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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
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.)
2605 S. Decatur, Suite 218
Las Vegas, Nevada 89102
----------------- -----
(Address of principal (Zip Code)
executive offices)
(702) 579-0235
--------------
(Registrant's telephone number, including area code)
740 South Decatur, Las Vegas, NV 89107
--------------
(Former name, former address and former fiscal year if
changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of common stock April 30, 1999
- --------------------- --------------
$1.00 par value 100 shares
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<PAGE>
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed by the Company with the Securities and
Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by the Company) contains statements that
are forward-looking, such as statements relating to plans for future expansion
and oth er business development activities as well as other capital spending,
financing sources and the effects of regulation (including gaming and tax
regulation) and competition. Such forward-looking information involves important
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to development and
construction activities, dependence on existing management, debt service
(including sensitivity to fluctuations in interest rates), domestic economic
conditions, changes in federal or state tax laws or the administration of such
laws and changes in gaming laws or regulations (including the legalization of
gaming in certain jurisdictions).
<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, 1999 and June 30, 1998............6
Statements of Loss Incurred During the Development
Stage for the Three-Month Periods Ended March
31, 1999 and 1998 and for the Nine-Month Periods
Ended March 31, 1999 and 1998 and for the period
from January 20, 1993 (the date of inception)
through March 31, 1999...........................................7
Statements of Cash Flows for the Nine-Month Periods Ended
March 31, 1999 and 1998 and for the period from January 20,
1993 (the date of inception) through March 31, 1999..............9
Notes to Financial Statements...................................11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Capitol Queen & Casino, Inc.....................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................17
Item 6. Exhibits and Reports on Form 8-K........................18
SIGNATURES......................................................19
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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,
1999 1998
------- -------
(Unaudited)
Current assets:
Cash and cash equivalents .............................. $ 3 $ --
Restricted cash, in escrow account ..................... 663 33
------- -------
Total current assets ............................... 666 33
------- -------
Other assets:
Assets held for sale ................................... 3,277 6,254
Financing costs, net of accumulated
amortization of $683 at March 31,
1999 and $580 at June 30, 1998 ....................... 234 337
------- -------
Total other assets ................................. 3,511 6,591
------- -------
Total assets ....................................... $ 4,177 $ 6,624
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
March 31, June 30,
1999 1998
-------- --------
(Unaudited)
Current liabilities:
Advances from related parties ....................... $ -- $ 14
-------- --------
Total current liabilities .................... -- 14
-------- --------
Prepetition liabilities subject to compromise:
Advances from related parties ....................... 182 1,440
Accrued interest .................................... 7,853 8,042
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 $1,162 and $1,593, respectively ....... 17,338 18,407
-------- --------
Total prepetition liabilities subject to compromise 25,373 29,089
-------- --------
Total liabilities ............................ 25,373 29,103
-------- --------
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 .......................... 14,232 12,732
Deficit accumulated during development stage ........ (35,428) (35,211)
-------- --------
Total stockholders' equity (deficit) ............ (21,196) (22,479)
-------- --------
Total liabilities and stockholders'
equity (deficit) ............................. $ 4,177 $ 6,624
======== ========
The accompanying notes are an integral part of these financial statements.
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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,
1999 1998
------- -------
Revenues ......................... $- $-
Operating expenses:
Amortization of financing and
other costs .................. 35 34
Abandonment loss and write-downs
of assets held for sale 177 1,300
Development costs .............. 97 40
------- -------
Total operating expenses ... 309 1,374
------- -------
Operating loss ................... (309) (1,374)
Other income (expenses):
Interest income ................ -- --
Interest expense (contractual
interest of $843 for the three-
months ended March 31, 1999,
$2,530 for the nine-months
ended March 31, 1999 and
$20,921 for the period from
January 20, 1993 (the date of
inception) through March
31, 1999 ..................... (149) (817)
Interest capitalized ........... -- --
------- -------
Total other income (expense) ..... (149) (817)
------- -------
Loss before reorganization
items and extraordinary items... (458) (2,191)
------- -------
Reorganization items ............. (48) (20)
------- -------
Loss before extraordinary items .. (506) (2,211)
Extraordinary item (no income tax
benefit available):
Loss on early retirement of
debt ......................... -- --
Gain on forfeiture of earnest
money ........................ 800 --
Gain on extinguishment of
indebtedness to related party. -- --
------- -------
Net income(loss)............... $ 294 $(2,211)
======= =======
<PAGE>
For The Period
January 20, 1993
(The Date Of
Inception)
Nine Months Through
Ended March 31, March 31,
1999 1998 1999
-------- -------- ------------------
Revenues ........................... $- $- $-
Operating expenses:
Amortization of financing and
other costs .................... 103 101 1,711
Abandonment loss and write-downs
of assets held for sale ........ 2,977 1,300 14,903
Development costs ................ 157 166 2,354
-------- -------- ------------------
Total operating expenses ..... 3,237 1,567 18,968
-------- -------- ------------------
Operating loss (3,237) (1,567) (18,968)
Other income (expenses):
Interest income .................. -- 1 1,267
Interest expense (contractual
interest of $843 for the three-
months ended March 31, 1999,
$2,530 for the nine-months ended
March 31, 1999 and $20,921 for
the period from January 20, 1993
(the date of inception)
through March 31, 1999 ......... (430) (2,622) (17,750)
Interest capitalized ............. -- -- 683
-------- -------- ------------------
Total other income (expense) ....... (430) (2,621) (15,800)
-------- -------- ------------------
Loss before reorganization
items and extraordinary items... (3,667) (4,188) (34,768)
-------- -------- ------------------
Reorganization items ............. (48) (20) (68)
-------- -------- ------------------
Loss before extraordinary items .. (3,715) (4,208) (34,836)
Extraordinary item (no income tax
benefit available):
Loss on early retirement of
debt ........................ -- -- (4,089)
Gain on forfeiture of earnest 800 -- 800
money .......................
Gain on extinguishment of
indebtedness to related party. 2,697 -- 2,697
-------- -------- ------------------
Net income (loss)............... $ (218) $ (4,208) $ (35,428)
======== ======== ==================
The accompanying notes are an integral part of these financial statements.
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<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,
1999 1998
------- -------
Cash flows from development stage activities:
Net income (loss)............................. $ (218) $(4,208)
Adjustments to reconcile net loss
to net cash provided by (used in)
development stage activities:
Amortization of financing and other costs ... 103 101
Amortization of original issue discount ..... 430 367
Extraordinary gain on extinguishment of
indebtedness to related party ............ (2,697) --
Abandonment losses and write-downs of assets
held for sale ........................... 2,977 1,300
Extraordinary loss on retirement of debt .... -- --
Increase in accounts payable and accruals,
net of amounts for capital expenditures -- 2,255
Increase in advances from related parties ... 38 186
------- -------
Total adjustments ..................... 851 4,209
------- -------
Net cash provided by (used in)
development stage activities ........ 633 1
------- -------
Cash flows from investing activities:
Capital expenditures, net of construction
accounts payable ......................... -- --
Deposits and other assets ....................
Capitalization of preopening costs ........... -- --
Development costs ............................ -- --
Net (additions to) reductions in restricted
cash equivalents ......................... (630) (1)
------- -------
Net cash used in investing activities .... (630) (1)
------- -------
Cash flows from financing activities:
Principal payments on First Mortgage Notes .. (1,500) --
Proceeds from issuance of First Mortgage
Notes, net of financing costs ........... -- --
Proceeds from affiliate guarantee obligations 1,500 --
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 increase in cash and cash equivalents 3 --
Cash and cash equivalents, beginning of period -- --
------- -------
Cash and cash equivalents, end of period ..... $3 $-
======= =======
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
March 31,
1999
--------
Cash flows from development stage activities:
Net income (loss)............................ $(35,428)
Adjustments to reconcile net loss
to net cash provided by (used in)
development stage activities:
Amortization of financing and other costs ... 1,712
Amortization of original issue discount ..... 3,218
Extraordinary gain on extinguishment of
indebtedness to related party ............ (2,697)
Abandonment losses and write-downs of assets
held for sale ........................... 14,963
Extraordinary loss on retirement of debt .... 4,089
Increase (decrease) in accounts payable and
accruals, net of amounts for capital
expenditures ............................ 8,054
Increase in advances from related parties ... 1,479
-------
Total adjustments ..................... 30,818
-------
Net cash provided by (used in)
development stage activities ........ (4,610)
-------
Cash flows from investing activities:
Capital expenditures, net of construction
accounts payable ......................... (12,936)
Deposits and other assets .................... (60)
Capitalization of preopening costs ........... (340)
Development costs ............................ (553)
Net (additions to) reductions in restricted
cash equivalents ......................... (664)
-------
Net cash used in investing activities .... (14,553)
-------
Cash flows from financing activities:
Principal payments on First Mortgage Notes .. (21,700)
Proceeds from issuance of First Mortgage
Notes, net of financing costs ........... 30,666
Proceeds from affiliate guarantee obligation 1,500
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 increase in cash and cash equivalents 3
Cash and cash equivalents, beginning of period --
-------
Cash and cash equivalents, end of period ..... $ 3
========
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.
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<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, 1999 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1999. 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, 1998.
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 pursue financial reorganization of CQC and to facilitate a
sale of the Riverboat, the principal asset of CQC, to a third party. 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.
Interest expense on the CQC Notes (as defined in Note 3) has not been
recognized since CQC's March 17, 1998 bankruptcy petition date as it is not
probable that postpetition interest for the CQC Notes will be an allowed claim
in these proceedings.
Reorganization items presented in the statements of loss incurred
during the development stage are comprised of expenses incurred by CQC as a
result of CQC's reorganization under Chapter 11 of the Bankruptcy Code. Such
expenses consisted entirely of professional fees for the year ended June 30,
1998 and for the nine and three-month periods ended March 31, 1999.
3) Long-Term Debt:
On November 18, 1993, the Company completed a private placement debt
financing of $40,000,000 principal amount of 12% First Mortgage Notes due
November 15, 2000 (the " CQC Notes"). The offering generated net proceeds of
approximately $30,666,000 (after deducting original issue discount of $7,500,000
and debt issue costs). Interest on the Notes is payable semi-annually. AC
provided a limited guarantee for the CQC Notes (which guarantee was subject to
release only upon licensing of the Capitol Queen, which is not expected) and the
CQC Notes are collateralized by a first mortgage on substantially all of the
assets of the Company. (See Note 4.)
The Company was unable to make the interest payments due under the CQC
Notes payable on November 15, 1995, May 15, 1996, November 15, 1996, May 15,
1997, November 15, 1997, May 15, 1998 and November 15, 1998. Further, CQC will
not be able to make its scheduled interest payment due May 15, 1999. Past due
interest, including default interest on accrued but unpaid interest, in the
amount of $7,853,000 has been recorded in the accompanying financial statements.
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.
<PAGE>
As of January 1, 1995, CQC's obligations under the Indenture governing
the CQC Notes were amended with the requisite consent of the holders of the CQC
Notes. CQC's previous obligations to complete and open the Capitol Queen have
been eliminated and CQC has agreed to a two-step plan to repay the CQC Notes.
The first step, which was consummated on January 17, 1995, involved the
repurchase of $20,000,000 principal amount of the CQC Notes at 101% of such
principal amount plus accrued and unpaid interest with funds held in the
restricted project escrow account. The Company incurred an extraordinary loss of
approximately $4,089,000 in 1995, reflecting the premium paid to retire the debt
of $200,000 and the write-off of related, unamortized debt issue costs and
original issue discount in the aggregate of $3,889,000. The second step
permitted a purchase of the CQC Notes at 101% of principal plus accrued and
unpaid interest from a sale of assets. However, the dates by which CQC
previously agreed with the holders of the CQC Notes to effect the sale of assets
and repurchase the remaining CQC Notes have passed, and CQC is thus in default
of the amended covenants.
Concurrent with the placement of the Notes, BGI sold 2,500,000 warrants
(the "Warrants") exercisable for BGI common stock for gross proceeds of
$7,500,000. The gross proceeds from the sale of the Warrants were contributed to
the Company.
The Indenture governing the CQC Notes (the "Indenture") limits the use
of the net proceeds from the offering and the sale of the Warrants to fund the
cost of the development and construction of the Capitol Queen project, the
development of a convention center in Jefferson City, Missouri and initial
interest payments. The proceeds were placed in escrow with a trustee pending
drawdowns for qualifying project expenditures. As explained previously, certain
of the proceeds were used in January 1995 in connection with the first step of
the plan to repay the CQC Notes. Prior to the receipt of a notice of
acceleration on July 3, 1997, the CQC Notes were not subject to mandatory
redemption, except upon a change of control, or other circumstances as defined
in the Indenture. The Company had the option to redeem the Notes at a premium of
106% beginning on November 15, 1997, declining to par value on November 15,
1999. If prior to November 15, 1997, BGI consummated an initial public offering
of its common stock, the Company may also have redeemed the CQC Notes, at a
premium of 108%.
The Indenture contains covenants that, among other things, limit the
ability of the Company to pay dividends or management fees, or incur additional
indebtedness.
4) Arizona Charlie's, Inc. Bankruptcy Filing:
On November 14, 1997, Arizona Charlie's, Inc. ("AC"), an
affiliate of CQC, filed a voluntary petition under Chapter 11 of the US
Bankruptcy Code with the Bankruptcy Court in order to provide it protection from
creditors while it attempted to negotiate a settlement with the holders of
certain debt. On June 25, 1998, the Bankruptcy Court approved a Plan of
Reorganization (the "AC Plan"). All significant terms and conditions of the AC
Plan were satisfied as of September 28, 1998, (the "Effective Date" of the AC
Plan). Upon the Effective Date, the AC Plan resulted in the transfer of sole
ownership of AC to High River Limited Partnership ("High River"), or its
designee ("Nybor"), an entity owned and controlled by Carl Icahn, a majority
owner of certain then outstanding debt of AC.
Prior to the Effective Date of the AC Plan, AC was the limited
guarantor of certain debt of CQC, as described in Note 3. On the Effective Date
of the AC Plan, Nybor made a cash payment in the amount of $1,500,000 to the
existing CQC bondholders, which, in conjunction with other requirements of the
AC Plan, resulted in the discharge, cancellation and extinguishment of AC's
limited guarantee of the CQC debt. The cash payment of $1,500,000 was made and
was distributed to the holders of the CQC Notes. The cash payment has been
recognized as a partial extinguishment of the CQC notes, with no resulting gain
or loss, and as additional paid-in-capital, since AC waived all claims against
CQC in connection with the AC Plan.
As of June 30, 1998, CQC had certain advances to AC in the amount of
$1,308,000 and certain notes payable to AC in the amount of $1,200,000 plus
accrued and unpaid interest of $189,000. Upon the effective date of the AC Plan,
all such obligations to AC were immediately terminated. As such, CQC wrote-off
and recognized an extraordinary gain on extinguishment of indebtedness to AC at
September 30, 1998 in the amount of $2,697,000.
<PAGE>
5) Sealed Bid Sale Of Riverboat Assets:
On January 26, 1999, CQC and IBJ Whitehall Bank & Trust Company ("IBJ
Whitehall"), by and through their selling agent, Continental Plants Corp. and
Plant & Machinery, Inc, acting as a consortium collectively, ("PMI"), conducted
a sealed bid sale of the Riverboat in accordance with the sealed bid sale
procedures previously approved by the Bankruptcy Court (the "Procedures"). PMI
received two bids for the riverboat. The highest bid was from High River, an
entity owned and controlled by Carl Icahn, a majority owner of certain
outstanding debt of CQC, at a bid price of $3,200,000, inclusive of the
mandatory 5% buyers premium (the "High River Bid"). High River submitted the
initial earnest money deposit of $200,000 with its bid and the funds were then
deposited in the Bernhard & Leslie, CHTD Trust Account (the "Trust Account").
The sealed bid sale, which was subject to Bankruptcy Court approval, resulted in
a write-down of the CQC Riverboat assets based on the highest bid received in
the amount of $2,800,000 in the December 31, 1999 financial statements.
On January 27, 1999, CQC and IBJ Whitehall executed a Notice of
Acceptance of the High River Bid. CQC and High River subsequently executed a
Purchase and Sale Agreement (the "Agreement") dated January 28, 1999, and High
River delivered an increased earnest money deposit of $600,000 in accordance
with the Procedures. The additional funds were deposited in the Trust Account.
On Friday, January 29, 1999, counsel for CQC was notified by counsel
for IBJ Whitehall that High River was requesting a continuance of hearing set
for Monday, February 1, 1999 (at which hearing counsel for CQC was to present to
the Bankruptcy Court the highest and best bid and obtain an order approving the
sale to the highest and best bidder), so High River could consider whether the
High River Bid was authorized by the proper persons. Counsel for CQC obtained a
continuance of the hearing to Wednesday, February 3, 1999 at 9:30 am.
On February 2, 1999, counsel for CQC received written notice from High
River's counsel confirming that High River did not intend to consummate the
purchase and sale transaction. Counsel for High River, IBJ Whitehall and CQC
subsequently negotiated and prepared an agreed-upon form of order to present to
the Bankruptcy Court at the February 3 hearing. The order provides, in pertinent
part, that CQC will retain the $800,000 earnest money deposit as its sole and
liquidated damages as a result of High River's failure and/or refusal to
purchase the Riverboat. The order was entered by the US Bankruptcy Court on
February 5, 1999.
The funds constituting the earnest money deposit (less the amounts
disbursed as described below) have been removed from the Trust Account and
deposited into a Debtor-in-Possession account with IBJ Whitehall. CQC has
disbursed, or arranged for the disbursement of, following sums:
A. The sum of $76,708 was paid to PMI in accordance with a
stipulation entered into by CQC, IBJ Whitehall and PMI on March 2,
1999 (the "PMI Stipulation"), which was approved by the Bankruptcy
Court by order entered March 3, 1999. The Stipulation provides for
(i) CQC's continued employment of PMI as its exclusive agent to
sell the Riverboat and the terms of such employment, (ii)
reimbursement of PMI's out-of-pocket expenses in the amount of
$35,145, incurred in connection with the January 1999 sealed bid
sale, and (iii) reimbursement of PMI's monthly expenses advanced
through February 4, 1999 in the aggregate amount of $41,563, to
maintain and insure the Riverboat.
B. The sum of $48,414 was paid, in accordance with a Bankruptcy Court
order entered February 4, 1999, to Bernhard & Leslie, Chtd. as
Chapter 11-reorganization counsel to CQC, for fees and costs
incurred from January 27, 1998 through and including December 24,
1998.
C. The sum of $11,670 was paid to Leevac Shipyards, Inc. ("Leevac")
for port risk insurance ($7,470), storage of the Riverboat
($2,800), and maintenance of the Riverboat ($1,400) for the month
of February 1999.
CQC anticipates that the funds held in the Debtor-in- Possession
account will be used to pay (i) monthly insurance, storage and maintenance
expenses for the Riverboat in the approximate aggregate amount of approximately
$12,000 per month until the Riverboat is sold, (ii) commissions owned to PMI
upon the sale of the Riverboat in accordance with the PMI Stipulation, and (iii)
administrative expenses, including attorneys' fees and costs, which the
Bankruptcy Court allows and authorizes CQC to pay. The balance of the funds,
plus any other funds collected by CQC for the benefit of the Chapter 11 estate
from the sale of assets, will be distributed in accordance with a plan of
reorganization or Bankruptcy Court order authoring distribution of estate funds.
As of March 31, 1999, there was approximately $663,000 held by CQC for the
benefit of its Chapter 11 estate.
<PAGE>
After further attempts to sell the Riverboat, CQC entered into an Asset
Purchase and Sale Agreement with The Delta Queen Steamboat Co., a Delaware
corporation ("Delta Queen"), dated as of April 29, 1999 (the "Sale Agreement")
pursuant to which Delta Queen has agreed to buy the riverboat from CQC, and CQC
has agreed to sell the Riverboat to Delta Queen, for $3,200,000 in cash,
inclusive of the buyer's premium/commission owed to PMI pursuant to the PMI
Stipulation. On April 29, 1999, Delta Queen transferred to CQC a deposit in the
amount of $32,000 (the "Delta Queen Deposit") which is being held in an
interest-bearing debtor-in-possession account at Colonial Bank, located in Las
Vegas, Nevada, in accordance with an Escrow Agreement entered into as of April
28, 1999 by the between CQC as seller, Delta Queen as buyer, and Bernhard &
Leslie, Chtd., as escrowee. The Delta Queen Deposit will be applied to the
purchase price at closing, and all interest thereon will be returned to Delta
Queen. Delta Queen's obligation to close the purchase and sale transaction is
conditioned upon Bankruptcy Court approval of an agreed-upon form of order. In
addition, Delta Queen may terminate the Sale Agreement if the Bankruptcy Court
orders that an auction for the Riverboat be conducted prior to approving the
Sale Agreement.
A motion to approve the sale of the Riverboat to Delta Queen in
accordance with the Sale Agreement was jointly filed by CQC and IBJ Whitehall on
April 30, 1999. The motion will be considered by the Bankruptcy Court at a
hearing scheduled for May 25, 1999 at 3:00 p.m. If the Bankruptcy Court grants
the motion and approves the sale, the purchase and sale transaction will close
within one business day of entry of the order approving the sale.
Other than the CQC Riverboat, the only remaining asset of the company
is a 70 acre parcel of land located in Calloway County, Missouri, along the
banks of the Missouri River and directly across the city of Jefferson City,
Missouri. The land was purchased in July 1993 primarily for the docking site of
the CQC Riverboat and any associated land based facilities. On or about February
1999 an offer was made by Jay and Kimberly Fisher to purchase the land for
$1,100 an acre or approximately $77,000. Such offer has been accepted by CQC and
IBJ Whitehall subject to approval of the Bankruptcy Court. CQC is in the process
of documenting the proposed sale and will move for approval of the sale upon
execution of a purchase and sale agreement.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Analysis of Development Stage Activities for the period January 20,
1993 (the date of inception) through March 31, 1999
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, 1999, approximately $663,000 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. (See "Liquidity and
Capital Resources") 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, May 15, 1998 and November 15, 1998. Further, CQC will not be
able to make its scheduled interest payment of $1,200,000 on May 15, 1999.
During the period from inception through March 31, 1999, CQC had total
operating expenses of $18,968,000 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 June 30, 1998 to $6,000,000 based on recent offers received for
the riverboat, which resulted in an additional abandonment loss of $1,500,000.
The riverboat assets were to be auctioned on January 26, 1999 in a sealed bid
sale. Based upon the highest offer in the sealed bid, the Riverboat was further
written down to $3,200,000 resulting in an additional abandonment loss of
$2,800,000. See "Liquidity and Capital Resources". Also included in operating
expenses are amortization expense of $1,711,000 associated with debt issue costs
and $2,354,000 of project development costs. For the same period, CQC incurred
$17,750,000 of interest cost of which $683,000 was capitalized by CQC as
required by generally accepted accounting principles as part of the riverboat
construction. Also, the value of the land site in Jefferson City was written
down at March 31, 1999 to it's net realizable value based on a recent offer
received, which resulted in a net loss of $177,000. CQC earned interest income
of $1,267,000 for the period from inception to March 31, 1999.
<PAGE>
Liquidity and Capital Resources
For the period from inception through March 31, 1999, net cash used in
development stage activities was $4,610,000. Cash flows used in investing
activities for the period was $14,553,000, 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, 1999, CQC had expended a total of
approximately $22,000,000 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 $7,853,000 at March 31,
1999, 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, 1999 and June 30, 1998.
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 pursue financial reorganization of CQC and to facilitate a
sale of the CQC Riverboat, the principal asset of CQC, to a third party. 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.
On January 26, 1999, CQC and IBJ Whitehall Bank & Trust Company ("IBJ
Whitehall"), by and through their selling agent, Continental Plants Corp. and
Plant & Machinery, Inc, acting as a consortium collectively, ("PMI"), conducted
a sealed bid sale of the Riverboat in accordance with the sealed bid sale
procedures previously approved by the Bankruptcy Court (the "Procedures"). PMI
received two bids for the riverboat. The highest bid was from High River, an
entity owned and controlled by Carl Icahn, a majority owner of certain
outstanding debt of CQC, at a bid price of $3,200,000, inclusive of the
mandatory 5% buyers premium (the "High River Bid"). High River submitted the
initial earnest money deposit of $200,000 with its bid and the funds were then
deposited in the Bernhard & Leslie, CHTD Trust Account (the "Trust Account").
The sealed bid sale, which was subject to Bankruptcy Court approval, resulted in
a write-down of the CQC Riverboat assets based on the highest bid received in
the amount of $2,800,000 in the December 31, 1998 financial statements.
On January 27, 1999, CQC and IBJ Whitehall executed a Notice of Acceptance
of the High River Bid. CQC and High River subsequently executed a Purchase and
Sale Agreement (the "Agreement") dated January 28, 1999, and High River
delivered an increased earnest money deposit of $600,000 in accordance with the
Procedures. The additional funds were deposited in the Trust Account. On January
29, 1999, counsel for CQC was notified by counsel for IBJ Whitehall that High
River was requesting a continuance of hearing set for Monday, February 1, 1999
(at which hearing counsel for CQC was to present to the Bankruptcy Court the
highest and best bid and obtain an order approving the sale to the highest and
best bidder), so High River could consider whether the High River Bid was
authorized by the proper persons. Counsel for CQC obtained a continuance of the
hearing to February 3, 1999 at 9:30 am. On February 2, 1999, counsel for CQC
received written notice from High River's counsel confirming that High River did
not intend to consummate the purchase and sale transaction. Counsel for High
River, IBJ Whitehall and CQC subsequently negotiated and prepared an agreed-upon
form of order to present to the Bankruptcy Court at the February 3 hearing. The
order provides, in pertinent part, that CQC will retain the $800,000 earnest
money deposit as its sole and liquidated damages as a result of High River's
failure and/or refusal to purchase the Riverboat. The order was entered by the
US Bankruptcy Court on February 5, 1999.
<PAGE>
The funds constituting the earnest money deposit (less the amounts
disbursed as described below) have been removed from the Trust Account and
deposited into a Debtor-in-Possession account with IBJ Whitehall. CQC has
disbursed, or arranged for the disbursement of, following sums:
A. The sum of $76,708 was paid to PMI in accordance with a
stipulation entered into by CQC, IBJ Whitehall and PMI on March 2,
1999 (the "PMI Stipulation"), which was approved by the Bankruptcy
Court by order entered March 3, 1999. The Stipulation provides for
(i) CQC's continued employment of PMI as its exclusive agent to
sell the Riverboat and the terms of such employment, (ii)
reimbursement of PMI's out-of-pocket expenses in the amount of
$35,145, incurred in connection with the January 1999 sealed bid
sale, and (iii) reimbursement of PMI's monthly expenses advanced
through February 4, 1999 in the aggregate amount of $41,563, to
maintain and insure the Riverboat.
B. The sum of $48,414 was paid, in accordance with a Bankruptcy Court
order entered February 4, 1999, to Bernhard & Leslie, Chtd. as
Chapter 11-reorganization counsel to CQC, for fees and costs
incurred from January 27, 1998 through and including December 24,
1998.
C. The sum of $11,670 was paid to Leevac Shipyards, Inc. ("Leevac")
for port risk insurance ($7,470), storage of the Riverboat
($2,800), and maintenance of the Riverboatsh flows of the Company.
CQC anticipates that the funds held in the Debtor-in- Possession
account will be used to pay (i) monthly insurance, storage and maintenance
expenses for the Riverboat in the approximate aggregate amount of approximately
$12,000 per month until the Riverboat is sold, (ii) commissions owned to PMI
upon the sale of the Riverboat in accordance with the PMI Stipulation, and (iii)
administrative expenses, including attorneys' fees and costs, which the
Bankruptcy Court allows and authorizes CQC to pay. The balance of the funds,
plus any other funds collected by CQC for the benefit of the Chapter 11 estate
from the sale of assets, will be distributed in accordance with a plan of
reorganization or Bankruptcy Court order authoring distribution of estate funds.
As of March 31, 1999, there was approximately $663,000 held by CQC for the
benefit of its Chapter 11 estate.
After further attempts to sell the Riverboat, CQC entered into an Asset
Purchase and Sale Agreement with The Delta Queen Steamboat Co., a Delaware
corporation ("Delta Queen"), dated as of April 29, 1999 (the "Sale Agreement")
pursuant to which Delta Queen has agreed to buy the riverboat from CQC, and CQC
has agreed to sell the Riverboat to Delta Queen, for $3,200,000 in cash,
inclusive of the buyer's premium/commission owed to PMI pursuant to the PMI
Stipulation. On April 29, 1999, Delta Queen transferred to CQC a deposit in the
amount of $32,000 (the "Delta Queen Deposit") which is being held in an
interest-bearing debtor-in-possession account at Colonial Bank, located in Las
Vegas, Nevada, in accordance with an Escrow Agreement entered into as of April
28, 1999 by the between CQC as seller, Delta Queen as buyer, and Bernhard &
Leslie, Chtd., as escrowee. The Delta Queen Deposit will be applied to the
purchase price at closing, and all interest thereon will be returned to Delta
Queen. Delta Queen's obligation to close the purchase and sale transaction is
conditioned upon Bankruptcy Court approval of an agreed-upon form of order. In
addition, Delta Queen may terminate the Sale Agreement if the Bankruptcy Court
orders that an auction for the Riverboat will be conducted prior to approving
the Sale Agreement.
A motion to approve the sale of the Riverboat to Delta Queen in
accordance with the Sale Agreement was jointly filed by CQC and IBJ Whitehall on
April 30, 1999. The motion will be considered by the Bankruptcy Court at a
hearing scheduled for May 25, 1999 at 3:00 p.m. If the Bankruptcy Court grants
the motion and approves the sale, the purchase and sale transaction will close
within one business day of entry of the order approving the sale.
Other than the CQC Riverboat, the only remaining asset of the company
is a 70 acre parcel of land located in Calloway County, Missouri, along the
banks of the Missouri River and directly across the city of Jefferson City,
Missouri. The land was purchased in July 1993 primarily for the docking site of
the CQC Riverboat and any associated land based facilities. On or about February
1999 an offer was made by Jay and Kimberly Fisher to purchase the land for
$1,100 an acre or approximately $77,000. Such offer has been accepted by CQC and
IBJ Whitehall subject to approval of the Bankruptcy Court. CQC is in the process
of documenting the proposed sale and will move for approval of the sale upon
execution of a purchase and sale agreement.
<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. 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.
Since the Company has no existing operations, nor any anticipated
future operations, management believes that 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 its respective business, except as
described below.
By letters dated July 3, 1997 and July 17, 1997, IBJ Schroder Bank &
Trust Company now IBJ Whitehall Bank & Trust Company, ("IBJ Whitehall"), the
trustee of 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 Whitehall, 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 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 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.
On June 25, 1998, a "Consensual Plan of Reorganization Proposed by AC
(the "Debtor") and High River" (the "Plan"), dated June 24, 1998, was approved
by the Bankruptcy Court. Pursuant to the Plan, AC was reorganized as of
September 28, 1998 (the "Effective Date") in accordance with the Debt Conversion
Option of the Plan. Under the Debt Conversion Option, the AC Notes were redeemed
with funding provided by Arnos, an affiliate of High River in the form of a loan
to AC for approximately $18,000,000.
As a part of the Plan, AC, the Reorganized Debtor, will continue in
business as a Nevada closely held corporation. However, the issued and
outstanding shares of common stock of AC were canceled on the Effective Date and
1,000,000 shares of new stock of AC, out of a total of 5,000,000 authorized
shares, were issued to High River, or its nominee. The AC Notes have been
canceled as provided under the Plan, and all security interests that formerly
secured the AC Notes have been removed of record; the AC Limited Guaranty of
indebtedness of CQC has been canceled in exchange for a payment of $1,500,000 in
cash to the CQC Note holders; unsecured creditors have been paid in full; other
secured gaming equipment contracts have been reinstated and will be honored in
full; and BGI has contributed $1,500,000 in cash to AC as a new value
contribution, which contribution was made effective July 24, 1998.
Except as may be otherwise expressly provided in the Plan and in the
Confirmation Order, on the Effective Date all property of the Debtor prior to
the Effective Date will revest in AC as the "Reorganized Debtor", free and clear
of all claims, liens, encumbrances and other interests of creditors and holders
of indebtedness.
On March 17, 1998, CQC filed for bankruptcy protection in the
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. 98-22172LBR) to pursue 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 Riverboat was filed with a Motion for Order
Authorizing Sale of Personal Property, and a 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 made a bid, the sale of the
Riverboat 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.
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 Riverboat and, there being no other bidders prepared to offer a
competitive bid to that of the third party, a further continuance was requested
and granted to June 15, 1998, at which time the third party bid and that of any
competing buyers were to be considered. Prior to that hearing date, the pending
bid was withdrawn and the hearing was vacated. Several additional bids were
subsequently received but were rejected for inadequacy of the offered purchase
price and sale of the Riverboat has not occurred.
<PAGE>
On January 26, 1999, CQC and IBJ Whitehall Bank & Trust Company ("IBJ
Whitehall"), by and through their selling agent, Continental Plants Corp. and
Plant & Machinery, Inc, acting as a consortium collectively, ("PMI"), conducted
a sealed bid sale of the Riverboat in accordance with the sealed bid sale
procedures previously approved by the Bankruptcy Court (the "Procedures"). PMI
received two bids for the riverboat. The highest bid was from High River, an
entity owned and controlled by Carl Icahn, a majority owner of certain
outstanding debt of CQC, at a bid price of $3,200,000, inclusive of the
mandatory 5% buyers premium (the "High River Bid"). High River submitted the
initial earnest money deposit of $200,000 with its bid and the funds were then
deposited in the Bernhard & Leslie, CHTD Trust Account (the "Trust Account").
The sealed bid sale, which was subject to Bankruptcy Court approval, resulted in
a write-down of the riverboat assets based on the highest bid received in the
amount of $2,800,000 in the December 31, 1998 financial statements.
On January 27, 1999, CQC and IBJ Whitehall executed a Notice of
Acceptance of the High River Bid. CQC and High River subsequently executed a
Purchase and Sale Agreement (the "Agreement") dated January 28, 1999, and High
River delivered an increased earnest money deposit of $600,000 in accordance
with the Procedures. The additional funds were deposited in the Trust Account.
On January 29, 1999, counsel for CQC was notified by counsel for IBJ
Whitehall that High River was requesting a continuance of hearing set for
February 1, 1999 (at which hearing counsel for CQC was to present to the
Bankruptcy Court the highest and best bid and obtain an order approving the sale
to the highest and best bidder), so High River could consider whether the High
River Bid was authorized by the proper persons. Counsel for CQC obtained a
continuance of the hearing to February 3, 1999 at 9:30 am.
On February 2, 1999, counsel for CQC received written notice from High
River's counsel confirming that High River did not intend to consummate the
purchase and sale transaction. Counsel for High River, IBJ Whitehall and CQC
subsequently negotiated and prepared an agreed-upon form of order to present to
the Bankruptcy Court at the February 3 hearing. The order provides, in pertinent
part, that CQC will retain the $800,000 earnest money deposit as its sole and
liquidated damages as a result of High River's failure and/or refusal to
purchase the Riverboat. The order was entered by the US Bankruptcy Court on
February 5, 1999.
The funds constituting the earnest money deposit (less the amounts
disbursed as described below) have been removed from the Trust Account and
deposited into a Debtor-in-Possession account with IBJ Whitehall. CQC has
disbursed, or arranged for the disbursement of, following sums:
A. The sum of $76,708was paid to PMI in accordance with a stipulation
entered into by CQC, IBJ Whitehall and PMI on March 2, 1999 (the "PMI
Stipulation"), which was approved by the Bankruptcy Court by order
entered March 3, 1999. The Stipulation provides for (i) CQC's continued
employment of PMI as its exclusive agent to sell the Riverboat and the
terms of such employment, (ii) reimbursement of PMI's out-of-pocket
expenses in the amount of $35,145, incurred in connection with the
January 1999 sealed bid sale, and (iii) reimbursement of PMI's monthly
expenses advanced through February 4, 1999 in the aggregate amount of
$41,563, to maintain and insure the Riverboat.
B. The sum of $48,414 was paid, in accordance with a Bankruptcy Court
order entered February 4, 1999, to Bernhard & Leslie, Chtd. as Chapter
11-reorganization counsel to CQC, for fees and costs incurred from
January 27, 1998 through and including December 24, 1998.
C. The sum of $11,670 was paid to Leevac Shipyards, Inc. ("Leevac") for
port risk insurance ($7,470), storage of the Riverboat ($2,800), and
maintenance of the Riverboat ($1,400) for the month of February 1999.
CQC anticipates that the funds held in the Debtor-in- Possession
account will be used to pay (i) monthly insurance, storage and maintenance
expenses for the Riverboat in the approximate aggregate amount of approximately
$12,000 per month until the Riverboat is sold, (ii) commissions owned to PMI
upon the sale of the Riverboat in accordance with the PMI Stipulation, and (iii)
administrative expenses, including attorneys' fees and costs, which the
Bankruptcy Court allows and authorizes CQC to pay. The balance of the funds,
plus any other funds collected by CQC for the benefit of the Chapter 11 estate
from the sale of assets, will be distributed in accordance with a plan of
reorganization or Bankruptcy Court order authoring distribution of estate funds.
As of March 31, 1999, there was approximately $663,000 held by CQC for the
benefit of its Chapter 11 estate.
<PAGE>
After further attempts to sell the Riverboat, CQC entered into an Asset
Purchase and Sale Agreement with The Delta Queen Steamboat Co., a Delaware
corporation ("Delta Queen"), dated as of April 29, 1999 (the "Sale Agreement")
pursuant to which Delta Queen has agreed to buy the riverboat from CQC, and CQC
has agreed to sell the Riverboat to Delta Queen, for $3,200,000 in cash,
inclusive of the buyer's premium/commission owed to PMI pursuant to the PMI
Stipulation. On April 29, 1999, Delta Queen transferred to CQC a deposit in the
amount of $32,000 (the "Delta Queen Deposit") which is being held in an
interest-bearing debtor-in-possession account at Colonial Bank, located in Las
Vegas, Nevada, in accordance with an Escrow Agreement entered into as of April
28, 1999 by the between CQC as seller, Delta Queen as buyer, and Bernhard &
Leslie, Chtd., as escrowee. The Delta Queen Deposit will be applied to the
purchase price at closing, and all interest thereon will be returned to Delta
Queen. Delta Queen's obligation to close the purchase and sale transaction is
conditioned upon Bankruptcy Court approval of an agreed-upon form of order. In
addition, Delta Queen may terminate the Sale Agreement if the Bankruptcy Court
orders that an auction for the Riverboat will be conducted prior to approving
the Sale Agreement.
A motion to approve the sale of the Riverboat to Delta Queen in
accordance with the Sale Agreement was jointly filed by CQC and IBJ Whitehall on
April 30, 1999. The motion will be considered by the Bankruptcy Court at a
hearing scheduled for May 25, 1999 at 3:00 p.m. If the Bankruptcy Court grants
the motion and approves the sale, the purchase and sale transaction will close
within one business day of entry of the order approving the sale.
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on form 8-K during the nine-months
ended March 31, 1999.
<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: May 12, 1999 /S/ Bruce F. Becker
---------------- -------------------
Bruce F. Becker
President, Chief Executive
Officer (Principal Executive Officer)
Sole Director, Controller (Principal
Financial and Accounting Officer)
================================================================================
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