SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB A/2
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
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) (Zip Code)
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 November 1, 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
$1,815,424.
As of November 1, 1998, 1,504,519 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.
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 and
operating casinos, gaming properties and other related interests.
History
Global Casinos, Inc. was organized under the laws of the
State of Utah on June 8, 1978. From 1978 until February, 1994,
it manufactured and marketed under the name Morgro Chemical
Company a line of garden fertilizers and chemicals, as well as a
retail ice melter.
In the fall of 1993, the Company embarked upon a 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 real estate properties
located in the limited stakes gaming district in Central City, Colorado.
The properties, The Nitro Club and The Gas Light, were never operational
under the Company,and 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
("Bull Durham") located in Black Hawk,Colorado. Lincoln and Woodbine
operated the Last Chance Saloon and Lillie's, respectively, both located
in Deadwood, South Dakota. The Company permanently closed the Last Chance
Saloon on May 31, 1994 and Lillie's on June 30, 1995 due to unprofitable
operations.
The Company also acquired Casinos U.S.A.'s 80% interest in an
international joint venture ("IJV"), which it operated through a newly
formed subsidiary, Global Casinos International, Inc. ("Global
International). Global International developed and operated Casino
Lazurnaya located in the four-star Hotel Radisson Lazurnaya in Sochi,
Russia, and Casino Las Vegas located on the second floor of the
Restaurant Naryn in Bishkek, Kyrgyzstan.
In February 1994, the Company sold all of the assets, subject
to all of the liabilities, of Morgro Chemical Company to a management
group. 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
cash a 66-2/3% interest in Global Entertainment Group,Inc. N.V.
("Global Entertainment"). Global Entertainment is a holding company
which, through BPJ Holdings N.V., its wholly-owned subsidiary, owns and
operates Casino Masquerade located in the Radisson Aruba Resort and Casino
on the Caribbean island of Aruba, Netherlands Antilles.
Effective July 15, 1995, the IJV was dissolved and the Company
assigned its interest in the Casino Lazurnaya to its IJV partner.
In exchange, the Company received the IJV partner's 61% profit interest
in Casino Las Vegas; the remaining 33-1/3% interest in Casino Masquerade;
and a promissory note in the amount of $200,000, secured by 20,000 shares
of Global Casinos common stock.
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, and provided
approximately $60,000 in working capital advances. Subsequently, management
became aware that Internet gaming could impair the Company's Colorado state
gaming license and consequently initiated actions to divest itself of its
investment in Global Internet. The Company entered into negotiations with
First Entertainment, Inc. ("FEI") to acquire the Company's investment
in Global Internet.
The Company and FEI entered into an agreement in May 1997 whereby the
Company sold 1,500,000 of its 1,750,000 common shares of Global Internet,
in exchange for 1,500,000 FEI warrants. The warrants 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
raised management's concerns about the Company's ability to realize its
investment in Global Internet. Consequently management determined that
it would be appropriate for the Company to fully expense its investment
in Global Internet during the quarter ended June 30, 1997.
Effective August 1, 1996, the Company, through its wholly-owned
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. 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 owner providing clear title to the
equipment. The Pelican Agreement 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 is renegotiating the lease
and equipment purchase with the lessor.
On August 1, 1997, the Company, through its wholly-owned subsidiary,
Global Alaska, acquired all the outstanding shares of stock of Alaska Bingo
Supply ("ABS"). ABS is located in Anchorage, Alaska, and is primarily
engaged in the distribution of a full line of bingo related products.
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 the shares of the
Company's common stock issuable upon such conversion for sale. No more than
311,550 shares of common stock may be converted without the approval of the
Company's shareholders.
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. For
the year ended June 30, 1998, the Company redeemed 11,151 shares of
Series B Preferred Stock and paid $54,166 of dividends.
In January 1998, the Company, through its wholly-owned subsidiary,
Destination Marketing Services ("DMS"), 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.
In March 1998, the Company closed Casino Masquerade for operations
due to the hotel in which it is located being closed for extensive repairs
and improvements. In April 1998, the Company reached a settlement agreement
with the lessor of the casino space. 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 casino improvements. 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 is estimated to be in fiscal year 1999.
The Company determined that it was unable to obtain funding necessary
to meet certain provisions of the new lease agreement, which included
$750,000 to be deposited in an escrow account until the casino was open
for operations, and approximately $2,000,000 in casino improvements and
equipment purchases. The Company is currently renegotiating the settlement
with the lessor. 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 $746,500 of those assets during the year ended June 30, 1998.
International Gaming Interests
Casino Las Vegas: Bishkek, Kyrgyzstan
Through the IJV, the Company's subsidiary, Global International,
developed and operated the Casino Las Vegas located in the Naryn
Restaurant, in Bishkek, Kyrgyzstan. Global International held a
sixty-one percent profit interest in the Casino Las Vegas. Casino
Las Vegas was operated under a lease with the Naryn Restaurant with
the restaurant owner retaining the remaining thirty-nine percent
profit interest.
During fiscal year 1998, the government of Kyrgyzstan
implemented a significant change in its taxation policy which
management determined would be severely detrimental to the ongoing
operations of Casino Las Vegas. Consequently, in April of 1998
Global transferred its profit interest to its IJV partner for assumption
of liabilities. This resulted in a loss of approximately $221,000.
Casino Masquerade: Aruba Netherland Antilles
The Company, through its wholly-owned subsidiary Global
Entertainment, began operating the Casino Masquerade in April
1994. The casino is located in the Radisson Aruba Resort and
Casino on the Caribbean island of Aruba, Netherlands Antilles.
During February 1998, Global was notified that the resort
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 included a cash deposit
of $750,000, and procurement of new equipment estimated to cost
in excess of $2,000,000. The Company is currently in default and
is negotiating a revised settlement agreement. In light of these
negotiations, the carrying value of leasehold and contract rights
was reduced by $746,500 as of June 30, 1998.
Pelican Casino: St. Maarten, Netherlands Antilles
The Company, through its subsidiary Global Pelican, has
operated the Pelican Casino, located on the island of St. Maarten,
since August 1996.
Domestic Gaming Interests
Bull Durham Saloon and Casino: Black Hawk, Colorado
The Company, through its wholly-owned subsidiary Casinos
U.S.A., owns and operates the Bull Durham Saloon and Casino (the
"Bull Durham") located in Black Hawk, Colorado. The Bull Durham
commenced gaming operations in February 1993 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 operates under a gaming license issued
to the Company.
In October 1995, Casinos U.S.A. filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code as it was
in default under all of its secured obligations encumbering the
Bull Durham Saloon and Casino. In January 1997, the Court
approved the Debtor's Second Amended Plan of Reorganization.
Employees
The corporate offices of Global Casinos are currently managed
by two full-time employees: Stephen G. Calandrella, President
and Barbara G. Chacon, Chief Financial Officer.
Casino Masquerade had operated with approximately 80 employees.
Although the casino was closed for operations, Aruban labor union law
and provisions of the settlement agreement stipulate employees be
retained and compensated until the casino is reopened.
The Pelican Casino is managed by Mr. Dale Sterner, previously
the manager of Casino Las Vegas. The casino currently operates with
approximately 50 full-time employees.
Bull Durham Saloon and Casino is managed by Mr. Daniel Scherer.
The Bull Durham currently employs 20 persons. During the peak summer
season, employment typically increases by a total of 15 employees.
Mr. John Lopez is the president of Alaska Bingo Supply. ABS
employs 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 casinos
on the island of St. Maarten, Netherlands Antilles. 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. There are numerous competitors engaged in the same
business as the Company, and the Company's operations also
compete with other forms of gaming activities, such as Bingo,
Lotto, table games, sports betting and pari-mutuel wagering.
Competition in Black Hawk, Colorado is particularly intense as
competitors are in very close proximity to the Company's operations,
with 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.
Charitable bingo is currently the sole form of legalized
gaming in Alaska. With an approximate 30% market share, ABS is
the largest distributor of bingo products in the state. ABS has a
strong operating history and reputation with product suppliers
and end-users, which allows it to compete effectively with
telemarketers that have lower operating costs. Recently, there
has been a push to allow video lotteries as a form of gambling.
Video lotteries would have a definite impact on the operations of
ABS's customers, although management is uncertain how it would
impact ABS operations.
Regulation
International
Gaming establishment ownership and operation in foreign
jurisdictions are generally regulated by local authorities. In
virtually all jurisdictions, the Company is required to obtain a
Certificate of Authority to conduct business in that jurisdiction,
as well as numerous licenses, including gaming, tax, and liquor licenses.
In each jurisdiction in which the Company has an opportunity
to develop a casino, the Company consults with local officials
and 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.
Domestic
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 the ability
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 stock may be required
to submit to a background investigation, provide personal 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 stock and could
also depress the price of the stock.
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 issuance 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 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 or more of the Company's common stock must
notify the Division of Gaming within ten 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. The same regulations apply to any person
who becomes a beneficial owner of more than ten percent of any other
class of voting securities of the Company.
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.
ABS's operations are regulated by the Alaska Department of
Revenue's gaming unit. Regulations, which can change annually,
provide guidance on license requirements for distributors like
ABS, as well as operational requirements for the charitable
organizations.
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 issuable to duly licensed and operating limited gaming
casinos.
Taxation
International
Jurisdictions in which the Company has the opportunity to
develop casino operations generally impose a tax on revenues and
income generated from gaming activities. The Company consults
with local tax professionals, as well as international tax
professionals in the United States, for the purpose of becoming
familiar with jurisdictional tax laws and determining the most
efficient and profitable manner to conduct its operations.
Domestic
Net profits derived from the operations of the Company and
its subsidiaries are subject to taxation at both the federal and
state levels. Colorado imposes a variable tax on "adjusted gross
proceeds", which includes the total amount of all wagers made by
players 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 to eighteen
percent of adjusted gross proceeds ranging from $2,000,000 to
proceeds in excess of $5,000,000. In addition, the city of Black Hawk
and the state of Colorado assess "device fees" on each gaming unit
utilized in a casino.
ABS pays a monthly 3% tax on profits from pull tab sales.
Profit is defined as the percentage of profit made by vendors on
each pull tab. ABS is reimbursed by the vendors for the tax
through its regular product invoicing.
Regulations affecting the operations of the Company's limited
gaming business are subject to change by the respective regulatory
authorities. Accordingly, there can be no assurance that there
will not be enacted future amendments to 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.
Although the Company regards service marks as valuable assets
and would vigorously defend service marks against infringements,
it does not believe that the failure to obtain service mark
registrations for which it may apply, or the infringement by another
entity of existing service marks, would have a material adverse effect
on the Company.
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 gained by the Company in acquiring
the casinos in the Caribbean is the counter-cyclic effect that its
high winter season has 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 experiences a significant
increase in tourist traffic which occurs from May through September.
Based on historical precedent, the Bull Durham generally performs
at least on a "break-even" basis during the winter months.
ABS's operations are strongly influenced by the amount of
daylight and snow received. Due to its location, Alaska endures
extreme fluctuations in the amount of sunshine it receives,
ranging from virtual total daylight in the summer months to no
light in the winter months. In addition, the state receives
significant snowfall in the winter that does not melt due to the
lack of sunshine. Consequently, ABS's operations are the strongest
from September through April when people do not tend to be outdoors..
ITEM 2. DESCRIPTION OF PROPERTY
Corporate Offices: Colorado Springs, Colorado
During fiscal year 1998, the Company's corporate headquarters
were relocated to Colorado Springs, Colorado, 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. The Company continues to lease its previous office
space under a noncancelable operating lease expiring in September 1999.
Casino Las Vegas: Bishkek, Kyrgyzstan
The Company had operated the Casino Las Vegas on the second
floor of the Naryn Restaurant located in Bishkek, Kyrgyzstan.
The casino opened in July 1994, and occupied 4,000 square feet.
It contained eighteen slot machines, three black jack tables,
three Caribbean Stud poker tables, one Let it Ride table, and two
roulette wheels. The agreement to operate the casino had a term
of twenty years, expiring on April 12, 2013.
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 $221,000.
Casino Masquerade: Aruba, Netherland Antilles
The Casino Masquerade is located in the 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"),
which holds a gaming permit issued by the Nation of Aruba
authorizing it to operate a gaming casino on the premises. Under
the authority of its gaming license, Dutchco leased the casino to
Global Entertainment, which operated the casino under an
operating lease, which was to expire in December 2002, with an
option to renew for 10 years.
The Casino had been fully operational since December, 1993,
when extensive renovations to the Hotel were completed. Operations
consisted of one hundred fifty-five slot machines, six black jack
tables, two roulette wheels, two Caribbean Stud tables, three
Let it Ride tables, and one craps table. The casino also served
liquor and provided a limited food service.
During February 1998, Global was notified that the resort
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 with Dutchco, but defaulted
on certain provisions of the agreement. The Company is currently
negotiating a revised settlement agreement with Dutchco.
Pelican Casino: St. Maarten, Netherlands Antilles
The Company, through its subsidiary Global Pelican, has
operated the Pelican Casino, located on the island of St. Maarten,
since August 1996. The casino sits on the west side of the island
which is controlled by the Dutch. The French control the east side
of the island. Daily direct flights leave from major East Coast cities
during the winter months, and the island is a popular destination
for both Americans and Europeans.
The Pelican Casino is located in one of the largest time-
share complexes on the island, the Atrium Resort, which has over
700 rooms. The casino occupies 7,000 square feet and features 140
slot machines, four black jack tables, four Caribbean Stud tables,
one roulette wheel, and one Let-it-Ride table.
Bull Durham Saloon and Casino: Black Hawk, Colorado
The Bull Durham is located approximately one hour from
Denver, Colorado in the town of Black Hawk. The Company through
its acquisition of Casinos U.S.A. has operated The Bull Durham
since 1993, soon after limited stakes gambling was legalized in
Black Hawk in 1992. The casino holds a retail liquor license
issued by the State of Colorado, and offers a limited food
service in addition to beverages.
Presently, the casino occupies approximately 4,700 square
feet and has 114 slot machines and two black jack tables. In
March 1998, an expansion project commenced that will increase the
gaming space by 2,100 square feet, and allow the casino to offer
26 more slot machines and two more table games. Unlike its
international properties, Global Casinos owns the building in
which the Bull Durham operates.
The Bull Durham's customer base consists primarily of day
visitors from Denver. Gamblers arrive on buses, which are
provided by the major casinos. Some of the passengers unload as
close as 20 feet from the front door of the Bull Durham. Additionally,
there is a new city bus stop being built adjacent to the casino.
ITEM 3. LEGAL PROCEEDINGS
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 cease 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 order, investigation by the
Commission has been brought to a conclusion.
Alaska Bingo Supply
Subsequent to year end, the State of Alaska on behalf of
various non-profit organizations involved in charitable gaming
brought a lawsuit against the previous shareholders of ABS.
The State alleges that the previous shareholders improperly influenced
the non-profit organizations involved in charitable gaming to execute
leases with ABS that had unreasonably high rates. The court is asked
to declare the operations of the two bingo halls leased by ABS illegal,
to terminate the leases, and seize the fixtures, furnishings, and moveable
property used at these locations, and order the premises closed for no
less than one year. The suit names ABS as a defendant in the lawsuit
to the extent of allegations of misconduct by the previous shareholder
during the period when he owned ABS. The defendants deny any wrongdoing,
and are defending the litigation vigorously. The stock purchase and sale
agreement of ABS contains a clause indemnifying the Company against any
liability and reasonable attorney's fees associated with defending the
Company. Management is of the opinion that the lawsuit will not materially
affect the Company's consolidated financial position.
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this report.
Liquidity And Capital Resources - June 30, 1998 Compared To June 30, 1997
The independent auditors' report on the Company's June 30,
1998 consolidated financial statements contains an explanatory
paragraph that discusses certain conditions that raise substantial
doubt the Company's ability to continue as a going concern.
The Company has incurred recurring operating losses, incurred a net
loss of approximately $2,289,000 during the year ended June 30,
1998, and had a working capital deficiency of approximately
$2,653,000 at June 30, 1998. In addition, the Company is in
default on various loan agreements and the Company ceased operating
two of its casinos during 1998. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
The Company has continued its efforts to formulate plans and
strategies to address the Company's financial condition and
increase profitability. Management continues to negotiate with
creditors of debt that remain in default. The Company also
continues to explore acquisition opportunities. Management
believes that these plans will result in increased liquidity and
future profitability.
The Company's balance sheet at June 30, 1998 compared to
June 30, 1997 reflects increases in current assets, total assets,
and current liabilities, and a decrease in working capital.
Current assets increased $579,761 to $1,898,478 at June 30,
1998 from $1,318,717 at June 30, 1997. The increase was comprised
mainly of increases in accounts receivable of $313,975, inventory
of $284,978, prepaid rent of $192,800, and marketable securities
of $12,980. The increase was offset by decreases in cash,
including restricted cash, of $185,028, current portion of notes
receivable of $75,742, and other current assets of $42,922. The
increase in current assets was due mainly to the operations of ABS.
Current liabilities increased $2,508,404 to $4,551,428 at
June 30, 1998 from $2,043,024 at June 30, 1997. This increase
was comprised of increases in accounts payable of $355,182,
accrued expenses of $385,586, accrued interest of $139,136, notes
payable of $245,000, the current portion of long-term debt of
$1,363,500, and other current liabilities of $40,000. Mandatory
redeemable preferred stock decreased $20,000. Of the increase in
current liabilities, 54% was due to the increase in the current
portion of long-term debt. Other causes of the increase include
the increase in accrued casino license fees in St. Maarten (15%),
the acquisitions of ABS and DMS (13%), the issuance of a note
payable (10%), and the increase in accrued interest (6%). The
remaining 2% increase in current liabilities is due to professional
fees incurred in negotiating the settlement of Casino Masquerade.
As a result of current liabilities increasing at a greater
rate than current assets, the Company's working capital deficiency
increased $1,928,643 to $2,652,950 at June 30, 1998 compared to
$724,307 at June 30,1997. The current ratio decreased from .65 to .42.
The Company is striving to improve working capital by renegotiating the
terms of various debt, attempting to reach a successful negotiation of the
settlement of Casino Masquerade, and acquiring businesses that will
contribute to consolidated operations.
The Company's net investment in land, buildings and equipment
decreased $218,043 to $5,151,268 at June 30, 1998 from $5,369,311
at June 30, 1997. The Company purchased approximately $598,000 in
fixed assets and acquired approximately $249,000 with the acquisition
of ABS during fiscal year 1998. This increase was offset primarily
by $115,000 in Casino Las Vegas assets transferred to the Company's
IJV partner, approximately $350,000 loss on the disposition of
equipment, and $568,321 in depreciation expense.
Other assets increased $2,531,639 to $5,012,160 at June 30,
1998 from $2,480,521 at June 30, 1997. The majority of this
increase was due to $1,770,958 in leasehold rights and $2,164,504
in goodwill acquired in the acquisition of ABS. Offsetting the
increase was $485,212 in amortization expense. In addition,
management determined that events and conditions related to the
Casino Masquerade operations indicated that certain leasehold and
contract rights were impaired. As a result, the Company recognized
an impairment loss of $746,500 during the quarter ended June 30, 1998.
The remaining offset is attributable mainly to the transfer of the
Company's interest in Casino Las Vegas to its IJV partner.
Long-term debt less the current portion decreased $840,428
to $3,212,472 at June 30, 1998 from $4,052,900 at June 30, 1997.
This decrease is mainly due to classifying various debt as current.
Stockholder's equity increased $1,249,692 to $4,285,950 at
June 30, 1998 from $3,036,258 at June 30, 1997. The increase is
due primarily to the conversion of $3,403,291 of debt issued in
the acquisition of ABS to Class B preferred stock; the issuance
of $187,500 of common stock for cash; the conversion of $94,099
of accounts payable and debt converted to common stock; and the
issuance of $30,000 of common stock for services. The increase
is offset by the redemption of Class B preferred stock of $111,510,
and the net loss available to common stockholders of $2,353,688.
Cash provided by operating activities increased $132,228 to
$410,947 for the year ended June 30, 1998 compared to $278,719
for the year ended June 30, 1997. The majority of the increase
is due to operating liabilities increasing at a greater rate than
operating assets at June 30, 1998 and in comparison to June 30, 1997.
Net cash used by investing activities decreased $75,057 to
$960,113 for the year ended June 30, 1998 compared to $1,035,170
for the year ended June 30, 1997. The decrease is due mainly to
the decrease in the distribution to minority interest of $153,421
in 1997 compared to no distribution in 1998. The decrease was
offset by the Company purchasing $54,250 more equipment in
1998 compared to 1997. In addition, the Company purchased
approximately $28,000 in marketable securities in 1998 compared
to no such purchases in 1997.
Net cash provided by financing activities decreased $693,760
to $223,688 for the year ended June 30, 1998 compared with
$917,448 for the year ended June 30, 1997. The decrease is due
mainly to the Company borrowing approximately $661,140 less in
1997 than in 1998. In addition, the Company paid down more debt
and redeemed more stock in 1998 than in 1997. Specifically, the
Company paid $34,443 more in debt, and paid $20,000 towards the
redemption of mandatory redeemable preferred stock and $111,510
towards the redemption of Class B preferred stock. The Company
also paid $54,166 in dividends on the Class B preferred stock.
These decreases were offset by the issuance of $187,500 in common
stock during 1998.
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
The results of operations of the Company for the year ended
June 30, 1998 include The Bull Durham, Pelican Casino, and the
corporate offices for the entire year; ABS for eleven months;
Casino Las Vegas for approximately nine months; and DMS for six
months. Casino Masquerade was operational for eight months out
of the year, and continued to incur general and administrative
expenses through year end. The results of operations for the
year ended June 30, 1997 include The Bull Durham, Casino
Masquerade, Casino Las Vegas, and the corporate offices for the
entire year; and Pelican Casino for eleven months. The Company's
foreign operations consist of Casino Las Vegas, Casino Masquerade,
and Pelican Casino. The Company's domestic operations consist
of The Bull Durham, ABS, DMS, and the corporate offices.
Net revenues for the year ended June 30, 1998 were
$11,335,393, and were comprised of casino revenues of $8,077,148;
bingo revenues of $2,955,346; 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 sales of $195,550; and other revenues
of $59,827.
Although the Company had fewer casinos operating during
1998 than in 1997, net revenues increased $2,101,296 or 23%. The
increase is due mainly to the acquisition of ABS in August 1997
and better management of the casinos. Net revenues from foreign
operations decreased $1,122,707 to $5,862,745 for the year ended
June 30, 1998 compared to $6,985,452 for the year ended June 30,
1997. The decrease is due to the closure of Casino Las Vegas and
Casino Masquerade. Net revenues from domestic operations
increased $3,224,003 to $5,472,648 for the year ended June 30,
1998 compared to $2,248,645 for the year ended June 30, 1997.
ABS's revenues for the eleven months ended June 30, 1998 were
$2,967,343, comprising 92% of the increase.
Total operating expenses increased $3,102,197 to $12,670,205
for the year ended June 30, 1998 compared to $9,568,008 for the
year ended June 30, 1997, an increase of 32%. The majority of
the increase, 56%, represents $1,730,049 in cost of sales of ABS
bingo operations. Included in operating expense is a loss of
$967,387 resulting from the transfer of the Company's interest
in Casino Las Vegas and the impairment of leasehold rights in
Casino Masquerade. Depreciation and amortization expense increased
approximately $484,000 in 1998 compared to 1997. Operating,
general and administrative expenses increased $220,924. Expenses
increased in general due to the acquisition of ABS and DMS, as well
as Pelican Casino being in operation for twelve months in 1998
compared to eleven months in 1997.
Total operating expenses increased 32% compared to an
increase in revenues of 23%. In addition to the $967,387 loss
incurred in the transfer and impairment of gaming facilities, the
increase in expenses at a greater rate than the increase in
revenues is due to Casino Masquerade being closed for operations
in March 1998 but still incurring operating expenses through
yearend. Casino Masquerade earned approximately $744,000 in net
revenues for the three months ended June 30, 1997 compared to no
earnings for the three months ended June 30, 1998. As a result
of the fluctuations in revenues and operating expenses, losses
from operations increased approximately $1,000,000 to a loss of
$1,334,812 for the year ended June 30, 1998 compared to a loss of
$333,911 for the year ended June 30, 1997.
Other income (expense),net, increased $273,041 to a loss of
$929,280 for the year ended June 30, 1998 compared to a loss of
$656,239 for the year ended June 30, 1997. The increase is due
mainly to interest expense increasing $319,530 largely as a
result financing the acquisition of ABS. The 1998 loss on disposition
of Casino Masquerade equipment was approximately $35,000 less than
the 1997 loss on Global Internet Corporation. As a result of the
foregoing, losses before reorganization items, minority interest,
and extraordinary items increased 129% to a loss of $2,264,092
for the year ended June 30, 1998 compared to a loss of $990,150
for the year ended June 30, 1997.
The minority interest in the income of Casino Las Vegas
decreased $147,212 due to the transfer of the Company's interest
in the gaming facility in April 1998. In 1997, the Company
reported an extraordinary gain of $1,551,488 that was due largely
to the restructuring and/or extinguishment of the creditor claims
filed during the bankruptcy proceedings of Casinos USA. In 1998,
the Company incurred approximately $65,000 of dividends on Class
B preferred stock, approximately $55,000 of which was paid as of
June 30, 1998. The Company reported a net loss available to
common stockholders of $2,353,688 for the year ended June 30,
1998 compared to net income of $386,016 for the year ended June
30, 1997. 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 compared to 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.
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 No. 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, which is
effective for periods beginning after December 15, 1998. In
February 1998, the FASB issued SFAS No. 132, Employers'
Disclosures about Pensions and other Postretirement
Benefits, which is effective for fiscal years beginning
after December 15, 1997. 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, which is
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. 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 statements.
Year 2000 Conversion
The Company recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software failures.
Software failures due to processing errors potentially arising
from calculations using the Year 2000 date are a known risk. The
Company is addressing this risk to the availability and integrity
of financial systems and the reliability of the operational
systems. The Company has established processes for evaluating
and managing the risks and cost associated with this problem,
including communicating with suppliers, dealers, and others with
which it does business to coordinate Year 2000 conversion. The
total cost of compliance and its effect on the Company's future
results of operations is being determined as part of the detailed
conversion planning process.
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 for the Years Ended June 30, 1998
and 1997;
4. Audited Statements of Stockholders' Equity for the Years Ended
June 30, 1998 and 1997;
5. Audited Statements of Cash Flows for the Years Ended June
30, 1998 and 1997; and
6. Notes to Financial Statements.
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.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following Exhibits are filed as part of this Report pursuant
to Item 601 of Regulation S-B:
Exhibit No. 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 following reports on Form 8-K were filed during the fourth quarter
ended June 30, 1998:
Date Form Item Financial Statements
June 11, 1998 8-K Conversion of Debt to Pro forma March 31, 1998
Class B Preferred Stock Balance Sheet
June 11, 1998 8-K/A Conversion of Debt to Pro forma March 31, 1998
Class B Preferred Stock Balance Sheet
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1998 AND 1997
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors (Gelfond Hochstadt Pangburn & Co.) F-3
Consolidated Balance Sheet - June 30, 1998 F-4
Consolidated Statements of Operations - For Years
Ended June 30, 1998 and 1997 F-6
Consolidated Statements of Stockholders' Equity - For
Years Ended June 30, 1998 and 1997 F-8
Consolidated Statements of Cash Flows - For Years
Ended June 30, 1998 and 1997 F-9
Notes to Consolidated Financial Statements F-12
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Global Casinos, Inc.
We have audited the accompanying consolidated balance sheet of
Global Casinos, Inc. and subsidiaries as of June 30, 1998, and
the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the two-year
period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Global Casinos, Inc. and subsidiaries as of June 30,
1998, and the results of their operations and their cash flows
for each of the years in the two-year period ended June 30, 1998,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that Global Casinos, Inc. will continue as a going concern. As
more fully described in Note 1, the Company has incurred
recurring operating losses, incurred a net loss of approximately
$2,289,000 during the year ended June 30, 1998, and had a working
capital deficiency of approximately $2,653,000 at June 30, 1998.
In addition, the Company is in default on various loan agreements
and the Company ceased operating two of its casinos during the year
ended June 30, 1998. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's
plans with regard to these matters are also described in Note 1.
The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may
result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
October 13, 1998
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998
ASSETS
Current assets:
Cash 722,893
Restricted cash 140,450
Accounts receivable:
Trade, net of allowance for doubtful accounts of $26,140 371,602
Related parties 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 rights and interests and contract rights,
net of amortization of $1,199,095 2,643,348
Goodwill, net of amortization of $110,230 2,054,275
Notes receivable, net of current portion, including recei 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 $40,431 to related parties 294,131
Note payable 245,000
Current portion of long-term debt, including debt in default and
$428,691 to related parties 1,920,950
Mandatory redeemable convertible Class A preferred stock,
in default 33,500
Other 40,000
Total current liabilities 4,551,428
Long-term debt, less current portion 3,212,472
Other 12,056
3,224,528
Commitments and contingencies
Stockholders' equity:
Preferred stock - convertible nonvoting,
10,000,000 shares authorized:
Class A - $2 par value; 109,000 shares issued and outstanding 218,000
Class B - $.01 par value; 329,178 shares issued and outstanding 3,292
Common stock - $.05 par value; 50,000,000 shares authorized;
1,504,344 shares issued and outstanding 75,217
Additional paid-in capital 12,551,458
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
Loss on 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 $30,214 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
Chapter 11 proceedings 7,608
Professional fees (11,111)
Loss before minority interest and extraordinary item (2,264,092) (993,653)
(continued)
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued)
Minority interest in income of subsidiaries (24,607) (171,819)
Loss before extraordinary item (2,288,699) (1,165,472)
Extraordinary item:
Gain from debt restructuring 1,551,488
Net income (loss) (2,288,699) 386,016
Dividends on Class B preferred stock (64,989)
Net income (loss) available to common stockholders (2,353,688) 386,016
Earnings (loss) per share - basic and diluted:
Net loss before extraordinary item (1.61) (0.86)
Extraordinary item - 1.15
Net Earnings (loss) per share (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>
Balance at
July 1, 1996 688,500 1,251,361 1,283,419 64,171 7,819,454 (6,594,345 2,540,964
Shares issued
in conversion of
preferred stock
to common stock (540,750) (982,823) 96,131 4807 978,016 -
Shares issued in
debt conversion 21,261 1063 108,215 109,278
Net income 386,016 386,106
Balances at
June 30,1997 147,750 268,538 1,400,811 70,041 8,906,008 (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
preferred stock
to common stock (38,750) (50,538) 9,389 469 50,069 -
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 $75,217 $12,551,458 $(8,562,017) $4,285,950
See accompanying notes.
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 Corporation 385,418
Stock issued for services 30,000
Transfer of interest in gaming facility 220,835
Impairment of gaming facility 746,552
Loss on disposition of buildings and equipment 349,763
Changes in operating assets and liabilities,
net of effects of acquisitions:
Restricted cash (140,450)
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 284,180 276,514
Other current liabilities 40,000
Other liabilities (6,490)
2,699,646 (107,297)
Net cash provided by operating activities 410,947 278,719
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (597,672) (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 (383,090)
Other assets (8,643)
Investment, loan and advances to Global Internet
Corporation (385,418)
Proceeds from sale of equipment 1,999
Distribution to minority interest (153,421)
Net cash used in investing activities (960,113) (1,035,170)
(continued)
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
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 (325,478) 160,997
Cash at beginning of year 1,048,371 887,374
Cash at end of year 722,893 1,048,371
Supplemental cash flow information:
Cash paid for interest 458,510 122,717
Supplemental disclosure of non-cash investing and
financing activities:
Debt converted to common stock:
Mandatory redeemable preferred stock 35,000
Accrued expenses, related parties 74,279
Accounts payable 87,849
Long-term debt 6,250
94,099 109,279
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 10,823
(continued)
GLOBAL CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Acquisition of Alaska Bingo Supply:
Fair value of assets acquired 592,244
Intangible assets 3,935,463
Liabilities assumed (134,617)
Fair value of assets exchanged (4,010,000)
Cash received, net of cash acquired 383,090
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 acquired in Chapter 11 proceeding 249,418
See accompanying notes.
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
Alaska corporation, which acquired Alaska Bingo
Supply, Inc. ("ABS") located in Anchorage, Alaska on
August 1, 1997. ABS is primarily engaged in the
distribution of a full line of bingo and bingo- related
products. ABS products are sold in Alaska to non-
profit organizations and municipalities that 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. ("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 operated the Casino Masquerade on the
Caribbean resort island of Aruba through February 1998.
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 INC. ("DMS"), a Colorado
corporation, which acquired the net assets of a
Colorado travel services company in January 1998.
Management's Plans
The accompanying financial statements have been prepared assuming
that Global Casinos, Inc. will continue as a going concern. As
more fully described in Note 1, the Company has incurred
recurring operating losses, incurred a net loss of approximately
$2,289,000 during the year ended June 30, 1998, and had a working
capital deficiency of approximately $2,653,000 at June 30, 1998.
In addition, the Company is in default on various loan agreements
and the Company ceased operating two of its casinos during the year
ended June 30, 1998. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's
plans with regard to these matters are also described in Note 1.
The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may
result from the outcome of this uncertainty.
The Company has continued its efforts to formulate plans and
strategies to address the Company's financial condition and
increase profitability. Management continues to negotiate
with creditors of debt that remain 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. It is reasonably
possible that actual results could differ from those estimates
and significant changes could occur in the near term.
Cash
Cash consists of demand deposits and vault cash used in
casino operations. Restricted cash represents cash held
in an escrow account in connection with the Company's
negotiations with the government of St. Maarten to obtain
a casino license as discussed below.
Inventories
Inventories primarily consist of bingo supplies and are
stated at the lower of cost or market. Cost is determined
by the average-cost method.
Revenue Recognition
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. Sales of
bingo-related products are recognized as products are
shipped. Rental revenue is recognized as it is due,
according to the lease agreements. Rental revenue for 1998
was $645,500.
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 No. 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, which is
effective for periods beginning after December 15, 1998. In
February 1998, the FASB issued SFAS No. 132, Employers'
Disclosures about Pensions and other Postretirement
Benefits, which is effective for fiscal years beginning
after December 15, 1997. 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, which is
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. 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 statements.
Fair Value of Financial Instruments
The carrying values of the Company's financial instruments
classified as current assets and liabilities approximate
fair values primarily based on recent comparisions made 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 Rights and Interests, Contract Rights and Goodwill
Leasehold rights and interests, contract rights, and goodwill
represent the excess of the purchase prices over the net assets
of the acquired investments in ABS, Casino Masquerade and Casinos
USA. The leasehold and contract rights are amortized over
the ten-year terms of the agreements. The goodwill is amortized
over 18 years. The Company annually assesses the carrying values
of its leasehold rights and interests, 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, leasehold rights and
interests, contract rights, and goodwill. 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 assessment, events and
conditions related to the Casino Masquerade operations,
discussed below, indicated that leasehold and contract
rights were impaired. As a result, the Company recognized
an impairment loss of $746,552 during the quarter ended June
30, 1998. The Company does not believe that any impairments
have occurred on land, buildings, equipment, or goodwill 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.
Common Stock Split
On November 18, 1996, the Company effected a one-for-ten
reverse split of its common stock, thereby decreasing the number
of issued and outstanding common shares and increasing the par
value of each share to $.05. All references in the accompanying
financial statements to the number of common shares and per share
amounts have been restated to reflect the stock split.
Net Income (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 No. 128 did not result in
a change in previously presented EPS for the year ended June
30,1997.
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 they would be
antidilutive in 1998 and 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
Trade receivables are primarily due from ABS bingo supply customers.
ABS grants credit generally without collateral to its customers.
At June 30, 1998, approximately 13% of trade receivables are
due from one ABS customer. Since the date of acquisition,
approximately 33% of bingo sales were attributed to three
significant bingo supply customers, and approximately 20% of
bingo revenues were due from two bingo hall lessees. Accordingly,
future operations are dependant upon the Company maintaining its
relationship with these customers and leasees. As discussed in
Note 7, the Company is involved in litigation in which the
plaintiffs are seeking actions which could have an adverse effect
on ABS operations. As a result, the Company's estimates related
to ABS intangible assets, as well as other estimates, are particulary
sensitive to future change regarding this matter.
During 1998, approximately 54% of ABS's bingo supply
purchases were from a third party supplier. Management
believes that other suppliers could provide similar products
with comparable terms. A change in suppliers, however, could
cause delays and possible loss of sales that would affect
ABS operating results adversely.
Casino Las Vegas, Casino Masquerade, and the Pelican Casino
(the "Casinos") are located in Kyrgyzstan (through April
1998), 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.
Reclassifications
Certain amounts reported in the 1997 financial statements
have been reclassified to conform to the 1998 presentation.
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 through December 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 which
became effective 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 occurred 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, originally
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. ACQUISITIONS
Alaska Bingo Supply, Inc.
On August 1,1997, the Company acquired 100% of the
outstanding common 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 due in 2004, collateralized 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, but were extended through
February 1999. The promissory notes to third parties are
collateralized 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 related party note) is
at 12%.
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"), having a face value of $10.00
per share, and (ii) a convertible promissory note in the
principal amount of $450,000, due in September 2004 at 8%
(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 (i) one year from the date of
issue or (ii) upon the effective date of a registration
statement registering the shares of the Company's common stock
issuable upon such conversion. No more than 311,550 shares of
common stock maybe converted without the approval of the Company's
shareholders.
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. In 1998, 11,151 shares
of Series B Preferred Stock were redeemed. Holders of the Series B
Preferred Stock are entitled to receive an annual dividend
payable at the rate of 8% per annum. The outstanding shares
of Series B Preferred Stock are non-voting.
Destination Marketing Services Inc.
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.
The following unaudited proforma consolidated results of
operations have been prepared as if the acquisitions had
occurred on July 1, 1997 and 1996:
1998 1997
Total revenues $11,568,598 $11,709,158
Loss before extraordinary
item (2,229,623) (549,748)
Net income (loss) (2,229,623) 344,340
Loss per share before
extraordinary item ($1.53) ($0.86)
Net income (loss)
per share ($1.53) $0.29
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 35,224
maturity in 2000
Secured convertible note, collateralized
by the Company's equity in certain
Casinos USA property; 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,
collateralized by certain gaming
equipment, due through 2000 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, $50,850 to related party,
bearing interest at 12%, due in
installments through February 1999,
collateralized by a note receivable 140,850
Unsecured obligation to a related party,
bearing interest at 9%, due on demand 141,501
Unsecured notes to Series B preferred
shareholder, bearing interest at 8%,
principal due September 2004 486,000
Unsecured note, bearing interest at 9%,
principal due March 1999, personally
guaranteed 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
a related party 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:
ForYears
Ending June 30,
1999 1,920,950
2000 480,025
2001 28,591
2002 26,380
2003 28,551
Thereafter 2,648,925
Total $5,133,422
In 1997, the Company negotiated 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 a $245,000 note due to a
financial institution. The note bears interest at 11.5% through
April 1999, and then is subject to a variable rate of 3% over
The Wall Street Journal prime rate of interest through the term
of the note. The note is due in installments through Apirl 2001.
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
carryforwards 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
utilized (34) (34)
- % - %
At June 30, 1998, the Company has available domestic net
operating loss carryforwards available to reduce future
taxable income of approximately $6,851,000 expiring in years
2008 through 2013 as follows:
Year
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 was to expire 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 in March 1998
due to the lessor closing the hotel for significant repairs
and improvements. In connection with the closure, the
Company wrote off approximately $330,000 in casino fixtures
and leasehold 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 year end, however, the Company determined that
it was unable to obtain funding necessary to meet certain
provisions of the new lease agreement. Therfore, 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 cash flows associated with the assets is
considered to be approximately $888,200. Consequently, the
Company recognized an impairment loss of $746,552 during the
year ended June 30, 1998. The Company's estimates related to
leasehold and contract rights' associated with this property, as
well as other estimates, are particularly sensitive to future
change based on these negotations.
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.
Leases and rental operations
Bingo Halls
ABS leases from unrelated third parties two separate
buildings that have been configured and maintained for use
as bingo halls. One lease expires in August 2001, however,
the Company has the option to extend the lease for two
additional three-year periods. The lease payments are based
on the Anchorage consumer price index. The other lease
expires in July 1999, and the Company has the option to
extend the lease for one additional five-year period.
Monthly rent payments increase from $13,400 to $14,500 over
the remaining term of the lease, with rent expense being
recognized on a straight-line basis. Bingo hall lease
expense since the date of acquisition was $409,600.
The Company subleases both premises on a month-to-month
basis to two charitable groups that operate bingo games at
the locations. The operations of these charitable groups
are managed by a company controlled by the wife of the
holder of the Company's Class B preferred stock. Under the
sublease arrangements, the Company leases furniture and
bingo equipment to the charitable organizations for use in
their operations. The charitable groups purchase bingo
supplies from the Company for use in their operations.
Office and warehouse facilities
The Company leases its ABS office and warehouse facilities
and access to a computer system under a noncancellable
operating lease which expires July 2004. The Company has
options to extend the lease for two additional one-year
periods and lease payments are subject to increases based on
the Anchorage consumer price index.
The Company leases corporate office space under a
noncancelable operating lease expiring in September 1999.
The Company also leases corporate office equipment under
various operating leases expiring in 1999. Lease expense
under these leases was $53,055 and $44,496 for the years
ended June 30, 1998 and 1997, respectively.
Future minimum lease payments are as follows:
For
years Office
ending and Bingo
June 30, Warehouse Halls Total
1999 $107,592 $406,740 $514,332
2000 71,538 237,835 309,373
2001 59,520 222,480 282,000
2002 59,520 37,080 96,600
2003 59,520 59,520
Thereafter 64,480 64,480
$422,170 $904,135 $1,326,305
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 and recognized a loss of $220,835 in connection
with the transfer.
SEC and Other Matters
The Company previously reported an ongoing investigation by
the Securities and Exchange Commission (the"Commission"),
into various matters, including certain transactions in
securities by the Company and one of its former officers and
directors. In 1998, the Company entered into a voluntary
stipulated cease 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
order, investigation by the Commission has been brought to a conclusion.
Subsequent to year end, the State of Alaska on behalf of
various non-profit organizations involved in charitable
gaming, which include organizations that lease the bingo hall from
ABS, brought a lawsuit against the previous shareholder of ABS.
The State alleges that the previous shareholder improperly
influenced the non-profit organizations involved in charitable
gaming to execute leases with ABS that had unreasonably high rates.
The court is asked to declare the operations of the two
bingo halls leased by ABS illegal, to terminate the leases,
and seize the fixtures, furnishings, and moveable property
used at these locations, and order the premises closed for
no less than one year. The suit names ABS as a defendant in
the lawsuit to the extent of allegations of misconduct by
the previous shareholder during the period when he owned ABS.
The defendants deny any wrongdoing, and are defending
the litigation vigorously. The stock purchase and sale
agreement of ABS contains a clause indemnifying the Company
against any liability and reasonable attorney's fees
associated with defending the Company. Management is of the
opinion that the lawsuit will not materially affect the
Company's consolidated financial position.
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 $236,000 as of February 1998, when
the casino was closed. 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 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 to purchase
common stock exercisable at $2.50 per share as a loan fee in
conjunction with the issuance of a $50,000 note. These warrants
expire July 2000. The Company also issued 15,000 warrants to
purchase common stock exercisable at $3.00 per share in conjunction
with the issuance of a $150,000 note. These warrants are exercisable
the earlier of one year after the effective declaration of the
registration with the SEC, or June 1999, and expire June 2000.
As part of the settlement agreement of the Casino Masquerade
lease, the Company issued the lessor 100,000 warrants to purchase
common stock exercisable at $3.00 per share. 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 per share.
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 Directors Total
Incentive
Plan
Outstanding at June 30,
1996 81,000 25,000 106,000
Granted 10,000 10,000 20,000
Exercised - - -
Forfeited - (10,000) (10,000)
Outstanding at June 30,
1997 91,000 25,000 116,000
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 exercise prices were:
Stock Directors
Incentive Plan
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 $ (2,578,699) $ 328,016
Earnings (loss)
per share-reported $ (1.61) $ 0.29
Earnings (loss)
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) (340,340) (2,288,699)
Identifiable
assets 1,314,186 10,747,720 12,061,906
1997
Revenue $6,985,452 $2,248,645 $ 9,234,097
Net income 73,667 312,349 386,016
Identifiable
assets 2,599,591 6,568,958 9,168,549
** Foreign operations include Aruba, St. Maarten and Kyrgyzstan
operations.
11. SEGMENT INFORMATION
With the acquisition of ABS in August 1997, 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 (1,896,490) (25,000) (367,209) (2,288,699)
Identifiable
assets 4,948,267 735,591 6,378,048 12,061,906
Capital
expenditures 525,569 18,132 53,971 597,672
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
of these conditions, in 1997 the Company found it necessary to
initiate 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
that did not appear to have resources available to continue
development of Global Internet at June 30, 1997. 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 July 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 Service 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: 12/23/98 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 12/23/98
Stephen G. Calandrella
/s/ Barbara G.Chacon Chief Financial Officer, 12/23/98
Barbara G.Chacon Chief Accounting Officer,
/s/ Clifford C. Thygesen Director 12/23/98
Clifford C. Thygesen
/s/ Clifford L. Neuman Director 12/23/98
Clifford L. Neuman
</TABLE>
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<FISCAL-YEAR-END> JUN-30-1998
<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
<CURRENT-LIABILITIES> 4,551,428
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33,500
221,292
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<CGS> 1,730,049
<TOTAL-COSTS> 10,940,156
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