================================================================================
<PAGE>
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-75806
CAPITOL QUEEN & CASINO, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Nevada 43-1652885
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporations or organization) Identification No.)
740 S. Decatur
Las Vegas, Nevada 89107
----------------- -----
(Address of principal (Zip Code)
executive offices)
(702) 258-5200
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year if
changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the lastest practicable date.
Outstanding at
Class of common stock April 30, 1998
- --------------------- --------------
$1.00 par value 100 shares
================================================================================
<PAGE>
CAPITOL QUEEN & CASINO, INC.
(A wholly owned subsidiary of Becker Gaming, Inc.)
FORM 10-Q
INDEX
PART I, FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CAPITOL QUEEN & CASINO, INC.
- ----------------------------
Balance Sheets as of March 31, 1998 and June
30, 1997 ........................................................1
Statements of Loss Incurred During the
Development Stage for the Three-Month Periods
Ended March 31, 1998 and 1997 and
for the Nine-Month Periods Ended March 31,
1998 and 1997 and for the period from
January 20, 1993 (the date of inception)
through March 31, 1998 ..........................................3
Statements of Cash Flows for the Nine-Month
Periods Ended March 31, 1998 and 1997
and for the period from January 20,
1993 (the date of inception) through
March 31, 1998 ..................................................4
Notes to Financial Statements ...................................5
ARIZONA CHARLIE'S, INC.
- -----------------------
Balance Sheets as of March 31, 1998 and
June 30, 1997 ...................................................15
Statements of Income and Retained Earnings
(Deficit) for the Three-Month Periods Ended
March 31, 1998 and 1997
and for Nine-Month Periods Ended March 31,
1998 and 1997 ...................................................17
Statements of Cash Flows for the Nine-Month .....................18
Periods Ended March 31, 1998 and 1997
Notes to Financial Statements ...................................19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Capitol Queen & Casino, Inc .....................................28
Arizona Charlie's, Inc. .........................................35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................42
Item 5. Other Information .......................................44
Item 6. Exhibits and Reports on Form 8-K.........................45
SIGNATURES.......................................................46
================================================================================
<PAGE>
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned
Subsidiary of Becker Gaming, Inc.)
BALANCE SHEETS
(Dollars In Thousands, Except Share Data)
ASSETS
March 31, June 30,
1998 1997
------- -------
(Unaudited)
Current assets:
Restricted cash, in escrow account .................... $ 32 $ 31
------- -------
Total current assets ............................... 32 31
------- -------
Other assets:
Assets held for sale ................................... 6,454 7,754
Financing costs, net of accumulated
amortization of $546 at March 31,
1998 and $445 at June 30, 1997 ....................... 371 472
------- -------
Total other assets ................................. 6,825 8,226
------- -------
Total assets ....................................... $ 6,857 $ 8,257
======= =======
================================================================================
<PAGE>
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned
Subsidiary of Becker Gaming, Inc.)
BALANCE SHEETS
(Dollars In Thousands, Except Share Data)
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
March 31, June 30,
1998 1997
-------- --------
(Unaudited)
Current liabilities:
Advances from related parties ....................... $ 14 $ 1,226
Accrued interest .................................... -- 5,788
Notes payable to related parties .................... -- 1,200
Long-term debt classified as current due to default
under covenants, net of unamortized original issue
discount of $2,092 ................................ -- 17,908
-------- --------
Total liabilities ............................ 14 26,122
-------- --------
Prepetition liabilities subject to compromise:
Advance from related parties 1,398 --
Accrued interest 8,043 --
Notes payable to related parties 1,200 --
Long-term debt classified as current due to
default under covenants, net if unamortized
original issue discount of $1,725 18,275 --
-------- --------
Total prepetition liabilities subject to
compromise 28,916 --
-------- --------
Total liabilities .............................. 28,930 26,122
-------- --------
Commitments and contingencies
Stockholders' 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 ........ (34,805) (30,597)
-------- --------
Total stockholders' equity (deficit) ............ (22,073) (17,865)
-------- --------
Total liabilities and stockholders'
equity (deficit) .............................. $ 6,857 $ 8,257
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
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)
(Unaudited)
Three Months Ended March 31,
1998 1997
------- -------
Revenues ......................... $- $-
Operating expenses:
Amortization of financing and
other costs .................. 34 33
Abandonment loss and write-downs
of assets held for sale ...... 1,300 --
Development costs .............. 40 41
------- -------
Total operating expenses ... 1,374 74
------- -------
Operating loss ................... (1,374) (74)
Other income (expenses):
Interest income ................ -- --
Interest expense (contractual
interest for the three-months
ended March 31, 1998 in the
amount of $937 ............... (817) (1,016)
Interest capitalized ........... -- --
------- -------
Total other income (expense) ..... (817) (1,016)
------- -------
Net loss before extraordinary item (2,191) (1,090)
------- -------
Reorganization items (20) --
------- -------
Net loss before extraordinary item (2,211) (1,090)
Extraordinary item:
Loss on early retirement of
debt (no income tax benefit
available) ................... -- --
------- -------
Net loss ...................... $(2,211) $(1,090)
======= =======
================================================================================
<PAGE>
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)
(Unaudited)
For The Period
January 20, 1993
(The Date Of
Inception)
Nine Months Through
Ended March 31, March 31,
1998 1997 1998
-------- -------- ------------------
Revenues ........................... $- $- $-
Operating expenses:
Amortization of financing and
other costs .................... 101 99 1,575
Abandonment losses and write-downs
of assets held for sale......... 1,300 -- 11,726
Development costs ................ 166 175 2,157
-------- -------- ------------------
Total operating expenses ..... 1,567 274 15,458
-------- -------- ------------------
Operating loss (1,567) (274) (15,458)
Other income (expenses):
Interest income .................. 1 -- 1,267
Interest expense (contractual
interest for the three-months
ended March 31, 1998 in the
amount of $937 ................. (2,622) (2,519) (17,188)
Interest capitalized ............. -- -- 683
-------- -------- ------------------
Total other income (expense) ....... (2,621) (2,519) (15,238)
Net loss before extraordinary item . (4,188) (2,793) (30,696)
-------- -------- ------------------
Reogranization items (20) -- (20)
-------- -------- ------------------
Net loss before extraordinary item . (4,208) (2,793) (30,716)
Extraordinary item:
Loss on early retirement of
debt (no income tax benefit ...
available) .................... -- -- (4,089)
-------- -------- ------------------
Net loss ........................ $ (4,208) $ (2,793) $ (34,805)
======== ======== ==================
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
CAPITOL QUEEN & CASINO, INC.
( A Development Stage Company And
A Wholly Owned Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Nine Months Ended
March 31,
1998 1997
------- -------
Cash flows from development stage activities:
Net loss .................................... $(4,208) $(2,793)
Adjustments to reconcile net loss
to net cash provided by (used in)
development stage activities:
Amortization of financing and other costs ... 101 99
Amortization of original issue discount ..... 367 406
Abandonment losses and write-downs of assets.
held for sale ............................ 1,300 --
Extraordinary loss on retirement of debt .... -- --
Increase in accounts payable and accruals,
net of amounts for capital expenditures .. 2,255 2,114
Increase in advances from related parties ... 186 174
------- -------
Total adjustments ..................... 4,209 2,793
------- -------
Net cash used in development
stage activities .................... 1 --
------- -------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .............. -- --
Net (additions to) reductions
in restricted cash equivalents ........... (1) --
Decrease in deposits and other assets ....... -- --
Capitalization of preopening costs .......... -- --
Development costs ........................... -- --
------- -------
Net cash provided by
(used in) investing activities ........ (1) --
------- -------
Cash flows from financing activities:
Principal payments on First Mortgage Notes .. -- --
Proceeds from issuance of First
Mortgage Notes, net of financing costs ... -- --
Proceeds from borrowings under notes payable
to related parties ....................... -- --
Equity contribution from Becker Gaming, Inc. -- --
relating to sale of warrants ........... -- --
------- -------
Net cash provided by financing activities -- --
------- -------
Net (decrease) increase 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 ... $- $-
======== ========
Original issue discount that
did not affect cash ...................... $- $-
======== ========
Equity contribution by Becker Gaming
that did not affect cash ................. $- $-
======== ========
================================================================================
<PAGE>
CAPITOL QUEEN & CASINO, INC.
( A Development Stage Company And
A Wholly Owned Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
For The Period
January 20, 1993
(The Date Of
Inception)
Through
March 31,
1998
--------
Cash flows from development stage activities:
Net loss ................................... $(34,805)
Adjustments to reconcile net loss
to net cash provided by (used in)
development stage activities:
Amortization of financing and other costs .. 1,575
Amortization of original issue discount .... 2,656
Abandonment losses and write-downs of assets
held for sale.......................... 11,786
Extraordinary loss on retirement of debt ... 4,089
Increase in accounts payable and accruals,
net of amounts for capital expenditures. 8,055
Increase in advances from related parties .. 1,400
--------
Total adjustments .................... 29,561
--------
Net cash used in development
stage activities ................... (5,244)
--------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable ............. (12,936)
Net (additions to) reductions in restricted
cash equivalents .......................... (33)
Decrease in deposits and other assets ...... (60)
Capitalization of preopening costs ......... (340)
Development costs .......................... (553)
--------
Net cash provided by
(used in) investing activities ....... (13,922)
--------
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 provided by financing activities 19,166
--------
Net (decrease) increase 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 ................ $ 5,232
========
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary Of
Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
--------------------
1) Basis of Presentation:
Capitol Queen & Casino, Inc. ("CQC" or the "Company") is a wholly owned
subsidiary of Becker Gaming, Inc. ("BGI"). The accompanying financial statements
of CQC have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments and normal recurring accruals considered necessary for a fair
presentation have been included. Operating results for the three-month and
nine-month periods ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1998. The unaudited
financial statements should be read in conjunction with the financial statements
and footnotes included in CQC's annual report on Form 10-K for the year ended
June 30, 1997.
2) Capitol Queen & Casino, Inc. Bankruptcy Filing:
On March 17, 1998, CQC filed for bankruptcy protection in the United States
Bankruptcy Court for the District of Nevada in Las Vegas, Nevada (the
"Bankruptcy Court") under Chapter 11 of the United States Bankruptcy Code (Case
NO. 98-22172 LBR) to purse financial reorganization of CQC and to facilitate a
sale of the gaming vessel, the principal asset of CQC, to a third party. A third
party bid for the purchase of the vessel was filed with a Motion of Order
Authorizing Sale of Personal Property and hearing on the motion was set for
April 16, 1998. On April 16, 1998, the parties requested the hearing be deferred
to April 29, 1998. On April 29, 1998, the third party buyer withdrew its bid and
there being no other willing buyers present to make a bid, the sale of the boat
was continued to June 5, 1998 to allow CQC to solicit additional bids and
offers. Subsequently, CQC received a conditional offer from a third party and a
new hearing date of May 15, 1998 was scheduled (in lieu of the June 5, 1998 date
which was vacated) to consider this bid and any others that might be
forthcoming. The third party, however, then requested a continuance to allow for
additional time to complete its diligence investigation regarding the vessel,
and there being no other bidders prepared to offer a competitive bid to that of
the third party, a further continuance was request and granted to June 15, 1998,
at which time the third party bid and that of any competing buyers will be
considered. Since CQC does not presently engage in any business operations, the
Company did not experience any material changes in its operations as a result of
the bankruptcy filing.
3) Arizona Charlie's, Inc. Bankruptcy Filing:
Arizona Charlie's, Inc., ("AC"), a wholly owned subsidiary of BGI, is the
limited guarantor of certain debt of CQC. On November 14, 1997, AC filed a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court for the District of Nevada (the "Bankruptcy Court") in
Las Vegas, Nevada in order to provide it protection from creditors while it
attempts to negotiate a settlement with the holders of certain debt.
During the course of the bankruptcy proceeding AC has been involved in
litigation with certain of its creditors. Specifically the holders of the CQC
Notes (as defined in Note 3) asserted a claim against AC under its limited
guaranty of the CQC Notes for the full deficiency which might arise after
proceeds from the sale of CQC's assets are applied to the CQC Notes. On November
14, 1997, AC filed a complaint to declare its obligations under the limited
guaranty discharged or alternatively to avoid the limited guaranty. The trustee
under the indenture with respect to the CQC Notes answered this complaint and
denies that the limited guaranty has been satisfied and denies that the limited
guaranty is avoidable. The litigation presently is in the discovery phase. A
trial to determine the amount (if any) of liability under the AC Limited
Guaranty is scheduled to begin before the Bankruptcy Court on August 17, 1998.
In addition, holders of the AC Notes (as defined in Note 4) claim a valid and
enforceable lien in all of AC's assets, including all real property and personal
property which comprise Arizona Charlie's Hotel and Casino. On February 2, 1998,
AC filed a motion disputing certain aspects of the liens claimed by the holders
of the AC Notes and seeking for the Bankruptcy Court to determine the value of
the collateral securing the AC Note holders' claims. The Bankruptcy Court
conducted an initial hearing on April 3, 1998, and indicated an intention to
value the liens of the holders of the AC Notes at the hearing of confirmation of
the Competing Plans (as defined below).
Currently pending before the Bankruptcy Court in the AC Bankruptcy Case are
three competing plans of reorganization: (i) a plan of reorganization filed by
AC on February 17, 1998 (as amended, "the Debtor's Plan"); (ii) a plan of
reorganization filed by Fertitta Enterprises and Station Casinos on May 8, 1998
(as amended, the "Station Plan"); and (iii) a plan of reorganization filed on
May 8, 1998 by High River Limited Partnership, an entity owned and controlled by
Carl Icahn (as amended, the "High River Plan"). Disclosure statements
accompanying the Debtor's Plan, the Station Plan, and the High River Plan
(collectively, the "Competing Plans") were approved by the Bankruptcy Court
following a hearing held on May 15, 1998. As a consequence, creditors will be
asked to vote on the Competing Plans in the near future, and the Bankruptcy
Court has set a confirmation hearing on the Competing Plans scheduled to begin
on June 18, 1998. Set forth in the table below is a comparison of the
significant terms of the Competing Plans.
<TABLE>
<CAPTION>
================================================================================
COMPARATIVE SUMMARY OF COMPETING PLANS
================================================================================
Debtor's Plan
- --------------------------------------------------------------------------------
Conditions to Entry of
Confirmation of Plan Confirmation Order
- --------------------------------------------------------------------------------
<S> <C> <C>
Additional Conditions
to the Effective Date (NOTE: PROPONENTS Gaming Approval
of the Plan MAY WAIVE ONE OR New Value
MORE CONDITIONS) Contribution Made
(NOTE: PAYMENT OF (due 30 days after
UNSECURED CREDITORS entry of the
ARE NOT CONDITIONED Confirmation Order)
UPON OR TIED TO Confirmation Order
EFFECTIVE DATE) entered and in
(NOTE: IF ITS PLAN effect
IS CONFIRMED, HIGH
RIVER MAY CLOSE THE
CASINO FOR A PERIOD
OF TIME IF UNABLE TO
RENEGOTIATE OR
OBTAIN CERTAIN LEASES)
(NOTE: DEBTOR'S ABILITY
TO MAKE PAYMENTS
REQUIRED BY ITS PLAN IS
SUBJECT TO RECEIPT OF
FUNDS UNDER ITS LOAN
COMMITMENT FROM UNITED
HEALTHCARE FINANCIAL SERVICES,
INC.)
- --------------------------------------------------------------------------------
<S> <C> <C>
Administrative Claims $1,000,000- Unless otherwise
$1,500,000 agreed in writing by
the Creditor, or
unless otherwise
ordered by the
Court: 100% on the
later of (a) the
Effective Date; or
(b) the date allowed
by final order
(Class 1-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Unsecured 0 Same as Class 1
Claims (Class 2-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured Tax Claims 0 100% plus interest
at 8% per annum,
semi-annual payments
commencing six
months after the
Effective Date
(Class 3-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Tax Claims $511,000 100%, to be paid (at
Debtor's option) in cash upon
later of Effective Date or date
claim is allowed; or quarterly
payments with interest at 8%
(or rate allowed by the
Bankruptcy Court) over six
years from date of assessment,
with payments commencing at the
end of the first calendar
quarter after the Effective
Date. (Class 4-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Noteholder Claims $55,000,000 Each holder shall
(principal) have the option of
receiving either: (1) payment
on the Effective Date of pro
rata share of the value of the
Noteholders' Secured Claim, as
determined by the Bankruptcy
Court (estimated by the Debtor
at $43,000,000) plus payment of
either (i) 10% of the
deficiency balance in cash on
the Effective date; or (ii) the
full amount of the deficiency
balance five years after the
Effective Date (estimated by
the Debtor at $19,000,000),
with interest only payments at
the rate of 5.75% per annum
commencing 18 months after the
Effective Date; or (2) payment
of pro rata share of
$55,000,000 in satisfaction of
all claims. (Class 5 and 10-
impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gaming Equipment $2,374,000 Post-petition
Secured Claims payments brought
current on the Effective Date
and maintained thereafter; pre-
petition arrears along with
recoverable costs and expenses
(including reasonable attorneys
fees) paid in six equal monthly
installments, with interest at
8%, commencing on the first day
of the month following the
Effective Date (Class
6-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Secured Claims 0 Same as Class 6
(Class 7-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
General (Trade) $2,000,000 100% 11 days after
Unsecured Claims entry of
Confirmation Order
(Class 9-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Unsecured Claims $270,000-$320,000 100% 11 days after
entry of
Confirmation Order
with limitations
($2,500-vehicular
injury; $25,000-non-
vehicular injury)
plus right to
recover balance of
claim from available
insurance proceeds
(Class 11-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Affiliates $7,000,000 No distribution-
Unsecured Claims claims contributed
as part of new value
contribution
(Class 12-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
CQC Noteholders $27,000,000 If Claim Allowed,
Guaranty Claim Holder may elect to
receive 10% on Effective Date
(equivalent of up to
$2,700,000) or 100% five years
after the Effective Date, with
interest from the Effective
Date at 5.57% (semi-annual
interest only payments
commencing 18 months after the
Effective Date) (Debtor
estimates claims at $0) (Class
13-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Interests N/A Retained in exchange
for release of Class
12 claims plus
$1,500,000 new value
contribution (which
includes $385,000
loan commitment fee
advanced)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
COMPARATIVE SUMMARY OF COMPETING PLANS
================================================================================
High River's Plan
- --------------------------------------------------------------------------------
Conditions to Confirmation Order
Confirmation of Plan final and non-
appealable
Regulatory Approval
(including gaming)
Appointment of
Interim Operating Trustee
- --------------------------------------------------------------------------------
<S> <C> <C>
Additional
Conditions to the (NOTE: PROPONENTS Gaming Approval
Effective Date of MAY WAIVE ONE OR Execution of lease
the Plan MORE CONDITIONS) with a qualified
(NOTE: PAYMENT OF gaming operator
UNSECURED CREDITORS Confirmation Order
ARE NOT CONDITIONED Effective
UPON OR TIED TO
EFFECTIVE DATE)
(NOTE: IF ITS PLAN
IS CONFIRMED, HIGH
RIVER MAY CLOSE THE
CASINO FOR A PERIOD OF
TIME IF UNABLE TO
RENEGOTIATE OR OBTAIN
CERTAIN LEASES)
(NOTE: DEBTOR'S
ABILITY TO MAKE PAYMENTS
REQUIRED BY ITS PLAN IS
SUBJECT TO RECEIPT OF
FUNDS UNDER ITS LOAN
COMMITMENT FROM UNITED
HEALTHCARE FINANCIAL
SERVICES, INC.)
- --------------------------------------------------------------------------------
<S> <C> <C>
Administrative $1,000,000- Unless otherwise
Claims $1,500,000 agreed in writing
between Reorganized
Debtor and Claimant:
100% on the later of
(a) the Effective
Date; or (b) the
date allowed by
final order (Certain
Administrative
Claimants must file
claim or request for
payment within 30
days after the
Effective Date)
(Class 1-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Unsecured 0 Unless otherwise
Claims ordered by the Court-
Same as Class 1
(Class 2-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured Tax Claims 0 100%, to be paid (at
option of Reorganization Debtor) in
cash on the Effective Date; in
semi-annual payments over 5 years
commencing on the Effective Date,
with interest at 8%; or as
determined by the Court (Class
3-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Tax Claims $511,000 100%, to be paid (at
option of Reorganized Debtor) in
cash on Effective Date; in quarterly
payments over six years from date of
assessment commencing on Effective
Date; or as determined by the Court
(Class 4-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Noteholder Claims $55,000,000 96% of face value of
(principal) notes in cash
(equivalent of
$52,800,000, to be
paid on Effective
Date or as soon
thereafter as
practicable, with no
payment of any
deficiency balance
(Class 5-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gaming Equipment $2,374,000 No claims in Class
Secured Claims 6; reorganized
Debtor will assume all contracts
relating to Gaming Equipment Vendors
Claims as executory contracts on the
Effective Date; all pre- and
post-petition arrears paid eleven
days after Confirmation Date, or
plan proponent will acquire pre- and
post-petition claims at 100% of face
amount and pay the net present value
of the balance of the underlying
contract. (Class 6- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Secured Claims 0 Included in Class 6
General (Trade) $2,000,000 100% 11 days after
Unsecured Claims entry of
Confirmation Order
(Class 7-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Unsecured $270,000-$320,000 100% 11 days after
Claims entry of
Confirmation Order with limitations
($2,500-vehicular injury;
$25,000-non- vehicular injury) plus
right to recover balance of claim
from available insurance proceeds
(Class 8-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Affiliates $7,000,000 No distribution
Unsecured Claims (Class 10-impaired)
(Deemed to have
rejected the Plan-
class does not
vote)
- --------------------------------------------------------------------------------
<S> <C> <C>
CQC Noteholders $27,000,000 Pro rata share of
Guaranty Claim $1,500,000 and
waiver of Debtor's
Claims against CQC
(Class 9-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Interests N/A No distribution
(Class 11-impaired)
(Deemed to have
rejected the Plan-
class does not vote)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
COMPARATIVE SUMMARY OF COMPETING PLANS
================================================================================
Station's Plan
- --------------------------------------------------------------------------------
Conditions to Entry of
Confirmation of Plan Confirmation Order
- --------------------------------------------------------------------------------
<S> <C> <C>
Effective Date of the Plan PROPONENTS MAY Confirmation
WAIVE ONE OR Order final
MORE No stay of
CONDITIONS) Confirmation
(NOTE: PAYMENT Order
OF UNSECURED Debtor, Debtor
CREDITORS ARE in Possession,
NOT CONDITIONED Reorganized
UPON OR TIED TO Debtor, and
EFFECTIVE DATE) Proponents have
(NOTE: IF ITS executed and
PLAN IS delivered all
CONFIRMED, HIGH documents
RIVER MAY CLOSE necessary to
THE CASINO FOR effectuate Plan
A PERIOD OF (manner and
TIME IF UNABLE form in sole
TO RENEGOTIATE discretion of
OR OBTAIN Proponents)
CERTAIN LEASES) Proponent's
(NOTE: contribution of
DEBTOR'S cash necessary
ABILITY TO MAKE to satisfy all
PAYMENTS cash payments
REQUIRED BY under the Plan
ITS PLAN IS Debtor's
SUBJECT TO satisfaction of
RECEIPT OF Minimum Gaming
FUNDS UNDER ITS Reserve
LOAN COMMITMENT Requirement
FROM UNITED Leases with
HEALTHCARE various Becker
FINANCIAL entities to
SERVICES, INC.) have been
renegotiated or other
satisfactory arrangements to
have been made (subject to
approval in sole discretion of
Proponents) Proponents to have
obtained all requisite
corporate authority, consents
and approvals No material
adverse changes in Debtor's
business, assets, liabilities
or operations
- --------------------------------------------------------------------------------
<S> <C> <C>
Administrative Claims $1,000,000- 100% up to an
$1,500,000 aggregate of
$1,000,000 (which cap may be
increased by Proponents) on the
later of (a) the Effective
Date; (b) the date of a final
order allowing the claim; or
(c) the date due outside of
bankruptcy (Class 1-
unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Unsecured Claims 0 Same as Class 1
or as ordered
by the court
(Class 2-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured Tax Claims 0 Paid in full or
brought current
by the
Effective Date
(Class 3- unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Tax Claims $511,000 Unless
otherwise
agreed, 100%
either on the
Effective Date
or quarterly
payments with
interest at 8%
commencing at
the end of the
first quarter
after the
Effective Date
and concluding
six years after
date of
assessment
(Class 4-
unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Noteholder Claims $55,000,000 Pro rata share
(principal) of $52,000,000,
with no payment
of any deficiency
balance (Class 5-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gaming Equipment $2,374,000 100%-subject to
Secured Claims cap of
$2,400,000 (which may be
increased by Proponents) either
by cure of arrears and
resumption of payments or cash
in full on the Effective Date,
at Proponents' option; or to
the extent gaming equipment,
capital lease or installment
sales contracts, are executory
contracts, the same will be
assumed as of Effective Date.
(Class 6- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Secured Claims 0 100%-subject to
cap of $100,000
(which may be
increased by
Proponents)
paid same as
Class 6 (Class
7-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
General (Trade) Unsecured $2,000,000 100%-subject to
Claims cap of
$2,600,000
(which may be
increased by
Proponents) 11
days after
entry of
confirmation
order
(Class 9-
impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Unsecured Claims $270,000- 100% on the
$320,000 Effective Date
with limitations ($2,500-
vehicular injury, $25,000-
non-vehicular injury)plus right
to recover balance of claim
from available insurance
proceeds (Class 11- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Affiliates Unsecured Claims $7,000,000 100% to be paid
(at Proponents' option) either
on the Effective Date; or five
years after the Effective Date,
with interest from the
Effective Date at 5.57%
(semi-annual interest only
payments commencing 18 months
after the Effective Date)
(Class 12- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
CQC Noteholders Guaranty Claim
$27,000,000 Pro rate share of
$1,000,000 and waiver of
Debtor's Claims against CQC
(Class 13- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Interests N/A No distribution
(Class 14-
impaired)
(Deemed to have
rejected the
Plan-class does
not vote)
- --------------------------------------------------------------------------------
</TABLE>
4) 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, May 15, 1997, November 15, 1997 and May 15, 1998
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, 4) Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern, Continued:
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 payments of $3,300,000 on May
15, 1997, November 15, 1997 and May 15, 1998 and Sunset Coin, Inc. ("SC"),
another wholly owned subsidiary of BGI (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.
AC has provided a limited guaranty of the CQC Notes. The AC Notes are guaranteed
by SC (which guarantee is subject to release upon the attainment of a
fixed-coverage ratio by AC of 2.25 to 1, 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) 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 March
31, 1998.
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 4) Missouri
Gaming License, Default Under Indebtedness, Management's Plans, and Going
Concern, Continued:
when the December 31, 1995 expiration date passed. As more fully described in
Note 4, a further write-down in the carrying value of the riverboat was
recognized in the fourth quarter of fiscal 1996, after the election in Jefferson
City, the expiration of the Aerie contract, and due to deteriorating market
conditions. Additionally, the cost of the riverboat was further written down at
March 31, 1998 to $6,200,000 based on recent offers received for the riverboat,
which resulted in an additional abandonment loss of $1,300,000.
CQC continues to market its riverboat assets to prospective buyers. Based on
current market conditions, management does not expect that CQC will generate
sufficient funds through the sale of its assets to repurchase all of the
outstanding CQC Notes. 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 March 31, 1998 financial statements of CQC do not
include any adjustment that might result from the outcome of this uncertainty.
5) Assets Held For Sale:
At March 31, 1998, CQC had $6,454,000 of assets held for sale, consisting of
land and riverboat assets which were written down to a carrying value based on
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.
================================================================================
<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
(Dollars In Thousands)
ASSETS
March 31, June 30,
1998 1997
-------- --------
(unaudited)
Current assets:
Cash and cash equivalents ................. $ 8,290 $ 5,481
Restricted cash, in escrow account ........ 10 10
Trade and other accounts receivable ....... 361 240
Receivable from related parties .......... 2,874 2,665
Inventories ............................... 554 529
Prepaid expenses .......................... 874 985
-------- --------
Total current assets .................... 12,963 9,910
-------- --------
Property and equipment:
Building and improvements ................. 37,493 37,490
Furniture and equipment ................... 24,767 23,916
Land improvements ......................... 1,629 1,629
-------- --------
63,889 63,035
Less, accumulated depreciation ........... (19,462) (18,303)
-------- --------
44,427 44,732
Land ...................................... 208 208
-------- --------
Net property and equipment ............ 44,635 44,940
-------- --------
Other assets:
Receivable from related party, noncurrent.. 210 210
Deposits and other ........................ 698 544
Note receivable from related party......... 4,416 4,416
Financing costs, less accumulated
amortization of $2,343 at March 31,
1998 and $1,923 June 30, 1997 ............. 1,517 1,937
-------- --------
Total other assets ................... 6,841 7,107
-------- --------
Total assets .......................... $ 64,439 $ 61,957
======== ========
================================================================================
<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
(Dollars In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31, June 30,
1998 1997
-------- --------
(unaudited)
Current liabilities:
Trade accounts payable .................... $ 717 $ 1,047
Accrued expenses .......................... 2,951 2,642
Accrued interest .......................... -- 4,522
Management fees due Becker Gaming, Inc. ... 258 5,347
Notes payable, current portion ............ 120 106
Notes payable to related party ............ -- 3,150
Current portion of obligations
under capital leases .................... -- 12
Current portion of long-term debt ......... -- 464
Long-term debt classified as current due
to default under covenants .............. -- 55,000
-------- --------
Total current liabilities ......... 4,046 72,290
-------- --------
Prepetition liabilities not subject to
compromise:
Current portion of capital lease
obligations ............................. 26 --
Current portion of long-term debt ......... 957 --
Capital lease obligations, less current
portion ................................. 67 --
Long-term debt, less current portion ...... 1,156 --
-------- --------
Total prepetition liabilities not
subject to compromise ................. 2,206 --
-------- --------
Prepetition liabilities subject to compromise:
Trade accounts payable .................... 2,273 --
Management fees due Becker Gaming, Inc. ... 5,583 --
Accrued interest .......................... 7,445 --
Notes payable to related party ............ 3,150 --
Long-term debt classified as current due
to default under covenants .............. 55,000 --
Subordinated notes payable to prior
stockholders ............................ 5,000 --
-------- --------
Total prepetition liabilities subject to
compromise .............................. 78,451 --
-------- --------
Long-term debt, less current portion ...... -- 1,284
Subordinated notes payable to prior
stockholders ............................ -- 5,000
Capital lease obligations, less current
portion ................................. -- 29
-------- --------
Total liabilities 84,703 78,603
-------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, no par value, 2,500 shares
authorized, 1,000 shares issued
and outstanding ........................... 469 469
Retained earnings (deficit) ................ (20,733) (17,115)
-------- --------
Total stockholders' equity
(deficit) ......................... (20,264) (16,646)
-------- --------
Total liabilities and
stockholders' equity (deficit) .... $ 64,439 $ 61,957
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(Dollars In Thousands)
(Unaudited)
Three Months Ended March 31,
1998 1997
-------- --------
Revenues:
Gaming ....................................... $ 12,984 $ 11,837
Food and beverage ............................ 3,284 3,297
Hotel ........................................ 777 854
Gift shop .................................... 206 135
Other ........................................ 262 175
-------- --------
Gross revenues ........................... 17,513 16,298
Less, promotional allowances ................... (1,592) (1,985)
-------- --------
Net revenues ............................. 15,921 14,313
-------- --------
Operating expenses:
Gaming ....................................... 4,736 4,276
Food and beverage ............................ 3,623 2,956
Hotel ........................................ 372 329
Gift shop .................................... 184 137
Advertising and promotion .................... 1,219 1,100
Provisions for losses on related party
receivables ................................ -- 41
General and administrative ................... 3,742 3,955
Management fee - Becker Gaming, Inc. ......... 175 164
Rent expense paid to related party ........... 56 55
Depreciation and amortization ................ 938 864
-------- --------
Total operating expenses ................. 15,045 13,877
-------- --------
Operating income (loss)................... 876 436
-------- --------
Other income (expenses):
Gain (loss) on sale of assets ................. 26 (1)
Interest income ............................... 67 67
Interest expense (contractual interest for the
three and nine-months ended March 31, 1998
of $2,030 and $6,139, respectively).......... -- (1,814)
Other, net .................................... 50 22
-------- --------
Total other income (expenses) ............. 143 (1,726)
-------- --------
Income (loss) before reorganization items.. 1,019 (1,290)
Reorganization items ............................ (172) --
-------- --------
Net income (loss) before taxes ............ 847 (1,290)
Provision for income taxes ...................... -- --
-------- --------
Net income (loss) ......................... $ 847 ($ 1,290)
Retained earnings (deficit),
beginning of period ........................... (21,580) (13,681)
-------- --------
Retained earnings (deficit),
end of period ................................ ($20,733) ($14,971)
======== ========
<PAGE>
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(Dollars In Thousands)
(Unaudited)
Nine Months Ended March 31,
1998 1997
-------- --------
Revenues:
Gaming ....................................... $ 36,080 $ 36,362
Food and beverage ............................ 9,644 10,445
Hotel ........................................ 2,265 2,540
Gift shop .................................... 573 404
Other ........................................ 776 711
-------- --------
Gross revenues .......................... 49,338 50,462
Less, promotional allowances .................. (4,804) (6,479)
-------- --------
Net revenues ............................. 44,534 43,983
-------- --------
Operating expenses:
Gaming ....................................... 13,025 13,136
Food and beverage ............................ 10,592 9,287
Hotel ........................................ 1,114 1,065
Gift shop .................................... 501 387
Advertising and promotion .................... 3,547 3,708
Payment under Guarantee Obligation ........... 94 175
General and administrative ................... 12,804 12,800
Management fee - Becker Gaming, Inc. ......... 493 505
Rent expense paid to related party ........... 169 167
Depreciation and amortization ................ 2,768 2,583
-------- --------
Total operating expenses ................. 45,107 43,813
-------- --------
Operating income (loss)................... (573) 170
-------- --------
Other income (expenses):
Gain (loss) on sale of assets ................ 71 (1)
Interest income (reflecting contractual interest
for the three and nine-months ended March
31, 1998 of $2,030 and $6,139,
respectively) ............................... 203 204
Interest expense .............................. (3,070) (5,435)
Other, net .................................... 25 61
-------- --------
Total other income (expenses) ............. (2,771) (5,171)
-------- --------
Income (loss) before reorganization cost... (3,344) (5,001)
Reorganization items ............................ (275) --
-------- --------
Net (loss) income before taxes ............ (3,619) (5,001)
Provision for income tax ........................ -- --
-------- --------
Net (loss) income ......................... (3,619) (5,001)
Retained earnings (deficit),
beginning of period ........................... (17,114) (9,970)
-------- --------
Retained earnings (deficit),
end of period ................................ ($20,733) ($14,971)
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Nine Months Ended March 31,
1998 1997
-------- --------
Cash flows from operating activities:
Net loss ........................................... ($ 3,619) ($ 5,001)
Adjustments to reconcile net income
loss to net cash provided by operating activities:
Provision for losses on related party receivables .. 94 175
Depreciation and amortization ...................... 2,768 2,583
(Gain) loss on sale of equipment ................... (71) 1
(Increase) decrease in operating assets:
Trade and other accounts receivables ............... (121) 29
Inventories ........................................ (25) 17
Prepaid expenses ................................... 111 169
Deposits and other ................................. (154) (102)
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts for capital
expenditures ..................................... 1,639 (462)
Management fees due to Becker Gaming, Inc. ......... 494 505
Accrued expenses ................................... 3,232 2,520
-------- --------
Total adjustments ............................... 7,967 5,435
-------- --------
Net cash provided by operating activities ...... 4,348 434
-------- --------
Cash flows from investing activities:
Capital expenditures, net of amounts in
accounts payable ................................. (1,009) (305)
Increase in receivables from related party
notes receivable ................................. (209) (342)
Proceeds from assets sold .......................... 133 7
-------- --------
Net cash provided by
investing activities ......................... (1,085) (640)
-------- --------
Cash flows from financing activities:
Proceeds from borrowing under payables ............. 140 190
Proceeds from related party notes payable........... -- 900
Principal payments on notes payable ................ (576) (110)
Payments under capital lease obligations ........... (18) (10)
-------- --------
Net cash provided by (used) in
financing activities ......................... (454) 970
-------- --------
Net increase (decrease) in cash and
cash equivalents .............................. 2,809 764
Cash and cash equivalents, beginning of the period ..... 5,481 4,591
-------- --------
Cash and cash equivalents, end of the period ........... $ 8,290 $ 5,355
======== ========
Supplemental cash flow disclosures:
Interest paid, net of amount capitalized ........... $ 164 $ 5,435
======== ========
Assets acquired through issuance of long-term debt
and capital leases and accounts payable .............. $ 1,189 $-
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
-------------
1) Basis of Presentation:
Arizona Charlie's, Inc. ("AC" or the "Company") is a wholly owned subsidiary of
Becker Gaming, Inc. ("BGI"). The accompanying financial statements of AC have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and normal
recurring accruals considered necessary for a fair presentation have been
included. Operating results for the three-month and nine-month periods ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1998. The unaudited financial statements
should be read in conjunction with the financial statements and footnotes
included in AC's annual report on Form 10-K for the year ended June 30, 1997.
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
2) Arizona Charlie's, Inc. Bankruptcy Filing:
On November 14, 1997, AC filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code with the United States Bankruptcy Court for the District of
Nevada (the "Bankruptcy Court") in Las Vegas, Nevada in order to provide it
protection from creditors while it attempts to negotiate a settlement with the
holders of certain debt.
During the course of the bankruptcy proceeding the Company has been involved in
litigation with certain of its creditors. Specifically, the holders of the CQC
Notes (as defined in Note 3) asserted a claim against the Company under its
limited guaranty of the CQC Notes for the full deficiency which might arise
after proceeds from the sale of CQC's assets are applied to the CQC Notes. On
November 14, 1997, the Company filed a complaint to declare its obligations
under the limited guaranty discharged or alternatively to avoid the limited
guaranty. The trustee under the indenture with respect to the CQC Notes answered
this complaint and denies that the limited guaranty has been satisfied and
denies that the limited guaranty is avoidable. The litigation presently is in
the discovery phase. A trial to determine the amount (if any) of liability under
the AC Limited Guaranty is scheduled to begin before the Bankruptcy Court on
August 17, 1998.
In addition, holders of the AC Notes (as defined in Note 3) claim a valid and
enforceable lien in all of the Company's assets, including all real property and
personal property which comprise Arizona Charlie's Hotel and Casino. On February
2, 1998, the Company filed a motion disputing certain aspects of the liens
claimed by the holders of the AC Notes and seeking for the Bankruptcy Court to
determine the value of the collateral securing the AC Note holders' claims. The
Bankruptcy Court conducted an initial hearing on April 3, 1998, and indicated an
intention to value the liens of the holders of the AC Notes at the hearing of
confirmation of the Competing Plans (as defined below).
Currently pending before the Bankruptcy Court in the AC Bankruptcy Case are
three competing plans of reorganization: (i) a plan of reorganization filed by
AC on February 17, 1998 (as amended, "the Debtor's Plan"); (ii) a plan of
reorganization filed by Fertitta Enterprises and Station Casinos on May 8, 1998
(as amended, the "Station Plan"); and (iii) a plan of reorganization filed on
May 8, 1998 by High River Limited Partnership, an entity owned and controlled by
Carl Icahn (as amended, the "High River Plan"). Disclosure statements
accompanying the Debtor's Plan, the Station Plan, and the High River Plan
(collectively, the "Competing Plans") were approved by the Bankruptcy Court
following a hearing held on May 15, 1998. As a consequence, creditors will be
asked to vote on the Competing Plans in the near future, and the Bankruptcy
Court has set a confirmation hearing on the Competing Plans scheduled to begin
on June 18, 1998. Set forth in the table below is a comparison of the
significant terms of the Competing Plans.
<TABLE>
<CAPTION>
================================================================================
COMPARATIVE SUMMARY OF COMPETING PLANS
================================================================================
Debtor's Plan
- --------------------------------------------------------------------------------
Conditions to Entry of
Confirmation of Plan Confirmation Order
- --------------------------------------------------------------------------------
<S> <C> <C>
Additional Conditions
to the Effective Date (NOTE: PROPONENTS Gaming Approval
of the Plan MAY WAIVE ONE OR New Value
MORE CONDITIONS) Contribution Made
(NOTE: PAYMENT OF (due 30 days after
UNSECURED CREDITORS entry of the
ARE NOT CONDITIONED Confirmation Order)
UPON OR TIED TO Confirmation Order
EFFECTIVE DATE) entered and in
(NOTE: IF ITS PLAN effect
IS CONFIRMED, HIGH
RIVER MAY CLOSE THE
CASINO FOR A PERIOD
OF TIME IF UNABLE TO
RENEGOTIATE OR
OBTAIN CERTAIN LEASES)
(NOTE: DEBTOR'S ABILITY
TO MAKE PAYMENTS
REQUIRED BY ITS PLAN IS
SUBJECT TO RECEIPT OF
FUNDS UNDER ITS LOAN
COMMITMENT FROM UNITED
HEALTHCARE FINANCIAL SERVICES,
INC.)
- --------------------------------------------------------------------------------
<S> <C> <C>
Administrative Claims $1,000,000- Unless otherwise
$1,500,000 agreed in writing by
the Creditor, or
unless otherwise
ordered by the
Court: 100% on the
later of (a) the
Effective Date; or
(b) the date allowed
by final order
(Class 1-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Unsecured 0 Same as Class 1
Claims (Class 2-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured Tax Claims 0 100% plus interest
at 8% per annum,
semi-annual payments
commencing six
months after the
Effective Date
(Class 3-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Tax Claims $511,000 100%, to be paid (at
Debtor's option) in cash upon
later of Effective Date or date
claim is allowed; or quarterly
payments with interest at 8%
(or rate allowed by the
Bankruptcy Court) over six
years from date of assessment,
with payments commencing at the
end of the first calendar
quarter after the Effective
Date. (Class 4-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Noteholder Claims $55,000,000 Each holder shall
(principal) have the option of
receiving either: (1) payment
on the Effective Date of pro
rata share of the value of the
Noteholders' Secured Claim, as
determined by the Bankruptcy
Court (estimated by the Debtor
at $43,000,000) plus payment of
either (i) 10% of the
deficiency balance in cash on
the Effective date; or (ii) the
full amount of the deficiency
balance five years after the
Effective Date (estimated by
the Debtor at $19,000,000),
with interest only payments at
the rate of 5.75% per annum
commencing 18 months after the
Effective Date; or (2) payment
of pro rata share of
$55,000,000 in satisfaction of
all claims. (Class 5 and 10-
impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gaming Equipment $2,374,000 Post-petition
Secured Claims payments brought
current on the Effective Date
and maintained thereafter; pre-
petition arrears along with
recoverable costs and expenses
(including reasonable attorneys
fees) paid in six equal monthly
installments, with interest at
8%, commencing on the first day
of the month following the
Effective Date (Class
6-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Secured Claims 0 Same as Class 6
(Class 7-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
General (Trade) $2,000,000 100% 11 days after
Unsecured Claims entry of
Confirmation Order
(Class 9-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Unsecured Claims $270,000-$320,000 100% 11 days after
entry of
Confirmation Order
with limitations
($2,500-vehicular
injury; $25,000-non-
vehicular injury)
plus right to
recover balance of
claim from available
insurance proceeds
(Class 11-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Affiliates $7,000,000 No distribution-
Unsecured Claims claims contributed
as part of new value
contribution
(Class 12-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
CQC Noteholders $27,000,000 If Claim Allowed,
Guaranty Claim Holder may elect to
receive 10% on Effective Date
(equivalent of up to
$2,700,000) or 100% five years
after the Effective Date, with
interest from the Effective
Date at 5.57% (semi-annual
interest only payments
commencing 18 months after the
Effective Date) (Debtor
estimates claims at $0) (Class
13-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Interests N/A Retained in exchange
for release of Class
12 claims plus
$1,500,000 new value
contribution (which
includes $385,000
loan commitment fee
advanced)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
COMPARATIVE SUMMARY OF COMPETING PLANS
================================================================================
High River's Plan
- --------------------------------------------------------------------------------
Conditions to Confirmation Order
Confirmation of Plan final and non-
appealable
Regulatory Approval
(including gaming)
Appointment of
Interim Operating Trustee
- --------------------------------------------------------------------------------
<S> <C> <C>
Additional
Conditions to the (NOTE: PROPONENTS Gaming Approval
Effective Date of MAY WAIVE ONE OR Execution of lease
the Plan MORE CONDITIONS) with a qualified
(NOTE: PAYMENT OF gaming operator
UNSECURED CREDITORS Confirmation Order
ARE NOT CONDITIONED Effective
UPON OR TIED TO
EFFECTIVE DATE)
(NOTE: IF ITS PLAN
IS CONFIRMED, HIGH
RIVER MAY CLOSE THE
CASINO FOR A PERIOD OF
TIME IF UNABLE TO
RENEGOTIATE OR OBTAIN
CERTAIN LEASES)
(NOTE: DEBTOR'S
ABILITY TO MAKE PAYMENTS
REQUIRED BY ITS PLAN IS
SUBJECT TO RECEIPT OF
FUNDS UNDER ITS LOAN
COMMITMENT FROM UNITED
HEALTHCARE FINANCIAL
SERVICES, INC.)
- --------------------------------------------------------------------------------
<S> <C> <C>
Administrative $1,000,000- Unless otherwise
Claims $1,500,000 agreed in writing
between Reorganized
Debtor and Claimant:
100% on the later of
(a) the Effective
Date; or (b) the
date allowed by
final order (Certain
Administrative
Claimants must file
claim or request for
payment within 30
days after the
Effective Date)
(Class 1-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Unsecured 0 Unless otherwise
Claims ordered by the Court-
Same as Class 1
(Class 2-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured Tax Claims 0 100%, to be paid (at
option of Reorganization Debtor) in
cash on the Effective Date; in
semi-annual payments over 5 years
commencing on the Effective Date,
with interest at 8%; or as
determined by the Court (Class
3-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Tax Claims $511,000 100%, to be paid (at
option of Reorganized Debtor) in
cash on Effective Date; in quarterly
payments over six years from date of
assessment commencing on Effective
Date; or as determined by the Court
(Class 4-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Noteholder Claims $55,000,000 96% of face value of
(principal) notes in cash
(equivalent of
$52,800,000, to be
paid on Effective
Date or as soon
thereafter as
practicable, with no
payment of any
deficiency balance
(Class 5-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gaming Equipment $2,374,000 No claims in Class
Secured Claims 6; reorganized
Debtor will assume all contracts
relating to Gaming Equipment Vendors
Claims as executory contracts on the
Effective Date; all pre- and
post-petition arrears paid eleven
days after Confirmation Date, or
plan proponent will acquire pre- and
post-petition claims at 100% of face
amount and pay the net present value
of the balance of the underlying
contract. (Class 6- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Secured Claims 0 Included in Class 6
General (Trade) $2,000,000 100% 11 days after
Unsecured Claims entry of
Confirmation Order
(Class 7-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Unsecured $270,000-$320,000 100% 11 days after
Claims entry of
Confirmation Order with limitations
($2,500-vehicular injury;
$25,000-non- vehicular injury) plus
right to recover balance of claim
from available insurance proceeds
(Class 8-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Affiliates $7,000,000 No distribution
Unsecured Claims (Class 10-impaired)
(Deemed to have
rejected the Plan-
class does not
vote)
- --------------------------------------------------------------------------------
<S> <C> <C>
CQC Noteholders $27,000,000 Pro rata share of
Guaranty Claim $1,500,000 and
waiver of Debtor's
Claims against CQC
(Class 9-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Interests N/A No distribution
(Class 11-impaired)
(Deemed to have
rejected the Plan-
class does not vote)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
COMPARATIVE SUMMARY OF COMPETING PLANS
================================================================================
Station's Plan
- --------------------------------------------------------------------------------
Conditions to Entry of
Confirmation of Plan Confirmation Order
- --------------------------------------------------------------------------------
<S> <C> <C>
Effective Date of the Plan PROPONENTS MAY Confirmation
WAIVE ONE OR Order final
MORE No stay of
CONDITIONS) Confirmation
(NOTE: PAYMENT Order
OF UNSECURED Debtor, Debtor
CREDITORS ARE in Possession,
NOT CONDITIONED Reorganized
UPON OR TIED TO Debtor, and
EFFECTIVE DATE) Proponents have
(NOTE: IF ITS executed and
PLAN IS delivered all
CONFIRMED, HIGH documents
RIVER MAY CLOSE necessary to
THE CASINO FOR effectuate Plan
A PERIOD OF (manner and
TIME IF UNABLE form in sole
TO RENEGOTIATE discretion of
OR OBTAIN Proponents)
CERTAIN LEASES) Proponent's
(NOTE: contribution of
DEBTOR'S cash necessary
ABILITY TO MAKE to satisfy all
PAYMENTS cash payments
REQUIRED BY under the Plan
ITS PLAN IS Debtor's
SUBJECT TO satisfaction of
RECEIPT OF Minimum Gaming
FUNDS UNDER ITS Reserve
LOAN COMMITMENT Requirement
FROM UNITED Leases with
HEALTHCARE various Becker
FINANCIAL entities to
SERVICES, INC.) have been
renegotiated or other
satisfactory arrangements to
have been made (subject to
approval in sole discretion of
Proponents) Proponents to have
obtained all requisite
corporate authority, consents
and approvals No material
adverse changes in Debtor's
business, assets, liabilities
or operations
- --------------------------------------------------------------------------------
<S> <C> <C>
Administrative Claims $1,000,000- 100% up to an
$1,500,000 aggregate of
$1,000,000 (which cap may be
increased by Proponents) on the
later of (a) the Effective
Date; (b) the date of a final
order allowing the claim; or
(c) the date due outside of
bankruptcy (Class 1-
unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Unsecured Claims 0 Same as Class 1
or as ordered
by the court
(Class 2-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Secured Tax Claims 0 Paid in full or
brought current
by the
Effective Date
(Class 3- unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Priority Tax Claims $511,000 Unless
otherwise
agreed, 100%
either on the
Effective Date
or quarterly
payments with
interest at 8%
commencing at
the end of the
first quarter
after the
Effective Date
and concluding
six years after
date of
assessment
(Class 4-
unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Noteholder Claims $55,000,000 Pro rata share
(principal) of $52,000,000,
with no payment
of any deficiency
balance (Class 5-impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Gaming Equipment $2,374,000 100%-subject to
Secured Claims cap of
$2,400,000 (which may be
increased by Proponents) either
by cure of arrears and
resumption of payments or cash
in full on the Effective Date,
at Proponents' option; or to
the extent gaming equipment,
capital lease or installment
sales contracts, are executory
contracts, the same will be
assumed as of Effective Date.
(Class 6- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Secured Claims 0 100%-subject to
cap of $100,000
(which may be
increased by
Proponents)
paid same as
Class 6 (Class
7-unimpaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
General (Trade) Unsecured $2,000,000 100%-subject to
Claims cap of
$2,600,000
(which may be
increased by
Proponents) 11
days after
entry of
confirmation
order
(Class 9-
impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Other Unsecured Claims $270,000- 100% on the
$320,000 Effective Date
with limitations ($2,500-
vehicular injury, $25,000-
non-vehicular injury)plus right
to recover balance of claim
from available insurance
proceeds (Class 11- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
AC Affiliates Unsecured Claims $7,000,000 100% to be paid
(at Proponents' option) either
on the Effective Date; or five
years after the Effective Date,
with interest from the
Effective Date at 5.57%
(semi-annual interest only
payments commencing 18 months
after the Effective Date)
(Class 12- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
CQC Noteholders Guaranty Claim
$27,000,000 Pro rate share of
$1,000,000 and waiver of
Debtor's Claims against CQC
(Class 13- impaired)
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity Interests N/A No distribution
(Class 14-
impaired)
(Deemed to have
rejected the
Plan-class does
not vote)
- --------------------------------------------------------------------------------
</TABLE>
Interest expense on the AC Notes and the subordinated notes payable to prior AC
stockholders has not been recognized since AC's November 14, 1997 bankruptcy
petition date as it not probable that post-petition interest for the AC Notes
will be an allowed claim in these proceedings.
Reorganization items presented in the statements of operations and retained
earnings (deficit) are comprised of expenses incurred by AC as a result of AC's
reorganization under Chapter 11 of Bankruptcy Code. Such expenses consisted
entirely of professional fees for the three-month and nine-month periods ended
March 31, 1998.
3) Missouri Gaming License, Default Under Indebtedness, Management's Plans,
and Going Concern:
Capitol Queen and Casino, Inc. ("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, May 15, 1997, November 15, 1997 and May 15, 1998
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, November 15, 1997 and May 15, 1998 and Sunset Coin,
Inc. ("SC"), another wholly owned subsidiary of BGI (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 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.
AC provided a limited guaranty of the CQC Notes. The AC Notes are guaranteed by
SC (which guarantee is subject to release upon the attainment of a
fixed-coverage ratio by AC of 2.25 to 1, 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 (the "Indenture"), 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.
As of March 31, 1998, AC was 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 March 31,
1998); (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 payments of $3,300,000 on May 15, 1997,
November 15, 1997 and May 15, 1998. 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 was
technically required to offer to buy back $49,500,000 of the outstanding AC
Notes at March 31, 1998 due to the failure to meet this covenant, increasing by
$5,500,000 each fiscal quarter. 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.
CQC continues to market its riverboat assets to prospective buyers. Based on
current market conditions, management does not expect that CQC will generate
sufficient funds through the sale of its assets to repurchase all of the
outstanding CQC Notes. 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 March 31, 1998 financial statements of AC do not
include any adjustment that might result from the outcome of this uncertainty.
4) Related-Party Transactions:
AC has advanced to BGI an aggregate of approximately $6,441,000 to fund BGI's
operating expenses from June 1994 through March 31, 1998 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 March 31, 1998, accrued interest receivable on the interest bearing
portion of the advances to BGI totaled $821,000. The matters described in Notes
2 and 3 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 March 31, 1998.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Capitol Queen & Casino, Inc.
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 March 31, 1998, approximately $32,000 remained in the escrow
account held by the Indenture Trustee 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, May 15, 1997, November 15,
1997 and May 15, 1998. Further, AC does not have available funds to advance on
behalf of CQC. See "Liquidity and Capital Resources - Capitol Queen & Casino,
Inc. - Claims by Trustee".
During the period from inception through March 31, 1998, CQC had total
operating expenses of $15,458,000 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 abandonment loss of
$4,392,000 in the 1996 fiscal year. The cost of the riverboat was further
written down at March 31, 1998 to $6,200,000 based on recent offers received for
the riverboat, which resulted in an additional or abandonment loss of
$1,300,000. Also included in operating expenses are amortization expense of
$1,575,000 associated with debt issue costs and $2,157,000 of project
development costs. For the same period, CQC incurred $17,188,000 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 $1,267,000 for the period from inception to March 31, 1998.
Liquidity and Capital Resources
For the period from inception through March 31, 1998, net cash used in
development stage activities was $5,244,000. Cash flows used in investing
activities for the period was $13,922,000 which included $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson City land site. At March 31, 1998, CQC had expended a total of
approximately $21,810,000 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 $7,853,500 at March 31,
1998, which includes amounts accrued on unpaid interest. On March 17, 1998 CQC
filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. As
such, CQC has ceased accruing interest on the CQC Notes as of March 17, 1998, as
it is not probable that post-petition interest for these notes will be an
allowed claim in CQC's bankruptcy proceedings. 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 March 31, 1998 and June 30, 1997.
Claims by Trustee
AC currently has outstanding $55,000,000 of 12% First Mortgages Notes due
2000. SC has issued a limited guaranty with respect to the AC Notes (the "SC
Limited Guaranty"). 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. 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.
On March 17, 1998, Capitol Queen & Casino, Inc. the "Registrant" or the
"Company") filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code with the United States Bankruptcy Court for the District of
Nevada (Las Vegas, Nevada). The file number in the case is 98-22172 LBR with
Judge Linda Riegle presiding.
On November 14, 1997, AC filed a voluntary petition under Chapter 11 of
the U.S. Bankruptcy Code with the United States Bankruptcy Court for the
District of Nevada (the "Bankruptcy Court") in Las Vegas, Nevada in order to
provide it protection from creditors while it attempts to negotiate a settlement
with the holders of the AC Notes and the CQC Notes.
Arizona Charlie's, Inc.
General
AC's revenues are derived largely from gaming activities at its Arizona
Charlie's casino-hotel, and, to a lessor extent, from food and beverage,
lodging, entertainment and retail sales. AC generally views its non- casino
operations as complementary to its core casino operations. Accordingly, it
utilizes entertainment primarily as a casino marketing tool. Further, AC
maintains food and beverage pricing structures designed to benefit casino
volumes, often resulting in departmental operating losses. AC seeks to maximize
profits from its hotel operations, however, while maintaining attractive room
rental rates. Gaming revenues represent the net win from gaming wins and losses.
The retail value of accommodations, food and beverage provided to customers
without charge is included in gross revenues and deducted as promotional
allowance.
Results of Operations for the three and nine-months ended
March 31, 1998 and 1997
Results from operations at AC increased for both the three and nine-month
periods ended March 31, 1998 compared to the same periods in 1997 primarily as a
result of increased gaming revenues in the three-month period and decreased
promotional allowances in the nine-month period. Operating expenses increased
for both the three-month and nine-month periods ended March 31, 1998, primarily
as a result of increased depreciation resulting from the purchase of new slot
equipment and increased food and beverage expenses. Gaming expenses also
increased during the three-month period.
Net revenues at AC increased by $1,608,000, or 11.2%, from $14,313,000 to
$15,921,000 for the three-month period ended March 31, 1998 compared to the
three-month period ended March 31, 1997. In the same period-to-period
comparison, operating expenses, including depreciation and amortization,
increased by 8.4% to $15,045,000 from $13,877,000. This resulted in a $440,000
increase in operating income from $436,000 to $876,000 for the more recent
period.
Net revenues at AC increased by $551,000, or 1.2%, from $43,983,000 to
$44,534,000 for the nine-month period ended March 31, 1998 compared to the
nine-month period ended March 31, 1997. In the same period-to-period comparison,
operating expenses, including depreciation and amortization, increased by 2.9%
to $45,107,000 from $43,813,000. This resulted in a $743,000 decrease in
operating income from income of $170,000 to a loss of $573,000 for the more
recent period.
The largest portion of the revenue increase for the three-month period
ended March 31, 1998 is attributable to gaming revenues, specifically, gaming
machine revenues, which increased 9.8% from $10,269,000 to $11,279,000,
reflecting increased levels of play from patrons. Revenues from table games
increased 4.0% from $1,120,000 to $1,165,000 during the 1998 three-month period
and race and sports book revenues increased $64,000 or 13.5% reflecting
increased twenty-one play and increased race & sports book and pari-mutuel
wagering, respectively. The increased pari- mutuel wagering is due to the
settlement of a ten month old fee dispute in August, 1997 between the Nevada
Pari-Mutuel Association and both the Thoroughbred Owners of California and the
California Horse Racing Board who provide and authorized televised disseminator
services to race and sports books in Nevada. Bingo revenues also increased by
$55,000 for the three-month period ended March 31, 1998 when compared to the
same period of the prior year.
The largest portion of the increase in net revenues for the nine-month
period ended March 31, 1998 is attributable to promotional allowances which
decreased 25.8% from $6,479,000 to $4,804,000. The reduction in promotional
allowances is the result of Management's recent efforts to better control these
costs and rewards patrons through stronger player evaluation methods such as the
Charlie Card Slot Club. This is partially offset by gaming revenue which
decreased by 0.8% or $282,000 from $36,362,000 to $36,080,000. Revenues from
table games decreased $330,000 or 9.4%, from $3,525,000 to $3,195,000, and
revenues from the race & sports book increased $187,000, or 9.7%, from
$1,934,000 to $2,121,000 Poker revenues decreased by $65,000 from $419,000 to
$354,000 during the nine-month period ended March 31, 1998 compared to the same
period of the prior year.
Food and beverage revenues decreased $13,000 or 0.4% from $3,297,000 to
$3,284,000 during the three-month period ended March 31, 1998 compared to the
same period in the prior year. The small decrease in revenues is primarily due
to decreased complimentary sales in the food and beverage department reflecting
management's recent efforts to better control the costs associated with
complimentary sales through stronger player evaluation methods offset by an
increase in the number of cash covers in the casino restaurants. Such sales are
included in revenues at retail value and are then deducted as a promotional
allowance. For the nine-month period ended March 31, 1998, food & beverage
revenues decreased $801,000 or 7.7% from $10,445,000 to $9,644,000 when compared
to the nine-month period of the prior year, again reflecting decreased
complimentary sales in the food and beverage departments.
Hotel revenues decreased $77,000 or 9.0% from $854,000 to $777,000 during
the three months ended March 31, 1998 compared to the same three-month period in
1997. The decrease is primarily due to a decrease in occupancy and average room
rates of 79.7% and $41.96, respectively, compared to 86.7% and $43.70 in the
1997 period. During the nine-month period ended March 31, 1998, hotel revenues
decreased by $275,000 or 10.8% from $2,540,000 to $2,265,000 compared to the
same nine-month period of 1997. The decreased revenue is largely due to a
decrease in occupancy and to a lessor extent average room rates of 77.1% and
$42.81, respectively, compared to 87.3% and $43.22 in the 1997 nine-month
period.
Gift shop revenues increased $71,000 or 52.6% from $135,000 to $206,000
during the three-month period ended March 31, 1998 compared to the same period
in 1997. During the nine-month period ended March 31, 1998, gift shop revenues
increased $169,000, or 41.8%, from $404,000 to $573,000 compared to the same
period in 1997. The increases are primarily due to increased sales of hotel logo
items.
Other revenues, which principally include entertainment cover charges, ATM
commissions, and revenues from PBX and banquets, increased $87,000 or 49.7% from
$175,000 to $262,000 for the three-month period ended March 31, 1998 compared to
the same period in 1997. During the nine month period ended March 31, 1998,
other revenues increased by $65,000 or 9.1% from $711,000 to $776,000 compared
to the same nine-month period of 1997. The increases are primarily the result of
higher ATM and other commissions and revenue from boxing events in the
three-month period of the more recent fiscal year.
Gaming expenses increased by $460,000 or 10.8% from $4,276,000 to
$4,736,000 for the three-month period ended March 31, 1998 as compared to the
same periods in 1997. The increased levels of expense reflect additions to
staffing levels in the slot department and increased race & sports book
promotion expenses. The increase is also due to increased employee medical
premium expense caused by a change in the way medical insurance payments are
recorded (see general and administrative below). For the nine-month period ended
March 31, 1998 gaming expenses decreased slightly by $111,000 or 0.9% from
$13,136,000 to $13,025,000.
Food and beverage expenses increased by $667,000 and $1,305,000, or 22.6%
and 14.0%, from $2,956,000 and $9,287,000 to $3,623,000 and $10,592,000,
respectively, for the three-month and nine-month periods ended March 31, 1998
when compared to the same periods in 1997, as a result of an increase in
beverage costs plus increased employee medical premium expense caused by a
change in the way medical insurance payments have been recorded (see general &
administrative below) during the 1998 three-month and nine-month periods.
Despite such increase, food and beverage expenses represented 88.9% and 109.8%
of food and beverage revenues for the three-month and nine-month periods ended
March 31, 1998 compared to 89.7% and 110.5% of the food and beverage revenues
for the same periods in 1997.
Hotel expenses increased by $43,000 and $49,000, or 13.1% and 4.6%, from
$329,000 and $1,065,000 to $372,000 and $1,114,000, respectively, for the
three-month and nine-month periods ended March 31, 1998 as compared to the same
periods in 1997, reflecting the addition of in-room movie rental expense in the
1998 three-month and nine-month periods. Such in-room movie rental expense is
offset by movie rental revenue. Net contribution by the hotel department (hotel
revenues less hotel operating expenses) was $405,000 and $1,151,000 for the
three-month and nine-month periods ended March 31, 1998 as compared to $525,000
and $1,475,000 for the same periods in 1997.
General and administrative expenses decreased by $213,000 and increased
by $4,000, or 5.4% and 0.1%, from $3,955,000 and $12,800,000 to $3,742,000 and
$12,804,000 respectively, for the three-month and nine-month periods ended March
31, 1998 as compared to the same periods in 1997. The decrease for the
three-month period resulted from the changing of the medical insurance policy
from self-insured to premium only with such premiums being recorded to
individual operating departments instead of the general and administrative
department. This decrease was partially offset by annual salary and wage
increases.
Advertising and promotional expenses increased by $119,000 and decreased
by $161,000, or 10.8% and 4.3%, from $1,100,000 and $3,708,000 to $1,219,000 and
$3,547,000 during the three-month and nine-month periods ended March 31, 1998 as
compared to the same period in 1997. Management believes that increased levels
of slot promotional expenditures in both of the 1998 periods are necessary to
attract and maintain the desired customer levels, and support the other existing
facilities throughout the property. Management believes that large and frequent
promotions are necessary to compete with the newer hotel/casinos that are
located close in proximity to AC. These newer hotel/casinos appeal and market to
the same Arizona Charlie's "local" patron base.
Depreciation and amortization increased by $74,000 and $185,000, or 8.6%
and 7.2%, from $864,000 and $2,583,000 to $938,000 and $2,768,000 during the
three-month and nine-month periods ended March 31, 1998 when compared to the
same periods in 1997, as a result of increased depreciation expenses associated
with the purchases of new slot machines and the computerized slot reporting and
player tracking system acquired in the 1998 periods.
Gift shop expenses increased by $47,000 and $114,000, or 34.3% and 29.5%,
to $184,000 and $501,000 for the three-month and nine-month periods ended March
31, 1998 compared to $137,000 and $387,000 for the same period of the prior year
reflecting additional payroll expenses associated with the expanded hours of
operation and increases in wholesale item costs and higher cost of sales
resulting from increased gift shop revenues.
Management fees to BGI increased by $11,000 and decreased by $12,000, or
6.7% and 2.4%, to $175,000 and $493,000 for the three-month and nine-month
periods ended March 31, 1998 from $164,000 and $505,000 for the same periods in
the prior year. Currently, management fees are equal to 1.0% of gross revenues
of AC. As such, decreased gross revenues bring about lower management fees.
Since inception of the management fees agreement, management fees payable to BGI
have been and continue to be accrued by AC, and may not be paid under the
Indenture governing the AC Notes until such time that AC meets a specified fixed
charged coverage ratio. Rent expense paid to related parties increased slightly
from $55,000 to $56,000 and $167,000 to $169,000 reflecting normal annual
adjustments to the base rents.
Interest expense amounted to $0 and $3,070,000 for the three-month and
nine-month periods ended March 31, 1998 compared to $1,814,000 and $5,435,000
for the same periods in the prior year. The decrease of $1,814,000 and
$2,365,000, or 100.0% and 43.5%, respectively, is due to the elimination of
accrued interest and penalties on the AC Notes during the post-petition period
in regard to the Chapter 11 Bankruptcy protection filing on November 14, 1997.
The decrease of interest expense was partially offset by additional interest
costs in the pre-petition period associated with the AC Notes due to additional
default interest expense and penalties associated with the May 15, 1997 interest
payment which was not made, and additional interest costs associated with the
financing of the computerized slot reporting and player tracking system
purchased in May, 1997. The $26,000 and $71,000 gains on sale of assets for the
three-month and nine-month periods ending March 31, 1998 was primarily due to
the sale of older slot machines.
Income Taxes
As a result of the termination of its election to be treated as an S
corporation, AC is liable for income taxes on income earned from and after
January 1, 1994. Prior to such termination, AC did not incur or pay income taxes
but distributed cash to its stockholders in amounts sufficient to pay their
income tax liability in respect to income of AC. Since terminating its S
corporation status, AC generated a net operating loss for income tax purposes of
approximately $21,300,000. Due to low operating margins and high depreciation
costs, management does not anticipate that AC will generate taxable income for
this fiscal year.
Liquidity and Capital Resources
At March 31, 1998, AC had a working capital deficit of $70,517,000
compared to a working capital deficit of $62,380,000 at June 30, 1997. The
decrease in working capital in the amount of $8,137,000 was caused primarily by
increased accrued interest on the AC Notes through the November 14, 1997
pre-petition period and accrued management fees payable to BGI, plus additional
short term notes payable for slot machines.
For the nine-month period ended March 31, 1998, cash provided by operating
activities increased $3,914,000 to $4,348,000, from $434,000 for the same period
in 1997. The increase in the 1998 period is primarily attributable to the
increased accounts payable of $2,101,000 and to a lower net loss for the current
period of $1,382,000. Increased accrued interest on the AC Notes through the
November 14, 1997 pre- petition period also contributed to the increase in cash
provided by operating activities partially offset by an increase in accounts
receivable.
For the nine-month period ended March 31, 1998, net cash used in investing
activities increased to $1,085,000 compared with $640,000 for the same period in
1997. The increase of $445,000 was caused primarily by a $704,000 increase in
capital expenditures for the purchase of slot equipment in the more recent
period partially offset by $126,000 increase in proceeds from sale of assets.
Cash flows used in financing activities for the nine-month period ended
March 31, 1998 increased to $454,000 from cash provided by financing activities
of $970,000 for the nine-month period ended March 31, 1997. The increase of
$1,424,000 is primarily the result of higher principal payments on additional
notes payable and the decrease in related party notes payable.
AC's long-term obligations of $6,223,000 at March 31, 1998, consist of the
stockholder notes and capitalized equipment leases. AC has annual interest
expense aggregating $6,600,000 and $500,000 with respect to the AC Notes
(classified as current due to default under covenants) and the stockholder
notes. However, AC has ceased accruing interest on the AC Notes and the
Stockholder Notes as of November 14, 1997, as it is not probable that
post-petition interest for these Notes will be an allowed claim in AC's
Bankruptcy proceedings. Further, AC has acquired capital expenditures in the
amount of $1,938,000 through March 31, 1998 consisting primarily of gaming
equipment and a computerized accounting system.
Claims by Trustee
AC currently has outstanding $55,000,000 of 12% First Mortgage 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. On November 14, 1997 AC filed a voluntary petition under Chapter 11
and sought to negotiate a settlement with the holders of the AC Notes and the
CQC Notes.
AC is currently in default under the Indenture governing the AC Notes
because it has not made its required semi-annual interest payments in the amount
of $3,300,000 due on May 15, 1997, November 15, 1997 and May 15, 1998 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 $2,545,000) for the purchase of a
computerized reporting and player club system and new slot machines in excess of
the $1,000,000 allowed.
AC has a contingent obligation resulting from the AC Limited Guaranty 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. 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. - Missouri 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.
On November 14, 1997, AC filed a voluntary petition under Chapter 11 of
the U.S. Bankruptcy Code with the United States Bankruptcy Court for the
District of Nevada (the "Bankruptcy Court") in Las Vegas, Nevada in order to
provide it protection from creditors while it attempts to negotiate a settlement
with the holders of the AC Notes and the CQC Notes.
On March 17, 1998, CQC filed for bankruptcy protection in the United
States Bankruptcy Court for the District of Nevada in Las Vegas, Nevada (the
"Bankruptcy Court") under Chapter 11 of the United States Bankruptcy Code (Case
NO. 98- 22172 LBR) to purse financial reorganization of CQC and to facilitate a
sale of the gaming vessel, the principal asset of CQC, to a third party. A third
party bid for the purchase of the vessel was filed with a Motion of Order
Authorizing Sale of Personal Property and hearing on the motion was set for
April 16, 1998. On April 16, 1998, the parties requested the hearing be deferred
to April 29, 1998. On April 29, 1998, the third party buyer withdrew its bid and
there being no other willing buyers present to make a bid, the sale of the boat
was continued to June 5, 1998 to allow CQC to solicit additional bids and
offers. Subsequently, CQC received a conditional offer from a third party and a
new hearing date of May 15, 1998 was scheduled (in lieu of the June 5, 1998 date
which was vacated) to consider this bid and any others that might be
forthcoming. The third party, however, then requested a continuance to allow for
additional time to complete its diligence investigation regarding the vessel,
and there being no other bidders prepared to offer a competitive bid to that of
the third party, a further continuance was request and granted to June 15, 1998,
at which time the third party bid and that of any competing buyers will be
considered. Since CQC does not presently engage in any business operations, the
Company did not experience any material changes in its operations as a result of
the bankruptcy filing.
During the course of the bankruptcy proceeding AC has been involved in
litigation with certain of its creditors. Specifically, the holders of the CQC
Notes asserted a claim against AC under its limited guaranty of the CQC Notes
for the full deficiency which might arise after proceeds from the sales of CQC's
assets are applied to the CQC Notes. On November 14, 1997, AC filed a complaint
to declare its obligations under the limited guaranty discharged or
alternatively to avoid the limited guaranty. The trustee under the indenture
with respect to the CQC Notes answered this complaint and denies that the
limited guaranty has been satisfied and denies that the limited guaranty is
avoidable. The litigation presently is in the discovery phase. A trial to
determine the amount (if any) of liability under the AC Limited Guaranty is
scheduled to begin before the Bankruptcy Court on August 17, 1998.
In addition, holders of the AC Notes claim a valid and enforceable lien in
all of AC's assets, including all real property and personal property which
comprise Arizona Charlie's Hotel and Casino. On February 2, 1998, AC filed a
motion disputing certain aspects of the liens claimed by the holders of the AC
Notes and seeking for the Bankruptcy Court to determine the value of the
collateral securing the AC Note holders' claims. The Bankruptcy Court conducted
an initial hearing on April 3, 1998, and indicated an intention to value the
liens of the holders of the AC Notes at the hearing of confirmation of the
Competing Plans.
Currently pending before the Bankruptcy Court in the AC Bankruptcy Case are
three competing plans of reorganization: (i) a plan of reorganization filed by
AC on February 17, 1998 (as amended, "the AC Plan"); (ii) a plan of
reorganization filed by Fertitta Enterprises and Station Casinos on May 8, 1998
(as amended, the "Station Plan"); and (iii) a plan of reorganization filed on
May 8, 1998 by High River Limited Partnership, an entity owned and controlled by
Carl Icahn (as amended, the "High River Plan"). Disclosure statements
accompanying the Debtor's Plan, the Station Plan, and the High River Plan
(collectively, the "Competing Plans") were approved by the Bankruptcy Court
following a hearing held on May 15, 1998. As a consequence, creditors will be
asked to vote on the Competing Plans in the near future, and the Bankruptcy
Court has set a confirmation hearing on the Competing Plans scheduled to begin
on June 18, 1998. Set forth in the table below is a comparison of the material
terms of the Competing Plans. See "Note to Financial Statements _ Arizona
Charlie's, Inc. - Arizona Charlie's, Inc. Bankruptcy Filing".
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has completed certain modifications to portions of its
software so that its computer systems will properly utilize dates beyond
December 31, 1999. According, management believes that with these modifications
the Year 2000 Issue will not have a material impact on the financial position,
operations or cash flows of the Company.
Forward Looking Statements
The statements in this Management's Discussion and Analysis which are not
historical fact are forward looking statements that are made pursuant to the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
The statements are subject to risks and uncertainties, including, but not
limited to increased competition, both in Nevada and other jurisdictions,
dependence on the Las Vegas area and the Southern California region for a
majority of the Company's customers and uncertainties associated with
construction projects, including the related disruption of operations and the
availability of financing, if necessary.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income ("SFAS
130"), which establishes standard for reporting and display of comprehensive
income and its components. SFAS 130 requires a separate statement to report
components of comprehensive income for each period presented. The provisions of
SFAS 130 are effective for fiscal years beginning after December 15, 1997.
Management believes that the Company currently does not have items that would
require presentation in a separate statement of comprehensive income.
In June 1997, the financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of a
Enterprise and Related Information" ("SFAS 131"), which supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reported issued to shareholders. SFAS 131 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented. SFAS 131 will not have a material
effect on the Company's financial statements as the required information is
either currently being presented by the Company to it is not applicable to the
Company.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98- 5), Reporting on the Costs of
Start-Up Activities. SOP 98-5 requires that the Company expense its pre-opening
and related promotional expense as incurred rather than capitalize it and
amortize it over the estimated period of economic benefit of such costs have
been the Company's policy in the past. During fiscal 1998, the Company will
adopt SOP 98-5. The adoption will have no impact on the financial position,
result of operations or cash flows of the Company as all start-up costs
previously capitalized had been expensed in prior periods.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently a party to any lawsuits relating to routine
or other matters incidental to their respective businesses. However, an
affiliate company has engaged in litigation that could have an impact on CQC, or
which might result in CQC engaging in similar litigation. 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.
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. 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.
On November 14, 1997, AC filed for bankruptcy protection in the United
States Bankruptcy Court for the District of Nevada in Las Vegas, Nevada (the
"Bankruptcy Court") under Chapter 11 of the United States Bankruptcy Code (Case
No. 97-28781 LBR) to pursue the financial reorganization of AC. AC currently is
operating under the Bankruptcy Code as debtor-in-possession. The Bankruptcy
Court has entered orders allowing AC to honor certain of the pre-petition debts
of its customers (such as hotel room deposits and outstanding gaming chips) and
to pay the pre- petition wages of its employees. As a result of the filing, the
Company did not experience any material changes in the operations of Arizona
Charlie's Hotel & Casino, located in Las Vegas, Nevada, which is owned and
operated by AC.
The filing by AC could, however, have an effect on the validity or value
of the limited guaranty issued by AC in 1993 for the benefit of the Bondholders.
AC concurrently filed a compliant with the bankruptcy court seeking a discharge,
or limitations on the extent of its obligation under the guaranty. The Trustee
answered this complaint and denies that the guaranty has been satisfied and
denies that the guaranty is avoidable. With the concurrence of the Bankruptcy
Court, AC and the Trustee have agreed to defer litigation on this issue until
early March 1998 to give the parties and opportunity to explore an overall
settlement of their disputes.
Subsequently, CQC received a conditional offer from a third party and a
new hearing date of May 15, 1998 was scheduled to consider this bid and any
others that might be forthcoming. The third party, however, then requested a
continuance to allow for additional time to complete its diligence investigation
regarding the vessel, and there being no other bidders prepared to offer a
competitive bid to that of the third party, a further continuance was request
and granted to June 15, 1998, at which time the third party bid and that of any
competing buyers will be considered.
Item 5. Other Information
Bankruptcy or Receivership
On November 14, 1997, AC filed for bankruptcy protection in the United
States Bankruptcy Court for the District of Nevada in Las Vegas, Nevada (the
"Bankruptcy Court") under Chapter 11 of the United States Bankruptcy Code (Case
No. 97-28781 LBR) to pursue the financial reorganization of the Company. AC
currently is operating under the Bankruptcy Code as debtor-in-possession. The
Bankruptcy Court has entered orders allowing AC to honor certain of the
pre-petition debts of its customers (such as hotel room deposits and outstanding
gaming chips) and to pay the pre-petition wages of its employees. As a result of
the filing, the Company did not experience any material changes in the
operations of Arizona Charlie's Hotel & Casino, located in Las Vegas, Nevada,
which is owned and operated by the Company.
Item 6. Exhibits and Reports on Form 8-K
On March 17, 1998, CQC filed for bankruptcy protection in the United
States Bankruptcy Court for the District of Nevada in Las Vegas. Nevada (the
"Bankruptcy Court") under Chapter 11 of the United States Bankruptcy Code (Case
NO. 98- 22172 LBR) to purse financial reorganization of CQC and to facilitate a
sale of the gaming vessel, the principal asset of CQC, to a third party. A third
party bid for the purchase of the vessel was filed with a Motion of Order
Authorizing Sale of Personal Property and hearing on the motion was set for
April 16, 1998. On April 16, 1998, the parties requested the hearing be deferred
to April 29, 1998. On April 29, 1998, the third party buyer withdrew its bid and
there being no other willing buyers present to make a bid, the sale of the boat
was continued to June 5, 1998 to allow CQC to solicit additional bids and
offers. Since CQC does not presently engage in any business operations, the
Company did not experience any material changes in its operations as a result of
the bankruptcy filing.
Item 7. Financial Statements and Exhibits
(C) Exhibits
99. Press Release dated March 17, 1998
PRESS RELEASE - FOR IMMEDIATE RELEASE
CAPITOL QUEEN & CASINO, INC.
March 17, 1998
Contact: Gerald C. Heetland
Telephone: (702) 258-5145
Capitol Queen & Casino, Inc., a wholly owned subsidiary of Becker Gaming, Inc.,
with offices at 740 S. Decatur, Las Vegas, Nevada, announced today that it has
filed for Chapter 11 Bankruptcy protection in U.S. Bankruptcy Court in Las
Vegas, Nevada. Bruce F. Becker, President of the Company said " The filing was
made principally to allow the company to accomplish a sale and the delivery of
free and clear title to the Capitol Queen casino riverboat to a purchaser of the
vessel, the company's principal asset." The MV Capitol Queen was designed and
constructed for use on the Missouri river, but was never outfitted and operated
as a casino when the owners of Capitol Queen were unable to secure needed gaming
licenses from the Missouri Gaming Commission in 1993. Mr. Becker further stated,
"The inability of Capitol Queen to complete and operate the planned Jefferson
City, Missouri casino riverboat and related facilities resulted in substantial
debt and no liquid resources for repayment. Efforts over the past several years
to sell the riverboat have been unsuccessful, but recent offers and expressions
of interest from prospective purchasers desiring to take title to the riverboat
immediately resulted in the decision of the Company to file bankruptcy to
facilitate completion of a sale, without the necessity of securing individual
consent of all of the creditors, many of whom are not known to the Company". The
Company has no employees or operations and the filing is expected to have no
impact on Becker Gaming, Inc., or related companies.
This release contains forward looking statements that involve risks and
uncertainties. These statements may differ from actual future events or results.
================================================================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Capitol Queen & Casino, Inc.
----------------------------
(Registrant)
Date: May 20, 1998 /S/ Bruce F. Becker
---------------- -------------------
Bruce F. Becker
President, Chief Executive
Officer(Principal Executive Officer)
and Sole Director
Date: May 20, 1998 /S/ Jerry Griffis
---------------- -----------------
Jerry Griffis
Controller(Principal Financial and
Accounting Officer)
================================================================================
<PAGE>
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