relocation of the "Admiral"

The Company has received the appropriate regulatory and city approvals to
relocate the "Admiral" 1,000 feet north from its current location (the
"Laclede's Landing area"). It is anticipated that the new location will
provide for an improved operation with better ingress/egress, provide better
parking and be less susceptible to flooding. The Company believes that this
move will result in increased revenues for the "Admiral" and increased rent
and tax revenues for the City of St. Louis. The City has agreed to fund the
first $3.0 million of the estimated $7.9 million in costs to relocate and
improve the "Admiral." Of the $3.0 million City-funded relocation costs, $2.4
million will be financed through bank debt. The Company will pay for the
remaining costs. It is anticipated that the City will repay the $2.4 million
debt from gaming taxes it receives based upon gaming revenues of the
"Admiral." The Company has guaranteed completion of the project and repayment
of the $2.4 million bank debt if the City fails to pay it. The Company
expects to fund this project from operating cash flow. See Liquidity and
Capital Resources.

The platform construction on the levee began in September 1999. As of the
end of April 2000, the Company has spent approximately $2.8 million on the
relocation, of which the City has reimbursed the Company $2.1 million.

It is anticipated that the move will be completed by late 2000, river
conditions permitting. The river height must be below 10 feet to allow the
"Admiral" to maneuver under two bridges to its new location. It is
anticipated the "Admiral" will be closed approximately two weeks to effectuate
the move, including the physical move of the "Admiral," utility hook up and
re-installation of the slot machines.

The anticipated benefits of relocating the "Admiral" include:

Ingress/Egress -- Traffic ingress to and egress from the casino, at its
present location, is difficult. Access from the major highways is poor.
Significant improvements in exit and entrance ramps to the Laclede's Landing
area off the main highway have been recently completed. In addition, road
improvements within the Laclede's Landing area are underway or completed.
Four roads to and from the main highway will provide improved ingress/egress
at the new location.

Guest Parking -- Parking in the current location is limited and not

29

31
controlled by the Company. Currently, all parking facilities, including the
valet parking areas, are operated by third parties. Directly across the
street from the casino is a large flood wall, which limits parking. Guests
must either use the parking garages in the proximity of the casino and walk
considerable distances or park on the levee. The new location provides the
potential for significantly improved parking facilities with parking garages
and lots conveniently located, and the potential to expand and control the
parking.

Flooding -- Flooding and high water on the Mississippi River has negatively
impacted the financial results of the "Admiral" operations every year since it
has opened. The impact first occurs as the river rises and reduces or totally
eliminates parking on the levee, which is currently the closest parking to the
casino. Periodically the river level has reached levels that has made the
construction of costly scaffolding necessary to keep access to the casino
open. The new location is four feet higher and will be much less susceptible
to flooding. Historically, if the "Admiral" had been at its new location
since it opened for gaming in 1994, it is unlikely that the casino would have
been forced to close due to flooding.

Laclede's Landing Entertainment District -- Laclede's Landing is a historic
area located north of the Arch on the Mississippi River and is an
entertainment destination. The "Admiral" is currently located "next to" the
Laclede's Landing area. The casino is not visible from the downtown area,
major highways or the Laclede's Landing entertainment area due to a flood wall
and other infrastructure. The relocated "Admiral" will be centrally
positioned in the entertainment district, readily visible to those coming to
the Laclede's Landing area.

Commercial Development -- There's been significant commercial development in
recent years in the Laclede's Landing area. Recently there has been
significant interest in developing additional hotels in Laclede's Landing.
Additionally, the number of conventions and entertainment at the nearby
convention center and TWA Dome continues to be a catalyst for business in the
area. Management believes that the relocated "Admiral" will serve as a
catalyst for further commercial and entertainment growth in the Laclede's
Landing area.

While the Company believes both the slot upgrade and relocation of the
"Admiral" should enhance St. Louis operations, there can be no guarantee or
assurance that these expected benefits will be realized.

Philadelphia, Pennsylvania

During December 1993, the Company entered into an agreement for the rights
to utilize an 18-acre river front site in Philadelphia, Pennsylvania (the
"Philadelphia Property") either through entering a long-term lease on the
property or, under certain conditions, to purchase the property at its
determined fair market value. The Company also acquired an option to lease a
City-owned pier which is located on property immediately contiguous to the
Philadelphia Property (the "Pier"). The Company entered into the option
agreements in anticipation of the legalization of gaming in Pennsylvania.

30

32
Over the course of the next six years, the parties modified the lease and
the option agreements three times and the Company exercised its options
throughout the period.

In February 1999, the Pennsylvania House of Representatives approved a bill
allowing riverboat casinos to be included in a non-binding statewide gambling
referendum in May 1999. In March 1999, the state Senate voted that the non-
binding referendum would not be submitted to the voters. Based on the
Company's analysis of the likelihood of timely passage of Pennsylvania gaming
legislation, the Company wrote off its remaining investment in Philadelphia of
as of February 28, 1999 and subsequently notified the lessors of management's
intent not to renew the options under the then existing terms. The Company
incurred development costs of $3.8 million and $2.0 million for fiscal years
1999 and 1998, respectively, relating to Philadelphia.

New York, New York

The Company pursued a gaming license for a "cruise-to-nowhere" operation in
New York City utilizing the "New Yorker." In January 1998, the Company
submitted a gaming application to the New York City Gambling Commission and in
April 1998 received notification that the Commission was not prepared to issue
a provisional license which would have allowed the Company to start
operations. The Company incurred $2.6 million in costs pursuing a New York
City license during fiscal year 1999.

Results of Operations

The results of operations for fiscal years 2000, 1999 and 1998 include the
gaming results for Davenport, Iowa, Biloxi, Mississippi and St. Louis,
Missouri, and of lesser significance, the non-gaming operations for Davenport
(the Blackhawk Hotel) and St. Louis (Gateway Riverboat Cruises). Beginning in
July 1997, the results of operations in Biloxi include the results of the
Broadwater Property.

31
33
The following table highlights the results of the Company's operations.

Twelve Months Ended
February 29/28,
2000 1999 1998
------ ------ ------
(in millions)
Davenport, Iowa Operations
Operating revenues $ 77.8 $ 78.9 $ 73.5
Operating income 8.0 11.6 9.6

Biloxi, Mississippi Operations
Operating revenues 59.4 59.6 44.6
Operating income (loss) 4.6 5.1 (2.3)

St. Louis, Missouri Operations
Operating revenues 65.5 63.9 67.9
Operating income 1.6 0.6 2.7

Corporate Leasing Operations
Operating revenues 1.8 3.0 1.5
Operating income (loss) (1.6) 0.3 (0.5)

Corporate Administrative
and Development
Operating loss (5.0) (11.7) (6.7)

The following table highlights certain supplemental measures of the
Company's financial performance.

Twelve Months Ended
February 29/28,
2000 1999 1998
------ ------ ------
(numbers in millions)
Davenport, Iowa Operations
EBITDA $ 12.3 $ 16.3 $ 14.2
EBITDA margin 15.8% 20.7% 19.3%

Biloxi, Mississippi Operations
EBITDA $ 7.0 $ 7.9 $ 0.6
EBITDA margin 11.8% 13.3% 1.3%

St. Louis, Missouri Operations
EBITDA $ 6.4 $ 5.9 $ 7.9
EBITDA margin 9.8% 9.2% 11.6%

Corporate Leasing Operations
EBITDA $ 0.7 $ 1.8 $ 1.1
EBITDA margin 38.9% 60.0% 73.3%

Corporate Administrative
and Development
EBITDA $ (4.9) $ (11.7) $ (6.7)
32

34
"EBITDA" consists of earnings from operations before interest, income taxes,
depreciation and amortization. For the purposes of this presentation, EBITDA
margin is calculated as EBITDA divided by operating revenue.

EBITDA and EBITDA margin are not determined in accordance with generally
accepted accounting principles. Since not all companies calculate these
measures in the same manner, the Company's EBITDA measures may not be
comparable to similarly titled measures reported by other companies.

EBITDA should not be construed as an alternative to operating income as an
indicator of the Company's operating performance, or as an alternative to cash
flows from operational activities as a measure of liquidity. The Company has
presented EBITDA solely as a supplemental disclosure to facilitate a more
complete analysis of the Company's financial performance. The Company
believes that this disclosure enhances the understanding of the financial
performance of a company with substantial interest, depreciation and
amortization.

Fiscal 2000 Compared to Fiscal 1999

Operating revenues. The Company generated consolidated operating revenues
of $204.5 million during fiscal 2000 compared to $205.5 million during fiscal
1999, a decrease of $1.0 million. While the St. Louis operations experienced
an increase in revenues of $1.6 million, the Davenport and Biloxi operations
experienced decreases in operating revenues of $1.1 million and $0.2 million,
respectively. Additionally, the corporate leasing operation experienced a
$1.2 million decrease in operating revenues as a result of a charter agreement
with a third party terminating in July 1999.

Gaming revenues from the Company's Davenport operations decreased $0.3
million during fiscal 2000, compared to fiscal 1999. In Biloxi, an increase
in overall market contributed to a $0.7 million increase in gaming revenues.
Gaming revenues in St. Louis increased $5.5 million compared to the previous
year. The prior year results were negatively impacted by the barge accident
in April 1998, which caused the casino to be closed for 26 days, and
contributed to a loss of market share thereafter.

The Company's revenues from food and beverage, hotel, retail and other (net
of promotional allowances) were $21.8 million during fiscal 2000, compared to
$28.6 million during fiscal 1999, a decrease of $6.8 million or 23.8%. The
decrease was largely attributable to (i) insurance proceeds of $0.9 million in
fiscal 2000 compared to $4.2 million in fiscal 1999, primarily related to the
suspension of operations in St. Louis; and (ii) a decrease in charter revenues
of $1.2 million as a result of a charter agreement with a third party
terminating in July 1999.

Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $111.7 million during fiscal 2000,
compared to $103.3 million during fiscal 1999, an increase of $8.4 million or
8.1%. The increase in gaming costs was primarily attributable to the $5.8
million increase in gaming revenues and those costs directly affected by the
increased revenue levels, such as gaming and boarding taxes. As a percentage

33

35
of gaming revenues, gaming and gaming cruise costs increased to 61.1% in
fiscal 2000 from 58.4% during fiscal 1999.

Competition continues to impact gaming expenses as cash back and promotional
expenses increased at all three gaming operations. Gaming expenses increased
at the Biloxi casino $1.9 million over the prior year with an $0.8 million
increase in cash back, $0.5 million in increased cost of complementary
expenses and $0.4 million related to payroll and benefit costs.

Gaming expenses increased at the Davenport casino $2.6 million over the
prior year due to (i) an increase of $1.0 million in slot lease expense
related to wide-area-progressive games, (ii) an increase of $0.9 million in
cash back and coupons, (iii) an increase of $0.5 million as a result of an
increase in labor and benefit expense, and (iv) an increase in advertising
expense of $0.2 million. Davenport has significantly reduced the number of
wide-area-progressive machines on its floor for fiscal 2001.

The St. Louis increase of $3.9 million in gaming expenses reflects $2.2
million of increased gaming and boarding taxes from increased gaming revenues
and passengers, an additional $0.7 million of boarding fees relating to the
effect continuous boarding had on the calculation of the boarding tax and a
$0.8 million increase in cash back and promotional expenses.

The Company's consolidated selling, general and administrative expenses were
$50.3 million during fiscal 2000, compared to $54.6 million during fiscal
1999, a decrease of $4.3 million or 7.8%. As a percentage of consolidated
revenues, selling, general and administrative expenses decreased to 24.6%
during fiscal 2000, from 26.6% during fiscal 1999.

The St. Louis operations' selling, general and administrative expenses
decreased $3.3 million from the prior year. The prior year reflected $2.7
million of repairs and other costs as a result of the barge accident and $0.6
million resulting from a general liability claim related to a specific
incident. In addition, the current year reflected an $0.8 million reduction
in property taxes, of which $0.3 million relates to a successful tax protest
of prior years. These savings were offset by a $0.5 million increase in
parking costs related to the high water that was experienced in fiscal 2000
and an increase in other expenses of $0.3 million.

The Biloxi operations' selling, general and administrative expenses
decreased $1.3 million over the prior year. Of this reduction, $1.7 million
related to the purchase of the casino barge that was formerly leased by the
Company and the resulting elimination of the charter fees and other associated
costs and a $0.2 million savings on property taxes. These savings were
partially offset by an increase of $0.9 million in marketing and advertising
costs.

The selling, general and administrative expenses of the corporate leasing
operations increased $0.2 million. This increase was primarily attributable
to the costs of maintaining the M/V "New Yorker" whose charter ended in June
1999. This cost will increase in the future if the Company is unsuccessful in
either leasing or selling the vessel during fiscal 2001.

34

36
Depreciation and amortization expenses were $14.0 million during fiscal year
2000 compared to $14.4 million during fiscal year 1999, a decrease of $0.4
million, or 2.8%.

The Company incurred development costs of $0.2 million during fiscal 2000,
compared to $6.9 million during fiscal 1999. Fiscal 2000 costs were incurred
primarily for the ongoing Destination Broadwater project. In fiscal 1999,
these expenses included $3.8 million related to Philadelphia, Pennsylvania and
$2.6 million related to New York City. In March 1999, the Pennsylvania
legislature voted not to hold a referendum on gaming. As a result, the
Company expensed all of its investment in the Philadelphia property as of
February 28, 1999. Also during 1999, the Company was unsuccessful in
obtaining a gaming license to operate a cruise-to-nowhere casino from New York
City.

Operating income. As a result of the foregoing items, the Company had
operating income of $7.5 million during fiscal 2000, compared to operating
income of $5.9 million during fiscal 1999.

Interest expense, net. The Company incurred net interest expense of $19.6
million during fiscal 2000, compared to $19.3 million during fiscal 1999, an
increase of $0.3 million or 1.6%.

Minority interest expense. The Company incurred $1.3 million in minority
interest expense for fiscal 2000, compared to $1.5 million for fiscal 1999, a
decrease of $0.2 million or 13.3%.

Net loss. The Company incurred a net loss of $13.4 million during fiscal
2000, compared to a net loss of $14.9 million during fiscal 1999.

Fiscal 1999 Compared to Fiscal 1998

Operating revenues. The Company generated consolidated operating revenues
of $205.5 million during fiscal 1999 compared to $187.5 million during fiscal
1998, an increase of $18.0 million or 9.6%. While the Davenport and Biloxi
operations experienced increases in revenue of $5.4 million and $15.0 million,
respectively, the St. Louis operations experienced a decrease in operating
revenues of $4.0 million. Additionally, the corporate leasing operation
experienced a $1.5 million increase in charter revenues as a result of having
negotiated a new charter agreement with a third party during fiscal 1999.

Gaming revenues from the Company's Davenport operations were positively
affected by an increase in the overall gaming market in Davenport during
fiscal 1999, compared to fiscal 1998 and by the lack of any suspension of
operations during the period for flood conditions which caused the temporary
suspension of operations for thirteen days during fiscal 1998. In Biloxi, an
increase in both overall market and the casino's percent of market share has
contributed to the increase in the gaming revenues. Gaming revenues from the
Company's St. Louis operations were negatively impacted by the barge accident
in April of fiscal 1999 which caused the casino to be closed for 26 days, and
contributed in loss of market share thereafter.

35

37
The Company's revenues from food and beverage, hotel, retail and other (net
of promotional allowances) were $28.6 million during fiscal 1999, compared to
$18.1 million during fiscal 1998, an increase of $10.5 million or 58.0%. The
increase was largely attributable to (i) the Broadwater Property that
contributed $9.4 million in fiscal 1999 compared to $5.1 million in fiscal
1998, which was the result of the timing of its acquisition in July 1997; (ii)
an increase in insurance proceeds to $4.2 million in fiscal 1999 compared to
$0.5 million in fiscal 1998 primarily related to the suspension of operations
in St. Louis; and (iii) an increase of $1.5 million in charter revenues as a
result of having negotiated a new charter agreement with a third party during
fiscal 1999.

Operating costs and expenses. The Company's consolidated gaming and gaming
cruise operating costs and expenses were $103.3 million during fiscal 1999,
compared to $99.8 million during fiscal 1998, an increase of $3.5 million or
3.5%. The increase in gaming costs was primarily attributable to the increase
in gaming revenues of $7.4 million and those costs directly affected by the
increased revenue levels, such as gaming and boarding taxes. As a percentage
of gaming revenues, gaming and gaming cruise costs decreased to 58.4% in
fiscal 1999 from 58.9% during fiscal 1998.

The Company's consolidated selling, general and administrative expenses were
$54.6 million during fiscal 1999, compared to $50.4 million during fiscal
1998, an increase of $4.2 million or 8.3%. As a percentage of consolidated
revenues, selling, general and administrative expenses decreased to 26.6%
during fiscal 1999, from 26.9% during fiscal 1998. The increase in selling,
general and administrative expenses is primarily related to (i) the timing of
the acquisition of the Broadwater Property in July 1997, which contributed to
a net $0.8 million of the increase; (ii) $0.7 million St. Louis property tax
refund recognized in fiscal 1998 which related to prior years; (iii) the
accrual of $0.6 million for a lawsuit in St. Louis related to a general
liability claim in fiscal 1999; (iv) $0.4 million increase as the result of
taking possession of "New Yorker" from a former charterer and preparing the
vessel for re-charter; (v) $2.7 million for repairs of the "Admiral" as a
result of the barge accident; and (vi) a general increase in selling, general
and administrative expenses as a result of an increase in operating revenues.
Such increases were partially offset by a $1.0 million savings in Biloxi
largely as a result of re-negotiating in fiscal 1998 the barge lease used in
the Biloxi operations.

Depreciation and amortization expenses were $14.4 million during both fiscal
1999 and 1998. The Company recognized no impairment of long-lived assets
during fiscal 1999, compared to $0.4 million during fiscal 1998. The fiscal
1998 write-offs were primarily related to obsolete equipment.

During fiscal 1999, the Company incurred development costs of $6.9 million,
of which $3.8 million was related to growth opportunities in Philadelphia,
Pennsylvania and $2.6 million related to New York City. In March 1999, the
Pennsylvania legislature voted not to hold a referendum on gaming. As a
result, the Company expensed all of its investment in the Philadelphia
property as of the end of fiscal 1999. Also during 1999, the Company was
unsuccessful in obtaining a gaming license to operate a cruise-to-nowhere

36

38
casino from New York City. During fiscal 1998, the Company incurred
development costs of $2.7 million, of which $2.0 million related to the
Philadelphia project.

Operating income. As a result of the foregoing items, the Company had
operating income of $5.9 million during fiscal 1999, compared to operating
income of $2.8 million during fiscal 1998. The improvement in both
Davenport's and Biloxi's operating incomes were the result of improved
revenues. The decrease in St. Louis's operating income is primarily the
result of the barge accident that resulted in suspended operations.

Interest expense, net. The Company incurred net interest expense of $19.3
million during fiscal 1999, compared to $17.0 million during fiscal 1998, an
increase of $2.3 million or 13.5%. The increase was primarily attributable to
an additional $30.0 million of debt incurred by the Company in conjunction
with the purchase of the Broadwater Property in July 1997.

Income taxes. During fiscal years 1999 and 1998, given the level of
operations and competition and the overall uncertainty as to the Company's
ability to return to profitability, the Company did not recognize a tax
benefit generated from operating losses.

Minority interest expense. The Company incurred $1.5 million in minority
interest expense for fiscal 1999, compared to $0.9 million for fiscal 1998.
The increase is attributable to the acquisition of the Broadwater Property in
late July 1997 and the satisfaction of the preferred capital interest at the
Company's Davenport operations.