FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
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 N. Union Blvd., Suite 100 Colorado Springs, Colorado 80918
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (719) 590-4900
(Former name,former address and former fiscal year,if changed since
last report)
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the last
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 [ ]
As of November 13,1998 1,504,519 shares of Common Stock of the
Registrant were outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [ X ]
INDEX
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheet at September 30,1998
(unaudited) and June 30, 1998
Statement of Operations for the Three Months Ended
September 30, 1998 (unaudited) and September 30,1998
(unaudited)
Statement of Cash Flows for the Three Months Ended
September 30,1998 (unaudited) and September 30,1997
(unaudited)
Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying balance sheet at September 30, 1998, and
statements of operations and cash flows for the three months
ended September 30,1998 and 1997 are unaudited but reflect all
adjustments which are, in the opinion of management,necessary to
a fair statement of the financial position and results of
operations for the interim period presented.
Global Casinos, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, June 30,
1998 1998
(unaudited)
ASSETS
Current assets:
Cash $ 637,733 $ 863,343
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$22,384 and $26,140 at September 30,1998 and
June 30,1998 467,303 371,602
Related parties 5,741 16,282
Inventory 254,325 284,978
Prepaid rent 192,800 192,800
Current portion ofnotes receivable 60,623 60,623
Marketable securities 6,255 12,980
Other 92,172 95,870
Total current assets 1,716,952 1,898,478
Land,buildings and equipment:
Land 526,550 526,550
Buildings 4,126,970 4,043,870
Equipment 1,986,893 2,040,944
6,640,413 6,611,364
Accumulated depreciation (1,456,422) (1,460,096)
5,183,991 5,151,268
Other assets:
Leasehold and contract rights, net of amortization
of $1,248,965 and $1,199,095 at September 30,1998
and June 30, 1998 2,593,479 2,643,348
Goodwill, net of amortization of $140,292 and
$110,230 at September 30, 1998 and June 30, 1998 2,024,212 2,054,275
Notes receivable, net of current portion,
including receivables in default 274,698 290,340
Other assets, net of amortization of $27,385 and
$23,700 at September 30, 1998 and June 30, 1998 23,287 24,197
4,915,676 5,012,160
11,816,619 12,061,906
Global Casinos, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
September 30, June 30,
1998 1998
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 641,308 $ 673,381
Accrued expenses 1,515,816 1,344,466
Accrued interest, including $54,539 and $40,431
to related parties at September 30, 1998 and
June 30, 1998 342,611 294,131
Note payable 216,843 245,000
Current portion of long-term debt, including
debt in default and $238,350 and $367,351 to
related parties at September 30, 1998
and June 30, 1998 2,318,298 1,920,950
Mandatory redeemable convertible Class A
preferred stock, 27,500 33,500
Other 40,000 40,000
Total current liabilities 5,102,376 4,551,428
Long-term debt,less current portion 2,891,005 3,212,472
Other 12,056 12,056
2,903,061 3,224,528
Commitments and contingencies
Stockholders' equity:
Class A preferred stock - convertible nonvoting,
$2 par value;10,000,000 shares authorized;
147,500 and 109,000 and shares issued and
outstanding at September 30, 1998 and June 30, 1998 218,000 218,000
Class B preferred stock - convertible nonvoting,
$.01 par value;10,000,000 shares authorized;
317,630 and 329,178 shares issued and outstanding
at September 30, 1998 and June 30, 1998 3,176 3,292
Common stock - $.05 par value; 50,000 shares
authorized;1,504,519 and 1,504,344 shares
issued and outstanding at September 30, 1998
and June 30, 1998 12,189 12,180
Additional paid-in capital 12,502,619 12,614,495
Accumulated deficit (8,924,802) (8,562,017)
3,811,182 4,285,950
11,816,619 12,061,906
See accompanying notes.
Global Casinos, Inc. and Subsidiaries
Consolidated Statements of Operations
For the three months ended
September 30,
1998 1997
(unaudited) (unaudited)
Revenues:
Casino $ 1,304,686 $ 2,031,543
Bingo 815,146 546,523
Food and beverage 27,450 39,243
Other 117,356 72,187
2,264,638 2,689,496
Expenses:
Cost of sales 436,928 343,760
Operating, general, and administrative 1,836,056 2,213,785
Depreciation and amortization 180,646 267,507
2,453,630 2,825,052
Loss from operations (188,992) (135,556)
Other income (expense):
Interest income 7,449 7,822
Interest expense, including $12,445
to related parties at September 30, 1998 (116,026) (166,020)
(108,577) (158,198)
Loss before minority interest (297,569) (293,754)
Minority interest in income of subsidiary (49,609)
Extraordinary item:
Gain from debt restructuring 190,930
Net loss (297,569) (152,433)
Dividends on Class B preferred stock (65,215)
Net loss available to common stockholders (362,784) (152,433)
Earnings per share:
Basic (0.24) (0.10)
Diluted (0) (0)
Weighted average shares outstanding 1,504,461 1,460,811
See accompanying notes.
Global Casinos, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the three months ended
September 30,
1998 1997
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities $ 89,391 $ 392,390
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (130,448) (314,185)
Collections on notes receivable 15,642 13,987
Acquisition of Alaska Bingo Supply,
net of cash acquired (383,090)
Other assets (12,925)
Distribution to minority interest (28,096)
Net cash used in investing activities (114,806) (724,309)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt (53,680) (33,813)
Issuances of long-term debt 54,396
Principal payments of notes payable (28,156)
Borrowings against notes payable 425,657
Redemption of mandatory preferred stock (2,500) (5,000)
Redemption of Class B preferred stock (115,483)
Payment of dividends on Class B preferred
stock (54,772)
Net(used in)cash provided by financing
activities (200,195) 386,844
Net (decrease) increase in cash (225,610) 54,925
Cash at beginning of year 863,343 1,048,371
Cash at end of year 637,733 1,103,296
Global Casinos, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
For the three months ended
September 30,
1998 1997
(unaudited) (unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 65,242 $ 71,415
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITES
Mandatory redeemable preferred stock
converted to common 3,500
Note receivable issued for common stock 195,000
Dividends accrued on Class B preferred stock 10,443
Acquisition of Alaska Bingo Supply:
Fair value of assets acquired 620,587
Intangible assets 3,863,614
Liabilities assumed (101,111)
Fair value of assets exchanged (4,000,000)
Cash received, net of cash acquired 383,090
See accompanying notes.
Global Casinos, Inc. & Subsidiaries
Notes to the Consolidated Financial Statements
September 30, 1998
(unaudited)
1. Organization
Global Casinos, Inc. (the "Company"), a Utah corporation,
develops and operates gaming casinos domestically and
internationally. At September 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 USA, Inc. ("Casinos USA"), 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 operates Alaska Bingo
Supply, Inc. ("ABS") located in Anchorage, Alaska. The
Company acquired ABS on August 1, 1997. ABS is
primarily engaged in the distribution of a full line of
bingo related products. ABS products are sold in
Alaska to non-profit organizations and municipalities
which use the products for fund-raising purposes. ABS
also receives rent income from the leasing of space to
two bingo hall operators. The bingo halls are managed
by the holder of the Company's Class B preferred
shares.
Global Pelican N.V. ("Pelican"), a St. Maarten Limited
Liability Company which began operating the Pelican
Casino located on the island of St. Maarten in the
Netherland 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. The casino was
closed March 1998 due to the hotel in which it is
located being closed for major renovations and
improvements.
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.
Destination Marketing Services ("DMS"), a Colorado
corporation, which acquired the net assets of a
Colorado travel services company in January 1998.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all the
information and footnotes required by generally accepted
accounting principles for complete financial statements.
There has not been any significant change in the Company's
significant accounting policies nor has there been any
significant development in contingent liabilities and
commitments.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. The results for these
interim periods are not necessarily indicative of the
results for the entire year. These statements should be
read in conjunction with the financial statements and
footnotes thereto included in the Form 10-KSB for the fiscal
year ended June 30, 1998 and Form 8-K.
Private Securities Litigation Reform Act
Certain statements in this Quarterly Report on Form 10-QSB
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 my 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 conditions, changes in gaming
laws or regulations (including the legalization of gaming in
various jurisdictions) and risks related to development and
construction activities.
2. Acquisitions
Alaska Bingo Supply
On August 1, 1997, the Company, through Global Alaska,
acquired all the outstanding shares of stock of ABS. 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 8% convertible promissory note collateralized by
shares of ABS common stock held by the Company. In order to
fund the acquisition, the Company borrowed $350,000 from
third parties and $75,000 from a related party. The
promissory notes are collateralized by a note receivable of
the Company. Interest on $200,000 of the promissory notes,
which were paid in full during fiscal year 1998, was at 24%
and interest on the remaining $225,000 (including the
related party note) is at 12%. The remaining notes were due
April 1998, but were extended through February 1999.
Effective March 31, 1998,the remaining principal balance due
under the $4,000,000 promissory note of $3,853,290 and
accrued interest of $15,202 were converted into (i) 340,329
shares of the Company's Series B Convertible Preferred Stock
("Series B Preferred Stock), and (ii) a convertible promissory
note in the principal amount of $450,000 (the"Second Note") due
in September 2004 and bearing interest at 8%. Principal payments
on the Second Note do not commence until all the shares of the
Series B Preferred Stock have been redeemed. 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
shares of the Company's common stock issuable upon such
conversion; 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 an annual
dividend payable at the rate of 8% per annum.
Destination Marketing Services
In January 1998, the Company, through DMS, a newly-formed
subsidiary, acquired certain assets, net of liabilities, of
a Colorado Springs, Colorado travel services company, in
exchange for $10,000 cash and a $69,000 10% note payable,
due in 1999. This acquisition was accounted for as a
purchase, and the results of operations of DMS have been
included in the consolidated results of operations from the
acquisition date.
Pro forma consolidated results of operations including the
results of operations of ABS and DMS had the acquisitions
occurred at the beginning of fiscal year 1998 are not
presented as the results would have an immaterial effect on
the consolidated results of operations for the three months
ended September 30, 1997.
2. Settlement agreement - Casino Masquerade
Through February 1998, the Company leased the Casino
Masquerade facility in the Radisson Aruba Caribbean Resort
Hotel and Casino under an operating lease that expired in
December 2002. The casino was closed for operations March
1998 due to the lessor closing the hotel for extensive
repairs and improvements.
In April 1998, the Company reached a settlement agreement
with 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 to the casino. In
addition, a new ten-year lease agreement was negotiated,
with base rents escalating from $1,000,000 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, which was estimated to be January 1999.
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.
Item 2.Management's Discussion And Analysis Or Plan Of
Operation
The following discussion and analysis should be read in
conjunction with the Financial Statements and Notes thereto
appearing elsewhere in this document.
Liquidity and Capital Resources - September 30, 1998 compared to
June 30, 1997
The Company is organized as a holding company for several
entities holding gaming-related properties. Management is
currently in the process of renegotiating its current debts in
order to extend the maturities. Also, the Company continually
investigates opportunities to undertake further financing.
The Company's balance sheet reflects a decrease in current assets
and total assets, and an impairment in working capital. Current
assets decreased from $1,898,478 at June 30, 1998, to $1,716,952
at September 30, 1998, a decrease of $181,526 or 10%. At
September 30, 1998, the Company showed decreases in cash of
$225,610, decreases in inventory of $30,653, and decreases in
marketable securities and other current assets of $10,423. These
decreases were offset by increases in net accounts receivable and
current portion of note receivable of $85,160.
At September 30, 1998, the Company's investment in property,
plant and equipment net of accumulated depreciation increased by
$32,723, or 1%.
Other assets decreased in total by $96,484 or 2% due to the
regular amortization intanble assets.
Current liabilities increased 12% from $4,551,428 at June 30,
1998, to $5,102,376 at September 30, 1998. This increase is
comprised primarily of increases in the current portion of long-
term debt of $397,348, accrued expenses of $171,350, and accrued
interest of $48,480. These increases are offset by a reduction in
accounts payable of $32,073, note payable of $28,157, and
mandatory redeemable preferred stock of $6,000.
Long-term debt decreased $321,467.
As a result of the foregoing increases in current assets and in
current liabilities, the Company's working capital deficit
increased from $(2,652,950) at June 30, 1998, to $(3,385,424) on
September 30, 1998, or 27.6%. The Company continues to face a
severe shortage of working capital, and there can be no assurance
that the Company will be able to raise the capital or show the
improvements in operations that would be necessary to overcome
the deficit.
During this period, the Company reported a net loss of $(297,569)
and dividends on the Series B Preferred Stock of $65,215. As a
result stockholders' equity decreased from $4,285,950 on June 30,
1998, to $3,811,182 on September 30, 1998, a decrease of 11%.
Net cash provided by operating activities decreased from $392,390
for the three months ended September 30, 1997 to $89,391 for the
three months ended September 30, 1998, a decrease of $300,000 or 77%
Net cash used in investing activities decreased from $724,309 for
the three months ended September 30, 1997 to $114,806 for the
three months ended September 30, 1998. For the three months
ended September 30, 1997, the Company used approximately
$383,090, net of cash acquired, for the purchase of Alaska Bingo
Supply. The Company purchased $183,737 more of equipment during
the three months ended September 30, 1997 than during the three
months ended September 30, 1998. In addition, the Company
distributed $28,046 for minority interest during the three months
ended September 30, 1997.
The Company used $200,195 in cash for financing activities during
the three months ended September 30, 1998. Of that amount, 85%
or $170,255 was used to pay dividends on and redeem shares of
Series B Preferred Stock. The Company also paid $28,156 on a
note payable issued in the fourth quarter of fiscal year 1998.
Net cash of $386,844 was provided by financing activities for the
three months ended September 30, 1997. Specifically, cash was
provided by borrowing against notes of $425,657 for the Alaska
Bingo Supply, Inc. purchase. Offset against the cash provided by
financing activities were promissory note principal reduction
payments in the amount of $33,813 and a $5,000 payment for the
mandatory redeemable projected stock.
Neither the Company nor any of its subsidiaries have any
commercial bank credit facilities.
Results of Operations - Three Months Ended September 30, 1998
Compared to the Three Months Ended September 30, 1997
For the three months ended September 30, 1998, the Company's
income consisted of revenues generated by Bull Durham, Alaska
Bingo Supply, Pelican Casino, and Destination Marketing. Income
for the three months ended September 30, 1997 was comprised of
Bull Durham, Casino Las Vegas, Pelican Casino, Casino Masquerade,
and two months of Alaska Bingo Supply.
Net revenues for the three months ended September 30, 1998 were
$2,264,638 compared to $2,689,496 for the three months ended
September 30, 1997, a decrease of $424,858 or 16%. The decrease
is due primarily to the total decrease in casino and revenues and
food and beverage sales of $738,650. This decrease was due to no
revenues reflected for the three months ended September 30, 1998
for Casino Masquerade and Casino Las Vegas. The decrease in net
revenues was offset by a total increase in bingo and other
revenues of $313,792. This increase is due primarily to only two
months of ABS revenues being reflected in the revenues for the
three months ended September 30, 1997, as well as ABS's 1998
revenues being approximately 10% higher over the prior year
period.
Total operating expenses decreased $371,422 from the three months
ended September 30, 1998 compared to the same period in the prior
year. The decrease is due primarily to Casino Masquerade and
Casino Las Vegas being fully operational during the three months
ended September 30, 1997. The expenses for the three months
ended September 30, 1997 reflect only two months of ABS charges
versus a full three months for the same period in 1998; however,
ABS's overhead charges are less than the costs incurred by Casino
Masquerade and Casino Las Vegas.
As a result of the decreases in net revenues and operating
expenses, losses from operations decreased $53,436 or 39% for the
three months ended September 30, 1998 compared to the three
months ended September 30, 1997. Interest expense decreased
approximately $50,000 for the three months ended September 30,
1998 compared to the three months ended September 30, 1997 due
primarily to the conversion of the promissory note issued to the
seller of ABS to Series B Preferred Stock in March 1998. The
decrease in interest expense decreased the loss before minority
interest and extraordinary item by $50,000, from a loss of
$158,198 for the three months ended September 30, 1997 to
$108,577 for the three months ended September 30, 1998.
The net loss increased from $152,453 for the three months ended
September 30, 1997 to $362,784 for the three months ended
September 30, 1998, an increase of $145,136 or 95%. This
increase is due primarily to the 1997 results of operations
reflecting a $190,939 gain in debt restructuring offset by the
approximate $50,000 reduction of the minority interest in the
results of operations. The results of operations for the three
months ended September 30, 1998 also reflect dividends on Series
B Preferred Stock of $65,215, resulting in a net loss available
to common stockholders of $362,784.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result
in, or that are reasonably likely to result in, a material impact
on the income and expenses of the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None, except as previously disclosed.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None, except as previously disclosed.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
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: November 16, 1997 By: /s/ Stephen G.Calandrella
Stephen G. Calandrella,President
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<SECURITIES> 6,255
<RECEIVABLES> 473,044
<ALLOWANCES> 22,384
<INVENTORY> 254,325
<CURRENT-ASSETS> 1,716,952
<PP&E> 6,640,413
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221,176
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<TOTAL-LIABILITY-AND-EQUITY> 11,816,619
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<INCOME-PRETAX> (297,569)
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