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<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1997
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 January 31, 1998
- --------------------- --------------
$1.00 par value 100 shares
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<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 December 31, 1997 and June
30, 1997........................................................
Statements of Loss Incurred During the Development Stage for the Three-Month
Periods Ended December 31, 1997 and 1996 and for the Six-Month Periods Ended
Decmeber 31, 1997 and 1996 and for the period from January 20, 1993 (the date of
inception)
through December 31, 1997.......................................
Statements of Cash Flows for the Six-Month
Periods Ended December 31, 1997 and 1996 and for the period from January 20,
1993 (the date of inception) through
December 31, 1997...............................................
Notes to Financial Statements...................................
ARIZONA CHARLIE'S, INC.
- -----------------------
Balance Sheets as of December 31, 1997 and
June 30, 1997...................................................
Statements of Income and Retained Earnings
(Deficit) for the Three-Month Periods Ended December 31, 1997 and 1996 and for
Six-Month Periods Ended December 31,
1997 and 1996...................................................
Statements of Cash Flows for the Six-Month
Periods Ended December 31, 1997 and 1996........................
Notes to Financial Statements...................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Capitol Queen & Casino, Inc.....................................
Arizona Charlie's, Inc. ........................................
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................
Item 5. Other Information .......................................
Item 6. Exhibits and Reports on Form 8-K.........................
SIGNATURES.......................................................
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<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
December 31, June 30,
1997 1997
------- -------
(Unaudited)
Current assets:
Restricted cash, in escrow account .................... $ 32 $ 31
------- -------
Total current assets ............................... 30 31
------- -------
Other assets:
Assets held for sale ................................... 7,754 7,754
Financing costs, net of accumulated
amortization of $512 at December 31,
1997 and $445 at June 30, 1997 ....................... 405 472
------- -------
Total other assets ................................. 8,159 8,226
------- -------
Total assets ....................................... $ 8,191 $ 8,257
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY(DEFICIT)
December 31, June 30,
1997 1997
-------- --------
(Unaudited)
Current liabilities:
Advances from related parties ....................... $ 1,352 $ 1,226
Accrued interest .................................... 7,353 5,788
Notes payable to related parties .................... 1,200 1,200
Long-term debt classified as current due to default
under covenants, net of unamortized original issue
discount of $2,204 and $2,474, respectively ....... 18,148 17,908
-------- --------
Total current liabilites ..................... 28,053 26,122
-------- --------
Total liabilities ............................ 28,053 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 ........ (32,594) (30,597)
-------- --------
Total stockholder's equity (deficit) ............ (19,862) (17,865)
-------- --------
Total liabilities and stockholder's
equity (deficit).............................. $ 8,191 $ 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 December 31,
1997 1996
------- -------
Revenues ......................... $- $-
Operating expenses:
Amortization of financing and
other costs .................. 34 33
Abandonment loss ............... -- --
Development costs .............. 47 61
------- -------
Total operating expenses ... 81 94
------- -------
Operating loss ................... (81) (94)
Other income (expenses):
Interest income ................ 1 --
Interest expense ............... (915) (752)
Interest capitalized ........... -- --
------- -------
Total other income (expense) ..... (914) (752)
------- -------
Net loss before extraordinary item
(995) (846)
------- -------
Extraordinary item:
Loss on early retirement of
debt (no income tax benefit
available) ................... -- --
------- -------
Net loss ...................... $(995) $(846)
======= =======
<PAGE>
For The Period
January 20, 1993
(The Date Of
Inception)
Six Months Through
Ended December 31, December 31,
1997 1996 1997
-------- -------- ------------------
Revenues ........................... $- $- $-
Operating expenses:
Amortization of financing and
other costs .................... 67 66 1,541
Abandonment loss ................. -- -- 10,426
Development costs ................ 126 134 2,117
-------- -------- ------------------
Total operating expenses ..... 193 200 14,084
-------- -------- ------------------
Operating loss (193) (200) (14,084)
Other income (expenses):
Interest income .................. 1 -- 1,267
Interest expense ................. (1,805) (1,504) (16,371)
Interest capitalized ............. -- -- 683
-------- -------- ------------------
Total other income (expense) ....... (1,804) (1,504) (14,421)
Net loss before extraordinary item . (1,997) (1,704) (28,505)
-------- -------- ------------------
Extraordinary item:
Loss on early retirement of
debt (no income tax benefit ...
available) .................... -- -- (4,089)
-------- -------- ------------------
Net loss ........................ $ (1,997) $ (1,704) $ (32,594)
======== ======== ==================
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)
Six Months Ended December 31,
1997 1996
------- -------
Cash flows from development stage activities:
Net loss .................................... $(1,997) $(1,704)
Adjustments to reconcile net loss
to net cash provided by (used in)
development stage activities:
Amortization of financing and other costs ... 67 66
Amortization of original issue discount ..... 240 270
Abandonment losses and write-downs of assets
held for sale ............................ -- --
Extraordinary loss on retirement of debt .... -- --
Increase in accounts payable and accruals,
net of amounts for capital expenditures .... 1,565 1,234
Increase in advances from related parties ... 126 134
------- -------
Total adjustments ..................... 1,998 1,704
------- -------
Net cash provided by (used in)
development stage activities ........ 1 --
------- -------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .............. -- --
Decrease in deposits and other assets ....... -- --
Capitalization of preopening costs .......... -- --
Development costs ........................... -- --
Net (additions to) reductions
in restricted cash equivalents ........... (1) --
------- -------
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>
For The Period
January 20, 1993
(The Date Of
Inception)
Through
December 31, 1997
--------
Cash flows from development stage activities:
Net loss ................................... $(32,594)
Adjustments to reconcile net loss
to net cash provided by (used in)
development stage activities:
Amortization of financing and other costs .. 1,541
Amortization of original issue discount .... 2,529
Abandonment losses and write-downs of assets
held for salee.......................... 10,486
Extraordinary loss on retirement of debt ... 4,089
Increase in accounts payable
and accruals, net of amounts
for capital expenditures .................. 7,365
Increase in advances from related parties .. 1,340
--------
Total adjustments .................... 27,350
--------
Net cash provided by (used in)
development stage activities ....... (5,244)
--------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable ............. (12,936)
Decrease in deposits and other assets ...... (60)
Capitalization of preopening costs ......... (340)
Development costs .......................... (553)
Net (additions to) reductions
in restricted cash equivalents .......... (33)
--------
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 ................ $ 5,233
========
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
six-month periods ended December 31, 1997 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) 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. 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 an opportunity to explore an overall settlement of their
disputes.
In addition, holders of the AC Notes (as defined in Note 3) 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. A response from the holders
of the AC Notes is due by February 25, 1998 and the Bankruptcy Court has set an
initial hearing for March 6, 1998.
<PAGE>
On February 17, 1998, AC filed a Plan of Reorganization (the "Plan") and an
accompanying Disclosure Statement (the "Disclosure Statement") with the
Bankruptcy Court. The Plan provides for a restructure of the claims against AC,
which AC believes will allow its business to continue successfully. The Plan
also is structured to provide certain creditors with the option of receiving up
front cash in lieu of deferred payments over several years. For example, the
Plan provides the holders of the AC Notes with the option of receiving
$45,000,000 in cash on the Plan's effective date in full satisfaction of their
allowed claims or payment of a higher amount over time. Likewise, trade
unsecured creditors can elect to receive cash on the effective date in the
amount of 80% of their allowed claims in lieu of a 100% payout over time.
AC expects, but no assurance can be given, to receive funding for the Plan from
several sources. First, AC anticipates receiving up to $50,000,000 from United
Healthcare Financial Services for use in making cash payments to electing
creditors. Second, AC will receive $1,500,000 in cash plus the release of over
$7,000,000 in claims from certain affiliates of AC, including BGI, in return for
retaining their equity interests in AC. Finally, AC will use net income
generated by the casino to help fund the Plan.
The holders of claims and interests of AC are permitted to vote to accept or
reject the Plan. A hearing on the Disclosure Statement has been scheduled for
March 27, 1998. If the Disclosure Statement is approved by the Bankruptcy Court,
the creditors thereafter will be requested to vote to accept or reject the Plan,
and a hearing will be held in due course on confirmation of the Plan. At the
hearing, the Bankruptcy Court will consider whether the Plan satisfies the
various requirements of the Bankruptcy Code. The Bankruptcy Court also will
receive and consider a ballot report which will present a tally of the votes
accepting or rejecting the Plan cast by those entitled to vote. Therefore, given
these contingencies, there can be no assurances that the Plan as submitted by AC
will be confirmed.
3) 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.
<PAGE>
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 and November 15, 1997 and AC (which
has guaranteed the CQC Notes as more fully described in below) did not have
available funds to advance on behalf of CQC.
Concurrent with the issuance of the CQC Notes, AC completed a private placement
debt financing of $55,000,000 in principal amount of 12% First Mortgage Notes
due November 15, 2000 (the "AC Notes"). The AC Notes require annual interest
payments of $6,600,000, payable in equal installments semi-annually on May 15
and November 15. AC was not able to make its scheduled interest payments of
$3,300,000 on May 15, 1997 and November 15, 1997 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
September 30, 1997.
On September 5, 1997, AC received a notice of acceleration from the trustee and
collateral agent for the AC Notes. Pursuant to section 6.02 of the indenture
governing the AC Notes, due to certain violations of the indenture, all of the
outstanding AC Notes are immediately due and payable together with all accrued
and unpaid interest thereon.
In connection with the decision to abandon the project, CQC had entered into an
Asset Purchase Agreement dated April 10, 1995, for the sale of its assets to
Aerie Riverboat Casinos of Missouri, Inc. at a purchase price of $18,000,000,
which price exceeded the carrying value of the CQC assets. However, the
consummation of the Aerie purchase agreement was subject to the satisfaction of
several conditions which could not be satisfied timely, including, among others,
that Jefferson City consent to the assignment of its Development Agreement with
CQC, that Aerie be found preliminarily suitable to hold a Missouri gaming
license, and that riverboat gaming is legally permitted in Jefferson City. As a
result, the agreement with Aerie was terminated without penalty when the
December 31, 1995 expiration date passed. As more fully described in Note 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.
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 December 31, 1997 financial statements of CQC do
not include any adjustment that might result from the outcome of this
uncertainty.
4) Assets Held For Sale:
At December 31, 1997, CQC had $7,754,000 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
December 31, June 30,
1997 1997
-------- --------
(unaudited)
Current assets:
Cash and cash equivalents ................. $ 8,029 $ 5,481
Restricted cash, in escrow account ........ 10 10
Trade and other accounts receivable ....... 332 240
Receivable from related parties ........... 2,920 2,665
Inventories ............................... 592 529
Prepaid expenses .......................... 791 985
-------- --------
Total current assets .................... 12,674 9,910
-------- --------
Property and equipment:
Building and improvements ................. 37,490 37,490
Furniture and equipment ................... 24,712 23,916
Land improvements ......................... 1,629 1,629
-------- --------
63,831 63,035
Less, accumulated depreciation ........... (19,383) (18,303)
-------- --------
44,448 44,732
Land ...................................... 208 208
-------- --------
Net property and equipment ............ 44,656 44,940
-------- --------
Other assets:
Receivable from related party, noncurrent.. 210 210
Deposits and other ........................ 544 544
Note receivable from related party......... 4,416 4,416
Financing costs, less accumulated
amortization of $2,204 at December 31,
1997 and $1,923 June 30, 1997 ............. 1,657 1,937
-------- --------
Total other assets ................... 6,827 7,107
-------- --------
Total assets .......................... $ 64,157 $ 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.)
BALANCE SHEETS
(Dollars In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31, June 30,
1997 1997
-------- --------
(unaudited)
Current liabilities:
Trade accounts payable .................... $ 527 $ 1,047
Accrued expenses .......................... 3,578 2,642
Accrued interest .......................... 102 4,522
Management fees due Becker Gaming, Inc. ... 83 5,347
Notes payable, current portion............. -- 106
Notes payable to related party ............ -- 3,150
Current portion of capital leases
obligations ............................. -- 12
Current portion of long-term debt ......... -- 464
Long-term debt classified as current due
to default under covenants .............. -- 55,000
-------- --------
Total current liabilities ......... 4,290 72,290
-------- --------
Prepetition liabilities not subject to
compromise:
Current portion of capital lease
obligations ............................. 26 --
Current portion of long-term debt ......... 1,105 --
Capital lease obligations, less current
portion ................................. 73 --
Long-term debt, less current portion ...... 1,269 --
-------- --------
Total prepetition liabilities not
subject to compromise ................. 2,473 --
-------- --------
Prepetition liabilities subject to compromise:
Trade accounts payable .................... 2,327 --
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 .............................. 78,505 --
-------- --------
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 85,268 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) ................ (21,580) (17,115)
-------- --------
Total stockholders' equity
(deficit) ......................... (21,111) (16,646)
-------- --------
Total liabilities and
stockholders' equity (deficit) .... $ 64,157 $ 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 December 31,
1997 1996
-------- --------
Revenues:
Gaming ....................................... $ 11,522 $ 12,296
Food and beverage ............................ 3,232 3,533
Hotel ........................................ 840 924
Gift shop .................................... 206 138
Other ........................................ 267 392
-------- --------
Gross revenues ........................... 16,067 17,283
Less, promotional allowances ................... (1,627) (2,238)
-------- --------
Net revenues ............................. 14,440 15,045
-------- --------
Operating expenses:
Gaming ....................................... 4,375 4,448
Food and beverage ............................ 3,681 3,166
Hotel ........................................ 405 330
Gift shop .................................... 179 126
Advertising and promotion .................... 1,310 1,323
Provision for losses on related party
receivables ............................... 15 61
General and administrative ................... 4,228 4,236
Management fee - Becker Gaming, Inc. ......... 161 173
Rent expense paid to related party ........... 57 56
Depreciation and amortization ................ 920 861
-------- --------
Total operating expenses ................. 15,331 14,780
-------- --------
Operating income (loss)................... (891) 265
-------- --------
Other income (expenses):
Gain (loss) on sale of assets ................ 50 --
Interest income .............................. 69 69
Interest expense (contractual interest for the
three-months ended Deceber 31, 1997 of
$2,030) ................................... (1,078) (1,810)
Other, net ................................... 9 9
-------- --------
Total other income (expenses) ............ (950) (1,732)
-------- --------
Loss before income taxes and
reorganization items .................. (1,841) (1,467)
Reorganization items ........................... (103) --
-------- --------
Loss before income taxes ................. (1,944) (1,467)
Provision for income tax ....................... -- --
-------- --------
Net loss ................................. (1,944) (1,467)
Retained earnings (deficit),
beginning of period .......................... (19,636) (12,214)
-------- --------
Retained earnings (deficit),
end of period ............................... ($21,580) ($13,681)
======== ========
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)
Six Months Ended December 31,
1997 1996
-------- --------
Revenues:
Gaming ....................................... $ 23,096 $ 24,525
Food and beverage ............................ 6,360 7,034
Hotel ........................................ 1,488 1,685
Gift shop .................................... 367 269
Other ........................................ 514 650
-------- --------
Gross revenues .......................... 31,825 34,163
Less, promotional allowances .................. (3,212) (4,433)
-------- --------
Net revenues ............................. 28,613 29,730
-------- --------
Operating expenses:
Gaming ....................................... 8,289 8,978
Food and beverage ............................ 6,969 6,331
Hotel ........................................ 742 736
Gift shop .................................... 317 184
Advertising and promotion .................... 2,328 2,612
Provision for losses on related party
receivables ............................... 94 134
General and administrative ................... 9,063 8,850
Management fee - Becker Gaming, Inc. ......... 318 342
Rent expense paid to related party ........... 113 111
Depreciation and amortization ................ 1,830 1,719
-------- --------
Total operating expenses ................. 30,063 29,997
-------- --------
Operating income (loss)................... (1,450) (267)
-------- --------
Other income (expenses):
Gain on sale of assets ....................... 45 --
Interest income .............................. 138 137
Interest expense (contractual interest for the
three-months ended December 31, 1997 of
$2,030) ................................... (3,109) (3,620)
Other, net ................................... 14 39
-------- --------
Total other income (expenses) ............ (2,912) (3,444)
-------- --------
Loss before income taxes and
reorganization items ................. (4,362) (3,711)
Reorganization items ........................... (103) --
-------- --------
Loss before income taxes ................. (4,465) (3,711)
Provision for income tax ....................... -- --
-------- --------
Net loss ................................. (4,465) (3,711)
Retained earnings (deficit),
beginning of period .......................... (17,115) (9,970)
-------- --------
Retained earnings (deficit),
end of period ................................ ($21,580) ($13,681)
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Six Months Ended December 31,
1997 1996
-------- --------
Cash flows from operating activities:
Net loss ........................................... ($ 4,467) ($ 3,711)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for losses on related
party receivables ................................. 94 134
Depreciation and amortization ...................... 1,830 1,719
(Increase) decrease in operating assets:
Trade and other accounts receivable ................ (92) (6)
Inventories ........................................ (63) (50)
Prepaid expenses ................................... 194 414
Deposits and other ................................. - (8)
Increase (decrease) in operating liabilities:
Accounts payable ................................... 1,807 (277)
Management fees due to Becker Gaming, Inc. ......... 319 342
Accrued expenses ................................... 3,961 2,509
-------- --------
Total adjustments ............................... 8,050 4,793
-------- --------
Net cash provided by operating activities ...... 3,583 1,082
-------- --------
Cash flows from investing activities:
Capital expenditures ............................... (480) (199)
Increase in receivable from related parties ........ (349) (387)
Proceeds from assets sales ......................... 74 --
-------- --------
Net cash provided by used in
investing activities ......................... (755) (586)
-------- --------
Cash flows from financing activities:
Payments under notes payable ....................... (262) (110)
Payments under capital lease obligations ........... (18) (7)
-------- --------
Net cash provided by used in
financing activities ......................... (280) (117)
-------- --------
Net increase (decrease)in cash and cash
equivalents 2,548 379
Cash and cash equivalents, beginning of the period ..... 5,481 4,591
-------- --------
Cash and cash equivalents, end of the period ........... $ 8,029 $ 4,970
======== ========
Supplemental cash flow disclosures:
Interest paid, net of amount capitalized ........... $ 101 $ 2,499
======== ========
Assets acquired through issuance of long-term
debt and capital leases ........................... $ 858 $ --
======== ========
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 six-month periods ended
December 31, 1997 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 1996 financial statements have been reclassified to
conform with the 1997 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. With the concurrence of the
Bankruptcy Court, the Company and the trustee have agreed to defer litigation on
this issue until early March 1998 to give the parties an opportunity to explore
an overall settlement of their disputes.
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. A
response from the holders of the AC Notes is due by February 25, 1998 and the
Bankruptcy Court has set an initial hearing for March 6, 1998.
On February 17, 1998, the Company filed a Plan of Reorganization (the "Plan")
and an accompanying Disclosure Statement (the "Disclosure Statement") with the
Bankruptcy Court. The Plan provides for a restructure of the claims against the
Company, which the Company believes will allow its business to continue
successfully. The Plan also is structured to provide certain creditors with the
option of receiving up front cash in lieu of deferred payments over several
years. For example, the Plan provides the holders of the AC Notes with the
option of receiving $45,000,000 in cash on the Plan's effective date in full
satisfaction of their allowed claims or payment of a higher amount over time.
Likewise, trade unsecured creditors can elect to receive cash on the effective
date in the amount of 80% of their allowed claims in lieu of a 100% payout over
time.
The Company expects, but no assurance can be given, to receive funding for the
Plan from several sources. First, the Company anticipates receiving up to
$50,000,000 from United Healthcare Financial Services for use in making cash
payments to electing creditors. Second, the Company will receive $1,500,000 in
cash plus the release of over $7,000,000 in claims from certain affiliates of
the Company, including BGI, in return for retaining their equity interests in
the Company. Finally, the Company will use net income generated by the casino to
help fund the Plan.
<PAGE>
The holders of claims and interests of the Company are permitted to vote to
accept or reject the Plan. A hearing on the Disclosure Statement has been
scheduled for March 27, 1998. If the Disclosure Statement is approved by the
Bankruptcy Court, the creditors thereafter will be requested to vote to accept
or reject the Plan, and a hearing will be held in due course on confirmation of
the Plan. At the hearing, the Bankruptcy Court will consider whether the Plan
satisfies the various requirements of the Bankruptcy Code. The Bankruptcy Court
also will receive and consider a ballot report which will present a tally of the
votes accepting or rejecting the Plan cast by those entitled to vote. Therefore,
given these contingencies, there can be no assurances that the Plan as submitted
by the Company will be confirmed.
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 expense 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 six-month periods ended
December 31, 1997.
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 and November 15, 1997 and AC (which
has guaranteed the CQC Notes as more fully described below) did not have
available funds to advance on behalf of CQC.
Concurrent with the issuance of the CQC Notes, AC completed a private placement
debt financing of $55,000,000 in principal amount of 12% First Mortgage Notes
due November 15, 2000 (the "AC Notes"). The AC Notes require annual interest
payments of $6,600,000, payable in equal installments semi-annually on May 15
and November 15. AC was not able to make its scheduled interest payment of
$3,300,000 on May 15, 1997 and November 15, 1997 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.
<PAGE>
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 December 31, 1997, 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 December
31, 1997); (iii) beginning in the fourth quarter of fiscal 1997, exceeding the
amount of new indebtedness allowed for under the Indenture; (iv) beginning with
the quarter ending December 31, 1995, AC has not met the Minimum Tangible Net
Worth Ratio of 1.5 to 1.0, as defined in the Indenture; and (v) AC did not make
its required semi-annual interest payments of $3,300,000 on May 15, 1997 and
November 15, 1997. In addition, beginning with the quarter ending December 31,
1995, AC has not met the Minimum Tangible Net Worth requirement defined in the
Indenture. Under the terms of the Indenture, AC was technically required to
offer to buy back $44,000,000 of the outstanding AC Notes at December 31, 1997
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 December 31, 1997 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 $6,489,000 to fund BGI's
operating expenses from June 1994 through December 1997 of which $4,416,000
represented notes receivable that are interest bearing and have been classified
as noncurrent based on management's expectation for the timing of repayments
from BGI. At December 31, 1997, accrued interest receivable on the interest
bearing portion of the advances to BGI totaled $760,000. 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 December 31, 1997.
================================================================================
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Capitol Queen & Casino, Inc.
- ----------------------------
Analysis of Development Stage Activities for the period January 20,
1993 (the date of inception) through December 31, 1997
------------------------------------------------------
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 December 31, 1997, approximately $32,000 remained in the escrow
account and an aggregate of $20,000,000 principal amount of the CQC Notes
remained outstanding. However, the dates by which CQC previously agreed with the
holders of the CQC Notes to effect the sale of its assets and repurchase the
remaining CQC Notes have passed.
The CQC Notes outstanding require annual interest payments of $2,400,000,
payable in equal installments semi-annually on May 15 and November 15. CQC was
not able to make its scheduled interest payments of $1,200,000 on each of
November 15, 1995, May 15, 1996, November 15, 1996, May 15, 1997 and November
15, 1997. 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 December 31, 1997, CQC had total
operating expenses of $14,084,000 consisting primarily of an abandonment loss of
$6,034,000 arising from the denial of the company's license application and
management's subsequent decision to terminate the Capitol Queen project and sell
its assets. Also, at March, 1996, CQC wrote-down the cost of the riverboat
assets to their net realizable value based on estimates provided by a
shipbuilder and marine brokers which resulted in an additional abandonment loss
of $4,392,000 in the 1996 fiscal year. Also included in operating expenses are
amortization expense of $1,541,000 associated with debt issue costs and
$2,117,000 of project development costs. For the same period, CQC incurred
$16,371,000 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 December 31, 1997.
Liquidity and Capital Resources
- -------------------------------
For the period from inception through December 31, 1997, 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 December 31, 1997, 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 $7,177,500 at December
31, 1997, which includes amounts accrued on unpaid interest. There can be no
assurance that CQC, will be successful in its efforts to sell its assets or,
that if a sale is effected, the proceeds will be sufficient to fully or
substantially repay the CQC Notes and accrued interest thereon. Additionally, on
July 3, 1997 CQC received a notice of acceleration from the trustee of the CQC
Notes. Moreover, CQC, because it has not paid certain interest due on its Notes
and has not yet effected the sale of its assets, is in default of the CQC
Indenture. As a result of the above items the CQC Notes have been classified as
a current liability as of December 31, 1997 and June 30, 1997.
<PAGE>
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 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 six-months ended
December 31, 1997 and 1996
--------------------------
Results from operations at AC decreased for both the three and six-month
periods ended December 31, 1997 compared to the same periods in 1996 as a result
of decreased gaming, restaurant and hotel revenues in the more recent periods.
Operating expenses increased slightly for both the three-month and six-month
periods ended December 31, 1997, primarily as a result of increased depreciation
and natural inflationary tendencies.
Net revenues at AC decreased by $605,000, or 4.0%, from $15,045,000 to
$14,440,000 for the three-month period ended December 31, 1997 compared to the
three-month period ended December 31, 1996. In the same period-to-period
comparison, operating expenses, including depreciation and amortization,
increased by 3.7% to $15,331,000 from $14,780,000. This resulted in a $1,156,000
decrease in operating income from $265,000 to an operating loss of $891,000 for
the more recent period.
<PAGE>
Net revenues at AC decreased by $1,117,000, or 3.8%, from $29,730,000 to
$28,613,000 for the six-month period ended December 31, 1997 compared to the
six-month period ended December 31, 1996. In the same period-to-period
comparison, operating expenses, including depreciation and amortization,
increased by 0.2% to $30,063,000 from $29,997,000. This resulted in an increase
in operating loss of $1,183,000 from operating loss of $267,000 to $1,450,000
for the more recent period.
The largest portion of the revenue decrease for the three-month period
ended December 31, 1997 is attributable to gaming revenues, specifically, gaming
machine revenues, which decreased 6.6% from $10,308,000 to $9,628,000,
reflecting lower levels of play from patrons. Revenues from table games also
decreased $169,000 or 14.2% from $1,191,000 to $1,022,000 during the 1997
three-month period offset by an increase in race and sports book revenues of
$134,000 or 15.5%. This resulted from reduced craps and twenty-one play offset
by increased sports book wagering. The largest portion of the decrease in
revenues for the six-month period ended December 31, 1997 is attributable to
gaming revenues which decreased 5.8% from $24,525,000 to $23,096,000.
Specifically, gaming machine revenues decreased $967,000 or 4.6% from
$20,780,000 to $19,813,000. Revenues from table games decreased $375,000 or
15.6%, from $2,405,000 to $2,030,000, and revenues from the race & sports book
increased $122,000, or 8.4%, from $1,460,000 to $1,582,000. The decreases for
both the 1997 three-month and six-month periods are the result of increased
competition from surrounding hotel/casinos that appeal to Arizona Charlie's
"local" patron base, partially offset by the increased sports book wagering
during the 1997 football season over the 1996 football season.
Food and Beverage revenues also decreased 8.5% from $3,533,000 to
$3,232,000 during the three-month period ended December 31, 1997 compared to the
same period in the prior year. The decrease in revenues is primarily due to the
reduction in complimentary sales in the food department. Such sales are included
in revenues at retail value and are then deducted as a promotional allowance.
For the six-month period ended December 31, 1997, food and beverage revenues
decreased $674,000 or 9.6% from $7,034,000 to $6,360,000 when compared to the
six-month period of the prior year, also reflecting a decrease primarily due to
reduced complimentary sales in the food and beverage departments.
Hotel revenues decreased 9.1% from $924,000 to $840,000 during the three
months ended December 31, 1997 compared to the same three-month period in 1996.
The decrease is primarily due to a reduction in the occupancy rate of 80%
compared to 84 % despite an increased average room rate of $47.58 compared to
$45.55 for the 1996 three-month period. During the six-month period ended
December 31, 1997, hotel revenues decreased by $197,000 or 11.7% from $1,685,000
to $1,488,000 compared to the same six-month period of 1996. The decreased
revenue is also due to a reduction in the occupancy rate of 76%, compared to 88%
despite an increased average room rate of $43.24 compared to $42.98 for the 1996
six-month period.
Gift shop revenues increased 49.3% from $138,000 to $206,000 during the
three-month period ended December 31, 1997 compared to the same period in 1996.
During the six-month period ended December 31, 1997, gift shop revenues
increased $98,000, or 36.4%, from $269,000 to $367,000 compared to the same
period in 1996. The increases are primarily due to additional operating hours
and increased AC logo items and tobacco sales in the 1997 periods.
Other revenues, which principally include entertainment cover charges, ATM
commissions, and revenues from PBX and banquets, decreased 31.9% from $392,000
to $267,000 for the three-month period ended December 31, 1997 compared to the
same period in 1996. During the six month period ended December 31, 1997, other
revenues decreased by $136,000 or 20.9% from $650,000 to $514,000 compared to
the same six-month period of 1996. The decreases in the three-month and
six-month periods reflect lower entertainment cover charge and banquet revenues
resulting from fewer concerts and banquets partially offset by increased boxing
events that occurred in the 1997 periods.
<PAGE>
Gaming expenses decreased by $73,000 and $689,000, or 1.6% and 7.7%, from
$4,448,000 and $8,978,000 to $4,375,000 and $8,289,000, respectively, for the
three-month and six-month periods ended December 31, 1997 as compared to the
same periods in 1996. The lower levels of expense reflect reductions in staffing
levels in the slot and table games departments and decreased complimentary
expenses.
Food and beverage expenses increased by $515,000 and $638,000, or 16.3%
and 10.1%, from $3,166,000 and $6,331,000 to $3,681,000 and $6,969,000,
respectively, for the three-month and six-month periods ended December 31, 1997
when compared to the same periods in 1996, as a result of increased food and
beverage costs and an increase in salaries and wages. As a result, food and
beverage expenses represented 113.9% and 109.6% of food and beverage revenues
for the three-month and six-month periods ended December 31, 1997 compared to
89.6% and 90.0% of the food and beverage revenues for the same periods in 1996.
Hotel expenses increased by $75,000 and $6,000, or 22.7% and 0.8%, from
$330,000 and $736,000 to $405,000 and $742,000, respectively, for the
three-month and six-month periods ended December 31, 1997 as compared to the
same periods in 1996, reflecting additional repairs and maintenance costs in the
1997 three-month period that were associated with the original 100 rooms built
in 1988, plus the additional costs of room linens and supplies. Net contribution
by the hotel department (hotel revenues less hotel operating expenses) was
$435,000 and $746,000 for the three-month and six-month periods ended December
31, 1997 as compared to $594,000 and $949,000 for the same periods in 1996.
General and administrative expenses decreased by $8,000 and increased by
$213,000, or (0.2)% and 2.4%, from $4,236,000 and $8,850,000 to $4,228,000 and
$9,063,000 respectively, for the three-month and six-month periods ended
December 31, 1997 as compared to the same periods in 1996. The six-month
increase is primarily due to the creation of the "Charlie Card Club" department
in May 1997 to better evaluate and reward qualified patrons with complimentary
items for slots, table games, race and sports play. During the 1997 six-month
period, the "Charlie Card Club" accrued $486,000 for future patron
complimentaries earned by patron play in the casino.
Advertising and promotional expenses decreased by $13,000 and $284,000, or
1.0% and 10.9%, from $1,323,000 and $2,612,000 to $1,310,000 and $2,328,000
during the three-month and six-month periods ended December 31, 1997 as compared
to the same period in 1996. The increased levels of promotional expenditures in
1996 did not attract the additional volume of customer activity anticipated.
During 1997, management believes that seasonal promotions are necessary to
compete with the newer hotel/casinos that are located close in proximity to AC,
but at reduced levels from 1996. These promotional reductions were partially
offset by an increased level of local newspaper advertising.
Depreciation and amortization increased by $59,000 and $111,000, or 6.8%
and 6.5%, from $861,000 and $1,719,000 to $920,000 and $1,830,000 during the
three-month and six-month periods ended December 31, 1997 when compared to the
same periods in 1996, as a result of increased depreciation expenses associated
with the purchases of new slot machines and the computerized slot reporting and
player tracking system.
Gift shop expenses increased by $53,000 and $133,000, or 42.1% and 72.3%,
to $179,000 and $317,000 for the three-month and six-month periods ended
December 31, 1997 compared to $126,000 and $184,000 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 from increased revenues.
<PAGE>
Management fees to BGI decreased by $12,000 and $24,000, or 6.9% and 7.0%,
to $161,000 and $318,000 for the three-month and six-month periods ended
December 31, 1997 from $173,000 and $342,000 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
$56,000 to $57,000 and $111,000 to $113,000 reflecting normal annual adjustments
to the base rents.
Interest expense amounted to $1,078,000 and $3,109,000 for the three-month
and six-month periods ended December 31, 1997 compared to $1,810,000 and
$3,620,000 for the same periods in the prior year. The decrease of $732,000 and
$511,000, or 40.4% and 14.1%, respectively, were 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 $50,000 and $45,000 gains on sale of assets for the
three-month and six-month periods ending December 31, 1997 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 $21,500,000. 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 December 31, 1997, AC had a working capital deficit of $66,252,000
compared to a working capital deficit of $62,380,000 at June 30, 1997. The
decrease in working capital in the amount of $3,872,000 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 six-month period ended December 31, 1997, cash provided by
operating activities increased $2,501,000 to $3,583,000, from $1,082,000 for the
same period in 1996. The increase in the 1997 period is primarily attributable
to the increased accrued interest on the AC Notes through the November 14, 1997
pre-petition period and increased accounts payable partially offset by the
increased net loss for the current period and an increase in accounts
receivable.
For the six-month period ended December 31, 1997, net cash used in
investing activities increased to $755,000 compared with $586,000 for the same
period in 1996. The increase of $169,000 was caused primarily by a $281,000
increase in capital expenditures for the purchase of slot equipment in the more
recent period partially offset by a$74,000 in proceeds from sale of assets.
Cash flows used in financing activities for the six-month period ended
December 31, 1997 increased to $280,000 from $117,000 for the six-month period
ended December 31, 1996. The increase of $163,000 is primarily the result of
higher principal payments on additional notes payable.
<PAGE>
AC's long-term obligations of $6,342,000 at December 31, 1997, 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 is expected to have annual capital
expenditure requirements of approximately $600,000.
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. On February 17, 1998, AC filed the Plan, which is subject to approval
of creditors and the Bankruptcy Court .
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 and November 15, 1997 and has neither
maintained the required minimum level of consolidated tangible net worth nor
offered to repurchase a portion of the AC Notes as required if such minimum
level of consolidated tangible net worth is not maintained. In addition, AC has
failed to maintain the minimum consolidated fixed charge coverage ratio required
under the Indenture and has advanced funds to BGI in excess of the amounts
permitted to be so advanced under the Indenture. Also, AC incurred new notes
payable (in the amount of approximately $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".
<PAGE>
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.
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. 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 an opportunity to explore an overall settlement of their disputes.
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. A response from the holders of
the AC Notes is due by February 25, 1998 and the Bankruptcy Court has set an
initial hearing for March 6, 1998.
On February 17, 1998, AC filed a Plan of Reorganization (the "Plan") and an
accompanying Disclosure Statement (the "Disclosure Statement") with the
Bankruptcy Court. The Plan provides for a restructure of the claims against AC,
which AC believes will allow its business to continue successfully. The Plan
also is structured to provide certain creditors with the option of receiving up
front cash in lieu of deferred payments over several years. For example, the
Plan provides the Bondholders with the option of receiving $45,000,000 in cash
on the Plan's effective date in full satisfaction of their allowed claims or
payment of a higher amount over time. Likewise, trade unsecured creditors can
elect to receive cash on the effective date in the amount of 80% of their
allowed claims in lieu of a 100% payout over time.
AC expects, but no assurance can be given, to receive funding for the Plan
from several sources. First, AC anticipates receiving up to $50,000,000 from
United Healthcare Financial Services for use in making cash payments to electing
creditors. Second, AC will receive $1,500,000 in cash plus the release of over
$7,000,000 in claims from certain affiliates of AC, including the Company, in
return for retaining their equity interests in AC. Finally, AC will use net
income generated by the casino to help fund the Plan.
The holders of claims and interests of AC are permitted to vote to accept
or reject the Plan. A hearing on the Disclosure Statement has been scheduled for
March 27, 1998. If the Disclosure Statement is approved by the Bankruptcy Court,
the creditors thereafter will be requested to vote to accept or reject the Plan,
and a hearing will be held in due course before the Court on confirmation of the
Plan. At the hearing, the Bankruptcy Court will consider whether the Plan
satisfies the various requirements of the Bankruptcy Code. The Bankruptcy Court
also will receive and consider a ballot report which will present a tally of the
votes accepting or rejecting the Plan cast by those entitled to vote. Therefore,
given these contingencies, there can be no assurances that the Plan as submitted
by AC will be confirmed.
<PAGE>
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.
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, Arizona Charlie's, Inc. (the "Company") 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. The Company currently is operating under the
Bankruptcy Code as debtor-in-possession. The Bankruptcy Court has entered orders
allowing the Company 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.
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, the 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.
<PAGE>
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. The
Company 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, AC 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
The Company did not file any reports on form 8-K during the six-month
period ended December 31, 1997.
================================================================================
<PAGE>
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: February 23, 1998 /S/ Bruce F. Becker
---------------- -------------------
Bruce F. Becker
President, Chief Executive
Officer(Principal Executive Officer)
and Sole Director
Date: February 23, 1998 /S/ Jerry Griffis
---------------- -----------------
Jerry Griffis
Controller(Principal Financial and
Accounting Officer)
================================================================================
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,000
<PP&E> 7,754,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,191,000
<CURRENT-LIABILITIES> 28,053,000
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 8,191,000
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<TOTAL-COSTS> 193,000
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<INCOME-PRETAX> (1,997,000)
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