================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
----------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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]
----------
Commission file number 33-75806
CAPITOL QUEEN & CASINO, INC.
----------
MISSOURI 43-1652885
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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 100.
DOCUMENTS INCORPORATED BY REFERENCE
Specified exhibits listed in Part IV of this report are
incorporated by reference
to the Registrant's Statement on Form S-4 (33-75806) previously
filed.
================================================================================
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
Capitol Queen & Casino, Inc. ("CQC" or the "Company"), a wholly owned
subsidiary of Becker Gaming, Inc. ("BGI"), was formed to develop, construct, own
and operate the Capitol Queen riverboat casino in Jefferson City, Missouri,
where it was granted a three-year exclusive franchise by the city pursuant to a
Riverfront Development Agreement dated as of September 1, 1992 (the "Development
Agreement"), subject to state licensing to operate a gaming facility. CQC
commenced development and construction work on the Capitol Queen in November
1993. Such work was suspended in August and September 1994 for the reasons
discussed below. CQC's riverboat, the construction of which was completed, is
being stored by the builder. Funding for the Capitol Queen project had been
raised in November 1993 through the sale of the CQC Notes and the concurrent
sale of common stock purchase warrants by the Company, which contributed the net
proceeds therefrom to CQC.
On September 28, 1994, the Missouri Gaming Commission (the "Commission")
denied, without investigative review, CQC's application for a gaming license and
prohibited CQC from reapplying for a license for two years. The Commission's
ruling was based on a finding that CQC failed to disclose material and
substantive information on its gaming license application relating to a Purchase
Agreement dated September 20, 1993, pursuant to which BGI agreed to issue
promissory notes aggregating $5,925,000 in principal amount to various people in
Missouri in consideration for development services provided by them in
connection with the Capitol Queen project. The Purchase Agreement was rescinded
by the parties in early 1995.
CQC believes its Missouri application was complete and accurate. Moreover,
CQC fully disclosed the existence and terms of the Purchase Agreement, as well
as the services rendered by the persons to be compensated, in post-application
filings and communications with the Missouri Gaming Commission's staff. CQC also
disclosed these matters to the Nevada gaming authorities, who investigated and
conducted public hearings on these and other issues relating to applications for
licenses and approvals, all of which were unanimously granted to the Company in
May 1994. The Nevada gaming authorities most recently reexamined the issue in
connection with Becker Gaming Group and Innerout, Inc.'s applications for
licenses at Charlie's Bar Down Under, which were unanimously granted in March
1995. In addition, in anticipation of the pursuit of a possible gaming
development, the executive officers of the Company applied to the Mississippi
Gaming Commission for preliminary findings of suitability and were subsequently
found suitable by the Commission to engage in such activities in Mississippi.
CQC's then audited financial statements and public documents filed with the
Securities and Exchange Commission, all of which were submitted to the Missouri
Gaming Commission, also made these disclosures. Management believes that, based
on the foregoing, the Commission's ruling was and remains without basis.
Accordingly, CQC challenged the ruling through administrative and judicial
channels, which challenges have been largely successful. See "Item 3. - Legal
Proceedings".
Notwithstanding its efforts to seek redress of the Commission's ruling,
in December 1994, CQC, with the approval of the holders of the CQC Notes,
adopted a two-step plan (the "Repayment Plan") to repay the CQC Notes and any
accrued and unpaid interest thereon. The first step, effected in January 1995,
involved the repurchase of $20,000,000 principal amount of the CQC Notes and the
payment of accrued and unpaid interest thereon with proceeds then remaining in
the Capitol Queen project escrow account. The second step of the Repayment Plan,
not yet effected, required CQC, by March 31, 1995, to sell its riverboat, land
site and other project assets and to use the net proceeds realized upon the sale
of such assets to offer to repurchase additional CQC Notes.
CQC has actively marketed its riverboat and other assets for sale and
continues to do so, although such efforts have to date been unsuccessful in a
market that is deemed to be quite limited for vessels of the size and
configuration of that of the Capitol Queen. The failure of CQC to effect the
second step of the Repayment Plan has resulted in the Trustee under the
Indenture issuing a notice of acceleration of the debt and a demand for
immediate payment of the debt and accrued interest. Under the CQC Indenture, the
holders of 25% or more in principal amount of the CQC Notes may cause the CQC
Notes to be accelerated and declared to become immediately due and payable in
full. An aggregate of $20,000,000 principal amount of CQC Notes are outstanding.
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. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that as a
matter of law the 1995 election did not affect the validity of the Development
Agreement. To avoid the cost and uncertainty of litigation, however, CQC and
Jefferson City in June 1996 entered into an agreement pursuant to which the
Development Agreement was rescinded and Jefferson City refunded $300,000 of the
$400,000 CQC had paid to the City pursuant to the Agreement.
Claims by Trustee
Arizona Charlie's, Inc ("AC") currently has outstanding $55,000,000 of 12%
First Mortgages Notes due 2000. Sunset Coin, Inc., ("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").
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.
Item 2. Properties
CQC owns a site located across the Missouri River from the State capitol
in Jefferson City, Missouri, on which CQC had intended to construct the Capitol
Queen Square. The site, which was originally 80 acres, currently consists of
approximately 65 to 75 acres as a result of land lost to the Missouri River
during major flooding in the Midwest in 1993 and 1994. CQC has completed
construction of a riverboat casino that was to be located adjacent to the land
site. The riverboat vessel is approximately 218 feet long and 62 feet wide
providing approximately 26,000 square feet of interior space for up to
approximately 1,600 passengers.
Item 3. Legal Proceedings
The Company is a party to various lawsuits relating to routine matters
incidental to their respective businesses, in addition to the litigation
discussed below. Based on the amounts and issues believed to be in controversy
and management's evaluation of the merits of the claims after consultation with
counsel, management does not believe that the outcome of such litigation, in the
aggregate, will have a material adverse effect on the results of operations,
cash flows, or financial condition of BGI, CQC, or the Nevada Operating
Companies.
On October 31, 1994, CQC and BGI petitioned the Cole County, Missouri
Circuit Court in Jefferson City for a writ of mandamus with respect to the
ruling of the Missouri Gaming Commission (the "Commission"). In response to the
petition, the Circuit Court issued an order declaring that by denying CQC's
application for a riverboat gaming license without first conducting an
investigation and by deliberating in a closed session, the Commission had
violated Missouri gaming and open meeting laws. The Circuit Court issued a
preliminary writ of mandamus declaring the Commission's decision void and
ordering the Commission to immediately commence a full investigation and
thereafter to act on CQC's application. The Circuit Court ordered the Commission
to show cause within 30 days why the preliminary writ should not be made
permanent.
In response to the Circuit Court's order to show cause, the Commission
filed two actions, both unsuccessful, in the Missouri Court of Appeals for the
Western District. On November 16, 1994, the Commission petitioned the Court of
Appeals for a writ of prohibition against the Circuit Court, contending, among
other things, that CQC was not entitled to judicial relief because it had not
exhausted its administrative remedy of an evidentiary hearing before the
Commission. The Court of Appeals initially issued a preliminary writ of
prohibition staying further proceedings in the Circuit Court. However, in an
opinion issued on April 18, 1995, the Court of Appeals concluded that its
preliminary writ of prohibition had been improvidently granted, quashed the
preliminary writ, and denied the Commission's request for a permanent writ,
relegating the Commission to its remedies in the Circuit Court. On December 13,
1994, the Commission also filed an appeal of the Circuit Court's order to show
cause. On December 23, 1994 CQC moved to dismiss the appeal on the ground that
the preliminary writ of mandamus was not a final order and therefore was not
appealable. On January 5, 1995, the Court of Appeals granted CQC's motion and
dismissed the appeal.
On June 26, 1995, the Circuit Court issued a peremptory (permanent) writ
of mandamus similar to the preliminary writ, declaring the Commission's order
void and ordering the Commission to proceed with an investigation of CQC's
application "with all deliberate speed." On July 21, 1995, the Commission
appealed the Circuit Court's decision to the Missouri Court of Appeals for the
Western District, and on April 30, 1996, a three-judge panel of that Court ruled
that mandamus was not the proper vehicle for challenging the Commission's
decision. The Court of Appeals ruled that CQC may obtain judicial review only
after an administrative proceeding. The Court of Appeals also ruled that the
Missouri statutes did not prohibit the Commission from denying a license without
conducting an investigation, and that the claim that the Commission broke its
promise not to deny a license without first investigating should be raised in a
breach of contract action, not a mandamus petition. The Court of Appeals did not
address the merits; that is, it did not decide whether the Commission acted
arbitrarily or whether its decision was justified or a breach of its promises.
While CQC then asked the Missouri Supreme Court to review the Circuit Court's
decision, its ruling had immediate consequences for two reasons. First, a
Missouri Circuit Court in a separate action (discussed below) voided the
Commission's decision for the independent reason that it was made in violation
of Missouri's open meeting law. Second, after the decision in the open meeting
law case, CQC notified the Commission that it was withdrawing its application.
On November 1, 1994, concurrent with its efforts to obtain judicial
relief, CQC (with BGI as a co-party) requested an administrative hearing
pursuant to the Missouri gaming statutes, under which a denied applicant may
request an evidentiary hearing before a Commission appointed hearing officer.
The hearing officer's decision is subject to review by the Commission, and the
Commission's decision is in turn subject to judicial review. The Commission
filed an answer on November 29, 1994 alleging, among other things, that CQC was
not entitled to an administrative hearing because CQC had not been investigated.
On December 22, 1994 because the Commission had not appointed a hearing officer
or otherwise responded to CQC's request for a hearing, CQC moved the Commission
to appoint a hearing officer and establish a procedural schedule. The Commission
did not respond to this motion. However, in March 1995, CQC's counsel was
notified by a member of the Commission's staff that he had been appointed
hearing officer in the case. Because this person appears to have participated in
the staff's recommendation that CQC's license be denied, CQC moved on March 31,
1995 for the appointment of an impartial, independent hearing officer. The
Commission's attorney filed a response in opposition to this motion on April 12,
1995 but the Commission failed to respond to it. Instead, on August 10, 1995,
the hearing officer issued an order proclaiming his ability to proceed
impartially and purporting to deny the motion. On April 30, 1996, the hearing
officer reversed himself, recused himself, and asked the Commission to appoint
another hearing officer. The Commission never acted on this request. Hearing
dates were vacated by stipulation, and, after the Circuit Court's orders voiding
the Commission's decision appeared to make the administrative proceeding
premature, the hearing was postponed indefinitely. The withdrawal of CQC's
application rendered the administrative hearing moot.
On March 24, 1995, CQC filed an action against the Commission in the Cole
County, Missouri, Circuit Court, alleging that the Commission had violated
Missouri's open meeting law by deliberating in a closed session before issuing
its decision denying CQC's license. The petition requested an order voiding the
Commission's decision. On March 27, 1995, as a protective measure against
possible arguments that Cole County is not the proper venue, CQC filed a
substantively identical action in the St. Louis County Circuit Court. In April,
the Commission filed answers to both complaints denying that it had violated the
open meeting law. On June 1, 1995, CQC moved for summary judgment in the Cole
County case. In its response, the Commission stated that it "did not
deliberately intend to circumvent" the open meeting law but had deliberated in
closed session based on erroneous advice of counsel. The Commission argued that
the closed session could nevertheless be justified under statutory exceptions
allowing agencies to meet privately with their lawyers to discuss confidential
information and litigation. The Circuit Court heard the motion for summary
judgment on December 19, 1995. In an order issued on April 23, 1996, the Circuit
Court rejected the Commission's arguments and granted CQC's motion, ruling that
the Commission had violated the open meeting law and declaring the Commission's
order to be void. The Commission did not appeal the decision, and the time for
doing so has expired. Therefore, the decision declaring the Commission's order
to be void is final. As a result, notwithstanding the other related actions
discussed above, there no longer exists any denial of licenses by the
Commission.
On March 23, 1995, the Missouri Attorney General filed misdemeanor charges
against CQC and Bruce Becker alleging they knowingly made false statements on
CQC's gaming license application. CQC and Mr. Becker vehemently denied the
charges and launched a vigorous defense. On July 25, 1995, the Circuit Court for
St. Louis County, Missouri, dismissed the charges, ruling that they did not
state an offense, that the Attorney General lacked authority to bring them, and
that they were filed after the statute of limitations had expired. On July 28,
1995, the Attorney General filed an appeal in the Missouri Court of Appeals for
the Eastern District. CQC's and Bruce Becker's motions to dismiss the appeals as
untimely filed were summarily denied on August 14, 1995. On April 16, 1996, in a
2-1 decision, a panel of the Missouri Court of Appeals reversed the Circuit
Court's dismissal.
The Missouri Supreme Court then exercised its discretion to review the
case, and on January 27, 1997 the Missouri Supreme Court issued its ruling in
favor of CQC and Bruce Becker, holding that the prosecutions sought by the
Attorney General were barred by the applicable statute of limitations.
Accordingly, the Attorney General, or any other Missouri prosecutor, is
precluded from any further pursuit of the misdemeanor charges levied against CQC
and Bruce Becker in this matter.
By letters dated July 3, 1997 and July 17, 1997, IBJ Schroder Bank & Trust
Company, the trustee on the CQC Indenture dated as of November 15, 1993,
declared all of the Securities (as defined in the Indenture) to be immediately
due and payable, together with all accrued and unpaid interest thereon.
Subsequent letters from IBJ Schroder Bank & Trust Company, dated September 5,
1997, provided notices of defaults by CQC and AC under their respective
Indentures and also served Notice of Acceleration on AC with respect to its
Securities and its Limited Guaranty of the CQC debt. AC has 30 days from the
date of the Notice within which to correct such defaults cited in the notice. No
assurance is given that AC will be able to correct such defaults. CQC and AC
have retained counsel to assist them in dealing with the Bondholders and on July
16, 1997, a proposal for the financial restructuring of the CQC and AC
indebtedness was presented to the Bondholders through the Trustee and Counsel to
one of the major Bondholders. The Bondholders have orally responded to such
offer as of September 10, 1997 and the company is currently evaluating such
responses and the possible actions to be taken by AC and CQC as a result of that
response. No further action by the Trustee has been taken to foreclose on the
assets of CQC or to collect on any claims against any purported guarantees of
the CQC debt issued by AC.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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>
================================================================================
Capitol Queen & Casino, Inc.
Years Ended June 30,
(amounts in thousands, except per share data)
================================================================================
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income Statement Data:
Operating revenues .............................. $ -- $ --
Operating loss .................................. (413) (4,996)
Net loss before extraordinary item .............. (3,807) (7,785)
Extraordinary item-loss early retirement
of debt (1) ................................. -- --
Net loss ........................................ (3,807) (7,785)
Net loss per share before extraordinary item .... (38,070) (77,850)
Extraordinary item-loss on early
retirement of debt .......................... -- --
Net loss per share (2) .......................... (38,070) (77,850)
Other Data:
Interest expenses, net of amounts capitalized ... 3,395 2,789
Capital expenditures ............................ -- --
Balances Sheet Data:
Unrestricted cash and cash equivalents .......... $ -- $ --
Cash in restricted escrow account ............... 31 30
Total assets .................................... 8,257 8,449
Long-term obligations (3) ....................... -- --
Stockholders' equity (deficit) (4) .............. (17,865) (14,058)
1995 1994
---- ----
Income Statement Data:
Operating revenues .............................. $ -- $ --
Operating loss .................................. (1,388) (7,094)
Net loss before extraordinary item .............. (5,386) (9,530)
Extraordinary item-loss early retirement
of debt (1) ................................. (4,089) --
Net loss ........................................ (9,475) (9,530)
Net loss per share before extraordinary item .... (53,860) (95,300)
Extraordinary item-loss on early
retirement of debt .......................... (40,890) --
Net loss per share (2) .......................... (94,750) (95,300)
Other Data:
Interest expenses, net of amounts capitalized ... 4,608 3,091
Capital expenditures ............................ 1,724 11,212
Balances Sheet Data:
Unrestricted cash and cash equivalents .......... $ 45 $ 33
Cash in restricted escrow account ............... 30 24,929
Total assets .................................... 12,986 37,412
Long-term obligations (3) ....................... -- --
Stockholders' equity (deficit) (4) .............. (6,273) 3,202
- ----------
<FN>
(1) During 1995, CQC retired $20,000 principal amount of the CQC notes at 101%
of such principal amount plus accrued and unpaid interest. CQC incurred an
extraordinary loss of approximately $4,089, reflecting the premium paid to
retire the debt of $200 and the write-off of related, unamortized debt
issue costs and original issue discount in the aggregate of $3,889. No tax
benefit was available or recognized.
(2) The number of shares used in the computation of loss per share of common
stock was 100 for each of the four years in the period ended June 30,
1997. Common stock of 1,000 shares were authorized at a $1.00 par value,
but 100 shares were issued and outstanding.
(3) At June 30, 1997, 1996 and 1995 and 1994, $17,908, $17,526, $17,118 and
$33,164 respectively of CQC notes (net of unamortized original issue
discount of $2,092, $2,474, $2,882 and $6,836, respectively) was classified
as current due to CQC's default of the Indenture governing the CQC Notes.
(4) The ability of CQC to pay dividends is restricted under the CQC Indenture.
</FN>
</TABLE>
<TABLE>
================================================================================
Arizona Charlie's, Inc. Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
================================================================================
<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>
================================================================================
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Analysis of Development Stage Activities for the period January 20,
1993 (the date of inception) through June 30, 1996
CQC was organized on January 20, 1993 for the purpose of developing,
constructing, owning and operating the Capitol Queen. Since inception, CQC's
activities have been limited to, in addition to the financing transaction
described below, the acquisition of a land site in Jefferson City, Missouri and
the rights to develop the Capitol Queen thereon, the preparation and prosecution
of applications to become licensed to own and operate the Capitol Queen in
Missouri and for all other required permits and approvals, the preparation of
preliminary design plans, drawings and budgets for the project, construction of
a riverboat vessel and other pre-opening development activities. As of August
1994, CQC suspended the development of the Capitol Queen, other than completion
of the riverboat. As a result of a September 28, 1994 ruling by the Missouri
Gaming Commission denying CQC's license application, CQC subsequently terminated
the Capitol Queen project and is currently marketing its assets for sale. Such
assets include its riverboat and the Jefferson City land site.
As of January 1, 1995, the CQC Indenture 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 with funds remaining in the project escrow account and the net proceeds
from a sale of assets. The repurchase of $20,000,000 principal amount of the CQC
Notes (plus accrued and unpaid interest thereon) was completed on January 17,
1995 with funds from the project escrow account at a total cost of $20,200,000.
CQC incurred an extraordinary loss of approximately $4,089,000 in 1995,
reflecting the premium paid to retire the debt of $200,000 and the write-off of
related, unamortized debt issue costs and original issue discount in the
aggregate of $3,889,000. At June 30, 1997, approximately $31,000 remained in the
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.
The CQC Notes outstanding require annual interest payments of $2,400,000,
payable in equal installments semi-annually on May 15 and November 15. CQC was
not able to make its scheduled interest payments of $1,200,000 on each of
November 15, 1995, May 15, 1996, November 15, 1996 and May 15, 1997. Further, AC
does not have available funds to advance on behalf of CQC. See "Item 1. Business
- - Capitol Queen & Casino, Inc. - Claims by Trustee".
During the period from inception through June 30, 1997, CQC had total
operating expenses of $13,891,000 consisting primarily of an abandonment loss of
$6,034,000 arising from the denial of the company's license application and
management's subsequent decision to terminate the Capitol Queen project and sell
its assets. Also, at March, 1996, CQC wrote-down the cost of the riverboat
assets to their net realizable value based on estimates provided by a
shipbuilder and marine brokers which resulted in an additional abandonment loss
of $4,392,000 in the 1996 fiscal year. Also included in operating expenses are
amortization expense of $1,474,000 associated with debt issue costs and
$1,991,000 of project development costs. For the same period, CQC incurred
$14,566,000 of interest cost, of which $683,000 was capitalized by CQC as
required by generally accepted accounting principles, as part of the riverboat
construction. CQC earned interest income of $1,266,000 for the period from
inception to June 30, 1997.
Liquidity and Capital Resources
For the period from inception through June 30, 1997, net cash used in
development stage activities was $5,245,000. Cash flows used in investing
activities for the period was $13,921,000 which included $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson City land site. At June 30, 1997, CQC had expended a total of
approximately $21,680,000 on the development and construction of the Capitol
Queen project including on-going maintenance and insurance costs.
CQC's obligations consist of the $20,000,000 in principal amount of the
outstanding CQC Notes and past due interest thereon of $5,646,000 at June 30,
1997, which includes amounts accrued on unpaid interest. 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. Additionally, on
July 3, 1997 CQC received a notice of acceleration from the trustee of the CQC
Notes. Moreover, CQC, because it has not paid certain interest due on its Notes
and has not yet effected the sale of its assets, is in default of the CQC
Indenture. As a result of the above items the CQC Notes have been classified as
a current liability as of June 30, 1997 and 1996. See "Item 1. Business -
Capitol Queen & Casino, Inc. Claims by Trustee".
Arizona Charlie's, Inc.
- -----------------------
General
-------
AC'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. AC generally views its non-casino
operations as complementary to its core casino operations. Accordingly, it
utilizes entertainment primarily as a casino marketing tool. Further, AC
maintains food and beverage pricing structures designed to benefit casino
volumes, often resulting in departmental operating losses, even in periods where
individual restaurants or bars report operating profits. AC seeks to maximize
profits from its hotel operations, however, while maintaining attractive room
rental rates. Gaming revenues represent the net win from gaming wins and losses.
The retail value of accommodations, food and beverage provided to customers
without charge is included in gross revenues and deducted as promotional
allowance. 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 - Capitol Queen & Casino, 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." AC
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"). AC 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 -
Capitol Queen & Casino, 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". AC, 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, AC 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 AC 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 AC from
BGI. Other expenses transferred from BGI to AC 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. AC
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 AC in
the future. Accordingly, in late March 1995, BGI transferred approximately 40
employees involved in accounting and administrative functions from BGI to AC. In
connection with this transfer, in October 1995, BGI temporarily reduced the
amount of AC's management fee to 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. (See Note 9 of AC'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.
AC 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.
AC 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, AC has failed to maintain the
minimum consolidated fixed charge coverage ratio required under the Indenture
and has advanced funds to BGI in excess of the amounts permitted to be so
advanced under the Indenture. Also, AC 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 - Capitol
Queen & Casino, 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. AC's long-term obligations, approximately
$6,313,000 at June 30, 1997, consist of the stockholder notes and capitalized
equipment notes and leases. AC 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, AC is expected to have future annual capital
expenditure requirements of approximately $1,000,000.
AC 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 - Capitol Queen & Casino, 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, AC 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 AC 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 AC'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".
AC's ability to obtain capital, is significantly restricted under the
Indentures governing the AC Notes and the CQC Notes. The ability of AC to
service its debt obligations (and to comply with the consolidated tangible net
worth covenant) will be dependent upon its future performance, which performance
will be influenced by prevailing economic conditions and financial, business and
competitive factors, many of which are beyond AC's control.
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 AC'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 AC are the result of
increased competition from surrounding hotels/casinos that appeal to AC's
"local" patron. However, management believes that AC 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 AC 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
---------
AC believes that its 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 AC appear at page F-3 through F-18 hereof and page F-19 through
F-44 hereof, respectively.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Director and Executive Officers of the Registrant
The following table sets forth certain information with respect to the
directors and executive officers of the Company and each of its subsidiaries.
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Bruce F. Becker 46 President, Chief Executive
Officer, Treasurer and Sole
Director
Barry W. Becker 52 Secretary
</TABLE>
Bruce F. Becker has served as President, Chief Executive Officer,
Treasurer, Sole Director of the Company since its inception. He has served each
of the Nevada subsidiaries as President and Chief Executive Officer since July
1989. Mr. Becker has also served as President, Chief Executive Officer, director
and Chairman of CQC since its inception in January 1993 and President, Chief
Executive Officer and Chairman of the Board of Directors of SC and BGG since
their inceptions in 1984, 1980 and 1986, respectively. Mr. Becker also sits on
the Board of Directors of the Nevada Resort Owners Association.
Barry W. Becker has served as Secretary of the Company since its inception.
He has served each Nevada subsidiary as a Director since their respective
inceptions and as Secretary since July 1989. Mr. Becker is also the Sales
Manager for Becker Enterprises, a Becker family-owned company which 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 Board 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.
Item 11. Executive Compensation
The Company was incorporated on January 20, 1993. No compensation was paid
by the Company for services rendered to the Company during the fiscal years
ended June 30, 1995, 1996 or 1997.
Compensation of Directors
The directors of the Company do not receive any compensation for serving in
such capacities.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The Company is a wholly owned subsidiary of Becker Gaming, Inc.
Accordingly, there are no sole beneficial owners of the company's common stock.
Item 13. Certain Relationships and Related 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"). 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.
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.
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 appears at page F-1
hereof
(b)2. Financial Statement Schedules
An Index to Financial Statement Schedules appears at
page F-1 hereof
(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 Capitol Queen.*
3.2 First Amended By-Laws of Capitol Queen.*
3.3 Articles of Incorporation of Arizona Charlie's.*
3.4 Amended and Restated By-Laws of Arizona Charlie's.*
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 Capitol Queen, as issuer,
Arizona Charlie's, as guarantor, and IBJ Schroder Bank & Trust
Company ("IBJ"), as trustee.*
10.3 Deed of Trust, Assignment of Leases, Security Agreement and Fixture
Filing dated November 15, 1993 by Capitol Queen, as grantor, to
Charles W. Riley, as trustee, for the benefit of IBJ , as collateral
agent.*
10.4 Vessel Construction Agreement dated October 23, 1993
between Leevac Shipyards, Inc. and Capitol Queen, as
amended by Amendment No. 1 to Vessel Construction
Agreement dated November 15 and 17, 1993.*
10.5 Form of First Preferred Ship Mortgage Securing an
Indenture between Capitol Queen and IBJ.*
10.6 Security Agreement dated November 15, 1993 between Capitol Queen and
IBJ, as collateral agent.*
10.7 Stock Pledge Agreement dated November 15, 1993 between Capitol Queen
and IBJ, as collateral agent.*
10.8 Collateral Agency Agreement dated November 15, 1993 among Capitol
Queen and IBJ, as trustee and collateral agent.*
10.9 Disbursement and Escrow Agreement dated November 15, 1993 among
Capitol Queen and IBJ, as escrow agent, trustee and collateral
agent.*
10.10 Registration Rights Agreement dated November 15, 1993
among Capitol Queen, Arizona Charlie's and the
Purchasers.*
10.11 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.*
10.12 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.*
10.13 Letter Agreement dated September 10, 1993 among BGI, Arizona
Charlie's, Capitol Queen and Ladenburg, Thalmann & Co., Inc., as
placement agent.*
10.14 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.*
10.15 Letter of Understanding dated January 26, 1993
between Jefftel, Inc. and JCR Hotel, Inc. and River
Queen Enterprises, Inc. and Capitol Queen.*
10.16 Purchase Agreement dated September 20, 1993 among BGI and Cathryn
Simmons, Public Issue Management, Inc., Byron Neal Fox and Cynthia L.
Pegner, Richard Moore, Byron Neal Fox, P.C., David Chernoff, Oscar B.
Goodman, Eckley M. Keach, Ronald E. Partee and Carol Partee, and Fox
& Partee.*
10.17 Riverfront Development Agreement dated as of September 1, 1993
between Capitol Queen, the Company and Jefferson City, Missouri.*
10.18 First Supplemental Indenture dated January 1, 1995 among Capitol
Queen, as issurer, Arizona Charlie's, as guarantor, and IBJ, as
trustee.
10.19 Assets Purchase agreement dated April 10, 1995 between Aerie
Riverboat Casino of Missouri, Inc., as buyer, and Capitol Queen, as
seller.
10.20 Letter agreement dated December 5, 1994 among BGI and Cathryn
Simmons, Public Issue Management, Inc., Byron Neal Fox and Cynthia L.
Pegner, Richard Moore, Byron Neal Fox, P.C., David Chernoff, Oscar B.
Goodman, Eckley M. Keach, Ronald E. Partee and Carol Partee, and Fox
& Partee.*
- ----------
* All Exhibits are incorporated by reference to the Company's Registration
Statement on Form S-4 (33-75806) 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.
CAPITOL QUEEN & CASINO, 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
- -------------------
Bruce F. Becker President, Chief Executive Officer
(Principal Executive Officer) and Sole
Director
/s/ Jerry Griffis
- ----------------- Controller (Principal Financial and
Jerry Griffis Accounting Officer)
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
CAPITOL QUEEN & CASINO, INC.
Report of Independent Accountants ..............................
Balance Sheets as of June 30, 1997 and 1996 ....................
Statements of Loss Incurred During the Development Stage
for the Years Ended June 30, 1997, 1996 and 1995 and
for the period from January 20, 1993 (the date of
inception) through June 30, 1997 ...............................
Statements of Stockholder's Equity (Deficit) for the years
ended June 30, 1997, 1996 and 1995 and for period from
January 20, 1993 (the date of inception) through June 30, 1997 .
Statements of Cash Flows for the Years Ended June 30, 1997,
1996 and 1995 and for the period from January 20, 1995
(the date of inception) through June 30, 1997 ..................
Notes to Financial Statements ..................................
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 ..................................
CAPITOL QUEEN & CASINO, INC.
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1997, 1996
and 1995 ........................................
ARIZONA CHARLIE'S, 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
Capitol Queen & Casino, Inc.
We have audited the financial statements and the financial statement schedule of
Capitol Queen & Casino, Inc. (a development stage company and 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 Capitol Queen & Casino, Inc. as
of June 30, 1997 and 1996, and its loss incurred during the development stage
and its cash flows for each of the three years in the period ended June 30,
1997, and for the period from January 20, 1993 (the date of inception) through
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 Capitol Queen & Casino, Inc. will continue as a going
concern. As more fully described in Notes 2 and 4, the Company is in default of
certain debt covenants and has received a notice of acceleration from the
trustee for this debt resulting in classification of such debt as currently
payable. The Company does not have sufficient resources to repay its
indebtedness. Management's plans with respect to these matters are also
described in Note 2. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The final outcome of these matters is
not presently determinable and the June 30, 1997 financial statements of the
Company 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
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And 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:
Restricted cash, in escrow account .............. $ 31 $ 30
------- -------
Total current assets ......................... 31 30
------- -------
Other assets:
Assets held for sale ............................. 7,754 7,754
Financing costs, net of accumulated
amortization of $445 (1997) and
and $312 (1996), respectively .................. 472 605
Deposits and other assets ........................ - 60
------- -------
Total other assets ........................... 8,226 8,419
------- -------
Total assets ................................ $ 8,257 $ 8,449
======= =======
LIABILITIES & STOCKHOLDER'S EQUITY(DEFICIT)
1997 1996
-------- --------
Current liabilities:
Advances from related parties ........................ $ 1,226 $ 1,006
Accrued interest ..................................... 5,788 2,775
Notes payable to related parties ..................... 1,200 1,200
Long-term debt classified as current due to
default under covenants, net of unamortized
original issue discount of $2,092 (1997)
and $2,474 (1996) ................................ 17,908 17,526
-------- --------
Total current liabilities .................... 26,122 22,507
-------- --------
Total liabilities ............................ 26,122 22,507
-------- --------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $1.00 par value, 1,000 shares
authorized, 100 shares issued and outstanding ..... -- --
Additional paid-in capital ......................... 12,732 12,732
Deficit accumulated during development stage ....... (30,597) (26,790)
-------- --------
Total stockholder's equity (deficit) ......... (17,865) (14,058)
-------- --------
Total liabilities and stockholder's
equity(deficit) .............................. $ 8,257 $ 8,449
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary
Of Becker Gaming, Inc.)
STATEMENTS OF LOSS INCURRED DURING THE DEVELOPMENT STAGE
(Dollars In Thousands)
================================================================================
For The Period
January 20, 1993
(The Date Of
Inception)
Through
Year Ended June 30, June 30,
1997 1996 1995 1997
-------- -------- -------- --------
Revenues ....................... $ -- $ -- $ -- $ --
Operating expenses:
Amortization of financing
and other costs .............. 133 100 202 1,474
Abandonment losses and
write-downs of assets held
for sale ...................... -- 4,392 -- 10,426
Development costs ............. 280 504 1,186 1,991
-------- -------- -------- --------
Total operating expenses .. 413 4,996 1,388 13,891
-------- -------- -------- --------
Operating loss ................. (413) (4,996) (1,388) (13,891)
Other income (expenses):
Interest income ............... 1 -- 610 1,266
Interest expense .............. (3,395) (2,789) (4,608) (14,566)
Interest capitalized .......... -- -- -- 683
-------- -------- -------- --------
Total other expenses ........... (3,394) (2,789) (3,998) (12,617)
-------- -------- -------- --------
Net loss before
extraordinary item ............ (3,807) (7,785) (5,386) (26,508)
Extraordinary item:
Loss on early retirement
of debt (no income tax
benefit available) ........... -- -- (4,089) (4,089)
-------- -------- -------- --------
Net loss ....................... $ (3,807) $ (7,785) $ (9,475) $(30,597)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary
Of Becker Gaming, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
For The Period From January 20, 1993
(The Date Of Inception) Through June 30, 1997
And For The Years Ended June 30, 1997, 1996 And 1995
(Dollars In Thousands)
================================================================================
Common Stock
--------------------------------
Shares Amount Subscribed
----------- ----------- -----------
Balances, January 20,
1993 (the date of inception) ... $ -- $ -- $ --
Issuance of common stock ......... 100 -- --
----------- ----------- -----------
Balances, June 30, 1993 .......... 100 -- --
Cash contribution from Becker
Gaming, Inc. relating to sale
of warrants .................... -- -- --
Common stock subscribed .......... -- -- 788
Contribution by Becker Gaming,
Inc. relating to liability
incurred under development
agreement ...................... -- -- --
Write-off of common stock
subscribed due to abandonment
of development project ......... -- -- (788)
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1994 .......... 100 -- --
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1995 .......... 100 -- --
----------- ----------- -----------
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1996 .......... 100 -- --
----------- ----------- -----------
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1997 .......... $ 100 $ -- $ --
=========== =========== ===========
<PAGE>
Deficit
Accumulated
Additional During The
Paid-In Development
Capital Stage Total
-------- -------- --------
Balances, January 20,
1993 (the date of inception) ............. $-- $-- $--
Issuance of common stock ................... -- -- --
-------- -------- --------
Balances, June 30, 1993 .................... -- -- --
Cash contribution from Becker
Gaming, Inc. relating to sale
of warrants .............................. 7,500 -- 7,500
Common stock subscribed .................... -- -- 788
Contribution by Becker Gaming,
Inc. relating to liability
incurred under development
agreement ................................ 5,232 -- 5,232
Write-off of common stock
subscribed due to abandonment
of development project ................... -- -- (788)
Net loss ................................... -- (9,530) (9,530)
-------- -------- --------
Balances, June 30, 1994 .................... 12,732 (9,530) 3,202
Net loss ................................... -- (9,475) (9,475)
-------- -------- --------
Balances, June 30, 1995 .................... 12,732 (19,005) (6,273)
-------- -------- --------
Net loss ................................... -- (7,785) (7,785)
-------- -------- --------
Balances, June 30, 1996 .................... 12,732 (26,790) (14,058)
Net loss ................................... -- (3,807) (3,807)
-------- -------- --------
Balances, June 30, 1996 .................... $ 12,732 $(30,597) $(17,865)
======== ======== ========
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
( A Development Stage Company And 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 development stage activities:
Net loss ................................ $ (3,807) $ (7,785) $ (9,475)
-------- -------- --------
Adjustments to reconcile net loss
to net cash used in development
stage activities:
Amortization of financing and other costs 133 100 202
Amortization of original issue discount . 382 408 834
Abandonment losses and write-downs of
assets held for sale ................... 60 4,392 --
Extraordinary loss on retirement of debt -- -- 4,089
Increase(decrease) in accounts payable
and accruals, net of amounts for
capital expenditures ................... 3,013 2,238 (216)
Increase in advances from related
party payable ......................... 220 602 392
-------- -------- --------
Total adjustments ................. 3,808 7,740 5,301
-------- -------- --------
Net cash provided by (used in)
development stage activities ..... 1 (45) (4,174)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .......... -- -- (1,724)
Deposits and other assets ............... -- -- 12
Capitalization of preopening costs ...... -- -- --
Development costs ....................... -- -- --
Net (additions to) reductions in
restricted cash equivalents ............ (1) -- 24,898
-------- -------- --------
Net cash provided by (used in)
investing activities .............. (1) -- 23,186
-------- -------- --------
Cash flows from financing activities:
Principal payments on First Mortgage
Notes .................................. -- -- (20,200)
Proceeds from issuance of First
Mortgage Notes, net of financing costs . -- -- --
Proceeds from borrowings under
notes payable to related parties ....... -- -- 1,200
Equity contribution from Becker
Gaming, Inc.relating to sale of
warrants ............................... -- -- --
-------- -------- --------
Net cash (used in) provided by
financing activities .............. -- -- (19,000)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents .............. -- (45) 12
Cash and cash equivalents, beginning
of period ............................... -- 45 33
-------- -------- --------
Cash and cash equivalents, end of period .. $ -- $ -- $ 45
======== ======== ========
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized $ -- $ -- $ 4,020
======== ======== ========
Original issue discount that did not
affect cash ............................ $ -- $ -- $ --
======== ======== ========
Equity contribution by Becker Gaming that
did not affect cash .................... $ -- $ -- $ --
======== ======== ========
(The Date Of Inception)Through June 30,
---------------------------------------
1996
--------
Cash flows from development stage activities:
Net loss .................................... $(30,597)
--------
Adjustments to reconcile net loss
to net cash used in development
stage activities:
Amortization of financing and other costs ... 1,474
Amortization of original issue discount ..... 2,289
Abandonment losses and write-downs of
assets held for sale ....................... 10,486
Extraordinary loss on retirement of debt .... 4,089
Increase(decrease) in accounts payable
and accruals, net of amounts for
capital expenditures ....................... 5,800
Increase in advances from related
party payable ............................. 1,214
--------
Total adjustments ..................... 25,352
--------
Net cash provided by (used in)
development stage activities ......... (5,245)
--------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .............. (12,936)
Deposits and other assets ................... (60)
Capitalization of preopening costs .......... (340)
Development costs ........................... (553)
Net (additions to) reductions in
restricted cash equivalents ................ (32)
--------
Net cash provided by (used in)
investing activities .................. (13,921)
--------
Cash flows from financing activities:
Principal payments on First Mortgage
Notes ...................................... (20,200)
Proceeds from issuance of First
Mortgage Notes, net of financing costs ..... 30,666
Proceeds from borrowings under
notes payable to related parties ........... 1,200
Equity contribution from Becker
Gaming, Inc.relating to sale of
warrants ................................... 7,500
--------
Net cash (used in) provided by
financing activities .................. 19,166
--------
Net increase (decrease) in cash
and cash equivalents .................. --
Cash and cash equivalents, beginning of period --
--------
Cash and cash equivalents, end of period ...... $ --
========
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized ... $ 5,807
========
Original issue discount that did not
affect cash ................................ $ 7,500
========
Equity contribution by Becker Gaming that did
not affect cash ........................ $ 5,233
========
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary Of
Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies:
Basis Of Presentation
Capitol Queen & Casino, Inc. ("CQC" or the "Company"), a development stage
company, was incorporated in Missouri on January 20, 1993, and had acquired
a franchise from the City of Jefferson City, Missouri to develop,
construct, own and operate a riverboat casino (the "Capitol Queen"),
subject to state licensure. The Company has abandoned the Capitol Queen
project, as more fully described in Note 2. Subsequent to incorporation,
the stockholders of the Company exchanged all of the outstanding stock of
the Company for common stock of a Nevada holding company, Becker Gaming,
Inc. ("BGI"), in a tax-free exchange. BGI is wholly owned by the Becker
family and serves as a holding company for the Becker family gaming
interests, which include CQC and the following wholly owned subsidiaries:
* 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.
* Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
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.
Property And Equipment
----------------------
Property and equipment are recorded at cost and include interest
capitalized during the construction period. The Company's policy is to
compute depreciation using the straight-line method. No depreciation has
been recorded while the Company is in the development stage.
Debt Issue Costs
----------------
Costs associated with the issuance of debt are deferred and amortized over
the life of the related indebtedness using the effective interest method.
Federal Income Taxes
--------------------
The Company accounts for income taxes in accordance with 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. The Company adopted SFAS
109 at inception (January 20, 1993).
The Company is included in the consolidated federal income tax returns
filed by BGI. CQC'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.
2. Missouri 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. Costs associated with the
development of the project which had been deferred during the development stage
were written-off in the fourth quarter of the fiscal year ended June 30, 1994.
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 has
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 in 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. 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 a 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 the Company 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, due to certain violations of the
Indenture by the Company (as more fully described above and in Note 4) all
of the outstanding CQC Notes are immediately due and payable, together with
all accrued and unpaid interest thereon. Accordingly, the CQC Notes have
been classified as currently payable at June 30, 1997.
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, all of the outstanding AC Notes are immediately due and payable
together with all accrued and unpaid interest thereon.
In connection with the decision to abandon the project, CQC had entered
into an Asset Purchase Agreement dated April 10, 1995, for the sale of its
assets to Aerie Riverboat Casinos of Missouri, Inc. at a purchase price of
$18,000,000, which price exceeded the carrying value of the CQC assets.
However, the consummation of the Aerie purchase agreement was subject to
the satisfaction of several conditions which could not be satisfied timely,
including, among others, that Jefferson City consent to the assignment of
its Development Agreement with CQC, that Aerie be found preliminarily
suitable to hold a Missouri gaming license, and that riverboat gaming is
legally permitted in Jefferson City. As a result, the agreement with Aerie
was terminated without penalty when the December 31, 1995 expiration date
passed. As more fully described in Note 3, a further write-down in the
carrying value of the riverboat was recognized in the fourth quarter of
1996, after the election in Jefferson City, the expiration of the Aerie
contract, and due to deteriorating market conditions.
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 CQC to continue as a going concern. The final
outcome of these matters is not presently determinable and the June 30,
1997 financial statements of CQC do not include any adjustment that might
result from the outcome of this uncertainty.
3. Construction Project And Related Contingencies:
Capitol Queen Project
---------------------
The Capitol Queen project, as originally contemplated by the Company, was
to include the riverboat, dockside facilities, restaurants and related
ancillary facilities to be built on land acquired by the Company in July
1993. As a result of the decision to discontinue the project, all costs
associated with the design and development of the facilities were written
off in the fourth quarter of the Company's 1994 fiscal year, with the
exception of the historical cost of the land and the riverboat which was
reclassified to assets held for sale.
The Company had contracted with a shipbuilder to construct the Capitol
Queen riverboat. The total cost of the riverboat was $11,892,000, including
construction period interest and other assets. During the third quarter of
the year ended June 30, 1996, based on deteriorating market conditions
after the expiration of the Aerie contract, the Company recognized a loss
of $4,392,000 and wrote-down the carrying value of the riverboat to
$7,500,000. Such revised carrying value represents management's best
estimate of the riverboat's current net realizable value in a cash sale,
based on information obtained from shipbuilders, marine brokers, and
purchase offers made to the Company from third parties.
Jefferson City Development Agreement
------------------------------------
The Company acquired the franchise rights to operate the Capitol Queen
under a development agreement with the City of Jefferson City, Missouri
(the "Development Agreement"), beginning September 1, 1993 for a period of
seven years. The Company's rights and obligations under the Development
Agreement were contingent upon receiving a gaming license which, until the
occurrence of the events described in Note 2, management believed was
probable.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote an earlier election in
which Jefferson City voters approved riverboat gambling. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that
as matter of law the 1995 election does not affect the validity of the
Development Agreement. However, to avoid the cost and uncertainty of
litigation, CQC and Jefferson City in June 1996 entered into an agreement
pursuant to which the Development Agreement was rescinded and Jefferson
City refunded $300,000 of the $400,000 CQC had originally paid to the City
under the Development Agreement.
Other Development Agreement
---------------------------
As discussed below, the Company and BGI have each entered into additional
agreements in connection with the development of the Capitol Queen project,
which have been terminated as a result of the decision by the Missouri
Gaming Commission.
In January 1993, prior to incorporation, the stockholders of the Company
agreed that, upon being licensed in Missouri to own and operate the Capitol
Queen, the Company would issue shares of its common stock to three
individuals who assisted the then existing stockholders of the Company in
obtaining the rights to develop the Capitol Queen (the "CQC Stock
Agreement"). The aggregate amount of stock subject to the CQC Stock
Agreement represents 5.25% of the outstanding common stock of the Company,
and was subject to increase to 8.25% if the convention center required
under the Development Agreement was not constructed on land controlled by
the parties to the CQC Stock Agreement. The Company had the option to
repurchase any or all of such stock, except for 25% held by one individual,
for a period of three years from issuance at an aggregate purchase price of
$750,000 ($1,200,000 if the additional shares were issued). In addition to
the above requirements of the CQC Stock Agreement, the Company also agreed
to pay a lump-sum fee of $350,000 to two of the above individuals after
receiving a license and the commencement of operations of the Capitol
Queen.
At the time CQC was awarded the Development Agreement, and until the
occurrence of the events described in Note 2, the Company believed it was
probable it would receive a gaming license in Missouri. Accordingly, to
reflect the CQC Stock Agreement, CQC recorded subscribed stock of $788,000
(using the $750,000 value described above for 5.0% of the stock to
determine the value of the remaining 25% interest), recorded amounts
payable under the agreement for $350,000 and recorded a corresponding total
charge of $1,138,000 to development costs, to be amortized over the life of
the Development Agreement. As a result of the decision by the Missouri
Gaming Commission and the abandonment of the Capitol Queen project,
management believes that it has been relieved of these obligations.
Accordingly, the subscribed stock, the $350,000 liability and the related
deferred costs (net of amortization from September 1, 1993 to June 30,
1994) were written-off in the fourth quarter of fiscal 1994.
In September 1993, the Company's parent, BGI, agreed that it would
repurchase certain rights to acquire equity in CQC (the "Repurchase
Agreement") which it had previously granted to various parties (the
"Sellers"). The Sellers assisted BGI and the Company, through the BGI
stockholders, in obtaining the approval to develop, own and operate the
Capitol Queen in Jefferson City. Under the terms of the Repurchase
Agreement, BGI agreed to pay the Sellers an aggregate amount of $5,925,000,
payable in installments through July 1, 1997 and bearing interest at 10%
per annum from the date the Capitol Queen opens for business. BGI also
agreed that if prior to maturity, BGI proposed to sell any of its common
stock in an underwritten public offering, the Sellers may accept registered
shares in lieu of the payments required based on the public offering price
of such shares (less any underwriters discount) subject to certain
underwriter limitations.
The Repurchase Agreement provided that in the event the development,
ownership or operation of a riverboat gaming business in Jefferson City
becomes unlawful or CQC is declined a gaming license, the Repurchase
Agreement becomes null and void. At the time BGI entered the Repurchase
Agreement, and until the occurrence of the events described in Note 2, the
Company believed it was probable it would receive a gaming license in
Missouri. Accordingly, the assumption of the liability under the Repurchase
Agreement was treated as an additional investment in CQC by BGI, and the
related present value of the costs to the Sellers of $5,232,000 was
recorded as deferred development costs to be amortized over the life of the
Development Agreement.
As a result of the decision by the Missouri Gaming Commission and the
abandonment of the Capitol Queen project, BGI believes that it has been
relieved of its obligations under the Repurchase Agreement. Accordingly,
the deferred costs under the Repurchase Agreement (net of amortization from
September 1, 1993 to June 30, 1994) were written-off in the fourth quarter
of fiscal 1994.
In addition to the above, in the fourth quarter of fiscal 1994, CQC
wrote-off previously capitalized expenditures of $1,375,000 and capitalized
pre-opening expenses of $340,000 associated with the development of the
Capitol Queen project.
4. Long-Term Debt:
On November 18, 1993, the Company completed a private placement debt
financing of $40,000,000 principal amount of 12% First Mortgage Notes Due
November 15, 2000 (the " CQC Notes"). The offering generated net proceeds
of approximately $30,666,000 (after deducting original issue discount of
$7,500,000 and debt issue costs). Interest on the Notes is payable
semi-annually. The Notes are guaranteed by AC (which guarantee is subject
to release only upon licensing of the Capitol Queen, which is not expected)
and are collateralized by a first mortgage on substantially all of the
assets of the Company.
As described in Note 2, the Company was unable to make the interest
payments due under the CQC Notes on November 15, 1995, May 15, 1996,
November 15, 1996 and May 15, 1997. Such past due interest, including
accrued interest on unpaid interest, in the amount of $5,788,000 has been
accrued in the accompanying financial statements.
As of January 1, 1995, CQC's obligations under the Indenture governing the
CQC Notes were amended with the requisite consent of the holders of the CQC
Notes. CQC's previous obligations to complete and open the Capitol Queen
have been eliminated and CQC has agreed to a two-step plan to repay the CQC
Notes. The first step, which was consummated on January 17, 1995, involved
the repurchase of $20,000,000 principal amount of the CQC Notes at 101% of
such principal amount plus accrued and unpaid interest with funds held in
the restricted project escrow account. The Company incurred an
extraordinary loss of approximately $4,089,000 in 1995, reflecting the
premium paid to retire the debt of $200,000 and the write-off of related,
unamortized debt issue costs and original issue discount in the aggregate
of $3,889,000. The second step permitted a purchase of the CQC Notes at
101% of principal plus accrued and unpaid interest from a sale of assets.
However, the dates by which CQC previously agreed with the holders of the
CQC Notes to effect the sale of assets and repurchase the remaining CQC
Notes have passed, and CQC is thus in default of the amended covenants.
Concurrent with the placement of the Notes, BGI sold 2,500,000 warrants
(the "Warrants") exercisable for BGI common stock for gross proceeds of
$7,500,000. The gross proceeds from the sale of the Warrants were
contributed to the Company.
The Indenture governing the CQC Notes (the "Indenture") limits the use of
the net proceeds from the offering and the sale of the Warrants to fund the
cost of the development and construction of the Capitol Queen project, the
development of a convention center in Jefferson City, Missouri and initial
interest payments. The proceeds were placed in escrow with a trustee
pending drawdowns for qualifying project expenditures. As more fully
explained above and in Note 2, certain of the proceeds were used in January
1995 in connection with the first step of the plan to repay the CQC Notes.
Prior to the receipt of the Notice on July 3, 1997, the CQC Notes were not
subject to mandatory redemption, except upon a change of control, or other
circumstances as defined in the Indenture. The Company had the option to
redeem the Notes at a premium of 106% beginning on November 15, 1997,
declining to par value on November 15, 1999. If prior to November 15, 1997,
BGI consummated an initial public offering of its common stock, the Company
may also have redeemed the CQC Notes, at a premium of 108%.
The Indenture contains covenants that, among other things, limit the
ability of the Company and, in certain cases, AC, to pay dividends or
management fees, or incur additional indebtedness.
5. Related-Party Transactions:
Prior to the inception of CQC and through November 18, 1993, AC advanced a
total of approximately $1,090,000 to fund development costs of CQC which
was fully repaid on November 18, 1993 with proceeds from the private
placement financing transaction. As of June 30, 1997 and 1996, the amounts
payable to AC by the Company for additional advances were $1,213,000 and
$993,000, respectively. The advances are non-interest bearing.
In May, 1995, CQC borrowed $1.2 million from AC in order to make the
semi-annual interest payment due on the CQC Notes. The borrowing was
executed as an uncollateralized note payable to AC due June 30, 1998, with
interest at an annual rate of 5.56%. Interest expense incurred in relation
to the note payable to AC was $67,000, $67,000 and $8,000 during the years
ended June 30, 1997, 1996 and 1995, respectively. The Company has not paid
any interest to AC for this obligation.
6. Income Taxes:
For the fiscal years 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 provision for federal income tax
purposes.
The components included in determining the provision for income taxes for
the years ended June 30, 1997, 1996, and 1995, net of extraordinary items,
are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at federal
income tax statutory rate ....... $(1,294,000) $(2,647,000) $(1,831,000)
Unrecognized tax benefit from net
operating losses ................ 1,294,000 2,574,000 1,831,000
Other ............................ -- 73,000 --
----------- ----------- -----------
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 taxes as of June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Liabilities: $ -- $ --
----------- -----------
Assets:
Federal net operating loss carryforwards 5,877,000 5,500,000
Valuation allowance for assets held
for sale ........................... 1,494,000 1,494,000
--------- ---------
Total deferred tax assets ............ 7,371,000 6,994,000
--------- ---------
Valuation allowance .................. (7,371,000) (6,994,000)
---------- ----------
Net deferred taxes ................... $ -- $ --
----------- -----------
</TABLE>
As of June 30, 1997, the Company had a federal net operating loss
carryforward of approximately $17,285,000 which expires between 2009 and
2012.
7. 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 approximate market interest rates of these instruments.
Management is unable to determine a fair value for 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"). As of June 30, 1997 the effective interest
rate of the CQC Notes was 16%. 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 the
AC Notes and CQC Notes, as more fully discussed in Note 2.
- --------------------------------------------------------------------------------
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 the 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.
- --------------------------------------------------------------------------------
SCHEDULE II
CAPITOL QUEEN & CASINO, INC.
VALUATION AND QUALIFYING ACCOUNTS For The Years Ended June 30,
1997, 1996 And 1995
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
- -------------------------------------- ----------- ----------- -----------
Deferred tax asset valuation allowance
<S> <C> <C> <C>
Year ended June 30, 1997 ............ $ 6,994,000 $ -- $ 377,000
=========== =========== ===========
Year ended June 30, 1996 ............ $ 4,420,000 $ -- $ 2,574,000
=========== =========== ===========
Year ended June 30, 1995 ............ $ 1,181,000 $ -- $ 3,239,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
- -------------------------------------- ----------- --------
<S> <C> <C>
Deferred tax asset valuation allowance
Year ended June 30, 1997 ............ $ -- $ 7,371,000
=========== ===========
Year ended June 30, 1996 ............ $ -- $ 6,994,000
=========== ===========
Year ended June 30, 1995 ............ $ -- $ 4,420,000
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<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>
- --------------------------------------------------------------------------------
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 Capitol Queen.*
3.2 First Amended By-Laws of Capitol Queen.*
3.3 Articles of Incorporation of Arizona Charlie's.*
3.4 Amended and Restated By-Laws of Arizona Charlie's.*
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 Capitol Queen, as issuer,
Arizona Charlie's, as guarantor, and IBJ Schroder Bank & Trust
Company ("IBJ"), as trustee.*
10.3 Deed of Trust, Assignment of Leases, Security Agreement and Fixture
Filing dated November 15, 1993 by Capitol Queen, as grantor, to
Charles W. Riley, as trustee, for the benefit of IBJ , as collateral
agent.*
10.4 Vessel Construction Agreement dated October 23, 1993
between Leevac Shipyards, Inc. and Capitol Queen, as
amended by Amendment No. 1 to Vessel Construction
Agreement dated November 15 and 17, 1993.*
10.5 Form of First Preferred Ship Mortgage Securing an
Indenture between Capitol Queen and IBJ.*
10.6 Security Agreement dated November 15, 1993 between Capitol Queen and
IBJ, as collateral agent.*
10.7 Stock Pledge Agreement dated November 15, 1993 between Capitol Queen
and IBJ, as collateral agent.*
10.8 Collateral Agency Agreement dated November 15, 1993 among Capitol
Queen and IBJ, as trustee and collateral agent.*
10.9 Disbursement and Escrow Agreement dated November 15, 1993 among
Capitol Queen and IBJ, as escrow agent, trustee and collateral
agent.*
10.10 Registration Rights Agreement dated November 15, 1993
among Capitol Queen, Arizona Charlie's and the
Purchasers.*
10.11 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.*
10.12 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.*
10.13 Letter Agreement dated September 10, 1993 among BGI, Arizona
Charlie's, Capitol Queen and Ladenburg, Thalmann & Co., Inc., as
placement agent.*
10.14 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.*
10.15 Letter of Understanding dated January 26, 1993
between Jefftel, Inc. and JCR Hotel, Inc. and River
Queen Enterprises, Inc. and Capitol Queen.*
10.16 Purchase Agreement dated September 20, 1993 among BGI and Cathryn
Simmons, Public Issue Management, Inc., Byron Neal Fox and Cynthia L.
Pegner, Richard Moore, Byron Neal Fox, P.C., David Chernoff, Oscar B.
Goodman, Eckley M. Keach, Ronald E. Partee and Carol Partee, and Fox
& Partee.*
10.17 Riverfront Development Agreement dated as of September 1, 1993
between Capitol Queen, the Company and Jefferson City, Missouri.*
10.18 First Supplemental Indenture dated January 1, 1995 among Capitol
Queen, as issurer, Arizona Charlie's, as guarantor, and IBJ, as
trustee.
10.19 Assets Purchase agreement dated April 10, 1995 between Aerie
Riverboat Casino of Missouri, Inc., as buyer, and Capitol Queen, as
seller.
10.20 Letter agreement dated December 5, 1994 among BGI and Cathryn
Simmons, Public Issue Management, Inc., Byron Neal Fox and Cynthia L.
Pegner, Richard Moore, Byron Neal Fox, P.C., David Chernoff, Oscar B.
Goodman, Eckley M. Keach, Ronald E. Partee and Carol Partee, and Fox
& Partee.*
- ----------
* All Exhibits are incorporated by reference to the Company's Registration
Statement on Form S-4 (33-75806) declared effective by the Securities and
Exchange Commission on May 20, 1994.
(b) Reports on Form 8-K
None.
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 30,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,257,000
<CURRENT-LIABILITIES> 26,122,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (17,865,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,257,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 413,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,395,000
<INCOME-PRETAX> (3,807,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,807,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,807,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
