U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15415
GLOBAL CASINOS, INC.
--------------------
(Exact Name of Small Business Issuer as specified in its Charter)
Utah 84-0340206
---- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1777 South Harrison Street, The Skydeck, Denver, Colorado 80210
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(Address of Principal Executive Offices)
(303) 756-3777
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- --
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
----- -----
As of October 24, 1996, 13,062,635 shares of Common Stock of the Issuer were
outstanding.
Transitional Small Business Disclosure Format Yes / / No /X/
<PAGE>
INDEX
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheet at September 30, 1996 (unaudited) and June 30, 1996
Statement of Operations for the Three Months Ended September 30,
1996 (unaudited) and September 30, 1995 (unaudited)
Statement of Cash Flow for the Three Months Ended September 30,
1996 (unaudited) and September 30, 1995 (unaudited)
Notes to Unaudited Financial STATEMENTS
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION: AMENDED AND RESTATED
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Balance Sheet at September 30, 1996, Statement of
Operations for the Three Months Ended September 30, 1996 and September 30,
1995, and Statement of Cash Flows for the Three Months Ended September 30, 1996
and September 30, 1995 are unaudited but reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the financial
position and results of operations for the interim period presented.
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<CAPTION>
September 30, June 30,
1996 1996
(unaudited)
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,119,885 $ 887,374
Receivables, related parties 23,456 23,511
Accounts receivable, net of
allowance for doubtful
accounts of $5,500 at
September 30, 1996 and $4,000
at June 30, 1996 74,906 73,884
Prepaid expenses and other 54,814 29,459
Current portion of notes receivable 53,734 53,734
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Total current assets 1,326,795 1,067,962
Note and interest receivable, subject to
cancellation due to Chapter 11 Bankruptcy 1,217,588 1,217,588
Land, buildings and equipment:
Land 531,715 531,715
Buildings 3,913,510 3,913,510
Equipment 2,043,348 1,998,414
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6,488,573 6,443,639
Accumulated depreciation (1,237,319) (1,120,353)
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Net land, buildings and equipment 5,251,254 5,323,286
Other assets, net of amortization of
$31,752 at September 30, 1996 and
$31,002 at June 30, 1996 95,603 62,841
Leasehold and contract rights, net of
amortization of $804,949 at September 30,
1996 and $714,124 at June 30, 1996 2,323,451 2,414,276
Notes receivable, net of current portion,
including receivables in default 488,550 501,659
----------- -----------
Total assets $10,703,241 $10,587,612
=========== ===========
<PAGE>
<CAPTION>
September 30, June 30,
1996 1996
(unaudited)
------------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, includes related
party payables of $14,023 at
September 30, 1996 and $143,245
at June 30, 1996 $ 580,099 $ 735,437
Accrued expenses 1,029,683 784,817
Accrued interest 304,497 231,775
Notes payable, related parties 222,158 52,158
Current portion of long-term debt
including debt in default 998,021 998,021
Mandatory redeemable convertible
Class A preferred stock, in default 53,500 88,500
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Total current liabilities 3,187,958 2,890,708
Liabilities subject to compromise 5,085,705 5,085,705
Long-term debt, less current portion 45,296 52,266
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Total liabilities 8,318,959 8,028,679
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Minority interest 48,514 17,969
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Commitments and Contingencies
Stockholders' equity:
Class A preferred stock - Convertible
nonvoting, $2 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 681,000 shares
at September 30, 1996, and 688,500
shares at June 30, 1996 1,237,730 1,251,361
Common stock - $.005 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 13,062,635
shares at September 30, 1996, and
12,834,190 shares at June 30, 1996 65,638 64,494
Additional paid-in capital 7,944,220 7,819,454
Accumulated deficit (6,911,820) (6,594,345)
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Total stockholders' equity 2,335,768 2,540,964
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Total liabilities and stockholders'
equity $10,703,241 $10,587,612
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended September 30,
1996 1995
(unaudited) (unaudited)
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<S> <C> <C>
Revenues:
Casino $1,707,811 $1,643,912
Food and beverage 89,201 57,913
Other 28,328 4,596
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1,825,340 1,706,421
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Expenses:
Operating, general and
administrative 1,788,836 1,571,812
Depreciation 116,966 106,370
Amortization 91,575 85,565
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1,997,377 1,763,747
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Loss from operations (172,037) (57,326)
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Other income (expense):
Interest income 6,598 28,655
Interest expense (contractual
interest of $125,962 (1996)
and $157,905 (1995)) (93,899) (157,905)
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(87,301) (129,250)
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Loss before reorganization items
and minority interest (259,338) (186,576)
Reorganization items:
Interest earned on accumulated cash
resulting from Chapter 11
proceedings 2,936 -
Professional fees (6,200) -
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(3,264) -
Loss before minority interest
and extraordinary item (262,602) (186,576)
Minority interest in (income)
of subsidiary (54,873) (68,314)
---------- ----------
Net loss $(317,475) $(254,890)
========== ==========
Net loss per share $(0.02) $(0.03)
========== ==========
Weighted average number
of shares outstanding 12,986,487 9,826,080
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Three Months Ended September 30,
1996 1995
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $ 163,863 $ 10,609
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CASH FLOW FROM INVESTING ACTIVITIES
Other assets (32,012) (1,571)
Purchase of equipment (46,933) (34,035)
Proceeds from sale of equipment 1,999 -
Collections on notes receivable 13,109 12,286
Distribution to minority interest (30,545) -
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Net cash used in investing activities (94,382) (23,320)
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CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on notes (6,970) (71,536)
Borrowings against notes payable 170,000 -
Proceeds from issuance of common stock - 137,514
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Net cash provided by (used in)
financing activities 163,030 65,978
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Net increase (decrease) in cash 232,511 53,267
Cash at beginning of year 887,374 564,996
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Cash at end of year $1,119,885 $ 618,263
========== =========
Supplemental cash flow information:
Cash paid for interest $ 3,328 $ 135,295
========== =========
Supplemental disclosure of non-cash investing and financing activities:
Debt converted to common stock: $ 112,279 -
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$ 112,279 -
========== =========
Acquisition of additional interest in
BPJ Holdings, N.V. and Casino Las
Vegas in exchange for the Company's
interest in Casino Lazurnaya:
Assets and liabilities exchanged:
Accounts receivable - $ (55,753)
Equipment, net - (515,262)
Leasehold and contract rights - (516,832)
Accrued expenses - 17,388
Assets acquired and liability released:
Note receivable - 200,000
Accounts payable - 45,459
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Leasehold and contract rights - $ 825,000
========== =========
See accompanying notes.
</TABLE>
<PAGE>
GLOBAL CASINOS, INC. & SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1996
(unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND MANAGEMENT'S PLANS
The accompanying financial statements have been prepared assuming that Global
Casinos, Inc. (the "Company") will continue as a going concern. The Company
has recurring operating losses and a working capital deficiency. In addition,
the Company is in default on substantially all of its loan agreements. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from
the outcome of these uncertainties.
Management is currently in the process of renegotiating its current debts in
order to extend the maturities, and Casinos U.S.A., Inc., a wholly-owned
subsidiary, has filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code to prevent the foreclosure of its Bull Durham property.
Management believes that between anticipated improvements in casino operations
and debt restructuring, it will have the necessary capital to continue
operations.
ORGANIZATION AND CONSOLIDATION
Global Casinos, Inc., a Utah corporation, develops and operates gaming casinos
domestically and internationally. The consolidated financial statements of the
Company include the accounts of the following wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
BPJ HOLDINGS N.V.("BPJ"), a Curacao Limited Liability Company, which
operates the Casino Masquerade on the Caribbean resort island of Aruba.
GLOBAL PELICAN N.V. ("Pelican"), a St. Maarten Limited Liability Company
which operates the Pelican Casino located on the island of St. Maarten in
the Netherland Antilles. Pelican operates the casino under a month-to-
month management agreement pending the execution of a formal Management and
Operating Lease Agreement.
CASINOS U.S.A., INC. ("Casinos U.S.A."), a Colorado corporation, which owns
and operates the Bull Durham Saloon and Casino ("Bull Durham"), located in
the limited stakes gaming district in Black Hawk, Colorado.
GLOBAL CASINOS INTERNATIONAL, INC. ("Global International"), a Delaware
corporation, which through July 15, 1995 owned an 80% interest in an
International Joint Venture ("IJV") which held certain rights to develop
and operate gaming casinos in several international locations. Through the
IJV, the Company opened Casino Lazurnaya in Sochi, Russia and Casino Las
Vegas in Bishkek, Kyrgyzstan. Effective July 15, 1995, the Company
exchanged its interest in Global International and Casino Lazurnaya for an
additional interest in BPJ and the Casino Las Vegas. Through this
transaction, the Company now owns 100% of BPJ and a 61% profits interest in
the Casino Las Vegas.
COLORADO GAMING PROPERTIES, INC. ("CGP"), a Colorado corporation, which
through June, 1996, owned two non-operating real estate properties, the
Nitro Club and Gas Light properties located in Central City, Colorado.
LINCOLN CORPORATION ("Lincoln"), a South Dakota corporation, which operated
the Last Chance Saloon ("Last Chance") in Deadwood, South Dakota under a
lease agreement. Last Chance was closed effective May 31, 1994, and the
lease agreement was terminated.
WOODBINE CORPORATION ("Woodbine"), a South Dakota corporation, which
operated Lillie's Casino ("Lillie's") in Deadwood, South Dakota. Lillie's
was closed effective June 30, 1995.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. There has not been any significant change in the
Company's significant accounting policies nor has there been any significant
development in contingent liabilities and commitments.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results for these interim periods are not necessarily indicative of the results
for the entire year. These statements should be read in conjunction with the
financial statements and footnotes thereto included in the Form 10-KSB for the
fiscal year ended June 30, 1996.
RECLASSIFICATIONS
Certain amounts reported in the 1995 interim financial statements have been
reclassified to conform to classifications in the 1996 interim financial
statements.
2. BANKRUPTCY OF CASINOS U.S.A.
Casinos U.S.A. ("Debtor") is in default under all of its secured obligations
encumbering the Bull Durham. The efforts of the Company to negotiate
restructured terms for the repayment of the secured obligations were
unsuccessful. As a result, on October 18, 1995, Casinos U.S.A. filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code.
Since October 18, 1995, Casinos U.S.A. has continued to operate the Bull Durham
as debtor-in-possession. Under Chapter 11, claims against the Debtor in
existence prior to the Chapter 11 filing of the petition are stayed while the
Debtor formulates and obtains confirmation of a Plan of Reorganization. These
claims are reflected in the June 30, 1996 and September 30, 1996 balance sheets
as "liabilities subject to compromise". Additional claims (liabilities subject
to compromise) may arise subsequent to the filing date resulting from rejection
of executory contracts, including leases, and from the determination by the
court (or agreed to by parties in interest) of allowed claims for contingencies
and other disputed amounts. Claims secured against the Debtor's assets
("secured claims") also are stayed, although the holders of such claims have
the right to move the court for relief from the stay. Secured claims are
secured primarily by liens on the Debtor's property. On September 4, 1996, the
Company filed its Second Amended Plan of Reorganization with the Bankruptcy
Court. The Company has received Court approval on the Debtor's Corrected
Second Amended Disclosure Statement dated October 9, 1996. The Court set a
hearing date of December 18, 1996 for confirmation of the Company's proposed
Plan of Reorganization.
The Plan of Reorganization as currently proposed calls for secured real estate
debt to be reduced from $4,064,720 to $2,120,000, after the cancellation of a
$1,107,896 note receivable due from one of the mortgage holders. The
$2,120,000 will be comprised of a first mortgage of $1,012,874 bearing interest
at 7% and a second mortgage of $1,107,126 bearing interest at 9.2%. The
mortgages shall be amortized over 30 years with balloon payments due seven
years after plan confirmation. Secured equipment debt is $403,976 and the plan
as currently proposed calls for it to be reduced to $233,200, payable at the
interest rate of 10% with 35 monthly payments of $6,000 and one balloon payment
of unpaid principal and interest.
The Debtor currently has $617,009 of unsecured debt. The Plan of
Reorganization calls for unsecured debt to be reduced to $361,900, with a
payment of $227,000 upon confirmation of the plan and the remainder to be paid
in the form of notes over seven years with no interest.
If the current Plan of Reorganization is approved and confirmed without
significant revision, the Company would recognize an extraordinary gain on the
extinguishment of debt of approximately $1,300,000. However, until the Plan of
Reorganization is approved and confirmed, there is no assurance that the
Company will be able to recognize such a gain.
In August, 1996, the Debtor determined that there was insufficient collateral
to cover the interest portion of scheduled payments on pre-petition debt
obligations. This determination was based on the Company's evaluation of the
future operations of the property and an independent appraisal of the property
in connection with preparing the Plan of Reorganization. Contractual and
recorded interest on the Casinos U.S.A. obligations amounted to $97,427 for the
three (3) months ended September 30, 1995. Contractual interest on the Casinos
U.S.A. obligations amounted to $85,613 for the three (3) months ended September
30, 1996. Beginning in August, 1996, the Company began recording interest
expense only on the Casinos U.S.A. obligations expected to be paid under the
Plan of Reorganization and recorded interest of $53,550 for the three (3)
months ended September 30, 1996.
Condensed financial information for Casinos U.S.A. is as follows:
<TABLE>
September 30, June 30,
1996 1996
(unaudited)
------------- ---------
<S> <C> <C>
BALANCE SHEET INFORMATION:
Current assets $ 528,365 $ 459,363
Net land, buildings and equipment 4,027,465 4,048,618
Note receivable, subject to
cancellation 1,217,588 1,217,588
Intercompany receivables 212,063 212,063
---------- ----------
Total assets $5,985,481 $5,937,632
========== ==========
Accrued expenses, not subject to
compromise, all current $ 96,592 $ 50,884
Liabilities subject to compromise:
Secured claims 4,941,248 4,941,248
Unsecured priority and
non-priority claims 144,457 144,457
Intercompany liabilities 1,368,148 1,368,148
Total liabilities 6,550,445 6,504,737
Shareholder's deficit (564,964) (567,105)
---------- ----------
$5,985,481 $5,937,632
========== ==========
OPERATING INFORMATION:
Net revenues $ 633,671 $1,958,349
Total operating expenses 526,523 1,712,996
---------- ----------
Income from operations 107,148 245,353
Interest income - 96,781
Interest expense (53,550) (477,489)
Reorganization items (3,264) (32,449)
---------- ----------
Net income (loss) $ 2,141 $ (167,804)
========== ==========
</TABLE>
Intercompany receivables and liabilities are eliminated in consolidation at
June 30, 1996 and September 30, 1996.
At September 30, 1996, liabilities subject to compromise consist of the
following:
<TABLE>
<S> <C>
Mortgages payable to individuals, interest rates
ranging from 7% to 10%, principal and interest
payments payable monthly with maturities from
1996 to 2001; the notes are collateralized by
deeds of trust on real estate; in default $3,257,170
Notes to a partnership, interest at 15%; secured
by a first deed of trust on real estate,
originally due October 1994; in default 672,549
Notes bearing interest at 30%, collateralized by a
second deed of trust on real estate. The
collateral of the notes are due 1999, in default 110,000
Notes bearing interest at 7%, collateralized by
assignment of deed of trust on real estate,
notes are due 1999, in default 25,000
Capital lease obligations in default 403,976
Other liabilities subject to compromise
consisting primarily of interest and
accounts payable and accrued expenses,
of which $144,457 are unsecured 617,010
----------
$5,085,705
==========
</TABLE>
3. STOCKHOLDERS' EQUITY
During the three (3) months ended September 30, 1996, the Company issued
228,445 shares of Common Stock, converted 7,500 shares of Class A Preferred
Stock into 13,332 shares of Common Stock, and exchanged 215,113 shares of
Common Stock for debt reduction of $112,279.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
document.
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 1996 COMPARED TO JUNE 30, 1996
The Company is organized as a holding company for several entities holding
gaming-related properties. The independent auditors' report on the Company's
June 30, 1996 consolidated financial statements contains an explanatory
paragraph that discusses certain conditions that raise substantial doubt about
the Company's ability to continue as a going concern. The Company has
recurring operating losses and a working capital deficiency. In addition, the
Company is in default on substantially all of its loan agreements, and Casinos
U.S.A. has filed a voluntary petition for protection under Chapter 11 of the
United States Bankruptcy Code. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management is currently
in the process of renegotiating its current debts in order to extend the
maturities. Also, the Company continually investigates opportunities to
undertake further financing. If these efforts are successful, of which there
can be no assurance, management believes that it will have the necessary
capital to continue operations.
The Company has experienced a significant decrease in working capital.
The majority of this decline is due to the increase in the current portion of
long-term debt. Substantially all of the Company's long-term debt is in
default and, as such, is classified as a current liability.
Casinos U.S.A. ("Debtor") is currently in default under all of its secured
obligations encumbering the Bull Durham. The efforts of the Company to
negotiate restructured terms for the repayment of the secured obligations were
unsuccessful. As a result, on October 18, 1995, Casinos U.S.A. filed a
voluntary petition for protection under Chapter 11 of the United States
Bankruptcy Code. Since October 18, 1995, Casinos U.S.A. has continued to
operate the Bull Durham as debtor-in-possession. Under Chapter 11, certain
claims against the Debtor in existence prior to the filing of the Chapter 11
petition are stayed while the Debtor formulates and obtains confirmation of a
Plan of Reorganization. These claims are reflected in the June 30, 1996, and
September 30, 1996, balance sheets as "liabilities subject to compromise".
Additional claims (liabilities subject to compromise) may arise subsequent to
the filing date resulting from rejection of executory contracts, including
leases, and from the determination by the Bankruptcy Court (or agreed to by
parties in interest) of allowed claims for contingencies and other disputed
amounts. Claims secured against the Debtor's assets ("secured claims") also
are stayed, although the holders of such claims have the right to move the
court for relief from the stay. Secured claims are secured primarily by liens
on the Debtor's property. On September 4, 1996 the Company filed its Second
Amended Plan of Reorganization with the Bankruptcy Court. The Company received
Bankruptcy Court approval on the Debtor's Corrected Second Amended Disclosure
Statement on October 9, 1996. The Court set a hearing date of December 18,
1996 for confirmation of the Company's proposed Plan of Reorganization.
The Company is in the process of renegotiating its current debts in order
to extend the maturities. Management believes that between anticipated
improvements in casino operating results and debt restructuring, the Company
will have the capital necessary to continue operations.
The Company's balance sheet reflects an increase in current assets and
total assets, and an impairment in working capital. Specifically, current
assets increased from $1,067,962 at June 30, 1996, to $1,326,795 at September
30, 1996, an increase of $258,833 or 24.2%. At September 30, 1996, the Company
showed increases in cash of $232,511, or 26.2%, accounts receivable of $1,022,
or 1.3%, prepaid expenses and other of $25,355, or 86.1%. These were offset by
decreases in receivables from related parties of $55.
At September 30, 1996, the Company's investment in property, plant and
equipment increased slightly by $44,934, or 1.0%. Other assets increased by
$32,762 or 52%. Leasehold and contract rights decreased by $90,825 due to
amortization expense.
Current liabilities increased 10.3% from $2,890,708 at June 30, 1996, to
$3,187,958 at September 30, 1996. This is comprised of increases in accrued
expenses of $244,866, accrued interest of $72,722 and related parties notes
payable of $170,000. These increases are offset by a reduction in accounts
payable of $155,338 and mandatory redeemable preferred stock of $35,000.
As a result of the foregoing increases in current assets and in current
liabilities, the Company's working capital deficit increased from $(1,822,746)
on June 30, 1996, to $(1,861,163) on September 30, 1996, an increase of
$38,417, or 2.1%. The current ratio decreased from (.37) to (.42). The
Company continues to face a severe shortage of working capital, and there can
be no assurance that the Company will be able to raise the capital or show the
improvements in operations that would be necessary to overcome the deficit.
During the three (3) months ended September 30, 1996, the Company was able
to negotiate the reduction of $112,279 of debt in exchange for 215,113 shares
of Common Stock in satisfaction of this debt. During this period, the Company
reported a net loss of $(317,475). As a result of the foregoing, stockholders'
equity decreased from $2,540,964 on June 30, 1996, to $2,335,768 on September
30, 1996, a decrease of $205,196, or 8.1%.
Net cash used by investing activities for the three (3) months ended
September 30, 1995 was $(23,320). This compares with net cash used by
investing activities of $(94,382) for the three (3) months ended September 30,
1996. For the three (3) months ended September 30, 1995, the Company used
$34,035 for the purchase of equipment and $1,571 for additions to other assets.
This compares to $46,933 for the purchase of equipment, $32,012 for acquisition
of other assets, and $30,546 in distribution to minority interest for the three
months ended September 30, 1996. Offset against this, the Company received
$12,286 of principal payments on its notes receivable for the three (3) months
ended September 30, 1995. This compares with principal payments on its notes
receivable of $13,109 and proceeds from sale of equipment of $1,999 for the
three (3) months ended September 30, 1996.
Net cash provided by financing activities for the three (3) months ended
September 30, 1995 was $65,978. This compares with net cash provided by
financing activities of $163,030 for the three (3) months ended September 30,
1996. Specifically, cash provided by financing activities for the three (3)
months ended September 30, 1995 was $137,514 realized from the exercise of
Common Stock Purchase Warrants and stock offerings. Offset against the cash
provided by financing activities were promissory note principal reduction
payments in the amount of $71,536. This compares to proceeds from borrowings
of $170,000 for the three (3) months ended September 30, 1996. This was offset
by debt payments of $6,970.
Neither the Company nor any of its subsidiaries have any commercial bank
credit facilities.
SUBSEQUENT EVENTS
In October, 1996, the Company raised approximately $600,000 through an
offering of 600 Units ("Units"), each Unit consisting of one (1) eight percent
(8%) $1,000 Convertible Promissory Note ("Promissory Note"), 2,000 Class E
Common Stock Purchase Warrants ("E Warrants"), 2,000 Class F Common Stock
Purchase Warrants ("F Warrants"), and 2,000 Class G Common Stock Purchase
Warrants ("G Warrants"). The Promissory Note is convertible to common stock at
$0.50 per $1.00 loaned. The Class E Warrants, F Warrants and G Warrants are
exercisable at $0.60, $0.70, and $0.80, respectively.
Other than the foregoing, Management knows of no other trends, events or
uncertainties that have or are reasonably likely to have a material impact on
the Company's short-term or long-term liquidity.
RESULTS OF OPERATIONS - THREE (3) MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THE THREE (3) MONTHS ENDED SEPTEMBER 30, 1995
For the three months ended September 30, 1995, the Company's income
consisted of revenues generated by the Bull Durham Saloon and Casino in Black
Hawk, Colorado, Casino Las Vegas in Bishkek, Kyrgyzstan, and Casino Masquerade
in Aruba. Casino Lazurnaya in Sochi, Russia operated for the first 15 days of
July, 1995. In contrast, Bull Durham, Casino Las Vegas and Casino Masquerade
operated for the same period in 1996. The Company operated the Pelican Casino
in St. Maarten under a month-to-month operating agreement beginning in August,
1996.
Net revenues for the three (3) months ended September 30, 1995 were
$1,706,421 based on casino revenues of $1,643,912, revenues from the sale of
food of $57,913, and other income of $4,596. Net revenues for the three (3)
months ended September 30, 1996 were $1,825,340 comprised of casino revenues of
$1,707,811, food and beverage of $89,201, and other revenues of $28,328.
More specifically, net revenues at Casino Las Vegas and Casino Masquerade
decreased from $1,131,221 at September 30, 1995 to $896,536 at September 30,
1996. It is believed this decrease is a result of increased competition in
these markets. Net revenues in Sochi, Russia decreased from $24,485 at
September 30, 1995 due to the disposition of this property in July, 1995. At
September 30, 1995, net revenues from domestic operations were $575,200
compared to net revenues from domestic operations at September 30, 1996 of
$613,671 from Bull Durham and $19,000 in other revenue from domestic
operations. In addition, at September 30, 1996 the Company had net revenues of
$259,063 from the Pelican Casino.
The foregoing changes in operations also resulted in an increase in
operating, general and administrative expenses which increased from $1,571,812
for the three (3) months ended September 30, 1995 to $1,788,836 for the three
(3) months ended September 30, 1996, an increase of 13.8% which is primarily
attributable to the Pelican Casino's added general and administrative expenses
of $330,000. Depreciation increased 10.0% and amortization increased 7.0% over
the same period.
Total operating expenses increased from $1,763,747 for the three (3)
months ended September 30, 1995, to $1,997,377 for the three months ended
September 30, 1996, an increase of 13%.
As a result of the increase in net revenues, and an increase in operating
expenses, losses from operations increased 200% to a loss of $(172,037) for the
three (3) months ended September 30, 1996, from a loss of $(57,326) for the
three (3) months ended September 30, 1995. Interest income decreased 77% while
interest expense decreased 41% over the same period due to the Chapter 11
proceedings of Casinos U.S.A.. Losses before reorganization items and minority
interest increased 39% to a loss of $(259,338) for the three (3) months ended
June 30, 1996, from a loss of $(186,576) for the three (3) months ended June
30, 1995.
For the three (3) months ended June 30, 1996, the Company had net expenses
from reorganization of $(3,264). Due to a decrease in the operating results of
the Casino Las Vegas, the Company reported minority interest expense of
$(54,873) for the three (3) months ended September 30, 1996, compared to a
minority interest expense of $(68,314) for the three (3) months ended September
30, 1995.
As a result of the foregoing, the Company reported a net loss for the
three (3) months ended September 30, 1996 of ($317,475), an increase of 24.6%
from the loss for the three (3) months ended September 30, 1995 of $(254,890),
which translates into a net loss per share of $(0.02) based on 12,986,487
weighted average shares outstanding for the three (3) months ended June 30,
1996 and a net loss per share of $(0.03), based on 9,826,080 weighted average
shares outstanding for the three (3) months ended June 30, 1995.
Other than the foregoing, management knows of no trends, or other demands,
commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the income and expenses of
the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in the following pending legal
proceedings:
1) Astraea Investment Management, L. P., as Trustee vs. Global Casinos,
--------------------------------------------------------------------
Inc., et. al
------------
Cause Number 94-02487 in the District Court of Dallas County, Texas,
116th Judicial District.
As previously reported, this matter had been brought by the holder
of certain promissory notes made by the Company's wholly-owned
subsidiary, Casinos U.S.A., Inc. ("Casinos U.S.A.") prior to its
acquisition by the Company. The notes held by the Plaintiff are
secured by a senior deed of trust against the Bull Durham Saloon and
Casino ("Bull Durham") located in Black Hawk, Colorado. The Company
had previously negotiated a settlement accord in which it guaranteed
the obligation of Casinos U.S.A. and which resulted in a dismissal
of the lawsuit. However, the Company was unable to meet a balloon
payment which was due on August 31, 1994. As a result of that
default, the Plaintiff filed a motion to reinstate the case in
October, 1994.
The Company admits making the promissory notes to the Plaintiff
which has the approximate principal balance of $680,000, although
the Company believes it may have some defenses and offsets. The
Company is in the process of attempting to renegotiate and
restructure this indebtedness to amortize it within the parameters
of projected future cash flow. However, there can be no assurance
that the creditors will agree to any such restructuring. As of the
date of this report, the matter is still pending and in the opinion
of management there exists a high probability that if the matter
goes to trial it will result in the entry of an adverse judgment
against the Company for the full amount of the outstanding principal
balance due on the note, accrued default interest, attorneys' fees
and other costs of collection. Such a judgment would have a
material adverse impact upon the Company, its assets and operations.
2) Lisa Paige Montrose Promissory Note
-----------------------------------
Lisa Paige Montrose is the holder of a promissory note made by
Casinos U.S.A. in the original principal amount of $2,546,260, which
note was given in connection with the acquisition and purchase of
the Bull Durham. The obligation to repay the note is secured by a
subordinated deed of trust against the Bull Durham. The Company has
been served notice by Ms. Montrose's legal representatives that she
has construed the acquisition of Casinos U.S.A. by the Company in
November, 1993 as a "transfer of control" under applicable
provisions of her deed of trust which would grant her the right to
accelerate the entire indebtedness represented by the promissory
note. The Company denies that Ms. Montrose has any basis in law or
fact to accelerate the balance of the indebtedness, which the
Company has been retiring in monthly installments paid in accordance
with its terms. No civil action has been filed in this matter. If
such an action is filed, the Company will vigorously defend.
In July, 1995, Ms. Montrose commenced a foreclosure proceeding
against the Bull Durham by the Gilpin County Public Trustee. Ms.
Montrose was joined by Long & Jaudon, P.C., Richard C. Frajola,
Francine M. Frajola, Marian Johnson, Mary E. Goodwin and Virginia G.
Norris, all as beneficiaries of deeds of trust securing promissory
notes in default. The foreclosure sale was scheduled to take place
October 19, 1995. Negotiations to resolve the dispute and
restructure the debt failed, and Casinos U.S.A. filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code on
October 19, 1995 ("Bankruptcy Proceeding"). As a result of the
bankruptcy filing, the foreclosure proceeding and all other actions
against Casinos U.S.A. have been stayed. Casinos U.S.A. continues
to operate the Bull Durham as debtor-in-possession.
3) Angell & Deering v. Casinos, U.S.A., Inc. and Global Casinos, Inc.
------------------------------------------------------------------
Case No. 95-CV-3289, in the Colorado District Court for the City and
County of Denver.
The Company and Casinos U.S.A. are named defendants in a civil
action filed on July 20, 1995, in the Colorado District Court for
the City and County of Denver. The Plaintiff is claiming amounts
due for breach of contract and quantum meruit based upon accounting
services provided to Casinos U.S.A.. The Plaintiff seeks damages in
the amount of $60,099 plus interest and attorney's fees. The
Company disputes its liability, and Casinos U.S.A. disputes the
damages claimed. The litigation is stayed as to Casinos U.S.A. due
to the Bankruptcy Proceeding. All parties have reached a
conditional settlement whereby Casinos U.S.A. has agreed to an
allowed unsecured claim for the plaintiff in the bankruptcy
proceeding in the amount of $30,000. The Company has purchased this
claim in consideration for initial payment of $10,000 and a
guarantee of future payments out of the proposed plan of
reorganization totalling $20,000. The lawsuit pending in the
Colorado District Court would be dismissed with prejudice. The
entire settlement agreement is conditional upon the approval of the
Bankruptcy Court which is pending. Should the settlement agreement
not be so approved, the plaintiff is likely to request a relief from
stay from the Bankruptcy Court, and trial in the Colorado District
Court would be rescheduled.
4) In Re Casinos U.S.A., Inc.
--------------------------
Case No. 95-20864 MSK, in the United States District Court for the
District of Colorado.
Casinos U.S.A. is currently in default under all of its secured
obligations encumbering the Bull Durham. Civil actions were
initiated to foreclose upon the junior liens. The efforts of the
Company to negotiate restructured terms for the repayment of the
foregoing secured obligations were unsuccessful. As a result, on
October 18, 1995, Casinos U.S.A. filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code. Since October 18,
1995, Casinos U.S.A. has continued to operate the Bull Durham as
debtor-in-possession.
The Company believes that the approximate $4,700,000 in secured debt
encumbering the Bull Durham property is substantially greater than
the property's current fair market value. As a result, there can be
no assurance that the Company will be successful in achieving a plan
of reorganization which will result in the Company's ability to
continue to own and operate the Bull Durham.
5) Securities and Exchange Commission Investigation
------------------------------------------------
During 1995 and 1996, the Company and certain officers and directors
of the Company received requests for information from the U.S.
Securities and Exchange Commission ("SEC") related to an
investigation begun by the SEC during 1994 into various matters,
including certain transactions in securities by the Company and one
of its officers and directors. As of September 30, 1996, neither
management of the Company nor the Company's legal counsel have been
informed of the results, if any, of the SEC's investigation or of
any timetable for the SEC to complete its investigation. There is
no way to predict what, if any, effect the outcome of this matter
will have on the financial position of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Mandatory Redeemable Preferred Stock
------------------------------------
In June, 1994, the Company issued 1,406,250 units comprised of one share
of Series A Redeemable Convertible Preferred Stock with a mandatory
redemption date of May 31, 1995 and one-half Class D Common Stock Purchase
Warrant with an exercise price of $3.00 per share. The redemption price
of $2.00 per share is subject to adjustment for certain events such as
splits and dividends. Holders of the Redeemable Convertible Preferred
Stock have the option to convert each share of the preferred stock into
one share of the Company's Common Stock. On May 31, 1995, holders of
1,233,000 shares of the Company's Series A Preferred Stock agreed to waive
the mandatory redemption in consideration of a lower conversion price,
from $2,00 to $1.125 per share, approximately 1.778 shares of common stock
for each share of preferred stock, and a reduction in the exercise price
of 616,500 D Warrants from $3.00 per share to $.50 per share, if exercised
on or before June 30, 1995, and $1.75 per share, if exercised after June
30, 1995.
The foregoing modifications are applicable only to shares of Preferred
Stock and D Warrants owned by holders who voluntarily agreed to such
modifications. In June, 1996, the holder of 125,000 shares of Mandatory
Redeemable Preferred Stock in default agreed to convert the preferred
shares into Common Stock at a conversion of $1.125 per share; provided,
however, that the Company issue additional shares of Common Stock to
reduce the conversion price to $1.00 per share depending upon the public
trading price of the Common Stock over a 90-day period, and provided that
the holder waive all interest accrued and accept no reduction in the
exercise price of D Warrants. At June 30, 1996, 44,250 shares of
Mandatory Redeemable Convertible Preferred Stock remain outstanding, and
the Company remains in default on its mandatory redemption obligation.
During the three (3) months ended September 30, 1996, 17,500 shares of
Mandatory Redeemable Convertible Preferred Stock in default was converted
into Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the three
months ended September 30, 1996.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GLOBAL CASINOS, INC.
Dated: 10/12/96 By: /s/ Stephen G. Calandrella
---------------- ------------------------------
Stephen G. Calandrella
Interim President
Dated: 10/12/96 By: /s/ Pete Bloomquist
---------------- ------------------------------
Pete Bloomquist
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET & CONSOLIDATED STATEMENT OF OPERATIONS FOUND IN THE
COMPANY'S FORM 10-QSB FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,119,885
<SECURITIES> 0
<RECEIVABLES> 157,596
<ALLOWANCES> (5,500)
<INVENTORY> 0
<CURRENT-ASSETS> 1,326,795
<PP&E> 6,488,573
<DEPRECIATION> (1,237,319)
<TOTAL-ASSETS> 10,703,241
<CURRENT-LIABILITIES> 3,187,958
<BONDS> 45,296
53,500
1,237,730
<COMMON> 65,638
<OTHER-SE> 7,944,220
<TOTAL-LIABILITY-AND-EQUITY> 10,703,241
<SALES> 89,201
<TOTAL-REVENUES> 1,707,811
<CGS> 0
<TOTAL-COSTS> 1,997,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,899
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (172,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (317,475)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
