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FORM 10-Q
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: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-75808
ARIZONA CHARLIE'S, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0199671
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 S. Decatur
Las Vegas, Nevada 89107
- ----------------- -----
(Address of principal (Zip Code)
executive offices)
(702) 258-5200
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year if
changed since last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of common stock January 31, 1997
- --------------------- --------------
No par value 1,000 shares
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<PAGE>
ARIZONA CHARLIE'S, INC.
(A wholly owned subsidiary of Becker Gaming, Inc.)
FORM 10-Q
INDEX
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ARIZONA CHARLIE'S, INC.
Balance Sheets as of December 31, 1996 and
June 30, 1996...................................................
Statements of Operation and Retained Earnings
(Deficit) for the Three-Month Periods
Ended December 31, 1996 and 1995 and for
the Six-Month Periods Ended December
31, 1996 and 1995...............................................
Statements of Cash Flows for the Six-Month
Periods Ended December 31, 1996 and 1995........................
Notes to Financial Statements........................................
SUNSET COIN, INC.
Balance Sheets as of December 31, 1996 and June
30, 1995........................................................
Statements of Income and Retained Earnings
for the Three-Month Periods Ended
December 31, 1996 and 1995 and for the Six-Month Periods
Ended December 31, 1996 and 1995................................
Statements of Cash Flows for the Six-Month
Periods Ended December 31, 1996 and 1995........................
Notes to Financial Statements........................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Arizona Charlie's, Inc...............................................
Sunset Coin, Inc.....................................................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................
Item 6. Exhibits and Reports on Form 8-K.............................
SIGNATURE............................................................
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<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc. )
BALANCE SHEETS
(Dollars In Thousands)
ASSETS
December 31, June 30,
1996 1996
-------- --------
(unaudited)
Current assets:
Cash and cash equivalents ................. $ 4,970 $ 4,591
Restricted cash, in escrow account ........ 10 10
Trade and other accounts receivable ....... 479 473
Receivable from related parties .......... 2,567 1,539
Inventories ............................... 625 575
Prepaid expenses .......................... 704 1,118
-------- --------
Total current assets .................... 9,355 8,306
-------- --------
Property and equipment:
Building and improvements ................. 37,488 37,488
Furniture and equipment ................... 22,774 22,575
Land improvements ......................... 1,628 1,628
-------- --------
61,890 61,691
Less, accumulated depreciation ........... (17,659) (16,218)
-------- --------
44,231 45,473
Land ...................................... 208 208
-------- --------
Net property and equipment ............ 44,439 45,681
-------- --------
Other assets:
Receivable from related party, noncurrent.. 210 987
Deposits and other ........................ 452 460
Note receivable from related party......... 4,416 4,416
Financing costs, less accumulated
amortization of $1,643 at December 31,
1996 and $1,366 June 30, 1996 ............. 2,230 2,507
-------- --------
Total other assets ................... 7,308 8,370
-------- --------
Total assets .......................... $ 61,102 $ 62,357
======== ========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, June 30,
1996 1996
-------- --------
(unaudited)
Current liabilities:
Trade accounts payable .................... $ 1,175 $ 1,452
Accounts payable to related parties ....... 3 4
Accrued expenses .......................... 5,832 3,323
Management fees due Becker Gaming, Inc. ... 5,024 4,682
Notes payable ............................. -- 110
Notes payable to related party ............ 2,250 2,250
Current portion of obligations
under capital leases .................... 11 15
Long-term debt classified as current due
to default under covenants .............. 55,000 55,000
-------- --------
Total current liabilities ......... 69,295 66,836
Subordinated notes payable to prior
stockholders ............................... 5,000 5,000
Obligations under capital leases,
less current portion ....................... 19 22
-------- --------
Total liabilities ................. 74,314 71,858
-------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, no par value,
2,500 shares authorized, 1,000
shares issued and outstanding ............. 469 469
Retained earnings (deficit) ................ (13,681) (9,970)
-------- --------
Total stockholders' equity
(deficit) ......................... (13,212) (9,501)
-------- --------
Total liabilities and
stockholders' equity (deficit) .... $ 61,102 $ 62,357
======== ========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(Dollars In Thousands)
(Unaudited)
Three Months Ended December 31,
1996 1995
-------- --------
Revenues:
Gaming ....................................... $ 12,296 $ 13,642
Food and beverage ............................ 3,533 3,390
Hotel ........................................ 924 771
Gift shop .................................... 138 153
Management fee from affiliates ............... 691 725
Other ........................................ 392 215
-------- --------
Gross revenues ........................... 17,974 18,896
Less, promotional allowances ................... (2,238) (1,945)
-------- --------
Net revenues ............................. 15,736 16,951
-------- --------
Operating expenses:
Gaming ....................................... 3,232 4,100
Food and beverage ............................ 4,287 4,140
Hotel ........................................ 425 417
Gift shop .................................... 126 127
Advertising and promotion .................... 1,323 1,145
General and administrative ................... 4,297 4,876
Management fee - Becker Gaming, Inc. ......... 864 906
Rent expense paid to related party ........... 56 54
Depreciation and amortization ................ 861 893
-------- --------
Total operating expenses ................. 15,471 16,658
-------- --------
Operating income (loss)................... 265 293
-------- --------
Other income (expenses):
Gain (loss) on sale of assets ................. -- (14)
Interest income .............................. 69 75
Interest expense ............................. (1,810) (1,762)
Other, net ................................... 9 10
-------- --------
Total other expenses ..................... (1,732) (1,691)
-------- --------
Income (loss) before taxes ............... (1,467) (1,398)
Provision for income tax ....................... -- --
-------- --------
Net (loss) income ......................... ($ 1,467) ($ 1,398)
Retained earnings (deficit),
beginning of period .......................... (12,214) (7,246)
-------- --------
Retained earnings (deficit),
end of period ............................... ($13,681) ($ 8,644)
======== ========
<PAGE>
Six Months Ended December 31,
1996 1995
-------- --------
Revenues:
Gaming ....................................... $ 24,525 $ 26,533
Food and beverage ............................ 7,034 6,463
Hotel ........................................ 1,685 1,493
Gift shop .................................... 269 307
Management fee from affiliates ............... 1,367 725
Other ........................................ 650 515
-------- --------
Gross revenues .......................... 35,530 36,036
Less, promotional allowances .................. (4,433) (3,614)
-------- --------
Net revenues ............................. 31,097 32,422
-------- --------
Operating expenses:
Gaming ....................................... 6,558 7,638
Food and beverage ............................ 8,583 8,015
Hotel ........................................ 904 816
Gift shop .................................... 184 234
Advertising and promotion .................... 2,612 2,321
General and administrative ................... 8,984 9,674
Management fee - Becker Gaming, Inc. ......... 1,709 1,763
Rent expense paid to related party ........... 111 108
Depreciation and amortization ................ 1,719 1,779
-------- --------
Total operating expenses ................. 31,364 32,348
-------- --------
Operating income (loss)................... (267) 74
-------- --------
Other income (expenses):
Gain (loss) on sale of assets ................ -- (11)
Interest income .............................. 137 144
Interest expense ............................. (3,620) (3,475)
Other, net ................................... 39 35
-------- --------
Total other expenses ..................... (3,444) (3,307)
-------- --------
Income (loss) before taxes ............... (3,711) (3,233)
Provision for income tax ....................... -- --
-------- --------
Net (loss) income ........................ ($ 3,711) ($ 3,233)
Retained earnings (deficit),
beginning of period .......................... (9,970) (5,411)
-------- --------
Retained earnings (deficit),
end of period ................................ ($13,681) ($ 8,644)
======== ========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Six Months Ended December 31,
1996 1995
-------- --------
Cash flows from operating activities:
Net income (loss) .................................. ($ 3,711) ($ 3,233)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ...................... 1,719 1,779
Provision for losses on related
party receivables ................................. 134 2,152
(Gain) loss on sale of equipment ................... -- 11
(Increase) decrease in operating assets:
Receivables ........................................ (6) (2,728)
Inventories ........................................ (50) (8)
Prepaid expenses ................................... 414 406
Deposits and other ................................. (8) (13)
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts for
capital expenditures .............................. (277) 88
Accrued expenses ................................... 2,509 246
Management fees due to Becker Gaming, Inc. ......... 1,709 1,762
-------- --------
Total adjustments ............................... 6,160 3,695
-------- --------
Net cash provided by operating activities ...... 2,449 462
-------- --------
Cash flows from investing activities:
Capital expenditures, net of amounts in
accounts payable .................................. (199) (77)
Increase in receivable from Becker Gaming, Inc. .... (417) --
Increase in management fee receivable from Becker
Gaming, Inc. ....................................... (1,367) (725)
Payments from related party receivable.............. 30 --
Proceeds from assets sales ......................... -- 12
-------- --------
Net cash provided by (used in)
investing activities ......................... (1,953) (790)
-------- --------
Cash flows from financing activities:
Principal payments on notes payable ................ (110) (121)
Payments under capital lease obligations ........... (7) (3)
-------- --------
Net cash provided by (used in)
financing activities ......................... (117) (124)
-------- --------
Net increase in cash and cash equivalents ....... 379 (452)
Cash and cash equivalents, beginning of the period ..... 4,591 5,404
-------- --------
Cash and cash equivalents, end of the period ........... $ 4,970 $ 4,952
======== ========
Supplemental cash flow disclosures:
Interest paid, net of amount capitalized ........... $ 2,499 $ 3,558
======== ========
Income taxes paid .................................. -- --
======== ========
Capital lease obligations incurred ................. -- --
======== ========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
-------------
1) Basis of Presentation:
Arizona Charlie's, Inc. ("AC" or the "Company") is a wholly owned
subsidiary of Becker Gaming, Inc. ("BGI"). The accompanying financial statements
of AC have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments and normal recurring accruals considered necessary for a fair
presentation have been included. Operating results for the three and six-month
periods ended December 31, 1996 are not necessarily indicative of the results
that may be expected for the year ended June 30, 1997. The unaudited financial
statements should be read in conjunction with the financial statements and
footnotes included in AC's annual report on Form 10-K for the year ended June
30, 1996.
2) Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern:
AC has guaranteed the payment of principal of and interest on the 12% First
Mortgage Notes due November 15, 2000 (the "CQC" Notes") issued by Capitol Queen
& Casino, Inc. ("CQC"). An aggregate of $20,000,000 in principal amount and
$3,600,000 in past due interest are outstanding on the CQC Notes at December 31,
1996. CQC was formed to develop, own and operate the "Capitol Queen" riverboat
casino and related land-based facilities in Jefferson City, Missouri. On
September 28, 1994, CQC was notified that its application for a gaming license
was rejected by the Missouri Gaming Commission (the "Commission"). At the time
CQC was notified of the Commission's decision, construction of the riverboat
under contract with a shipbuilder was substantially completed. CQC had also
obtained the necessary permits for the land-based development portion of the
project and performed certain dredging and other site preparation work.
Immediately following the Commission's decision, Management temporarily
suspended further development of the Capitol Queen project, pending an appeal of
the decision and legal remedies potentially available to the Company.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Management ultimately
determined to abandon the project and is currently looking for alternative uses
for the riverboat, including opportunities to sell or lease it to another
operator.
<PAGE>
2) Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern, Continued:
CQC financed the Capitol Queen project through the issuance of $40,000,000
in principal amount of CQC Notes. As of January 1, 1995, the Indenture (the "CQC
Indenture") governing the CQC Notes was amended to (i) eliminate CQC's
obligation to construct and open the Capitol Queen and (ii) permit a two-step
purchase of the CQC Notes at 101% of principal plus accrued and unpaid interest
from a sale of assets. The repurchase of $20,000,000 principal amount of CQC
Notes (plus accrued and unpaid interest) was completed on January 17, 1995, with
unexpended funds from the project escrow account, and an aggregate of
$20,000,000 principal amount of the CQC Notes remain outstanding. However, the
dates by which CQC previously agreed with the holders of the CQC Notes to effect
the sale of its assets and repurchase the remaining CQC Notes have passed, and
CQC is thus in default of the amended covenants.
The remaining CQC Notes require annual interest payments of $2,400,000,
payable in equal installments semi-annually on May 15 and November 15. CQC was
not able to make its scheduled interest payments of $1,200,000 on each of
November 15, 1995, May 15, 1996 and November 15, 1996. AC does not have funds
available to advance on behalf of CQC at December 31, 1996. AC is restricted
from selling assets under the covenants governing its 12% First Mortgage Notes
due November 15, 2000 (the "AC Notes") and management believes that access to
additional capital from other sources is restricted as a result of the
above-described circumstances. AC does not have sufficient financial resources
to satisfy its guarantee obligation with respect to the CQC Notes. However, in
January 1997 Management has taken steps to increase profitably and generate
additional cash flow at AC, including down-sizing employee staffing levels and
associated payroll costs in certain departments. Other operating departments
have been combined to eliminate supervisory and management positions. Also, the
existing restaurants and food facilities are being analyzed to determine if the
current pricing structures are meeting the overall goals of attracting a
sufficient number of casino patrons as designed and entertainment events
including headliner concerts, lounge acts, and professional boxing matches are
being reevaluated to determine if these events attract the necessary casino
patrons desired. However, no assurance can be made regarding the future
performance of AC. Such performance may be affected or influenced by prevailing
economic conditions and financial, business and competitive factors, many which
are beyond AC's control.
As of December 31, 1996, AC is in default of certain debt covenants under
the Indenture (the "AC Indenture") governing the AC Notes. These covenant
violations include (i) a failure to meet a minimum fixed charge coverage ratio,
as defined in the AC Indenture, and (ii) advances by AC to BGI in excess of
amounts permitted under the AC Indenture.
<PAGE>
2) Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern, Continued:
Such advances remain outstanding at December 31, 1996. In addition,
beginning with the quarter ending December 31, 1995, AC has not met the minimum
tangible net worth requirement, set forth in the AC Indenture. Under the terms
of the AC Indenture, AC is required to offer to buy back $22,000,000 of the
outstanding AC Notes at December 31, 1996 due to the failure to meet this
covenant, and such amount shall increase by $5,500,000 each fiscal quarter so
long as AC is in default of the covenant. AC has not made such offer and does
not intend to do so while the discussions with the Bondholder Committee
described below are in process. As a result of these covenants defaults, the AC
Notes have been classified as currently payable in the accompanying financial
statements.
The AC Notes are not subject to mandatory redemption, except upon a change
of control, decline in tangible net worth, or certain assets sales, all as
defined in the Indenture. The Company has the option to redeem the AC Notes at a
premium of 106% beginning on November 15, 1997, declining to par value on
November 15, 1999.
In connection with its guarantee of the CQC Notes, the CQC Indenture
imposes certain restrictive covenants on the Company, including minimum cash
flow and net worth requirements and restrictions on additional borrowings and
distributions of earnings.
CQC continues to market its riverboat assets to prospective buyers and
management is continuing its discussions with an informal committee representing
the holders of the AC Notes and CQC notes (the "Bondholder Committee") regarding
a proposed restructuring plan. Based on current market conditions, management
does not expect that CQC will generate sufficient funds through the sale of its
assets to repurchase all of the outstanding CQC Notes. The proposed
restructuring plan therefore contemplates the issuance of additional AC Notes to
fulfill AC's guarantee obligation for remaining principal and accrued interest
of the CQC Notes after applying sale proceeds. However, no satisfactory offers
for the riverboat are currently available, and no agreement has been reached
with the Bondholder Committee regarding the proposed restructuring plan.
Accordingly, these matters raise substantial doubt about the ability of AC to
continue as a going concern. The final outcome of these matters is not presently
determinable and the December 31, 1996 financial statements of AC do not include
any adjustment that might result from the outcome of this uncertainty.
<PAGE>
2) Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern, Continued:
Management of AC has taken several steps to overcome the substantial doubt
as to its ability continue as a going concern including reducing expenses as
previously described, eliminating costs associated with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat and use the proceeds to retire indebtedness, pursuit
of new business development activities to strengthen BGI's position in the
gaming market, and continuing negotiations with an informal committee
representing the holders of the AC Notes and CQC Notes to reach a favorable
restructure of such Notes.
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<PAGE>
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
(Dollars In Thousands)
ASSETS
December 31, June 30,
1996 1996
------- -------
(Unaudited)
Current assets:
Cash ................................................... $ 1,326 $ 1,122
Current portion of notes receivable .................... 91 117
Note receivable from related party ..................... 2,250 2,250
Other receivables ...................................... 274 274
Prepaid expenses ....................................... 33 46
------- -------
Total current assets ............................... 3,974 3,809
------- -------
Property and equipment:
Building and leasehold improvements .................... 174 174
Furniture, fixtures and equipment ...................... 2,984 2,885
------- -------
3,158 3,059
Less, accumulated depreciation ......................... (1,478) (1,370)
------- -------
Net property and equipment ......................... 1,680 1,689
------- -------
Notes receivable, less current
portion ................................................ 175 194
Advances to related parties .............................. 188 111
Other assets, less accumulated
amortization of $31 at December 31, 1996,
and $24 at June 30 , 1996 .............................. 81 88
------- -------
Total assets ....................................... $ 6,098 $ 5,891
======= =======
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1996 1996
------ ------
(Unaudited)
Current liabilities:
Trade accounts payable ................................. $ 1 $ 44
Accrued expenses ....................................... 686 608
Current portion of long term debt ...................... 332 279
------ ------
Total current liabilities ......................... 1,019 931
Long-term liabilities:
Long-term debt, less current portion .................. 387 502
Subordinated notes payable to
former stockholders ................................. 3,000 3,000
------ ------
Total liabilities .................................. 4,406 4,433
------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 2,500
shares authorized, 400 shares
issued and outstanding ................................. 27 27
Retained earnings ........................................ 1,665 1,431
------ ------
Total stockholders' equity ......................... 1,692 1,458
------ ------
Total liabilities and stockholders'
equity ............................................. $6,098 $5,891
====== ======
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
SUNSET COIN, INC.
(A Wholly Owned Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF INCOME AND RETAINED EARNINGS
(Dollars in Thousands)
Three Months Ended December 31,
1996 1995
------- -------
Revenues:
Slot route:
From locations controlled
by related parties ........... $ 608 $ 576
Other ........................... 32 33
Slot service fees:
From related parties ............ 21 24
Other ........................... 8 8
------- -------
Total revenues ................ 669 641
Operating expenses:
Slot route and service ............. 341 307
General and administrative ......... 7 9
Management fee - Becker Gaming, Inc. 35 33
Depreciation and amortization ...... 72 76
------- -------
Total operating expenses ........ 455 425
------- -------
Operating income ....................... 214 216
------- -------
Other income (expense):
Interest income .................... 48 42
Interest expense ................... (94) (104)
Other income ....................... 25 13
------- -------
Total other income (expense) .... (21) (49)
------- -------
Net income before income tax ........... 193 167
Provision for income tax ............... (57) (57)
------- -------
Net income ............................. 136 110
Retained earnings,
beginning of period .................... 1,529 1,163
------- -------
Retained earnings, end of
period ................................. $ 1,665 $ 1,273
======= =======
<PAGE>
Six Months Ended December 31,
1996 1995
------- -------
Revenues:
Slot route:
From locations controlled
by related parties ........... $ 1,175 $ 1,143
Other ........................... 66 74
Slot service fees:
From related parties ............ 42 48
Other ........................... 16 16
------- -------
Total revenues ................ 1,299 1,281
Operating expenses:
Slot route and service ............. 688 614
General and administrative ......... 30 27
Management fee - Becker Gaming, Inc. 68 67
Depreciation and amortization ...... 142 149
------- -------
Total operating expenses ........ 928 857
------- -------
Operating income ....................... 371 424
------- -------
Other income (expense):
Interest income .................... 95 82
Interest expense ................... (185) (203)
Other income ....................... 49 35
------- -------
Total other income (expense) .... (41) (86)
------- -------
Net income before income tax .......... 330 338
Provision for income tax ............... (96) (115)
------- -------
Net income ............................. 234 223
Retained earnings,
beginning of period .................... 1,431 1,050
------- -------
Retained earnings,
end of period .......................... $ 1,665 $ 1,273
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
SUNSET COIN, INC.
(A Wholly Owned Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Six Months Ended December 31,
1996 1995
------- -------
Cash flows from operating activities:
Net income ........................ $ 234 $ 223
Adjustments to reconcile net income
to net cash provided
by operatingactivities:
Depreciation and amortization .... 142 149
Gain on sales of equipment ....... -- 13
(Increase) decrease in operating assets:
Other receivables ................. -- 16
Prepaid expenses .................. 13 13
Increase (decrease) in operating liabilities:
Accounts payable ................. (44) (58)
Notes payable .................... 91 --
Accrued expenses ................. 77 222
------- -------
Total adjustments ............ 279 355
------- -------
Net cash provided by
operating activities ........ 513 578
------- -------
Cash flows from investing activities:
Capital expenditures ............... (99) (285)
Proceeds from sales of equipment ... -- 12
Decrease (increase) in related
party notes receivable ........... (10) --
Decrease (increase) in advances
to related parties ............... (77) (24)
Repayments of notes receivable ..... 31 39
------- -------
Net cash used in
investing activities ........ (155) (258)
------- -------
Cash flows from financing activities:
Proceeds from notes payable ....... -- 177
Principal payments on notes payable (154) (161)
------- -------
Net cash (used in) provided by
financing activities ........ (154) 16
------- -------
Net increase in cash .......... 204 336
Cash, beginning of period ............. 1,122 506
------- -------
Cash, end of period ................... $ 1,326 $ 842
======= =======
Supplemental cash flow disclosures:
Interest paid ..................... $ 186 $ 204
======= =======
Income taxes paid ................. $- $-
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
SUNSET COIN, INC.
(A wholly owned subsidiary of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------
1) Basis of Presentation:
Sunset Coin, Inc. ("SC" or the "Company") is wholly owned subsidiary of
Becker Gaming, Inc. ("BGI"). The accompanying financial statements of SC are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments and normal recurring accruals considered necessary
for a fair presentation have been included. Operating results for the three
month and six-month periods ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended June 30, 1997.
The accompanying unaudited financial statements and footnotes should be read in
conjunction with the financial statements included in the Company's annual
report on Form 10-K for the year ended June 30, 1996.
2) Guarantee Obligation, Management's Plans, and Going
Concern:
SC has guaranteed the payment of the $55,000,000 principal amount of and
interest on the 12% First Mortgage Notes due November 15, 2000 (the "AC Notes")
issued by Arizona Charlie's, Inc. ("AC"), another wholly owned subsidiary of
BGI. AC is in default of certain covenants under the Indenture (the "AC
Indenture") governing the AC Notes as of December 31, 1996. In addition, AC has
guaranteed the payment of principal and interest on certain mortgage notes
issued by CQC (the "CQC Notes"). An aggregate $20,000,000 in principal amount
and $3,600,000 in past due interest are outstanding on the CQC Notes at December
31, 1996. Capitol Queen & Casino, Inc. ("CQC") is a development stage company
which has abandoned its project to develop, own and operate a riverboat casino,
and is currently attempting to sell its assets to prospective buyers. Based on
current market conditions, management does not expect that CQC will generate
sufficient funds through the sale of its assets to repurchase all of the
outstanding CQC Notes. A proposed restructuring plan therefore contemplates (i)
the modification of covenants under the AC Indenture to cure the current
defaults and (ii) the issuance of additional AC Notes to fulfill AC's guarantee
obligation for remaining principal of and accrued interest on the CQC Notes
after applying sale proceeds. However, no satisfactory offers for the riverboat
are currently available, and no agreement has been reached with the holders of
the AC Notes and CQC Notes regarding the proposed restructuring plan.
<PAGE>
2) Guarantee Obligation, Management's Plans, and Going
Concern, Continued:
Should AC be unable to complete its restructuring plan, it will not have
the financial resources to repay the AC Notes and honor its guarantee obligation
under the CQC Notes. The Company would thus likely be required to honor its
guarantee obligation of the AC Notes, which the Company does not have sufficient
resources to satisfy. Accordingly, these matters raise substantial doubt about
the ability of the Company to continue as a going concern. The final outcome of
these matters is not presently determinable and the December 31, 1996 financial
statements of the Company do not include any adjustment that might result from
the outcome of this uncertainty.
Management of AC has taken several steps to overcome the substantial doubt
as to its ability continue as a going concern including reducing expenses as
previously described, eliminating costs associated with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat and use the proceeds to retire indebtedness, pursuit
of new business development activities to strengthen BGI's position in the
gaming market, and continuing negotiations with an informal committee
representing the holders of the AC Notes and CQC Notes to reach a favorable
restructure of such Notes. <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Arizona Charlie's, Inc.
- -----------------------
General
AC's revenues are derived largely from gaming activities at its Arizona
Charlie's casino-hotel, and, to a lessor extent, from food and beverage,
lodging, entertainment and retail sales. AC generally views its non- casino
operations as complementary to its core casino operations. Accordingly, it
utilizes entertainment primarily as a casino marketing tool. Further, AC
maintains food and beverage pricing structures designed to benefit casino
volumes, often resulting in department operating losses. AC seeks to maximize
profits from its hotel operations, however, while maintaining attractive room
rental rates. Gaming revenues represent the net win from gaming wins and losses.
The retail value of accommodations, food and beverage provided to customers
without charge is included in gross revenues and deducted as promotional
allowance.
Results of Operations for the three and six-months ended
December 31, 1996 and 1995
Results from operations at AC decreased for both the three and six-month
periods ended December 31, 1996 compared to the same periods in 1995 as a result
of decreased gaming revenues in the more recent periods. Operating expenses also
decreased for both the three-month and six-month periods ended December 31,
1996, primarily as a result of reduced payroll expenses in the gaming department
and reduced General and Administrative expenses associated with the maintenance
and operation of the corporate airplane sold in July, 1996.
Net revenues at AC decreased by $1,215,000, or 7.2%, from $16,951,000 to
$15,736,000 for the three-month period ended December 31, 1996 compared to the
three-month period ended December 31, 1995. In the same period-to-period
comparison, operating expenses, including depreciation and amortization,
decreased by 7.1% to $15,471,000 from $16,658,000. This resulted in a $28,000
decrease in operating income from $293,000 to $265,000 for the more recent
period.
Net revenues at AC decreased by $1,325,000, or 4.1%, from $32,422,000 to
$31,097,000 for the six-month period ended December 31, 1996 compared to the
six-month period ended December 31, 1995. In the same period-to-period
comparison, operating expenses, including depreciation and amortization,
decreased by 3.0% to $31,364,000 from $32,348,000. This resulted in a $341,000
decrease in operating income from $74,000 to an operating loss of $267,000 for
the more recent period. <PAGE>
The largest portion of the revenue decrease for the three-month period
ended December 31, 1996 is attributable to gaming revenues, specifically, gaming
machine revenues, which decreased 9.3% from $11,365,000 to $10,308,000,
reflecting lower levels of play from patrons. Revenues from table games also
decreased 6.0% from $1,267,000 to $1,191,000 during the 1996 three-month period
and race and sports book revenues decreased $32,700 or 3.6% reflecting lessor
play from patrons. Bingo revenues also decreased by $162,000 for the three-month
period ended December 31, 1996 when compared to the same period of the prior
year. The largest portion of the decrease in revenues for the six- month period
ended December 31, 1996 is attributable to gaming revenues which decreased 7.6%
from $26,533,000 to $24,525,000. Specifically, gaming machine revenues decreased
$1,515,000 or 6.8% from $22,295,000 to $20,780,000. Revenues from table games
decreased $30,000 or 1.2%, from $2,435,000 to $2,405,000, and revenues from the
race & sports book decreased $153,000, or 9.5%, from $1,613,000 to $1,460,000.
Bingo revenues also decreased by $278,000 during the six-month period ended
December 31, 1996 compared to the same period of the prior year. The decreases
for both the 1996 three-month and six-month periods are the result of increased
competition from surrounding hotel/casinos that appeal to Arizona Charlie's
"local" patron base.
Food and Beverage revenues increased 4.2% from $3,390,000 to $3,533,000
during the three-month period ended December 31, 1996 compared to the same
period in the prior year. The increase in revenues is primarily due to increased
complimentary sales in the food and beverage department. Such sales are included
in revenues at retail value and are then deducted as a promotional allowance.
Increased complimentary sales in the food and beverage department are the result
of casino promotion and marketing efforts to attract, reward and retain
qualified patrons. For the six-month period ended December 31, 1996, food &
beverage revenues increased $571,000 or 8.8% from $6,463,000 to $7,034,000 when
compared to the six-month period of the prior year, also reflecting an increase
primarily due to increased complimentary sales in the food and beverage
departments.
Hotel revenues increased 19.8% from $771,000 to $924,000 during the three
months ended December 31, 1996 compared to the same three-month period in 1995.
The increase is primarily due to an increase in occupancy and average room rates
of 84% and $45.55, respectively, compared to 83 % and $40.05 in the 1995 period.
During the six-month period ended December 31, 1996, hotel revenues increased by
$192,000 or 12.9% from $1,493,000 to $1,685,000 compared to the same six-month
period of 1995. The increased revenue is largely due to an increase in occupancy
and average room rates of 88% and $42.98, respectively, compared to 84% and
$38.49 in the 1995 six-month period.
Gift shop revenues decreased 9.8% from $153,000 to $138,000 during the
three-month period ended December 31, 1996 compared to the same period in 1995.
During the six- month period ended December 31, 1996, gift shop revenues
decreased $38,000, or 12.4%, from $307,000 to $269,000 compared to the same
period in 1995. The decreases are primarily due to reducing the hours of
operation in the 1996 periods. <PAGE>
Other revenues, which principally include entertainment cover charges, ATM
commissions, and revenues from PBX and banquets, increased 82.3% from $215,000
to $392,000 for the three-month period ended December 31, 1996 compared to the
same period in 1995. During the six month period ended December 31, 1996, other
revenues increased by $135,000 or 26.2% from $515,000 to $650,000 compared to
the same six- month period of 1995. The increases reflect higher entertainment
cover charge and banquet revenues resulting from additional concerts, banquets
and boxing events that occurred in the 1996 periods.
Gaming expenses decreased by $868,000 and $1,080,000, or 21.2% and 14.1%,
from $4,100,000 and $7,638,000 to $3,232,000 and $6,558,000, respectively, for
the three-month and six-month periods ended December 31, 1996 as compared to the
same periods in 1995. The lower levels of expense reflect reductions in staffing
levels in the slot and table games departments and decreased slot promotion
expenses, most of which occurred in the 1996 three-month period.
Food and Beverage expenses increased by $147,000 and $568,000, or 3.6% and
7.1%, from $4,140,000 and $8,015,000 to $4,287,000 and $8,583,000, respectively,
for the three- month and six-month periods ended December 31, 1996 when compared
to the same periods in 1995, as a result of increased food and beverage costs
and an increase in salary and wages, all associated with the increase in food &
beverage revenues during the 1996 periods. As a result, food and beverage
expenses represented 121.3% and 122.0% of food and beverage revenues for the
three-month and six-month periods ended December 31, 1996 compared to 122.1% and
124.0% of the food and beverage revenues for the same periods in 1995.
Hotel expenses increased by $8,000 and $88,000, or 1.9% and 10.8%, from
$417,000 and $816,000 to $425,000 and $904,000, respectively, for the
three-month and six-month periods ended December 31, 1996 as compared to the
same periods in 1995, reflecting additional repair and maintenance costs
associated with the original 100 rooms built in 1988, the additional costs of
room linens, and normal wage and salary increases. Net contribution by the hotel
department (hotel revenues less hotel operating expenses) was $499,000 and
$781,000 for the three-month and six-month periods ended December 31, 1996 as
compared to $354,000 and $677,000 for the same periods in 1995.
General and Administrative expenses decreased by $579,000 and $690,000, or
11.9% and 7.1%, from $4,876,000 and $9,674,000 to $4,297,000 and $8,984,000
respectively, for the three-month and six-month periods ended December 31, 1996
as compared to the same periods in 1995. The decreases resulted from a reduction
in entertainment department costs that are associated with entertainer fees and
equipment rental expense. Other decreases include reductions of staffing levels
in the security, entertainment, porters and aviation departments and a reduction
in expenses associated with the operation of a jet airplane which was sold in
July 1996. The Company accrued management fees payable to BGI of $864,000 and
$1,709,000 during the three-month and six-month periods ended December 31, 1996.
<PAGE>
Advertising and Promotional expenses increased by $178,000 and $291,000, or
15.6% and 12.5%, from $1,145,000 and $2,321,000 to $1,323,000 and $2,612,000
during the three- month and six-month periods ended December 31, 1996 as
compared to the same period in 1995. Management believes that these increased
levels of promotional expenditures in both of the 1996 periods is necessary to
attract and maintain the desired customer levels, to promote the entertainment
events, and support the other existing facilities throughout the property.
Management believes that frequent promotions are necessary to compete with the
newer hotel/casinos that are located close in proximity to AC. These newer
hotel/casinos appeal and market to the Arizona Charlie's "local" patron base.
Depreciation and Amortization decreased by $32,000 and $60,000, or 3.6% and
3.4%, from $893,000 and $1,779,000 to $861,000 and $1,719,000 during the
three-month and six-month periods ended December 31, 1996 when compared to the
same periods in 1995, as a result of decreased depreciation expenses associated
with older assets.
AC had other expenses of $1,732,000 and $3,444,000 for the three-month and
six-month periods ended December 31, 1996 compared with $1,691,000 and
$3,307,000 for the same periods in 1995. The increases reflect an adjustment to
correct the calculation of interest associated with the AC Notes.
In January, 1997 Management has taken steps to increase profitably and
generate additional cash flow at AC, including down-sizing employee staffing
levels and associated payroll costs in certain departments. Other operating
departments have been combined to eliminate supervisory and management
positions. Also, the existing restaurants and food facilities are being analyzed
to determine if the current pricing structures are meeting the overall goals of
attracting a sufficient number of casino patrons as designed and entertainment
events including headliner concerts, lounge acts, and professional boxing
matches are being reevaluated to determine if these events attract the necessary
casino patrons desired. However, no assurance can be made regarding the future
performance of AC. Such performance may be affected or influenced by prevailing
economic conditions and financial, business and competitive factors, many which
are beyond AC's control.
Income Taxes
As a result of the termination of its election to be treated as an S
corporation, AC is liable for income taxes on income earned from and after
January 1, 1994, prior to such termination, AC did not incur or pay income taxes
but distributed cash to its stockholders in amounts sufficient to pay their
income tax liability in respect to income of AC. Since terminating its S
corporation status, AC generated a net operating loss for income tax purposes of
approximately $12,600,000. Management anticipates that AC will generate taxable
income and that its effective federal income tax rate will approximate the
statutory rate of 34%, prior to consideration of the benefit from the net
operating losses, which may be utilized to offset taxable income.
<PAGE>
Liquidity and Capital Resources
At December 31, 1996, AC had a working capital deficit of $59,940,000
compared to a working capital deficit of $58,530,000 at June 30, 1996. The
decrease in working capital in the amount of $1,410,000 was caused primarily by
increased accrued interest on the AC Notes and accrued management fees payable
to BGI.
For the six-month period ended December 31, 1996, cash provided by
operating activities increased approximately $1,987,000 to $2,449,000, from
$462,000 for the same period in 1995. The increase in the 1996 period is
primarily attributable to the increased accrued interest on the AC Notes,
partially offset by the increase net loss for the current period.
For the six-month period ended December 31, 1996, net cash used in
investing activities increased to $1,953,000 for the six-month period ended
December 31, 1996 compared with $790,000 for the same period in 1995. The
increase of $1,163,000 was caused primarily by a $417,000 increase in related
party receivable, an increase in capital expenditures of $122,000 and an
increase in management fee receivable of $642,000.
Cash flows used in financing activities for the six- month period ended
December 31, 1996 was $117,000, reflecting payments on notes payable and capital
leases. For the six-month period ended December 31, 1995, cash flows used in
financing activities was $124,000.
AC's long-term obligations, approximately $5,019,000 at December 31, 1996,
consist of the stockholder notes and capitalized equipment leases. AC has annual
interest expense aggregating $6,600,000 and $500,000 with respect to the AC
Notes (classified as current due to default under covenants) and the stockholder
notes. Further, AC is expected to have annual capital expenditure requirements
of approximately $600,000.
On November 15, 1996, AC made an interest payment due on the AC Notes in
the amount of $1,100,000, an amount equal to one-third of the required due. On
December 16, 1996 another one-third of the interest due in the amount of
$1,100,000 was paid. The remainder of the interest was paid on January 15, 1997.
AC is currently in technical default under the Indenture governing the AC
Notes because it has neither maintained the required minimum level of
consolidated tangible net worth nor offered to repurchase a portion of the AC
Notes as required if such minimum level of consolidated tangible net worth is
not maintained. In addition, AC has failed to maintain the minimum consolidated
fixed charge coverage ratio required under the Indenture and has advanced funds
to BGI in excess of the amounts permitted to be so advanced under the Indenture.
As a result of such defaults, the holders of 25% or more in principal amount of
the Notes may cause the AC Notes to be accelerated, in which event they would
become immediately due and payable in full. AC does not have and is not expected
to have the resources to pay the AC Notes if they are accelerated.
<PAGE>
In addition, AC has a substantial contingent obligation resulting from its
guarantee of the CQC Notes, an aggregate of $20,000,000 in principal amount of
which remain outstanding. CQC was not able to make its scheduled interest
payments of $1,200,000 due on each of November 15, 1995, May 15, 1996 and
November 15, 1996, and AC did not have funds available to advance on behalf of
CQC. Management of AC and CQC are currently undergoing discussions with an
informal committee representing the holders of the AC Notes and CQC Notes
regarding a proposed restructuring plan, however, an agreement has not yet been
reached. As a result of a September 1994 ruling of the Missouri Gaming
Commission denying CQC's gaming license application, CQC has adopted a plan to
sell its assets for the purpose of repaying, to the extent possible, the
outstanding CQC Notes and past due interest thereon. There can be no assurance
that CQC will be successful in its efforts to sell its assets or, that if a sale
is effected, the proceeds will be sufficient to fully or substantially repay the
CQC Notes and past due interest thereon. To the extent any funds CQC may realize
from the sale of its assets are not sufficient to repay the CQC Notes and past
due interest thereon, AC will be obligated under its guarantee of the CQC Notes
to fund the shortfall.
Moreover, because it has not yet effected the sale of its assets, CQC is in
default of the Indenture governing the CQC Notes. As a result, the holders of
25% or more in principal amount of the CQC Notes may cause the CQC Notes to be
accelerated, in which event they would become immediately due and payable in
full. If the CQC Notes were to be accelerated, CQC would not be able to pay the
outstanding CQC Notes without an infusion of capital, which is not expected to
be available. AC would then be obligated under its guarantee to pay the CQC
Notes but is not expected to have the resources to satisfy such obligation
should it materialize. A default by AC under its guarantee would also give the
holders of 25% or more in principal amount of the AC Notes the ability to
accelerate the AC Notes. If the AC Notes and the CQC Notes are accelerated,
substantial doubt exists about AC's ability to continue as a going concern.
AC's management believes that, assuming the AC Notes and CQC Notes are not
accelerated, it has sufficient funds to meet its projected needs for financing
of existing operations and to service its debt obligations. However, AC's
ability to obtain capital, should it be required, is significantly restricted
under the Indentures governing the AC Notes and the CQC Notes. The ability of AC
to service its debt obligations (and to comply with the consolidated tangible
net worth covenant) will be dependent upon its future performance, which
performance will be influenced by prevailing economic conditions and financial,
business and competitive factors, many of which are beyond AC's control.
Management of AC has taken several steps to overcome the substantial doubt
as to its ability continue as a going concern including reducing expenses as
previously described, eliminating costs associated with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat, and use the proceeds to retire indebtedness, pursuit
of new business development activities to strengthen BGI's position in the
gaming market, and continuing negotiations with an informal committee
representing the holders of the AC Notes and CQC Notes to reach a favorable
restructure of such Notes. <PAGE>
Sunset Coin, Inc.
- -----------------
General
SC derives its revenues and profits largely from its gaming machine route
pursuant to participation contracts and, to a lesser extent, space leases. Under
its participation contracts, SC pays a percentage of the net win (amounts
wagered less winnings paid) from its gaming machines to the site owner. The
balance is retained by SC. Under its space leases, SC pays the site owner a
fixed space rental fee and retains all of the net win. SC gaming revenues under
participation contracts represent SC's share of the net win after payments to
the location, and under space leases represent all revenues before lease
payments, which are treated as expenses. A majority of SC's gaming machines are
installed at locations controlled by the shareholders and the contracts with
such locations are expected to be renewed as a matter of general course.
In addition to the operation of its gaming machine route, SC services
gaming machines owned by other operators for fixed service fees. Included among
its service agreements are contracts with six Becker Gaming Group ("BGG")
locations and one additional location owned by an unrelated party, which are
expected to be renewed in general course except for Charlie's Saloon (a BGG bar)
which discontinued its operations on April 21, 1996.
Results of operations for the three and six-months ended
December 31, 1996 and 1995
SC's results of operations declined for the three and six-month periods
ended December 31, 1996 compared to the same periods in the prior year despite
higher revenues which increased by 4.3% to $669,000 for the three-month period
and by 1.4% to $1,299,000 for the six-month period. The increase in revenues is
attributable to the addition of one participation location.
The total number of gaming machines operated during both the three and
six-month periods ended December 31, 1996 were 382 compared to 388 in the prior
year. The total number of gaming machines from the BGG locations that are
serviced by SC was 115, as compared to 130 in the same periods last year due to
the discontinued operation of the aforementioned BGG bar. Slot service fees from
BGG for the three-month and six-month periods ended December 31, 1996 decreased
to $21,000 and $42,000, from $24,000 and $48,000 for the same periods in the
prior year. <PAGE>
Gaming machine route expenses for the three-month and six-month periods
ended December 31, 1996 increased by 11.1% to $341,000 and by 12.1% to $688,000
when compared to the same periods in the prior year reflecting increased
salaries and wages and associated taxes due to the transfer of management and
security personnel from BGI to SC, normal wage and payroll tax increases, and
increase in repairs and maintenance of slot machines.
General and administrative expenses for the three-month period decreased by
22.2% to $7,000 from $9,000, and for the six-month period increased by 11.1% to
$30,000 from $27,000, reflecting decreases in professional fees for the
three-month period and increased office expenses for the six- month period.
Management fees increased by 6.1% and 1.5% to $35,000 and $68,000 for the
three-month and six-month periods ended December 31, 1996 when compared to the
same periods in the prior year attributed to higher revenues in the more recent
periods.
Depreciation and amortization decreased by 5.3% and 4.7% to $72,000 and
$142,000 for the three-month and six- month periods ended December 31, 1996,
reflecting decreased depreciation and amortization costs associated with the
April 1996 closing of a BGG bar. SC abandoned furniture, fixtures and equipment
contained in this bar.
During the three-month and six-month periods ended December 31, 1996, SC
had other expenses (net of other income) of approximately $21,000 and $41,000
compared to $49,000 and $86,000 for the same periods in 1995. The decrease is
attributable to reduced interest expense relating to four notes payable paid in
various months for the previous year ended June 30, 1996, for existing
locations.
Income Taxes
As a result of the termination of its election to be treated as S
corporation, SC became liable for income taxes on income earned from and after
January 1, 1995. Prior to such termination, SC did not incur or pay their income
tax liability in respect to income of SC. Estimated income tax payable for the
three-month and six-month periods ended December 31, 1996 amounted to $57,000
and $96,000 from $57,000 and $115,000 in the same period in the prior year.
These were based on an anticipated effective federal income tax rate
approximating the statutory rate of 34%. <PAGE>
Liquidity and Capital Resources
Cash provided by operating activities for the six-month period ended
December 31, 1996 decreased to $513,000 from $578,000 for the six-month period
ended December 31, 1995, mostly due to a net decrease in operating liabilities
of $40,000 and depreciation and amortization of $7,000 offset by an increase in
net income of $11,000.
Cash flows used in investing activities for the six- month period ended
December 31, 1996 decreased to $155,000 from $258,000 reflecting a decrease in
capital expenditures of $186,000, and a decrease in repayments of notes
receivable of $8,000, offset by increases in related party notes receivable and
advances to related parties of $10,000 and $53,000 respectively.
Cash flows used in financing activities for the six- months ended December
31, 1996 decreased by $170,000 compared to same period in the prior year due to
the expiration of a line of credit on October 20, 1996.
Apart from its anticipated obligation with respect to the AC Notes, SC's
indebtedness includes the stockholder notes and notes collateralized by its
gaming equipment and other assets. The stockholder notes aggregate $3,000,000 in
principal amount, bear interest at an annual rate of 10% and mature January
2001. The collateralized notes bears interest at annual rates of approximately
10.89% in the case of fixed rate loans, or at prime plus 1.5% in the case of a
collateralized line of credit, the outstanding aggregate balance of which,
$272,000 was converted to a term note at July 1, 1994, with monthly payments
through June 1998. SC was able to request advances through October 20, 1996 at
which time the Company's right to receive advances under the agreement was
terminated. In addition, SC had term notes of $627,000 due at various dates
through April 2001, having interest at prime plus 1.5%.
SC's management believes that its cash generated by operations to meet its
projected needs for existing operations will be sufficient and limited expansion
of its gaming machine route business. Should SC determine to expand on more than
a limited basis, it is likely that further capital would be necessary. SC's
access to additional capital will be significantly restricted under the AC
Indenture so long as SC is a guarantor of the AC Notes. SC has guaranteed the
payment of the AC Notes, which guarantee is subject to release upon attainment
by AC of a fixed charge coverage ratio of 2.25 to 1. In connection with its
guarantee, the Indenture imposes restrictions on the distribution of earnings.
AC may have liability under its guarantee of the CQC Notes beyond that
which it could immediately support, AC may be in default of the AC Notes and SC,
as guarantor of the AC Notes, would have liability under its guarantee. Such
liability would likely exceed the amount which SC could immediately support.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Arizona Charlie's., and Sunset Coin, Inc., are parties to various lawsuits
relating to routine matters incidental to their respective businesses. Based on
the amounts believed to be in controversy and management's evaluation of the
merits of the claims after consultation with counsel, management does not
believe that the outcome of such litigation, in the aggregate, will have a
material adverse effect on the results of operations or financial condition of
either company.
Item 6. Exhibits and Reports on Form 8-K
No exhibits are included herein:
The Company did not file any reports on form 8-K during the three-month
periods ended December 31, 1996.
================================================================================
SIGNATURES
Pursuant to the requirements 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.
Arizona Charlie's, Inc.
-----------------------
(Registrant)
Date: February 14, 1997 /S/ Bruce F. Becker
----------------- -------------------
Bruce F. Becker
President, Chief Executive
Officer(Principal Executive Officer)
Date: February 14, 1997 /S/ Jerry Griffis
---------------- -----------------
Jerry Griffis
Controller(Principal Financial and
Accounting Officer)
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 4,970,000
<SECURITIES> 0
<RECEIVABLES> 3,046,000
<ALLOWANCES> 0
<INVENTORY> 625,000
<CURRENT-ASSETS> 9,355,000
<PP&E> 62,098,000
<DEPRECIATION> 17,659,000
<TOTAL-ASSETS> 61,102,000
<CURRENT-LIABILITIES> 69,295,000
<BONDS> 0
0
0
<COMMON> 469,000
<OTHER-SE> (13,681,000)
<TOTAL-LIABILITY-AND-EQUITY> 61,102,000
<SALES> 0
<TOTAL-REVENUES> 31,097,000
<CGS> 0
<TOTAL-COSTS> 31,364,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,620,000
<INCOME-PRETAX> (3,711,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,711,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,711,000)
<EPS-PRIMARY> 0
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</TABLE>
