<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 1996
SODAK GAMING, INC.
(Exact name of registrant as specified in its charter)
SOUTH DAKOTA 0-21754 46-0407053
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5301 S. Highway 16
Rapid City, South Dakota 57701
(Address of principal executive offices)
(605) 341-5400
(Registrant's telephone number, including area code)
<PAGE>
INFORMATION TO BE INCLUDED IN THIS REPORT
Item 2. Acquisition or Disposition of Assets.
On July 1, 1996, pursuant to a Stock Purchase Agreement by and between the
Registrant and John Parker, John Nix and Gamblers Supply Management Company
(GSMC), the Registrant acquired all of the outstanding shares of GSMC, which
owns, leases and operates a casino gaming facility (the Miss Marquette) located
at Marquette, IA. The Miss Marquette gaming facility consists of a 226-foot
river boat, which is leased from the Registrant, gaming machines and equipment
and dockside facilities, which include a 24-room hotel, parking lots, marina,
restaurant, lounge, other support facilities and related furniture, fixtures and
equipment. The river boat has 698 slot machines and 30 table games. It is
anticipated that the Registrant will continue to operate the Miss Marquette
gaming facility in a manner similar to that in which it was operated under its
prior ownership.
Pursuant to the Stock Purchase Agreement, all the outstanding shares of
Common Stock of GSMC were acquired for One Million Dollars ($1,000,000) which
amount was funded from the Registrant's Credit Facility. In addition to the
purchase price, the Registrant has guaranteed a GSMC note payable to John Parker
and John Nix (the Sellers) in the aggregate of Four Million Four Hundred
Thousand Dollars ($4,400,000), which is payable in 36 equal monthly payments
including interest at 8% beginning August 1, 1996. The Registrant continues to
hold notes receivable relating to prior loans from the Registrant to GSMC to
finance the dockside facility and gaming equipment, and also has lease payments
receivable and accrued interest receivable from GSMC totaling $22,581,768 as of
June 30, 1996.
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired. The audited financial
statements of Gamblers Supply Management Company for the years
ended December 31, 1995 and January 1, 1995, included as Exhibit
99(e) to the Report, are incorporated herein by reference.
(b) Pro Forma Combined Financial Information.
1. Unaudited pro forma combined balance sheets of the
Registrant and Gamblers Supply Management Company as of
June 30, 1996;
2. Unaudited pro forma combined statements of earnings of the
Registrant and Gamblers Supply Management Company for the
12 months ended December 31, 1995;
3. Unaudited pro forma combined statements of earnings of the
Registrant and Gamblers Supply Management Company for the
six months ended June 30, 1996.
SODAK GAMING, INC
PRO FORMA COMBINED BALANCE SHEETS
JUNE 30, 1996
UNAUDITED
<TABLE>
<CAPTION>
Gamblers
Supply
Sodak Management Historical Pro Forma Adjusted
Gaming, Inc. Company Total Adjustments Total
------------ ------- ----- ----------- -----
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,837,366 $ 1,237,572 $ 5,074,938 $(1,000,000) (3) $ 4,074,938
Receivables:
Trade accounts, net of allowance for doubtful accounts 23,437,468 61,988 23,499,456 23,499,456
Short-term notes receivable 628,000 - 628,000 628,000
Notes receivable, current maturities 25,877,680 - 25,877,680 25,877,680
Accrued interest 447,528 - 447,528 447,528
Inventories:
Gaming machines 11,598,177 - 11,598,177 11,598,177
Repair parts and other gaming accessories 5,108,536 - 5,108,536 5,108,536
Prepaid expenses and other current assets 1,020,681 501,469 1,522,150 1,522,150
Deferred income taxes 669,000 - 669,000 669,000
-------------------------------------------------- -----------
Total current assets 72,624,436 1,801,029 74,425,465 (1,000,000) 73,425,465
-------------------------------------------------- -----------
Property and equipment:
Land and improvements 638,361 810,341 1,448,702 (150,741) (2) 1,297,961
Buildings and improvements 5,684,121 11,651,508 17,335,629 (14,508) (2) 17,321,121
Excursion gaming vessel - 14,463,061 14,463,061 (537,397) (1) 13,925,664
Gaming operations equipment 12,587,916 9,807,785 22,395,701 (849,789) (2) 21,545,912
Office furniture and equipment 2,198,340 - 2,198,340 2,198,340
Transportation equipment 1,897,045 - 1,897,045 1,897,045
Shop equipment 481,196 - 481,196 481,196
-------------------------------------------------- -----------
23,486,979 36,732,695 60,219,674 (1,552,435) 58,667,239
Less accumulated depreciation 2,007,205 4,090,999 6,098,204 (4,090,999) (1)(2) 2,007,205
-------------------------------------------------- -----------
Total property and equipment, net 21,479,774 32,641,696 54,121,470 2,538,564 56,660,034
-------------------------------------------------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other assets:
<S> <C> <C> <C> <C> <C> <C>
Notes receivable, net of current maturities 25,768,784 - 25,768,784 25,768,784
Net investment in direct financing-type lease 13,644,083 - 13,644,083 (13,644,083) (1) -
Amounts due from riverboat lessee 22,581,768 - 22,581,768 (22,581,768) (5) -
Excess of purchase price over fair value of
asset acquired - - 8,537,939 (1)(2)(3)(4) 8,537,939
Real estate held for resale 1,140,435 - 1,140,435 1,140,435
Other assets 3,371,763 168,500 3,540,263 (287,020) (1)(3)(6) 3,253,243
------------------------------------------------------ ------------
Total other assets 66,506,833 168,500 66,675,333 (27,974,932) 38,700,401
------------------------------------------------------ ------------
Total assets $160,611,043 $34,611,225 $195,222,268 $(26,436,368) $168,785,900
====================================================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,925,640 $ 368,437 $ 30,294,077 $ 30,294,077
Current maturities of long-term debt 59,013 1,553,009 1,612,022 1,612,022
Income taxes payable 1,396,851 - 1,396,851 1,396,851
Accrued liabilities 1,451,250 1,917,825 3,369,075 3,369,075
------------------------------------------------------ ------------
Total current liabilities 32,832,754 3,839,271 36,672,025 36,672,025
------------------------------------------------------ ------------
Long-term debt, net of current maturities 25,514,329 36,349,968 61,864,297 (32,014,382) (1)(5) 29,849,915
------------------------------------------------------ ------------
Deferred income taxes 1,151,000 - 1,151,000 1,151,000
------------------------------------------------------ ------------
Shareholders' equity:
Common stock 11,367 10,000 21,367 (10,000) (3)(6) 11,367
Additional paid-in capital 63,787,291 - 63,787,291 63,787,291
Retained earnings 37,314,302 (5,588,014) 31,726,288 5,588,014 (4) 37,314,302
------------------------------------------------------ ------------
Total shareholders' equity 101,112,960 (5,578,014) 95,534,946 5,578,014 101,112,960
------------------------------------------------------ ------------
Total liabilities and shareholders' equity $160,611,043 $34,611,225 $195,222,268 $(26,436,368) $168,785,900
====================================================== ============
</TABLE>
Notes to unaudited pro forma combined balance sheets
1) To reflect the elimination of the excursion vessel lease recorded as a direct
financing-type lease of Sodak and a capital lease of GSMC.
2) To reflect allocation of purchase price based upon fair market value and to
reverse prior accumulated depreciation.
3) To reflect Sodak's equity investment resulting from the purchase of the stock
of GSMC.
4) To reflect goodwill created as a result of the excess of purchase price over
fair market value.
5) To reflect the elimination of amounts due from GSMC to Sodak.
6) To reflect the elimination of Sodak's equity investment in GSMC.
<PAGE>
SODAK GAMING, INC.
PRO FORMA COMBINED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
Gamblers
Supply
Sodak Management Historical ProForma Adjusted
Gaming, Inc. Company Total Adjustments Total
------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $73,172,664 - $ 73,172,664 $ 73,172,664
Gaming operations 10,524,435 36,523,126 47,047,561 (6,711,807)(1) 40,335,754
Wide area progressive systems 4,097,323 - 4,097,323 4,097,323
Financing income on notes receivable
and other financing arrangements 5,378,422 - 5,378,422 (1,302,012)(1) 4,076,410
Other 120,910 - 120,910 120,910
---------------------------------------------------------------- ------------
Total revenues 93,293,754 36,523,126 129,816,880 (8,013,819) 121,803,061
---------------------------------------------------------------- ------------
Costs and expenses:
Cost of product sales 55,665,392 - 55,665,392 55,665,392
Gaming operations 2,192,250 31,594,654 33,786,904 (224,444)(1)(2) 33,562,460
Selling, general
and administrative 14,531,355 - 14,531,355 14,531,355
Interest and financing
costs 724,814 6,314,968 7,039,782 (6,274,231)(1) 765,551
---------------------------------------------------------------- ------------
Total costs and expenses 73,113,811 37,909,622 111,023,433 (6,498,675) 104,524,758
---------------------------------------------------------------- ------------
Income (loss) from operations 20,179,943 (1,386,496) 18,793,447 (1,515,144) 17,278,303
Other income 95,608 - 95,608 95,608
---------------------------------------------------------------- ------------
Earnings (loss) before income
taxes 20,275,551 (1,386,496) 18,889,055 (1,515,144) 17,373,911
Provision for income taxes 7,382,210 - 7,382,210 (1,055,000)(1)(2) 6,327,210
---------------------------------------------------------------- ------------
Net earnings (loss) $12,893,341 $(1,386,496) $ 11,506,845 $(460,144) $ 11,046,701
================================================================ ============
Earnings per common and
common equivalent share $ 1.13 $ 0.97
=========== ============
Weighted average number of common
and common equivalent shares
outstanding 11,386,159 11,386,159
=========== ============
</TABLE>
Notes to unaudited pro forma combined statements of earnings for the year
ended December 31, 1995
1) To reflect the elimination of the income recorded by Sodak under its direct
financing-type lease, the expense recorded by GSMC under its capital lease,
interest income recognized by Sodak on loans to GSMC and the resulting
income tax benefit.
2) To reflect amortization of goodwill over 15 years and the associated income
tax benefit.
<PAGE>
SODAK GAMING, INC.
PRO FORMA COMBINED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996
UNAUDITED
<TABLE>
<CAPTION>
Gamblers
Supply
Sodak Management Historical Pro Forma Adjusted
Gaming, Inc. Company Total Adjustments Total
------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 40,578,248 - $ 40,578,248 $ 40,578,248
Gaming operations 9,239,039 15,548,259 24,787,298 (3,278,311) (1) 21,508,987
Wide area progressive systems 3,613,110 - 3,613,110 3,613,110
Financing income on notes receivable
and other financing arrangements 2,902,865 - 2,902,865 (627,056) (1) 2,275,809
Other 15,047 - 15,047 15,047
----------------------------------------------------------------- -------------
Total revenues 56,348,309 15,548,259 71,896,568 (3,905,367) 67,991,201
----------------------------------------------------------------- -------------
Costs and expenses:
Cost of product sales 31,293,408 - 31,293,408 31,293,408
Gaming operations 4,481,555 13,692,109 18,173,664 (112,222) (1)(2) 18,061,442
Selling, general and administrative 8,931,024 - 8,931,024 8,931,024
Interest and financing costs 967,227 2,470,647 3,437,874 (2,470,647) (1) 967,227
----------------------------------------------------------------- -------------
Total costs and expenses 45,673,214 16,162,756 61,835,970 (2,582,869) 59,253,101
----------------------------------------------------------------- -------------
Income (loss) from operations 10,675,095 (614,497) 10,060,598 (1,322,498) 8,738,100
Other income 15,761 - 15,761 15,761
----------------------------------------------------------------- -------------
Earnings (loss) before income
taxes 10,690,856 (614,497) 10,076,359 (1,322,498) 8,753,861
Provision for income taxes 3,911,804 - 3,911,804 (710,000) (1)(2) 3,201,804
----------------------------------------------------------------- -------------
Net earnings (loss) $ 6,779,052 $ (614,497) $ 6,164,555 $ (612,498) $ 5,552,057
================================================================= =============
Earnings per common and common
equivalent share $ 0.59 $ 0.49
============= =============
Weighted average number of common and
common equivalent shares outstanding 11,438,981 11,438,981
============= =============
</TABLE>
Notes to unaudited pro forma combined statements of earnings for the six months
ended June 30, 1996
1) To reflect the elimination of the income recorded by Sodak under its direct
financing-type lease, the expense recorded by GSMC under its capital lease,
interest income recognized by Sodak on loans to GSMC and the resulting income
tax benefit.
2) To reflect amortization of goodwill over 15 years and the associated income
tax benefit.
<PAGE>
(c) The following documents were filed as Exhibits to Form 8-K dated
July 15, 1996:
2 Stock Purchase Agreement, dated as of July 1, 1996, by and among
John Parker, John Nix and Gamblers Supply Management Company.
99(a) Management Agreement, dated as of June 10, 1994, by and between
Gamblers Supply Management Company and Marquette Gaming Corporation.
99(b) Dock Site Agreement, dated as of June 10, 1994, by and between the
City of Marquette, Iowa and Gamblers Supply Management Company.
99(c) Non-Negotiable Promissory Note dated July 1, 1996, between Gamblers
Supply Management Company and John E. Nix guaranteed by Sodak Gaming,
Inc.
99(d) Non-Negotiable Promissory Note dated July 1, 1996, between Gamblers
Supply Management Company and John T. Parker guaranteed by Sodak
Gaming, Inc.
The following documents are filed as an Exhibit to this Report:
23 Consent of Independent Public Accountants
99(e) Audited Financial Statements of Gamblers Supply Management Company
for the years ended December 31, 1995 and January 1, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 13, 1996 SODAK GAMING, INC.
By
\s\ David R. Johnson
------------------------
Chief Financial Officer
<PAGE>
Index of Exhibits
Exhibit No.
--------------
2 Stock Purchase Agreement, dated as of July 1, 1996, by and
among John Parker, John Nix and Gamblers Supply Management
Company.
23 Consent of Independent Public Accountants
99 (a) Management Agreement, dated as of June 10, 1994, by and
between Gamblers Supply Management Company and Marquette
Gaming Corporation.
99 (b) Dock Site Agreement, dated as of June 10, 1994, by and
between the City of Marquette, Iowa and Gamblers Supply
Management Company.
99 (c) Non-Negotiable Promissory Note dated July 1, 1996, between
Gamblers Supply Management Company and John E. Nix guaranteed
by Sodak Gaming, Inc.
99 (d) Non-Negotiable Promissory Note dated July 1, 1996, between
Gamblers Supply Management Company and John T. Parker
guaranteed by Sodak Gaming, Inc.
99 (e) Audited financial statements of Gamblers Supply Management
Company for the years ended December 31, 1995 and January 1,
1995.
<PAGE>
[LETTERHEAD OF PIERCY, BOWLER, TAYLOR & KERN]
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Sodak Gaming, Inc.'s
Current Report on Form 8-K dated July 15, 1996, into the Registrant's previously
filed Form S-8 Registration Statements File Nos. 0-21754 our report dated March
15, 1996, on the financial statements of Gamblers Supply Management Company as
of December 31, 1995 and January 1, 1995 and for the years then ended.
/s/ Piercy, Bowler, Taylor & Kern
Las Vegas, Nevada
September 12, 1996
<PAGE>
Exhibit 99(e)
GAMBLERS SUPPLY
MANAGEMENT
COMPANY
FOR THE
YEARS ENDED
DECEMBER 31, 1995
AND
JANUARY 1, 1995
[LOGO OF PIERCY, BOWLER, TAYLOR & KERN]
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent auditors' report 1
Financial statements:
Balance sheets 2-3
Statements of loss and accumulated deficit 4
Statements of cash flows 5
Notes to financial statements 6-14
</TABLE>
<PAGE>
[LETTERHEAD OF PIERCY, BOWLER, TAYLOR & KERN]
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Gamblers Supply Management Company
Sioux Falls, South Dakota
We have audited the accompanying balance sheets of Gamblers Supply
Management Company (the Company) as of December 31, 1995 and January 1, 1995,
and the related statements of loss and accumulated deficit and cash flows for
the years then ended. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 financial statements referred to above present
fairly, in all material respects, the financial position of Gamblers Supply
Management Company as of December 31, 1995 and January 1, 1995 and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The Company's financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in note 2, the Company is
in default of its agreements with SODAK Gaming, Inc. (SODAK) and, as a result,
the entire obligation to SODAK (approximately $27,250,000 as of December 31,
1995) has been classified as currently payable. This circumstance, current cash
flows, and the Company's brief operating history raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to this
matter are described in Note 6. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Piercy Bowler Taylor & Kern
March 15, 1996
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND JANUARY 1, 1995
ASSETS
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash $ 1,172,702 $ 1,141,546
Due from related parties 135,828 115,166
Preopening costs 917,861
Prepaid expenses 579,731 294,465
Other 183,982 113,194
----------- -----------
2,072,243 2,582,232
----------- -----------
Property and equipment:
Land, building and improvements 9,282,813 8,481,958
Barge and excursion gambling vessel 15,156,170 14,669,440
Furniture, fixtures and equipment 9,633,706 8,724,736
Leasehold improvements 2,327,236 2,157,593
----------- -----------
36,399,925 34,033,727
Less accumulated depreciation (2,715,277) (74,109)
----------- -----------
33,684,648 33,959,618
----------- -----------
Other assets 395,260 663,135
----------- -----------
$36,152,151 $37,204,985
=========== ===========
</TABLE>
(continued)
2
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1995 AND JANUARY 1, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIENCY
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Long-term debt in default, including capital lease obligations $ 27,249,976 $ 27,019,968
Current portion of long-term debt 346,013 262,669
Accounts payable 471,991 4,520,656
Accrued salaries, shareholders 600,000
Accrued interest 4,153,257 1,560,274
Other accrued expenses 1,704,547 1,004,089
------------ ------------
34,525,784 34,367,656
------------ ------------
Long-term debt, net of current portion:
Notes payable to shareholders 4,470,698 3,087,000
Other 1,340,476 1,258,512
------------ ------------
5,811,174 4,345,512
------------ ------------
40,336,958 38,713,168
------------ ------------
Shareholders' equity deficiency:
Common stock, $1 par value, 1,000,000 shares authorized;
10,000 shares issued and outstanding 10,000 10,000
Accumulated deficit ( 4,194,807) ( 1,518,183)
------------ ------------
( 4,184,807) ( 1,508,183)
------------ ------------
$ 36,152,151 $ 37,204,985
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Revenues:
Casino $32,864,326 $ 752,723
Food, beverage and other 4,319,696 104,879
Hotel 399,574
Management fees 450,000 600,000
------------ ------------
38,033,596 1,457,602
Less: promotional allowances ( 998,397)
------------ ------------
37,035,199 1,457,602
------------ ------------
Operating costs and expenses:
Casino 12,307,728 177,188
Food, beverage and other 3,993,450 87,970
Hotel 156,609
General and administrative 12,663,044 1,753,210
Interest 6,623,456 1,470,244
Depreciation 2,687,461 66,032
Amortization of preopening costs 920,095
------------ ------------
39,351,843 3,554,644
------------ ------------
Net loss ( 2,316,644) ( 2,097,042)
Retained earnings (accumulated deficit),
beginning of year ( 1,518,183) 578,859
Distribution of non-monetary assets to
shareholders in a spin-off transaction ( 359,980)
------------ ------------
Accumulated deficit, end of year ($ 4,194,807) ($ 1,518,183)
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,316,644) $(2,097,042)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,908,461 66,032
Changes in operating assets and liabilities:
Preopening costs 917,861 (917,861)
Prepaid expenses (285,266) (294,465)
Other current assets (91,450) (89,194)
Accounts payable (4,048,665) 1,190,049
Accrued salaries, shareholders 600,000
Accrued interest 2,592,983 1,560,274
Other accrued expenses 700,458 586,556
----------- -----------
Net cash provided by operating activities 977,738 4,349
----------- -----------
Cash flows from investing activities:
Advances to related party (115,166)
(Increase) decrease in deposits and other assets 46,875 (163,135)
Purchase of property and equipment (1,347,425) (8,350,482)
----------- -----------
Net cash used in investing activities (1,300,550) (8,628,783)
----------- -----------
Cash flows from financing activities:
Proceeds from shareholder loans 1,383,698 3,020,000
Proceeds of other long-term debt 7,500,000
Repayment of long-term debt, including capital lease
obligations (629,730) (671,900)
Debt issuance costs (400,000) (100,000)
----------- -----------
Net cash provided by financing activities 353,968 9,748,100
----------- -----------
Net increase in cash 31,156 1,123,666
Cash, beginning of year 1,141,546 17,880
----------- -----------
Cash, end of year $ 1,172,702 $ 1,141,546
=========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
1. Summary of significant accounting policies:
Nature of operations:
Prior to December 26, 1994, when Miss Marquette Riverboat Casino Resort (the
Division) commenced operations originating from Marquette, Iowa, Gamblers
Supply Management Company's (GSMC) principal source of revenue was from a
services agreement (the Services Agreement) with Gamblers Supply of Iowa,
Inc. (GSII), an affiliated company owned by the shareholders of GSMC. GSII
has a contract to manage a land-based casino in Tama, Iowa, for the Sac and
Fox Tribe of the Mississippi in Iowa (the Tribe). As of October 1995, the
service agreement is no longer with GSMC as a result of the distribution of
non-monetary assets. (See Note 3).
Use of estimates:
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
period. Actual results could differ from those estimates.
Preopening costs:
Preopening costs consists primarily of payroll and related costs associated
with preparing to operate the Riverboat. The Company's policy is to expense
these costs over the twelve months following commencement of operations.
Amortization of deferred debt issuance costs:
Deferred debt issuance costs are amortized over the life of the related debt
using the effective interest rate method.
Property and equipment:
Property and equipment is stated at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets.
Revenue and promotional allowances:
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
6
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
1. Summary of significant accounting policies (continued):
Revenue and promotional allowances (continued):
Gross revenues include the retail value of complimentary food, beverage
and hotel services provided gratuitously to gaming customers. The retail
value of these complimentary services is deducted as a promotional allowance
to arrive at net revenues. The cost of providing these services is charged
to rooms, food and beverage and general and administrative expenses.
Operating costs and expenses:
Certain operating expenses such as utilities, maintenance and depreciation
are not allocated to the operating departments and are included in general
and administrative expenses.
Federal income taxes:
Since inception, the Company has elected "S Corporation" status for federal
income tax purposes. As a result, no provision for federal income taxes has
been made in the accompanying financial statements since income (loss) is
generally passed directly through to the shareholders.
Accounting year:
The Company's accounting year ends on the first Sunday following December 30.
2. Agreements with SODAK Gaming, Inc. (SODAK):
In 1994, GSMC entered into a vessel charter agreement for the Division's
riverboat, a capitalized lease, with SODAK. The agreement provides for
minimum annual fees of the greater of $7,000,000 payable in equal monthly
installments or 50% of adjusted net profit of the Riverboat, as defined,
until $25,000,000 has been paid. Thereafter, for the remaining portion of
the initial eight-year term and subsequent seven-year and ten-year automatic
renewal options, annual fees are limited to 50% of adjusted net profit.
7
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
2. AGREEMENTS WITH SODAK GAMING, INC. (SODAK) (CONTINUED):
SODAK also has financed part (originally $4,500,000) of the development of
the Division's land-based facilities and operations. GSMC incurred
$500,000 of additional debt issuance costs in December 1994 to increase
that financing to its current level of $7,500,000, defer certain payments,
and reduce applicable interest rates. The financing agreements also
required GSMC to purchase its gaming devices from SODAK, which also
provided the financing for the equipment. The agreements are
collateralized by substantially all of the assets of GSMC, and personal
guarantees and certain assets of the shareholders and related entities.
The agreements provide that a default of any financing agreement with
SODAK constitutes a default in all other financing agreements with SODAK.
As of December 31, 1995, GSMC is delinquent in meeting the payment terms of
certain agreements approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
Charter agreement (including executory costs) $ 7,100,780
$7,500,000 loan 2,330,392
Equipment loans 1,951,277
-----------
Total payments required (including interest) 11,382,449
-----------
Amount paid 2,935,000
-----------
Amount of default (Note 4) $ 8,447,449
===========
</TABLE>
In the event that SODAK "declares" the foregoing in default, and it is not
cured within the specified grace period, the SODAK debt, the present value
of the required charter lease payments, and certain late charges not
accrued, less reletting proceeds, would become due (Notes 4 and 5), and
possible surrender of the vessel could occur. Upon termination, SODAK also
has the option to purchase all of the Company's assets and ancillary
rights relating to the Division's operation at its net book value (as
defined).
3. DISTRIBUTION OF NON-MONETARY ASSETS:
On October 9, 1995, GSMC distributed all of its South Dakota real and
personal property and related liabilities and the Service Agreement with
GSII to its shareholders in a non-pro rata spin-off transaction. For
financial reporting purposes, the amount of the nonreciprocal transfer was
based on the recorded amount of the assets and liabilities distributed.
For federal income tax reporting purposes, the transaction was accounted
for as a "divisive reorganization".
8
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
4. Notes payable and obligations under capital leases:
Long-term debt in default, including capital lease obligations:
As indicated in Note 2, GSMC is in default on its agreements with SODAK
and, accordingly, $13,657,186 of notes payable, other, and $13,592,790 of
capitalized lease obligations (see Note 5) have been classified as
currently payable, as a result of cross-default provisions.
Long term debt in default including capital lease obligations consist of the
following:
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
Various notes payable to SODAK, collateralized by
substantially all of the Company's assets and personally
guaranteed by the Company's shareholders, payable at
the greater monthly installments of approximately
$250,000, due March 1998, including interest at prime
or the excess of adjusted net profit of the Riverboat, as
defined, pursuant to the loan modification agreement
dated December 16, 1994 $ 7,500,000 $ 7,500,000
Notes payable to SODAK in monthly installments of
$195,128 and $14,343 including interest at prime
plus 2%, due February 1998, collateralized by
casino equipment 6,157,186 5,766,537
----------- -----------
13,657,186 13,266,537
Obligations to SODAK under capital leases (Note 5) 13,592,790 13,753,431
----------- -----------
$27,249,976 $27,019,968
=========== ===========
</TABLE>
(continued)
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
4. Notes payable and obligations under capital leases (continued):
Long-term debt:
In addition to 8% unsecured notes payable to shareholders totaling
$4,470,698 and $3,087,000 at December 31 and January 1, 1995,
respectively, which are due on demand after January 5, 1995,
long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, January 1,
1995 1995
------------ -----------
<S> <C> <C>
Note payable in monthly installments of $12,668
including interest at 9%, due January 2005, and
additional principal of $150,000 plus accrued
interest thereon due July 1995, secured by first
trust deed on the Company's 24-room motel $ 941,097 $1,150,000
Various other secured notes payable 597,796 200,428
---------- ----------
1,538,893 1,350,428
Obligations under capital leases (Note 5) 147,596 170,753
---------- ----------
1,686,489 1,521,181
Less current portion (346,013) (262,669)
---------- ----------
$1,340,476 $1,258,512
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SODAK Other
----------- ----------
<S> <C> <C>
Aggregate annual maturities of notes payable subsequent
to December 31, 1995, in the absence of default, would
have been:
1996 $ 4,626,663 $ 346,013
1997 5,108,385 189,171
1998 3,922,138 177,284
1999 106,052
2000 188,762
Thereafter 531,611
----------- ----------
$13,657,186 $1,538,893
=========== ==========
</TABLE>
10
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
5. LEASE COMMITMENTS:
The present value of capitalized lease obligations identified by property
type consists of the following:
Excursion gambling vessel (SODAK) $13,592,790
Office and laundry facilities 101,496*
Other equipment 46,100
-----------
$13,740,386
===========
-------------
*Leased from shareholders at $3,500 monthly through May 2019.
-------------
The annual future minimum lease payments required under capitalized lease
obligations are presented as if the SODAK obligation were not entirely
current as a result of the default, together with the Company's commitments
under operating leases (with initial terms in excess of one year) follow:
<TABLE>
<CAPTION>
Capital Operating
leases leases
----------- ----------
<S> <C> <C>
1996 $ 7,172,660 $ 201,112
1997 7,161,933 201,112
1998 7,074,742 196,639
1999 42,000 182,624
2000 42,000 180,000
Thereafter 773,500 3,348,750
----------- ----------
Total Minimum lease payments 22,266,835 $4,310,237
==========
Amount representing interest and
executory costs (8,526,449)
-----------
Present value of future minimum
lease payments $13,740,386
===========
</TABLE>
11
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
5. Lease commitments (continued):
Operating leases include riverfront land used by the Division for docking
facilities leased from the City of Marquette, Iowa (the City). The term of
the agreement is 25 years, and it requires GSMC to make payments as
follows:
. $180,000 per year in equal monthly payments due on the first of each
month
. Twenty-five cents ($.25) per embarking passenger for the first 36 months
(due monthly on the 15th day of the following month) then fifty cents
($.50) per passenger thereafter
. 2 1/2% of the net gaming win in excess of $20,000,000 for the first
three years, then 2 1/2% of the first $40,000,000, 5% of the next
$20,000,000 and 7.5% over $60,000,000 for each subsequent year of the
lease.
The Agreement required GSMC to construct, at its expense, improvements to
the docking facilities and available utilities. Upon approval by the City,
ownership of the improvements shall be transferred to the City and as a
result, the City will, in effect, reduce prospective fees (to be paid by
GSMC based on the Division's operations) by an annual amount not to exceed
10% of the total collected, until the total reduction equals $250,000.
Rent expense for all non-cancelable operating leases with remaining terms
in excess of one year for the year ended December 31, 1995 was $251,662.
6. Other commitments and contingencies:
Management's plans:
The Company's ability to continue as a going concern is largely dependent
upon its attaining and maintaining sufficient profitability and cash flow,
a continued relationship of cooperation with SODAK until more favorable
financing can be secured, or the availability of additional debt financing
or equity capital. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
12
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
6. Other commitments and contingents (continued):
Management's plans (continued):
The Company's post-balance-sheet cash flows are not yet sufficient to pay
its obligations to SODAK and cure the default. Accordingly, future defaults
are likely. Assuming the continued cooperation of SODAK, management
believes that alternative debt financing can be obtained sufficient to
satisfy its obligations under terms that can be serviced by the Company's
prospective cash flow. Management is currently negotiating with SODAK and
lenders to accomplish this goal and is exploring avenues for raising
additional equity capital. However, no assurance can be given regarding the
success of these efforts.
Self-insurance programs:
The Company provides health and major medical benefits for its employees.
It is self-insured for the coverage up to $25,000 per year per employee
with an aggregate stop-loss policy at approximately $1,000,000 per year.
The Company is funding the maximum required amount per month as required by
the third party administrator, which has totaled approximately $450,000
since April 1995 (inception). The Company is also partially self-insured
(up to $10,000 per incident) for work-related injuries to employees. The
estimated liability for self-insurance claims related to 1995 is included
in other accrued expenses.
Use tax assessment:
The Iowa Department of Revenue and Finance (the Department) is in the
process of performing a use tax audit of the Company and has indicated
intent to assess, absent convincing response by the Company. The amount of
the potential assessment is approximately $300,000 including interest and
penalties and could increase by approximately $35,000 for each month the
matter remains unresolved. If unsuccessful in its pre-assessment argument,
the Company intends to vigorously contest the matter. The Company and
counsel cannot predict the outcome or reasonably estimate the amount or
range of potential loss, if any, and the financial statements do not
include an accrual for any such loss.
Concentration:
Because it operates exclusively in Marquette, Iowa, the Company's operations
could be affected by adverse changes in economic conditions in the
surrounding area.
13
<PAGE>
GAMBLERS SUPPLY MANAGEMENT COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND JANUARY 1, 1995
6. Other commitments and contingencies (continued):
Agreement with Marquette Gaming Corporation:
As a condition precedent to acquiring the right to operate an excursion
gambling vessel in Iowa, GSMC entered into an arrangement with Marquette
Gaming Corporation, an Iowa non-profit corporation (MGC). MGC as the
"qualified sponsoring organization", appointed the Company to be the
exclusive manager. GSMC pays MGC twenty-five cents ($.25) per embarked
passenger, payable monthly on or before the 15th day of the following
month. Beginning with the fourth year of this agreement, there will be an
additional twenty-five cents ($.25) per embarking passenger for the
remainder of the 25-year term.
7. Financial instruments:
Significant financial instruments in the Company's balance sheet at
December 31, 1995, are limited to cash (carried at $1,172,702, which is
its fair value) and debt, consisting of notes payable to shareholder and
other long-term debt, including capital leases debt in default, (carried
at an aggregate of approximately $34,000,000). Management believes it is
impractical to estimate the fair value of the Company's debt because of
the unusual terms of these obligations and the difficulty encountered to
date in obtaining alternative financing.
In addition, the Company is not a party to any financial instruments with
"off-balance-sheet" risk of accounting loss except for its operating
leases (Note 5) and self-insurance programs (Note 6).
8. Supplemental cash flow information:
Interest paid:
Cash paid for interest, including on obligations under capital leases, was
$3,809,473 and $120,012 during 1995 and 1994.
Non-cash investing and financing activities:
Property and equipment acquisitions of $919,925 and $24,902,120 during 1995
and 1994, was financed with long-term debt, obligations under capital
leases, and other liabilities.
Deferred debt issuance costs of $400,000 were incurred in the year ended
January 1, paid in the year ended December 31, 1995.
Nonmonetary net assets of $359,980 were distributed to shareholders in a
spin-off transaction during 1995.
14
