FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-15415
GLOBAL CASINOS, INC.
(Exact Name of Registrant as Specified in its Charter)
Utah 87-0340206
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
5373 N. Union Blvd., Suite 100 Colorado Springs, Colorado 80918
(Address of Principal Offices) (Zip Code)
Registrant's telephone number, including area code: (719) 590-4900
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the last
12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
As of May 21, 1999 1,546,360 shares of Common Stock of the
Registrant were outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [ X ]
INDEX
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheets at March 31, 1999 (unaudited)
and June 30, 1998
Statements of Operations for the Three Months
Ended March 31, 1999 (unaudited) and March 31, 1998
(unaudited)
Statements of Operations for the Nine months
Ended March 31, 1999 (unaudited) and March 31, 1998
(unaudited)
Statements of Cash Flows for the Nine months
Ended March 31, 1999 (unaudited) and March 31, 1998
(unaudited)
Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein have been
prepared by Global Casinos, Inc. ("the Company", "Global")
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information
and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such SEC
rules and regulations. In the opinion of management of the
Company the foregoing statements contain all adjustments
necessary to present fairly the financial position of the Company
as of March 31, 1999, and its results of operations for the three
and nine-month periods ended March 31, 1999 and 1998 and its cash
flows for the nine-month periods ended March 31, 1999 and 1998.
The Company's balance sheet as of June 30, 1998 included herein
has been derived from the Company's audited financial statements
as of that date included in the Company's annual report on Form
10-KSB. The results for these interim periods are not necessarily
indicative of the results for the entire year. The accompanying
financial statements should be read in conjunction with the
financial statements and the notes thereto filed as a part of the
Company's annual report on Form 10-KSB.
Global Casinos, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31,1999 June 30,1998
(unaudited)
ASSETS
Current assets:
Cash 671,481 722,893
Restricted cash 140,450 140,450
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $64,410 and $26,140 at March 31, 1999
and June 30, 1998 419,705 371,602
Related parties 127,020 16,282
Inventory 297,719 284,978
Prepaid rent 141,573 192,800
Current portion of notes receivable 63,642 60,623
Marketable trading securities 273,387 12,980
Other 108,147 95,870
Total current assets 2,243,124 1,898,478
Land, buildings and equipment:
Land 526,550 526,550
Buildings 4,367,285 4,043,870
Equipment 2,036,743 2,040,944
6,930,578 6,611,364
Accumulated depreciation (1,686,953) (1,460,096)
5,243,625 5,151,268
Other assets:
Leasehold rights and interests and contract
rights, net of amortization of $684,396 and
$1,199,095 at March 31, 1999 and June 30, 1998 1,605,541 2,643,348
Goodwill, net of amortization of $200,417
and $110,230 at March 31, 1999 and June 30, 1998 1,964,087 2,054,275
Hotel credits 485,572
Notes receivable, net of current portion,
including receivables in default 262,271 290,340
Other assets, net of amortization of $35,922
and $23,700 at March 31, 1999 and June 30, 1998 15,466 24,197
4,332,937 5,012,160
11,819,686 12,061,906
(Continued)
Global Casinos, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
March 31,1999 June 30,1998
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 521,892 673,381
Accrued expenses 1,323,940 1,344,466
Accrued interest, including $5,662 and
$40,431 to related parties at March 31, 1999
and June 30, 1998 247,053 294,131
Note payable 323,322 245,000
Current portion of long-term debt,
including debt in default and
$240,132 and $367,351 to related
parties at March 31, 1999
and June 30, 1998 1,820,191 1,920,950
Mandatory redeemable convertible Class A
preferred stock, in default 33,500
Other 40,000 40,000
Total current liabilities 4,276,398 4,551,428
Long-term debt, less current portion 2,680,070 3,212,472
Other 12,056 12,056
2,692,126 3,224,528
Commitments and contingencies
Stockholders' equity:
Preferred stock - convertible: 10,000,000
shares authorized
Class A - $2 par value, nonvoting; 96,500
and 109,000 shares issued and outstanding
at March 31, 1999 and June 30, 1998 193,000 218,000
Class B - $.01 par value, nonvoting; 308,498
and 329,178 shares issued and outstanding at
March 31, 1999 and June 30, 1998 3,085 3,292
Class C - $.01 par value, voting; 487,172
shares issued and outstanding 4,872
Common stock - $.05 par value; 50,000 shares
authorized; 1,546,360 and 1,504,344 shares
issued and outstanding at March 31, 1999
and June 30, 1998 77,318 75,217
Additional paid-in capital 13,037,561 12,551,458
Accumulated deficit (8,464,674) (8,562,017)
4,851,162 4,285,950
11,819,686 12,061,906
See accompanying notes.
Global Casinos, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31
(Unaudited)
1999 1998
Revenues:
Casino 1,606,593 2,394,434
Bingo 891,410 722,272
Food and beverage 34,098 45,772
Other 7,417 13,118
2,539,518 3,175,596
Expenses:
Cost of sales 487,657 436,262
Operating, general, and administrative 1,389,976 1,999,926
Depreciation and amortization 213,737 262,154
2,091,370 2,698,342
Income from operations 448,148 477,254
Other income (expense):
Interest income 15,868 15,971
Interest expense, including $5,662 and $4,857
to related parties at March 31, 1999 and 1998 (95,135) (175,138)
Unrealized net gain on marketable trading securities 2,768 1,008
(76,499) (158,159)
Income before minority interest and extraordinary item 371,649 319,095
Extraordinary item - gain from restructuring of debt 11,500 6,279
Net income 383,149 325,374
Dividends on Class B preferred stock (68,605)
Net income available to common stockholders 314,544 325,374
Earnings per common share:
Income from continuing operations 0.19 0.21
Extraordinary item 0.01
Net income available to common stockholders 0.20 0.21
Earnings per common share - assuming dilution:
Income from continuing operations 0.14 0.21
Extraordinary item 0.01
Net income available to common stockholders 0.15 0.21
See accompanying notes.
Global Casinos, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Nine Months Ended March 31
(Unaudited)
1999 1998
Revenues:
Casino 4,191,673 6,799,400
Bingo 2,682,217 2,182,362
Food and beverage 89,371 137,500
Other 149,771 60,867
7,113,032 9,180,129
Expenses:
Cost of sales 1,451,141 1,318,076
Operating, general, and administrative 4,802,238 6,532,615
Depreciation and amortization 586,610 845,316
Gain on sale of investment in subsidiaries (189,250)
6,650,739 8,696,007
Income from operations 462,293 484,122
Other income (expense):
Interest income 31,025 32,008
Interest expense, including $28,511 and
$30,240 to related parties at March 31, 1999
and 1998 (331,675) (504,986)
Unrealized net gain on marketable trading
securities 54,083 1,008
(246,567) (471,970)
Income before minority interest and
extraordinary item 215,726 12,152
Minority interest in income of subsidiary (24,609)
Income (loss) before extraordinary item 215,726 (12,457)
Extraordinary item - gain from
restructuring of debt 77,601 197,209
Net income 293,327 184,752
Dividends on Class B preferred stock (195,985)
Net income available to common stockholders 97,342 184,752
Earnings per common share:
Income (loss) from continuing operations 0.01 (0.01)
Extraordinary item 0.05 0.13
Net income available to common stockholders 0.06 0.12
Earnings per common share - assuming dilution:
Income from continuing operations 0.01 (0.01)
Extraordinary item 0.03 0.13
Net income available to common stockholders 0.04 0.12
See accompanying notes.
Global Casinos, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31
(Unaudited)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities 460,400 626,677
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (375,968) (250,684)
Collections on notes receivable 45,050 34,544
Purchase of marketable securities (201,524) (36,813)
Settlement upon termination of operating lease 400,000
Acquisition of Alaska Bingo Supply, net of cash acquired (383,090)
Issuances of notes receivable (64,778)
Distribution to minority interest (55,716)
Net cash used in investing activities (132,442) (756,537)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt (174,640) (590,677)
Issuances of long-term debt 254,911 474,879
Principal payments of notes payable (71,678)
Borrowings against notes payable 150,000 50,000
Issuance of common stock 187,500
Payment of mandatory redeemable preferred stock (2,500) (17,500)
Redemption of Class B preferred stock (356,783)
Payment of dividends on Class B preferred stock (178,680)
Net cash (used in) provided by financing activities (379,370) 104,202
Net (decrease) increase in cash (51,412) (25,658)
Cash at beginning of year 722,893 1,048,371
Cash at end of year 671,481 1,022,713
(Continued)
Global Casinos, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31
(Continued)
(Unaudited)
1999 1998
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest 233,608 177,902
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Mandatory redeemable preferred stock converted
to common stock 3,500
Debt and accrued interest converted to common stock 124,096 89,000
Debt converted to Class B preferred stock 150,000
Debt and accrued interest converted to Class C
preferred stock, including $364,663 to related parties 584,605
Class A preferred stock converted to common stock 25,000
Dividends accrued on Class B and Class C preferred stock 17,304
Acquisition of Alaska Bingo Supply:
Fair value of assets acquired 620,587
Intangible assets 3,863,614
Liabilities assumed (101,111)
Fair value of assets exchanged (4,000,000)
Cash received, net of cash acquired 383,090
See accompanying notes.
Global Casinos, Inc. & Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1999 (Unaudited)
1. Organization
At March 31, 1999, and for the three and nine months ended
March 31, 1999 and 1998, the consolidated financial
statements of the Company include the accounts of the
following wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated
in consolidation.
Casinos USA, Inc. ("Casinos USA"), a Colorado
corporation, which owns and operates the Bull Durham
Saloon and Casino ("Bull Durham"), located in the limited
stakes gaming district of Black Hawk, Colorado.
Global Pelican N.V. ("Pelican"), a St. Maarten limited
liability company located on the island of St. Maarten in
the Netherlands Antilles.
Global Alaska Corporation ("Global Alaska"), which
operates Alaska Bingo Supply, Inc. ("ABS") located in
Anchorage, Alaska.
Woodbine Corporation ("Woodbine"), a South Dakota
corporation, which operated Lillie's Casino in Deadwood,
South Dakota through June 30, 1995.
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.
The Company disposed of its investment in BPJ in December
1998 (Note 3).
Destination Marketing Services ("DMS"), a Colorado
corporation, which acquired the net assets of a Colorado
travel services company in January 1998. The Company
disposed of its investment in DMS in October 1998 (Note 3).
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.
2. Equity conversion
In January 1999, the Board of Directors of the Company
ratified the issuance of the newly designated Series C
preferred stock. The stock has a par value of $.01, is
voting, and is convertible into common stock at a rate of
$1.20. Holders of Series C preferred stock are entitled to
receive dividends at the annual rate of 7% based on the
stated value per share. The dividends are cumulative, with
any outstanding unpaid dividends bearing interest at an
annual rate of 10%.
In January 1999, several creditors agreed to convert their
debt to Series C preferred stock, with the conversion to be
effective December 31, 1998. Principal of $487,220 and
accrued interest of $97,385 were converted to 487,172 shares
of Series C preferred stock. Included in the conversion
were $258,869.89 and $46,394.90 in principal and accrued
interest, respectively, to related parties.
3. Dispositions
Casino Masquerade
On December 23, 1998, the Company completed the dissolution
of Casino Masquerade. The Company had operated the casino
located in the Radisson Aruba Caribbean Hotel on the island
of Aruba through February 28, 1998, at which time the hotel
was closed for major repairs and renovations. Due to
protracted delays in completing the renovations and other
adverse business circumstances, the Company was able to
negotiate an early termination of the remaining term of the
casino lease. In consideration, the Company received a cash
payment of $400,000 and the issuance of hotel trade credits
having a face value of $600,000. At March 31, 1999, the
hotel credits are recorded at their estimated present value
of $485,572.
Effective December 31, 1998, the Company agreed to sell all
of the outstanding shares of BPJ to an unaffiliated third
party. The Company recognized a gain of $183,856 in
connection with the disposition.
Destination Marketing Services, Inc.
Effective October 1, 1998 the Company sold in a management
buy-out all of the outstanding shares of common stock which
it had acquired in January 19998 to DMS's president. Under
the terms of the buy-out, the Company will receive an
aggregate of $20,000 over three years and will be
indemnified against certain liabilities, including payroll
taxes. DMS was not considered to be a significant
subsidiary of the Company. The Company recognized a gain of
$5,394 in connection with the disposition.
The following unaudited proforma consolidated results
of operations for the nine months ended March 31, 1999
and 1998 have been prepared as if the dispositions had
occurred on July 1, 1998 and 1997:
1999 1998
Total revenues $6,755,284 $6,462,979
Income (loss) before
extraordinary item 800,592 (1,310,169)
Net income (loss) 878,553 (1,137,569)
Income (loss) per share
before extraordinary item $ .53 $ (.90)
Net income (loss) per
share $ .58 $ (.79)
4. Preliminary Lease and Operating Agreement- Casino Calypsso
The Company has reached a preliminary agreement with
the management of the Hotel Calypsso in Salinas,
Ecuador to lease approximately 3,500 square feet within
the hotel to operate a casino. The casino's operations
will not be significant to the Company's consolidated
financial statements. As of March 31, 1999, the Company
had invested approximately $121,000 toward the
development of the casino. The investment is being
classified as a related party accounts receivable until
such time as the agreement is finalized.
5. Marketable trading securities
Included in marketable trading securities at March 31,
1999 are 300,000 shares of First Entertainment (FEI)
common stock with a recorded value of $.30 per share.
In May 1997, the Company divested itself of its
investment in Global Internet after it became aware
that Internet gaming could impair its Colorado state
gaming license. The Company sold a convertible
promissory note, advances, and interest receivable with
a recorded value 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. In
addition, it sold 1,500,000 Global Internet shares in
exchange for 1,500,000 FEI warrants convertible into
1,500,000 shares of FEI common stock at $1.00 per share
for a period of five years.
As FEI was thinly capitalized and did not appear at the
time to have the resources available to continue
development of Global Internet, the Company fully
expensed its investment in FEI. In December 1998, the
Company converted all of its FEI Class B preferred
stock into common stock and recorded the investment at
the reported market value of $.30 per share. The
Company did not record or assign a value to the
convertible warrants. At March 31, 1999 FEI common
stock had a market value of $1.20 per share. The
Company did not recognize an unrealized gain of its
investment in FEI as the shares were restricted and
salability was questionable. The Company will
recognize gains or losses based upon future actual
transactions involving FEI common shares or warrants.
6. Earnings per share
During the year ended June 30,1998, the Company adopted SFAS
No. 128, "Earnings Per Share". Basic earnings per share
represents net earnings divided by the weighted-average
number of common shares outstanding for the period. Diluted
earnings per share represents net earnings divided by the
weighted-average number of shares outstanding, inclusive of
the dilutive impact of common stock equivalents. During the
three-month and nine-month periods ended March 31, 1999, the
difference between the weighted average number of shares
used in the basic computation compared to that used in the
diluted computation was due to the dilutive impact of
options to purchase common stock and the conversion of Class
B and C preferred stock. The adoption of SFAS No. 128 did
not result in a change in previously presented EPS for the
three and nine months ended March 31, 1998.
The following table reconciles the basic to diluted earnings
per share calculation:
1999 1998
3 ME 9 ME 3 ME 9 ME
Income available to
common stockholders -basic $ 314,544 $ 97,344 $ 325,374 $ 184,752
Less dividends on preferred
stock (8,728) (7,494)
Income available to common
stockholders - diluted $ 305,816 $ 89,850 $ 325,374 $ 184,752
Weighted average shares - basic 1,545,344 1,521,985 1,499,891 1,446,448
Options 6,667 39,099
Convertible Class B
preferred stock 30,850 30,850
Convertible Class C
preferred stock 405.977 405,977
Weighted average shares -
diluted 1,988,838 1,997,911 1,499,891 1,446,448
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in this Management's Discussion and Analysis
of Financial Condition and Results of Operations 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.
Overview
Global Casinos, Inc. and its wholly-owned subsidiaries operate in
the 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.
At March 31, 1999, the Company's consolidated financial
statements consisted mainly of the following: the corporate
office in Colorado Springs, Colorado; The Bull Durham Saloon &
Casino in Black Hawk, Colorado; the Pelican Casino on the island
of St. Maarten, Netherlands Antilles; and Alaska Bingo Supply
("ABS") in Anchorage, Alaska.
The operations of the Company are seasonal. St. Maarten
experiences a higher concentration of tourists from December
through April. The Pelican Casino's busy season counters the
slow seasons of the Company's domestic operations. The Bull
Durham experiences a significant increase in tourists from May
through September. ABS's operations are strongly influenced by
the amount of daylight and snow received. Consequently, its
operations are the strongest from September through April when
people do not tend to be outdoors.
Bull Durham Saloon and Casino
The Bull Durham is located approximately one hour from Denver,
Colorado in the town of Black Hawk. In November, the casino
completed its expansion project that increased the gaming space
approximately 2,100 square feet. The casino now operates with
144 slot machines and three tables, and plans to open a fourth
table in summer 1999. The Bull Durham employs an average of 56
full-time employees.
Pelican Casino
The Pelican Casino is located on the Dutch side of St. Maarten.
Casino operations are prohibited on the French side of the
island. The Pelican's customer base consists mainly of American
and European tourists. The casino is located in one of the
largest time-share complexes on the island, the Pelican Resort,
which has over 700 rooms. The casino occupies 7,000 square feet
and features 130 slot machines, eight black jack tables, three
Caribbean Stud tables, two roulette wheels, one Let-it-Ride
table, and one craps table. The Pelican employs an average of 66
full-time employees.
Alaska Bingo Supply
ABS is primarily engaged in the distribution of a full line of
bingo related products. ABS products are sold in Alaska to non-
profit organizations and municipalities that use the products for
fund-raising purposes. 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 also receives rent income from the leasing of
space to two bingo hall operators. ABS employs seven full-time
employees.
Results of Operations - Nine Months Ended March 31, 1999 Compared
to the Nine months Ended March 31, 1998
The Company earned net income of $293,327 for the nine months
ended March 31, 1999, which was an increase of $108,575 compared
to the same period in 1998 of $184,752. Net income available to
common stockholders was $97,342 for the nine months ended March
31, 1999 compared to $184,752 for the period in 1998. The
$87,410 decrease in income was due to gains from debt
restructuring offset by dividends paid on Class B preferred
stock.
The results of operations for the nine months ended March 31,
1999 were comprised of Bull Durham, Pelican Casino, Alaska Bingo
Supply, and Destination Marketing (through September 30, 1998).
The period in 1998 was comprised of Bull Durham, Pelican Casino,
eight months of Alaska Bingo Supply operations, Casino Las Vegas,
and Casino Masquerade.
During the second quarter of 1999, the Company sold its
investments in BPJ Holdings ("BPJ") and Destination Marketing.
Destination Marketing was not a material subsidiary of the
Company. The Company, through BPJ, had operated Casino
Masquerade through February 1998, at which time the hotel in
which it was located was closed for major repairs and
renovations. Due to protracted delays in completing the
renovations and other adverse business circumstances, the Company
was able to negotiate an early termination of the remaining term
of the casino lease. In consideration, the Company received a
cash payment of $400,000 and the issuance of hotel trade credits
having a face value of $600,000. At March 31, the hotel credits
are recorded at their estimated present value of $485,572.
Effective December 31, 1998, the Company agreed to sell all of
the outstanding shares of BPJ to an unaffiliated third party. The
Company transferred its interest in Casino Las Vegas to its
minority interest partner in April 1998.
Revenues
The Company's revenues are generated from casino operations,
sales of bingo products, and miscellaneous income that is
comprised of food and beverage sales at the casinos and rental of
bingo halls. Revenues for the nine months ended March 31, 1999
were $7,113,032 compared to $9,180,129 for the 1998 period, a
decrease of $2,067,097 or 23%. The decrease is due to the 1999
period not containing any revenue from Casino Masquerade and
Casino Las Vegas. Revenues from these two sources for the nine
months ended March 31, 1998 were $3,138,292.
Bull Durham's revenues increased $242,282 to $2,044,644 for the
nine months ended March 31, 1999 compared to $1,802,362 for the
period in 1998. The increase is largely due to the expansion
that opened November 1998. The Pelican Casino's revenues
decreased $16,334 to $2,013,956 for the nine months ended March
31, 1999 compared to $2,030,289 for the same period in the prior
year.
Alaska Bingo Supply's revenues increased $506,502 to $2,696,685
for the nine months ended March 31, 1999 compared to $2,190,183
for the eight months ended March 31, 1998. Besides including one
more month of operations, Alaska Bingo's sales were 11% higher
for the period in 1999 compared to the same period in 1998.
Expenses
Cost of sales increased $133,065 to $1,451,141 for the nine
months ended March 31, 1999 compared to $1,318,076 for the period
in 1998. The increase is due to the period in 1999 including an
additional month of Alaska Bingo operations. Alaska Bingo's
gross profit is the same for both the nine months ended March 31,
1999 and 1998 at approximately 56%.
Operating, general, and administrative expenses decreased
$1,730,377 to $4,802,238 for the nine months ended March 31, 1999
compared to $6,532,615 for the period in 1998. The decrease is
primarily due to Casino Masquerade and Casino Las Vegas being
operational during the nine months ended March 31, 1998. Expenses
for those two properties totaled $2,512,490 for the nine months
ended March 31, 1998.
Depreciation and amortization costs decreased $258,706 to
$586,610 for the nine months ended March 31, 1999 compared to
$845,316 for 1998. The decrease is due predominantly once again
to Casino Masquerade and Casino Las Vegas being fully operational
during the nine months ended March 31, 1998. Bull Durham's
depreciation increased 22% due to depreciation of fixed assets
acquired through its expansion.
Other income net of expenses decreased $225,403 to $(246,567) for
the nine months ended March 31, 1999 compared to $(471,970) in
1998. Interest expense decreased approximately $173,311 due
primarily to the conversion of the promissory note issued to the
seller of ABS to Series B preferred stock in March 1998. In
addition, the Company recognized $53,075 in unrealized gains on
its marketable trading securities.
Extraordinary items decreased $119,608 to $77,601 for the nine
months ended March 31, 1999 compared to $197,209 in 1998.
Extraordinary items relate to gains from debt restructuring and
extinguishment.
Management knows of no trends or uncertainties that will have, or
are reasonably likely to have, a material impact on the income
and expenses of the Company.
Liquidity and Capital Resources - March 31, 1999 compared to
June 30, 1998
The Company's primary source of cash is internally generated
through operations. Historically, cash generated from operations
has not been sufficient to satisfy working capital requirements
and capital expenditures. Consequently, the Company has depended
on funding through debt and equity financing to address these
shortfalls.
While the Company continues to face a shortage of working
capital, the deficiency decreased by $619,676 to $(2,033,274) at
March 31, 1999 from $(2,652,950) at June 30, 1998. Current assets
increased to $2,243,124 at March 31, 1999 from $1,898,478 at June
30, 1998, an increase of $344,646 or 18%. Current liabilities
decreased to $4,276,398 at March 31, 1999 from $4,551,428 at June
30, 1998, a decrease of $275,030 or 6%. The decrease in the
working capital deficit was due mainly to conversions of debt to
equity and management's continued efforts to reduce operating
costs. Increases in accounts receivable and purchases of
marketable securities also reflected positively on reducing the
working capital deficit.
Effective December 1998, the Company issued a new series of Class
C preferred stock. The stock has a par value of $.01, is voting,
and is convertible into common stock at a rate of $1.20. Holders
of Class C preferred stock are entitled to receive dividends at
the annual rate of 7% based on the stated value per share. The
dividends are cumulative, with any outstanding unpaid dividends
bearing interest at an annual rate of 10%. Principal of $487,220
and accrued interest of $97,385 were converted to 487,172 shares
of Class C preferred stock. Included in this transaction were
principal and interest of $299,720 and $64,943, respectively, to
related parties which were converted into 303,886 shares of Class
C preferred stock.
During the nine months ended March 31, 1999, certain debt
restructurings resulted in gains reported as extraordinary items.
In December 1998, $100,000 of principal and $16,722 in accrued
interest was converted into 36,669 shares of common stock, at a
gain of $37,549. Principal of $150,000 was converted into 15,000
shares of Class B preferred stock. A creditor accepted payment
of $15,000 for $43,552 in principal and accrued interest,
resulting in a $28,552 gain. The holder of $27,500 of mandatory
redeemable preferred stock accepted payment of $16,000, resulting
in a $11,500 gain. The Company will continue to work toward
renegotiating its current debts to extend their maturities or
obtain reduced payments.
In conjunction with the dissolution of Casino Masquerade, the
Company received $400,000 in cash and hotel credits with a face
value of $600,000 at the renovated Radisson Aruba Caribbean
Hotel. The Company used the cash proceeds to acquire marketable
trading securities and make payments toward various accounts
payable and debt. The hotel credits, with an estimated present
value of $485,572 at March 31, 1999, can be used for a six-year
period commencing January 1, 2000. The Company intends to use
the hotel credits for marketing purposes and as consideration for
debt payments.
Net cash provided by operating activities decreased $166,277 to
$460,400 for the nine months ended March 31, 1999 compared to
$626,677 for the same period in 1998. The decrease reflects
management's' continuing efforts to reduce overhead and pay
liabilities more currently.
Net cash used in investing activities decreased $624,095 to
$132,442 during the nine months March 31, 1999 compared to
$756,537 for the same period in 1998. The main reason for the
decrease is that the Company used $383,090, net of cash acquired,
for the purchase of Alaska Bingo Supply in fiscal year 1998
versus receiving $400,000 in fiscal year 1999 as part of the
Casino Masquerade lease settlement. The Company purchased
$125,284 more in fixed assets during the nine months ended March
31, 1999 compared to the period in 1998, primarily for the
expansion of Bull Durham.
Potential development - Salinas, Ecuador
The Company has reached a preliminary agreement with the
management of the Hotel Calypsso in Salinas, Ecuador to
lease approximately 3,500 square feet within the hotel to
operate a casino. Salinas is a beach resort city located
approximately two hours from Guayaquil, the largest city in
Ecuador. The casino's customers will be primarily
Ecuadorian and South American tourists with most activity
occurring on weekends and from November through May. The
casino's operations, which will not be significant to the
Company's consolidated financial statements, will consist
mainly of slot machines and some table games. As of March
31, 1999, the Company had invested approximately $121,000
toward the development of the casino. The investment is
being classified as a related party accounts receivable
until such time as the agreement is finalized.
During the nine months ended March 31, 1999, the Company
purchased $164,711 more in marketable securities compared to
the period in 1998The securities are held for trade and are
valued at their current market value. Included in
marketable securities at March 31, 1999 are 300,000 shares
of First Entertainment (FEI) common stock with a recorded
value of $.30 per share. In May 1997, the Company divested
itself of its investment in Global Internet after it became
aware that Internet gaming could impair its Colorado state
gaming license. The Company sold a convertible promissory
note, advances, and interest receivable with a recorded
value 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. In addition, it sold
1,500,000 Global Internet shares in exchange for 1,500,000
FEI warrants convertible into 1,500,000 shares of FEI common
stock at $1.00 per share for a period of five years.
As FEI was thinly capitalized and did not appear at the time
to have the resources available to continue development of
Global Internet, the Company fully expensed its investment
in FEI. In December 1998, the Company converted all of its
FEI Class B preferred stock into common stock and recorded
the investment at the reported market value of $.30 per
share. The Company did not record or assign a value to the
convertible warrants. At March 31, 1999 FEI common stock
had a market value of $1.20 per share. The Company did not
recognize an unrealized gain of its investment in FEI as the
shares were restricted and salability was questionable. The
Company will recognize gains or losses based upon future
actual transactions involving FEI common shares or warrants.
The Company used $379,370 in cash for financing activities during
the nine months ended March 31, 1999 compared to financing
activities providing $104,202 during the same period in 1998.
During 1999, $535,463 was used to pay dividends on and redeem
shares of Series B preferred stock. Proceeds in excess of
payments of long term debt and notes payable was $158,593 for the
nine months ended March 31, 1999 compared to payments in excess
of proceeds of $65,798 for the same period in the prior year, an
increase of $224,421.
As of March 31, 1999 none the Company's subsidiaries have
commercial bank credit facilities. Management is currently
negotiating with several financial institutions to obtain
revolving lines of credit for the operating subsidiaries to use
for working capital during slow seasons.
The Company continues 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.
Year 2000 Issue
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None, except as previously disclosed.
Item 2(a). Changes in Securities
None, except as previously disclosed.
Item 3. Defaults Upon Senior Securities
None, except as previously disclosed.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
As previously disclosed, the Company received
notification from the Nasdaq Stock Market of its
possible delisting from Nasdaq due to several
factors, including the Company's history of
operating losses and its failure to satisfy Nasdaq's
minimum net tangible asset requirement. The Company
has taken steps to cure its net tangible asset
deficiency and intends to adopt further measures in
an effort to maintain its Nasdaq listing.
Item 6(a). Exhibits
None, except as previously disclosed.
Item 6(b). Reports on Form 8-K
The following reports on Form 8-K were filed during
the third quarter ended March 31, 1999:
Date Item
January 4,1999 Resignation of Auditors
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Quarterly Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL CASINOS, INC.
Date: May 21, 1999 By:/s/Stephen G. Calandrella
Stephen G. Calandrella, President
Date: May 21, 1999 By:/s/Barbara C. Chacon
Barbara C. Chacon, Chief Financial Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 671,481
<SECURITIES> 273,387
<RECEIVABLES> 546,725
<ALLOWANCES> 64,410
<INVENTORY> 297,719
<CURRENT-ASSETS> 2,243,124
<PP&E> 6,930,578
<DEPRECIATION> 1,686,953
<TOTAL-ASSETS> 11,819,686
<CURRENT-LIABILITIES> 4,276,398
<BONDS> 0
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200,957
<COMMON> 77,318
<OTHER-SE> 13,037,561
<TOTAL-LIABILITY-AND-EQUITY> 11,819,686
<SALES> 7,113,032
<TOTAL-REVENUES> 7,113,032
<CGS> 1,451,141
<TOTAL-COSTS> 6,650,739
<OTHER-EXPENSES> 246,567
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<INTEREST-EXPENSE> 331,675
<INCOME-PRETAX> 215,726
<INCOME-TAX> 0
<INCOME-CONTINUING> 215,726
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