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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934 [NO FEE REQUIRED]
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 identification no.)
(IRS employer incorporation or organization)
740 South Decatur Boulevard
Las Vegas, Nevada 89107
(Address of Principal Executive Offices)
Registrant's telephone number: (702) 258-5200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
12% First Mortgage Notes due November 15, 2000, Series B
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: _______
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at September 15, 1997 was $0. The
number of shares of the Registrant's Common Stock outstanding as
of September 15, 1997 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
Specified exhibits listed in Part IV of this report are
incorporated by reference
to the Registrant's previously filed Registration Statement on
Form S-4 (33-75808) previously filed.
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PART I
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-K and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward- looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, debt service (including sensitivity to
fluctuations in interest rates), domestic economic conditions, changes in
federal or state tax laws or the administration of such laws and changes in
gaming laws or regulations (including the legalization of gaming in certain
jurisdictions).
Item 1. Business
Arizona Charlie's, Inc. ("AC" or the "Company"), a wholly owned subsidiary
of Becker Gaming, Inc. ("BGI"), opened in April 1988 as a full-service
casino-hotel geared toward the Las Vegas locals market. Arizona Charlie's is
situated on a 12.5- acre site located prominently on a major north-south
thoroughfare in an established retail and residential neighborhood in the
western metropolitan area of Las Vegas. A 60-foot high neon sign located in
front of the facility provides Arizona Charlie's high visibility.
The Company employs operating and marketing strategies formulated to build
a loyal, repeat resident customer base consisting principally of Las Vegas area
employees and retirees residing in surrounding well-established neighborhoods.
Arizona Charlie's market acceptance has resulted largely from its emphasis on
providing attractive pricing, friendly service, quality food, and exciting
entertainment, all in a comfortable atmosphere. In addition, the casino features
a selection of games that invite personal interaction and which management
believes, based on data published by state gaming regulators, are set for higher
payout rates than those at other Las Vegas casinos generally. See "Business
Strategy."
From January 1994 to February 1995, the Company expanded and enhanced
Arizona Charlie's (the "Expansion") through the addition of new casino space,
hotel rooms, specialty restaurants, and banquet/meeting room facilities, and the
expansion of existing restaurant, entertainment, and other facilities. The
Expansion also involved the general remodeling of existing hotel rooms, the
casino, and other interior areas, as well as the upgrading of the exterior
facade and addition of a porte cochere at the front entrance.
Casino. As of August 31, 1997, Arizona Charlie's had approximately 47,000
square feet of casino space open 24 hours a day, 365 days a year. At that date,
the casino included approximately 1,435 gaming machines and 25 table games
(blackjack, craps, roulette, Caribbean Stud, Let It Ride and poker), a 92-seat
race and sports book, and a 400-seat bingo parlor, which is operated on the
second floor.
Over 88% of Arizona Charlie's gaming machines consist of video poker
games. Although video poker machines are typically set for a lower net win rate
for the house and have longer playing time per bet as compared with traditional
slot machine games, Arizona Charlie's emphasizes video poker because it is
popular with local players and generates, as a result, high volumes of play and
casino revenues. Most of Arizona Charlie's table games are devoted to
double-deck, hand-dealt blackjack play, which locals prefer due to its potential
for more frequent payouts and greater customer interaction. For the year ended
June 30, 1997, approximately 86.1% of gaming revenues was attributable to gaming
machine play and 9.6% of gaming revenues was generated by table games.
Approximately 17.6% of its gaming machines are devoted to five dollar, dollar
and half-dollar play and approximately 82.4% to quarter and nickel play. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Arizona Charlie's, Inc. - Results of Operations."
The Company maintains stringent controls on receipts and disbursements at
the casino. Security personnel, overhead cameras and other security devices are
deployed throughout the facilities. In addition, the Company has established a
series of other controls, including locked cash boxes, independent auditors and
observers, and daily tabulation and balancing of all cash transactions within
the gaming areas.
Hotel. Arizona Charlie's hotel is comprised of an eight- story tower
consisting of 160 rooms and 10 suites opened on September 2, 1994 and a
three-story tower opened in 1988 consisting of an additional 100 rooms that
underwent minor upgrades in the Expansion. Arizona Charlie's hotel customers
include local residents and their out-of-town guests, as well as business and
leisure travelers who, because of location and cost considerations, choose not
to stay on the Las Vegas Strip or at other hotels in Las Vegas. Occupancy rates
for the years ended June 30, 1997 and 1996 averaged 86.1% and 86.9%,
respectively, at average daily rates of $43.00 and $39.81 per room,
respectively. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Arizona Charlie's, Inc. - Results of
Operations." Arizona Charlie's has generated high occupancy rates, particularly
during weekends, with little if any marketing of the hotel. Management believes
that its favorable room rates, which are indicative of the value it offers its
customers generally, have contributed to Arizona Charlie's ability to achieve
such occupancy rates. The Company will continue to set aside a small percentage
of rooms and suites (approximately 5%) for complimentary use by its preferred
casino customers.
Food and Beverage. The Company operates five restaurants at the facility.
The Sourdough Cafe, open 24 hours a day, is located adjacent to the casino floor
and seats 247 patrons. The all-you-can-eat Wild West Buffet is located on the
second floor and seats 238 patrons and the Food Court which was enlarged in
July, 1997 is located in close proximity to the poker room and the race and
sports book. Two specialty restaurants, Charlie Chin's, which offers Chinese
cuisine and the Yukon Grille, an American-style steakhouse, with 100 seats each,
attract guests interested in a varied dining experience. The restaurants are
designed to help attract more diverse casino patrons. Arizona Charlie's also has
three bars, which include a lounge bar, a sports book bar and a bar to service
the restaurants.
As with many casinos, Arizona Charlie's food and beverage operations are
not directly profitable, but are used as marketing tools to stimulate casino
activity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Arizona Charlie's, Inc." Nonetheless, costs are
minimized and operations are streamlined by using one kitchen to serve all five
restaurants. The Sourdough Cafe, the Wild West Buffet, Yukon Grille, the Food
Court and Charlie Chin's offer quality food and service at affordable prices.
The Company believes that much of its casino and other business is attributable
to traffic created by the restaurants, and thus prices are set at levels
designed to draw patrons to the facility.
Entertainment and Other Facilities. Arizona Charlie's emphasis on
reasonably priced entertainment has been an integral component of its overall
customer appeal. The Naughty Ladies Saloon, a 108-seat facility, features a
variety of entertainment including celebrity acts, live bands, musician showcase
nights and jam sessions. The Company also presents mini-concerts, boxing events,
and other events in its second, much larger entertainment facility-the Palace
Grand Theatre. This 700-seat showroom, located on the second floor, also serves
as a meeting and banquet facility. The Company has focused added marketing
emphasis on the appeal of its entertainment programming. The larger showroom
enables the Company to present better-recognized musical acts, when attainable,
charge higher cover prices and attract more gaming customers. The availability
of two showrooms allows the Company to present more and varied entertainment.
The banquet and meeting space has enabled the Company to expand its marketing
efforts to visiting business travelers and the small meetings market segment.
A small gift shop located adjacent to the casino provides a limited range
of inexpensive gift items, candy, newspapers, magazines and cigarettes. Added
focus has been placed on logo merchandise promoting the Arizona Charlie's name
and motif.
Parking Facility. Arizona Charlie's offers on-site valet and self-parking
lots with combined capacity for over 650 vehicles. Ease of access to the casino
is believed to be an important element in the appeal of Arizona Charlie's to
local customers.
Claims by Trustee. AC currently has outstanding $55,000,000 of 12% First
Mortgages Notes due 2000. SC has issued a limited guaranty with respect to the
AC Notes (the "SC Limited Guaranty"). Capitol Queen & Casino, Inc. ("CQC")
currently has outstanding $20,000,000 of 12% First Mortgage Notes due 2000. AC
has issued a limited guaranty with respect to the CQC Notes (the "AC Limited
Guaranty"). The amount and extent of AC's guaranty of the CQC Notes is in
dispute due to certain provisions of the Indenture under which the CQC Notes
were issued, as well as certain provisions of State and/or Federal Law that may
be applicable in or with respect to financial restructuring. It is AC's position
that, based on advice from legal counsel, its limited guaranty does not create a
material liability on its part for the payment of the obligations under the CQC
Notes.
IBJ Schroder Bank & Trust Company, as Trustee under the Indentures under
which such Notes are outstanding, has declared the AC Notes and the CQC Notes to
be in default and has declared all such Notes to be immediately due and payable.
The Trustee has also notified AC that the purported obligations of AC under its
guaranty have been accelerated and has declared the obligations of AC thereunder
to be due. Management of AC and CQC and the holders of the Notes are discussing
possible financial restructuring of the AC and CQC obligations, but no such
restructuring has yet been agreed to. The Trustee has taken no further action to
enforce the Notes or the purported guaranties thereof or to foreclose on any
assets of AC or CQC. No assurance can be given, however, that the Trustee will
not do so.
Employees. As of September 1, 1997, the Company employed approximately
1,179 persons, none of which is employed pursuant to collective bargaining or
other union arrangements. Approximately 40 BGI employees were transferred to the
employ of the Company in March, 1995 in connection with the suspension if
activity of CQC. Management believes that its employee relations are good.
Government Regulation. The ownership and operation of casino gaming
facilities in Nevada are subject to (i) the Nevada Gaming Control Act and the
regulations promulgated thereunder, and (ii) various local regulation. The
gaming operations of the Company are subject to the licensing and regulatory
control of the Nevada Gaming Commission, the Nevada State Gaming Control Board,
the Clark County Liquor and Gaming Licensing Board, the city of Las Vegas and
other local jurisdictions.
Item 2. Properties
Arizona Charlie's is located at 740 South Decatur Boulevard, Las Vegas,
Nevada and comprises approximately 170,000 square feet on approximately 12.5
acres owned by AC. In addition, The Company leases office, storage and laundry
space located in an adjacent shopping center owned by Charleston Heights
Shopping Center, a partnership owned by the Becker family, pursuant to two
leases expiring in 1998. The current annual rent payable (including insurance,
tax and common area maintenance payments) under these leases aggregates
approximately $222,000.
Item 3. Legal Proceedings
The Company is party to various lawsuits relating to routine matters
incidental to its business. 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 Company.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
There is no established public trading market for the Company's Common
Stock, all of which is held by BGI. The Company has not declared or paid any
cash dividends on its Common Stock and does not anticipate the payment of cash
dividends in the foreseeable future.
Item 6. Selected Financial Data
<TABLE>
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Arizona Charlie's, Inc. Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
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<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income Statement Data:
Operating revenues .................... $ 58,084 $ 63,301 $ 57,082
Operating income (loss)................ (341) 2,199 1,058
Net income (loss) ..................... (7,145) (4,559) (4,936)
Net income (loss) per share (1) ....... (7,145) (4,559) (4,936)
Other Data:
Interest expense, net of amounts
capitalized .......................... 7,275 7,095 6,574
Capital expenditures .................. 501 190 24,253
Distributions to stockholders (2) ..... -- -- --
Balance Sheet Data:
Unrestricted cash and cash
equivalents .......................... $ 5,481 $ 4,591 $ 5,404
Cash in escrow account restricted
for construction ..................... 10 10 10
Total assets .......................... 61,957 62,357 65,273
Long-term obligations (3)
Long-term debt (4) (5) ............ 6,284 5,000 60,000
Capitalized lease obligation ...... 29 22 4
Stockholder's equity (deficit) ........ (16,646) (9,501) (4,942)
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Income Statement Data:
Operating revenues ............................... $ 46,447 $45,880
Operating income (loss)........................... 5,105 6,032
Net income (loss) ................................ 1,134 4,585
Net income (loss) per share (1) .................. 1,134 4,585
Other Data:
Interest expense, net of amounts
capitalized ..................................... 4,763 1,440
Capital expenditures ............................. 11,379 1,067
Distributions to stockholders (2) ................ 5,317 2,140
Balance Sheet Data:
Unrestricted cash and cash equivalents ........... $ 4,014 $ 3,528
Cash in escrow account restricted for
construction .................................... 3,613 --
Total assets ..................................... 67,915 27,184
Long-term obligations (3)
Long-term debt (4) (5) .......................... 60,000 --
Capitalized lease obligation .................... 1 778
Stockholder's equity (deficit) ................... (6) 5,953
- ----------
<FN>
(1) The number of shares used in the computation of earnings (loss) per share
of common stock was 1,000 for each of the five years in the period ended
June 30, 1997. A total of 2,500 shares of common stock are authorized at
no par value, 1,000 shares of which are issued and outstanding.
(2) Because AC elected to be treated as an S corporation for the most of 1994,
and all of fiscal 1993, a substantial portion of its income in past years
was distributed to its stockholders. In December 1993, AC distributed
$5,000 of previously taxed retained earnings to its stockholders. This
amount was loaned back to AC in exchange for stockholder notes. Effective
January 1, 1994, AC terminated its S corporation tax status. The ability
of AC to pay dividends is restricted by the Indenture governing its 12%
First Mortgage Notes due November 15, 2000 (the "AC Notes"). See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations_Arizona Charlie's, Inc._General
(3) Includes subordinated notes to stockholders, non-current obligations under
capital leases, and excludes current maturities. At June 30, 1993,
approximately $16,900 of bank debt was classified as current, as it was
due and payable. See Management's Discussion and Analysis of Financial
Condition and Results of Operations_Arizona Charlie's, Inc._General and
"Notes to Financial Statements__Arizona Charlie's, Inc._ Long Term Debt."
(4) At June 30, 1996 and June 30, 1997 $55,000 of AC Notes was classified as
current due to certain defaults of the AC Indenture. See Notes 2 and 6 of
AC's Notes to Financial Statements.
(5) At June 30, 1993, approximately $16,900 of bank debt of AC was classified
as current as it was due and payable. Such amount was paid off from a
portion of the proceeds from the sale of the AC Notes in November, 1993.
</FN>
</TABLE>
<TABLE>
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Sunset Coin, Inc. Selected Financial Data
As Of Or For Years Ended June 30, (amounts in thousands,
except per share data)
================================================================================
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income Statement Data:
Operating revenues ....................... $2,667 $2,649 $2,742
Operating income ......................... 838 817 1,128
Net income ............................... 591 381 688
Net income per share (1) ................. 1,477 952 1,720
Other Data:
Interest expense, net of amounts
capitalized ............................. 366 398 352
Capital expenditures ..................... 63 208 1,142
Distribution to stockholders (2) ......... -- -- --
Balance Sheet Data:
Unrestricted cash and cash
equivalents ............................. $ 707 $1,122 $ 506
Total assets (3) ......................... 6,507 5,891 5,349
Long-term obligations (4)
Long-term debt (5) ................... 3,305 3,502 3,664
Capitalized lease obligations ........ -- -- 28
Stockholders' equity ..................... 2,049 1,458 1,077
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Income Statement Data:
Operating revenues .................................. $2,859 $2,959
Operating income .................................... 1,333 1,382
Net income .......................................... 1,010 1,408
Net income per share (1) ............................ 2,525 3,520
Other Data:
Interest expense, net of amounts capitalized ........ 190 67
Capital expenditures ................................ 232 297
Distribution to stockholders (2) .................... 3,280 940
Balance Sheet Data:
Unrestricted cash and cash equivalents .............. $1,940 $ 854
Total assets (3) .................................... 3,845 3,270
Long-term obligations (4)
Long-term debt (5) .............................. 3,220 364
Capitalized lease obligations ................... 85 205
Stockholders' equity ................................ 389 2,659
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<FN>
(1) The number of shares used in the computation of earnings (loss) per share
of common stock was 400 for each of the five years in the period ended
June 30, 1997. A total of 25,000 shares of common stock are authorized at
no par value, 400 shares of which are issued and outstanding.
(2) Because SC elected to be treated as an S corporation during these periods,
a substantial portion of its net income in past years was distributed to
its stockholders. In December, 1993, SC distributed $3,000 of previously
taxed retained earnings to its stockholders. This amount was loaned back
to SC in exchange for stockholder notes. Effective January 1, 1994, SC
terminated its S corporation status. The ability of SC to pay dividends is
restricted under the Indenture governing the AC Notes. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations_Sunset Coin, Inc._General" and "Certain
Relationships and Related Transactions."
(3) Includes $3,150 in notes receivable from AC, resulting from advances made
by SC to AC. Due to the financial condition of AC, management believes it
is reasonably possible that a portion of the notes receivable will be
uncollectible. However, an estimate of the loss cannot presently be
determined. See Note 3 of SC's Notes to Financial Statements.
(4) Excludes current maturities. See "Notes to Financial
Statements_Sunset Coin, Inc._Long-Term Debt."
(5) At June 30, 1997, $322 of SC debt was classified as Current
Notes Payable.
</FN>
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
General
-------
The Company's revenues are derived largely from gaming activities at its
Arizona Charlie's casino-hotel, and, to a lesser extent, from food and beverage,
lodging, entertainment and retail sales. The Company generally views its
non-casino operations as complementary to its core casino operations.
Accordingly, it utilizes entertainment primarily as a casino marketing tool.
Further, the Company maintains food and beverage pricing structures designed to
benefit casino volumes, often resulting in departmental operating losses, even
in periods where individual restaurants or bars report operating profits. The
Company 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. See "Notes to Financial Statements - Arizona
Charlie's, Inc. - Summary of Significant Accounting Policies." The estimated
costs of providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocations as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hotel ......... $ 349 $ 261 $ 164
Food & Beverage 4,094 3,824 2,260
----- ----- -----
$4,443 $4,085 $2,424
====== ====== ======
</TABLE>
On November 18, 1993, AC issued $55,000,000 in principal amount of 12%
First Mortgage Notes due November 15, 2000 (the "AC Notes"), which resulted in
net proceeds of approximately $51,100,000. The AC Notes are currently in
default. See "Item 1. Business - Arizona Charlie's, Inc. - Claims by Trustee". A
portion of the net proceeds was used to retire approximately $16,900,000 in bank
debt plus accrued interest of $500,000. The balance of approximately $33,700,000
was initially deposited into a restricted escrow account and subsequently was
used to fund the expansion and enhancement of Arizona Charlie's (the
"Expansion") through the addition of new casino space, hotel rooms, specialty
restaurants and banquet/meeting room facilities, and the expansion of existing
restaurants, entertainment and other facilities. See "Notes to Financial
Statements - Arizona Charlie's, Inc. - Long-Term Debt." The Company commenced
construction of the Expansion in January 1994. The Expansion was completed in
February 1995 at an under-budget cost of approximately $35,632,000.
Concurrent with the private placement of the AC Notes, Capitol Queen &
Casino, Inc., a sister company, issued $40,000,000 in principal amount of 12%
First Mortgage Notes due November 15, 2000, $20,000,000 in principal of which
currently remain outstanding (the "CQC Notes"). The Company has issued a limited
guaranty in respect to the payment of all principal of and interest on the CQC
Notes, the amount and extent of which are currently in dispute. See "Item 1.
Business - Arizona Charlie's, Inc. - Claims by Trustee". CQC currently does not
have any means to pay amounts owing on the CQC Notes which are in default. See
"Liquidity and Capital Resources". The Company, which now operates as a "C"
corporation, was operated as an "S" corporation through December 31, 1993. See
"Notes to Financial Statements -
Arizona Charlie's Inc. - Summary of Significant Accounting Policies - Income
Taxes." In anticipation of the termination of S corporation status, in December
1993, the Company distributed to its stockholders an aggregate of $5,000,000 of
retained earnings on which the stockholders had previously paid federal income
taxes. This amount was loaned back to the Company in full in exchange for
subordinated stockholder notes in the principal amount of such distributions,
which AC stockholder notes bear interest payable monthly at the annual rate of
10.0% and mature in January 2001. See "Notes to Financial Statements - Arizona
Charlie's, Inc. - Related Party Transactions."
<TABLE>
Results of Operations
<CAPTION>
Years Ended June 30,
(dollars in thousands)
1997 1996 1995
---- ---- ----
<S> .............................. <C> <C> <C>
Revenues:
Gaming ........................ $ 47,857 $ 52,831 $ 47,466
Food/beverage ................. 13,583 13,401 10,877
Hotel ......................... 3,352 3,208 2,614
Gift Shop ..................... 553 590 577
Other (1) ..................... 923 948 682
Gross revenues ................... 66,268 70,978 62,216
Less, promotional allowances (2) . (8,184) (7,677) (5,134)
Net revenues .................. 58,084 63,301 57,082
Total operating expenses ...... 58,425 61,102 56,024
Total operating income (loss).. $ (341) $ 2,199 $ 1,058
- ----------
<FN>
(1) Includes primarily revenues from entertainment cover charges, PBX
operations (hotel switchboard and room telephone system) and commissions on
automated teller machines located in the casino.
(2) Amounts represent the retail value of rooms, food, beverage and other
promotional allowances provided to customers without charge.
</FN>
</TABLE>
Comparison of fiscal years ended June 30, 1997, 1996 and 1995. Despite a
reduction in operating expenses, results from operations for fiscal 1997 were
lower than the prior year as a result of decreased gaming revenues caused
primarily by lesser patron play at the gaming machines. Results from operations
for fiscal 1996 were higher than fiscal 1995 due to increased revenues
reflecting a full year of operations with the expanded casino-hotel facilities.
The Expansion added new gaming machines and table games, an expanded race and
sports book, a new hotel tower, a remodeled coffee shop, two new specialty
restaurants and a new delicatessen, an expanded buffet room, a remodeled floor-
level entertainment lounge and new second-floor showroom/banquet facility.
Net revenues at AC for fiscal years 1997, 1996 and 1995 were $58,084,000,
$63,301,000 and $57,082,000 respectively. Operating expenses for these same
fiscal periods were $58,425,000, $61,102,000 and $56,024,000. As such, the
operating loss for fiscal 1997 was $341,000, with a corresponding negative net
operating margin of 0.6%. Operating income for fiscal 1996 and fiscal 1995 was
$2,199,000 and $1,058,000, respectively, resulting in operating margins for such
years of 3.5% and 1.9%. For fiscal 1997, the decrease in revenues and resulting
decline in operating margin, despite decreases in operating expenses, is due to
decreased gaming revenues reflecting lesser patron play. The increase in
operating expenses and resulting decline in operating margin for fiscal 1996
resulted principally from increased gaming department expense, amounting to
$3,253,000, costs attributable to CQC in the amount of $601,000, and the
addition of staff personnel, equipment and related operating expenses
transferred to AC.
For fiscal 1997, AC had total gaming revenues of $47,857,000, as compared
to $52,831,000 and $47,466,000 for fiscal 1996 and 1995, respectively. The
decrease of 9.4% in fiscal 1997 is primarily attributed to gaming machine
revenues which decreased $3,426,000, or 7.7% from $44,612,000 for fiscal 1996 to
$41,186,000 for fiscal 1997, reflecting lesser play from patrons. In addition,
table game revenues decreased $281,000 or 5.8%. Other gaming revenues,
consisting of revenues from bingo, poker and race and sports decreased by
$1,267,000 for fiscal 1997 largely due to race and sports book revenues which
decreased $548,000 or 18.6% from $2,957,000 to $2,408,000 reflecting lesser
pari-mutuel horse race play from patrons. Such decrease is a result of fewer
televised races arising from a dispute over increased fees that began in
November 1996, between the Nevada Pari-Mutuel Association and both the
Thoroughbred Owners of California and the California Horse Racing Board who
provide and authorize televised disseminator services to Race & Sports books in
Nevada. Such dispute was eventually resolved and AC was able to resume
pari-mutuel horse race wagering beginning in August 1997. The increase in gaming
revenues of 11.3% for fiscal 1996 is primarily attributable to increases in
gaming machine revenues of 11.1% to $44,612,000 from $40,140,000 for fiscal
1995. The increase in gaming revenues for fiscal 1996 is primarily the result of
increased levels of play by patrons in response to additional slot promotional
events. Other gaming revenues for fiscal 1996 increased by 34.0% to $3,346,000
primarily as a result of the added pari-mutuel race facilities and increased
sports book revenues from the expanded race and sports facilities. For fiscal
1997, 1996 and 1995, 86.1%, 84.4% and 84.6%, respectively, of gaming revenues
were attributable to gaming machine play, compared to 9.6%, 9.2% and 10.2%,
respectively, attributable to table games and 4.3%, 6.4% and 5.2%, respectively,
attributable to other gaming revenues.
Food and beverage revenues increased 1.4% to $13,583,000 for fiscal 1997,
after increasing 23.2% to $13,401,000 for fiscal 1996 from $10,877,000 for
fiscal 1995. The fiscal 1997 and fiscal 1996 increases are 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 food and beverage departments are the result of
casino promotion and marketing efforts designed to attract, reward and retain
qualified patrons.
Hotel revenues increased to $3,352,000 for fiscal 1997, from $3,208,000 and
$2,614,000 for fiscal 1996 and 1995, respectively. The 4.5% and 22.7% increases
for fiscal 1997 and fiscal 1996, respectively, are the result of a slight
decrease in average occupancy rate from 86.9 % to 86.1% in fiscal 1997 and an
increase from 84.3% to 86.9% in fiscal 1996 combined with a larger increase in
the average room rate from $39.81 to $43.00 in fiscal 1997 and $37.27 to $39.81
in fiscal 1996.
Gift shop revenues decreased 6.3% to $553,000 in fiscal 1997 due to a
lesser number of patrons in the hotel/casino facility. Gift shop revenues
increased 2.3% to $590,000 in fiscal 1996 due primarily to the remodeling and
expansion of the gift shop area, which was re-opened in January 1995. Other
revenues decreased $25,000 or 2.6% during fiscal 1997 as a result of fewer
banquets and entertainment events including musical concerts and boxing events.
Other revenues increased $266,000 or 39.0% during fiscal 1996 as a result of
increases in entertainment cover charge revenues attributable to the addition of
a new showroom facility that opened in December 1994.
Gaming expenses decreased $1,383,000 or 7.4% to $17,229,000 for fiscal
1997 primarily due to management and staff reductions in the slot and table
games departments and fewer slot department promotions. Gaming expenses
increased by 21.2% to $18,612,000 for fiscal 1996. The increased expense
includes higher slot promotional expense of $638,000; higher gaming tax and
license fees of $406,000; increased salary and wages of $468,000 and the
additional expense of a newly created casino marketing department totaling
$479,000, all associated with the expansion of gaming facilities in 1995. Gaming
expenses represented 36.0%, 35.2% and 32.4% of gaming revenues for fiscal 1997,
1996 and 1995, respectively.
Food and beverage expenses decreased 1.4% to $12,337,000 for fiscal 1997
due to staff reductions in both the food and beverage departments. Food and
beverage expenses increased 9.9% to $12,511,000 for fiscal 1996 from $11,388,000
for fiscal 1995 due to salary and wage increases associated with increasing the
hours of operation at one specialty restaurant and normal salary and wage
increases for food and beverage employees.
Hotel expenses decreased 1.6% to $1,390,000 for fiscal 1997 as a result of
the staff reductions of room and laundry attendants, front desk personnel and
reservation clerks. Hotel expenses increased 2.6% to $1,413,000 for fiscal 1996
from $1,377,000 for fiscal 1995 as a result of normal salary and wage increases.
Net contribution by the hotel department (hotel revenues less hotel operating
expenses) improved to $1,962,000 for fiscal 1997 from $1,795,000 for fiscal 1996
and $1,237,000 for fiscal 1995.
Gift shop expenses increased by 9.3% to $519,000 for fiscal 1997 and 5.6%
to $475,000 for fiscal 1996 due to increased costs of inventory items in the
gift shop, combined with normal salary and wage increases.
General and administrative expenses decreased $197,000 or 1.1% to
$17,463,000 for fiscal 1997 resulting from staff reductions in the security,
entertainment and internal maintenance departments during the last quarter of
the fiscal year and a reduction in expense associated with the operation of a
jet airplane which was sold in July, 1996. General and administrative expenses
increased by 15.0% to $17,660,000 for fiscal 1996 from $15,358,000 for fiscal
1995. The increases resulted from additional staffing in the accounting,
payroll, personnel and technical services departments and the transfer of
executive personnel (and related departmental costs) in March 1995 to the
Company from BGI. Other expenses transferred from BGI to the Company include
maintenance and other operating expenses associated with an airplane and two
boats. Other general and administrative expenses included payments made on
behalf of CQC in the amount of $220,000 for fiscal 1997 and $601,000 for fiscal
1996 and $1,592,000 for fiscal 1995 for insurance, maintenance and interest
payments made on the CQC bonds. The Company accrued management fees payable to
BGI of $664,000, $1,396,000 and $3,099,000 for fiscal 1997, 1996 and 1995,
respectively. Due to a decision to suspend development of CQC's riverboat casino
project and sell its assets, the majority of BGI's management and administrative
services are anticipated to benefit the Company in the future. Accordingly, in
late March 1995, BGI transferred approximately 40 employees involved in
accounting and administrative functions from BGI to the Company. In connection
with this transfer, in October 1995, BGI temporarily reduced the amount of the
Company's management fee to 1.0% of the Company's gross revenues (previously
5.0% of gross revenues) based on the reduction in services it will receive from
BGI in the future. (See Note 9 of the Company's Notes to Financial Statements).
As a percentage of net revenues, general and administrative expenses were 30.1%,
27.9% and 26.9% for fiscal 1997, 1996 and 1995, respectively.
Advertising and promotion expenses increased $87,000 or 1.8% to $4,813,000
due to additional newspaper advertising associated with the computerized slot
club and player tracking system purchased and installed in May, 1997.
Advertising and promotion expenses were $4,726,000 for fiscal 1996, as compared
to $3,837,000 for fiscal 1995. The increase of $889,000, or 23.1% is due to
additional television advertising of $466,000, new casino related promotions of
$166,000, and salary and wage increases of $116,000. The additional advertising
and promotions were conducted in an effort to increase casino patronage and
compete with other "local" casinos opened in western Las Vegas in fiscal 1995,
including Texas Station and the Fiesta. Management anticipates that it will need
to maintain advertising expenditures at the 1997 level in order to continue
attracting customers and to promote entertainment events and the restaurant
facilities in its expanded facilities.
Depreciation and amortization expense increased by 2.2% to $3,568,000 for
fiscal 1997. Also, depreciation and amortization expense increased by 3.5% to
$3,491,000 for fiscal 1996 from $3,373,000 for fiscal 1995. These increases are
attributable to additional depreciation expense associated with the newer
expansion assets.
The Company had other expenses (net of other income) of $6,804,000 for
fiscal 1997 compared to $6,758,000 and $5,994,000 for fiscal years 1996 and
1995. The fiscal 1997 increase is due to additional interest expense of $180,000
on the SC notes and the financing of the computerized slot club and player
tracking system and a decrease in interest income of $14,000 offset by an
increase in other income, primarily a gain on sale of assets of $129,000. The
fiscal 1996 increase of $764,000 is due to a reduction of capitalized interest
in the amount of $676,000, a decrease of interest income of $294,000 partially
offset by a decrease of interest expense in the amount of $155,000 and a
increase in other income of $51,000.
Income Taxes
------------
As a result of the termination of its election to be treated as an S
corporation, AC is liable (as part of the BGI consolidated group) 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. See "Notes to Financial Statements - Arizona Charlie's, Inc. -
Summary of Significant Accounting Policies - Income Taxes; - Related Party
Transactions." Since terminating its S corporation status, AC generated a net
operating loss for income tax purposes of approximately $17,165,000. Due to low
operating margins and high interest and depreciation costs, management does not
anticipate that AC will generate taxable income in the foreseeable future.
<TABLE>
Liquidity and Capital Resources
<CAPTION>
As of or for the years ended June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents ........... $ 5,481 $ 4,591 $ 5,404
Working capital (deficit) (1) ....... (62,380) (58,530) 2,920
Cash provided by operating activities 1,200 1,639 2,772
Cash used for investing activities .. (1,003) (2,240) (3,401)
Cash provided by (used for)
financing activities .............. 693 (212) 2,019
- ----------
<FN>
(1) At June 30, 1997 and 1996, the AC Notes are reflected as a current
liability in the amount of $55,000 due to default under Covenants.
</FN>
</TABLE>
For fiscal 1997, cash provided by operating activities decreased $439,000
to $1,200,000 from $1,639,000 in fiscal 1996. The 26.8% decrease is the result
of a higher net loss, a decrease in accounts payable and an increase in
management fees, partially offset by a significant increase in accrued expenses,
which consists primarily of $3,300,000 in accrued interest on the AC Notes, that
was due on May 15, 1997. For fiscal 1996, cash provided by operating activities
decreased to $1,639,000 from $2,772,000 for fiscal 1995. The decrease is
attributable to a reduction in net income, prior to consideration of management
fees and other non-cash items, and changes in operating assets and operating
liabilities.
For fiscal 1997, cash flows used in investing activities was $1,003,000,
down from $2,240,000 in 1996. The decrease was due to a small increase in BGI
receivables compared to the prior year, partially offset by an increase in
capital expenditures. Cash flows used in investing activities for fiscal 1996
were $2,240,000 compared to $3,401,000 for fiscal 1995. The decrease is due to
(i) a reduction in cash advances to BGI resulting in decreased receivables from
BGI of $4,154,000, (ii) a reduction in notes issued to CQC of $1,200,000, and
(iii) a reduction in capital expenditures of $24,063,000 (reflecting the
completion of the majority of the construction of the expanded facility in
fiscal 1995), partially offset by a $26,102,000 net reduction in restricted cash
which was utilized for the expansion in fiscal 1995). Cash flows from investing
and financing activities for fiscal 1995 were significantly impacted by the
November 1993 issuance of the AC Notes.
Cash flows provided by financing activities increased in fiscal 1997 to
$693,000 from ($212,000) in fiscal 1996, as a direct result of additional loans
from related parties in the amount of $900,000. Cash flows provided by financing
activities for fiscal 1996 decreased to ($212,000) from $2,019,000 for fiscal
1995. The decrease is due to a reduction of proceeds from borrowing, marginally
offset by a decrease in principal payments on notes and an increase in payments
under capital lease obligations.
The Company is currently in default under the Indenture governing the AC
Notes because it has not made its required semi-annual interest payment in the
amount of $3,300,000 due on May 15, 1997 and 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, the Company 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. Also, the Company incurred new notes payable
(in the amount of approximately $1,748,000) for the purchase of an on-line
reporting and player club system in excess of the $1,000,000 allowed. See "Item
1. Business - Arizona Charlie's, Inc. - Claims by Trustee".
The AC Notes are reflected as a current liability at June 30, 1997 and
1996 as a result of the above default. The Company's long-term obligations,
approximately $6,313,000 at June 30, 1997, consist of the stockholder notes and
capitalized equipment notes and leases. The Company has annual interest expense
aggregating $6,600,000 and $500,000 with respect to the AC Notes and the
stockholder notes, respectively. Beginning May 1, 1997 the stockholders have
voluntarily postponed the receipt of interest payments on the AC Notes. As of
June 30, 1997, unpaid interest on the AC Notes and the stockholder notes amount
to $3,300,000 and $85,000, respectively. In addition, the Company is expected to
have future annual capital expenditure requirements of approximately $1,000,000.
The Company has a contingent obligation resulting from a limited guaranty
issued by it on the CQC Notes, an aggregate of $20,000,000 in principal amount
of which remain outstanding. The amount and extent of such guaranty are in
dispute. See "Item 1. Business - Arizona Charlie's, Inc. - Claims by Trustee" 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
accrued interest thereon. See "Business - Capitol Queen & Casino, Inc." 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 accrued 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 accrued interest thereon, the Company may be obligated
under the AC Limited Guaranty of the CQC Notes to fund the a portion of
shortfall.
Moreover, because it has failed to pay interest due on the Notes and it
has not yet effected the sale of its assets, CQC is in default of the CQC Notes.
CQC is not able to pay the outstanding CQC Notes without an infusion of capital,
which is not expected to be available. If the Company is obligated under the AC
Limited Guaranty to pay a portion of the CQC Notes it is not expected to have
the resources to satisfy such obligation should it materialize. If the AC Notes
and the CQC Notes are accelerated, substantial doubt exists about the Company's
ability to continue as a going concern. See "Notes to Financial Statements -
Arizona Charlie's, Inc. - CQC Gaming License, Default Under Indebtedness
Management's Plans, and Going Concern".
The Company's ability to obtain capital, is significantly restricted under
the Indentures governing the AC Notes and the CQC Notes. The ability of the
Company 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 the
Company's control.
Competitive Environment
-----------------------
Various forms of casino-style gaming have been legalized in numerous new
jurisdictions within the past few years, including casino riverboats,
limited-stakes frontier town gambling, full-scale casinos on Indian
reservations, card rooms and video lottery terminals, which resemble the
Company's gaming machines. In addition, several major casino-hotels were
completed and opened in Las Vegas in the past year, continuing the
transformation of Las Vegas into an entertainment destination offering much more
than gaming. Management expects the legalization of gaming to continue to spread
and that Las Vegas will continue to experience at least limited expansion. See
"Item 1. Business - Market and Competition."
In fiscal 1997, casino revenues at Arizona Charlie's (and for Las Vegas
generally) have declined. Lesser play from patrons at the Company are the result
of increased competition from surrounding hotels/casinos that appeal to the
Company's "local" patron. However, management believes that the Company has and
will continue to benefit from the expansion of the Las Vegas market, which has
resulted in continued growth in the residential population from which the
Company generates the majority of its revenues. There can be no assurance,
however, that the spread of legalized gaming, or the construction of new
casino-hotels in Las Vegas, will not have an adverse impact on future revenues.
Inflation
---------
The Company believes that its results of operations are not dependent
upon, or materially affected by, the rate of inflation.
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. See
"Notes to Financial Statements Sunset Coin, Inc. - Summary of Significant
Accounting Policies Revenue." 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's 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 Becker family
and the contracts with such locations are expected to be renewed as a matter of
general course. See "Item 1. Business - Sunset Coin, Inc."
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 agreement are contracts with each of the five BGG restaurants, which
are expected to be renewed in general course, and one additional location owned
by unrelated parties. See "Item 1. Business - Sunset Coin, Inc." and "Notes to
Financial Statements - Sunset Coin, Inc. - Related Party Transactions."
AC currently has outstanding $55,000,000 of 12% First Mortgages Notes due
2000. SC has issued a limited guaranty with respect to the AC Notes (the "SC
Limited Guaranty"). CQC currently has outstanding $20,000,000 of 12% First
Mortgage Notes due 2000. AC has issued a limited guaranty with respect to the
CQC Notes (the "AC Limited Guaranty"). IBJ Schroder Bank & Trust Company, as
Trustee under the Indenture under which such notes are outstanding has declared
the AC Notes and the CQC Notes to be immediately due and payable. The amount and
extent of SC's guaranty of the AC Notes is in dispute due to certain provisions
of the Indenture under which the AC Notes were issued, as well as certain
provisions of State and/or Federal Law that may be applicable in or with respect
to financial restructuring.
As in the case of AC, SC operated as an S corporation through December 31,
1993. In connection with the termination of S corporation status, SC distributed
$3,000,000 of previously taxed retained earnings to its stockholders. This
amount was loaned back to SC in full in exchange for stockholder notes bearing
interest at the annual rate of 10.0% and maturing in January 2001. The payment
of the SC stockholder notes is subordinated to any payments required to be made
by SC under the SC Limited Guaranty of the AC Notes.
<TABLE>
Results of Operations
<CAPTION>
Years ended June 30,
(dollar in thousands)
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gaming machine route:
Participation contracts ................. $2,481 $2,294 $2,535
Spaces leases ........................... 69 229 75
--- --- --
Total gaming machine revenues .............. 2,550 2,523 2,610
Gaming machine services fees ............... 117 126 132
--- --- ---
Total revenues ............................. $2,667 $2,649 $2,742
====== ====== ======
Operating income:
Gaming machine route:
Slot route and service .................. $1,350 $1,311 $1,112
General and administration............... 51 86 103
Management fees to related parties ...... 140 137 150
Depreciation and amortization............ 288 298 249
--- --- ---
Total operating expenses ................... 1,829 1,832 1,614
--- --- -----
Total operating income ..................... $ 838 $ 817 $1,128
====== ====== ======
</TABLE>
During fiscal 1997, two participation locations were added and one
participation contract was terminated.
Comparison of Fiscal Years Ended June 30, 1997, 1996 and 1995. SC's
results of operations increased for 1997 compared to 1996. Net income before
income taxes increased by 41.2% to $817,000 from $577,000 in fiscal 1996. Such
increase is attributable to four factors: the absence of the $101,000 loss on
sale of Charlie's Saloon assets in fiscal 1996, additional interest income
associated with the new $900,000 note to AC, recoveries of bad debt previously
written-off of $57,000 and lower interest expense from the payoff of four notes
payable in late fiscal 1996. For 1996 compared to 1995, net income declined due
to Charlie's Saloon loss noted above, increased depreciation costs resulting
from additional gaming machine purchases and increased payroll and related
staffing costs needed for additional security personnel.
SC's total revenues increased during fiscal 1997 by 0.7% to $2,667,000.
This slight increase was a result of two participating locations added in 1997
and the conversion of some coin only gaming machines to coin and bill validator
gaming machines. For 1996, the primary reason revenues declined compared to 1995
was the reduction in slot route revenues at locations not controlled by related
parties. Gaming machine service fee revenue decreased 7.1% to $117,000 for
fiscal 1997 from $126,000 in 1996 and 4.5% from $132,000 in 1995 to 1996. The
declines are mainly the resulting loss of 15 gaming machines from the Charlie's
Saloon closing in April, 1996.
The total number of gaming machines operated by SC including BGG machines
in fiscal 1997 were 385 compared to 395 in 1996 and 397 in 1995, the reductions
were due to the closing of participating locations. The total number of gaming
machines from BGG locations that are serviced by SC was 115 for the past two
fiscal years compared to 130 for 1995, reduction due to aforementioned closing
of Charlie's Saloon (BGG Bar). Correspondingly, slot service fees from BGG
decreased to $85,000 from $93,000 for the last fiscal year. Revenues from the
locations controlled by the Becker family increased from $2,370,000 in 1996 to
$2,424,000 in 1997, primarily due to two additional locations and increased
gaming play at other locations.
Gaming machine route expenses increased by 3.0% to $1,350,000 in fiscal
1997 compared to 1996 primarily due to added security personnel plus repair and
maintenance costs, payroll and related staffing costs. For 1996 compared to 1995
the increase of $199,000 (17.9%) was due to the significant increases in
security personnel to offset the added crime rates in Las Vegas. General and
administrative expenses for fiscal 1997 were significantly lower compared to
1996 and 1995 due to the write-off of bad debts in the prior years. Also, the
write-off recoveries in the amount of $57,000 in 1997 was recorded to other
income, resulting in an increase when compared to prior years. Management fees
due to Becker Gaming, Inc. remained relatively unchanged from 1997 to both 1996
and 1995 fiscal years. Depreciation and amortization decreased by 3.4% to
$288,000 for 1997, reflecting decreased depreciation costs associated with the
April, 1996 closing of Charlie's Saloon. SC abandoned furniture, fixtures and
equipment contained in this bar at the time of the closing. In 1996 depreciation
was higher than 1995 due to additional depreciation on new gaming machine
purchases in 1996.
Interest income and other income increased during 1997 due to the
additional $900,000 note to AC and the $57,000 write-off recovery. The $115,000
loss on sale of assets in 1996 was mainly due to the closing of Charlie's
Saloon. Interest expense declined by 8.0% in 1997 attributable to reduced
interest expense resulting from four notes paid-off in the fourth quarter of
fiscal 1996.
Income Taxes
------------
As a result of the termination of its election to be treated as an S
corporation, SC is liable (as part of the BGI consolidated group) for income
taxes on income earned from and after January 1, 1994. Prior to such
termination, SC did not incur or pay income taxes but distributed cash to its
stockholders in amounts sufficient to pay their income tax liability in respect
of income of SC. See "Item 13. Certain Relationships and Related Transactions"
and "Notes to Financial Statements - Sunset Coin, Inc. - Summary of Significant
Accounting Policies - Income Taxes; - Related Party Transactions." In fiscal
1997 and 1996, no estimated income tax payments were paid. In fiscal 1995, SC
made an estimated income tax payment of $102,000 This payment was based upon an
anticipated effective federal income tax rate approximating the statutory rate
of 34%.
Liquidity and Capital Resources
-------------------------------
Cash provided by operating activities remained virtually unchanged at
$1,003,000 in fiscal 1996 to $992,000 in fiscal 1997. For 1996, cash provided by
operating activities declined from $1,138,000 in 1995 to $1,003,000 due to a
lower net income partially offset by a loss on sale of equipment relating to the
abandonment of Charlie's Saloon in April, 1996.
Cash used in investing activities for fiscal 1997 increased from $180,000
in 1996 to $1,074,000 in 1997 due to the increase in related party notes and
advances partially offset by a reduction on capital expenditures. For 1996
compared to 1995 a significant reduction of $2,954,000 or 94% resulted from the
absence of additional related party notes and advances in 1996 and reduced
capital expenditures for gaming machines.
Cash provided by financing activities decreased each year from $562,000 in
fiscal 1995 and $(207,000) in 1996 to $(333,000) in fiscal 1997 due to the
reduction of proceeds of additional notes and recurring payments toward existing
notes in the 1997 and 1996 fiscal years.
SC's indebtedness includes the stockholder notes and notes collateralized
by its gaming equipment and other assets. The collateralized notes bear 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 was converted to a note at July 1, 1994, with monthly
payments through June 1998. SC requested advances through October 28, 1995, at
which time the Company's right to receive advances under the agreement was
terminated. The $1.5 million non-revolving line of credit includes an
acceleration clause which would cause the full amount of the obligation to
become due on demand if a material adverse change occurs in the borrower's
financial condition, business operations or ownership or management.
In July 1994, SC entered into an agreement with a bank for a $1,200,000
non-revolving line of credit. Each advance under the line shall be evidenced by
a separate promissory note with a maturity date not exceeding 66 months from the
date of the respective advance giving rise to the note. During fiscal 1995, SC
drew down an aggregate of $738,000 and in fiscal 1996, an aggregate of $109,000
of the non-revolving line of credit with various monthly payments through April
2001. Advances under the agreement bear interest at the bank's prime rate plus
1.5% to 2.0%. SC's management believes that it has sufficient funds through cash
generated by operations to meet its projected needs for existing operations 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. Such
guaranty, although limited, will be released upon AC's achievement of a fixed
charge coverage ratio of 2.25 to 1, which is not currently anticipated to occur.
Because AC is in default under the Indenture governing the AC Notes, the
AC Notes have been accelerated. See "Arizona Charlie's, Inc._Liquidity and
Capital Resources." AC does not have the resources to pay the AC Notes. In
addition, AC may have limited liability under the AC Limited Guaranty of the CQC
Notes which may exceed the amount which it could immediately support or repay.
In either case, SC, as guarantor of the AC Notes, may have liability under the
SC Limited Guaranty, and such liability could exceed the amount which it could
immediately support. Accordingly, substantial doubt exists about SC's ability to
continue as a going concern if the Trustee for the AC Notes and CQC Notes is
able to enforce its acceleration thereof. See "Notes to Financial Statements -
Sunset Coin, Inc. - Guarantee Obligation, Management's Plans and Going Concern."
Competitive Environment
-----------------------
As SC's gaming machine route contracts reach maturity, SC is required to
compete for renewals with numerous route operators in the Las Vegas area, some
of which are significantly larger and better capitalized and manage
substantially more gaming machines than SC. Although SC's management believes
that the continuing expansion of the Las Vegas gaming market has resulted in
substantial growth of the local residential population, the market in which SC
generates the majority of its route business, there can be no assurance that
increased competition for gaming machine route locations will not have an
adverse impact on the future revenues. In addition, the spread of legalized
gaming into new jurisdictions may also impact the competitive position of SC.
See "Item 1. Business - Sunset Coin, Inc."
Inflation
---------
Management believes that SC's results of operations are not dependent
upon, or materially affected by, the rate of inflation.
Item 8. Financial Statements and Supplementary Data
The Index to Financial Statements and Schedules appears at page F-1
hereof, the Report of Registrant's Independent Auditors appears at page F-2
hereof, and the Financial Statements and Notes to Financial Statements of the
Registrant and SC appear at page F-3 through F-25 hereof and page F-26 through
F- 44 hereof, respectively.
Item 9. Changes in and Disagreements with Accounts on
Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to the
directors and executive officers of AC.
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Bruce F. Becker 46 Chairman, President and Chief
Executive Officer of AC
Barry W. Becker 52 Secretary and Director of AC
Ron Lurie 56 Director of Marketing of AC
Jerry Griffis 41 Controller of AC
Gerald Heetland 57 General Counsel of AC
Ernest A. Becker 78 Director and Treasurer of AC
III
Ernest A. Becker 54 Director and Vice President AC
IV
W. Bucky Howard 59 General Manager of AC
Paul Tomba 49 Food and Beverage Director of AC
Debra Pingul 39 Director of Personnel of AC
Doug Hardesty 45 Director of Technical Services of AC
</TABLE>
Bruce F. Becker has served as Chairman of the Board of Directors,
President, Chief Executive Officer and Treasurer of BGI since its inception in
July 1993 and as Secretary since November 1993. He has served each of the Nevada
subsidiaries of BGI as President and Chief Executive Officer since July 1989.
Mr. Becker has also been a director and Chairman of AC since its inception in
July 1984 and Chairman of the Board of Directors of SC and BGG since their
inceptions in 1980 and 1986, respectively. He is the Chairman, President and
Chief Executive Officer of CQC, and the Sole Officer and Director of Innerout,
Inc. Mr. Becker also sits on the Board of Directors of the Nevada Resort
Association.
Barry W. Becker has served as Assistant Secretary of BGI since November
1993, and as Secretary of BGI from its inception until November 1993. He has
served each Nevada subsidiary of BGI (other than Innerout, Inc.) as a Director
since its respective inception and as Secretary since July 1989. Mr. Becker is
also the Sales Manager for Becker Enterprises, a Becker family-owned company
that purchases, sells and leases residential and commercial property. He is a
past president of the Southern Nevada Builders Association and serves the
community as a member on the boards of directors of the Rotary Club, Las Vegas
Chamber of Commerce, Boys Club of Clark County and the Boy Scouts of America.
Mr. Becker was appointed by the then Governor of the State of Nevada to the
State Environment Commission and was an Environmental Commissions Representative
on the State Multiple Use Advisory Land Committee.
Ron Lurie has served as the General Manager of Sunset Coin, Inc. since
November 1990. He has also served as Director of Marketing of Arizona Charlie's,
Inc. since February of 1995 and Director of Corporate Development of BGI since
inception. He has been involved with the gaming industry since 1978, serving in
several capacities prior to being employed by Sunset Coin, Inc., including Sales
Manager for International Game Technology and regional Sales Director for Sigma
Games. In addition to Mr. Lurie's fourteen years in the gaming industry, he also
served fourteen years as a Las Vegas City Councilman and four years as the Mayor
of Las Vegas.
Jerry Griffis has served as Chief Financial Officer of BGI and Controller
of CQC since their respective dates of inception, and as Controller of the
Nevada subsidiaries of BGI since February 1989. Prior to joining the Nevada
subsidiaries, Mr. Griffis was employed as a Certified Public Accountant. Prior
thereto, Mr. Griffis acted as Assistant Controller for the Silver Slipper Casino
from 1981 to 1983 and the Frontier Hotel & Casino from 1979 to 1981. Mr. Griffis
is a CPA and a member of the Nevada Society of CPA's and the American Institute
of Certified Public Accountants.
Gerald Heetland has 30 years of corporate legal and business experience,
with over 15 years in the gaming industry. He has served as General Counsel of
Becker Gaming, Inc. and the BGI subsidiaries since January 1997. Prior to
joining Becker Gaming, Inc., he served as Vice President, General Counsel and
Secretary of Fitzgeralds Gaming Corporation and its subsidiaries for over 5
years and as Vice President, General Counsel and Secretary Counsel of Del Webb
Hotels and Casinos for 8 years, starting at the positions of Associate General
Counsel and Assistant Secretary of Del Webb Corporation in Phoenix, Arizona in
1981 and relocating to Las Vegas, Nevada in May 1986.
Ernest A. Becker III is a director of BGI and has served each of the
Nevada subsidiaries of BGI (other than Innerout, Inc.) as a Director since its
respective inception and as Treasurer since July 1989. Mr. Becker has been an
active developer of residential, recreational and commercial properties in both
Southern California and Southern Nevada since 1952. Mr. Becker organized the
Charleston Heights Water Company in 1954, which paved the way for the growth of
the northwestern area of Las Vegas. He is a past president and Life Director of
the National Association of Home Builders.
Ernest A. Becker IV is a director of BGI and has served each of the Nevada
subsidiaries of BGI (other than Innerout, Inc.) as a Director since its
respective inception and as Vice President since July 1989. He currently
operates Becker Built, a construction company owned by the Becker family. Mr.
Becker has served as a Director of the Southern Nevada Home Builders Association
for the past fourteen years and has held positions with the Fair Housing Task
Force, Development Permit Committee, Community Housing Resource Board and
Plumbers Examining Board for the City of Las Vegas and the Citizens Advisory
Council for Liquor and Gaming Control.
W. Bucky Howard was appointed General manager of Arizona Charlie's, Inc.
and Becker Gaming Group in January, 1997 and has served as Director of
International Operations of Becker Gaming, Inc. since October 1996. Mr. Howard
has been in Resort Gaming over thirty years, and has operational, marketing, and
pre-opening experience in Nevada, New Jersey and Mississippi. Mr. Howard served
the Hilton Corporation for eleven years in various capacities up to Vice
President of Casino Operations in Atlantic City. Mr. Howard also served five
years with the Trump Organization as Vice President Casino Operations, Executive
Vice President of Operations and as President of Trump Taj Mahal. Mr. Howard was
involved in planning, developing, designing, training and implementing all
phases of operations.
Paul Tomba has served AC and BGG as Food and Beverage Director since June
1995. Prior to his employment at Arizona Charlie's, he served as Beverage
Manager for Caesar's Palace and the Golden Nugget Hotel and Casino in Las Vegas.
Mr. Tomba also managed private country clubs in the greater Cleveland area and
has over twenty-six years experience in the food and beverage industry.
Debra Pingul was appointed Director of Personnel of AC in February 1991.
Prior thereto, Ms. Pingul held supervisory positions in human resources with the
Marina Hotel and Casino from 1985 to 1990 and Vacation Village from 1990 to
1991.
Doug Hardesty was appointed Director of Technical Services of each of the
Nevada subsidiaries of BGI in April 1991. From March 1988 to April 1991, Mr.
Hardesty served as Operations Officer of AC. Prior thereto, he held managerial
positions with firms engaged in the sale and servicing of systems hardware.
Item 11. Executive Compensation
The following table sets forth the compensation paid by AC (unless
otherwise indicated) for services rendered in all capacities to BGI (and its
subsidiaries) during the fiscal year ended June 30, 1997, with respect to the
Chief Executive Officer of AC and all other persons who served as executive
officers of AC during the year ended June 30, 1997 and whose aggregate annual
compensation exceeded $100,000 for such period. No compensation has been paid to
executives by CQC for services rendered during the year ended June 30, 1997.
<TABLE>
Summary Compensation Table
--------------------------
<CAPTION>
Annual Compensation
-------------------
All Other
Name and Position Salary Bonus Compensation
- ----------------- ------ ----- ------------
<S> <C> <C> <C>
Bruce F. Becker, Chief
Executive Officer
and President of
BGI and each subsidiary .... $500,000(1) $ 0 $ 51,520(2)(3)
Ron Lurie, Director-Corporate
Development of BGI, General
Manager of SC and Director
of Marketing of AC ......... $140,539(4) $ 0 $ 1,587(4)
W. Bucky Howard, General
Manager of AC, BGG and
Director of International
Operations at BGI .......... $118,077 $ 0 $ -
Bart Masi, General Manager
of AC and BGG (terminated
January 5, 1997)............ $108,000 $ 0 $ 2,700(3)
Duke Pettit, Director of Slot
Operations (terminated July
17, 1997) $104,030 $ 0 $ 3,641(3)
- ----------
<FN>
(1) Does not include amounts entitled to under employment agreement. Mr. Becker
has voluntarily postponed scheduled salary increases of $100,000 for calendar
year 1995, $200,000 for calendar year 1996 and $300,000 for calendar year 1997.
These salary amounts have been accrued by BGI, but have not yet been paid to Mr.
Becker. All of Mr.Becker's compensation is paid by BGI.
(2) Includes $49,338 paid by BGI during the fiscal year ended June 30, 1997 in
premiums on life insurance held by Bruce F. Becker for the benefit of a family
trust administered by Mr. Becker. Such life insurance, which has an aggregate
death benefit of $5,076,376, has been collateral assigned to BGI such that upon
the death of Mr. Becker, BGI shall be refunded all premiums previously paid by
it under the policy before the distribution of benefits to the named
beneficiary.
(3) BGI and each Nevada Subsidiary has adopted a 401(k) defined contribution
plan covering substantially all of its employees. Eligible employees may
contributed up to 6% of their annual compensation to the plan, up to certain
limits prescribed by the Internal Revenue Service. BGI and the Nevada subsidiary
have each agreed to contribute an amount equal to 25% of each employee's
contribution, up to an amount equal to 2% of each employee's compensation.
Employees may contribute an additional 4% to the Plan which is not matched by
BGI or Nevada subsidiary.
(4) Mr. Lurie's compensation is paid by SC. However, 50% of such compensation is
reimbursed to SC from AC.
</FN>
</TABLE>
Compensation of Directors
- -------------------------
The directors of BGI may receive $2,000 for each meeting of the Board of
Directors attended. The directors of the Operating Companies do not receive any
compensation for serving in such capacities.
Employment Agreement
- --------------------
In May 1994, BGI entered into a seven-year employment agreement with Bruce
F. Becker in his capacities as Chief Executive Officer and President. Under the
employment agreement, Mr. Becker is required to devote all of his business time
to the affairs of BGI and its affiliated companies. The agreement provides for
an annual base salary of $800,000 per year during calendar year 1997, increasing
by $100,000 each calendar year thereafter through December 31, 2001. However,
for the third consecutive year, Mr. Becker has elected to postpone his scheduled
annual salary increase. These deferred salary amounts, aggregating $450,000
through June 30, 1997, and have been accrued by BGI, but have not yet been paid
to Mr. Becker. Mr. Becker is also entitled to the use of an automobile and such
bonuses and other benefits as the Board of Directors may award from time to time
in its discretion. In addition, BGI maintains certain life insurance coverage
referred to under Executive Compensation above.
The employment agreement provides that if Mr. Becker's employment is
terminated either (i) by BGI other than for cause or by reason of physical or
mental disability, or (ii) by Mr. Becker for good reason, Mr. Becker will be
entitled to a severance payment equal to four times his then annual base salary
if such termination occurs during the first year of the agreement or three times
his then annual base salary if such termination occurs after the first year of
the agreement. Such severance payment will be payable in a lump sum within
thirty (30) days of termination. Under the agreement, BGI shall have cause to
terminate Mr. Becker if he consistently refuses to substantially perform, or
engages in willful misconduct in the substantial performance of his duties and
obligations under the employment agreement or if he materially breaches the
agreement. Mr. Becker may terminate his employment for good reason if he is
assigned by BGI to a position of lesser or inconsistent authority than that
described in the employment agreement or is required to relocate outside Las
Vegas, or if BGI fails to substantially comply with the employment agreement.
Consulting Agreements
- ---------------------
BGI entered into consulting agreements with Ernest A. Becker III, Ernest A.
Becker IV and Barry W. Becker (the "Consultants"). The agreements have
three-year terms which expired on May 31, 1997. The agreements provided for
monthly consulting fees of $12,500, $8,334 and $8,334, respectively. These
agreements were renewed for additional three-year terms, however, beginning June
1, 1997 the Consultants have voluntarily postponed receipt of the monthly
consulting fees. At June 30, 1997, such fees in the total amount of $29,168 have
been accrued by BGI but have not been paid to the Consultants. The agreements
provide for indemnification of the Consultants for claims arising out of their
services to BGI, other than claims arising from gross negligence, willful
malfeasance or fraud. The Consultants are prohibited from competing with BGI or
its affiliates or soliciting for employment any person employed or recently
employed by BGI or its affiliates. Such obligations also apply beyond the
consulting period.
Compensation Committee Interlocks and Insider Participation
None of the board of directors of BGI or its subsidiaries has had or
currently has a compensation committee or other committee performing equivalent
functions. During the fiscal year ended June 30, 1997, Ernest A. Becker, III and
Bruce F. Becker in their capacities as directors of each of the Nevada
subsidiaries participated in deliberations concerning compensation of the
executive officers of such companies.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The Company is a wholly owned subsidiary of BGI. Accordingly, BGI is the
sole beneficial owner of the Company's common stock.
Item 13. Certain Relationships and Related Transactions
Since June 1, 1994, BGI has provided managerial and related services to
its subsidiaries. BGI has entered into a management agreement with each of the
AC, SC and BGG (and CQC, which is not expected to have any operations) to
provide executive and administrative services in exchange for a management fee
equal to 5% of each such company's gross operating revenues (before deduction of
promotional allowances). However, the AC Indenture will prohibit the payment of
management fees by AC until certain conditions have been satisfied and
thereafter in excess of specified amounts. The rate at which management fees are
to be payable was determined based on the level of management support to be
provided by BGI to the operating companies, the level of expense anticipated to
be incurred by BGI in connection with such support, and the gaming-related
experience of the persons expected to provide such support on behalf of Becker
Gaming and their familiarity with the operating companies and their businesses.
Accordingly, such fee does not necessarily reflect that which could be obtained
from an unaffiliated party, which could not be expected to provide the same
support or to possess the same gaming-related experience or familiarity with the
operating companies. However, based on its knowledge of similar management
service arrangements entered into by other Las Vegas casino-hotels, such rate is
believed to be at or near the top of the range of fees customarily paid for such
services in such market. Due to the decision to suspend development of CQC's
riverboat casino project and sell its assets, the majority of BGI's management
and administrative services are anticipated to benefit AC in the future.
Accordingly, in late March 1995, BGI transferred approximately 40 employees
involved in accounting and administrative functions from BGI to AC. These
employees were originally employees of AC and were transferred to BGI in June
1994. In connection with this transfer, in October 1995, BGI temporarily reduced
the amount of AC's management fee to a net 1.0% of AC's gross revenues
(previously 5.0% of gross revenues) based on the reduction in services it will
receive from BGI in the future. Such temporary reduction remained in place
through fiscal 1997 and is not to be further modified during fiscal 1998. AC, SC
and BGG incurred management fees of $664,000, $140,000 and $518,000,
respectively, to BGI in fiscal 1997.
AC has issued a limited guaranty of the payment of principal of and
interest on the CQC Notes. See "Item 1. Business - Arizona Charlie's, Inc. -
Claims by Trustee" Similarly, SC has issued a limited guaranty in connection
with the payment of principal of and interest on the AC Notes.
During fiscal 1997, AC leased office, storage and laundry space from
Charleston Heights Shopping Center ("CHSC"), a partnership owned by the Becker
family. Total lease rental payments (including insurance, tax and common area
maintenance payments) of approximately $222,000 were paid by AC to CHSC in
fiscal 1997. Based on rental rates offered for properties which are similarly
situated and offer comparable features, AC believes that such rental rates were
below comparable market rates.
Each of the Nevada subsidiaries previously operated as a subchapter S
corporation under the federal tax laws. As of December 31, 1993, the S
corporation status of each of the Nevada subsidiaries was terminated. Prior to
the termination of S corporation status, each of the Nevada subsidiaries
distributed to their stockholders undistributed income on which such
stockholders had previously paid federal income taxes equal to $5,000,000, in
the case of AC, $3,000,000, in the case of SC, and $800,000, in the case of BGG.
The amounts distributed were loaned back to such companies in full by the
stockholders. The AC and SC loans are repayable pursuant to subordinated
stockholder notes maturing in 2001 and bearing interest at the rate of 10%
annually, payable monthly. However, beginning May 1, 1997 the stockholders have
voluntary postponed the receipt of interest associated with the AC Notes. The
BGG loans are repayable pursuant to notes maturing in December 1997 and bearing
interest at the rate of 10% annually, payable monthly. In addition, the Nevada
subsidiaries have agreed to distribute to their stockholders cash sufficient to
satisfy the federal income tax obligations of such stockholders resulting from
their ownership interests therein (including taxes payable with respect to
income earned previously) through the date of termination of S corporation
status, subject to limitations imposed under the Indentures. The stockholders
have filed all tax returns for the periods during which the Nevada subsidiaries
operated as S corporations. Accordingly, the exposure of the Nevada subsidiaries
under the tax indemnities will be limited to taxes which may become payable in
the future with respect to periods through 1993 as a result of any audit of a
stockholder return by tax authorities. Such amounts may be material, although
the AC Indenture limits such payments by AC and SC to an aggregate of
$2,250,000.
SC has executed gaming machine service agreements with BGG pursuant to
which SC provides gaming machine maintenance and other services to each BGG bar
and restaurant for a fixed fee. Fees paid by BGG to SC for such services totaled
approximately $85,000 in fiscal 1997. The gaming machine maintenance fees
payable by BGG to SC reflect rates which management believes (based on market
research conducted on an informal basis, from time to time, by SC) are charged
for similar services by other gaming machine service companies operating in the
Las Vegas area.
During 1991, SC purchased the assets of a restaurant/bar facility for
approximately $525,000 for use by BGG. The Company entered into an agreement to
lease (as lessor) the facility to BGG under an agreement which was terminated
when the facility was closed on April 21, 1996 and the worthless improvements
and equipment were abandoned. The liquor license will be transferred to a new
BGG location currently under construction which is expected to open in late
1997.
SC purchased and leased to BGG's wholly owned subsidiary the personal
property used at Charlie's Bar Down Under. This lease calls for annual rent of
$94,392 to be paid in equal monthly installments in advance, beginning on April
1, 1995.
The Becker family members have guaranteed the payment of a $126,000 note
payable of SC, various term loans held by SC and a term loan to BGG. The
outstanding principal balances of the SC and BGG term loans were $499,000 and
$828,000, respectively, as of June 30, 1997.
Bruce F. Becker resides in one of Arizona Charlie's suites at a rental
rate of $1,520 per month payable in advance, pursuant to a one-year lease which
commenced January 1, 1995. This lease automatically renews for successive terms
of one-year each unless terminated.
Bruce F. Becker operates a sole proprietorship under the name "Becker
Vending" which places arcade, cigarette, music and other vending machines at
Arizona Charlie's, BGG's restaurants, and several of SC's slot route locations.
AC provides nominal collection and accounting services to Becker Vending in
connection with these machines. None of the Nevada subsidiaries receives or is
expected to receive any rental fee or other payment from Becker Vending in
connection with these arrangements. Becker Vending retains all amounts deposited
in its vending machines. Becker Vending also sells to AC cigarettes, candy and
similar items at wholesale prices for resale in the Arizona Charlie's gift shop.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
The following are filed as part of this Report:
(a)1. Financial Statements
An Index to Financial Statements and Schedule appears
at page F-1 hereof
(b)2. Financial Statement Schedules
The following Financial Statement Schedules are filed
herewith:
(a)3. Exhibits
2.1 Agreement of Reorganization dated November 16, 1993,
by and among Becker Gaming, Inc. ("BGI"), Arizona
Charlie's, Inc. ("Arizona Charlie's"), Sunset
Coin, Inc. ("Sunset Coin"), Becker Gaming Group, Inc.
("Becker Gaming Group"), Capitol Queen & Casino, Inc.
("Capitol Queen"), Charlie's Land Company ("CLC") ,
and each of Ernest A. Becker, III, Ernest A. Becker,
IV, Barry W. Becker and Bruce F. Becker
(collectively, the "Beckers").*
3.1 Articles of Incorporation of Arizona Charlie's.*
3.2 Amended and Restated By-Laws of Arizona Charlie's.*
3.3 Articles of Incorporation of Sunset Coin.*
3.4 Amended and Restated By-Laws of Sunset Coin.*
10.1 Purchase Agreement dated November 15, 1993 among BGI, Arizona
Charlie's, Capitol Queen, Sunset Coin and the purchasers named
therein (the "Purchasers").*
10.2 Indenture dated November 15, 1993 among Arizona Charlie's, as issuer,
Sunset Coin, as guarantor, and IBJ Schroder Bank & Trust Company
("IBJ"), as trustee.*
10.3 Indenture dated November 15, 1993 among Capitol Queen, as issuer,
Arizona Charlie's, as guarantor, and IBJ, as trustee.*
10.4 Fee and Leasehold Deed of Trust, Assignment of Leases and Subleases,
Security Agreement and Fixture Filing dated November 15, 1993 by
Arizona Charlie's and CLC, as grantors, to Land Title of Nevada,
Inc., as trustee, for the benefit of IBJ, as collateral agent.*
10.5 Security Agreement dated November 15, 1993 between Arizona Charlie's
and IBJ, as collateral agent.*
10.6 Stock Pledge Agreement dated November 15, 1993 between Arizona
Charlie's and IBJ, as collateral agent.*
10.7 Collateral Agency Agreement dated November 15, 1993 among Arizona
Charlie's, CLC and IBJ, as trustee and collateral agent.*
10.8 Disbursement and Escrow Agreement dated November 15, 1993 among
Arizona Charlie's and IBJ, as escrow agent, trustee and collateral
agent.*
10.9 Registration Rights Agreement dated November 15, 1993
among Arizona Charlie's, Sunset Coin and the
Purchasers.*
10.10 Registration Rights Agreement dated November 15, 1993
among Capitol Queen, Arizona Charlie's and the
Purchasers.*
10.11 Promissory Notes dated December 24, 1993 made by each
of the Beckers in favor of Arizona Charlie's. *
10.12 Tax Indemnity Agreement dated December 24, 1993 among Arizona
Charlie's, Sunset Coin, Becker Gaming Group and each of the Beckers.
Included at Exhibit G to Exhibit 2-1 hereof.*
10.13 Form of Management Agreement to be entered into between BGI and each
of Arizona Charlie's, Capitol Queen, Sunset Coin and Becker Gaming
Group. Included at Exhibit I to Exhibit 2-1 hereof.*
10.14 Form of Tax Allocation Agreement to be entered into between BGI and
each of Arizona Charlie's, Sunset Coin, Becker Gaming Group and
Capitol Queen. Included at Exhibit J to Exhibit 2-1 hereof.*
10.15 Letter Agreement dated September 10, 1993 among BGI, Arizona
Charlie's, Capitol Queen and Ladenburg, Thalmann & Co., Inc., as
placement agent.*
10.16 Airplane lease dated April 18, 1989 between Arizona Charlie's and Las
Vegas Auto Leasing.*
10.17 Lease dated March 1, 1989 between CLC and Arizona Charlie's.*
10.18 Leases dated May 1, 1988 and August 21, 1990 between Charleston
Heights Shopping Center and Arizona Charlie's.*
10.19 Land Purchase Option Contract dated January 4, 1993 between Linda Ann
and Harvey L. McCray and Vernon M. and Joyce G. Burkhalter, as
seller, and R.Q. Enterprises, as buyer; and Wire Transfer Order and
Closing Document dated July 26, 1993 between Arizona Charlie's and
First Interstate Bank of Nevada.*
10.20 Building Contract dated December 10, 1993 between Arizona Charlie's
and Marnell Corrao & Associates.*
10.21 First Supplemental Indenture dated January 1, 1995 among Arizona
Charlie's, as issuer, Sunset Coin, as guarantor, and IBJ, as trustee.
10.22 First Supplemental Indenture dated January 1, 1995 among Capitol
Queen, as issuer, Arizona Charlie's, as guarantor, and IBJ, as
Trustee.
10.23 Lease agreement between Arizona Charlie's, Inc. and
Bruce F. Becker.
- ----------
* All Exhibits are incorporated by reference to the Company's Registration
Statement on Form S-1 (33-75808) declared effective by the Securities and
Exchange Commission on May 20, 1994.
(b) Reports on Form 8-K
None.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARIZONA CHARLIE'S, INC.
Dated: September 26, 1997 By: /s/ Bruce F. Becker
------------------------
Bruce F. Becker, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 26th day of September, 1997.
Signature Title
/s/ Bruce F. Becker President, Chief Executive
- ------------------------- Officer (Principal
Bruce F. Becker Executive Officer) and
Director
/s/ Jerry Griffis Controller (Principal
- ------------------------- Financial and
Jerry Griffis Accounting Officer
/s/ Barry W. Becker Director
- -------------------------
Barry W. Becker
/s/ Ernest A. Becker, III Director
- -------------------------
Ernest A. Becker, III
/s/ Ernest A. Becker, IV Director
- -------------------------
Ernest A. Becker, IV
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act
The Company has not and does not intend to send to its security holders any
annual report with respect to the Registrant's most recent fiscal year or any
proxy statement, form of proxy or other proxy soliciting material with respect
to a meeting of security holders.
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
ARIZONA CHARLIE'S, INC.
Report of Independent Accountants ..............................
Balance Sheets as of June 30, 1997 and 1996 ....................
Statements of Operations for the Years Ended June 30, 1997,
1996 and 1995 .................................................
Statements of Stockholder's Equity (Deficit) for the Years
Ended 1997, 1996 and 1995 ......................................
Statements of Cash Flows for the Years Ended June 30, 1997,
1996 and 1995 .................................................
Notes to Financial Statements ..................................
SUNSET COIN, INC.
Report of Independent Accountants ..............................
Balance Sheets as of June 30, 1997 and 1996 ....................
Statements of Income for the Years Ended June 30, 1997,
1996 and 1995 ..................................................
Statements of Stockholder's Equity for the Years Ended
June 30, 1997, 1996 and 1995 ...................................
Statements of Cash Flows for the Years Ended June 30, 1997,
1996 and 1995 ..................................................
Notes to Financial Statements ..................................
ARIZONA CHARLIE'S, INC.
Schedule II Valuation and Qualifying Accounts as of
and for the Years Ended June 30, 1997,
1996 and 1995 ...................................
SUNSET COIN, INC.
Schedule II Valuation and Qualifying Accounts as of
and for the Years Ended June 30, 1997,
1996 and 1995 ...................................
Schedules other than those listed above are omitted because they are not
required or are not applicable, or because the required information is shown in
the financial statements or notes to the financial statements. Columns omitted
from schedules filed have been omitted because the information is not
applicable.
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Arizona Charlie's, Inc.
We have audited the financial statements and the financial statement schedule of
Arizona Charlie's, Inc. (a wholly owned subsidiary of Becker Gaming, Inc.)
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arizona Charlie's, Inc. as of
June 30, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying financial statements have been prepared assuming that Arizona
Charlie's, Inc. ("AC") will continue as a going concern. As more fully described
in Note 2, AC is in default of debt covenants, resulting in a demand for
immediate payment of the debt and classification of such debt as currently
payable. AC is also obligated as a guarantor under indebtedness of an affiliated
company, and such indebtedness is also in default. AC does not have sufficient
resources to repay the indebtedness or honor its guarantee on a current basis.
Management's plans with respect to these matters are also described in Note 2.
These matters raise substantial doubt about the ability of Arizona Charlie's,
Inc. to continue as a going concern. The final outcome of these matters is not
presently determinable and the June 30, 1997 financial statements of Arizona
Charlie's, Inc. do not include any adjustment that might result from the outcome
of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
As Of June 30, 1997 and 1996
(Dollars In Thousands)
----------
================================================================================
ASSETS
1997 1996
-------- --------
Current assets:
Cash and cash equivalents.................... $ 5,481 $ 4,591
Restricted cash, in escrow account........... 10 10
Trade and other accounts receivable.......... 240 473
Receivable from related parties.............. 2,665 1,539
Inventories ................................. 529 575
Prepaid expenses ............................ 985 1,118
-------- --------
Total current assets...................... 9,910 8,306
-------- --------
Property and equipment:
Building and improvements ................... 37,490 37,488
Furniture and equipment...................... 23,916 22,575
Land improvements ........................... 1,629 1,628
-------- --------
63,035 61,691
Less, accumulated depreciation .............. (18,303) (16,218)
-------- --------
44,732 45,473
Land ........................................ 208 208
-------- --------
Net property and equipment.............. 44,940 45,681
-------- --------
Other assets:
Receivable from related party, noncurrent.... 210 987
Deposits and other .......................... 544 460
Notes receivable from related party ......... 4,416 4,416
Financing costs, less accumulated
amortization of $1,923 (1997)
and $1,366 (1996) 1,937 2,507
-------- --------
Total other assets...................... 7,107 8,370
-------- --------
Total assets ........................... $ 61,957 $ 62,357
======== ========
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
1997 1996
-------- --------
Current liabilities:
Trade accounts payable...................... $ 1,047 $ 1,452
Accounts payable to related parties......... -- 4
Accrued expenses ........................... 2,642 2,329
Accrued interest ........................... 4,522 994
Management fees due Becker Gaming, Inc...... 5,347 4,682
Notes payable, current portion.............. 106 110
Notes payable to related party.............. 3,150 2,250
Current portion of
obligations under capital leases......... 12 15
Current portion of long-term debt .......... 464 --
Long-term debt classified as
current due to default
under covenants ......................... 55,000 55,000
-------- --------
Total current liabilities............ 72,290 66,836
Long-term debt, less current portion.......... 1,284 --
Subordinated notes payable to prior
stockholders ............................... 5,000 5,000
Obligations under capital leases,
less current portion ......... 29 22
-------- --------
Total liabilities.................... 78,603 71,858
-------- --------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, no par value, 2,500
shares authorized, 1,000 shares
issued and outstanding................... 469 469
Retained earnings (deficit)................. (17,115) (9,970)
-------- --------
Total stockholder's equity
(deficit)................. (16,646) (9,501)
-------- --------
Total liabilities and
stockholder's equity (deficit)....... $ 61,957 $ 62,357
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF OPERATIONS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
------------------------------------------------
1997 1996 1995
---- ---- ----
Revenues:
Gaming ............................. $ 47,857 $ 52,831 $ 47,466
Food and beverage .................. 13,583 13,401 10,877
Hotel .............................. 3,352 3,208 2,614
Gift shop .......................... 553 590 577
Other .............................. 923 948 682
-------- -------- --------
Gross revenues ................. 66,268 70,978 62,216
Less, promotional allowances ......... (8,184) (7,677) (5,134)
-------- -------- --------
Net revenues ................... 58,084 63,301 57,082
-------- -------- --------
Operating expenses:
Gaming ............................. 17,229 18,612 15,359
Food and beverage .................. 12,337 12,511 11,388
Hotel .............................. 1,390 1,413 1,377
Gift shop .......................... 519 475 450
Advertising and promotion .......... 4,813 4,726 3,837
General and administrative ......... 17,463 17,660 15,358
Provision for losses on related
party receivlables ................ 220 601 1,592
Management fees - Becker Gaming,
Inc., net 664 1,396 3,099
Rent expense paid to related party . 222 217 191
Depreciation and amortization ...... 3,568 3,491 3,373
-------- -------- --------
Total operating expenses ....... 58,425 61,102 56,024
-------- -------- --------
Operating income (loss)......... (341) 2,199 1,058
-------- -------- --------
Other income (expenses):
Interest income .................... 272 286 580
Interest expense ................... (7,275) (7,095) (7,250)
Interest capitalized ............... - - 676
Other, net ......................... 199 51 -
-------- -------- --------
Total other expenses ........... (6,804) (6,758) (5,994)
-------- -------- --------
Net (loss)income before income tax (7,145) (4,559) (4,936)
Provision for income taxes - - -
-------- -------- --------
Net (loss) income ................ $ (7,145) $ (4,559) $ (4,936)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) For The Years
Ended June 30, 1997, 1996 And 1995
(Dollars In Thousands)
================================================================================
Additional
Common Stock Paid-in
------------
Shares Amount Capital
------ ------- ------
Balances, June 30, 1994 ............ 1,000 $ 469 $-
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1995 ............ 1,000 469 --
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1996 ............ 1,000 469 --
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1997 ............ 1,000 $ 469 $-
====== ======= ======
Retained
Earnings
(Deficit) Total
------- -------
Balances, June 30, 1994 ............ $ (475) $ (6)
Net loss .......................... (4,936) (4,936)
------- -------
Balances, June 30, 1995 ............ (5,411) (4,942)
Net loss .......................... (4,559) (4,559)
------- -------
Balances, June 30, 1996 ............ $(9,970) $(9,501)
Net loss .......................... (7,145) (7,145)
------- -------
Balances, June 30, 1997 ............ $(17,115) $(16,646)
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
--------
1997 1996 1995
-------- -------- --------
Cash flows from operating activities:
Net income (loss) ............................ $ (7,145) $ (4,559) $ (4,936)
-------- -------- --------
Adjustments to reconcile net income
(loss) to net provided by (used by)
operating activities:
Provision for losses on related
party receivables .......................... 220 601 1,592
Depreciation and amortization ............... 3,568 3,491 3,373
(Gain) loss on sale of equipment ............ (129) 11 (2)
(Increase) decrease in operating assets:
Receivables ................................. 233 185 (387)
Inventories ................................. 46 86 (108)
Prepaid expenses ............................ 322 241 (339)
Deposits and other .......................... (12) (41) (92)
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts
for capital expenditures.................... (409) 3 (144)
Accrued interest ............................ 3,528 (21) 135
Accrued expenses ............................ 313 247 581
Management fees due to Becker Gaming, Inc. .. 665 1,395 3,099
-------- -------- --------
Total adjustments ......................... 8,345 6,198 7,708
-------- -------- --------
Net cash provided by operating activities . 1,200 1,639 2,772
-------- -------- --------
Cash flows from investing activities:
Note receivable issued to CQC ............... -- -- (1,200)
Capital expenditures, net of amounts in
accounts payable ........................... (501) (190) (24,253)
Increase in receivable from Becker Gaming,
Inc. ........................................ (569) (2,065) (4,154)
Net (additions to) reductions in restricted
cash equivalents .......................... -- -- 26,102
Proceeds from assets sales .................. 67 15 104
-------- -------- --------
Net cash used in investing activities ..... (1,003) (2,240) (3,401)
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowing under notes payable . 900 -- 2,250
Principal payments on notes payable ......... (193) (208) (199)
Payments under capital lease obligations .... (14) (4) (32)
-------- -------- --------
Net cash provided by (used in) financing
activities ................................. 693 (212) 2,019
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ................................ 890 (813) 1,390
Cash and cash equivalents, beginning of
the year .................................... 4,591 5,404 4,014
-------- -------- --------
Cash and cash equivalents, end of the year .... $ 5,481 $ 4,591 $ 5,404
======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
1.Summary Of Significant Accounting Policies:
Nature Of Operations
- --------------------
Arizona Charlie's, Inc. ("AC" or the "Company") owns and operates
a casino and related hotel in Las Vegas, Nevada.
In connection with the financing transaction more fully discussed in Note 6, the
stockholders of AC exchanged all of their stock in the Company for stock of
Becker Gaming, Inc. ("BGI") (the "Reorganization") and, effective June 1, 1994,
AC became a wholly owned subsidiary of BGI. BGI has no independent activities
other than providing management and administrative services to, and exploring
and developing business opportunities for its subsidiaries, and serves as a
holding company for AC and the following entities:
* Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation formed to
develop a riverboat casino in Jefferson City, Missouri (the "Capitol
Queen").
* Sunset Coin, Inc. ("SC"), a Nevada corporation which operates a Las Vegas
gaming machine route and service business.
* Becker Gaming Group ("BGG"), a Nevada corporation which, together with
its wholly owned subsidiary Innerout, Inc., owns and operates restaurants
and bars in Las Vegas under the "Charlie's" name, each of which offers
gaming machines.
Subsequent to the Reorganization, certain overhead expenses of the Company
(primarily related to executive compensation), have been eliminated. However,
effective June 1, 1994, the Company is required to pay a management fee to BGI
in connection with executive services equal to a percentage of the Company's
gross operating revenues. Under the AC Indenture, no management fees will be
paid by AC until AC has attained a specified fixed charge coverage ratio of 2.25
to 1. However, such fees accrue without interest, until paid. See Note 9 of AC's
Notes to Financial Statements.
Gaming Revenue
- --------------
In accordance with industry practice, the Company recognizes as gaming revenue
the net win from gaming activities, which is the difference between gaming wins
and losses.
Promotional Allowances
- ----------------------
The retail value of hotel accommodations, food, beverage and gift shop items
provided to customers without charge is included in gross revenues and then
deducted as promotional allowances to arrive at net revenues. The estimated
costs of providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocations, as follows:
<TABLE>
Years Ended June 30,
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hotel ....................... $ 349,000 $ 261,000 $ 164,000
Food and Beverage ........... 4,094,000 3,824,000 2,260,000
--------- --------- ---------
$4,443,000 $4,085,000 $2,424,000
========== ========== ==========
</TABLE>
Cash Equivalents And Concentration Of Credit Risk
- -------------------------------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company has cash on deposit
with financial institutions in excess of federally insured amounts.
Inventories
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market.
Property And Equipment
- ----------------------
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense when incurred. Upon retirement or disposal of assets, the cost and
accumulated depreciation are eliminated from the accounts and the resulting gain
or loss is credited or charged to income, as appropriate.
Building, building improvements and land improvements are depreciated using the
straight-line method over estimated useful lives of 5 to 40 years. Furniture and
equipment are depreciated using straight-line and declining balance methods over
estimated useful lives of 5 to 10 years.
Financing Costs
- ---------------
Costs associated with the issuance of debt are deferred and amortized over the
life of the related indebtedness using the effective interest method.
Preopening Expense
- ------------------
Certain preopening costs, consisting principally of personnel costs, training
and other costs directly associated with the opening of a new hotel-casino or
significant expansions of the existing hotel-casino are capitalized and charged
to expense over a period not to exceed one year following the commencement of
related operations. During the year ended June 30, 1994, the Company capitalized
$27,000 of preopening costs which were amortized during the year ended June 30,
1995 after the expansion was completed. During the years ended June 30, 1997 and
1996, the Company did not capitalize any preopening costs.
Federal Income Taxes
- --------------------
Effective January 1, 1994, the Company terminated its S corporation election and
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
In connection with the Reorganization, beginning June 1, 1994, the Company is
included in the consolidated federal income tax returns filed by BGI. AC's tax
allocation is based on the amount of tax it would incur if it filed a separate
return.
Reclassifications
- -----------------
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates, particularly with respect to
the matters discussed in Note 2.
2. CQC Gaming License, Default Under Indebtedness,
Management's Plans, And Going Concern:
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 almost 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 subsequently abandoned the
project and is currently looking for alternative uses for the riverboat,
including opportunities to sell or lease it to another operator.
CQC financed the Capitol Queen project through the issuance of $40,000,000 in
principal amount of 12% First Mortgage Notes due November 15, 2000 (the "CQC
Notes"). As of January 1, 1995, the 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 first step
repurchase of $20,000,000 principal amount of the 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 remained 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 November 15, 1995, May
15, 1996, November 15, 1996 and May 15, 1997 and AC (which has guaranteed the
CQC Notes as more fully described below) did not have available funds to advance
on behalf of CQC.
Concurrent with the issuance of the CQC Notes, AC completed a private placement
debt financing of $55,000,000 in principal amount of 12% First Mortgage Notes
due November 15, 2000 (the "AC Notes"). The AC Notes require annual interest
payments of $6,600,000, payable in equal installments semi-annually on May 15
and November 15. AC was not able to make its scheduled interest payment of
$3,300,000 on May 15, 1997 and SC (which has guaranteed the AC Notes as more
fully described below) did not have available funds to advance on behalf of AC.
AC is also in default of certain covenants under the AC Notes as more fully
described in Note 6. AC is restricted from selling assets under the covenants
governing the AC Notes and management believes that access to additional capital
from other sources is restricted as result of the above-described circumstances.
AC does not have sufficient financial resources (including a guarantee of the AC
Notes by SC, as more fully described below) to repay the AC Notes on a current
basis and satisfy its guarantee obligation (as more fully described below) with
respect to the CQC Notes.
The CQC Notes are guaranteed by AC (which guarantee is subject to release only
upon licensing of the Capitol Queen, which is not expected). The AC Notes are
guaranteed by SC (which guarantee is subject to release upon completion of the
Expansion, which management believes has been satisfied, and the attainment of a
fixed-coverage ratio by AC of 2.25 to 1 following the completion of the
Expansion, which has not been satisfied). The amount and extent of AC's guaranty
of the CQC Notes is in dispute. Legal counsel has advised management that, under
the terms of CQC indenture regarding fraudulent conveyance, the guarantee
liability of AC is not expected to be material.
On July 3, 1997 CQC received a notice of acceleration (the "Notice") from the
trustee and collateral agent for the CQC Notes. Pursuant to section 6.02 of the
indenture governing the CQC Notes, due to certain violations of the indenture
(as more fully described above), all of the outstanding CQC Notes are
immediately due and payable together with all accrued and unpaid interest
thereon.
On September 5, 1997, AC received a notice of acceleration from the trustee and
collateral agent for the AC Notes. Pursuant to section 6.02 of the indenture
governing the AC Notes, due to certain violations of the indenture (as more
fully described in Note 6), all of the outstanding AC Notes are immediately due
and payable together with all accrued and unpaid interest thereon.
CQC continues to market its riverboat assets to prospective buyers. Management
of the Company, AC and CQC are currently undergoing 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,
amongst other terms and conditions, (i) liquidation of CQC's remaining assets
for the benefit of the CQC bondholders, (ii) a limited cash payment by AC as
full and complete satisfaction of AC's guaranty of the CQC Notes, and (iii) AC's
issuance of a reduced amount of new notes as full and complete satisfaction of
the existing AC Notes. 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 June
30, 1997 financial statements of AC do not include any adjustment that might
result from the outcome of this uncertainty.
3.Supplemental Cash Flow Information:
The following are supplemental disclosures of cash flow information for the
years ended June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> .................................. <C> <C> <C>
Interest paid, net of amounts
capitalized ........................ $3,747,000 $7,116,000 $7,115,000
========== ========== ==========
Capitalized lease obligations
incurred ........................... $ 17,000 $ 34,000 $ 9,000
========== ========== ==========
Assets acquired through issuance of
long-term debt ................ .... $1,748,000 $ -- $ --
========== ========== ==========
Net transfer of assets and related
liabilities from Becker Gaming, Inc. $ -- $ -- $ 25,000
========== ========== ==========
</TABLE>
4.Accrued Expenses:
Major classes of accrued expenses consist of the following as of June 30, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Wages payable and accrued salaries $ 824,000 $ 811,000
Accrued vacation ................. 336,000 306,000
Group insurance .................. 447,000 352,000
Gaming taxes ..................... 221,000 239,000
Payroll and other taxes .......... 356,000 405,000
Charlie Card slot club liability . 221,000 -
Progressive slot and table games .
liability ....................... 124,000 88,000
Other accrued expenses ........... 113,000 128,000
------- -------
$2,642,000 $2,329,000
========== ==========
</TABLE>
5.Notes Payable:
Notes payable consist of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Related parties:
Notes payable to SC with interest at 5.56%
uncollateralized and due May 1998 ............ $2,250,000 $2,250,000
Note payable to SC with interest at 4.50%
uncollateralized and due January, 1998 ..... 900,000 -
Nonrelated parties:
5.96% note payable in monthly
installments of $21,616, including interest,
through December, 1997, uncollateralized .... $ 106,000 $ 110,000
---------- ----------
3,256,000 2,360,000
Less current portion ........... (3,256,000) (2,360,000)
$ - $ -
========== ==========
</TABLE>
6.Long-Term Debt:
Long-term debt consists of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
12.75% note payable with interest and
principle due in monthly installments
through May, 2002 collateralized by
various slot equipment of AC and
personal guarantees of the
stockholders BGI ...................... $ 1,540,000 $ -
Othernotes payable due in monthly principle
only installments through June,
1998 collateralized by slot
machine equipment of the company ...... 208,000 -
12% First Mortgage Notes Due November 15,
2000 (the "AC Notes") with interest
payable semiannually classified as
currently payable due to defaults under
covenants (see below) ................. 55,000,000 55,000,000
---------- ----------
56,748,000 55,000,000
Less current portion ... (55,464,000) (55,000,000)
$ 1,284,000 $ -
=========== ============
</TABLE>
On November 18, 1993, the Company completed a private placement of the AC Notes.
The offering generated net proceeds of approximately $33,684,000 (after
deducting debt financing costs and approximately $16,791,000 used to repay
principal and accrued interest to a bank which was due and payable on November
18, 1993). The AC Notes are guaranteed by SC (which guarantee is subject to
release upon completion of the Expansion which management believes has been
satisfied and the attainment of a fixed coverage ratio by the Company of 2.25 to
1, following the completion of the Expansion, which has not been satisfied) and
are collateralized by a first mortgage on substantially all of assets of the
Company, including the Expansion.
As of June 30, 1997, AC is in default of certain debt covenants under the
Indenture governing the AC Notes. These covenant violations include (i) a
failure to meet a minimum Fixed Charge Coverage ratio, as defined in the
Indenture; (ii) advances by AC to Becker Gaming, Inc. which exceed amounts
allowed for under the Indenture (which advances remain outstanding at June 30,
1997); (iii) beginning in the fourth quarter of fiscal 1997, exceeding the
amount of new indebtedness allowed for under the Indenture; (iv) beginning with
the quarter ending December 31, 1995, AC has not met the Minimum Tangible Net
Worth Ratio of 1.5 to 1.0, as defined in the Indenture; and (v) AC did not make
its required semi-annual interest payment of $3,300,000 on May 15, 1997. In
addition, beginning with the quarter ending December 31, 1995, AC has not met
the Minimum Tangible Net Worth requirement defined in the Indenture. Under the
terms of the Indenture, AC is technically required to offer to buy back
$33,000,000 of the outstanding AC Notes at June 30, 1997 due to the failure to
meet this covenant, increasing by $5,500,000 each fiscal quarter. AC has not
made such offer and does not intend to do so while the discussions with the
Bondholder Committee are in process. As a result of these defaults under
covenants and demand for payment made by the Trustee, the AC Notes have been
classified as currently payable in the accompanying financial statements.
Management's plans are more fully described in Note 2.
The Indenture governing the AC Notes limits the use of the net proceeds from the
offering to fund the cost of the Expansion. The proceeds were placed in escrow
with a trustee pending draw- downs for qualifying project expenditures and are
classified as restricted cash, in escrow account, 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.
The Indenture contains covenants that, among other things, limit the ability of
the Company and, in certain cases, SC, to pay dividends or management fees, or
incur additional indebtedness. The Indenture also requires the Expansion to be
completed in a specified manner and time frame, which management believes has
been achieved.
In connection with AC's guarantee of the CQC Notes, the Indenture governing the
CQC Notes imposes certain restrictive covenants on the Company, including
minimum cash flow and net worth requirements and restrictions on additional
borrowings and distributions of earnings.
Maturities of long-term debt at June 30, 1997 (including the AC Notes which have
been classified as current) are as follows:
<TABLE>
<S> <C>
1998 $55,464,000
1999 270,000
2000 304,000
2001 348,000
2002 362,000
Thereafter -
-----------
$56,748,000
===========
</TABLE>
7.Income Taxes:
For the fiscal years ended June 30, 1997, 1996 and 1995, the Company incurred
net operating losses for federal income tax purposes, and accordingly, these
financial statements do not include a provision for federal income taxes.
The components included in determining the provision for income taxes are shown
below for the years ended June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision at federal income tax
statutory rate ............... $(2,429,000) $(1,550,000) $(1,678,000)
Increase (decrease) in taxes
resulting from:
Unrecognized tax benefit from
net operating losses ......... 2,373,000 1,489,000 1,633,000
Other ........................ 56,000 61,000 45,000
------ ------ ------
Income tax provision $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes. The major components of
deferred tax liabilities and assets as of June 30, 1997 and 1996 were as
follows: <TABLE> <CAPTION>
1997 1996
---- ----
Liabilities
- -----------
<S> <C> <C>
Depreciation ........................... $ 960,000 $ 542,000
----------- -----------
Assets
- ------
Allowances for bad debts ............... 820,000 745,000
Federal net operating loss carryforwards 5,836,000 3,119,000
--------- ---------
Total deferred tax assets ..... 6,656,000 3,864,000
Valuation allowance .................... (5,696,000) (3,322,000)
---------- ----------
Net deferred taxes ............ $ -- $ --
=========== ===========
</TABLE>
As of June 30, 1997, the Company had a federal net operating loss carryforward
of approximately $17,165,000 which expires between 2009 and 2012.
8.Leases And Commitments:
The Company has entered into capital lease agreements whereby the Company leases
various equipment under three-and five-year leases which expire at various dates
through 2001.
Property and equipment includes the following property leased under capital
leases as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment ................... $ 60,000 $ 43,000
Less accumulated depreciation (9,000) (3,000)
------ ------
$ 51,000 $ 40,000
======== ========
</TABLE>
The Company leases office space under a 10-year operating lease, which expires
in 1998, from Charleston Heights Shopping Center ("CHSC"), a company related
through common ownership, as more fully described in Note 9.
Future minimum lease payments, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms of
one year or more consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
Capital Lease Operating Leases
------------- ----------------
<S> <C> <C>
1998 15,000 $226,000
1999 15,000 --
2000 14,000 --
2001 4,000 --
- ---- ----- -----
Total minimum lease payments .......... $ 48,000 $226,000
========
Less amount representing interest ............ (7,000)
-----
Present value of net minimum
lease payments ....................... 41,000
Less current portion ......................... (12,000)
-------
Obligations under capital leases $ 29,000
========
</TABLE>
Aggregate rental expense under operating leases for the years ended June 30,
1997, 1996 and 1995 was $222,000, $217,000 and $191,000, respectively.
The following balances due to or from related parties existed as of June 30,
1997 and 1996. The identified related parties are stockholders of the Company or
affiliated companies related through common ownership.
<TABLE>
June 30, 1997
================================================================================
<CAPTION>
Current Noncurrent Notes
Receivables Receivables Receivable
----------- ----------- -----------
<S> <C> <C> <C>
Former Stockholders of the
Company ..................... $ 22,000 $ 165,000 --
BGI ......................... 2,584,000 -- $ 4,416,000
Sunset Coin ................. (63,000) -- --
Becker Vending .............. (15,000) -- --
Becker Enterprises .......... 1,000 -- --
CQC ......................... 1,213,000 -- 1,200,000
BGG:
Charlie's Lakeside ...... 5,000 -- --
Charlie's Bar ........... 16,000 -- --
Cantina Charlie's ....... 19,000 -- --
Cariba Charlie's ........ 26,000 45,000 --
Charlie's Saloon ........ 11,000 -- --
Charlie's Down Under .... 59,000 -- --
----------- ----------- -----------
Total ....................... 3,878,000 210,000 5,616,000
Less: Allowance for doubful
collection of amounts
due from CQC ........ (1,213,000) -- (1,200,000)
----------- ----------- -----------
$ 2,665,000 $ 210,000 $ 4,416,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Management
Fee and Subordinated
Accounts Notes Notes
Payable Payable Payable
---------- ---------- ----------
<S> <C> <C> <C>
Former Stockholders of the
Company ......................... $ -- $ -- $5,000,000
BGI ............................. 5,347,000 -- --
Sunset Coin ..................... -- 3,150,000 --
Becker Vending .................. -- -- --
Becker Enterprises .............. -- -- --
CQC ............................. -- -- --
BGG:
Charlie's Lakeside .......... -- -- --
Charlie's Bar ............... -- -- --
Cantina Charlie's ........... -- -- --
Cariba Charlie's ............ -- -- --
Charlie's Saloon ............ -- -- --
Charlie's Down Under ........ -- -- --
---------- ---------- ----------
Total ........................... 5,347,000 3,150,000 5,000,000
Less: Allowance for doubful
collection of amounts
due from CQC ............ -- -- --
---------- ---------- ----------
$5,347,000 $3,150,000 $5,000,000
========== ========== ==========
</TABLE>
<TABLE>
June 30, 1996
================================================================================
<CAPTION>
Current Noncurrent Notes
Receivables Receivables Receivable
----------- ----------- -----------
<S> <C> <C> <C>
Former Stockholders of the
Company .......................... $ 14,000 $ 165,000 $ --
BGI .............................. 1,400,000 747,000 4,416,000
Sunset Coin ...................... 47,000 -- --
Becker Vending ................... -- -- --
Becker Enterprises ............... 1,000 -- --
CQC .............................. 993,000 -- 1,200,000
BGG:
Charlie's Lakeside ........... (7,000) -- --
Charlie's Bar ................ 10,000 -- --
Cantina Charlie's ............ 11,000 -- --
Cariba Charlie's ............. 13,000 75,000 --
Charlie's Saloon ............. 6,000 -- --
Charlie's Down Under ......... 44,000 -- --
----------- ----------- -----------
Total ............................ 2,532,000 987,000 5,616,000
Less: Allowance for doubful
collection of amounts
due from CQC ............. (993,000) -- (1,200,000)
----------- ----------- -----------
$ 1,539,000 $ 987,000 $ 4,416,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Management Fee Subordinated
and Accounts Notes Notes
Payable Payable Payable
---------- ---------- ----------
<S> <C> <C> <C>
Former Stockholders of the
Company ........................... $ 4,000 $ -- $5,000,000
BGI ............................... 4,682,000 -- --
Sunset Coin ....................... -- $2,250,000 --
Becker Vending .................... -- -- --
Becker Enterprises ................ -- -- --
CQC ............................... -- -- --
BGG:
Charlie's Lakeside ............ -- -- --
Charlie's Bar ................. -- -- --
Cantina Charlie's ............. -- -- --
Cariba Charlie's .............. -- -- --
Charlie's Saloon .............. -- -- --
Charlie's Down Under .......... -- -- --
---------- ---------- ----------
Total ............................. 4,686,000 2,250,000 5,000,000
Less: Allowance for doubful
collection of amounts
due from CQC .............. -- -- --
---------- ---------- ----------
$4,686,000 $2,250,000 $5,000,000
========== ========== ==========
</TABLE>
CHSC owns the land on which the Company's administrative offices are located
and, prior to the Reorganization, CLC owned the land on which the Company's
operations are located. Rent expense paid to CHSC and CLC and included in
results of operations of the Company was $222,000, $217,000 and $191,000 for the
years ended June 30, 1997, 1996 and 1995, respectively. The rental fees include
the cost of insurance, taxes and common area maintenance on the land.
Receivables from BGG, stockholders of the Company and BGI bear interest at 8.0%,
4.5% and 6.0%, respectively. Interest income from related parties was $265,000,
$245,000 and $168,000 for the years ended June 30, 1997, 1996 and 1995,
respectively.
In anticipation of the January 1, 1994 termination of the Company's S
corporation election, on December 24, 1993, the Company distributed $5,000,000
to its stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable monthly, with the entire principal amount due on January 1, 2001.
During the years ended June 30, 1995 and 1997, the Company borrowed $2,250,000
and $900,000, respectively from SC for general working capital purposes. As
described in Note 5 these obligations are due in 1998 with interest payable at
5.56% and 4.50%, respectively.
Interest expense incurred under related party notes was $651,000, $633,000 and
$550,000 for the years ended June 30, 1997, 1996 and 1995, respectively. As of
June 30, 1997 and 1996 accrued interest expense under related party notes was
$397,000 and $169,000, respectively.
In May, 1995, CQC borrowed $1,200,000 from AC in order to have funds to make the
semi-annual interest payment due on the CQC Notes. The borrowing was executed as
an uncollateralized note payable to AC due May, 1996 with interest at the rate
of 5.56%. Due to the current financial condition of CQC, management has
determined that collectibility of the note, and of other advances of $301,000
(1995), $692,000 (1996) and $220,000 (1997) made to CQC, is doubtful.
Accordingly, provisions were made to fully reserve the advances and note payable
and losses have been recorded in the accompanying financial statements as
payments under guarantee obligations.
The Company has advanced to BGI an aggregate of approximately $6,364,000 to fund
BGI's operating expenses from June 1994 through June 1997 of which $4,416,000
represented notes receivable that are interest bearing and have been classified
as noncurrent based on management's expectation for the timing of repayments
from BGI. At June 30, 1997, accrued interest receivable on the interest bearing
portion of the advances to BGI totaled $636,000. The matters described in Note 2
raise substantial doubt about the ability of BGI's principal subsidiaries (and,
thus BGI) to continue as a going concern. Accordingly, management of the Company
believes it is reasonably possible that a portion, or the entire balance, of the
notes receivable from BGI will be uncollectible. However, an estimate of the
loss cannot presently be determined and no adjustment has been made to the
carrying value or classification of the notes receivable at June 30, 1997.
At June 30, 1997, the Company owed BGI approximately $5,347,000 in accrued
management fees. Under the terms of the indenture governing the AC Notes, these
fees cannot be paid to BGI until a specified fixed charge coverage ratio is
achieved.
Due to the decision to suspend development of CQC's riverboat casino project and
sell its assets, the majority of BGI's management and administrative services
are anticipated to benefit AC in the future. Accordingly, in late March 1995,
BGI transferred approximately 40 employees involved in accounting and
administrative functions from BGI to AC. These employees were originally
employees of AC and were transferred to BGI in June 1994, when the
Reorganization became effective. In connection with this transfer, in October
1995, the Company temporarily reduced the amount of the BGI management fee to a
net 1.0% of AC's gross revenues (previously 5.0% of gross revenues) based on the
reduction in services it will receive from BGI in the future. Such reduced
management fees continue to be in effect at June 30, 1997.
The Company's president operates a sole proprietorship under the name "Becker
Vending" which places arcade, cigarette, music and other vending machines at
Arizona Charlie's. The Company provides nominal collection and accounting
services to Becker Vending in connection with these machines. The Company does
not receive any rental fee or other payment from Becker Vending in connection
with these agreements. Becker Vending retains all amounts deposited in its
vending machines. Becker Vending also sells to the Company cigarettes, candy and
similar items for resale in the Arizona Charlie's gift shop.
10.Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending litigation
and claims will not have a material effect on the Company's results of
operations, cash flows, or financial position.
11. Defined Contributions Plan:
The Company has adopted a 401(k) Defined Contribution Plan (the "Plan") covering
substantially all of its employees. Eligible employees may contribute up to 10%
of their annual compensation to the Plan, up to certain limits prescribed by the
Internal Revenue Service. The Company matches 25% of each eligible employee's
contributions up to a maximum of 6% of their individual earnings. In addition,
the Company contributes an amount equal to 2% of each participant's earnings.
The Plan went into effect July 1, 1990.
The Company recorded charges for contributions of $548,000, $495,000 and
$395,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
12. Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
payable approximate their respective fair values due to the short-term
maturities and approximate market interest rates of these instruments.
Management is unable to determine a fair value for the outstanding $55,000,000
principal amount of 12% First Mortgage Notes due November 15, 2000 of Arizona
Charlie's, Inc. (the "AC Notes") or the outstanding $20,000,000 principal amount
($17,908,000 carrying amount at June 30, 1997) of 12% First Mortgage Notes due
November 15, 2000 of Capitol Queen and Casino, Inc. (the "CQC Notes"), which are
guaranteed by AC. As of June 30, 1997 the effective interest rate of the AC
Notes was 12%. It is not practicable to determine the fair value of these
financial instruments due to the debt covenant violations and related
uncertainties involved in negotiations with the holders of AC Notes and CQC
Notes, as more fully discussed in Note 2.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Sunset Coin, Inc.
We have audited the financial statements and the financial statement schedule of
Sunset Coin, Inc. (a wholly owned subsidiary of Becker Gaming, Inc.) listed in
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunset Coin, Inc. as of June
30, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying financial statements and financial statement schedule have been
prepared assuming that Sunset Coin, Inc. will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company is obligated as a
guarantor of certain of the indebtedness of Arizona Charlie's, Inc. ("AC"), a
company affiliated through common ownership, and such indebtedness is in default
of certain of its covenants and demand has been made for immediate payment of
the debt. AC is currently negotiating a restructuring of this indebtedness and
management's plans are described in Note 2. Should AC be unsuccessful in
modifying this indebtedness, the Company may be required to then satisfy its
guarantee obligation. The Company does not have sufficient resources available
to satisfy such obligation. These matters raise substantial doubt about the
ability of Sunset Coin, Inc. to continue as a going concern. The final outcome
of these matters is not presently determinable and the June 30, 1997 financial
statements of Sunset Coin, Inc. do not include any adjustment that might result
from the outcome of this uncertainty.
/(s)/ Coopers & Lybrand L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
As Of June 30, 1997 And 1996
(Dollars In Thousands)
================================================================================
ASSETS
1997 1996
------- -------
Current assets:
Cash ............................................. $ 707 $ 1,122
Current portion of notes receivable, net ......... 222 117
Notes receivable from related party .............. 3,150 2,250
Advances to related parties ...................... 312 111
Other receivables ................................ 27 105
Interest receivable from related party ........... 313 169
Prepaid expenses ................................. 45 46
------- -------
Total current assets ......................... 4,776 3,920
------- -------
Property and equipment:
Building and leasehold improvements .............. 174 174
Furniture, fixtures and equipment ................ 3,068 2,885
------- -------
3,242 3,059
Less, accumulated depreciation ................... (1,604) (1,370)
------- -------
Net property and equipment ................ 1,638 1,689
------- -------
Notes receivable, less current portion, net ........ 18 194
Other assets, less accumulated amortization
of $37 (1997) and $24 (1996) ..................... 75 88
------- -------
Total other assets ........................... 93 282
------- -------
Total assets ................................. $ 6,507 $ 5,891
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
1997 1996
------ ------
Current liabilities:
Trade accounts payable ................................. $ 13 $ 44
Accrued expenses ....................................... 39 55
Accrued taxes payable to related party ................. 779 553
Current portion of long- term debt ..................... 322 279
------ ------
Total current liabilities ........................ 1,153 931
------ ------
Long-term liabilities:
Long-term debt, less current portion .................. 305 502
Subordinated notes payable to
prior stockholders .................................. 3,000 3,000
------ ------
Total liabilities .................................. 4,458 4,433
------ ------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 2,500 shares
authorized, 400 shares issued and outstanding ......... 27 27
Retained earnings ...................................... 2,022 1,431
------ ------
Total stockholder's equity ......................... 2,049 1,458
------ ------
Total liabilities and stockholder's
equity ............................................. $6,507 $5,891
====== ======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF INCOME
(Dollars In Thousands)
================================================================================
Year Ended
June 30,
----------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenues:
Slot route:
From locations controlled by
related parties ............. $2,424 $2,370 $2,331
Other ......................... 126 153 279
Slot service fees:
From related parties .......... 85 93 77
Other ......................... 32 33 55
----------- ----------- -----------
Total revenues ........... 2,667 2,649 2,742
Operating expenses:
Slot route and service .......... 1,350 1,311 1,112
General and administrative ...... 51 86 103
Management fee -
Becker Gaming, Inc. ........... 140 137 150
Depreciation and amortization ... 288 298 249
----------- ----------- -----------
Total operating
expenses ............... 1,829 1,832 1,614
----------- ----------- -----------
Operating income ......... 838 817 1,128
----------- ----------- -----------
Other income (expense):
Interest income ................. 191 171 146
Interest expense ................ (366) (398) (356)
Rental and other income ......... 153 102 101
Net gain (loss)on sales of
equipment ..................... 1 (115) (13)
----------- ----------- -----------
Total other income
(expense) .............. (21) (240) (122)
----------- ----------- -----------
Income before
income taxes ........... 817 577 1,006
Provision for income taxes ........ (226) (196) (318)
----------- ----------- -----------
Net income ............... $591 $381 $688
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY For The Years Ended
June 30, 1997, 1996 And 1995
(Dollars In Thousands)
================================================================================
Common
Stock
-----------------------------------
Shares Amount
------ ------
Balances, June 30, 1994 ................ 400 $ 27
Net income .......................... -- --
------ ------
Balances, June 30, 1995 ................ 400 27
Net income ........................... -- --
------ ------
Balances, June 30, 1996 ................ 400 27
------ ------
Net income .......................... -- --
------ ------
Balance, June 30, 1997 ................. 400 $ 27
====== ======
Retained
Earnings Total
------- -------
Balances, June 30, 1994 .................................. $ 362 $ 389
Net income ............................................ 688 688
------- -------
Balances, June 30, 1995 .................................. 1,050 1,077
Net income ............................................. 381 381
------- -------
Balances, June 30, 1996 .................................. 1,431 1,458
------- -------
Net income ............................................ 591 591
------- -------
Balance, June 30, 1997 ................................... $ 2,022 $ 2,049
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
-----------------------------
1997 1996 1995
------- ------- -------
Cash flows from operating activities:
Net income ................................... $ 591 $ 381 $ 688
------- ------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for losses on notes receivable ... -- 44 44
Depreciation and amortization .............. 288 298 249
Net loss on sales of equipment ............. (1) 115 13
(Increase) decrease in operating assets:
Other receivables ......................... 78 (3) (5)
Interest receivable from related party .... (144) (125) (44)
Prepaid expenses .......................... 1 -- (2)
Other assets .............................. -- (6) (59)
Increase (decrease)in operating liabilities:
Accounts payable .......................... (31) (25) (6)
Accrued expenses .......................... (16) 128 158
Accrued taxes payable to related .......... 226 196 102
------- ------- -------
Total adjustments ...................... 401 622 450
------- ------- -------
Net cash provided by operating
activities ............................ 992 1,003 1,138
------- ------- -------
Cash flows from investing activities:
Capital expenditures ......................... (63) (208) (1,142)
Proceeds from sales of equipment ............. 19 12 26
Increase in related parties notes receivable . (900) -- (2,250)
Increase (decrease) in advances to
related parties ............................. (201) (72) 96
Issuance of notes receivable ................. -- -- (25)
Repayments of notes receivable ............... 71 88 161
------- ------- -------
Net cash provided by (used in)
investing activities .................. (1,074) (180) (3,134)
------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable .................. -- 109 738
Principal payments on notes payable .......... (333) (316) (176)
------- ------- -------
Net cash used (provided)
in financing activities ............... (333) (207) 562
------- ------- -------
Net increase in cash ................... (415) 616 (1,434)
Cash, beginning of year ........................ 1,122 506 1,940
------- ------- -------
Cash, end of year .............................. $ 707 $ 1,122 $ 506
======= ======= =======
Supplemental cash flow disclosures:
Interest paid ................................. $ 395 $ 395 $ 352
======= ======= =======
Assets acquired through issuance of
long-term debt .............................. $ 180 $ 69 $ --
======= ======= =======
Income taxes paid ............................. $ -- $ -- $ 102
======= ======= =======
Assets acquired by forgiveness of
accounts receivable .......................... $ -- $ 49 $ --
======= ======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
1.Summary Of Significant Accounting Policies:
Nature Of Operations
- --------------------
Sunset Coin, Inc. ("SC" or the "Company") operates a slot route in Las Vegas,
Nevada. The Company owns slot machines which it places in licensed locations. In
addition, the Company provides slot machine maintenance services to other owners
of slot machines pursuant to service agreements. At June 30, 1997, the Company
had route and service agreements with 32 slot locations which have between 4 and
35 slot machines each.
Effective June 1, 1994, the stockholders of SC exchanged all of their stock in
the Company for stock of Becker Gaming, Inc. ("BGI") (the "Reorganization"), and
SC became a wholly owned subsidiary of BGI. BGI has no independent business
activities other than providing management and administrative services to, and
exploring and developing business opportunities for, its subsidiaries, and
serves as a holding company for SC and the following entities:
* Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
* Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
formed to develop a riverboat casino in Jefferson City, Missouri
(the "Capitol Queen").
* Becker Gaming Group ("BGG"), a Nevada corporation which (together with
its wholly owned subsidiary, Innerout, Inc.) owns and operates
restaurants and bars in Las Vegas under the "Charlie's" name, each of
which offers gaming machines.
Effective June 1, 1994, the Company pays a management fee to BGI in connection
with executive and administrative services equal to 5% of the Company's gross
operating revenues.
Revenue
- -------
The primary source of revenue is from slot route participation agreements with
unaffiliated locations in which the Company recognizes as slot revenue a
predetermined percentage (operator's share) of the net win from Company-owned
machines at the slot locations. In accordance with industry practice, net win
from slot activities consists of the slot drop less jackpots and fills. The
percentage of the net win that the Company and the slot locations receive is
determined by individual participation agreements between the parties.
In addition, the Company also generates revenue under slot service agreements.
Under the agreements, the Company receives a fixed fee and certain cost
reimbursements in exchange for maintaining proprietor-owned slot machines.
The Company's participation agreements and slot service agreements range between
1 and 9 years in length and expire, subject to renewal, at various dates through
2003. At June 30, 1997, 221 (approximately 85%) of the machines operated or
serviced by the Company were installed at unaffiliated locations controlled by
the stockholders of BGI (as lessor), through restrictive lease provisions.
Property And Equipment, And Depreciation
- ----------------------------------------
Property and equipment are stated at cost. Expenditures for additions, renewals
and betterments are capitalized and expenditures for repairs and maintenance are
charged to expense as incurred. Upon retirement or disposal of assets, the cost
and accumulated depreciation are eliminated from the accounts and the resulting
gain or loss is credited or charged to income. Depreciation is computed by
either the straight-line or declining balance method over estimated useful lives
of 5 to 10 years for furniture, fixtures and equipment or, for buildings and
leasehold improvements, the lesser of the useful life or the lease term which
range from 5 to 40 years.
Cash Equivalents And Concentration Of Credit Risk
- -------------------------------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company has cash on deposit
with financial institutions in excess of federally insured amounts.
Income Tax Status
- -----------------
Effective January 1, 1994, the Company terminated its S corporation election and
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
In connection with the Reorganization, beginning June 1, 1994, the Company is
included in the consolidated federal income tax returns filed by BGI. SC's tax
allocation is based on the amount of tax it would incur if it filed a separate
return.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates, particularly with respect to
the matters described in Notes 2 and 3.
Reclassifications
- -----------------
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.
2. Guarantee Obligation, Management's Plans, and Going Concern:
SC has guaranteed the payment of interest and $55,000,000 principal amount of
12% First Mortgage Notes due November 15, 2000 issued by AC (the "AC Notes"). AC
is in default of certain covenants under the AC Notes as of June 30, 1997, and
on September 5, 1997 AC received a notice of acceleration from the trustee and
collateral agent for the AC Notes, and all of the outstanding AC Notes are
immediately due and payable together with all accrued and unpaid interest
thereon. In addition, AC has guaranteed the payment of interest and principal of
notes payable issued by CQC, (the amount and extent of which guaranty is in
dispute) of which $20,000,000 principal amount are outstanding at June 30, 1997.
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, amongst other terms and conditions, (i) liquidation
of CQC's remaining assets for the benefit of the CQC bondholders, (ii) a limited
cash payment by AC as full and complete satisfaction of AC's guarantee of the
CQC Notes, and (iii) AC's issuance of a reduced amount of new notes as full and
complete satisfaction of the existing AC Notes. 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.
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, and the Company does not have sufficient
resources to satisfy such obligation. Accordingly, these matters raise
substantial doubt about the ability of SC to continue as a going concern. The
final outcome of these matters is not presently determinable and the June 30,
1997 financial statements of SC do not include any adjustment that might result
from the outcome of this uncertainty.
3. Related-Party Transactions:
In anticipation of the January 1, 1994 termination of the Company's S
corporation election, on December 24, 1993, the Company distributed $3,000,000
to its stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable monthly, with the entire principal amount due on January 1, 2001.
Interest expense incurred by SC under the notes payable to prior shareholders
was $300,000, $300,000 and $300,000 for the years ended June 30, 1997, 1996 and
1995, respectively.
The payment of the SC stockholder notes is subordinated to any payments required
to be made by SC under its guarantee of the AC Notes.
The Company is involved in numerous other transactions with companies related
through common ownership. Such related-party transactions are summarized as
follows:
<TABLE>
Arizona Charlie's, Inc.
- -----------------------
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Uncollateralized notes receivable from AC
(interest at 5.56% and 4.50%)due May 1998
and Janaury, 1998 respectively ........... $ 3,150,000 $ 2,250,000
=========== ===========
Interest receivable from AC .................. 313,000 169,000
======= =======
Payables to AC .............................. - (46,000)
======= =======
Receivables from AC .......................... 67,000 -
======= =======
</TABLE>
The uncollateralized notes receivable from AC result from advances made by the
Company to AC for general working capital purposes. Due to the present financial
condition of AC, as described in Note 2, management of the Company believes it
is reasonably possible that a portion, or the entire balance, of the notes
receivable from AC will be uncollectible. However, an estimate of the loss
cannot presently be determined and no adjustment has been made to the carrying
value or classification of the notes receivable at June 30, 1997. Interest
earned by SC on the notes receivable from AC was $144,000, $125,000 and $44,000
for the years ended June 30, 1997, 1996 and 1995, respectively. The interest
receivable from AC and payables to AC are included in other receivables and
advances to related parties, respectively.
<TABLE>
Becker Gaming Group
- -------------------
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Advances to BGG ............................... $ 235,000 $ 149,000
========= =========
</TABLE>
The Company has executed slot service agreements with each of the BGG
restaurant/bar locations under which SC provides slot machine maintenance and
other services for a fixed fee. Fees paid by BGG to SC under the agreements are
included in slot service fee revenue in the accompanying financial statements
and totaled approximately $85,000, $93,000 and $77,000 in 1997, 1996 and 1995,
respectively.
During 1991, SC purchased the assets of a restaurant/bar facility for
approximately $525,000 for use by BGG. The Company entered into an agreement to
lease (as lessor) the facility (d.b.a. Charlie's Saloon) to BGG under an
agreement which was terminated when the facility was closed due to loss of a
third-party lease on April 21, 1996. In connection with the closing of the
facility, certain leasehold improvements and equipment were abandoned, and the
Company recognized a loss of $101,000 in 1996 representing the net book value of
the related assets. The liquor license with net book value of $60,000 is the
only remaining asset from the closed facility and will be transferred to a new
BGG location which is anticipated to open in late 1997.
Total lease payments for the years ended June 30, 1997, 1996 and 1995 included
as rental income in the accompanying financial statements amounted to $-0-,
$64,000 and $89,000, respectively. The total cost of depreciation expense
related to the Charlie's Saloon facility included in the accompanying financial
statements of Sunset Coin totaled $-0-, $17,000 and $22,000 in 1997, 1996 and
1995, respectively.
In 1995, SC purchased and leased personal property to be used by BGG in one of
its bar operations (d.b.a. Charlie's Bar Down Under). The purchase was financed
with long-term debt, as more fully described in Note 5. The net investment in
the assets leased to Charlie's Down Under as of June 30, 1997 and 1996 is listed
below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Building and improvements ..................... $ 174,000 $ 174,000
Furniture, fixtures and equipment ............. 550,000 550,000
------- -------
724,000 724,000
Less, accumulated depreciation ................ (138,000) (76,000)
-------- --------
$ 586,000 $ 648,000
========= =========
</TABLE>
On April 1, 1995, Charlie's Bar Down Under (the Lessee) entered into a 10 year
lease agreement with SC for the above property at an annual lease cost of
$95,000. BGG did not make any rental payments under the lease from the time
Charlie's Down Under opened through March 31, 1996, and the rentals were
forgiven, without recourse, by the Company. Due to the related-party nature of
the above transaction, SC recognized no income (as lessor) or loss through March
31, 1996 in the accompanying financial statements for this agreement. Total
lease payments for the years ended June 30, 1997 and 1996 included as rental
income in the accompanying financial statements amounted to $95,000 and $24,000
respectively.
The terms of the Charlie's Down Under lease require BGG to pay all taxes, normal
maintenance and insurance on the facility. The total cost of depreciation
expense related to the Charlie's Bar Down Under facility included in the
accompanying financial statements of SC totaled $61,000, $61,000 and $15,000 for
the years ended June 30, 1997, 1996 and 1995 respectively.
<TABLE>
Becker Gaming, Inc.
- -------------------
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Advances to BGI ........................... $7,000 $8,000
====== ======
Tax provisions payable to BGI (Note 6) .... $779,000 $553,000
======== ========
</TABLE>
SC pays management fees to BGI at 5% of the gross gaming revenues, effective
with the Reorganization on June 1, 1994. Total management fees included in the
accompanying financial statements were $140,000, $137,000 and $150,000 in 1997,
1996 and 1995, respectively.
4. Notes Receivable:
Notes receivable consist of loans to various proprietors who have entered into
slot route agreements with the Company. Such advances are primarily used to
finance long-term facility improvements to the slot locations and are as follows
at June 30, 1997 and 1996: <TABLE> <CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prime plus 2.5% note receivable,
due in weekly payments of $675
including interest through August
1998, collateralized by assets of
the related slot location ................... $ 47,000 $ 75,000
10% note receivable, due in weekly payments
of $650 including interest through
January 2003,
paid-in full in July, 1997 .................. 157,000 175,000
Other collateralized and uncollateralized
notes with varying interest rates up
to prime plus 2.5%, due at various
dates through December 2003 ................. 36,000 149,000
------- -------
240,000 399,000
Allowance for doubtful accounts ........ - (88,000)
------- -------
240,000 311,000
Less, current maturities .......... (222,000) (117,000)
-------- --------
$ 18,000 $ 194,000
========= =========
</TABLE>
5. Long-Term Debt:
Long-term debt consists of the following at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prime plus 1.5%, $1.5 million revolving
line of credit available through June 1994, (line expired and not renewed);
amounts outstanding under the line of credit at June 30, 1995 were converted to
a term note payable with interest and principal due monthly through June 1998,
collateralized by substantially all of the assets of SC and personal guarantees
of the stockholders of Becker
Gaming, Inc. ...................................... $ 33,000 $ 113,000
Prime plus 1.5%, term note payable with interest and principal due monthly
through January 1, 2001, collateralized by security agreement dated July 15,
1994 and a right to lien without notice on all property and deposit accounts of
SC Borrowings made under a non-revolving line
of credit agreement (see below) ................... 115,000 162,000
Prime plus 2.0%, term note payable with interest and principal due monthly
through April 23, 2000, collateralized by a security agreement dated July 15,
1994 and a right to lien without notice on all property and eposits accounts of
SC. Borrowings made under a non-revolving
line of credit agreement (see below) .............. 192,000 262,000
Prime plus 2.0%, term note payable with interest and principal due monthly
through April 23, 2000, collateralized by a security agreement dated July 15,
1994 and a right to lien without notice on all property and deposit accounts of
SC. Borrowings made under a non-revolving line of credit
agreement (see below) ............................. 88,000 119,000
Prime plus 1.5%, term note payable with interest
and principal due monthly through April 10, 2001,
collateralized by security agreement dated
October 2, 1995 and a right to lien without notice
on all property and deposit accounts of SC.
Borrowings made under a non-revolving line of credit
agreement (see below) ............................. 73,000 102,000
Other notes payable due in monthly installments
including interest through April, 1998
collateralized by slot machine equipment of the
Company and BGG ................................... 126,000 23,000
------ ------
627,000 781,000
Less, current portion ...................... (322,000) (279,000)
-------- --------
$ 305,000 $ 502,000
========= =========
</TABLE>
In July 1994, the Company entered into an agreement with a bank for a $1.2
million non-revolving line of credit. Each advance was evidenced by a separate
promissory note with a maturity date not exceeding 66 months from the date of
the respective advance. The Company was able to request advances through October
28, 1995 at which time the Company's right to receive advances under the
agreement was terminated until the defaults under the AC Notes and CQC Notes are
cured. Advances under the agreement bear interest at rates ranging from 1.5% to
2.0% plus the bank's prime rate.
The $1.2 million non-revolving line of credit includes an acceleration clause
which would cause the full amount of the obligation to become due on demand if a
material adverse change occurs in the SC's financial condition, business
operations, ownership or management.
Maturities of long-term debt at June 30, 1997 are as follows:
<TABLE>
<S> <C> <C>
1998 $322,000
1999 180,000
2000 120,000
2001 5,000
---- -----
$627,000
========
</TABLE>
6. Income Taxes:
The components of the income tax provision are summarized for June 30, 1997,
1996 and 1995 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Current:
<S> <C> <C> <C>
Federal ......................... $226,000 $196,000 $318,000
Deferred:
Federal ......................... -- -- --
-------- -------- --------
Total income tax provision $226,000 $196,000 $318,000
======== ======== ========
</TABLE>
The components included in determining the provision for income taxes are shown
below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at federal
income tax statutory rate ..... $ 285,000 $ 202,000 $ 342,000
Other ........................... (59,000) (6,000) (24,000)
--------- --------- ---------
Income tax provision
per statements of income $ 226,000 $ 196,000 $ 318,000
========= ========= =========
</TABLE>
Differences between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes were nominal.
Accordingly, deferred taxes have not been recognized.
7. Leases and Commitments:
Future minimum operating lease commitments at June 30, 1997, are as follows:
<TABLE>
<S> <C> <C>
1998 $35,200
1999 33,200
2000 11,200
2001 9,700
2002 5,200
------
$ 94,500
========
</TABLE>
Aggregate rent expense was $46,000, $40,000 and $38,000 in 1997, 1996 and 1995,
respectively.
8. Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending litigation
and claims will not have a material effect on the Company's results of
operations, cash flows, or financial position.
9. Employee Benefit Plans:
The Company participates in a 401(k) Defined Contribution Plan (the "Plan")
sponsored by AC which covers substantially all employees of SC. Participants may
contribute up to 10% of their annual compensation to the Plan, up to certain
limits prescribed by the Internal Revenue Service. The Company matches 25% of
each eligible employee's contribution up to a maximum of 6% of their individual
earnings. In addition, the Company contributes an amount equal to 2% of each
participant's earnings. The Plan went into effect July 1, 1990.
The Company recorded charges for contributions of $21,000, $19,000 and $15,000
for the years ended June 30, 1997, 1996 and 1995, respectively.
10.Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
approximate fair values due to the short-term maturities and the approximately
market interest rates of these instruments.
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE II
ARIZONA CHARLIE'S, INC.
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended June 30, 1997, 1996 And 1995
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
----------- ------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1997 .............. $2,193,000 $ 220,000 $ --
========== ========== ==========
Year ended June 30, 1996 .............. $1,592,000 $ 601,000 $ --
========== ========== ==========
Year ended June 30, 1995 .............. $ -- $1,592,000 $ --
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
----------- ---------- ----
<S> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1997 ............. $ -- $2,413,000
========== ==========
Year ended June 30, 1996 ............. $ -- $2,193,000
========== ==========
Year ended June 30, 1995 ............. $ -- $1,592,000
========== ==========
</TABLE>
<TABLE>
Deferred Tax Asset Valuation Allowance:
<S> <C> <C> <C>
Year ended June 30, 1997 .............. $3,322,000 $ -- $2,374,000
========== ========== ==========
Year ended June 30, 1996 .............. $1,840,000 $ -- $1,482,000
========== ========== ==========
Year ended June 30, 1995 .............. $ 213,000 $ -- $1,627,000
========== ========== ==========
</TABLE>
<TABLE>
Deferred Tax Asset Valuation Allowance:
<S> <C> <C>
Year ended June 30, 1997 ............. $ -- $5,696,000
========== ==========
Year ended June 30, 1996 ............. $ -- $3,322,000
========== ==========
Year ended June 30, 1995 ............. $ -- $1,840,000
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE II
SUNSET COIN, INC.
VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
June 30, 1997, 1996 And 1995
Additions
------------------------
<CAPTION>
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
- -------------------------------------- ----------- ----------- -----------
Allowance for doubtful accounts
<S> <C> <C> <C>
Year ended June 30, 1997 ............ $ 88,000 $ -- $ --
=========== =========== ===========
Year ended June 30, 1996 ............ $ 44,000 $ 44,000 $ --
=========== =========== ===========
Year ended June 30, 1995 ............ $ -- $ 44,000 $ --
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
- -------------------------------------- ----------- --------
<S> <C> <C>
Allowance for doubtful accounts
Year ended June 30, 1997 ............ $ 88,000 $ --
=========== ========
Year ended June 30, 1996 ............ $ -- $ 88,000
=========== ========
Year ended June 30, 1995 ............ $ -- $ 44,000
=========== ========
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT
2.1 Agreement of Reorganization dated November 16, 1993,
by and among Becker Gaming, Inc. ("BGI"), Arizona
Charlie's, Inc. ("Arizona Charlie's"), Sunset
Coin, Inc. ("Sunset Coin"), Becker Gaming Group, Inc.
("Becker Gaming Group"), Capitol Queen & Casino, Inc.
("Capitol Queen"), Charlie's Land Company ("CLC") ,
and each of Ernest A. Becker, III, Ernest A. Becker,
IV, Barry W. Becker and Bruce F. Becker
(collectively, the "Beckers").*
3.1 Articles of Incorporation of Arizona Charlie's.*
3.2 Amended and Restated By-Laws of Arizona Charlie's.*
3.3 Articles of Incorporation of Sunset Coin.*
3.4 Amended and Restated By-Laws of Sunset Coin.*
10.1 Purchase Agreement dated November 15, 1993 among BGI, Arizona
Charlie's, Capitol Queen, Sunset Coin and the purchasers named
therein (the "Purchasers").*
10.2 Indenture dated November 15, 1993 among Arizona Charlie's, as issuer,
Sunset Coin, as guarantor, and IBJ Schroder Bank & Trust Company
("IBJ"), as trustee.*
10.3 Indenture dated November 15, 1993 among Capitol Queen, as issuer,
Arizona Charlie's, as guarantor, and IBJ, as trustee.*
10.4 Fee and Leasehold Deed of Trust, Assignment of Leases and Subleases,
Security Agreement and Fixture Filing dated November 15, 1993 by
Arizona Charlie's and CLC, as grantors, to Land Title of Nevada,
Inc., as trustee, for the benefit of IBJ, as collateral agent.*
10.5 Security Agreement dated November 15, 1993 between Arizona Charlie's
and IBJ, as collateral agent.*
10.6 Stock Pledge Agreement dated November 15, 1993 between Arizona
Charlie's and IBJ, as collateral agent.*
10.7 Collateral Agency Agreement dated November 15, 1993 among Arizona
Charlie's, CLC and IBJ, as trustee and collateral agent.*
10.8 Disbursement and Escrow Agreement dated November 15, 1993 among
Arizona Charlie's and IBJ, as escrow agent, trustee and collateral
agent.*
10.9 Registration Rights Agreement dated November 15, 1993
among Arizona Charlie's, Sunset Coin and the
Purchasers.*
10.10 Registration Rights Agreement dated November 15, 1993
among Capitol Queen, Arizona Charlie's and the
Purchasers.*
10.11 Promissory Notes dated December 24, 1993 made by each
of the Beckers in favor of Arizona Charlie's. *
10.12 Tax Indemnity Agreement dated December 24, 1993 among Arizona
Charlie's, Sunset Coin, Becker Gaming Group and each of the Beckers.
Included at Exhibit G to Exhibit 2-1 hereof.*
10.13 Form of Management Agreement to be entered into between BGI and each
of Arizona Charlie's, Capitol Queen, Sunset Coin and Becker Gaming
Group. Included at Exhibit I to Exhibit 2-1 hereof.*
10.14 Form of Tax Allocation Agreement to be entered into between BGI and
each of Arizona Charlie's, Sunset Coin, Becker Gaming Group and
Capitol Queen. Included at Exhibit J to Exhibit 2-1 hereof.*
10.15 Letter Agreement dated September 10, 1993 among BGI, Arizona
Charlie's, Capitol Queen and Ladenburg, Thalmann & Co., Inc., as
placement agent.*
10.16 Airplane lease dated April 18, 1989 between Arizona Charlie's and Las
Vegas Auto Leasing.*
10.17 Lease dated March 1, 1989 between CLC and Arizona Charlie's.*
10.18 Leases dated May 1, 1988 and August 21, 1990 between Charleston
Heights Shopping Center and Arizona Charlie's.*
10.19 Land Purchase Option Contract dated January 4, 1993 between Linda Ann
and Harvey L. McCray and Vernon M. and Joyce G. Burkhalter, as
seller, and R.Q. Enterprises, as buyer; and Wire Transfer Order and
Closing Document dated July 26, 1993 between Arizona Charlie's and
First Interstate Bank of Nevada.*
10.20 Building Contract dated December 10, 1993 between Arizona Charlie's
and Marnell Corrao & Associates.*
10.21 First Supplemental Indenture dated January 1, 1995 among Arizona
Charlie's, as issuer, Sunset Coin, as guarantor, and IBJ, as trustee.
10.22 First Supplemental Indenture dated January 1, 1995 among Capitol
Queen, as issuer, Arizona Charlie's, as guarantor, and IBJ, as
Trustee.
10.23 Lease agreement between Arizona Charlie's, Inc. and
Bruce F. Becker.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,491,000
<SECURITIES> 0
<RECEIVABLES> 2,905,000
<ALLOWANCES> 0
<INVENTORY> 529,000
<CURRENT-ASSETS> 9,910,000
<PP&E> 63,035,000
<DEPRECIATION> 18,303,000
<TOTAL-ASSETS> 61,957,000
<CURRENT-LIABILITIES> 72,290,000
<BONDS> 0
0
0
<COMMON> 469,000
<OTHER-SE> (17,115,000)
<TOTAL-LIABILITY-AND-EQUITY> 61,957,000
<SALES> 0
<TOTAL-REVENUES> 58,084,000
<CGS> 0
<TOTAL-COSTS> 58,425,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,275,000
<INCOME-PRETAX> (7,145,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,145,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,145,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
