FORM 10-KSB A-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to_________
Commission file number 0-15415
GLOBAL CASINOS, INC
(Exact Name of Registrant as Specified in its Charter)
Utah 87-0340206
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
5373 North Union Blvd, Suite 100, Colorado Springs, Colorado 80918
(Address of Principal Offices) (ZipCode)
Registrant's telephone number, including area code:(719) 590-4900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.05
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
The Registrant's revenues for the year ended June 30, 1998 were
$11,524,348.
As of September 30, 1998, the aggregate market value of the
Common Stock of the Registrant based upon the average of the
closing bid and asked prices of the Common Stock, as quoted on
NASDAQ, held by non-affiliates of the Registrant was
approximately $2,068,473.
As of September 30, 1998, 1,504,344 shares of Common Stock of the
Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant incorporates by this reference the following:
PART III
Item 9 Directors, Executive Officers,Promoters and
Control Persons,Compliance With Section 16(a)
of the Exchange Act.
Item 10 Executive Compensation.
Item 11 Security Ownership of Certain
Beneficial Owners and Management.
Item 12 Certain Relationships and Related
Transactions.
The foregoing are incorporated by reference from the
Registrant's definitive Proxy Statement relating to its
annual meeting of stockholders, which will be filed in an
amendment within 120 days of June 30, 1998.
PART IV - EXHIBITS
1. Incorporated by reference from the Company's
Registration Statement on Form 10, as amended, SEC file
number 0-15415.
2 Incorporated by reference from the Company's
Registration Statement on Form S-2, as amended, SEC
File No. 33-46060, declared effective May 15, 1992.
3. Incorporated by reference from the Company's
Registration Statement on Form S-8, filed with the
Commission and effective December 8, 1995.
4. Incorporated by reference from the Company's
Registration Statement on Form SB-2, as amended, SEC
File No. 33-76204, declared effective August 12, 1994.
5. Incorporated by reference from the Company's
Current Report on Form 8-K, dated July 15, 1995, as
filed with the Commission on July 31, 1995, as amended
on Form 8-K/A-1 filed with the Commission on August 31,
1995;
6. Incorporated by reference from the Company's
Current Report on Form 8-K, dated November 19, 1993, as
filed with the Commission on December 3, 1993;
7. Incorporated by reference from the Company's
Current Report on Form 8-K, dated February 18, 1994, as
filed with the Commission on March 3, 1994;
8. Incorporated by reference from the Company's
Current Report on Form 8-K, dated April 29, 1994, as
filed with the Commission on May 13, 1994;
9. Incorporated by reference from the Company's Current Report
on Form 8-K, dated June 3, 1994, as filed with the Commission on
June 10, 1994;
10. Incorporated by reference from Casinos U.S.A.,
Inc.'s Corrected Second Amended Disclosure Statement,
dated September 16, 1996, as filed with the Commission
on October 31, 1996;
11. Incorporated by reference from the Company's
Current Report on Form 8-K, dated August 1, 1997, as
filed with the Commission on August 14, 1997;
12. Incorporated by reference from the Company's Current Report
on Form 10KSB, dated October 7, 1997, as filed with the
Commission on October 14, 1997;
13. Incorporated by reference from the Company's Amended Report
on Form 8-K, dated October 7, 1997, as filed with the Commission
on October 14, 1997; and
14. Incorporated by reference from the Company's Current Report
on Form 8-K, dated June 11, 1998, as filed with the Commission on
June 15, 1998; as Amended June 11, 1998, and filed with the
Commission on July 7, 1998.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Global Casinos, Inc. (the "Company" or "Global Casinos")
and its wholly-owned subsidiaries, operate in the rapidly
developing and expanding domestic and international gaming
industry. The Company is organized as a holding company for the
purpose of acquiring operating casinos, gaming properties and
other related interests.
History
Global Casinos, Inc., f/k/a Morgro Chemical Company, was
organized under the laws of the State of Utah on June 8, 1978.
From 1978 until February, 1994, it manufactured and marketed a
line of garden fertilizers and chemicals, as well as a retail ice
melter.
In the fall of 1993, the Company embarked upon an
aggressive plan to acquire and develop casino properties both
nationally and internationally. On September 20, 1993, the
Company acquired 100% of the outstanding Common Stock of Colorado
Gaming Properties, Inc., a Colorado corporation ("CGP"). CGP
owned two (2) real estate properties located in the limited
stakes gaming district in Central City, Colorado. The
properties, known as the Nitro Club and the Gas Light, which were
never operational under the Company, were foreclosed upon in
June, 1996.
On November 19, 1993, the Company acquired 100% of the
outstanding Common Stock of Casinos U.S.A., Inc., a Colorado
corporation ("Casinos U.S.A."), Lincoln Corporation, a South
Dakota corporation ("Lincoln"), and Woodbine Corporation, a South
Dakota corporation ("Woodbine") in exchange for 253,500 of the
Company's Common Stock. Casinos U.S.A. owns and operates the Bull
Durham Saloon and Casino, located in Black Hawk, Colorado.
Lincoln and Woodbine each operated casinos located in Deadwood,
South Dakota. The Company permanently closed the Last Chance
Saloon owned and operated by Lincoln Corporation on May 31, 1994.
Lillie's, the casino operated by Woodbine Corporation, was closed
effective June 30, 1995 due to unprofitable operations. (See ITEM
2. DESCRIPTION OF PROPERTIES)
Casinos U.S.A. also held an 80% interest in a joint
venture ("International Joint Venture") which developed and
operated gaming casinos in several international locations.
Through the International Joint Venture, casinos have been
developed and operated in Sochi, Russia and Bishkek, Kyrgyzstan.
In Sochi, the International Joint Venture developed and operated
Casino Lazurnaya located in the four-star Hotel Radisson
Lazurnaya. In Bishkek, the International Joint Venture has
developed and operates the Casino Las Vegas located on the second
floor of the Restaurant Naryn.
In February, 1994, the Company sold to a management group
all of the assets, subject to all of the liabilities, utilized in
the chemical and fertilizer business which it formerly operated
under the name "Morgro Chemical Company." The Company received
approximately $854,000 in cash and promissory notes, and the
purchasers assumed approximately $1,200,000 in liabilities. The
purchase price represented the net book value of the assets
disposed of in excess of the liabilities assumed.
In April, 1994, the Company successfully purchased for
$1,381,274 in cash a 66-2/3% interest in a holding company which,
through a wholly-owned subsidiary, owns and operates Casino
Masquerade located in the Radisson Aruba Resort and Casino
located on the Caribbean island of Aruba, Netherlands Antilles.
By an Agreement dated June 27, 1995, and effective July
15, 1995 ("Dissolution Agreement"), the International Joint
Venture (the "IJV") was dissolved. The Company assigned its
interest in the Casino Lazurnaya and received all of the IJV's
profit interest (61%) in Casino Las Vegas, the remaining 33-1/3%
interest in Casino Masquerade, and a promissory note in the
amount of two hundred thousand dollars ($200,000) secured by
20,000 shares of the Company's common stock. Giving effect to
this transaction, the Company owns a 61% profit interest in
Casino Las Vegas, 100% of the Casino Masquerade, and no residual
interest in Casino Lazurnaya.
In July, 1996, the Company formed a subsidiary, Global
Internet Corporation ("Global Internet"), to explore
opportunities to develop and operate one or more sites on the
World Wide Web, with an initial focus on entertainment and non-
commercial gaming sites. The Company loaned $325,000 to Global
Internet in exchange for a 10% promissory note. At June 30,
1998, the Company's investment, promissory note and related
interest, and additional advances due from Global Internet
totaled approximately $385,000.
Management became aware that internet gaming could impair
the Company's Colorado state gaming license. As a result, the
Company initiated actions to divest itself of its investment in
Global Internet. A separate board of directors of Global
Internet was established, with no overlapping members of the
Company's board, and the Company assigned its voting rights to a
member of the Global Internet board, who is not related to the
Company. The Company also entered into negotiations with First
Entertainment, Inc. ("FEI"), an unrelated third party, whereby
FEI would acquire the Company's investment in Global Internet.
On May 11, 1997, the Company and FEI entered into an
agreement whereby the Company will sell 1,500,000 of the
1,750,000 common shares of Global Internet owned by the Company,
in exchange for 1,500,000 warrants, which will allow the Company
to purchase 1,500,000 shares of FEI common shares at $1.25 per
share for a period of five years. The Company will also sell its
convertible promissory note, advances and interest receivable of
$375,000 for 30,000 shares of FEI Class B Preferred Stock with a
face value of $12.50 per share, convertible into FEI common
shares at $1.25 per share. The agreement was originally expected
to close shortly after May 1999. However, the FEI shareholders
had not yet approved the transaction, authorized an increase in
FEI common stock to allow for the issuance of shares underlying
the convertible preferred stock and warrants, or obtained long-
term financing that would allow Global Internet to continue to
develop entertainment and gaming sites.
FEI is a thinly capitalized and thinly traded public
entity, which does not appear to currently have resources
available to continue development of Global Internet. In
September 1997, the Company was informed that completion of the
transaction was contingent upon FEI shareholders' approval, which
was received at a shareholders meeting held in November 1997.
However, these factors raised concerns about the Company's
ability to realize its investment in Global Internet. Management
determined that it would be appropriate for the Company to fully
expense its investment and allow for the receivables in Global
Internet during the quarter ended June 30, 1997, although the
sale may ultimately be consummated.
FEI has represented to the Company that financing will be
obtained. Management believes that if this is to occur, the
Company may be able to recognize a gain on its sale of Global
Internet.
Effective August 1, 1996, the Company, through its
subsidiary Global Pelican, entered into a cancelable Management
and Operating Lease Agreement (the "Pelican Agreement") with a
third party, whereby Global Pelican agreed to lease and operate
the Pelican Casino, located on the island of St. Maarten. The
original term of the lease was for five years, with its options
to renew for three additional five-year terms. Lease payments
were scheduled to be $30,000 per month for the initial lease term
beginning in November 1996. Rent expense in 1998 was $225,000.
The Pelican Agreement provides that Global Pelican would also
purchase the equipment utilized at the casino for $225,000 in
exchange for a note payable, subject to the owner providing clear
title to the equipment. The Pelican Agreement also states that
until the equipment liens and encumbrances are released, Global
Pelican has the right to terminate the Pelican Agreement. At
June 30, 1998, the equipment remains subject to liens and
encumbrances, and Global Pelican has therefore not purchased the
equipment. In July 1998, Global Pelican renegotiated the terms
of the Pelican Agreement, whereby Global Pelican is to pay
$20,000 per month through November 1998, of which $15,000 is to
be applied as monthly rent, and $5,000 as deferred rent pending
completion of negotiations between Global Pelican and the lessor.
On August 1, 1998, the Company acquired 100% of the
outstanding Common Stock of Anchorage-based Alaska Bingo Supply,
Inc. ("ABS") and its related operations. ABS will be operated by
the Company's wholly-owned subsidiary, Global Alaska Corporation
("Global Alaska").
The Company purchased ABS for $4,400,000, of which
$400,000 was paid in cash at closing, with the $4,000,000 balance
in the form of a promissory note, bearing interest at eight
percent (8%) and to be amortized monthly over a term of seven (7)
years beginning in October, 1997. During the term of the note,
the noteholder has the option to convert up to $2,500,000 of the
promissory note into shares of the Company's Common Stock at a
price of ten dollars ($10) per share.
In order to fund this acquisition, the Company borrowed
$350,000 from third parties and $75,000 from an affiliate. The
promissory notes were due in equal monthly payments from January
1998 through April 1998. The promissory notes to third parties
are secured by a note receivable by the Company. Interest on
$200,000 of prepaid notes is at 24% and interest on the remaining
$225,000 (including the affiliate Note) is at 12%. Additionally,
the holder of the $150,000, 12% note was issued warrants to
purchase 15,000 shares of the Company's common stock at an
exercise price of $3.00 per share. The warrants expire June
2000.
Financing
On May 31, 1994, the Company successfully closed a private
placement of 9% Convertible Notes in which it sold, in the
aggregate, $2,812,500 in Convertible Notes to a total of 33
accredited investors. In June, 1994, the Convertible Notes were
automatically converted into 1,406,250 shares of Mandatory
Redeemable ("Mandatory Redeemable") and Convertible and Class A
Preferred Stock ("Preferred Stock") and Class D Common Stock
Purchase Warrants ("D Warrants") which have since expired. The
Preferred Stock is convertible into Common Stock of the Company
at a conversion value of $20.00 per share (one share of Common
Stock for ten shares of Preferred Stock). The Company had the
obligation to redeem any Preferred Stock not yet converted at the
rate of $2.00 per share on May 31, 1995. Due to a significant
decline in the public trading price of the Company's Common
Stock, none of the shares of Preferred Stock were converted, and
the Company was obligated to complete the mandatory redemption on
or before May 31, 1995, representing an aggregate redemption
price of $2,812,500. As the Company lacked the capital necessary
to redeem the outstanding shares of Preferred Stock, the Company
entered into agreements with the holders of 1,233,000 of the
outstanding shares of Preferred Stock, modifying the redemption
and conversion terms of the Preferred Stock, such that the
Company was released from its obligation to redeem the 1,233,000
shares of Preferred Stock, the conversion value was reduced from
$20.00 per share to $11.25 per share (approximately .1778 shares
of Common Stock for each share of Preferred Stock). During the
year ended June 30, 1996, 544,500 shares of the modified
Preferred Stock were converted into 96,790 shares of Common
Stock. In July, 1995, the Company agreed to issue 28,125 shares
of Common Stock upon this exercise of 28,125 D Warrants at $5.00
per share.
The foregoing modifications are applicable only to shares
of Preferred Stock and D Warrants owned by holders who
voluntarily agreed to such modifications. As a result, at June
30, 1995, there continued to be issued and outstanding 173,250
shares of Preferred Stock as to which the Company continued to be
in default in its mandatory redemption obligation, representing
an aggregate redemption obligation of $346,500, all of which was
matured and in default, and 88,625 original D Warrants.
Subsequent to June 30, 1995, the holder of 125,000 shares of
Preferred Stock agreed with the Company to convert same into
Common Stock at a conversion of $11.25 per share which was
completed in June, 1996. The holder agreed to waive all interest
accrued while the Company was in default of its mandatory
redemption obligation and accepted no reduction in the exercise
price of D Warrants. In July, 1996, 10,000 shares of the
Mandatory Redeemable Preferred Stock was converted into Common
Stock at a conversion of $11.25 per share, and 7,500 shares were
converted into Common Stock at a conversion of $10.00 per share.
As a result, at June 30, 1998, 26,750 shares of the original
Mandatory Redeemable and Preferred Stock are outstanding and the
Company continues to be in default of its mandatory redemption
obligation (representing an aggregate redemption obligation of
$53,500, all of which is matured and currently in default).
On August 12, 1994, the Company's Registration Statement
on Form SB-2 was declared effective by the Securities and
Exchange Commission. The Registration Statement registered for
sale under the Securities Act of 1933, as amended (the
"Securities Act") 42,780 shares held by existing shareholders,
195,750 shares issuable upon exercise of Class A Common Stock
Purchase Warrants ("A Warrants"), 203,375 shares issuable upon
exercise of Class B Common Stock Purchase Warrants ("B
Warrants"), and 65,144 shares issuable upon exercise of Class C
Common Stock Purchase Warrants ("C Warrants"). During the period
of time that the Registration Statement was effective, A Warrants
were exercised to purchase an aggregate of 67,500 shares of
Common Stock at an exercise price of $10.00 per share, B Warrants
were exercised to purchase an aggregate of 6,500 shares of Common
Stock at an exercise price of $20.00 per share, and C Warrants
were exercised to purchase an aggregate of 4,500 shares of Common
Stock at an exercise price of $30.00 per share. As a result of
those Warrant exercises, the Company received aggregate gross
proceeds of $850,000. The Class A Warrants, B Warrants, and C
Warrants expired on December 31, 1995.
In June, 1995, the Company consummated the purchase of an
aggregate of $937,204 in subordinated secured promissory notes
held by sixteen (16) creditors of Casinos U.S.A.. Pursuant to
the terms of the Promissory Note Purchase Agreements, the Company
purchased the promissory notes and collateral security in
consideration for the issuance of an aggregate of 124,961 shares
of the Company's Common Stock, valued at $7.50 per share. The
shares of Common Stock were issued by the Company in reliance
upon an exemption from the registration requirements of the
Securities Act contained in Section 4(2) thereof. In connection
with the Promissory Note Purchase Agreements, the Company has
agreed to register for resale under the Securities Act the
shares of Common Stock issued in consideration of the Casinos
U.S.A. Debt Purchase. The Registration Statement filed by the
Company with the Securities and Exchange Commission on Form S-3
was declared effective on December 13, 1995.
In October, 1996, the Company raised $630,250 through an
offering of Units ("Units"), each Unit consisting of one (1)
eight percent (8%) $1,000 convertible Promissory Note
("Promissory Note"), 200 Class E Common Stock Purchase Warrants
("E Warrants"), 200 Class F Common Stock Purchase Warrants ("F
Warrants"), and 200 Class G Common Stock Purchase Warrants ("G
Warrants"). The Promissory Note is convertible to common stock
at $5.00 per $1.00 loaned and the Promissory Notes are due
October 31, 1998. The Class E Warrants, F Warrants and G
Warrants are exercisable at $6,00, $7.00, and $8.00,
respectively. In January, 1998, the Company borrowed $32,000 in
10% notes, $21,000 of which was from related parties, which were
due in September, 1998. The Company is currently in negotiations
to extend the maturity date of these notes.
International Gaming Interests
Casino Las Vegas: Bishkek, Kyrgyzstan
Through the International Joint Venture, the Company's
subsidiary, Global International, developed and operated the
Casino Las Vegas located in the Naryn Restaurant, in Bishkek,
Kyrgyzstan. Global International held an eighty percent (80%)
interest in the International Joint Venture which in turn held a
sixty-one percent (61%) profit interest in the Casino Las Vegas.
Casino Las Vegas is operated under a lease with the Naryn
Restaurant pursuant to which the restaurant owner retains the
remaining thirty-nine percent (39%) profit interest. Under the
terms of the Dissolution Agreement, Global Casino Group, Inc. and
Global International both assigned their interests in Casino Las
Vegas and the lease under which the casino operates to the
Company. As a result, the Company held a net sixty-one percent
(61%) profit interest in Casino Las Vegas. At September, 1996,
pursuant to the terms of the Joint Venture Agreement, the
Company's profit interest was reduced to fifty percent (50%).
In April of 1998, due to a major change in taxation
policy, Global transferred its profit interest to its Joint
Venture Partner for assumption of liabilities. This resulted in
a loss of approximately $75,000.
Casino Masquerade: Aruba Netherland AntillesS
In April, 1994, the Company purchased a sixty-six and two-
thirds percent (66-2/3%) interest in a holding company which,
through a wholly-owned subsidiary, owns and operates a casino
located in the Radisson Aruba Resort and Casino located on the
Caribbean island of Aruba, Netherlands Antilles. Casino
Masquerade is open and operational, and the Company has upgraded
many of the gaming devices on location and invested in additional
leasehold improvements. Pursuant to the Dissolution Agreement,
the Company acquired the remaining thirty-three and one-third
percent (33-1/3%) interest in Casino Masquerade. As a result,
the Company presently owns 100% of the Casino Masquerade.
During February 1998, Global was notified that the Hotel
would close effective March 1, 1998, for extensive remolding
which would cause a relocation of the casino area. The Company
entered into a settlement agreement which among other things
called for a cash deposit of $750,000, and procurement of new
equipment estimated to cost in excess of $1,000,000. The
Company is currently in default and is negotiating a revised
settlement agreement. Management has determined that in light of
these negotiations to reduce the carrying of leasehold and
contract rights by $746,550 as of June 30, 1998.
Pelican Casino: St. Maarten, Netherlands Antilles
Effective August 1, 1996, the Company, through its
subsidiary Global Pelican, entered into a cancelable Management
and Operating Lease Agreement (the "Pelican Agreement") with a
third party, whereby Global Pelican agreed to lease and operate
the Pelican Casino, located on the island of St. Maarten. The
original term of the lease was for five years, with options to
renew for three additional five-year terms. Lease payments were
scheduled to be $30,000 per month for the initial lease term
beginning in November 1996. Rent expense in 1998 was $225,000.
The Pelican Agreement provides that Global Pelican would also
purchase the equipment utilized at the casino for $225,000 in
exchange for a note payable, subject to the owner providing clear
title to the equipment. The Pelican Agreement also states that
until the equipment liens and encumbrances are released, Global
Pelican has the right to terminate the Pelican Agreement. At
June 30, 1998, the equipment remains subject to liens and
encumbrances, and Global Pelican has therefore not purchased the
equipment. In July 1998, Global Pelican renegotiated the terms
of the Pelican Agreement, whereby Global Pelican is to pay
$20,000 per month through November 1998, of which $15,000 is to
be applied as monthly rent, and $5,000 as deferred rent pending
completion of negotiations between Global Pelican and the lessor.
Global Pelican is scheduled to continue negotiations with the
lessor by November 1998.
Domestic Gaming Interests
Bull Durham Saloon and Casino: Black Hawk, Colorado
The Company, through its wholly-owned subsidiary Casinos
U.S.A., owns the Bull Durham Saloon and Casino (the "Bull
Durham"). The Bull Durham is located in Black Hawk, Colorado and
currently operates as a Class B Gaming Casino, which limits the
casino to four (4) gaming tables and fewer than two hundred fifty
(250) slot machines. Under limited stakes gaming regulations in
Colorado, maximum wagers are limited to $5.00 per bet. The Bull
Durham commenced gaming operations in February, 1993. The Bull
Durham operates under a gaming license issued to the Company.
Casinos U.S.A. ("Debtor") was in default under all of its secured
obligations encumbering the Bull Durham Saloon and Casino. 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. continued to operate the
Bull Durham as debtor-in-possession. The Court confirmed the
Debtor's Second Amended Plan of Reorganization (the "Plan") on
December 18, 1996. The effective date of the Plan is thirty (30)
days after confirmation. (See ITEM 2. DESCRIPTION OF
PROPERTIES)
Employees
The Company presently has six (6) full time employees:
Stephen G. Calandrella, President; Barbara Chacon, Chief
Financial Officer; Dale Sterner, General Manager of Global
Pelican; Daniel Scherer, General Manager of Bull Durham Saloon
and Casino; and one clerical staff.
Mr. Sterner is employed by the Company as General Manager
of Global Pelican pursuant to a three (3) year employment
contract, expiring in November, 1998, which provides for payment
of base compensation in the amount of $6,250 per month. Mr.
Sterner is also eligible to receive incentive stock options
subject to vesting, under the Company's 1993 Stock Incentive
Plan. In addition, Mr. Sterner shall be paid an annual bonus
equal to five percent (5%) of the consolidated net income of
Global Pelican.
Mr. Scherer is employed by the Company as General Manager
of the Bull Durham Saloon and Casino pursuant to a one (1) year
employment contract, which automatically renews for two (2)
successive years and provides for payment of base compensation in
the amount of $5,000 per month. Mr. Scherer is also eligible to
receive incentive stock options subject to vesting, under the
Company's 1993 Stock Incentive Plan. In addition, Mr. Scherer
shall be paid an annual bonus equal to two and one-half percent
(2-1/2%) of the net income of the Bull Durham Saloon and Casino
in excess of $150,000.
Casino Masquerade currently operates with a total of 70
employees. Because of the requirements of Aruban law, the
staffing levels cannot be decreased during the slower summer
season, and as a result the company expects the size of the labor
force to remain relatively constant year round.
Pelican Casino currently operates with a total of 50 full-
time employees.
The Bull Durham currently employs 20 persons. During the
peak summer season, employment typically increases by a total of
15 employees.
Alaska Bingo Supply, Inc. employees 7 full-time employees.
Consultants
The Company relies upon the services of independent
consultants, including its local accountants and local attorneys
in the jurisdictions in which the Company holds or plans to
develop its international gaming interests.
Competition
International
There are numerous national and international corporations
and entities engaged in the business of attempting to develop
casinos throughout the world. There are currently eight (8)
casinos on the island of St. Maarten, Netherlands Antilles.
These Caribbean resort islands have few barriers to entry of new
participants in the gaming business. The Company expects that it
will have to operate competitively in these markets and to
respond to challenges from competitors that have substantially
greater financial and personnel resources than the Company.
Domestic
Competition in the gaming industry in the United States is
intense. The Company presently estimates that gaming is
permitted in most states in some form. There are numerous
competitors engaged in the same or similar business as the
Company, and competition has increased substantially in recent
years with more competitors entering the market. Competition
from these entities will continue to affect the operations of the
Company and other operators in the gaming industry. Competition
in Central City and Black Hawk, Colorado is particularly intense
with numerous competitors in very close proximity and new
competitors entering the market. There can be no assurance that
the Company can obtain the resources necessary to compete
successfully in the industry or that the Company can operate
profitably given the existing level of competition.
The Company's operations also compete with other forms of
gaming conducted throughout the United States and the world.
Other gaming activities include Bingo, Lotto, table games, sports
betting and pari-mutuel wagering.
Regulation
International
Ownership and operation of gaming establishments in each
foreign jurisdiction where the Company has operations are
regulated by local authorities. In virtually all jurisdictions
in which the Company plans to operate casinos, the Company will
be required to obtain a Certificate of Authority to conduct
business in that jurisdiction, as well as numerous licenses,
including gaming licenses, tax licenses, liquor licenses and the
like. Each jurisdiction maintains its separate regulatory
environment with discrete requirements and approvals necessary.
In each jurisdiction in which the Company has an
opportunity to develop a casino, the Company has consulted with
local officials as well as local advisors, including attorneys,
accountants, bankers and other professionals whose services are
or will be retained in order to ensure that the Company complies
with all applicable regulatory requirements. The Company will,
of necessity, rely upon the consultation of such advisors in
order to ensure compliance.
Domestic: Federal and State Law
Ownership and operation of gaming establishments are
extensively regulated by states in which such activities are
permitted. Colorado has adopted numerous statutes and
regulations covering limited stakes gaming operations. Existing
regulation includes various aspects of the gaming industry,
including ownership, operation and employment in all limited
stakes gaming operations, taxation of revenues and regulation of
equipment utilized in connection with such activities. Virtually
all aspects of ownership and operation of gaming facilities
require licensing by the state. Operators, machine manufacturers
and distributors, employees and retailers are all subject to
extensive investigation and regulation prior to licensing to
engage in gaming activities. The procedure for obtaining these
licenses is time consuming and costly.
Because the Company is a publicly traded corporation, each
of the officers, directors and shareholders owning 5% or more of
the equity interest must be approved under existing statutes and
regulations. The criteria established in determining fitness to
conduct such operations include financial history, criminal
record and character, in addition to satisfaction of application
procedures set forth in the existing regulations. As a result of
these regulations, any investor in the company who becomes a
holder of 5% or more of the Company's Common Shares may be
required to submit to a background investigation, provide
financial statements and respond to inquiries from gaming
regulators in accordance with licensing procedures. Such
restrictions may discourage acquisition of large blocks of the
Company's Common Shares and depress the price of the Company's
Common Shares in any market which has or may develop.
Under current regulations promulgated by the Colorado
Limited Gaming Commission (the "Gaming Commission"), no gaming
licensee may issue shares except in accordance with Colorado
gaming laws and regulations; and any such issuances will be
ineffective and such stock shall not be deemed issued until
compliance is obtained; no shares of the licensee may be
transferred except in accordance with Colorado Gaming Laws and
regulations; and if the Gaming Commission determines that a
holder of a licensee's securities is unsuitable, the licensee or
a suitable person must, within sixty (60) days, purchase such
securities at the lesser of the unsuitable person's investment or
the current market price of such securities. Any person who
becomes a beneficial owner of five percent (5%) or more of the
Company's Common Stock must notify the Division of Gaming within
ten (10) days after such person acquires such securities and must
provide such additional information and be subject to a finding
of suitability as required by the Division of Gaming Commission.
The Company must notify each person who is subject to this
regulation of its requirements as soon as it becomes aware of the
acquisition. Further, each person who becomes a beneficial owner
of more than ten percent (10%) of any class of voting securities
of the Company must apply to the Commission for a finding of
suitability within ten (10) days after acquiring such securities.
The Company must notify each person who is subject to this
regulation and its requirements as soon as it becomes aware of
the acquisition.
Existing federal and state regulations may also impose
civil and criminal sanctions for various activities prohibited in
connection with gaming operations. State statutes and
regulations also prohibit various acts in connection with gaming
operations, including false statements on applications and
failure or refusal to obtain necessary licenses described in such
regulations. Violation of any of these existing or newly adopted
regulations may have a substantial adverse effect on the
operations of the Company and its subsidiaries.
Domestic: Liquor License
The Company has been granted a casino tavern license
issued under the Colorado Liquor Code for the Bull Durham. As
revised in 1993, the Colorado Liquor Code now includes a casino
tavern license which is issuable to duly licensed and operating
limited gaming casinos.
Taxation
International
All jurisdictions in which the Company has the opportunity
to develop casino operations impose tax on revenues and income
generated as a permitted gaming licensee. The Company has
consulted extensively with tax experts in each jurisdiction, as
well as international tax experts in the United States, for the
purpose of familiarizing itself with the tax laws of each such
jurisdiction, as well as developing plans to take advantage of
any and all opportunities available to companies which operate
foreign businesses on a multi-jurisdictional basis. It is
possible that the Company may form and organize controlled
corporations under the laws of foreign jurisdictions in order to
maximize the advantages available under the circumstances.
Domestic
The operations of the Company and its subsidiaries will be
subject to taxation at both the Federal and State level. Any net
profits derived from the operations of the Company or its
subsidiaries will be subject to United States Federal Income Tax
and state income tax imposed by states in which they operate.
These provisions regarding Federal and state income tax are
generally applicable to all entities.
The operations of the Company and its gaming subsidiaries
in the gaming industry will also be subject to special taxes
imposed by the states which permit such activities. Colorado
imposes a variable tax on "adjusted gross proceeds" obtained
within its boundaries. Adjusted gross proceeds is defined to
include the total amount of all wagers made by players on limited
stakes gaming, less all payments received by such players. With
regard to games of poker, adjusted gross proceeds means any sums
wagered in the poker hand, which may be retained by the operator
of the gaming establishment. The tax ranges from two percent
(2%) of all adjusted gross proceeds up to $2,000,000; eight
percent (8%) for all adjusted gross proceeds from $2,000,001 up
to $4,000,000; fifteen percent (15%) on all adjusted gross
proceeds from $4,000,001 to $5,000,000; and eighteen percent
(18%) on all adjusted gross proceeds in excess of $5,000,000. In
addition, the Cities of Black Hawk and Central City, as well as
the State of Colorado, assess annual taxes, called "device fees",
on each gaming unit utilized in a casino.
The cumulative impact of all the taxes, fees and
assessments is substantial, and there can be no assurance that
future increases in those taxes will not have a material adverse
effect on the Company's gaming interests and operations.
All regulations affecting the operations of the Company's
limited gaming properties and businesses are subject to change by
the respective regulatory authorities. Accordingly, there can be
no assurance that there will not be enacted future amendments to
those regulations which materially and adversely affect the
business and profitability of the Company.
Service Marks
The Company has received a Certificate of Registration
from the United States Patent and Trademark Office of its Service
Mark "Global Casinos, Inc.", which includes both the name and the
Company's logo as federally protected service marks for use in
connection with the Company's business.
The Company has filed an application in the United States
Patent and Trademark Office to register "Casino Masquerade",
including both the name and the casino's logo, as a federally
protected service mark for use in connection with the Company's
business.
The Company may seek to register or file intent to use
applications for additional service marks or trademarks in the
future. Although the Company regards its service marks as
valuable assets and intends to vigorously defend its service
marks against infringements, the Company does not believe that
the failure to obtain the service mark registrations for which it
may apply, or the infringement by another entity of its service
marks, would have a material adverse effect on the Company at the
present time.
Seasonality
International
St. Maarten is an independent nation comprising part of
the Netherlands Antilles along with Curacao and Bonnaire. The
islands have experienced accelerated international recognition as
a premier Caribbean resort destination, hosting millions of
tourists each winter season. An advantage to be gained by the
Company acquiring the Casinos in the Caribbean is the counter-
cyclic effect that its high winter season would have with the
Company's domestic operations. Typically, Caribbean destination
resorts experience the highest concentration of tourism from
December through April of each year.
Domestic
The Company's casino in Colorado, while not seasonal in
the conventional sense, experiences a significant increase in
tourist traffic which occurs from May through September. The
Bull Durham Saloon and Casino ("Bull Durham") will generally
realize more of its annual revenues during the tourist season.
Based on historical precedent, the Bull Durham should not be
expected to perform better than on a "break-even" basis during
the winter months.
ITEM 2. DESCRIPTION OF PROPERTIES
Corporate Offices: Colorado Springs, Colorado
The Company's corporate headquarters were relocated to
5373 North Union Blvd., Suite 100, Colorado Springs, Colorado
80918, where the Company is sharing office space with an
affiliate. These facilities are believed by the Company to be
suitable and adequate to meet the Company's needs for the
foreseeable future. The Company is currently not paying rent,
but is negotiating lease terms with the affiliate.
Casino Las Vegas: Bishkek, Kyrgyzstan
The Company's right to operate the Casino Las Vegas in the
Naryn Restaurant located in the City of Bishkek, Kyrgyzstan, is
derived from an agreement initially entered into in 1992 (the
"Naryn Contract") between Corporation Restaurant Naryn and Aztec-
Talas-Four Star, Inc., a Nevada corporation ("ATF"). The Naryn
Contract was assigned by ATF, with the consent of Corporation
Restaurant Naryn, to Global Group, the Company's international
joint venture partner. Global Group, in turn, assigned the Naryn
Contract to the International Joint Venture. Pursuant to the
Dissolution Agreement, effective July 15, 1995, the International
Joint Venture assigned all rights in Casino Las Vegas and the
Naryn Contract with Corporation Restaurant Naryn to the Company.
The Company operated the Casino Las Vegas on the second
floor of the Restaurant Naryn in Bishkek under a joint venture
agreement with the Joint Stock Company Naryn. The casino opened
in July, 1994. Casino Las Vegas occupies approximately 4,000
square feet, and contains eighteen (18) slot machines, three (3)
black jack tables, three (3) Caribbean Stud poker tables, one (1)
Let it Ride table, and two (2) roulette wheels. The Agreement
has a term of twenty (20) years, expiring on April 12, 2013.
Net income generated from gaming operations at the casino
was divided sixty-one percent (61%) to the Company and thirty-
nine percent (39%) to the Corporation Restaurant Naryn through
September 1996, and 50% thereafter.
In April of 1998, due to a major change in taxation
policy, Global transferred its profit interest to its Joint
Venture Partner for assumption of liabilities. This resulted in
a loss of approximately $75,000.
Casino Masquerade: Aruba, Netherland Antilles
On April 29, 1994, the Company closed upon a definitive
Stock Purchase Agreement purchasing a net sixty-six and two-
thirds percent (66-2/3%) interest in the Casino Masquerade which
is located in the recently renovated Radisson Aruba Caribbean
Resort and Casino on the Caribbean resort island of Aruba,
Netherlands Antilles. The Aruba Caribbean Resort and Casino (the
"Hotel") is owned by the Dutch Hotel and Casino Development
Corporation N.V., an Aruba corporation ("Dutchco") and operates
under an October 11, 1992 Management Agreement with Radisson
Hotel Corporation. Dutchco holds a gaming permit issued by the
Nation of Aruba which authorizes it to operate a gaming casino on
the premises. Under the authority of its Gaming License, Dutchco
has leased the casino to Global Entertainment Group N.V., an
Aruba corporation ("Global Entertainment") which, since 1993, has
operated the casino under an exclusive lease which has a term of
five (5) years with automatic one (1) year extensions thereafter.
Global Entertainment is wholly-owned by BPJ Holding N.V.,
a Curacao corporation. The definitive Stock Purchase Agreement
provided for the purchase by the Company of sixty-six and two-
thirds percent (66-2/3%) of the issued and outstanding shares of
the capital stock of BPJ Holding N.V. Until July 15, 1995, the
remaining thirty-three and one-third percent (33-1/3%) of BPJ
Holding N.V. was owned by Broho Holding N.V., an unaffiliated
company controlled by Kenneth D. Brown. Effective July 15, 1995,
Broho Holding N.V. assigned its interest to the Company. The
Company presently holds one hundred percent (100%) of the issued
and outstanding stock of BPJ Holding N.V.
The Company leased the Casino Masquerade facility under an
operating lease which expires in December 2002, with an option to
renew for 10 years. The Casino occupied approximately 8,500
square feet in the Hotel under the lease agreement between
Dutchco and Global Entertainment. As rent under the January 18,
1993, lease agreement, Global Entertainment was obligated to pay
Dutchco percentage rent based upon the gross gaming revenues (net
of all government taxes and fees) of the casino equal to ten
percent (10%) of the gross gaming revenues for the year ended
December, 1995, fifteen percent (15%) for the year ended
December, 1996, and thereafter twenty percent (20%) of gross
gaming revenues. Under the lease, "gross gaming revenue" is
defined to mean (i) the net win from gaming activities, which is
the difference between gaming wins and losses before deducting
cost and expenses which shall include all markers, promises to
pay and checks received, less (ii) the Aruba gaming tax and the
expenditures related to the employment of government inspectors
for the casino operation. During December, 1995, the Company
reached an agreement to modify the terms of the lease agreement
whereby beginning January 1, 1996, the rent was calculated as
$400,000 per year plus fifteen percent (15%) of the gross gaming
revenue over $4,000,000.
The Casino has been fully operational since December,
1993, when extensive renovations to the Hotel were completed.
Operations at the casino currently consist of one hundred fifty-
five (155) slot machines, six (6) black jack tables, two (2)
roulette wheels, two (2) Caribbean Stud tables, three (3) Let it
Ride tables, and one (1) craps table. The casino also serves
liquor and provides a limited food service. In September, 1998,
the Company was informed that Dutchco contemplates closing the
property from March, 1998 through December, 1998 to conduct
extensive renovations. The Company and Dutchco are currently
negotiating a revised settlement agreement.
Pelican Casino: St. Maarten, Netherlands Antilles
Effective August 1, 1996, the Company, through its
subsidiary Global Pelican, entered into a cancelable Management
and Operating Lease Agreement (the "Pelican Agreement") with a
third party, whereby Global Pelican agreed to lease and operate
the Pelican Casino, located on the island of St. Maarten. The
original term of the lease was for five years, with options to
renew for three additional five-year terms. Lease payments were
scheduled to be $30,000 per month for the initial lease term
beginning in November 1996. Rent expense in 1998 was $225,000.
The Pelican Agreement provides that Global Pelican would also
purchase the equipment utilized at the casino for $225,000 in
exchange for a note payable, subject to the owner providing clear
title to the equipment. The Pelican Agreement also states that
until the equipment liens and encumbrances are released, Global
Pelican has the right to terminate the Pelican Agreement. At
June 30, 1998, the equipment remains subject to liens and
encumbrances, and Global Pelican has therefore not purchased the
equipment. In July 1998, Global Pelican renegotiated the terms
of the Pelican Agreement, whereby Global Pelican is to pay
$20,000 per month through November 1998, of which $15,000 is to
be applied as monthly rent, and $5,000 as deferred rent pending
completion of negotiations between Global Pelican and the lessor.
Global Pelican is continuing negotiations with the lessor.
Bull Durham Saloon and Casino: Black Hawk, Colorado
The Bull Durham Saloon and Casino ("Bull Durham") was
acquired by Casinos U.S.A., Inc. ("Casinos U.S.A.") in 1992, for
a purchase price of $3.5 million. Casinos U.S.A. owns the real
property and improvements subject to numerous security interests.
The Bull Durham consists of approximately 4,700 square feet and
currently operates one hundred and thirteen (113) slot machines
and two (2) black jack tables. The casino also holds a retail
liquor license issued by the State of Colorado, and offers a
limited food service in addition to beverages. The Company is
currently exploring options to expand this property.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in the following pending
legal proceeding:
Securities and Exchange Commission Investigation
The company previously reported an ongoing investigation by
the Securities and Exchange Commission (the "Commission"), into
various matters, including certain transaction and securities by
the company and one of it's former officers and directors. In
1998, the company entered into a voluntary stipulated decease and
desist order with the Commission pursuant to which the company
agreed, interalia, not to violate any provisions of the federal
securities laws in the future. As a result of entering into the
voluntary stipulated cease and desist, investigation by the
commission has been brought to a conclusion which, in the opinion
of management, will not have a material adverse affect upon the
business of the company in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of the Company's
shareholders during the quarter ended June 30, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The outstanding shares of Common Stock are traded over-
the-counter and traded on the NASDAQ SmallCap Market under the
symbol "GBCS". The reported high and low bid and ask prices for
the Common Stock are shown below for the period from July 1, 1996
through September 30, 1998:
Bid Ask
High Low High Low
1998 Fiscal Year
First Quarter 3.25 2.75 3.50 3.00
Second Quarter 4.50 3.75 4.87 3.87
Third Quarter 3.50 2.50 3.62 2.62
Fourth Quarter 3.12 2.00 3.25 2.25
1997 Fiscal Year
First Quarter 7.50 3.75 8.13 4.38
Second Quarter 4.69 3.13 5.00 3.44
Third Quarter 4.25 2.25 4.75 2.75
Fourth Quarter 3.63 2.63 3.88 2.88
The bid and ask prices of the Company's Common Stock as of
September 30, 1998, were 1.375 and 1.50 respectively, as reported
on NASDAQ. The prices represented above are bid and ask prices
which represent prices between broker-dealers and do not include
retail mark-ups and mark-downs or any commissions to the broker-
dealer. The prices do not reflect prices in actual transactions.
As of September 30, 1998, there were approximately 900 record
owners of the Company's Common Stock.
The Company's Board of Directors may declare and pay
dividends on outstanding shares of Common Stock out of funds
legally available therefor in its sole discretion; however, to
date no dividends have been paid and the Company does not
anticipate the payment of dividends in the foreseeable future.
Further, under the terms of the Convertible Preferred Stock
issued by the Company, the Company is restricted from paying cash
dividends on Common Stock during the period that the Convertible
Preferred Stock is outstanding. The Company was obligated to
redeem any outstanding shares of Convertible Preferred Stock on
or before May 31, 1995, and the Company is in default on this
obligation with holders of Preferred Stock representing an
aggregate redemption value of $33,500. Such holders having not
entered into letter agreements with the Company in May, 1995, as
described elsewhere in this report. (See ITEM 1. DESCRIPTION OF
BUSINESS, Financing.)
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in
conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this Report.
Liquidity And Capital Resources - June 30, 1997 Compared To
June 30, 1998
The Company has continued its efforts to formulate
plans and strategies to address the Company's financial
condition and increase profitability. In December 1996, the
Bankruptcy Court approved Casinos U.S.A.'s Second Amended
Plan of Reorganization (See Note 3). As a result, a
significant amount of the Company's debt has been
extinguished and/or restructured. Management continues to
negotiate with creditors of debt that remains in default.
The Company also continues to explore acquisition
opportunities, such as the acquisition of ABS which occurred
in August 1997 (See Note 14). Management believes that
these plans will result in increased liquidity and future
profitability. On October 18, 1995, Casinos U.S.A. filed a
voluntary petition under Chapter 11 of the United States
Bankruptcy Code. On December 18, 1996, the Bankruptcy Court
confirmed the Company's Second Amended Plan of
Reorganization (the "Plan").
As a result, the Company reported an extraordinary gain
on debt extinguishment of $1,554,488 for 1997. In addition,
the Senior Secured Debt Holders and the Junior Secured Debt
Holders received warrants that permit their holders to
purchase from the reorganized Debtor an amount of common
stock so that immediately after exercise, the Warrant
holders will own eighty percent (80%) of the common stock of
the Debtor. The Warrants shall be exercisable at any time
from one year after the Effective Date and before seven (7)
years after the Effective Date, but only subsequent to a
sale of substantially all of the Debtor's assets, merger,
recapitalization, refinance or other restructuring. The
Warrants shall terminate after all of the indebtedness to
that holder of the Warrant has been paid, even where seven
(7) years from the Effective Date have not passed, so long
as there has been no merger, recapitalization,
restructuring, refinance or sale of substantially all of the
assets of the Debtor prior to the payment of such
indebtedness.
In October, 1996, the Company raised $630,250 through
an offering of Units ("Units"), each Unit consisting of one
(1) eight percent (8%) $1,000 convertible Promissory Note
("Promissory Note"), 200 Class E Common Stock Purchase
Warrants ("E Warrants"), 200 Class F Common Stock Purchase
Warrants ("F Warrants"), and 200 Class G Common Stock
Purchase Warrants ("G Warrants"). The Promissory Note is
convertible to common stock at $5.00 per $1.00 loaned and
the Promissory Notes are due October 31, 1998. The Class E
Warrants, F Warrants and G Warrants are exercisable at
$6.00, $7.00, and $8.00, respectively.
By Letter Agreement dated July 31, 1996, the Company
was able to renegotiate the terms of a $750,000 Convertible
Note. The restructured terms call for the conversion price
to be lowered from $30.00 per $1.00 loaned to $10.00 per
$1.00 loaned. Interest on the Convertible Note was reduced
from nine percent (9%) to seven percent (7%) and all prior
accrued interest was waived which resulted in an
extraordinary gain of $164,627 from debt restructuring. In
addition, the Company assigned its secured indebtedness on
Casinos in the amount of $249,418 to the holder of the
$750,000 Convertible Note as a principal reduction of this
note. This Letter Agreement is effective upon the Effective
Date of Casinos U.S.A.'s Bankruptcy Plan.
On November 18, 1996, the Company effected a one-for-
ten (1-for-10) reverse split of its securities pursuant to
the prior authorization of its shareholders and Board of
Directors.
The Company performs an annual assessment to determine
whether there has been an impairment in the carrying values
of its land, buildings, equipment and leasehold and contract
rights. In performing this assessment, management considers
available appraisal information, current and projected
sales, operating income, and annual cash flows on an
undiscounted basis. If management determines that an
impairment has occurred, an impairment loss is recognized,
based on the difference between the assets' carrying values
over the estimated fair values. Based on its annual review,
the Company does not believe that any impairments have
occurred on its land, buildings, equipment, leasehold and
contract rights during 1997.
During the year ended June 30, 1997, the Company made
advances to a related company (evidenced by a convertible
promissory note bearing interest at 10%, "Convertible Note")
that was formed to explore opportunities related to
entertainment and gaming sites on the Internet. In May
1997, the Company entered into an agreement to exchange the
Convertible Note for 30,000 shares of Convertible Preferred
Stock to First Entertainment, Inc. ("FEI"). The agreement
was contingent upon FEI shareholders' approval, which was
obtained at a shareholders meeting, held in November 1997.
Based upon the financial resources of FEI and the financial
condition of the maker of the convertible note, the Company
recorded an impairment of the convertible note in the amount
of $385,418 at June 30, 1997.
The Company's balance sheet reflects a decrease in
current assets, an increase in total assets, and an increase
in working capital. Specifically, during the year ended
June 30, 1998, current assets increased from $1,318,717 at
June 30, 1997, to $1,898,478 at June 30, 1998, an increase
of $579,761 or 30.5%. Decreases in cash of $185,028 or 17%
and current portion of notes receivable of $2,978 or 1%, the
majority of which is due to deferred rent and other prepaid
expenses at Global Pelican and Alaska Bingo Supply. These
were offset by increases in receivables from related parties
of $5,083, or 5%, accounts receivable of $308,892, or 492%
and prepaid and other of $149,878, or 108%,
The Company's net investment in land, buildings and
equipment decreased by $218,043, or 4.06%. The decrease is
primarily attributed to Depreciation and Amortization
expense.
Current liabilities increased from $2,043,024 at June
30, 1997, to $4,551,428 at June 30, 1998. This increase is
comprised of an incline in accounts payable of $355,182,
mandatory redeemable preferred stock of $13,500, and current
portion of long-term debt including debt in default of
$1,295,500. The majority of the increases in the current
portion of long-term debt of $1,363,500, was the direct
result of an increase in accrued expenses of $385,586.
Long-term debt less current portion decreased from
$4,052,900 at June 30, 1997 to $3,212,472 at June 30, 1998.
This decrease is comprised of $2,590,457 of debt issued
pursuant to the Plan of Reorganization as confirmed by the
Bankruptcy Court, restructuring of $500,581 of debt
previously regarded as current portion of long-term debt,
and new net long-term debt borrowing of $909,596, the
majority of which was the issuance of $630,250 of
convertible debt.
As a result of the foregoing increase in current assets
and an even greater increase in current liabilities, the
Company's working capital increased from $724,307 on June
30, 1997, to $2,652,950 on June 30, 1998, or a 266%
decrease. Approximately $1,553,599 is comprised of debt in
default included in the current portion of long-term debt
and Aruban controller costs. The Company is attempting to
negotiate these debts. The current ratio decreased from .65
to .41.
During the fiscal year ended June 30, 1998, the Company
was able to negotiate $109,279 of debt to accept an
aggregate of 21,261 shares of Common Stock in satisfaction
of this debt. During the year ended June 30, 1998, the
Company reported net loss of $2,288,699. During fiscal year
1998, the Company negotiated the conversion of $3,291,000 of
debt related to the Alaska Bingo Supply acquisition, into
shares of Class B Preferred Stock. As a result of the
foregoing, stockholders' equity increased from $3,036,258 at
June 30, 1997 to $4,285,950 at June 30, 1998, or a 41.15%
increase.
As a result of a net income during the year ended
June 30, 1997, of $386,016, together with non-cash net
expenses of $44,955 (comprised of amortization and
depreciation of $869,969, reserve for receivables of
$79,600, minority interest of $171,819, loss on investment,
loan and advances to affiliate of $385,418, offset by a gain
from debt restructuring of $1,551,488, and a decreases in
operating assets and liabilities totaling $62,342). This
compares with net cash provided in operations of $551,397
for the year ended June 30, 1998, based on a net loss of
$2,288,699, net non-cash items of $1,094,206 (comprised of
amortization and depreciation of $1,053,533, reserve for
receivables of $38,888, minority interest of $24,607, and
offset by a net gain on sales/purchases of securities of
$22,822.)
Net cash used by investing activities for the year
ended June 30, 1998 was $960,113. This compares with net
cash used by investing activities of $1,035,170 for the year
ended June 30, 1997. For the year ended June 30, 1998, the
Company used $573,269 for the purchase of equipment and
$407,493 for the acquisition of Alaska Bingo Supply. This
compares to $543,422 for the purchase of equipment for the
year ended June 30, 1997. Offset against this, the Company
received $48,243 of principal payments on its notes
receivable for the year ended June 30, 1998. This compares
with principal payments on its notes receivable of $53,735.
Net cash provided by financing activities for the year
ended June 30, 1998, was $223,688. This compares with net
cash used by financing activities of $917,448 for the year
ended June 30, 1997. Specifically, cash provided by
financing activities from borrowings against notes payable
was $170,000 for the year ended June 30, 1998. Offset
against the cash provided by financing activities were
promissory note principal reduction payments in the amount
of $697,172. For the year ended June 30, 1998, there were
no proceeds from the issuance of Common Stock, therefore,
this was offset by debt payments of $662,729. Neither the
Company nor any of its subsidiaries have any commercial bank
credit facilities.
Subsequent Events
On August 1, 1997, the Company acquired 100% of the
outstanding Common Stock of Anchorage-based Alaska Bingo
Supply, Inc. ("ABS"). ABS will be operated by the Company's
wholly-owned subsidiary, Global Alaska Corporation ("Global
Alaska").
The Company purchased ABS for $4,400,000, of which
$400,000 was paid in cash at closing, with the $4,000,000
balance in the form of a promissory note bearing interest at
eight percent (8%) and to be amortized monthly over a term
of seven (7) years beginning in October, 1997. During the
term of the note, the noteholder has the option to convert
up to $2,500,000 of the promissory note into shares of the
Company's Common Stock at a price of ten dollars ($10) per
share.
In order to fund this acquisition, the Company borrowed
$350,000 from third parties and $75,000 from an affiliate.
The promissory notes are due in equal monthly payments from
January 1998 through April 1998. The promissory notes to
third parties are secured by a note receivable by the
Company. Interest on $200,000 of the notes is at 24% and
interest on the remaining $225,000 (including the affiliate
note) is at 12%. Additionally, the holder of the $150,000,
12% note was issued warrants to purchase 15,000 shares of
the Company's common stock at an exercise price of $3.00 per
share. The warrants expire June 2000.
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 - Year Ended June 30, 1998 Compared To
Year Ended June 30, 1997
A comparison of the results of operations of the
Company for the year ended June 30, 1997, with the results
of operations for the year ended June 30, 1998, demonstrates
the Company's concentration on improving operating results.
For the year ended June 30, 1997, the Bull Durham Saloon and
Casino in Black Hawk, Colorado, Casino Las Vegas in Bishkek,
Kyrgyzstan, and Casino Masquerade in Aruba operated for the
entire twelve-month period. For the year ended June 30,
1998, the Bull Durham, Casino Las Vegas and Casino
Masquerade operated for the entire twelve-month period, and
the Pelican Casino in St. Maarten began operations in August
1996.
Net revenues for the year ended June 30, 1998, were
$11,335,393 based on casino revenues of $8,077,148, revenues
from the sale of food of $187,174, and other income of
$115,725. Net revenues for the year ended June 30, 1997,
were $9,234,097 comprised of casino revenues of $8,978,720,
food and beverage of $195,550, and other revenues of
$59,827.
More specifically, revenues at Casino Las Vegas,
Pelican Casino and Casino Masquerade increased from
$4,675,507 at June 30, 1997 to $5,735,134 at June 30, 1998.
This increase is due to better management of the casinos.
At June 30, 1998, net revenues from domestic operations were
$2,440,377 comprised of $2,342,014 from Bull Durham, $90,348
from food and beverage and other domestic income of $8,016,
compared to net revenues at June 30, 1997 of $2,248,645 from
Bull Durham and $19,000 in other revenue from domestic
operations.
With the acquisition of Alaska Bingo Supply, net
revenues at June 30, 1998, were $2,967,343, based on bingo
revenues of $2,955,346 and other revenues totaling $11,996.
Total operating expenses increased from $9,568,008 for
the year ended June 30, 1997 to $12,670,205 for the year
ended June 30, 1998, an increase of 32%.
As a result of the increase in net revenues, and an
increase in operating expenses, losses from operations were
increased 299% to a loss of $1,334,812 for the year ended
June 30, 1998, from a loss of $333,911 for the year ended
June 30, 1997. Interest income decreased 25% while interest
expense increased 101% over the same period due to the
Chapter 11 proceedings of Casinos U.S.A. Losses before
reorganization items, minority interest, and extraordinary
items increased 129% from a loss of $2,264,092 for the year
ended June 30, 1998, to a loss of $990,150 for the year
ended June 30, 1997.
For the year ended June 30, 1998, the Company had net
expenses from asset of abandonment and impairment of gaming
facility of $967,387 and loss on disposition of equipment of
$349,763. The Company reported that there was no gain from
debt restructuring for year end June 30, 1998, compared to a
gain from debt restructuring of $1,551,488 for the year
ended June 30, 1997. Due to a decrease in the operating
results of Casino Las Vegas, the Company reported minority
interest expense of $24,607 for the year ended June 30,
1998, compared to a minority interest expense of $171,819
for the year ended June 30, 1997.
As a result of the foregoing, the Company reported a
net loss for the year ended June 30, 1998, of $2,288,699,
from the net income for the year ended June 30, 1997, of
$386,016. This translates into a net loss per share of
$1.61 based on 1,460,371 weighted average shares outstanding
for the year ended June 30, 1998, and net income per share
of $.29 based on 1,350,418 weighted average shares
outstanding for the year ended June 30, 1997.
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.
Private Securities Litigation Reform Act
Certain statements in this Annual Report on Form 10-KSB
which are not historical facts are forward-looking
statements, such as statements relating to future operating
results, existing and expected competition, financing and
refinancing sources and availability and plans for future
development or expansion activities and capital
expenditures. Such forward-looking statements involve a
number of risks and uncertainties that may significantly
affect the Company's liquidity and results in the future
and, accordingly, actual results may differ materially from
those expressed in any forward-looking statements. Such
risks and uncertainties include, but are not limited to,
those related to effects of competition, leverage and debt
service financing and refinancing efforts, general economic
conditions, changes in gaming laws or regulations (including
the legalization of gaming in various jurisdictions) and
risks related to development and construction activities.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board ("FASB")
recently issued Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE ("SFAS No. 128"), which is
effective for fiscal years ending after December 15, 1998.
This statement replaces the presentation of primary earnings
per share ("EPS") with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex
capital structures and requires reconciliation of the
numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution. Diluted EPS
reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared the earnings of
the entity. Diluted EPS is computed similar to fully
diluted EPS. SFAS No. 128 requires restatement of all EPS
data that was presented in previously filed reports.
Management believes that implementation of SFAS 128 will not
have a material effect on earnings per share.
The FASB also recently issued SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes requirements for
disclosure of comprehensive income and is effective for
fiscal years beginning after December 15, 1998.
Reclassification of earlier financial statements for
comparative purposes is required. Management believes that
implementation of SFAS 130 will not materially effect the
Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed as part of this
report: 1.Report of Independent Auditors; 2. Audited Balance
Sheet as of June 30, 1998; 3. Audited Statements of Operations as
of June 30, 1998 and 1996; 4. Audited Statements of Changes in
Stockholders' Equity for the years ended June 30, 1998 and 1996;
5. Audited Statements of Cash Flows for the years ended June 30,
1998 and 1996; and 6. Notes to Financial Statements. All
schedules are omitted since the required information is not
present or is not in amounts sufficient to require submission of
the schedule, or because the information required is included in
the financial statements and notes thereto.
PART III
Part III, Items 9, 10, 11 and 12, are incorporated herein by
reference from the Registrant's definitive proxy statement
relating to its Annual Meeting of Shareholders which will be
filed in an amendment within 120 days of June 30, 1998.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following financial statements are filed as part of this
report:
1. Audited Balance Sheet as of June 30, 1998;
2. Audited Statements of Operations as of June 30,
1998 and 1997;
3. Audited Statements of Changes in Stockholders'
Equity for the years ended June 30, 1998 and 1997;
4. Audited Statements of Cash Flows for the years
ended June 30, 1998 and 1997; and
5. Notes to Financial Statements.
EXHIBITS
a. The following Exhibits are filed as part of this
Report pursuant to Item 601 of Regulation S-B:
Exhibit N Title
* 1.0 Articles of Amendment to the Articles of
Incorporation dated June 22, 1994
* 3.1 Amended and Restated Articles of
Incorporation
* 3.2 Bylaws
* 3.3 Certificate of Designations,
Preferences, and Rights of Series A Convertible
Preferred Stock
* 4.1 Specimen Certificate of Common Stock
* 4.2 Specimen Class A Common Stock Purchase Warrant
* 4.3 Specimen Class B Common Stock Purchase Warrant
* 4.4 Specimen Class C Common Stock Purchase Warrant
* 4.5 Warrant Agreement
* 5.0 Opinion of Neuman & Drennen, LLC
regarding the legality of the securities being
registered
* 10.1 Selling Agent Agreement
* 10.2 The Casino-Global Venture I Joint Venture Agreement
* 10.3 Assignment of Casino-Global Joint
Venture Agreement dated January 31, 1994
* 10.4 Nonresidential Lease Agreement between
Russian-Turkish Joint Venture Partnership with
Hotel Lazurnaya and Global Casino Group, Inc.
dated September 22, 1993
* 10.5 Contract by and between Aztec-Talas-Four
Star, Inc. and Global Casinos Group, Inc. dated
April 12, 1993, and Addendum to Agreement by and
between Aztec-Talas-Four Star, Inc., Global
Casinos Group, Inc. and Restaurant "Naryn" dated
June 29, 1993.
* 10.6 Agreement and Plan of Reorganization
among Silver State Casinos, Inc., Colorado Gaming
Properties, Inc. and Morgro Chemical Company,
dated September 8, 1993, incorporated by reference
from the Company's Current Report on Form 8-K,
dated September 20, 1993
* 10.7 Agreement and Plan of Reorganization
among Casinos U.S.A., Lincoln Corporation,
Woodbine Corporation and Morgro Chemical Company,
dated October 15, 1993, incorporated by reference
from the Company's Current Report on Form 8-K,
dated November 19, 1993
* 10.8 Stock Pooling and Voting Agreement,
incorporated by reference from the Company's
Current Report on Form 8-K, dated November 19,
1993
* 10.9 Employment Agreement, dated September
28, 1993, between Morgro Chemical Company and
Nathan Katz, incorporated by reference from the
Company's Current Report on Form 8-K, dated
November 19, 1993
* 10.10 Employment Agreement, dated October 15,
1993, between Morgro Chemical Company and William
P. Martindale, incorporated by reference from the
Company's Current Report on Form 8-K, dated
November 19, 1993
* 10.11 Asset Acquisition Agreement by and among
Global Casinos, Inc., Morgro, Inc. and MDO,
L.L.C., dated as of February 18, 1994,
incorporated by reference from the Company's
Current Report on Form 8-K, dated February 18,
1994
* 10.12 Stock Purchase Agreement, dated March
25, 1994, incorporated by reference from the
Company's Current Report on Form 8-K, dated April
29, 1994
* 10.13 Articles of Incorporation of BPJ Holding
N.V., incorporated by reference from the Company's
Current Report on Form 8-K, dated April 29, 1994
* 10.14 Aruba Caribbean Resort and Casino Lease
Agreement, dated January 18, 1993, incorporated
by reference from the Company's Current Report on
Form 8-K, dated April 29, 1994
* 10.15 Aruba Gaming Permit issued to Dutch
Hotel and Casino Development Corporation,
incorporated by reference from the Company's
Current Report on Form 8-K, dated April 29, 1994
* 10.16 Letter Agreement between Astraea
Investment Management, L.P. and Global Casinos,
Inc. dated May 11, 1994
* 10.17 Guaranty from Global Casinos, Inc. to
Astraea Investment Management, L.P. dated May 19,
1994
* 10.18 Secured Convertible Promissory Note in
favor of Global Casinos, Inc. from Astraea
Investment Management, L.P. dated May 19, 1994
* 10.19 Registration Rights Agreement between
Global Casinos, Inc. and Astraea Investment
Management, L.P. dated May 11, 1994
* 10.20 Employment Agreement, dated July 1,1994,
between Global Casinos, Inc. and Peter Bloomquist
** 10.21 Letter of Agreement, dated September 16,
1994 between Astraea Management Services, L.P.,
Casinos U.S.A., Inc. and Global Casinos, Inc.
***10.23 Letter of Agreement dated June 27, 1995,
between Global Casinos, Inc., Global Casinos
International, Inc., Global Casinos Group, Inc.,
Broho Holding, N.V., and Kenneth D. Brown
individually.
* 10.24 Second Amended Plan of Reorganization of
Casinos USA, Inc., and Order Confirming Plan
* 10.25 Warrant Agreement
* Incorporated by reference to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-76204, on file
with the Commission on August 11, 1994.
** Incorporated by reference to the Registrant's Annual Report
on Form 10-KSB for year ended June 30, 1994.
***Incorporated by reference to the Registrant's Current Report
on Form 8-K dated July 15, 1995.
REPORTS ON FORM 8-K
The Registrant did not file any Current Reports on Form 8-K
during the Fourth Quarter ended June 30, 1998.
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1998 AND 1997
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet - June 30, 1998
Consolidated Statements of Operations - For Years
Ended June 30, 1998 and 1997
Consolidated Statements of Stockholders' Equity - For
Years Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows - For Years
Ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998
ASSETS
Current assets:
Cash 863,343
Accounts receivables:
Trade, net of allowance for doubtful accounts of $26,140 371,602
Employees 16,282
Inventory 284,978
Prepaid rent 192,800
Current portion of notes receivable 60,623
Marketable Securities 12,980
Other 95,870
Total current assets 1,898,478
Land, buildings and equipment:
Land 526,550
Buildings 4,043,870
Equipment 2,040,944
6,611,364
Accumulated depreciation (1,460,096)
5,151,268
Other assets:
Leasehold and contract rights, net of amortization of 2,643,348
$1,199,095 Goodwill, net of amortization of $110,230 2,054,275
Notes receivable, net of current portion, including receiv 290,340
Other assets, net of amortization of $23,700 24,197
5,012,160
12,061,906
(continued)
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 673,381
Accrued expenses 1,344,466
Accrued interest, including $53,390 to a related party 294,131
Note payable 245,000
Current portion of long-term debt,including debt in default and
$428,690 to a related party 1,920,950
Mandatory redeemable convertible Class A preferred stock, in 33,500
Other 40,000
Total current liabilities 4,551,428
Long-term debt:
Long-term debt, less current portion 3,212,472
Other 12,056
3,224,528
Commitments and contingencies
Stockholders' equity:
Class A preferred stock - convertible nonvoting, $2 par value;
10,000,000 shares authorized;109,000 shares issued and outstanding 218,000
Class B preferred stock - convertible nonvoting, $.01 par value;
10,000,000 shares authorized;329,178 shares issued and outstanding 3,292
Common stock - $.05 par value; 50,000 shares authorized;
1,504,344 shares issued and outstanding 12,180
Additional paid-in capital 12,614,495
Accumulated deficit (8,562,017)
4,285,950
12,061,906
See accompanying notes.
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended June 30,
1998 1997
Revenues:
Casino 8,077,148 8,978,720
Bingo 2,955,346
Food and beverage 187,174 195,550
Other 115,725 59,827
11,335,393 9,234,097
Expenses:
Cost of sales 1,730,049
Operating, general, and administrative 8,919,236 8,698,312
Depreciation and amortization 1,053,533 869,696
Transfer of interest in gaming facility 220,835
Impairment of gaming facility 746,552
12,670,205 9,568,008
Loss from operations (1,334,812) (333,911)
Other income (expense):
Interest income 34,756 46,743
Interest expense, including $35,554 and $25,000,
respectively,to a related party (637,094) (317,564)
Loss on disposition of equipment (349,763)
Loss on investment, loan and advances to Global Internet
Corporation (385,418)
Other income 22,821
(929,280) (656,239)
Loss before reorganization items, minority interest,
and extraordinary item (2,264,092) (990,150)
Reorganization items:
Interest earned on accumulated cash resulting from 7,608
Chapter 11 proceedings
Professional fees (11,111)
Minority interest in income of subsidiaries (24,607) (171,819)
Extraordinary item:
Gain from debt restructuring 1,551,488
Net loss (2,288,699) 386,016
Dividends on Class B preferred stock (64,989)
Net loss available to common stockholders (2,353,688) 386,016
Earnings per share:
Basic (1.61) 0.29
Diluted (1.61) 0.29
Weighted average shares outstanding 1,460,371 1,350,418
See accompanying notes.
<TABLE>
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For Years Ended June 30, 1998 and 1997
<CAPTION>
Additional
Class A Preferred SClass B Preferred Common Stock Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-for-10 reverse
stock split (58,076) 58,076 -
Shares issued
in conversion of (540,750) (982,823) 96,131 480 982,343 -
preferred stock
to common stock -
Shares issued in
debt conversion 21,261 106 109,172 109,278
Net income 386,016 386,106
Balances at
June 30,1997 147,750 268,538 1,400,811 7,004 8,969,045 (6,208,329) 3,036,258
Shares issued
in debt conversion 340,329 3,403 1,250 62 3,406,073 3,409,538
Shares issued
for services 32,894 1,645 116,206 117,851
Shares issued
in conversion of (38,750) (50,538) 9,389 469 50,069 -
preferred stock
to common stock -
Shares issued in
exercision of options 60,000 3,000 184,500 187,500
Redemption of
preferred stock (11,151) (111) (111,398) (111,509)
Dividends on Class B
preferred stock (64,989) (64,989)
Net loss (2,288,699) (2,288,699)
Balances at
June 30, 1998 $109,000 $ 218,00 $329,178 $3,292 $1,504,344 $12,180 $12,614,495 $(8,562,017)$4,285,950
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
For years ended June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (2,288,699) 386,016
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
Depreciation and amortization 1,053,533 869,696
Provision for uncollectible receivables 38,888 79,600
Minority interest 24,607 171,819
Net gain on sales/purchases of securities (22,822)
Extraordinary gain from extinguishment of debt (1,551,488)
Loss on investment, loan and advances to Global Internet 385,418
Corporation
Stock issued for services 30,000
Transfer of interest in gaming facility 220,835
Impairment of gaming facility 746,552
Write-off of Aruban controller costs (318,911)
Loss on disposition of buildings and equipment 349,763
Changes in operating assets and liabilities:
Accounts receivable (195,235) 18,840
Inventory 1,697
Prepaid expenses and other current assets (158,155) (109,333)
Other assets 25,091
Accounts payable 407,652 (248,363)
Accrued expenses and interest 603,091 276,514
Other current liabilities 40,000
Other liabilities (6,490)
2,840,096 (107,297)
Net cash provided by operating activities 551,397 278,719
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (573,269) (543,422)
Purchases of securities, net of sales (27,594)
Collections on notes receivable 48,243 53,735
Acquisition of Alaska Bingo Supply, net of cash
acquired (407,493)
Other assets (8,643)
Investment, loan and advances to Global Internet (385,418)
Corporation
Proceeds from sale of equipment 1,999
Distribution to minority interest (153,421)
Net cash used in investing activities (960,113) (1,035,170)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (697,172) (662,729)
Issuances of long-term debt 749,036
Borrowings against notes payable 170,000 1,580,177
Proceeds from issuance of common stock 187,500
Redemption of mandatory preferred stock (20,000)
Redemption of Class B preferred stock (111,510)
Payment of dividends on Class B preferred stock (54,166)
Net cash provided by financing activities 223,688 917,448
Net (decrease) increase in cash (185,028) 160,997
Cash at beginning of year 1,048,371 887,374
Cash at end of year 863,343 1,048,371
(continued)
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For years ended June 30,
1998 1997
Supplemental cash flow information:
Cash paid for interest 458,510 122,717
Debt converted to common stock:
Mandatory redeemable preferred stock 35,000
Accrued expenses, related parties 74,279
Accounts payable, including $80,000 to avelated party 87,849
Long-term debt 6,250
109,279 109,279
Debt converted to Class B preferred stock 3,403,291
Class A preferred stock converted to common stock 50,538
Proceeds of note payable used to purchase note
receivable 75,000
Dividends accrued on Class B preferred stock 10,822
Acquisition of Alaska Bingo Supply:
Fair value of assets acquired 680,865
Intangible assets 3,935,463
Liabilities assumed (134,587)
Fair value of assets exchanged (4,074,218)
Cash received, net of cash acquired 407,523
Extinguishment of debt:
Liabilities released:
Note payable 101,335
Accrued interest 164,627
Net debt relieved in Chapter 11 proceeding 2,503,114
Assets relinquished:
Note receivable and equipment, respectively, net (1,217,588)
Extraordinary gain 1,551,488
Property foreclosure:
Note receivable acquired in Chapter 11 proceeding,
assigned to creditor as payment on note to creditor (249,418)
Reduction in note payable by assignment of note receivable 249,418
acquired in Chapter 11 proceeding
0
See accompanying notes.
GLOBAL CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation
Global Casinos, Inc. (the "Company"), a Utah corporation,
develops and operates gaming casinos domestically and
internationally. At June 30, 1998, 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.
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 ALASKA CORPORATION ("Global Alaska"), an
Anchorage corporation, which acquired Alaska Bingo
Supply, Inc. ("ABS") located in Anchorage, Alaska on
August 1, 1997.
GLOBAL PELICAN N.V. ("Global Pelican"), a St.
Maarten Limited Liability Company which began operating
the Pelican Casino located on the island of St. Maarten
in the Netherlands Antilles on August 1, 1996. Global
Pelican operates the casino under a Management and
Operating Lease Agreement.
BPJ HOLDINGS N.V. ("BPJ"), a Curacao Limited Liability
Company, which operates the Casino Masquerade on the
Caribbean resort island of Aruba.
GLOBAL CASINOS INTERNATIONAL, INC. ("Global
International"), a Delaware corporation, which through
an International Joint Venture ("IJV") operated Casino
Las Vegas in Bishkek, Kyrgyzstan. The Company transferred
its interest in Casino Las Vegas to its IJV partner
in April, 1998.
WOODBINE CORPORATION ("Woodbine"), a South Dakota
corporation, which operated Lillie's Casino
("Lillie's") in Deadwood, South Dakota through June 30,
1995. Beginning in July 1996, Woodbine began leasing
this property and related equipment to a third party.
Management's Plans
The Company has continued its efforts to formulate plans and
strategies to address the Company's financial condition and
Management continues to negotiate with creditors of debt
that remains in default. The Company also continues to
explore acquisition opportunities. Management believes
that these plans will result in increased liquidity and
future profitability.
Use Of Estimates In Financial Statement Preparation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results
could differ from those estimates.
Cash
Cash consists of demand deposits and vault cash used in
casino operations.
Casino Revenues
In accordance with industry practice, the Company recognizes
as casino revenues the net win from gaming activities, which
is the difference between gaming wins and losses.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") recently
issued Statement of Financial Accounting Standards ("SFAS')
No. 130, Reporting Comprehensive Income, which establishes
requirements for disclosure of comprehensive income and is
effective for fiscal years beginning after December 15,
1997. Reclassification of earlier financial statements for
comparative purposes is required. Management believes that
implementation of SFAS 130 will not materially effect the
Company's financial statements.
In June 1997, the FASB issued SFAS No.131, Disclosures
about Segments of an Enterprise and related information
and in February 1998, the FASB issued SFAS No 132,
Employer's Disclosures about Pensions and other
Postretirement Benefits. Both of these statements
require disclosure only and therefore will not impact
the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities.
Currently, the Company does not have any derivative
financial instruments and does not participate in
hedging activities; therefore management believes SFAS
No. 133 will not impact the Company's financial
statement.
Fair Value of Financial Instruments
The carrying values of the Company's financial instruments
classified as current assets and liabilities approximate
fair values primarily because of the short maturities of
these instruments. The carrying values of notes receivable
and long term debt approximate fair values because interest
on these instruments is similar to returns management believes
are currently available to the Company for instruments with
similar risks.
Leasehold and Contract Rights and Goodwill
Leasehold and contract rights represent the excess of the
purchase price over the net assets of the acquired
investments in Alaska Bingo Supply, Casino Masquerade and
Casinos USA. These costs are amortized over the ten-year
terms of the agreements. The Company annually assesses the
carrying value of its leasehold and contact rights and goodwill
as discussed below.
Land, Buildings and Equipment
Land, buildings and equipment are carried at cost.
Depreciation is computed using the straight-line method over
the estimated useful lives. Buildings are depreciated over
31 years and equipment is depreciated over five to seven
years.
The Company performs an annual assessment to determine
whether there has been an impairment in the carrying values
of its land, buildings, equipment and leasehold and contract
rights. In performing this assessment, management considers
available appraisal information, current and projected
sales, operating income, and annual cash flows on an
undiscounted basis. If management determines that an
impairment has occurred, an impairment loss is recognized,
based on the difference between the assets' carrying values
over the estimated fair values. Based on management's
annual review, the Company does not believe that any
impairments have occurred on land, buildings, equipment
during 1998.
Stock-Based Compensation
SFAS No.123, Accounting For Stock-Based Compensation,
defines a fair-value-based method of accounting for
stock-based employee compensation plans and transactions
in which an entity issues its equity instruments to acquire
goods or services from non-employees, and encourages but does
not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting For Stock Issued
To Employees and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess,
if any of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to
acquire the stock.
Income Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates
is recognized in the consolidated statement of operations in
the period that includes the enactment date.
Net Income (Loss) Per Share
Net income (loss) per share of common stock is computed
based on the weighted average number of common shares
outstanding during the year. Convertible preferred
stock, stock options, stock warrants and convertible
promissory notes are not considered in the calculation
as the impact of the potential common shares would be
to decrease income (loss) per share. Therefore diluted
loss per share is equivalent to basic loss per share.
During the year ended June 30,1998, the Company adopted
SFAS No 128, Earnings Per Share. This statement
replaces the presentation of primary earnings or loss
per share (EPS) with a presentation of basic EPS. It
also requires dual presentation of basic and diluted
EPS for all entities with complex capital structures
and requires reconciliation of the numerator and
denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution; Diluted EPS
reflects the potential dilution that could occur if
securities or other contracts to issue common stock
were exercised or converted into common stock or
resulted in the issuance of common stock that then
shared in the earnings of the entity. The adoption of
SFAS 128 did not result in a changed into previously
presented EPS for the year ended June 30,1997.
Foreign Currency Transactions
Gaming operations in St. Maarten, Aruba and Kyrgyzstan are
primarily conducted in U.S. dollars. As a result, the U.S.
dollar is considered the functional currency for these
operations. Payments for payroll and certain other expenses
are made in the local currency. Gains and losses from
foreign currency transactions are included in determining
net income (loss) and were immaterial for the years ended
June 30, 1998 and 1997.
Risk Considerations
Casino Las Vegas, Casino Masquerade, and the Pelican Casino
(the "Casinos") are located in Kyrgyzstan, Aruba, and St.
Maarten respectively; therefore, they are subject to special
considerations and significant risks not typically
associated with investments in North American companies.
These include risks associated with, among others, the
political, economic and legal environments and expropriation
matters, and are described further in the following
paragraphs:
a. Political Environment
The Casinos' results may be adversely affected by
changes in the political and social conditions in Aruba
and St. Maarten, and by changes in governmental
policies with respect to laws and regulations,
inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation,
among other things. The political environment in Aruba
and St. Maarten has been stable for a sustained period
of time. As a result, the Company does not anticipate
significant risks related to Aruba and St. Maarten in
the immediate future.
b. Economic Environment
The economies in Aruba and St. Maarten differ
significantly from the economy in the United States in
many respects, including their structures, levels of
development and capital reinvestment, growth rates,
government involvement, resource allocation, employment
policy, self-sufficiency, rates of inflation and
balance of payments positions.
The economic environment in Aruba and St. Maarten has
remained stable for a sustained period of time.
c. Legal Environment
Ownership and operation of casinos in Aruba and St.
Maarten are regulated by local authorities. Each
jurisdiction maintains its separate regulatory
environment which requires various licenses, approvals
and certificates to operate in these jurisdictions.
d. Expropriation of Funds
The Company is currently able to remit funds from its
operations in Aruba and St. Maarten to the U.S. to meet
certain intercompany obligations without significant
local government approvals, restrictions or taxation.
However, the remittance of funds to the U.S. for other
means (including profit distribution) would be subject
to certain restrictions and taxation. Changes in the
local legal and economic environments may adversely
affect the expropriation of funds from the Casinos to
the U.S.
2. CASINOS U.S.A. REORGANIZATION
In October 1995, Casinos U.S.A. ("Debtor") filed a voluntary
petition under Chapter 11 of the United States Bankruptcy
Code, and until December 18, 1996, operated under the
protection of the Bankruptcy Court. The Bankruptcy Court
confirmed the Company's Second Amended Plan of
Reorganization (the "Plan") on December 18, 1996. The
effective date of the Plan was thirty days after
confirmation date of January 17, 1997, or February 17, 1997.
The confirmed Plan allowed the Debtor to retain its property
and assets and continue its business. The Plan's provisions
resulted in the restructuring and/or extinguishment of creditor
claims filed during the bankruptcy proceedings and the
cancellation of a note and interest receivable of approximately
$1,217,000. As a result, the Company recognized an
extraordinary gain on the extinguishment of debt of
$1,285,765 during the year ended June 30, 1997.
In accordance with the provisions of the Plan, certain
creditors received warrants that permit the holders thereof
to purchase from the reorganized Debtor an amount of common
stock, so that immediately after exercise, the warrant
holders would own 80% of the common stock of the Debtor.
The warrants are exercisable at any time from one year after
the Plan's Effective Date through the earlier of seven years
after the Effective Date, or when the indebtedness to the
warrant holders has been paid, but only subsequent to a sale
of substantially all of the Debtor's assets, merger,
recapitalization, refinance or other restructuring all of
which, management is not considering likely.
Beginning March 1998 and extending through February 2005,
the warrant holders are entitled to call a vote as to whether any
merger, recapitalization, restructuring, refinance, or sale
of the assets of the Debtor should be made or effectuated.
The warrant holders shall be entitled to vote their warrants
as though each warrant was one share of common stock. No such
vote took place during 1998.
3. NOTES RECEIVABLE
At June 30, 1998, notes receivable consist of the following:
6.5% note receivable, monthly interest
and principal payments of $6,569 until
December 2002, at which time the unpaid
balance is due; the note is
collateralized by a deed of trust on
real property, fixtures and improvements $308,463
Non-interest bearing note, due December
1995, in default;
the note is collateralized by 20,000
shares of the Company's
common stock 200,000
Allowance for doubtful collections (157,500)
350,963
Less current portion (60,623)
$290,340
The allowance for doubtful collections is
maintained at estimated amounts necessary to cover
losses on receivables based on management's
assessment of the borrowers' financial condition
and the underlying value of collateral. During the
years ended June 30, 1998 and 1997, the Company
increased the allowance for doubtful collections by
$27,500 and $75,000 respectively. Management
periodically evaluates receivable balances to
determine if impairments are evident based on
available information and events.
4. ACQUISITION OF ALASKA BINGO SUPPLY, INC.
On August 1,1997, the Company acquired 100% of the
outstanding common stock of Alaska Bingo Supply, Inc. The
acquisition was accounted for as a purchase. The purchase
price of $4,400,000 consisted of $400,000 cash, and a
$4,000,000 convertible promissory note secured by shares of
ABS' common stock held by the Company. In order to fund
this acquisition, the Company borrowed $350,000 from third
parties and $75,000 from a related party. The promissory
notes were due in equal monthly payments from January 1998
through April 1998. The promissory notes to third parties
were secured by a note receivable by the Company. Interest
on $200,000 of the notes was at 24% and interest on the
remaining $225,000 (including the related party note) was at
12%. The promissory note, bearing interest at 8%, was due
in 2004, with monthly payments of principal and interest of
$63,384.
Effective March 31,1998, the principal balance due owing
under the promissory note of $3,853,291, and accrued and
unpaid interest thereon in the amount of $15,202, was
converted into (I) 340,329 shares of the Company's Series B
Convertible Preferred Stock ("Series B Preferred Stock"),
having a face value of $10.00 per share, and (ii) a
convertible Promissory Note in the principal amount of
$450,000 (the "Second Note"). Each share of Series B
preferred Stock is convertible, at the option of the holder,
into one share of the Company's Common Stock at any time
commencing the earlier of (I) one year from the date of
issue or (ii) upon the effective date of a Registration
Statement registering for sale under the Securities Act of
1933, as amended (the "Securities Act"), the shares of the
Company's Common Stock issuable` upon such conversation
("Conversion Stock"); provided, however, that in no event
shall the Series B Preferred Stock be convertible into more
than 311,550 shares of Common Stock (the"Maximum Aggregate
Conversion") without the approval of the Company's
shareholders. The Maximum Aggregate Conversion is a number
equal to 19.9% of the Company's total issued and outstanding
shares of Common Stock, without giving effect to the
conversion.
The Company has the option, but not the obligation, to
redeem all or any portion of the Series B Preferred Stock at
a redemption price of $10.00 per share. Holders of the
Series B Preferred Stock are entitled to receive and annual
dividends payable at the rate of 8% per annum. The
outstanding shares of Series B Preferred Stock are non-
voting, except as required by law.
5. LONG-TERM DEBT
At June 30, 1998, long-term debt
consists of the following:
Unsecured loans, $48,840 to related
parties, interest at 10% to 15%, past
due and in default or due on demand $ 297,661
Mortgage payable to a third party,
collateralized by real estate, interest
at 10%, semiannual payments with
maturity in 2000 35,224
Secured convertible note, interest at
7%, reduced from 9% in
July 1996, payments of interest only due
quarterly; principal
and unpaid interest due May 1999;
original principal balance
of $750,000 reduced by $249,419 through
an assignment of its interest in senior
secured debt on Casinos U.S.A. The Note
is convertible in whole or in part at
the option of the holder at any time
prior to its maturity to common stock at
a conversion price of $10.00 per share 500,581
Unsecured convertible notes, $187,500 to
related parties, interest at 8%,
principal and unpaid interest due
October 1998; notes are convertible in
whole or in part at the option of the
holder at any time beginning in October
1998, to common stock at a conversion
price of $5.00 per share. Upon the
effective date of a registration
statement registering the underlying
shares of common stock, notes will
automatically convert 624,000
Mortgages payable to third parties,
collateralized by real estate, including
$249,419 assigned from the Company to a
third party, interest at 7%, monthly
payments of $7,329 plus annual payments
of 37.5% of available Bull Durham net
cash flow, as defined, due in 2004 1,074,499
Secured notes, interest at 10% and 12%,
monthly payments of $18,088, secured by
certain gaming equipment, due
through2000. 134,700
Mortgages payable to third parties,
collateralized by real estate, interest
at 9.2%, monthly payments of $10,225
plus annual payments of 12.5% of
available Bull Durham net cash flow,
as defined, due in 2004 1,119,952
Unsecured obligation, non-interest
bearing, minimum monthly payments of
$6,086, due through November 2004 492,299
Secured notes, $50,580 to related party,
bearing interest at 12% and 24%, due in
installments through February 1999,
secured by note receivables held by the
company 140,850
Unsecured obligation to a related party,
bearing interest at 9%, due on demand 141,501
Unsecured notes, bearing interest at 8%,
principal due September 2004 486,000
Unsecured note, bearing at 9%, principal
due March 1999, personally secured by a
related party 50,000
Unsecured note, bearing interest at 10%,
monthly payments of $3,000, principal
reduced by certain accounts receivable
uncollected at March 1999, guaranteed by
the Company 36,155
5,133,422
Less current portion, including debt in
default (1,920,950)
$3,212,472
Scheduled maturities of long-term debt are as follows:
For Year
Ending June 30,
1999 1,920,950
2000 114,855
2001 28,591
2002 26,380
2003 28,551
Thereafter 3,014,094
Total $5,133,422
In 1997, the Company was able to negotiate the exchange
and/or restructuring of $375,001 of certain accounts payable
and short-term debt for 21,261 shares of common stock, as
satisfaction of these obligations. These transactions
resulted in an extraordinary gain from debt extinguishment
of $265,723
At June 30, 1998, the Company has reserved 176,000 shares of
common stock for debt conversions.
6. INCOME TAXES
The Company and its subsidiaries are subject to income
taxes on income arising in, or derived from the tax
jurisdictions in which they are domiciled. BPJ and
Global Pelican are subject to Aruban and St. Maarten
tax provisions which provide for utilization of prior
years cumulative net operating losses to offset current
and future taxable income. At June 30, 1998, the
Company has net operating loss carryforwards related to
its Aruban and St. Maarten operations of approximately
$450,000 and $250,000, respectively, available to
reduce future taxable income.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Deferred
tax assets at June 30, 1998 are comprised mainly of net
operating loss carry forwards of approximately
$2,330,000. The valuation allowance was increased by
$144,000 during 1998 to reserve the deferred tax assets
in their entirety.
The reconciliation between the statutory federal tax
rate and the effective tax rate as a percentage is as
follows:
1998 1997
Statutory federal income tax rate 34% 34%
Effect of net operating loss not (34) (34)
utilized
- % - %
At June 30, 1998, the Company has available domestic
net operating loss carryforwards available to reduce
future taxable income of approximately $6,851,00
expiring in years 2008 through 2013 as follows:
Year Net Operating
Loss
2008 $ 920,000
2009 1,676,000
2010 1,217,000
2011 2,615,000
2012 -
2013 423,000
$ 6,851,000
7. COMMITMENTS AND CONTINGENCIES
Casino Masquerade
Through February 1998, the Company, through its
subsidiary BPJ Holdings, leased the Casino Masquerade
facility in the Radisson Aruba Caribbean Resort Hotel
and Casino under an operating lease that expired in
December 2002. Rent expense was calculated as $400,000
per year plus 15% of the adjusted annual casino win
over $4,000,000. Rent expense for the year ended June
30, 1997 was $400,000 and $200,000 through February
1998. The casino was closed for operations March 1998
due to the lessor closing the hotel for significant
repairs and improvements. With the closure the Company
wrote off approximately $330,000 in fixtures and
building improvements.
In April 1998, the Company reached a settlement
agreement with the lessor whereby the lessor agreed to
pay $250,000 in payroll costs during the closure of the
casino; make available $500,000 commencing August 1998
in the form of two promissory notes of $250,000 bearing
interest at 9% and payable one year from the date of
issuance; and provide approximately $1,500,000 towards
improvements to the casino. In addition, a new ten-
year lease agreement was negotiated, with base rents
escalating from $1,000,000 annually to $1,200,000
annually after the first five years of the lease term.
Rent payments were to commence when the hotel and
casino reopened, estimated to be January 1999.
Subsequent to yearend, the Company determined that it
was unable to obtain funding necessary to meet certain
provisions of the new lease agreement. The Company is
currently renegotiating the settlement with the lessor.
Based on those negotiations, the Company reassessed the
carrying value of the leasehold and contract rights
associated with the property. The present value of
estimated future cashflows associated with the assets
is considered to be approximately $888,200.
Consequently, the Company recognized an impairment of
$746,552 during the year ended June 30, 1998.
Pelican Casino
Effective August 1, 1996, the Company, through its
subsidiary Global Pelican, entered into a cancelable
Management and Operating Lease Agreement (the "Pelican
Agreement") with a third party, whereby Global Pelican
agreed to lease and operate the Pelican Casino, located
on the island of St. Maarten. The term of the lease
was for five years, with options to renew for three
additional five-year terms. Lease payments were
$30,000 per month for the initial lease term beginning
in November 1996. Rent expense for the year ended 1997
was $225,000.
The Pelican Agreement provided that Global Pelican
would also purchase the equipment utilized at the
casino for $225,000 in exchange for a note payable,
subject to the third party providing clear title to the
equipment. The Pelican Agreement also stated that
until the equipment liens and encumbrances were
released, Global Pelican had the right to terminate the
Pelican Agreement. At June 30, 1998, the equipment
remains subject to liens and encumbrances, and Global
Pelican has therefore not purchased the equipment.
In July 1997, Global Pelican renegotiated the terms of
the Pelican Agreement, whereby Global Pelican agreed to
pay approximately $20,000 per month. Rent expense for
the year ended June 30, 1998 was $235,000. The Company
is currently renegotiating the lease and equipment
purchase with the lessor.
Global Casinos
The Company leases corporate office space under a
noncancelable operating lease expiring in September
1999. It also lease equipment under various operating
leases expiring in 1999. Lease expense under these
leases was $53,055 for the years ended June 30, 1998
and 1997, respectively. Minimum lease payments under
the lease agreements are $48,000 in 1999 and $8,000 in
2000.
Casino Las Vegas
Through April 1998, the Company leased the Casino Las
Vegas facility from the minority joint venture partner
("JVP") in the Casino Las Vegas. Rent expense was
included in the payment of 50% of the net casino
profits to the JVP. The Company transferred its
interest in the casino to the JVP in April 1998.
SEC Matter
The company previously reported an ongoing investigation by
the Securities and Exchange Commission (the "Commission"), into
various matters, including certain transaction and securities by
the company and one of it's former officers and directors. In
1998, the company entered into a voluntary stipulated decease and
desist order with the Commission pursuant to which the company
agreed, interalia, not to violate any provisions of the federal
securities laws in the future. As a result of entering into the
voluntary stipulated cease and desist, investigation by the
commission has been brought to a conclusion which, in the opinion
of management, will not have a material adverse affect upon the
business of the company in the future.
Aruban Controller Costs
The Aruban government provides "Government Controllers"
for each gaming property operating on the island. The
Aruban government recoups the expenses of these
controllers through a monthly charge per square meter
of casino space. The Casino Masquerade and other
Aruban casinos are disputing the charges. The Aruban
casinos argue that the rate charged by the government
exceeds the cost of providing the controllers. The
Company recorded estimated government controller
expense of $66,200 in 1997 and $40,180 through February
1998 at the same rate paid as of December 31, 1994.
The cumulative difference in the controller cost, based
on the rate charged by the government and that accrued
by the Company, was approximately $241,000 as of
February 1998. The liability was written off with the
closure of the casino as it was considered probable
that it would not be required to be paid.
St. Maarten License and Controller Cost
The Pelican Casino is charged a St. Maarten Government
Controller and a casino license fee of $36,500 per
month. The Company has accrued $840,000 of license and
controller expense as of and for the year ended June
30, 1998. Although the government has been assessing
the Pelican Casino the monthly fees, Global Pelican has
not yet been granted a license, which it applied for in
October 1996. In July 1997, Global Pelican met with
government representatives and proposed to pay a one-
time license issuance fee of $112,000, of which the
casino lessor has agreed to pay one-half, pay license
and controller fees accrued through May 31, 1997 of
$365,000 over a five-year term, and to pay continuing
monthly fees from June 1, 1997 and thereafter. The
Company continues to negotiate this matter with the
government.
8. STOCKHOLDERS' EQUITY
Mandatory Redeemable Convertible Preferred Stock
At June 30, 1998, 16,750 shares of Series A Mandatory
Redeemable Convertible Preferred Stock are outstanding. The
Series A Convertible Preferred Stock had a mandatory
redemption date of May 31, 1995, and the Company is
currently in default. The Series A Preferred Stock has a
redemption price of $2.00 per share, subject to adjustment
for certain events such as splits and dividends. Holders of
the Series A Preferred Stock have the option to convert
each share of the preferred stock into one-tenth of one
share of the Company's Common Stock.
Warrants
During 1998, the Company issued 50,000 warrants
exercisable at $2.50 as a loan fee in conjunction with
the issuance of a $50,000 note. The warrants expire
July 2000.
The Company issued 15,000 warrants exercisable at $3.00
in conjunction with the issuance of a $150,000 note.
The warrants are exercisable the earlier of one year
after the effective declaration of the registration
with the SEC, or June 1999. The warrants expire June
2000.
As part of the settlement agreement of the Casino
Masquerade lease, the Company issued the lessor 100,000
warrants exercisable at $3.00. The warrants are
exercisable the earlier of the effective declaration of
the registration statement, or April 1999. The
warrants expire April 2004.
In October 1996, in connection with a private placement
of convertible debt, the Company issued 126,100 Class E
Warrants exercisable at $6.00, 126,100 Class F Warrants
exercisable at $7.00, and 126,100 Class G Warrants
exercisable at $8.00. The Class E, F, and G warrants
expire the earlier of 30, 90, and 120 days,
respectively, after a registration statement covering
the stock underlying the Warrants is declared effective
by the Securities and Exchange Commission, or in
February 1999.
Prior to 1995, the Company issued to an underwriter a
warrant to purchase 2,813 units, which consist of one
share of Series A Preferred Stock and one-half Class D
Warrant at an exercise price of $24.00 per unit. This
warrant expires in April 1999.
OPTIONS
A total of 190,000 options were issued to two companies
during 1998 in conjunction with services rendered. The
options expire at various times through December 2001,
and are exercisable at prices ranging from $2.50 to
$4.25.
9. STOCK INCENTIVE PLAN
The Company has a Stock Incentive Plan (the "Incentive
Plan"), that allows the Company to grant incentive
stock options and/or purchase rights (collectively
"Rights") to officers, employees, former employees and
consultants of the Company and its subsidiaries. The
Company has reserved 225,000 shares of common stock for
issuance under these Plans. The options expire five
years from the date of grant or upon termination of
employment.
The following number of stock options associated with
these Plans is as follows:
Stock Incentive Directors Total
Plan
Outstanding at $ 81,000 $ 25,000 $ 106,000
June 30, 1996
Granted 10,000 10,000 20,000
Exercised - - -
Forfeited - (10,000) (10,000)
Outstanding at 91,000 25,000 116,000
June 30, 1997
Granted 80,000 30,000 110,000
Exercised (60,000) - (60,000)
Forfeited (76,000) (20,000) (96,000)
Outstanding at June
30, 1998 35,000 35,000 70,000
The weighted average price was:
Stock
Incentive Plan Directors
1998 $ 5.43 $ 2.86
1997 $ 5.00 $ 5.00
The following pro forma net income (loss) and earnings
per share for 1998 and 1997 would result had the
Company's compensation cost been determined using the
fair value based accounting provisions of SFAS No 123:
1998 1997
Net income (loss)-
reported $(2,288,699) $ 386,016
Net income (loss)-
pro forma $ 328,016
Earnings per share-
reported $ (1.61) $ 0.29
Earnings per share-
pro forma $ (1.69) $ 0.24
10. FOREIGN AND DOMESTIC OPERATIONS
The Company owns, operates, and develops domestic and
international projects in several geographical areas.
The following table sets forth financial information
for the Company's foreign and domestic operations for
the years ended June 30, 1998 and 1997:
Foreign** Domestic Total
1998
Revenue 5,862,745 5,472,648 11,335,393
Net loss (1,948,359) (174,194) (2,288,698)
Identifiable
assets 618,795 4,773,071 12,061,905
1997
Revenue 6,985,452 2,248,645 9,234,097
Net income 73,667 312,349 386,016
Identifiable
assets 2,559,591 6,568,958 9,168,549
** Foreign includes Aruba, St. Maarten and Kyrgyzstan
operations.
11. SEGMENT INFORMATION
With the acquisition of Alaska Bingo Supply, Inc., the
Company expanded its operations to two significant
lines of business, the casino gaming industry and the
distribution of bingo products. Following is a
tabulation of business segment information for the year
ended June 30,1998:
Casino Bingo Other Total
Revenue 8,303,122 2,967,343 64,928 11,335,393
Depreciation
and
Amortization 532,484 297,164 223,885 1,053,533
Net loss (1,896,491) (25,000) (367,208) (2,288,698)
Identifiable
assets 4,948,357 735,591 6,378,048 12,061,905
Capital
expenditures 525,569 18,132 29,568 573,269
12. GLOBAL INTERNET CORPORATION
In July 1996, the Company and other investors formed
Global Internet Corporation ("Global Internet"), to
explore opportunities related to developing
entertainment and gaming sites on the Internet. During
the year ended June 30, 1997, the Company loaned
$325,000 to Global Internet in exchange for a 10%
promissory note receivable, convertible into common
shares of Global Internet and due October 31, 1997.
Management became aware that Internet gaming could
impair the Company's Colorado state gaming license. As
a result, the Company initiated actions to divest
itself of its investment in Global Internet.
On May 11, 1997, the Company and First Entertainment
Inc. ("FEI") entered into an agreement whereby the
Company sold 1,500,000 of the 1,750,000 common shares
of Global Internet owned by the Company, in exchange
for 1,500,000 warrants, which would allow the Company
to purchase 1,500,000 shares of FEI common shares at
$1.25 per share for a period of five years. The
Company also sold its convertible promissory note,
advances and interest receivable of $375,000 for 30,000
shares of FEI Class B Preferred Stock with a face value
of $12.50 per share, convertible into FEI common shares
at $1.25 per share.
FEI is a thinly capitalized and thinly traded public
entity which does not appear to currently have
resources available to continue development of Global
Internet. These factors raised concerns about the
Company's ability to realize its investment in Global
Internet. Management determined that it would be
appropriate for the Company to fully expense its
investment and allow for the receivables in Global
Internet during the quarter ended June 30, 1997.
13. 401(k) Saving and Profit Sharing Plan
On August 1, 1997, the Company started a Retirement
Savings and Investment Plan (the "401(k) Plan") for the
employees of the Bull Durham Casino and Alaska Bingo
Supply that is intended to qualify under Section 401(k)
of the Internal Revenue Code. Qualified employees may
participate in the Company's 401(k) Plan by
contributing up to 10% of their gross earnings to the
plan subject to certain Internal Revenue Services
restrictions. The Company matches an amount equal to
100% of each participant's contribution to a maximum of
5% of their earnings. Company contributions for the
year ended June 30, 1998 were 18,610.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBAL CASINOS, INC.
Date 10/24/98 By: /s/ Stephen G. Calandrella
Stephen G. Calandrella,President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Position Date
/s/ Stephen G. Calandrella President, Director 10/24/98
Stephen G. Calandrella
/s/ Barbara G. Wolf Chief Financial Officer, 10/24/98
Barbara G. Wolf Chief Accounting Officer,
/s/ Clifford C. Thygesen Director 10/24/98
Clifford C. Thygesen
/s/ Clifford L. Neuman President, Director 10/24/98
Clifford L. Neuman
October 12, 1998
</TABLE>
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<PERIOD-END> JUN-30-1998
<CASH> 863,343
<SECURITIES> 12,980
<RECEIVABLES> 387,884
<ALLOWANCES> 26,140
<INVENTORY> 284,978
<CURRENT-ASSETS> 1,898,478
<PP&E> 6,611,364
<DEPRECIATION> (1,460,096)
<TOTAL-ASSETS> 12,061,906
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33,500
221,292
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<OTHER-SE> 4,052,478
<TOTAL-LIABILITY-AND-EQUITY> 12,061,916
<SALES> 11,335,393
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