SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter ended April 30, 1998
Commission File No. 0-10315
ROYAL CASINO GROUP INC.
(Name of Registrant as specified in its charter)
Utah 95-4091368
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification
No.)
152 Sherman St.
Deadwood, SD 57732
(Address of principal executive offices)
(605) 578-1299 (605) 578-1298
(Registrant=s telephone number) (Registrant=s fax
number)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[x] Yes [] No
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
[x] Yes [] No
As of April 30, 1998 5,519,640 shares of registrant=s $0.001 par
value common stock were outstanding.
ROYAL CASINO GROUP INC.
INDEX
Page
Number
PART l. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Balance Sheet
as of April 30, 1998 3
Statement of Operations
as of April 30, 1998 5
Statement of Cash Flows
as of April 30, 1998 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART ll OTHER INFORMATION
Item 2. Change in Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
ROYAL CASINO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS April 30,1998 July
31,1997
Current Assets
Cash and cash equivalents $ 79,781
77,609
Accounts Receivable 12,969
5,135
Inventories
32,927
Accrued Revenues 2,115
Other Receivables 66,314
Prepaid expenses
347,998
Total Current Assets $ 161,179
$463,669
Fixed Assets
Property and equipment (cost) $ 112,896
$2,277,685
(Accumulated Depreciation) ( 16,375)
Total Fixed Assets $ 96,521
$2,277,685
Other Assets
Land Option $ 75,000 $
114,116
Employee Advance 18,000
Total Other Assets $ 93,000 $
114,116
TOTAL ASSETS $ 350,700 $
2,855,470
ROYAL CASINO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES & EQUITY April 30,1998 July
31,1997
Current Liabilities
Notes payable $ $
324,296
Accounts Payable 145,677
370,954
Accrued liabilities
Accrued payroll and
benefits 180,500
Other liabilities 44,606
Net liabilities of discontinued
operation (see Basis of Present
ation Page 7) 209,303
TOTAL CURRENT LIABILITIES $ 580,086
932,158
Long Term Liabilities
Capital Leases $ 0
44,674
TOTAL LIABILITIES 580,086
976,832
Equity
Preferred Stock, 100,000,000
authorized; 1,100,000 Series A
convertible shares issued and
outstanding $ 1,100
1,100
Common Stock, $0.001 par, 150,000,000
shares authorized; 5,519,640 issued
and outstanding $ 5,520
5,164
Additional Paid in Capital 5,675,526
5,573,089
Accumulated deficit (5,911,532)
(3,700,715)
TOTAL EQUITY ( 229,386)
1,878,638
TOTAL LIABILITIES & EQUITY $ 350,700
$2,855,470
ROYAL CASINO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
April 30, 1998 July 31,
1997
REVENUES
Casino $ 1,114,131
Food & Beverage
477,437
Room
142,933
Other
213,152
Less Promotional Allowances (
162,520)
NET REVENUES
1,785,133
COSTS & EXPENSES
Selling, General & Admin. 82,666
2,942,382
Depreciation/Amortization 5,542
326,422
88,208
(1,483,671)
OTHER (INCOME) EXPENSE
Interest Income 395
12,502
Interest Expense (
10,034)
Unrealized Gain(Loss)
Realized Gain (Loss) 464
Other Expense (
70,944)
Loss on Abandoned Projects (
296,172)
859 (
364,648)
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ( 87,349)
(1,848,319)
INCOME TAX PROVISION
100
LOSS FROM CONTINUING OPERATIONS ( 87,349)
(1,848,419)
Discontinued Operations:
GAIN ON DISPOSAL OF
DISCONTINUED SUBSIDIARY ( 16,283)
NET LOSS ( 71,066)
(1,848,419)
Basic & Diluted Loss Per Share
Quarter ended 4/30/98 from Continuing Operations: $.017
Basic & Diluted Gain Per Share
Quarter ended 4/30/98 from Discontinued Operations: $.003
Basic & Diluted Loss Per Share
Quarter ended 4/30/98 Per Share $.014
ROYAL CASINO GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
QUARTER ENDED April 30, 1998
Cash Flows from Operating Activities:
Net Loss from Continuing Operations $ ( 87,349)
Net Gain from Discontinued Operations 16,283
Non-Cash Items in Net Loss
Depreciation & Amortization 5,542
Issuance of stock for Services Rendered 9,810
Adj. of Fixed Assets of Discontinued
Operation to net realizable value 250,098
(Increase)Decrease in:
Prepaid Expenses & Other Current Assets 38,306
Accounts Receivable ( 12,969)
Inventories 15,154
Other Assets 115,074
Increase(Decrease)in:
Accounts Payable ( 204,018)
Accrued Liabilities ( 166,333)
- -----------
Net Cash Used in Operating Activities: ( 20,402)
Cash Flows from Investing Activities:
Liquidation of Fixed Assets 336,246
-----------
Net Cash Provided from in Investing Activities: 336,246
Cash Flows from Financing Activities:
Payments on Notes Payable ( 251,066)
-----------
Net Cash Used in Financing Activities (
251,066)
Net Increase(Decrease) in Cash and Cash Equivalents 64,778
Cash and Cash Equivalents, Beginning Period $ 15,003
-----------
Cash and Cash Equivalents, End of Period $ 79,781
ROYAL CASINO GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED April 30, 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim financial statements of Royal Casino
Group Inc. ("The Company") are unaudited; however, in the
opinion of Management, all adjustments necessary for a fair
presentation of such financial statements have been reflected in
the interim periods presented. Such adjustments consisted only
of normal recurring items.
Due to the fact that the Company's single source of revenue,
Goldiggers Hotel & Gaming Est. closed on January 5, 1998
operating results for the three months ended April 30, 1998 are
not necessarily indicative of the results that may be expected
for the year ended July 31, 1998. The significant accounting
policies and certain financial information which are normally
included in financial statements prepared in accordance with
generally accepted accounting principles, but which are not
required for interim reporting purposes, have been condensed or
omitted. The accompanying financial statements of the Company
should be read in conjunction with the Company's audited
financial statements for the year ended July 31, 1997 and the
notes thereto, included in the Company's annual report on Form
10-K.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General Financial Condition
The Company is still experiencing residual financial
difficulties as a result of the unanticipated need to inject a
considerable portion of its cash resources to sustain operations
into the Company's wholly-owned subsidiary which operated
Goldiggers casino in Deadwood, South Dakota.
To curtail the ongoing losses, the Company's subsidiary closed
Goldiggers Hotel & Gaming Est. on January 5, 1998. Since the
closing the Company has been conducting an orderly sale of
Goldiggers assets which are being used to pay Goldiggers debts.
As of the January 5, 1998 closing date, Goldiggers owed trade
debt of approximately $197,000; back rent and property taxes of
approximately $215,000; lines of credit and bank debt of
approximately $195,000 and a short term note of approximately
$32,000 totaling approximately $640,000. In addition, Royal
Casino Group is owed approximately $415,000 by its subsidiary.
A portion of the assets are slot machines which have severe
restrictive rules and regulations imposed by the South Dakota
Commission on Gaming as to who and how and where they can be
sold. There can be no assurance that all of the assets can be
sold, or if they are sold that funds received as a result of the
sale of assets will be sufficient to satisfy all of the
subsidiary's debt in addition to repayment to Royal Casino Group
of funds loaned to sustain Goldiggers' operations.
Throughout the quarter the company has sold Deadwood Stage, the
Company's transportation system; caused an auction of
Goldiggers' furniture, fixtures and equipment; sold the
Company's real estate and systematically disposed of other
Goldiggers' assets. The proceeds repaid the company's bank in
full, including all interest through to the date of repayment,
plus repaid the short term note in full. On April 15, 1998
Goldiggers sent a letter to the majority of Goldiggers' trade
creditors offering a settlement in full of 20% of the amount
owed. The vast majority of creditors accepted prior to the
deadline of April 30, 1998. Further, in February the Company
negotiated a full release in perpetuity of Goldiggers' back rent
and property taxes.
Due to the fact that the State of South Dakota's Public
Utilities Commission has done away with issuing Class A and
Class B licenses to bus transportation companies as it had in
the past, the value of $100,000 carried on Goldiggers books
attributed to Deadwood Stage for these licenses was written off.
Ergo, when Deadwood Stage was sold to a third party, the Company
was not able to sell nor recoup the value of the Class A and B
licenses. Further, Goldiggers' slot machines were carried on
the books at a value of $3,500 each, a traditionally accepted
figure for used slot machines. However, the bottom has fallen
out of the market for used slot machines without embedded bill
acceptors. The reasons attributed for the drastic decrease in
the current market value are: the closing down of South African
gaming; a large quantity of used machines on the market; the
auctioning of thousands of slot machines from the Sands Hotel in
Las Vegas when it closed last year; and, the demand for newer
slot machines with embedded bill acceptors. The Company
repeatedly turned down offers of $500 per machine. With over 80
slot machines for sale, the Company had to reduce its estimated
liquidation value by over $250,000. Additionally, Goldiggers
paid an annual device fee of $2,000 per slot machine each July
1st to the South Dakota Commission on Gaming. With Goldiggers
closing on January 5, 1998, virtually one-half of the 90 device
fees, equating to $90,000, carried on the books as an asset were
written off. These write-offs resulted in a reduction of
approximately $440,000 less in cash received by the Company for
these assets.
Despite these set-backs as of the end of this fiscal quarter
the Company has been able to reduce its non-affiliate related
indebtedness from approximately $640,000 to $129,000. The
Company believes that it will continue to reduce its
indebtedness throughout the next fiscal quarter. Goldiggers
indebtedness to Royal Casino Group has been reduced to
approximately $42,000.
A federal tax lien in the amount of $15,740.35 was filed with
the appropriate South Dakota regulatory bodies on March 2, 1998
and was paid in full by the Company by March 30, 1998. In a
letter of explanation to the Company, the revenue officer wrote
that she had received information that Goldiggers was closed and
the assets were for sale. Therefore she filed the lien to
protect the government's interest. A Certificate of release of
Federal Tax Lien was recorded by the appropriate South Dakota
regulatory agencies on April 15, 1998.
The Company is actively seeking alternate sources of funding to
sustain operations. The Company believes that funding on
acceptable terms to the Company may be available although there
can be no assurances that the financing currently being
contemplated by the Company will come to fruition. As
Goldigger's has been a drain on the Company's cash resources,
the closure of the property may produce positive long term
results for the Company as it pursues other gaming and
non-gaming opportunities.
To acquire or develop additional gaming properties the Company
will require funding in varying amounts, time frames and methods
corresponding to each of the gaming opportunities the Company
elects to pursue. There can be no assurances that such funding
will be available, or if available, on terms and conditions and
within the time frames acceptable to the Company.
Results of Operations:
Goldiggers
In order to curtail losses and preserve shareholder capital, the
Company's wholly-owned subsidiary, Atlantic-Pacific Corp.,
discontinued operations at Goldiggers Hotel & Gaming
Establishment in Deadwood, South Dakota on January 5, 1998. The
Company completed its move-out from the premises and removed all
its furniture, fixtures and equipment by February 7, 1998.
Management believes the downward trend in the Deadwood gaming
market which coincided with the Company's arrival into the
market, will continue and that revenues will continue to erode.
Deadwood was the first of the new gaming jurisdictions outside
of Nevada and Atlantic City. Since gaming was introduced, the
market has been impacted by competition in the form of casinos
in numerous States, Provinces and Indian Reservations while
Deadwood remained `limited stakes gaming' restricted by a $5
betting limit. The State's reluctance to allow the industry to
remain competitive both in the revision of betting limits and
the introduction of new games, while tourism numbers in the
region decrease, continues to fuel the demise of the Deadwood
gaming industry.
The Company is the fifth publicly traded gaming company to exit
the Deadwood market.
Although the Board of Directors of the Company's subsidiary
company, Atlantic-Pacific Corp., has authorized its president to
file for federal bankruptcy protection, the Company is resolving
many of the issues resulting from the closure of Goldiggers and
therefore feels that it will not be necessary to file for
bankruptcy.
To conform to the regulations of the South Dakota
Commission on Gaming, specifically, the section applicable to
the ownership of slot machines by licensed entities, Royal
Casino Group acquired the slot machines owned by the Company's
subsidiary, Atlantic-Pacific Corp. for the amount carried on
Atlantic-Pacific's books which was $73,000. This amount was
deducted from the amount Atlantic-Pacific owed Royal Casino
Group.
As South Dakota Video Lottery Regulations restrict the
ownership of video lottery machines (VLT's) to persons or
entities of which 50% or more are residents of South Dakota,
Royal Casino Group was not able to own the 10 VLT's operational
in Goldiggers at the time the Company acquired Goldiggers from
Casino Magic. The Company sold the machines to Goldiggers'
General Manager and leased them back from her resulting in 99%
of the revenue accruing to the benefit of Goldiggers. The
agreement called for modest annual lease payments with a balloon
payment at the end of the fifth year from the date of
acquisition. Due to the closing of Goldiggers, Atlantic-Pacific
would have no location to operate the machines. Consequently,
Atlantic-Pacific completed the purchase of the VLT's to
Goldiggers' former General Manager for $2,000 and released her
from further purchase obligation. Prior to completing the sale
to Goldiggers' former General Manager, the machines were offered
at public auction and did not attract a bid of $2,000.
Planned Riverboat Casino in Southeast Missouri
The Company is awaiting the consent from the Army Corps of
Engineers to dock its planned riverboat casino on land that the
Company controls on the Mississippi River near the confluence of
the Ohio River in Southeastern Missouri near the twin cities of
Wyatt and Wilson City. The Company's engineer has a meeting
scheduled with the Corps for May 8, 1998. At this meeting it is
contemplated that the Company's plans will be approved in
principle and that a 30 day public notice seeking comments will
be forthcoming shortly thereafter. [See: Subsequent Events]
Barring any last minute viable objections, the Company believes
that the necessary permit can be granted within 120 days from
the date of this filing. The Company originally applied to the
Corps in April, 1996. In addition, the City of Wyatt has not
completed the annexation of the land controlled by the Company
into the City limits.
Royal Casino Group plans to apply for its gaming license
once it has received the docking permit from the Army Corps of
Engineers and the land controlled by the Company has been
annexed into the City, a requisite under the Missouri gaming
statutes.
Royal plans to submit a complete package comprised of an
exclusive 25-year definitive agreement with the host city;
sufficient land to adequately develop the Riverboat Casino
Entertainment Center; governmental and regulatory docking
approval on its site; preliminary architectural drawings; an
available, suitable riverboat together with demonstrable
financing capabilities. Licensing is solely at the discretion
of the Missouri Gaming Commission and there can be no assurances
that Royal will gain approval.
Discontinued Oklahoma Racetrack Casino Project
For several months the Company had been working towards
the acquisition of Blue Ribbon Downs, an active horse racing
facility located on Interstate 40 in Sallisaw, Oklahoma. In
January, 1998 the Company made a proposal to acquire all of the
stock in the racetrack's parent company. The proposal was
accepted in principle by the Board of Directors of the
racetrack's parent company. The offer was contingent upon the
passage by referendum of an initiative which would add a new
measure to the State of Oklahoma's constitution approving casino
gaming. The measure called for the approval of non-restricted
gaming at only four sites in the state. Blue Ribbon Downs was
one of the four sites. Casino gaming would be exclusive to
these four sites for a period of five years. Blue Ribbon Downs
would have been the only casino located directly on Interstate
40 between the Memphis, Tennessee market and Oklahoma City. The
casino would have also been the closest casino to Branson,
Missouri. The aforementioned ballot measure was defeated in a
special state election on February 10, 1998. Pursuant to the
terms of the Company's offer to acquire all the outstanding
shares of the parent company of the racetrack, since the results
of the election ensured there would be no casino gaming for the
foreseeable future, the Company's offer was withdrawn.
Gaming Opportunities
As Goldiggers has been a drain on the Company's cash
resources, the closure of the property requires no further
demand on the parent Company's funds and therefore should
produce positive long term results for the Company as it pursues
other gaming opportunities.
The Company is currently evaluating two specific gaming
opportunities and will make appropriate announcements should the
efforts prove fruitful.
Throughout the last two quarters the Company evaluated the
creation of a hospitality division that would provide management
services to existing hospitality venues throughout the country.
The Company believed that there was a convergence of the
hospitality and gaming industries due to the compatibility of
the businesses. The evaluation yielded a decision not to enter
into the hospitality arena due primarily to considerable,
established competition having more financial strength than the
company.
Board Matters
On March 30, 1998 Larry Close, the Company's Vice President of
Gaming, Secretary and a Director and an Officer, Director and
secretary of the Company's subsidiary companies resigned from
all the aforementioned positions. Mr. Close stated in his
resignation letter to the Company's President and Chief
Executive Officer that his resignation was in order to pursue
other employment opportunities. Further, Mr. Close stated that
he did not believe it would be in the best interests of the
Company for him to retain these positions while actively seeking
employment opportunities outside the Company. The Company
acknowledged Mr. Close's contributions to the Company due to his
25 years of experience in the gaming industry and wish him the
very best in the future. This move was expected by the Company
as Mr. Close had not received his salary since June, 1997 due to
the Company's application of funds to sustain operations rather
than paying executive salaries, and Mr. Close's move back to
Reno from Deadwood in September, 1997.
Stock Issuances
In February, 1998 the Company instructed its transfer agent to
issue 58,400 common shares of stock to Deb Berg, the former
General Manager of Goldiggers, who is providing outside
consulting services to the Company subsequent to the closing of
Goldiggers by assisting the Company throughout the transition
period. On April 7, 1998 the Company instructed its transfer
agent to issue 23,100 common shares to David Addison, an
attorney who had performed services for the Company. These
issuances were from the Company's active S-8 registration #
333-32415. On April 24, 1998 the Company instructed its
transfer agent to issue 5,000 common shares to Dan French for
consulting services related to engineering for the Company's
planned riverboat casino development near Wyatt, Missouri. This
issuance was from the Company's active S-8 registration #
33-4786.
Legal Matters
On October 29, 1997 the Company filed suit against Stephen
Grogan in Lawrence County, South Dakota alleging a breach of the
July, 1997 Settlement Agreement and seeking a declaratory
judgment for the remaining portion of the settlement. On
December 18, 1997 Stephen Grogan filed for personal bankruptcy
seeking Chapter 7 liquidation proceedings. On April 22, 1998
the US Bankruptcy Court entered a discharge of debtor in this
matter.
Conditions of the Settlement Agreement between Stephen
Grogan and the Company called for both sides to dismiss, without
prejudice, their lawsuits against each other. Mr. Grogan's suit
against the Company filed in Colorado was dismissed however,
when the Company attempted to dismiss their lawsuit filed in
South Dakota against Mr. Grogan in November, 1997, Mr. Grogan
filed a motion pro se with the Court seeking to stop the Court
from allowing the Company to dismiss its suit against Mr.
Grogan. The Court agreed to defer dismissal 90 days. The
Company believes that the action taken by the US Bankruptcy
Court ends this action.
Subsequent to the closing of Goldiggers and as anticipated
by the Company and reported in the Company's January, 1998 Form
10-Q, several vendors elected to assert their claims in small
claims court. The Company has satisfied all but two judgments
totaling less than $1,500 as of the end of this fiscal quarter.
The Company has two small claims suits pending and if judgment
is entered the amounts total less than $2,700. [See: Subsequent
Events]
On February 9, 1998 the owner of the building which housed
Goldiggers filed suit against C. Don Tyner and Reunion Corp.
plus Jon Elliott, Atlantic-Pacific Corp. and Royal Casino Group
Inc. seeking among other things, back rent and property taxes.
The Company's attorneys deposed the property owner who admitted
that he never had a contractual written nor oral agreement with
any of Jon Elliott, Atlantic-Pacific Corp. and Royal Casino
Group Inc. and that actually Atlantic-Pacific, the Company's
wholly-owned subsidiary, was a sub-lessee of his tenant, Reunion
Corp. Subsequently, on April 7, 1998 the property owner
dismissed all actions against Jon Elliott, Atlantic-Pacific
Corp. and Royal Casino Group Inc. with prejudice and without any
costs to the defendants.
Regulatory Matters
As is customary with the permanent closing of a casino, the
South Dakota Commission on Gaming is conducting an audit of all
Goldiggers gaming records from the date the property was
acquired in June, 1996 through to the date of closing, January
5, 1998. The audit is ongoing at the time of the filing of this
report, however the Company has been informally informed by an
agent of the Commission that the Company is due a refund of an
undetermined amount.
In January, 1998 the Nevada Gaming Control Board advised the
Company that pursuant to its request in July, 1997 to withdraw
its application for registration and licensing in Nevada as a
result of its planned acquisition of the Triple J Casino in
Henderson, Nevada, since discontinued, its agent would need to
re-visit Royal Casino Group's offices in late February, 1998 to
review all financial reports and documents generated by
Goldiggers. In addition, the agent requested to review related
Royal Casino Group financial information and correspondence plus
corporate documentation relating to the Company's Nevada
subsidiary which had been created solely to acquire the Triple J
Casino. Subsequently, the Company was informed by an agent of
the Nevada Gaming Control Board that the Company's request to
withdraw has been tentatively scheduled on the agenda of the
Nevada Gaming Control Board's meeting on June 3, 1998 and on the
Nevada Gaming Commission's agenda at its meeting on June 25,
1998. Should both agencies grant the Company's request to
withdraw, then the Company is entitled to a refund of the unused
portion of the $85,000 deposited by the Company with the Nevada
Gaming Control Board at the onset of their investigation into
the Company's application. [See: Subsequent Events].
In January, 1998 the State of South Dakota Department of
Revenue began conducting an audit of the sales and use tax paid
by the Company's subsidiary that operated Goldiggers. They
selected three random months for review, two of which occurred
when the subsidiary was owned by Casino Magic. Based upon their
findings they expanded their audit to cover the period from
November, 1994 through December, 1997. The majority of this
time Goldiggers was owned and operated by Casino Magic.
Subsequently, the Company was informed that it subsidiary
company owed approximately $12,000 in unpaid sales tax, use tax
and interest. The Company is in the process of researching and
gathering related information that the Company believes will
drastically reduce this amount. The company has been hampered
in its efforts to locate the support documents due to the
closing of the business and the relocation of the historical
files, some of which are in the possession of the South Dakota
Commission on Gaming for the purpose of conducting their audit.
Goldiggers was owned and operated by Atlantic-Pacific Corp.
which in turn was owned by Casino Magic Corp. from inception
through to its acquisition by Royal Casino Group in June, 1996.
Per the terms of the acquisition, Casino Magic indemnified Royal
Casino Group from any prior obligations arising from actions
such as an outstanding sales or use tax obligation should one
exist. [See: Subsequent Events]
In a letter to the Company dated February 27, 1998, the
Securities & Exchange Commission made comments based upon an
examination restricted solely to considerations of the Financial
Statements, Management's Discussion and Analysis and Selected
Financial Data incorporated in the Company's Form 10-K for the
year ended July, 31, 1997 and the Form 10-Q for the quarter
ended October 31, 1997. Commission staff made comments and
requested an amendment and answer within 10 business days from
the date of the letter. Although the company believes that it
can adequately address all the issues raised to the satisfaction
of the Commission, to do so involves time, research and
coordinated input from three of the Company's professionals,
specifically; the Company's outside accounting firm, the
Company's independent accounting firm and the Company's
corporate securities counsel, all of whom are located in the
greater Los Angeles, California area. As the letter was
received in the middle of `tax season', the accounting
professionals were hampered in their efforts to adequately
research and respond within the time frame requested by the
Commission. The Company provided an update in a letter to the
Commission on March 11, 1998 and hopes to fully respond to the
Commission in the near future.
The Company adhered to the South Dakota Commission on Gaming's
request and completed and filed on time by March 15, 1998, a
complete set of financial information containing
departmentalized gaming revenues for the calendar year ended
December 31, 1997 plus the first five days of January, 1998 on
forms provided by the Commission.
In December, 1997 the South Dakota Commission on Gaming filed a
complaint against the Company stating that the Company had
failed to provide the Commission with a copy of its Form 10-K
plus two Form 8-K's within the required 10 day period after such
documents are filed with the Securities & Exchange Commission.
In addition, the complaint alleged that Royal Casino Group is
two months delinquent in the payment of real estate taxes on the
property occupied by Goldiggers. The Commission was made aware
that the real estate taxes that were the subject of this
complaint had been paid. On February 18, 1998 the Company
entered into a Stipulation and Assurance of Voluntary Compliance
with the South Dakota Commission on Gaming concerning these two
complaints. The Company stated that they had provided the
Commission with the securities filings and agreed to a $500 fine
with the entire amount suspended on the condition that the
Company have no like or similar violations for the life of its
license. The Stipulation also stated that because the real
estate taxes had been paid, the Commission dismissed the
complaint.
Per the rules and regulations of the South Dakota Commission on
Gaming, the Company has placed newspaper advertisements to run
twice a week in four area newspapers from January 22, 1998
through May 15, 1998 announcing that persons in possession of
Goldiggers gaming chips and tokens may redeem them for face
value through May 15, 1998. The Company is compelled to
purchase all outstanding chips and tokens at face value redeemed
during the aforementioned period. Through the end of this
fiscal quarter, the Company had purchased $1,164. [See:
Subsequent Events]
Post-closing of Goldiggers, Atlantic-Pacific Corp. underwent a
workman's compensation audit, which is standard procedure when a
company ceases business. The results were a refund to
Goldiggers in the amount of $14,043.
On April 13, 1998 the Executive Secretary of the South
Dakota Commission on Gaming ("SDCG") filed a two-count complaint
alleging that on April 13, 1998 there were four small claims
judgments against Royal Casino Group and/or Goldiggers Hotel &
Gaming totaling approximately $7,500 & further on April 13, 1998
there existed an IRS tax lien entered against Royal Casino Group
and/or Goldiggers in the amount of approximately $15,740.
Further, that the Commission had scheduled a hearing on these
matters with the stated purpose to consider a revocation of the
gaming licenses of Royal Casino Group and Goldiggers. The
Company believed this to be very grave action proposed to be
taken by the SDCG with potentially severe repercussions to the
Company. A gaming license in any recognized jurisdiction comes
only after extensive and invasive background and suitability
checks have been performed on the Company, its Officers,
Directors and significant shareholders to the satisfaction of
the appropriate gaming commission. As such a gaming license is
considered a privilege. Royal Casino Group together with its
Officers and Directors had undergone a thorough investigation by
the SDCG prior to receiving its gaming license. On April 20,
1998 and in a subsequent letter re-capping the conversation on
April 21, 1998, Jon Elliott, the President & CEO of Royal Casino
Group and the President of Atlantic-Pacific Corp., Royal's
wholly-owned subsidiary that owned and operated Goldiggers,
informed the SDCG's Executive Secretary, Larry Eliason, that:
1) on March 24, 1998 the SDCG was informed in writing by the
Company's legal counsel that an IRS lien had been filed and the
reasons for the filing. Further, on March 31, 1998 the SDGC was
notified in writing by the Company's legal counsel that the tax
lien was paid in full. This notification was given to the SDCG
two weeks before the date the complaint was filed.
2) of the judgments listed, only one in the amount of $751.57
had yet to be satisfied and that was due to the fact that the
Company was unable to contact the creditor despite several
attempts via telephone and letters.
3) there were two pending small claims actions totaling over
$6,600 that had been resolved before they became judgments.
4) that the Company's legal counsel had sent the SDCG over 25
separate letters in the two month period from the end of
January, 1998 until the end of March, 1998 keeping the
commission appraised of every small claims action and all other
legal issues concerning the closing of Goldiggers. In fact, the
original letter advised the SDCG that due to the closing of
Goldiggers, the Company expected to be deluged with small claims
actions as creditors move to protect their interests and that
this action is standard in these circumstances.
5) that the Company had been advised by professionals to seek
bankruptcy protection for its subsidiary, but that the Company
had chosen to use its best efforts to seek an orderly
liquidation of Goldiggers' assets to satisfy its creditors.
Further, that the company had been successful to date in its
efforts and that it believed it had staved off bankruptcy.
6) that because there was only one outstanding judgment
totaling the small amount of $751.57 the Executive Secretary,
Larry Eliason, was asked to reconsider the need to have a public
hearing to take the severe measures of revoking the Companies'
gaming licenses.
The Executive Secretary, Larry Eliason, in a letter to the
Company dated April 27, 1998 refused to do away with the hearing
despite being aware of the aforementioned facts. As the
Company's legal counsel was appearing before the SDCG concerning
an unrelated matter and in the SDCG's notice of the hearing the
SDCG had stated that this was to be an adversarial hearing, the
Company's counsel notified the Company that he had a conflict
and would not be able to appear on the Company's behalf at this
hearing. The Company wrote Larry Eliason on April 29, 1998
advising him that the Company's legal counsel, who had
represented the company since early 1996 and in all matters
between the Company and the SDCG, would be unable to represent
the Company at the hearing and since Mr. Eliason would not do
away with the need for the public hearing, the Company requested
a postponement of the hearing to allow the Company to be
represented by its long-standing counsel. The letter went on to
say if Mr. Eliason would not even agree to a postponement, the
retention of a new lawyer would most certainly require a
retainer, using monies the Company had dedicated to the
repayment of Goldiggers' creditors. After he personally
confirmed with the Company's legal counsel that he would be
unable to represent the Company and receiving an explanation of
the conflict, the Executive Secretary, Larry Eliason, wrote the
Company in a letter dated April 28, (sic) 1998 denying the
Company's request for a postponement of the public hearing.
[See: Subsequent Events]
Equipment Rental, Overhead Reimbursement, Rent, Support Services
The Company's lease for its corporate headquarters' office
space expired in April. The Company has entered into a new one
year lease utilizing approximately half the space previously
occupied at a reduced rental of $400 per month.
Additionally, the Company's wholly-owned subsidiary,
Atlantic-Pacific, Corp. leased three buildings on Main Street
that housed Goldiggers on a five year lease with four five year
options. The Company has negotiated a complete release in
perpetuity of all its past and future obligations pursuant to
this lease.
Subsequent Events
Planned Riverboat Casino in Southeast Missouri
The Company's engineer met with representatives of the Army
Corps of Engineers on May 8, 1998 at the Corps office where he
presented the revised drawings per the earlier meeting. The
Corps indicated to the engineer that the revised plans addressed
all previous Corps concerns and issues and that the Corps would
be issuing a 30 day public notice in the near future. The
issuing of a public notice is the next step towards the issuance
of a docking permit permitting the Company's riverboat from
docking on the Mississippi River. There is still no guarantee
that the requested 404 docking permit will be issued. Further,
there is no certainty that the Missouri Gaming Commission will
select Royal Casino Group's application for a gaming license
once it is submitted.
Stock Issuances
On June 1, 1998 the Company asked its transfer agent to issue
12,890 common shares for consulting services performed in
connection with the Company's planned riverboat casino
development near Wyatt, Missouri. This issuance was from the
Company's active S-8 registration # 333-32415.
Regulatory Matters
South Dakota Commission on Gaming Dismissal of Complaint
In the matter of the SDCG's April 13, 1998 complaint, at the
end of this fiscal quarter the Company was informed by the
SDCG's Executive Secretary, Larry Eliason that he would not do
away with the public hearing nor would he grant an postponement
of the hearing totally cognizant of the fact the Company's legal
counsel was unable to represent the Company due to a conflict.
The Company was adamant about protecting its rights and its
gaming licenses and was therefore forced by Larry Eliason, the
SDCG's Executive Secretary, to retain a new legal counsel to
defend what was obviously malicious and selective enforcement on
Mr. Eliason's part. The Company's new lawyer required a
retainer causing the Company to use funds that otherwise would
have gone to pay creditors. This new lawyer informed the
attorney for the SDCG that if they did not dismiss the
complaints with prejudice, he would embarrass the SDCG by
putting the Executive Secretary, Larry Eliason and the Director
of Enforcement, Stan Triplett on the witness stand and demanding
that they testify as to how many gaming licenses have ever been
revoked and if any, how many had ever been revoked for a small
claims judgment. He knew the answer was none. Further, he
advised counsel he would put the Clerk of Courts on the stand
and ask her to research each and every small claims judgment
against every holder of a South Dakota Gaming License dating
back to 1990 and after every one ask Larry Eliason, the
Executive Secretary, why a complaint and a revocation hearing
was never taken against that license holder. It was clear from
the response that never had the SDCG filed a complaint seeking
license revocation against any holder of a gaming license for
having a small claims judgment. The Company asked the member of
the legislature together with the state senator for the area to
attend the Commission hearing on the Company's behalf which they
did. At the public hearing on May 8, 1998 the SDCG voluntarily
dismissed both complaints without a hearing and with prejudice.
Nevada Gaming Control Board Meeting
On June 3, 1998 the Company appeared with both corporate
counsel and Nevada gaming counsel before the Nevada Gaming
Control Board seeking permission to withdraw the Company's
application for a Nevada gaming license. The Company originally
applied for a gaming license in April, 1997 in connection with
its proposed purchase of the Triple J Casino in Henderson,
Nevada. In July, 1997 the Company paid the Nevada Gaming
Commission $85,000 to be applied to the cost of investigation.
Agents of the Commission commenced the investigation of Royal
Casino Group and its Officers and Directors in July, 1997. At
the end of July, 1997 the Company wrote to the Commission
seeking to withdraw its application. The Nevada Gaming Control
Board voted unanimously to grant the Company's request to
withdraw their applications without prejudice.
South Dakota Department of Revenue Audit
As of the date of the filing of this report, the South Dakota
Department of Revenue has reduced the amount it claims is owed
by Goldiggers for sales and use tax plus interest for the
periods from November, 1994 through to and including December,
1997 from $12,000 to approximately $3,000. The Company believes
as it continues to research its records that there will be
additional reductions in the aforementioned amount.
Chip & Token Redemption
Per the rules and regulations of the South Dakota Commission on
Gaming the date set for the expiration of Goldiggers' obligation
to redeem at face value all chips and tokens presented was May
15, 1998. The total amount redeemed for the four month period
was $1,216.
Board Matters
At a Board Meeting on May 5, 1998 and specifically to
strengthen the Company's balance sheet by reducing the Company's
outstanding debt to better position the Company to attract
financing, Jon Elliott the Company's President & CEO, agreed to
exchange the money owed to him per his employment agreement for
restricted common shares. Mr. Elliott has not received any
salary nor any remuneration from the Company from June 1, 1997
through the end of this filing period, April 30, 1998. His
salary has been accrued. Through January 31, 1998 the Company
owed Mr. Elliott $125,833.29. On May 5, 1998 the common shares
of the Company had a bid price of $0.08. Due to the fact the
shares are restricted shares pursuant to Rule 144 of the
Securities & Exchange Commission, and primarily due to the
volatility and drastic drop in the price of the Company's common
shares; from $0.53 at the end of the Company's fiscal year on
July 31, 1997, to $0.31 at the end of the current year's first
fiscal quarter on October 31, 1997, to $0.13 at the end of the
current year's second fiscal quarter on January 30, 1998 to
$0.10 at the end of the current fiscal quarter on April 30,
1998, the stock issued to Mr. Elliott was issued at a discount
to the then current bid price. Therefore 3,145,832 shares
calculated at $0.04 per share were issued to Mr. Elliott.
Repayment of Outstanding Debt
The Company continues to work towards the repayment of
Goldiggers debt. When Goldiggers closed on January 5, 1998
outstanding debt was approximately $640,000 not including monies
advanced and owed to Royal Casino Group. As of the date of this
filing the remaining amount owed is approximately $60,000.
Legal Matters
The Company was successful in causing two small claims actions
to be dismissed. All judgments except one totaling less than
$700 have been satisfied. There are two remaining small claims
actions pending with the combined amount claimed in both actions
totaling less than $2,700.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
NONE
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Resignation letter of Larry Close
Exhibits other than those listed have been omitted because they
are non-existent, inapplicable or because the information is
given in the financial statements of the Company.
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed by
the undersigned thereunto duly authorized.
ROYAL CASINO
GROUP INC.
(Registrant)
By: /s/ Jon F.
Elliott
Jon F. Elliott,
President
and Chief Executive
Officer
Date: June 12, 1997
