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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT of 1934 [NO FEE REQUIRED]
Commission file number 33-76368
BECKER GAMING, INC.
NEVADA 88-0303849
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
740 South Decatur Boulevard
Las Vegas, Nevada 89107
(Address of Principal Executive Offices)
Registrant's telephone number: (702) 258-5200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K: _______
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at September 15, 1996 was $0. The
number of shares of the Registrant's Common Stock outstanding as
of September 15, 1996 was 10,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Specified exhibits listed in Part IV of this report are
incorporated by reference
to the Registrant's previously filed Registration Statement on
Form S-1 (33-76368).
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PART I
Item 1. Business
Becker Gaming, Inc.
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Becker Gaming, Inc. ("BGI" or the "Company") serves as a
holding company for the Becker family gaming interests. BGI's
operating subsidiaries include Arizona Charlie's, Inc. ("AC"),
Sunset Coin, Inc. ("SC") and Becker Gaming Group, Inc. ("BGG"),
each of which is a Nevada corporation wholly owned by BGI. The
Company also wholly owns Capitol Queen & Casino, Inc. ("CQC"), a
Missouri corporation, the assets of which are being offered for
sale pursuant to a proposed debt restructuring plan. See
"Capitol Queen & Casino, Inc." BGI does not expect to engage in
any business other than providing management and administrative
services to its existing and future operating subsidiaries.
AC owns and operates a locals-oriented casino-hotel named "Arizona
Charlie's Hotel-Casino" ("Arizona Charlie's") in Las Vegas, Nevada. SC owns and
operates a gaming machine route in the Las Vegas, Nevada area. BGG, directly and
through its subsidiary, Innerout, Inc., owns and operates five restaurants under
the "Charlie's" name in the Las Vegas area. CQC was organized to develop,
construct, own and operate the Capitol Queen riverboat casino (the "Capitol
Queen") in Jefferson City, Missouri, which project has been abandoned.
Management fees are payable to the Company by its subsidiaries at a rate
of 5% of the gross revenues of each such subsidiary. However, management fees
payable by AC are restricted by the Indenture governing the 12% First Mortgages
due November 15, 2000 of AC (the "AC Indenture" and "AC Notes," respectively).
Under the AC Indenture, no management fees will be payable by AC until AC has
attained a specified fixed charge coverage ratio of 2.25 to 1 and any management
fees which are paid by AC may not exceed $5,000,000 in any fiscal year. Although
CQC is similarly restricted under the Indenture governing its 12% First Mortgage
Notes due November 15, 2000 (the "CQC Indenture" and the "CQC Notes,"
respectively), such restrictions are expected to be of no effect because CQC
will not open the Capitol Queen or pay any management fees to the Company. See
"Capitol Queen & Casino, Inc." As a result of the AC Indenture restrictions, AC
has not paid and does not anticipate that it will be permitted to pay management
fees before fiscal 1998. Any fees which become payable under the management
agreement with the Company but which may not be paid as a result of the
restrictions contained in the AC Indenture, will be accrued until paid. Due to
the decision to suspend development of CQC's riverboat casino project and sell
its assets, the majority of BGI's management and administrative services are
anticipated to benefit AC in the future. Accordingly, in late March 1995, BGI
transferred approximately 40 employees involved in accounting and administrative
functions from BGI to AC. In connection with this transfer, in October 1995, the
Company temporarily reduced the amount of AC's management fee to a net 1.0% of
AC's gross revenues (previously 5.0% of gross revenues) based on the reduction
in services it will receive from BGI in the future. See Note 9 of AC's Notes to
Financial Statements.
The Company had made certain commitments in connection with the
acquisition of the rights to develop the Capitol Queen in Jefferson City, which
commitments are subject to CQC becoming licensed by the State of Missouri to
open and operate the Capitol Queen, and some of which rights have been
terminated. See "Capitol Queen & Casino, Inc." Because CQC's application for a
gaming license in Missouri was denied and later withdrawn, such commitments are
no longer in effect.
Arizona Charlie's, Inc.
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General
The Becker family opened Arizona Charlie's in April 1988 as a full-service
casino-hotel geared toward the Las Vegas locals market. Arizona Charlie's is
situated on a 12.5-acre site located prominently on a major north-south
thoroughfare in an established retail and residential neighborhood in the
western metropolitan area of Las Vegas. A 60-foot high neon sign located in
front of the facility provides Arizona Charlie's high visibility.
AC employs operating and marketing strategies formulated to build a loyal,
repeat resident customer base consisting principally of Las Vegas area employees
and retirees residing in surrounding well-established neighborhoods. Arizona
Charlie's market acceptance has resulted largely from its emphasis on providing
attractive pricing, friendly service, quality food, and exciting entertainment,
all in a comfortable atmosphere. In addition, the casino features a selection of
games that invite personal interaction and which management believes, based on
data published by state gaming regulators, are set for higher payout rates than
those at other Las Vegas casinos generally. See "Business Strategy."
From January 1994 to February 1995, AC expanded and enhanced Arizona
Charlie's (the "Expansion") through the addition of new casino space, hotel
rooms, specialty restaurants, and banquet/meeting room facilities, and the
expansion of existing restaurant, entertainment, and other facilities. The
Expansion also involved the general remodeling of existing hotel rooms, the
casino, and other interior areas, as well as the upgrading of the exterior
facade and addition of a porte cochere at the front entrance.
Casino. As of August 31, 1996, Arizona Charlie's had approximately 47,000
square feet of casino space open 24 hours a day, 365 days a year. At that date,
the casino included approximately 1,600 gaming machines and 26 table games
(blackjack, craps, roulette, Caribbean Stud, Let It Ride, mini- baccarat and
poker), a 92-seat race and sports book, and a 400-seat bingo parlor, which is
operated on the second floor.
Over 80% of Arizona Charlie's gaming machines consist of video poker
games. Although video poker machines are typically set for a lower net win rate
for the house and have longer playing time per bet as compared with traditional
slot machine games, Arizona Charlie's emphasizes video poker because it is
popular with local players and generates, as a result, high volumes of play and
casino revenues. Most of Arizona Charlie's table games are devoted to
double-deck, hand-dealt blackjack play, which locals prefer due to its potential
for more frequent payouts and greater customer interaction. For the year ended
June 30, 1996, approximately 84.4% of gaming revenues was attributable to gaming
machine play and 9.2% of gaming revenues was generated by table games.
Approximately 16.9 % of its gaming machines are devoted to five dollar, dollar
and half-dollar play and approximately 83.1% to quarter and nickel play. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Arizona Charlie's, Inc. - Results of Operations."
AC maintains stringent controls on receipts and disbursements at the
casino. Security personnel, overhead cameras and other security devices are
deployed throughout the facilities. In addition, AC has established a series of
other controls, including locked cash boxes, independent auditors and observers,
and daily tabulation and balancing of all cash transactions within the gaming
areas.
Hotel. Arizona Charlie's hotel is comprised of an eight- story tower
consisting of 160 rooms and 10 suites opened on September 2, 1994 and a
three-story tower consisting of an additional 100 rooms that underwent minor
upgrades in the Expansion. Arizona Charlie's hotel customers include local
residents and their out-of-town guests, as well as business and leisure
travelers who, because of location and cost considerations, choose not to stay
on the Las Vegas Strip or at other hotels in Las Vegas. Occupancy rates for the
years ended June 30, 1996 and 1995 averaged 86.9% and 84.3%, respectively, at
average daily rates of $39.81 and $37.27 per room, respectively. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Arizona Charlie's, Inc. -
Results of Operations." Arizona Charlie's has generated high occupancy rates,
particularly during weekends, with little if any marketing of the hotel.
Management believes that its favorable room rates, which are indicative of the
value it offers its customers generally, have contributed to Arizona Charlie's
ability to achieve such occupancy rates. AC will continue to set aside a small
percentage of rooms and suites (approximately 5%) for complimentary use by its
preferred casino customers.
Food and Beverage. AC operates four restaurants at the facility. The
Sourdough Cafe, open 24 hours a day, is located adjacent to the casino floor and
seats 247 patrons. The all-you-can-eat Wild West Buffet is located on the second
floor and seats 238 patrons. Two specialty restaurants, Chin's, which offers a
gourmet Chinese cuisine and the Yukon Grille, an American-style steakhouse, with
100 seats each, attract guests interested in a more upscale and varied dining
experience. The restaurants are designed to help attract more casino patrons
interested in higher stakes machines and games. Arizona Charlie's also has three
bars, which include a lounge bar, a sports book bar and a bar to service the
restaurants.
As with many casinos, Arizona Charlie's food and beverage
operations are not directly profitable, but are used as marketing
tools to stimulate casino activity. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Arizona Charlie's, Inc." Nonetheless, costs are minimized and operations are
streamlined by using one kitchen to serve all four restaurants. The Sourdough
Cafe and the Wild West Buffet offer quality food and service at affordable
prices, while the Yukon Grille and Chin's offer an upscale dining experience
that is preferred by select casino patrons. AC believes that much of its casino
and other business is attributable to traffic created by the restaurants, and
thus prices are set at levels designed to draw patrons to the facility.
Entertainment and Other Facilities. Arizona Charlie's emphasis on
reasonably priced entertainment has been an integral component of its overall
customer appeal. The Naughty Ladies Saloon, a 108-seat facility, features a
variety of entertainment including celebrity acts, live bands, musician showcase
nights and jam sessions. AC also presents mini-concerts, nationally-televised
boxing events, and other events in its second, much larger entertainment
facility-the Palace Grand Theatre. This 700-seat showroom, located on the second
floor, also serves as a meeting and banquet facility. AC has focused added
marketing emphasis on the appeal of its entertainment programming. The larger
showroom enables AC to present better-recognized musical acts, charge higher
cover prices and attract more gaming customers. The availability of two
showrooms allows AC to present more and varied entertainment. The banquet and
meeting space has enabled AC to expand its marketing efforts to visiting
business travelers and the small meetings market segment.
A small gift shop located adjacent to the casino provides a limited range
of inexpensive gift items, candy, newspapers, magazines and cigarettes. Added
focus has been placed on logo merchandise promoting the Arizona Charlie's name
and motif.
Parking Facility. Arizona Charlie's offers on-site valet and self-parking
lots with combined capacity for over 650 vehicles. Ease of access to the casino
is believed to be an important element in the appeal of Arizona Charlie's to
local customers.
Business Strategy
AC's strategy focuses on attracting Las Vegas residents, principally
retirees and employees of local businesses, who visit the casino on a regular
basis. These patrons, in contrast to the vacationers and conventioneers who
frequent the Las Vegas Strip, prefer a friendlier, more casual environment to
the large crowds, extravagance and less intimate atmosphere associated with the
Strip casinos. Accordingly, AC attempts to attract locals and achieve customer
loyalty by creating a more personal and relaxed, yet full-service, atmosphere
with an emphasis on value pricing. Since the Expansion, AC has also increased
its marketing efforts toward non-local customers.
Management's efforts to create a friendly and relaxed atmosphere begin
with its employees. AC strives to instill in each employee a commitment to
service excellence. Employees are trained to recognize and acknowledge regular
customers on a first-name basis. Employees are continually informed of upcoming
events and are trained to be responsive to customer inquiries about new
promotions. The high level of personal interaction between employees and
customers leads to improved employee morale that in turn further contributes to
the pleasant atmosphere.
Casino operations are geared toward the tastes of the local customer.
Arizona Charlie's emphasizes video poker machines, which local customers prefer
to other gaming machines because video poker offers longer playing times per bet
and more interactive features. In addition, AC's video poker machines are set at
higher payout rates than other gaming machines in the casino. As a result, based
on data compiled and published by state gaming regulators, payout rates at
Arizona Charlie's are believed by management to be higher than those at other
Las Vegas casinos generally. In addition, unlike its primary competitors,
Arizona Charlie's does not operate a computerized "slot club" tracking and award
system, but instead rewards and tracks players through personal contact by the
casino's employees. Player bonuses are paid in cash on the casino floor, which
patrons find appealing, as opposed to crediting points to a slot club card.
Moreover, casino operations at Arizona Charlie's are continually monitored and
adjustments are made from time to time to accommodate changing customer
interests. In particular, AC regularly upgrades its gaming machines as new
models are developed to provide its customers with the latest games and
features. The casino also offers double-deck, hand-dealt blackjack that allows
the players to handle their cards, creating more player involvement in the game
and the potential for more frequent payouts. Arizona Charlie's recently added
the new table games Let It Ride, Caribbean Stud and Mini-Baccarat which
management believes have become increasingly popular with local players. A
three-table poker room has also helped to attract local regulars. Arizona
Charlie's also features a bingo parlor which management believes, though not
directly profitable, is an effective marketing tool because it attracts locals
on a regular basis who also engage in other gaming activities. Bingo contributes
to the casino's overall informal and friendly atmosphere. Finally, a
company-owned shuttle bus service provides free scheduled pick-up and drop-off
service for local customers, particularly the elderly. Management believes that,
as a result of its efforts to gear casino operations to the tastes of local
customers and to provide a more personal approach, the casino has become a
social gathering place for the surrounding communities.
AC provides complimentary food and beverages to valued casino patrons and
has expanded this practice since the Expansion. While AC issues credit to a
small portion of its customers, it does so judiciously, resulting in an average
provision for doubtful accounts of less than 1% of gaming revenues over the past
several years. Since the Expansion, AC has implemented, among a number of other
new marketing programs, efforts designed to attract more credit customers.
However, management continues to maintain stringent controls on its credit
policy and thus does not expect its provision for doubtful accounts as a
percentage of gaming revenues to increase significantly.
Marketing Strategy
General. AC promotes the casino through special events, television, radio,
print and billboard advertising, direct mail, video poker specials and its
popular, trademarked "Paycheck Poker" check-cashing promotion. Paycheck Poker
which many of AC's competitors have imitated, involves a no-fee check-cashing
service and the distribution of free scratch-game prize cards. Other promotions
successfully employed by AC include hand paid jackpots on video poker, which are
supplemental to the machine payout, and special event promotions on holidays.
These marketing tools have enabled AC to fill the casino consistently without
employing expensive bus, coupon book or road-flier promotions commonly used by
other casinos in Las Vegas. Arizona Charlie's has also marketed the casino on
the basis of its reputation among locals for promoting professional boxing
events and entertaining country music and classic rock performances.
AC's marketing strategy is geared principally to attract locals who will
visit the casino on a repeat basis for entertainment and relaxation. AC's
ability to continue to draw these players will be critical to its long-term
success. In addition, management expects that the Expansion has generally
enabled it to further increase revenues through the broadening of its marketing
programs which have include more invited-guest events, increased house credit
(currently issued on a very limited basis), a greater number of performances by
better-recognized musical groups, and slot tournaments. The upgraded facilities
and enhanced amenities provided by the Expansion, along with expanded marketing
efforts, have assisted AC in attracting the leisure traveler, special casino
customer and selected meeting group customers.
Local Residents. AC markets primarily to the local resident gaming
customer. AC relies heavily on Arizona Charlie's location, its favorable casino
odds, its modestly priced food and beverage facilities and its entertainment
programming to attract local-resident patrons. AC markets to local residents
through local print and billboard advertising, participation in community and
other public activities, and in-house promotions and programs, such as its
no-fee check-cashing promotion. Arizona Charlie's also benefits from
word-of-mouth endorsements from local residents. AC continues to develop new
in-house promotions designed to enhance the image of Arizona Charlie's.
Leisure Travelers. The leisure travel segment of the Las Vegas gaming
customer market consists of persons who are not affiliated with groups and who
make their reservations directly with the hotel of their choice or through
independent travel agents. Currently, this segment represents only a small
portion of Arizona Charlie's customer base. Management believes, nevertheless,
that its affordably priced hotel rooms and off-Strip location are attractive to
a portion of the leisure travel segment and that Arizona Charlie's has
significant development potential in this area. The Company believes that many
repeat visitors who perceive Las Vegas residents as discerning, value-oriented
consumers of hotel and gaming facilities will be favorably influenced by the
hotel's popularity among locals. AC's management believes, further, that once
first-time visitors experience the value, quality and friendly atmosphere
offered by Arizona Charlie's, many of those visitors become repeat customers. AC
anticipates that it will periodically (as hotel occupancy projections dictate)
utilize print media, billboards and radio to advertise in Southern California,
and, to a lesser extent, in other leisure travel markets such as Arizona, Utah
and Idaho.
Special Casino Customers. The special casino customer segment is composed
of frequent gaming customers known to AC. AC monitors the profiles of its repeat
customers and offers complimentary or reduced-rate lodging, food and beverages
to the more active of these customers. AC identifies and tracks the play of
these customers through the issuance of a special guest card and by means of
personal management contact. The card is presented by the guest when
participating in gaming activities or dining at Arizona Charlie's, enabling
company employees to deliver personalized service. Credit play is also made
available for qualified customers in the discretion of management based on the
player's gaming and credit history. The Expansion of Arizona Charlie's has
enabled AC to market the casino more effectively to credit customers who require
certain amenities that AC can now provide.
Selected Banquet and Meeting Groups. With the creation of approximately
15,000 square feet of banquet facilities and meeting rooms in the Expansion, AC
has expanded its marketing efforts within this segment with respect to groups
anticipated to have a generous amount of time to participate in gaming and
entertainment activities, such as meeting participants whose meetings are
scheduled for only a portion of the day. AC does not market to conventions or
large-scale meetings. AC's marketing department maintains data, makes contacts
and develops relationships with outside selected meeting planners.
Market & Competition
Las Vegas Market. The large and expanding Las Vegas gaming market includes
both local residents and visitors. Arizona Charlie's draws principally from the
local resident market and to a limited, but growing, extent attracts visiting
business and vacation travelers.
Located in southern Nevada's Clark County, Las Vegas is the largest city
in Nevada, with a local population that has grown dramatically over the past
decade. Further population increases are expected in coming years, based on
published growth projections for southern Nevada. Much of the recent and
anticipated population growth in Las Vegas may be attributed to the growth of
the local gaming industry, which has drawn and is expected to draw people from
other regions who are looking for employment. Arizona Charlie's attracts as
customers many employees of other casino properties, and expects to benefit from
the influx of people looking for employment, many of whom will likely choose to
reside in the growing neighborhoods to the west of and near Arizona Charlie's.
Arizona Charlie's will also benefit from the growth of these neighborhoods
resulting from the increased influx of retirees who move to Las Vegas for its
favorable climate, relatively low cost of living and wide selection of
entertainment activities.
Within its principal market, AC derives substantially all of its
casino-hotel business from customers residing in the immediately surrounding
neighborhoods. The outer areas of this geographic market have experienced, more
than any other area of Las Vegas, a growing residential base, most significantly
to the west of Arizona Charlie's.
Although AC does not emphasize the visitor market, its marketing efforts
toward that market have increased and the growth of the local gaming industry as
a whole contributes to the growth of Arizona Charlie's customer base. Therefore,
the level of Las Vegas visitor traffic has had an indirect effect on AC. With
increased visitor traffic and the growth of the local population, gaming has
been a strong and growing business in Las Vegas. The Las Vegas market has
historically achieved significant growth despite adverse economic and
competitive events during the past decade, including the expansion of the
Laughlin, Nevada market 90 miles south of Las Vegas, the introduction of the
California lottery in 1985, the growth in gaming in Atlantic City, New Jersey
and the introduction of riverboat, dockside and Indian gaming and other forms of
legalized gaming. More recently, as a result of the increased popularity and
public acceptance of gaming, Las Vegas has sought to increase its popularity as
a destination resort. An increasing number of casinos have developed non-gaming
entertainment to draw visitors and their families to Las Vegas. These include
major casino-hotel projects recently completed on or near the Strip, such as the
MGM Grand, Luxor, Treasure Island, Circus Circus' Grand Slam Canyon, Monte
Carlo, and others currently under development such as New York, New York and
Bellagio. These projects are expected to expand the Las Vegas gaming market and
economy, increase the local population and, therefore, increase Arizona
Charlie's customer base.
Competition. AC competes for many of its local gaming customers with other
casino-hotels located in the western area of Las Vegas and, to a much lesser
extent, with other casino-hotel operations located off the Strip. Competing
locals casinos include principally the Palace Station, Gold Coast, Rio, Santa
Fe, Fiesta (opened in December 1994) and Texas Station (opened in August 1995)
casino-hotels, all but one of which is larger than and each of which offers
similar, if not greater, amenities than those offered by Arizona Charlie's. The
Fiesta and Texas Station continue to have a negative impact on the slot revenues
of Arizona Charlie's, however, management believes this is temporary as AC
competes with these facilities on the basis of the desirability of its location,
its high payout rates, personalized approach, Paycheck Poker check cashing and
other promotions in the casino, the comfort and value of its restaurants and
hotel rooms, and the excitement, variety and value of its entertainment. See
"Business Strategy."
AC believes that because of restrictive zoning laws, water rights issues
and other factors (including the ownership of surrounding parcels of land by the
Becker family), no new competing facilities are likely to be developed within a
two-mile radius of Arizona Charlie's. As a result, AC believes that Arizona
Charlie's is well positioned geographically to take advantage of its focus
market.
To the extent AC seeks to develop significant leisure travel business, it
will compete with other casino-hotel operations located not only in Las Vegas
but in the Laughlin and Reno-Lake Tahoe areas of Nevada and with state-sponsored
lotteries, off-track wagering, card parlors, riverboat and dockside gaming,
Indian gaming ventures and other forms of legalized gaming.
Sunset Coin, Inc.
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Operations. Since 1980, SC has operated a gaming machine route business in
the Las Vegas, Nevada area, which at August 16, 1995 consisted of approximately
280 coin-operated gaming devices in 28 locations. The machines are owned or
leased by SC and placed in locations owned by others, primarily retail outlets
in shopping centers, taverns, restaurants and convenience stores. SC generally
shares the net win with the property owner, although in 3 locations SC retains
all income generated by its machines and pays a fixed space rental fee to the
property owner. Approximately 254 of SC's machines are installed at 26 locations
controlled by the Becker family, and the associated contracts are expected to be
renewed as a matter of general course. As of September 15, 1995, the average
remaining life of contracts with other locations was approximately 5 years.
In addition to its gaming machine route, SC derives income from fees
earned pursuant to gaming machine service contracts with locations which operate
their own gaming machines. SC provides 24-hour maintenance and other services
for which it charges a fixed rate per month per machine. SC currently has
service contracts with six locations consisting of an aggregate of approximately
130 machines, including a total of 115 machines located at BGG's five
restaurants.
In order to open a new route location, SC must be licensed to operate
gaming machines at the site or, in the case of a revenue-sharing agreement, the
location operator must be licensed. Typically, it takes 120 to 180 days to
obtain the requisite licenses and to complete the necessary facility
improvements to accommodate the gaming machines, resulting in a delay in the
generation of route revenues following the execution of a contract for a new
route location. The opening of a route location generally requires capital
improvements, a portion of which may be funded, typically as a loan, by SC. SC
relies on cash from operations to fund the capital improvements and other
operational costs. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -
Sunset Coin, Inc. - Liquidity and Capital Resources." New locations typically
experience an initial stabilization period, during which SC determines the
appropriate number (subject to regulatory limits) and mix of gaming machines and
implements certain of its start-up marketing programs.
Competition. SC's gaming machine route operation competes on the basis of
its machines and its service. Unlike many other operators, SC uses only new
equipment with the latest technologies. These machines are believed to be more
attractive to gaming customers than older machines and, as a result, are
expected by gaming machine route site owners to generate more income. In
addition, SC supports its machines with 24-hour service, providing change,
jackpot payments and repair assistance, as needed. SC relies in part on customer
referrals and expansions by its customers into additional locations for new
business. SC also actively solicits business from other gaming machine route
locations having contracts with competitors that are scheduled to expire, and
from retail outlets in new shopping centers and restaurants. The availability of
sites held by the Becker family-controlled entities also provides SC with a
competitive advantage. The terms of the contracts (and extensions and renewals
thereof) entered into by SC with its customers are determined on the basis of
private negotiation and do not involve participation in public competitive
bidding processes.
Notwithstanding SC's ability to generate profits in recent years, the
operation of a gaming machine route in Nevada is a highly competitive business
and that competition continues to intensify. Many of SC's competitors have
significantly greater financial resources and manage substantially more gaming
machines. Competitors often provide substantial financial inducements to
prospective customers, some of which SC is not financially able to offer. Such
inducements include long-term commitments, guarantees and leases in favor of
owners of local establishments, substantial advance deposits, payments of lease
rentals in advance and loans for buildings and tenant-improvement costs.
Although SC has historically generated sufficient new contracts to offset the
loss of old ones, its revenues decreased in fiscal 1996 and fiscal 1995 as a
result of a net loss of contracts and due to increased competition and the
increased sophistication and bargaining power of customers. There can be no
assurance that SC will be able to obtain new gaming machine route contracts or
renew or extend its existing contracts on their expiration or termination, or
that, if renewed or extended, the terms will be as favorable to SC. See "Item 7.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Sunset Coin, Inc. - Results of Operations."
Becker Gaming Group
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Operations. BGG currently owns and operates five restaurant and bar
facilities (including one through its subsidiary, Innerout, Inc.) in Las Vegas
under the "Charlie's" name, each of which offers limited gaming. BGG's first
restaurant was opened in late 1986, the next four facilities were opened between
1988 and 1991, and the sixth was opened in April 1995. However, one facility,
Charlie's Saloon & Gambling Hall, was closed due to the expiration of its lease
in April 1996. Three of the restaurants-"Charlie's Bar," "Cantina Charlie's" and
"Charlie's Bar Down Under"-emphasize lower-priced menus in an informal
environment, and two more upscale locations-"Charlie's Lakeside Bar & Grill" and
"Cariba Charlie's,"-feature more formal dining and a greater selection of
dishes.
BGG expects to continue exploring expansion opportunities in the Las Vegas
area and has identified a suitable location for a new restaurant and bar
facility scheduled to open in early 1997. BGG's ability to open additional
restaurants depends on, among other factors, locating acceptable sites,
negotiating favorable leases, securing appropriate government permits and
approvals, obtaining liquor licenses, and recruiting and training qualified
restaurant management personnel.
BGG depends on gaming for a large percentage of its revenues and a larger
percentage of its profits, particularly at Charlie's Bar, Cantina Charlie's and
Charlie's Bar Down Under, where food and beverage operations have not been
directly profitable. Accordingly, the menus at Charlie's Bar, Cantina Charlie's
and Charlie's Bar Down Under are priced and include food selections designed to
attract casual diners interested in gaming entertainment. Unlike the
lower-priced facilities, Charlie's Lakeside and Cariba Charlie's are operated
with the intention of generating profit both from food and beverage sales and
from gaming activity. To that end, these restaurants feature a better selection
of dishes and wines to attract customers interested principally in a memorable
dining experience. Charlie's Lakeside and Charlie's Bar Down Under hold
nonrestricted gaming licenses allowing them to operate thirty-five video poker
machines with poker promotions and large progressive jackpots. BGG employs the
same state-of-the-art gaming machines and liberal pay-out approach made popular
at Arizona Charlie's.
BGG strives to maintain consistency in each of its restaurants through
the careful training and supervision of its personnel. The management of BGG
also closely monitors the tastes of the customers of each of its restaurants and
makes menu and other changes to accommodate these tastes. BGG maintains
financial and accounting controls for each of its restaurants through the use of
centralized accounting and management information systems.
Competition. The restaurant and food service industry in the Las Vegas
area is highly competitive and fragmented. There are many of restaurant and
other food and beverage service operations that compete directly and indirectly
with BGG. BGG competes with these restaurants on the basis of its reasonable
pricing, quality food, focused menus and gaming entertainment. In addition, BGG
employs seasonal print and direct mail advertising and conducts some local
restaurant promotions. Many of BGG's competitors, however, have significantly
greater financial resources and higher sales volume than BGG does. The
restaurant business is often affected by changes in consumer taste and
discretionary spending priorities, national, regional or local economic
conditions, demographic trends, consumer confidence in the economy, traffic
patterns, weather conditions, employee availability, and the type, number and
location of competing restaurants. Any change in these factors could adversely
affect BGG. Factors such as inflation and increased food, liquor, labor and
other employee compensation costs could also adversely affect BGG. Management
believes its ability to compete effectively will continue to depend on its
ability to offer quality food for moderate prices in unique dining environments.
Capitol Queen & Casino, Inc.
- ----------------------------
CQC was formed to develop, construct, own and operate the Capitol Queen
riverboat casino in Jefferson City, Missouri, where it was granted a three-year
exclusive franchise by the city pursuant to a Riverfront Development Agreement
dated as of September 1, 1992 (the "Development Agreement"), subject to state
licensing to operate a gaming facility. CQC commenced development and
construction work on the Capitol Queen in November 1993. Such work was suspended
in August and September 1994 for the reasons discussed below. CQC's riverboat,
the construction of which was completed, is being stored by the builder. Funding
for the Capitol Queen project had been raised in November 1993 through the sale
of the CQC Notes and the concurrent sale of common stock purchase warrants by
the Company, which contributed the net proceeds therefrom to CQC.
On September 28, 1994, the Missouri Gaming Commission (the "Commission")
denied, without investigative review, CQC's application for a gaming license and
prohibited CQC from reapplying for a license for two years. The Commission's
ruling was based on a finding that CQC failed to disclose material and
substantive information on its gaming license application relating to a Purchase
Agreement dated September 20, 1993, pursuant to which BGI agreed to issue
promissory notes aggregating $5,925,000 in principal amount to various people in
Missouri in consideration for development services provided by them in
connection with the Capitol Queen project. The Purchase Agreement was rescinded
by the parties in early 1995.
CQC believes its Missouri application was complete and accurate. Moreover,
CQC fully disclosed the existence and terms of the Purchase Agreement, as well
as the services rendered by the persons to be compensated, in post-application
filings and communications with the Missouri Gaming Commission's staff. CQC also
disclosed these matters to the Nevada gaming authorities, who investigated and
conducted public hearings on these and other issues relating to applications for
licenses and approvals, all of which were unanimously granted to the Company in
May 1994. The Nevada gaming authorities most recently reexamined the issue in
connection with Becker Gaming Group and Innerout, Inc.'s applications for
licenses at Charlie's Bar Down Under, which were unanimously granted in March
1995. CQC's then audited financial statements and public documents filed with
the Securities and Exchange Commission, all of which were submitted to the
Missouri Gaming Commission, also made these disclosures. Management believes
that, based on the foregoing, the Commission's ruling was and remains without
basis. Accordingly, CQC challenged the ruling through administrative and
judicial channels, which challenges have been largely successful. See "Item 3.
Legal Proceedings".
Notwithstanding its efforts to seek redress of the Commission's ruling,
in December 1994, CQC, with the approval of the holders of the CQC Notes,
adopted a two-step plan (the "Repayment Plan") to repay the CQC Notes and any
accrued and unpaid interest thereon. The first step, effected in January 1995,
involved the repurchase of $20,000,000 principal amount of the CQC Notes and the
payment of accrued and unpaid interest thereon with proceeds then remaining in
the Capitol Queen project escrow account. The second step of the Repayment Plan,
not yet effected, required CQC, by March 31, 1995, to sell its riverboat, land
site and other projects assets and to use the net proceeds realized upon the
sale of such assets to offer to repurchase additional CQC Notes.
CQC has actively marketed its riverboat and other assets for sale and
continues to do so. Notwithstanding CQC's failure to effect the second step of
the Repayment Plan to date, the holders of the CQC Notes have not indicated any
current intention to exercise any remedies they may have under the CQC Indenture
or otherwise as a result of such default. Under the CQC Indenture, the holders
of 25% or more in principal amount of the CQC Notes may cause the CQC Notes to
be accelerated, in which event they would become immediately due and payable in
full. An aggregate of $20,000,000 principal amount of CQC Notes are outstanding.
If CQC Notes were to be accelerated, CQC (and Arizona Charlie's, Inc. ("AC"), a
sister company which has unconditionally and fully guaranteed the payment of the
CQC Notes) would not be able to pay such CQC Notes, absent a large capital
infusion, which is not expected to be available.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that as a
matter of law the 1995 election does not affect the validity of the Development
Agreement. To avoid the cost and uncertainty of litigation, however, CQC and
Jefferson City in June 1996 entered into an agreement pursuant to which the
Development Agreement was rescinded and Jefferson City refunded $300,000 of the
$400,000 CQC had paid to the City pursuant to the Agreement.
Employees
As of August 31, 1996, the Company employed only one person, its chief
executive officer. Approximately 40 other Company employees were transferred to
the employ of AC in March 1995 in connection with the suspension of activity at
CQC. As of August 1, 1996, AC employed approximately 1,242, SC employed 28, and
BGG employed approximately 189. As of August 1, 1996, CQC had no employees
(other then its sole executive officer). None of the foregoing employees is
employed pursuant to collective bargaining or other union arrangements.
Management believes its employee relations are good.
Government Regulation
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"), and (ii) various local regulation.
The gaming operations of the Company and its Nevada subsidiaries are subject to
the licensing and regulatory control of the Nevada Gaming Commission (the
"Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada
Board"), the Clark County Liquor and Gaming Licensing Board (the "Clark County
Board"), the City of Las Vegas and other local jurisdictions (collectively, the
"Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based on declarations of public policy that are concerned with,
among other things: (i) the prevention of unsavory or unsuitable persons from
having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on the gaming operations of the Nevada
subsidiaries.
The Company and its Nevada subsidiaries are required to be licensed by the
Nevada Gaming Authorities to engage in gaming activities. The gaming licenses
require the periodic payment of fees and taxes and are not transferable. No
person may become a stockholder of, or receive any percentage of profits from,
the Nevada subsidiaries without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company and its Nevada subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, approvals, permits
and licenses required to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship with, the Company or its Nevada subsidiaries to determine
whether the individual is suitable or should be licensed as a business associate
of a gaming licensee. Officers, directors and certain key employees of such
companies must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
Others who are actively and directly involved in gaming activities may also be
required to be licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing for any cause
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in corporate position.
The Company and its Nevada subsidiaries, would be required to sever all
relationships with any officer, director, or key employee who refuses to file
the appropriate applications or is found unsuitable for licensing or denied a
license by the Nevada Gaming Authorities, whose licensing and suitability
decisions are not subject to judicial review.
Substantially all material loans, leases, sales of securities and similar
financing transactions by the Company and its Nevada subsidiaries must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Company or any of its Nevada subsidiaries
had violated the Nevada Act, that Company's gaming license could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, the company and the individuals involved
could be subject to substantial fines for each separate violation of the Nevada
Act at the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate the company's gaming properties
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the company's gaming
properties) could be forfeited to the State of Nevada. Limitation, conditioning
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially adversely affect gaming
operations.
The Company and AC are registered publicly traded companies under the
Nevada Act and as such are subject to the provisions applicable to "registered
corporations." The Nevada Act requires any person who acquires more than 5% of a
registered corporation's voting securities to report the acquisition to the
Nevada Commission. The registered corporation is also required to report such
acquisitions. The Nevada Act requires that beneficial owners of more than 10% of
a registered corporation's voting securities apply to the Nevada Commission for
a finding of suitability if, and within 30 days after, the chairman of the
Nevada Board mails a written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Company's voting
securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to hold
voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the members of the board of directors of the Company,
any change in the Company's corporate charter, bylaws, management, policies or
operations of the Company, or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding the Company's
voting securities for investment purposes only. Activities which are not deemed
to be inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
The Company has issued common stock purchase warrants (the "Warrants") to
certain institutional investors. The Warrants do not constitute voting
securities for purposes of the Nevada Act. Nonetheless, the Company may redeem
the Warrants at their then fair market value in the event that (i) such
redemption is required by the Nevada Gaming Authorities, (ii) the Nevada Gaming
Authorities require the termination of any Warrant or (iii) the ownership of the
Warrants by a Warrantholder would materially impair the issuance of or result in
the imposition of a material burden on any gaming, liquor or other license
required for the operations of the Company or any of its Nevada subsidiaries.
Further, the Common Stock issuable on exercise of the Warrants will constitute
voting securities and, accordingly, Warrantholders that become owners of the
outstanding Common Stock on exercise of their Warrants will be subject to the
suitability requirements.
Each beneficial holder of the voting securities of a Nevada licensee that
is not a registered publicly traded company under the Nevada Act, regardless of
the number of shares owned, must file an application, be investigated, and have
his suitability as a beneficial holder of such voting securities determined. The
applicant must pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
The Company has been registered or found suitable, as the case may be, to
own the common stock of each of the Nevada subsidiaries.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission, may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after request, fails to identify the beneficial
owner. Any stockholder found unsuitable and who holds, directly or indirectly,
any beneficial ownership of the common stock of a gaming licensee or a
registered corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The gaming licensee or
registered corporation will be subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a stockholder or to have any
other relationship with it, the company (i) pays that person any dividend or
interest on voting securities of the company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by that person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash at
fair market value. Additionally, the Clark County Board has taken the position
that it has the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a gaming licensee or a registered corporation to file
applications, be investigated and be found suitable to own the debt security of
a gaming licensee or a registered corporation. If the Nevada Commission
determines that a person is unsuitable to own such security, then pursuant to
the Nevada Act, the gaming licensee or registered corporation can be sanctioned,
including the loss of its licenses and approvals, if without the prior approval
of the Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest, or other distribution (ii) recognizes any voting right by the
unsuitable person in connection the such securities; (iii) pays the unsuitable
person remuneration in any form; or (iv) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange, liquidation, or
similar transaction.
The Company and its Nevada subsidiaries are required to maintain current
stock ledgers in Nevada which the Nevada Gaming Authorities may examine at any
time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Nevada Gaming Authorities. Failure to make such disclosure may be grounds
for finding the record holder unsuitable. Each company is required to render
maximum assistance in determining the identity of any beneficial owner. The
Nevada Commission has the power to and has required the Nevada subsidiaries'
stock certificates to bear legends indicating that the securities are subject to
the Nevada Act.
The Company is not permitted to make a public offering of its securities
without the prior approval of the Nevada Commission if the securities or
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or to retire or extend obligations incurred for
such purposes. Any such approval, if granted, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
A change in control of a registered publicly traded company, whether
through merger, consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby he obtains
control, may not occur without the prior approval of the Nevada Commission.
Entities seeking to acquire control of a corporation subject to the Nevada Act
must first satisfy a variety of stringent standards imposed by the Nevada Board
and Nevada Commission. The Nevada Commission may also require controlling
stockholders, officers and directors of the entity seeking control, and any
other persons having material relationships or involvement with, to be
investigated and licensed as part of the approval process relating to the
transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees and registered corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices on
Nevada's gaming industry and to advance Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environmental for the orderly governance of
corporate affairs. In certain circumstances, approvals are, required from the
Nevada Commission before a regulated company can make exceptional repurchases of
voting securities above the current market price and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by a regulated
company's board of directors in response to a tender offer made directly to the
corporation's stockholders for the purpose of acquiring control of the
corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensees' operations are conducted.
Depending on the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based on either: (i) a
percentage of the gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operators where entertainment is furnished in
connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons, and who proposes
to become involved in a gaming venture outside of Nevada ("foreign gaming") must
deposit and maintain with the Nevada Board, a revolving fund of $10,000 to pay
the Board's expenses of investigating the participation in foreign gaming. The
revolving fund is subject to increase or decrease at the discretion of the
Nevada Commission. Thereafter, such persons are required to comply with certain
reporting requirements imposed by the Nevada Act, and are subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the grounds of unsuitability.
Item 2. Properties
BGI does not directly own or lease any real property, but owns or leases
certain transportation assets (principally a corporate jet) which had originally
been acquired to facilitate management of the CQC operation in Missouri. AC, as
the original lessee, is contingently obligated to pay the lease costs of such
assets. On July 26, 1996, BGI sold the corporate jet and retired the related
lease obligation.
Arizona Charlie's is located at 740 South Decatur Boulevard, Las Vegas,
Nevada and comprises approximately 170,000 square feet on approximately 12.5
acres owned by AC. In addition, AC leases office, storage and laundry space
located in an adjacent shopping center owned by Charleston Heights Shopping
Center, a partnership owned by the Becker family, pursuant to two leases
expiring in 1998. The current annual rent payable (including insurance, tax and
common area maintenance payments) under these leases aggregates approximately
$217,000.
SC currently owns all 254 of the gaming machines included in its route. The
machines are located primarily in retail outlets in shopping centers,
restaurants, taverns and convenience stores owned by others. SC also leases
approximately 32 gaming machines operated by BGG, which reimburses SC for the
full amount of lease payments made by SC on such machines.
All of BGG's five restaurants are held pursuant to long-term leases. Four
of the leases are with lessors owned in whole or part by Becker family members.
The newest restaurant, Charlie's Bar Down Under, was constructed by a
partnership including several Becker family members and their relatives, with
interior improvements constructed by SC. BGG's subsidiary leases the building
and land from the partnership and the furniture, fixtures, and equipment from
SC. Although BGG believes that its obligations with respect to leases entered
into with Becker family entities reflect market terms and rates, Becker family
members may have potential conflicts of interests in connection with these
leases. See "Item 13. Certain Relationships and Related Transactions."
CQC owns a site located across the Missouri River from the State capitol
in Jefferson City, Missouri, on which CQC had intended to construct the Capitol
Queen Square. The site, which was originally 80 acres, currently consists of
approximately 65 to 75 acres as a result of land lost to the Missouri River
during major flooding in the Midwest in 1993 and 1994. CQC has completed
construction of a riverboat casino that was to be located adjacent to the land
site. The riverboat vessel is approximately 218 feet long and 62 feet wide
providing approximately 26,000 square feet of interior space for up to
approximately 1,600 passengers.
Although it has not determined to do so, the Company is exploring the
possibility of conducting or participating in gaming operations in Long Beach,
Mississippi. In connection therewith, the Company has entered into short-term
lease and land purchase option agreements with the city of Long Beach and the
other local property owners. In addition, the Company's executive officers have
applied to the Mississippi Gaming Commission for preliminary findings of
suitability. However, casino gaming is not currently authorized in Long Beach
and its legalization has been rejected by the voters on previous occasions.
Accordingly, there can be no assurance that gaming will be permitted there in
the future. In addition, the Company does not intend to engage in any new gaming
project without the prior agreement of the holders of the AC Notes and the CQC
Notes, particularly since the Capitol Queen might be utilized in such a project.
No assurance can be given that the Company would be able to reach agreement with
the noteholders with respect to any new project. In the event the Company
determines not to proceed with the development of a gaming facility in Long
Beach, it may attempt to sell any rights it has acquired. Long Beach is located
on the Mississippi Gulf Coast to the west of the Gulfport/Biloxi area.
Item 3. Legal Proceedings
BGI, CQC, and the Nevada Operating Companies are parties to various
lawsuits relating to routine matters incidental to their respective businesses,
in addition to the litigation discussed below. Based on the amounts and issues
believed to be in controversy and management's evaluation of the merits of the
claims after consultation with counsel, management does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the results of operations, cash flows, or financial condition of BGI,
CQC, or the Nevada Operating Companies.
On October 31, 1994, CQC and BGI petitioned the Cole County, Missouri
Circuit Court in Jefferson City for a writ of mandamus with respect to the
ruling of the Missouri Gaming Commission. In response to the petition, the
Circuit Court issued an order declaring that by denying CQC's application for a
riverboat gaming license without first conducting an investigation and by
deliberating in a closed session, the Missouri Gaming Commission had violated
Missouri gaming and open meeting laws. The Circuit Court issued a preliminary
writ of mandamus declaring the Commission's decision void and ordering the
Commission to immediately commence a full investigation and thereafter to act on
CQC's application. The Circuit Court ordered the Commission to show cause within
30 days why the preliminary writ should not be made permanent.
In response to the Circuit Court's order to show cause, the Commission
filed two actions, both unsuccessful, in the Missouri Court of Appeals for the
Western District. On November 16, 1994, the Commission petitioned the Court of
Appeals for a writ of prohibition against the Circuit Court, contending, among
other things, that CQC was not entitled to judicial relief because it had not
exhausted its administrative remedy of an evidentiary hearing before the
Commission. The Court of Appeals initially issued a preliminary writ of
prohibition staying further proceedings in the Circuit Court. However, in an
opinion issued on April 18, 1995, the Court of Appeals concluded that its
preliminary writ of prohibition had been improvidently granted, quashed the
preliminary writ, and denied the Commission's request for a permanent writ,
relegating the Commission to its remedies in the Circuit Court. On December 13,
1994, the Commission also filed an appeal of the Circuit Court's order to show
cause. On December 23, CQC moved to dismiss the appeal on the ground that the
preliminary writ of mandamus was not a final order and therefore was not
appealable. On January 5, 1995, the Court of Appeals granted CQC's motion and
dismissed the appeal.
On June 26, 1995, the Circuit Court issued a peremptory (permanent) writ
of mandamus similar to the preliminary writ, declaring the Commission's order
void and ordering the Commission to proceed with an investigation of CQC's
application "with all deliberate speed." On July 21, 1995, the Commission
appealed the Circuit Court's decision to the Missouri Court of Appeals for the
Western District, and on April 30, 1996, a three-judge panel of that Court ruled
that mandamus was not the proper vehicle for challenging the Commission's
decision. The Court of Appeals ruled that CQC may obtain judicial review only
after an administrative proceeding. The Court of Appeals also ruled that the
Missouri statutes did not prohibit the Commission from denying a license without
conducting an investigation, and that the claim that the Commission broke its
promise not to deny a license without first investigating should be raised in a
breach of contract action, not a mandamus petition. The Court of Appeals did not
address the merits; that is, it did not decide whether the Commission acted
arbitrarily or whether its decision was justified or a breach of its promises.
While CQC has asked the Missouri Supreme Court to review the Circuit Court's
decision, its ruling had immediate consequences for two reasons. First, a
Missouri Circuit Court in a separate action (discussed below) voided the
Commission's decision for the independent reason that it was made in violation
of Missouri's open meeting law. Second, after the decision in the open meeting
law case, CQC notified the Commission that it was withdrawing its application.
On November 1, 1994, concurrent with its efforts to obtain judicial
relief, CQC (with BGI as a co-party) requested an administrative hearing
pursuant to the Missouri gaming statutes, under which a denied applicant may
request an evidentiary hearing before a Commission appointed hearing officer.
The hearing officer's decision is subject to review by the Commission, and the
Commission's decision is in turn subject to judicial review. The Commission
filed an answer on November 29, alleging, among other things, that CQC is not
entitled to an administrative hearing because CQC had not been investigated. On
December 22, because the Commission had not appointed a hearing officer or
otherwise responded to CQC's request for a hearing, CQC moved the Commission to
appoint a hearing officer and establish a procedural schedule. The Commission
did not respond to this motion. However, in March 1995, CQC's counsel was
notified by a member of the Commission's staff that he had been appointed
hearing officer in the case. Because this person appears to have participated in
the staff's recommendation that CQC's license be denied, CQC moved on March 31
for the appointment of an impartial, independent hearing officer. The
Commission's attorney filed a response in opposition to this motion on April 12,
but the Commission has not responded to it. Instead, on August 10, 1995, the
hearing officer issued an order proclaiming his ability to proceed impartially
and purporting to deny the motion. On April 30, 1996, the hearing officer
reversed himself, recused himself, and asked the Commission to appoint another
hearing officer. To date, the Commission has not acted on this request. Hearing
dates have been vacated by stipulation, and, after the Circuit Court's orders
voiding the Commission's decision appeared to make the administrative proceeding
premature, the hearing was postponed indefinitely. The withdrawal of CQC's
application has since rendered the administrative hearing moot.
On March 23, 1995, the Missouri Attorney General filed misdemeanor charges
against CQC and Bruce Becker alleging they knowingly made false statements on
CQC's gaming license application. CQC and Mr. Becker vehemently denied the
charges and launched a vigorous defense. On July 25, 1995, the Circuit Court for
St. Louis County, Missouri, dismissed the charges, ruling that they did not
state an offense, that the Attorney General lacked authority to bring them, and
that they were filed after the statute of limitations had expired. On July 28,
1995, the Attorney General filed an appeal in the Missouri Court of Appeals for
the Eastern District. CQC's and Bruce Becker's motions to dismiss the appeals as
untimely filed were summarily denied on August 14, 1995. On April 16, 1996, in a
2-1 decision, a panel of the Missouri Court of Appeals reversed the Circuit
Court's dismissal. The Missouri Supreme Court has exercised its discretion to
review the case. The case has been briefed and the court is expected to schedule
arguments in the next few months. These charges are not expected to have a
material adverse effect on BGI or CQC.
On March 24, 1995, CQC filed an action against the Commission in the Cole
County, Missouri, Circuit Court, alleging that the Commission had violated
Missouri's open meeting law by deliberating in a closed session before issuing
its decision denying CQC's license. The petition requested an order voiding the
Commission's decision. On March 27, 1995, as a protective measure against
possible arguments that Cole County is not the proper venue, CQC filed a
substantively identical action in the St. Louis County Circuit Court. In April,
the Commission filed answers to both complaints denying that it had violated the
open meeting law. On June 1, 1995, CQC moved for summary judgment in the Cole
County case. In its response, the Commission stated that it "did not
deliberately intend to circumvent" the open meeting law but had deliberated in
closed session based on erroneous advice of counsel. The Commission argued that
the closed session could nevertheless be justified under statutory exceptions
allowing agencies to meet privately with their lawyers to discuss confidential
information and litigation. The Circuit Court heard the motion for summary
judgment on December 19, 1995. In an order issued on April 23, 1996, the Circuit
Court rejected the Commission's arguments and granted CQC's motion, ruling that
the Commission had violated the open meeting law and declaring the Commission's
order to be void. The Commission did not appeal the decision, and the time for
doing so has expired. Therefore, the decision declaring the Commission's order
to be void is final. As a result, notwithstanding the other related actions
discussed above, there no longer exists any denial of licenses by the
Commission.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
There is no established public trading market for the Company's Common
Stock. There are five holders of the Common Stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management." The Company has not
declared or paid any cash dividends on its Common Stock and does not anticipate
the payment of cash dividends in the foreseeable future. The Company's ability
to pay cash dividends in the future will depend on the receipt of management
fees from its subsidiaries, the payment of which by AC and CQC is restricted by
the AC Indenture and CQC Indenture, respectively.
Item 6. Selected Financial Data
Becker Gaming, Inc. and Subsidiaries Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Income Statement Data:
Operating revenues ............................ $ 76,037 $ 69,079
Operating income .............................. 4,742 4,467
Income (loss) before extraordinary item ....... (11,227) (7,640)
Extraordinary item-loss on early retirement
of debt (8) ................................. -- --
Net income (loss) ............................. (11,227) (11,729)
Income (loss) per share before extraordinary
item ........................................ (1.12) (0.76)
Extraordinary item-loss on early retirement
of debt (8) ................................. -- (0.41)
Net income (loss) per share (1)(2)............. (1.12) (1.17)
Pro forma data (reflecting change in tax status
of subsidiaries) (7)
Net income (loss) ........................... -- --
Net income (loss) per share of common
stock ..................................... -- --
Other Data:
Interest expense, net of amounts capitalized ... $ 10,584 $ 12,022
Capital expenditures ........................... 544 27,382
Distributions to stockholders (3) .............. -- --
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income Statement Data:
Operating revenues ........................... $ 57,085 $ 55,776 $ 51,670
Operating income ............................. 6,334 7,745 5,898
Income (loss) before extraordinary item ...... (1,566) 6,152 3,978
Extraordinary item- loss on early retirement
of debt (8) ................................ (4,089) -- --
Net income (loss) ............................ (1,566) 6,152 3,978
Income (loss) per share before extraordinary
item ....................................... (0.17) 0.65 0.42
Extraordinary item- loss on early retirement
of debt (8) ................................ -- -- --
Net income (loss) per share (1)(2)............ (0.17) 0.65 0.42
Pro forma data (reflecting change in tax
status of subsidiaries) (7)
Net income (loss) .......................... (803) 4,030 2,625
Net income (loss) per share of common
stock .................................... (0.08) 0.43 0.28
Other Data:
Interest expense, net of amounts capitalized . $ 8,530 $ 1,621 $ 2,150
Capital expenditures ......................... 22,945 1,437 1,735
Distributions to stockholders (3) ............ 9,533 3,220 2,960
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Balance Sheet Data:
Unrestricted cash and cash equivalents $ 6,745 $ 6,657
Cash in escrow account restricted for
construction ..................... 40 40
Total assets ......................... 75,477 84,786
Long-term obligations (4)
Long-term debt (5)(6) ............ 9,330 64,593
Capitalized lease obligations (9) 197 2,001
Stockholders' equity (deficit) ....... (17,997) (6,770)
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance Sheet Data:
Unrestricted cash and cash equivalents $ 6,455 $ 4,747 $ 3,902
Cash in escrow account restricted for
construction ..................... 51,041 -- --
Total assets ......................... 116,860 32,893 32,709
Long-term obligations (4)
Long-term debt (5)(6) ............ 64,251 1,496 18,695
Capitalized lease obligations (9) 3,174 899 1,292
Stockholders' equity (deficit) ....... 4,959 9,574 6,642
</TABLE>
- ----------
(1) The number of shares used in the computation of earnings (loss) per share
of common stock for the year ended June 30, 1996 and 1995 was 10,000,000
and 9,509,956 for the year ended June 30, 1994. Such amount does not
include 2,500,000 shares issuable upon exercise of the Warrants since the
inclusion of such shares would be anti-dilutive (decrease the loss per
share).
(2) The number of shares used in the computation of earnings (loss) per share
of common stock for each of the two years in the period ended June 30, 1993
was 9,466,071.
(3) Because AC, SC and BGG elected to be treated as S corporations prior to
January 1, 1994, a substantial portion of their net income in past years
was distributed to their stockholders. In December 1993, AC, SC and BGG
distributed $5,000, $3,000 and $800, respectively, of previously taxed
retained earnings to their stockholders. These amounts were loaned back to
AC, SC and BGG in exchange for stockholder notes. Effective January 1, 1994
AC, SC and BGG terminated their S corporation elections. The ability of AC
and SC to pay dividends is restricted under the AC Indenture.
(4) Excludes current maturities.
(5) At June 30, 1993, approximately $16,900 of bank debt of AC was classified
as current, as it was due and payable. Such amount was paid off from a
portion of the proceeds from the sale of the AC Notes in November, 1993.
(6) At June 30, 1995 and 1994, long-term debt includes the $55,000 of AC Notes
and $8,000 of subordinated stockholder notes. At June 30, 1996, 1995 and
1994, $17,526, $17,118 and $33,164, respectively of CQC Notes (net of
unamortized original issue discount of $2,474, $2,882 and $6,836,
respectively) was classified as current due to anticipated default. At June
30, 1996, $55,000 of the AC Notes was classified as current due to certain
technical defaults of the AC Indenture. See Notes 2 and 9 of Notes to
Consolidated Financial Statements.
(7) Pro forma net income and pro forma net income per share of common stock
reflect adjustments to income taxes assuming that the termination of S
corporation elections of the Company's subsidiaries (AC, SC and BGG)
occurred as of the beginning of the earliest period presented. The pro
forma adjustments reflect income taxes at an effective rate of 34 percent
through December 31, 1992 and a 35 percent effective rate beginning on
January 1, 1993. The pro forma net loss for the year ended June 30, 1994
assumes the utilization of a carryback operating loss to prior years, and
the ability to offset taxable losses of certain subsidiaries against
taxable income of others in the consolidated group.
(8) During 1995, CQC retired $20,000,000 principal amount of the CQC Notes at
101% of such principal amount plus accrued and unpaid interest. CQC
incurred an extraordinary loss of approximately $4,089,000, 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. No tax benefit was available or recognized.
(9) At June 30, 1996 approximately $1,900 of capitalized lease obligations were
classified as current and the related obligations were paid off in July
1996 with proceeds from the sale of the related assets. See Note 15 of
Notes to Consolidated Financial Statements.
Arizona Charlie's, Inc. Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income Statement Data:
Operating revenues .................... $ 63,301 $ 57,082 $ 46,447
Operating income ...................... 2,199 1,058 5,105
Net income (loss) ..................... (4,559) (4,936) 1,134
Net income (loss) per share (1) ....... (4,559) (4,936) 1,134
Other Data:
Interest expense, net of amounts
capitalized .......................... 7,095 6,574 4,763
Capital expenditures .................. 190 24,253 11,379
Distributions to stockholders (2) ..... -- -- 5,317
Balance Sheet Data:
Unrestricted cash and cash
equivalents .......................... $ 4,591 $ 5,404 $ 4,014
Cash in escrow account restricted
for construction ..................... 10 10 3,613
Total assets .......................... 62,357 65,273 67,915
Long-term obligations (3)
Long-term debt (4) (5) ............ 5,000 60,000 60,000
Capitalized lease obligation ...... 22 4 1
Stockholder's equity (deficit) ........ (9,501) (4,942) (6)
</TABLE>
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Income Statement Data:
Operating revenues ............................... $45,880 $42,278
Operating income ................................. 6,032 4,262
Net income (loss) ................................ 4,585 2,551
Net income (loss) per share (1) .................. 4,585 2,551
Other Data:
Interest expense, net of amounts
capitalized ..................................... 1,440 1,877
Capital expenditures ............................. 1,067 924
Distributions to stockholders (2) ................ 2,140 2,400
Balance Sheet Data:
Unrestricted cash and cash equivalents ........... $ 3,528 $ 3,225
Cash in escrow account restricted for
construction .................................... -- --
Total assets ..................................... 27,184 26,896
Long-term obligations (3)
Long-term debt (4) (5) .......................... -- 16,976
Capitalized lease obligation .................... 778 1,089
Stockholder's equity (deficit) ................... 5,953 3,508
</TABLE>
- ----------
(1) The number of shares used in the computation of earnings (loss) per share
of common stock was 1,000 for each of the five years in the period ended
June 30, 1996. A total of 2,500 shares of common stock are authorized at
no par value, 1,000 shares of which are issued and outstanding.
(2) Because AC elected to be treated as an S corporation for the most of 1994,
and all of fiscal 1993 and 1992, a substantial portion of its income in
past years was distributed to its stockholders. In December 1993, AC
distributed $5,000 of previously taxed retained earnings to its
stockholders. This amount was loaned back to AC in exchange for
stockholder notes. Effective January 1, 1994, AC terminated its S
corporation tax status. The ability of AC to pay dividends is restricted
by the Indenture governing its 12% First Mortgage Notes due November 15,
2000 of (the "AC Notes"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations_Arizona Charlie's,
Inc._General
(3) Includes subordinated notes to stockholders, non-current obligations under
capital leases, and excludes current maturities. At June 30, 1993,
approximately $16,900 of bank debt was classified as current, as it was
due and payable. See Management's Discussion and Analysis of Financial
Condition and Results of Operations_Arizona Charlie's, Inc._General and
"Notes to Financial Statements__Arizona Charlie's, Inc._ Long Term Debt."
(4) At June 30, 1996, $55,000 of AC Notes was classified as current due to
certain technical defaults of the AC Indenture. See Notes 2 and 6 of AC's
Notes to Financial Statements.
(5) At June 30, 1993, approximately $16,900 of bank debt of AC was classified
as current as it was due and payable. Such amount was paid off from a
portion of the proceeds from the sale of the AC Notes in November, 1993.
Sunset Coin, Inc. Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income Statement Data:
Operating revenues ....................... $2,649 $2,742 $2,859
Operating income ......................... 817 1,128 1,333
Net income ............................... 381 688 1,010
Net income per share (1) ................. 952 1,720 2,525
Other Data:
Interest expense, net of amounts
capitalized ............................. 398 352 190
Capital expenditures ..................... 208 1,142 232
Distribution to stockholders (2) ......... -- -- 3,280
Balance Sheet Data:
Unrestricted cash and cash
equivalents ............................. $1,122 $ 506 $1,940
Total assets (3) ......................... 5,891 5,349 3,845
Long-term obligations (4)
Long-term debt (5) ................... 3,502 3,664 3,220
Capitalized lease obligations ........ -- 28 85
Stockholders' equity ..................... 1,458 1,077 38
</TABLE>
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Income Statement Data:
Operating revenues .................................. $2,959 $2,539
Operating income .................................... 1,382 1,234
Net income .......................................... 1,408 1,223
Net income per share (1) ............................ 3,520 3,057
Other Data:
Interest expense, net of amounts capitalized ........ 67 57
Capital expenditures ................................ 297 490
Distribution to stockholders (2) .................... 940 560
Balance Sheet Data:
Unrestricted cash and cash equivalents .............. $ 854 $ 441
Total assets (3) .................................... 3,270 3,134
Long-term obligations (4)
Long-term debt (5) .............................. 364 486
Capitalized lease obligations ................... 205 276
Stockholders' equity ................................ 2,659 2,191
</TABLE>
- ----------
(1) The number of shares used in the computation of earnings (loss) per share
of common stock was 400 for each of the five years in the period ended
June 30, 1996. A total of 25,000 shares of common stocks are authorized at
no par value, 400 shares of which are issued and outstanding.
(2) Because SC elected to be treated as an S corporation during these periods,
a substantial portion of its net income in past years was distributed to
its stockholders. In December, 1993, SC distributed $3,000 of previously
taxed retained earnings to its stockholders. This amount was loaned back
to SC in exchange for stockholder notes. Effective January 1, 1994, SC
terminated its S corporation status. The ability of SC to pay dividends is
restricted under the Indenture governing the AC Notes. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations_Sunset Coin, Inc._General" and "Certain
Relationships and Related Transactions."
(3) Includes $2,250 in notes receivable from AC, resulting from advances made
by SC to AC. Due to the financial condition of AC, management believes it
is reasonably possible that a portion of the notes receivable will be
uncollectible. However, an estimate of the loss cannot presently be
determined. See Note 3 of SC's Notes to Financial Statements.
(4) Excluded current maturities. See "Notes to Financial
Statements_Sunset Coin, Inc._Long-Term Debt."
(5) At June 30, 1996, $279,000 of SC debt was classified as Current Notes
Payable.
Capitol Queen and Casino, Inc. Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income Statement Data:
Operating revenues .............................. $ -- $ --
Operating loss .................................. (4,996) (1,388)
Net loss before extraordinary item .............. (7,785) (5,386)
Extraordinary item-loss early retirement
of debt (1) ................................. -- (4,089)
Net loss ........................................ (7,785) (9,475)
Net loss per share before extraordinary item .... (77,850) (53,860)
Extraordinary item-loss on early
retirement of debt .......................... -- (40,890)
Net loss per share (2) .......................... (77,850) (94,750)
Other Data:
Interest expenses, net of amounts capitalized ... 2,789 4,608
Capital expenditures ............................ -- 1,724
Balances Sheet Data:
Unrestricted cash and cash equivalents .......... $ -- $ 45
Cash in restricted escrow account ............... 30 30
Total assets .................................... 8,449 12,986
Long-term obligations (3) ....................... -- --
Stockholders' equity (deficit) (4) .............. (14,058) (6,273)
</TABLE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Income Statement Data:
Operating revenues .............................. $ -- $ --
Operating loss .................................. (7,094) --
Net loss before extraordinary item .............. (9,530) --
Extraordinary item-loss early retirement
of debt (1) ................................. -- --
Net loss ........................................ (9,530) --
Net loss per share before extraordinary item .... (95,300) --
Extraordinary item-loss on early
retirement of debt .......................... -- --
Net loss per share (2) .......................... (95,300) --
Other Data:
Interest expenses, net of amounts capitalized ... 3,091 --
Capital expenditures ............................ 11,212 --
Balances Sheet Data:
Unrestricted cash and cash equivalents .......... $ 33 $ --
Cash in restricted escrow account ............... 24,929 --
Total assets .................................... 37,412 --
Long-term obligations (3) ....................... -- --
Stockholders' equity (deficit) (4) .............. 3,202 --
</TABLE>
- ----------
(1) During 1995, CQC retired $20,000 principal amount of the CQC notes at 101%
of such principal amount plus accrued and unpaid interest. CQC incurred an
extraordinary loss of approximately $4,089, reflecting the premium paid to
retire the debt of $200 and the write-off of related, unamortized debt
issue costs and original issue discount in the aggregate of $3,889. No tax
benefit was available or recognized.
(2) The number of shares used in the computation of loss per share of common
stock was 100 for each of the four years in the period ended June 30,
1996. Common stock of 1,000 shares were authorized at a $1.00 par value,
but 100 shares were issued and outstanding.
(3) At June 30, 1996, 1995 and 1994, $17,526, $17,118 and $33,164, respectively
of CQC notes (net unamortized original issue discount of $2,474, $2,882 and
$6,836, respectively) was classified as current due to CQC's default of the
Indenture governing the CQC Notes.
(4) The ability of CQC to pay dividends is restricted under the
CQC Indenture.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
BGI serves as a holding company for, and provides management and
administrative services to, the Becker family gaming interests. BGI has not
engaged in any business other than providing such management and administrative
services to its subsidiaries.
BGI is currently receiving payment for management fees from SC and BGG,
and is accruing management fees from AC until such time as such fees may be paid
under the Indenture governing the AC Notes. BGI does not expect to receive
management fee income from CQC as a result of the events in Missouri adversely
affecting CQC's efforts to become licensed to conduct riverboat gaming in that
State. As a result of these developments, CQC has adopted a plan to sell its
assets and business. See "Item 1. Business - Capitol Queen & Casino, Inc." and
"Notes to Financial Statements - Capitol Queen & Casino, Inc."
As a result of the events adversely impacting CQC's ability to complete
and open the Capitol Queen (See "Item 1. Business - Capitol Queen and Casino,
Inc."), significant doubt exists about the ability of CQC to continue as a going
concern. Similar doubt exists with respect to AC and SC as a result of their
guarantees of the CQC Notes and the AC Notes, respectively. AC, SC and CQC
represent the Company's principal subsidiaries, from which it anticipated
receiving management fee income and, accordingly, substantial doubt also exists
about BGI's ability to continue as a going concern. See "Notes to Financial
Statements - Becker Gaming, Inc. - Missouri Gaming License, Default Under
Indebtedness, Management's Plans, and Going Concern.
Arizona Charlie's, Inc.
- -----------------------
General
AC's revenues are derived largely from gaming activities at its Arizona
Charlie's casino-hotel, and, to a lesser extent, from food and beverage,
lodging, entertainment and retail sales. AC generally views its non-casino
operations as complementary to its core casino operations. Accordingly, it
utilizes entertainment primarily as a casino marketing tool. Further, AC
maintains food and beverage pricing structures designed to benefit casino
volumes, often resulting in departmental operating losses, even in periods where
individual restaurants or bars report operating profits. AC seeks to maximize
profits from its hotel operations, however, while maintaining attractive room
rental rates. Gaming revenues represent the net win from gaming wins and losses.
The retail value of accommodations, food and beverage provided to customers
without charge is included in gross revenues and deducted as promotional
allowance. See "Notes to Financial Statements - Arizona Charlie's, Inc. Summary
of Significant Accounting Policies." The estimated costs of providing such
promotional allowances have been classified as gaming expenses through
interdepartmental allocations as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Hotel ......... $ 261 $ 164 $ 119
Food & Beverage 3,824 2,260 2,005
----- ----- -----
$4,085 $2,424 $2,124
====== ====== ======
</TABLE>
On November 18, 1993, AC issued of $55,000,000 in principal amount of 12%
First Mortgage Notes due November 15, 2000 (the "AC Notes"), which resulted in
net proceeds of approximately $51,100,000. A portion of the net proceeds was
used to retire approximately $16,900,000 in bank debt plus accrued interest of
$500,000. The balance of approximately $33,700,000 was initially deposited into
a restricted escrow account and subsequently was used to fund the expansion and
enhancement of Arizona Charlie's (the "Expansion") through the addition of new
casino space, hotel rooms, specialty restaurants and banquet/meeting room
facilities, and the expansion of existing restaurants, entertainment and other
facilities. See "Notes to Financial Statements - Arizona Charlie's, Inc. -
Long-Term Debt." AC commenced construction of the Expansion in January 1994. The
Expansion was completed in February 1995 at an under-budget cost of
approximately $35,632,000.
Concurrent with the private placement of the AC Notes, Capitol Queen &
Casino, Inc. a sister company, issued $40,000,000 in principal amount of 12%
First Mortgage Notes due November 15, 2000, $20,000,000 in principal of which
currently remain outstanding (the "CQC Notes"). The Company has unconditionally
and fully guaranteed the payment of all principal of and interest on the CQC
Notes. CQC currently does not have any means to pay amounts owing on the CQC
Notes. See "Liquidity and Capital Resources. AC, which now operates as a "C"
corporation, was operated as an "S" corporation through December 31, 1993. See
"Notes to Financial Statements - Arizona Charlie's Inc. - Summary of Significant
Accounting Policies - Income Taxes." In anticipation of the termination of S
corporation status, in December 1993, AC distributed to its stockholders an
aggregate of $5,000,000 of retained earnings on which the stockholders had
previously paid federal income taxes. This amount was loaned back to AC in full
in exchange for subordinated stockholder notes in the principal amount of such
distributions, which AC stockholder notes bear interest payable monthly at the
annual rate of 10.0% and mature in January 2001. See "Notes to Financial
Statements - Arizona Charlie's, Inc. - Related Party Transactions."
Results of Operations
Years Ended June 30,
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gaming ........................ $ 52,831 $ 47,466 $ 38,955
Food/beverage ................. 13,204 10,647 8,459
Hotel ......................... 3,208 2,614 1,219
Bowling ....................... -- -- 251
Gift Shop ..................... 590 577 535
Management fees from Affiliates -- -- 281
Other (1) ..................... 1,145 912 399
----- --- ---
Gross revenues ................... 70,978 62,216 50,099
Less, promotional allowances (2) . (7,677) (5,134) (3,652)
------ ------ ------
Net revenues .................. 63,301 57,082 46,447
Total operating expenses ...... 61,102 56,024 41,342
------ ------ ------
Total operating income ........ $ 2,199 $ 1,058 $ 5,105
======== ======== ========
</TABLE>
- ----------
(1) Includes primarily revenues from entertainment cover charges, PBX
operations (hotel switchboard and room telephone system) and commissions on
automated teller machines located in the casino.
(2) Amounts represent the retail value of rooms, food, beverage and other
promotional allowances provided to customers without charge.
Comparison of fiscal years ended June 30, 1996, 1995 and 1994. Despite
increased revenues for fiscal 1996 and fiscal 1995, results from operations for
both periods were lower than the prior year as the result of increased operating
expenses, primarily due to additional slot promotion expenses, payments under
its guarantee of the CQC Notes, management fees, and the addition of staff
personnel, equipment and related operating expenses transferred to AC from BGI.
The increased revenues for fiscal 1996 reflect a full year of operations with
expanded casino-hotel facilities, while the increased revenues for fiscal 1995
reflect a partial year of operations with the expanded facilities. The Expansion
added new gaming machines and table games, an expanded race and sports book, a
new hotel tower, a remodeled coffee shop, two new specialty restaurants and a
new delicatessen, an expanded buffet room, a remodeled floor-level entertainment
lounge and new second-floor showroom/banquet facility.
AC's net revenues increased to $63,301,000 for fiscal 1996, from
$57,082,000 for fiscal 1995 and $46,447,000 for fiscal 1994. Operating expenses,
including depreciation and amortization, increased to $61,102,000 for fiscal
1996, from $56,024,000 and $41,342,000 for the two preceding fiscal years. As a
result, operating income for fiscal 1996 was $2,199,000, with a corresponding
net operating margin of 3.5%. Operating income for fiscal 1995 and fiscal 1994
was $1,058,000 and $5,105,000, respectively, resulting in operating margins for
such years of 1.9% and 11.0%. The increase in operating expenses and resulting
decline in operating margin for fiscal 1996 resulted principally from increased
gaming department expense, amounting to $3,253,000, costs attributable to CQC in
the amount of $601,000, and the addition of staff personnel, equipment and
related operating expenses transferred to AC. The increase in operating expenses
and resulting decline in operating margin for fiscal 1995 resulted principally
from costs attributable to the CQC Notes guarantee ($1,592,000 including the
write-off of advances which were used by CQC to pay interest on the CQC Notes),
and increased salaries and wages reflecting higher department staffing
requirements, increased advertising and promotional cost and the additional
expense of a management fee payable to BGI. Other increased expenses for fiscal
1995 include additional depreciation and amortization expense resulting from the
addition of the new assets created in the Expansion.
For fiscal 1996, AC had total gaming revenues of $52,831,000, as compared
to $47,466,000 and $38,955,000 for fiscal 1995 and 1994, respectively. The
increases (11.3% and 21.8% for fiscal 1996 and 1995, respectively) are primarily
attributable to increases in gaming machine revenues of 11.1% and 21.0% for such
years to $44,612,000 and $40,140,000 from $33,173,000 for fiscal 1994. The
increase for fiscal 1996 is primarily the result of increased levels of play by
patrons in response to additional slot promotional events. The increase for
fiscal 1995 reflects the additional revenue generated from 665 gaming machines
added during that year. Revenues from table games were $4,872,000, $4,829,000
and $4,070,000 for fiscal 1996, 1995 and 1994, respectively. The table games
revenue increase for fiscal 1995 reflect an increase of five table games in that
year. Other gaming revenues, consisting of revenues from bingo, poker and the
race and sports book, increased by 34.0% and 45.8% for fiscal 1996 and 1995
respectively, to $3,346,000 for fiscal 1996 and $2,497,000 for fiscal 1995 from
$1,713,000 for fiscal 1994. The increases were largely a result of the added
pari-mutual race facilities and increased sports book revenues from the expanded
race and sports book facility. For fiscal 1996, 1995 and 1994, 84.4%, 84.6% and
85.2%, respectively, of gaming revenues were attributable to gaming machine
play, compared to 9.2%, 10.2% and 10.4%, respectively, attributable to table
games and 6.3%, 5.2% and 4.4%, respectively, attributable to other gaming
revenues.
Food and beverage revenues increased 24.0% to $13,204,000 for fiscal 1996,
after increasing 25.9% to $10,647,000 for fiscal 1995 from $8,459,000 for fiscal
1994. The fiscal 1996 increase is due to increased complimentary sales in the
food and beverage department. Such sales are included in revenues at retail
value and are then deducted as a promotional allowance. Increased complimentary
sales in food and beverage departments are the result of casino promotion and
marketing efforts designed to attract, reward and retain qualified patrons. The
fiscal 1995 increase resulted from the addition of two specialty restaurants, a
delicatessen and a remodeled coffee shop during the second and third quarters of
fiscal 1995
Hotel revenues increased to $3,208,000 for fiscal 1996, from $2,614,000 and
$1,219,000 for fiscal 1995 and 1994, respectively. The 22.7% increase for fiscal
1996 is the result of an increase in average occupancy rate from 84.3% to 86.9%
and an increase in the average room rate from $37.27 to $39.81. The 114.4%
increase for fiscal 1995 is attributable to the opening of 150 new rooms
(including eight suites) in the new hotel tower in September 1994.
With the elimination of the bowling alley in December 1993, AC had no
bowling revenues for fiscal years 1996 and 1995, compared to $251,000 for fiscal
1994. Gift shop revenues increased 2.3% to $590,000 in fiscal 1996 and 7.9% to
$577,000 in fiscal 1995 due primarily to the remodeling and expansion of the
gift shop area, which was reopened in January 1995. Also, other revenues
increased $233,000 or 25.6% during fiscal 1996 and $513,000 or 128.6% during
fiscal 1995 as a result of increases in entertainment cover charge revenues
attributable to the addition of a new showroom facility that opened in December
1994.
Gaming expenses increased by 21.2% to $18,612,000 for fiscal 1996. The
increased expense includes higher slot promotional expense of $638,000; higher
gaming tax and license fees of $406,000; increased salary and wages of $468,000
and the additional expense of a newly created casino marketing department
totaling $479,000. Gaming expenses increased by 31.5% to $15,359,000 for fiscal
1995 from $11,681,000 for fiscal 1994. The higher levels of expense reflect
additional staffing associated with the expansion of gaming facilities. Gaming
expenses represented 35.2%, 32.4% and 30.0% of gaming revenues for fiscal 1996,
1995 and 1994, respectively. Management anticipates that these costs will
stabilize as a percentage of revenue in fiscal 1997 as the expanded facilities
are expected to generate higher customer volumes and efficiencies from the
Expansion are expected to be realized.
Food and beverage expenses increased 9.9% to $12,511,000 for fiscal 1996
from $11,388,000 for fiscal 1995 due to salary and wage increases associated
with increasing the hours of operation at one specialty restaurant and normal
salary and wage increases for food and beverage employees which comprise
approximately 33.0% of AC's total work force. Food and beverage expenses
increased 35.7% to $11,388,000 for fiscal 1995 from $8,389,000 for fiscal 1994
due primarily to the additional staffing requirements for the newly remodeled
coffee shop, new specialty restaurants, new delicatessen, and expanded buffet
room.
Hotel expenses increased 2.6% to $1,413,000 for fiscal 1996 from
$1,377,000 for fiscal 1995 as a result of normal salary and wage increases.
Hotel expenses increased to $1,377,000 for fiscal 1995 from $714,000 for fiscal
1994 due primarily to additional staffing required by the new hotel tower.
However, net contribution by the hotel department (hotel revenues less hotel
operating expenses) improved to $1,795,000 for fiscal 1996 from $1,237,000 for
fiscal 1995 and $505,000 for fiscal 1994.
Other departmental expenses increased by 5.6% to $475,000 for fiscal 1996
from $450,000 for fiscal 1995 due to increased costs of inventory items in the
gift shop, combined with normal salary and wage increases. Other departmental
expenses decreased by 46.7% to $450,000 for fiscal 1995 from $845,000 for fiscal
1994 due primarily to the scale-down and termination of bowling operations.
General and administrative expenses increased by 15.0% to $17,660,000 for
fiscal 1996 from $15,358,000 for fiscal 1995. The increases resulted from
additional staffing in the accounting, payroll, personnel and technical services
departments and the transfer of executive personnel (and related departmental
costs) in March 1995 to the Company from BGI. Other expenses transferred from
BGI to the Company include maintenance and other operating expenses associated
with an airplane and two boats. The airplane was sold in July 1996. Other
general and administrative expenses included payments made on behalf of CQC in
the amount of $601,000 for fiscal 1996 compared to $1,592,000 for fiscal 1995.
The Company accrued management fees payable to BGI of $1,396,000, $3,099,000 and
$188,000 for fiscal 1996, 1995 and 1994, respectively. Due to a decision to
suspend development of CQC's riverboat casino project and sell its assets, the
majority of BGI's management and administrative services are anticipated to
benefit the Company in the future. Accordingly, in late March 1995, BGI
transferred approximately 40 employees involved in accounting and administrative
functions from BGI to AC. In connection with this transfer, in October 1995, the
Company temporarily reduced the amount of the Company's management fee to 1.0%
of the Company's gross revenues (previously 5.0% of gross revenues) based on the
reduction in services it will receive from BGI in the future. See Note 9 of the
Company's Notes to Financial Statements.
General and administrative expenses increased by 10.7% to $15,358,000 for
fiscal 1995 from $13,867,000 for fiscal 1994 due to additional staffing in the
cage, security, data processing, entertainment, porter, engineering, accounting
and transportation departments. Personnel in these departments were added to
support the expanded facility. As a percentage of net revenues, general and
administrative expenses were 27.9%, 26.9% and 29.9% for fiscal 1996, 1995 and
1994 respectively.
Advertising and promotion expenses were $4,726,000 for fiscal 1996, as
compared to $3,837,000 for fiscal 1995. The increase of $889,000, or 23.1% is
due to additional television advertising of $466,000, new casino related
promotions of $166,000, and salary and wage increases of $116,000. The
additional advertising and promotions were conducted in an effort to increase
casino patronage and compete with other "locals" casinos opened in western Las
Vegas in fiscal 1995, including Texas Station and Santa Fe Casino. Advertising
and promotion expenses were $3,837,000 for fiscal 1995, as compared to
$3,093,000 for fiscal 1994. The increase of $744,000, or 24.1%, reflects
increased newspaper and television advertising undertaken to gain market
recognition for the newly expanded facility. Management anticipates that it will
maintain advertising expenditures at the 1996 level in order to continue
attracting customers and to promote the entertainment events in its expanded
facilities.
Depreciation and amortization expense increased by 3.5% to $3,491,000 for
fiscal 1996 from $3,373,000 for fiscal 1995. This increase is attributable to
additional depreciation expense associated with the newer expansion assets.
Depreciation and amortization expense increased by 51.8% to $3,373,000 for
fiscal 1995 from $2,222,000 for fiscal 1994. The increase is due primarily to
additional depreciation expenses associated with the new expansion assets placed
in service.
AC had other expenses (net of other income) of $6,758,000 for fiscal 1996
compared to $5,994,000 and $3,971,000 for fiscal years 1995 and 1994. The fiscal
1996 increase of $764,000 is due to a reduction of capitalized interest in the
amount of $676,000 and a decrease of interest income of $294,000 partially
offset by a decrease of interest expense in the amount of $155,000 and a
decrease in other income of $51,000. For fiscal 1995, the increased expense of
$2,023,000 is attributable to an increase in interest expense from $5,223,000 to
$7,250,000, due primarily to the AC Notes, which were outstanding for all of the
fiscal 1995 but less than eight months for fiscal 1994.
Income Taxes
As a result of the termination of its election to be treated as an S
corporation, AC is liable (as part of the BGI consolidated group) for income
taxes on income earned from and after January 1, 1994. Prior to such
termination, AC did not incur or pay income taxes but distributed cash to its
stockholders in amounts sufficient to pay their income tax liability in respect
to income of AC. See "Notes to Financial Statements - Arizona Charlie's, Inc.
Summary of Significant Accounting Policies - Income Taxes; - Related Party
Transactions." Since terminating its S corporation status, AC generated a net
operating loss for income tax purposes of approximately $9,174,000. Due to low
operating margins and high interest cost and depreciation costs, management does
not anticipate that AC will generate taxable income in the foreseeable future.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
As of or for the years ended June 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents ........... $ 4,591 $ 5,404 $ 4,014
Working capital (deficit) (1) ....... (58,530) 2,920 2,511
Cash provided by operating activities 1,639 2,772 5,876
Cash used for investing activities .. (2,240) (3,401) (37,180)
Cash provided by (used for)
financing activities .............. (212) 2,019 31,790
</TABLE>
- ----------
(1) At June 30, 1996, the AC Notes are reflected as a current liability in the
amount of $55,000 due to default under Covenants.
For fiscal 1996, cash provided by operating activities decreased to
$1,639,000 from $2,772,000 for fiscal 1995. The decrease is attributable to a
reduction in operating income, prior to consideration of management fees and
other non-cash items, and changes in operating assets and operating liabilities.
For fiscal, 1995, cash provided by operating activities decreased to $2,772,000
from $5,876,000 for fiscal 1994. The decrease is attributable to a decrease in
net income of $6,070,000 for fiscal 1995 which was partially offset by (i) an
increase in operating assets of $926,000 for fiscal 1995 compared to a decrease
in operating assets of $874,000 for fiscal 1994, reflecting primarily increases
in pre-paid gaming taxes and other receivables for fiscal 1995, (ii) a net
increase in operating liabilities of $3,671,000 for fiscal 1995 compared to an
increase of $1,669,000 for fiscal 1994, due to the accrual of management fees
payable to BGI and interest on the AC Notes, and (iii) an increase in
depreciation and amortization expense of $1,151,000 for fiscal 1995.
Cash flows used in investing activities for fiscal 1996 were $2,240,000
compared to $3,401,000 for fiscal 1995. The decrease is due to (i) a reduction
in cash advances to BGI resulting in decreased receivables from BGI of
$4,154,000, (ii) a reduction in notes issued to CQC of $1,200,000, and (iii) a
reduction in capital expenditures of $24,063,000 (reflecting the completion of
the majority of the construction of the expanded facility in fiscal 1995),
partially offset by a $26,102,000 net reduction in restricted cash which was
utilized for the expansion in fiscal 1995). Cash flows from investing and
financing activities for fiscal 1995 were significantly impacted by the November
1993 issuance of the AC Notes. In fiscal 1994, approximately $26,112,000 in
proceeds remained in a restricted escrow account to fund Expansion construction.
Pending such use, amounts held in the restricted escrow account were invested in
interest bearing securities. See "Notes to Financial Statements - Arizona
Charlie's, Inc. - Long-Term Debt." In fiscal 1995, cash flows used in investing
activities for fiscal 1995 includes $24,253,000 of capital expenditures,
virtually all of which relates to the Expansion.
Cash flows provided by financing activities for fiscal 1996 decreased to
($212,000) from $2,019,000 for fiscal 1995. The decrease is due to a reduction
of proceeds from borrowing, marginally offset by an decrease in principal
payments on notes and an increase in payments under capital lease obligations.
Financing activities for fiscal 1995 reflect proceeds from loans from related
parties in the amount of $2,250,000, and principal payments of notes.
AC is currently in technical default under the Indenture governing the AC
Notes because it 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 the Company in excess of the amounts permitted to be so advanced under the
Indenture. As a result of such defaults, the holders of 25% or more in principal
amount of the Notes may cause the AC Notes to be accelerated, in which event
they would become immediately due and payable in full. AC does not have and is
not expected to have the resources to pay the AC Notes if they are accelerated.
The AC Notes are reflected as a current liability at June 30, 1995 as a
result of the above defaults. AC's long-term obligations, approximately
$5,022,000 at June 30, 1996, 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 and the stockholder notes, respectively.
In addition, AC is expected to have annual capital expenditure requirements of
approximately $600,000.
In addition, AC has a substantial contingent obligation resulting from its
guarantee of the CQC Notes, an aggregate of $20,000,000 in principal amount of
which remain outstanding. 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 will be
obligated under its guarantee of the CQC Notes to fund the shortfall.
Moreover, because it has not yet effected the sale of its assets, CQC is
in default of the Indenture governing the CQC Notes. As a result, the holders of
25% or more in principal amount of the CQC Notes may cause the CQC Notes to be
accelerated, in which event they would become immediately due and payable in
full. If the CQC Notes were to be accelerated, CQC would not be able to pay the
outstanding CQC Notes without an infusion of capital, which is not expected to
be available. AC would then be obligated under its guarantee to pay the CQC
Notes but is not expected to have the resources to satisfy such obligation
should it materialize. A default by AC under its guarantee would also give the
holders of 25% or more in principal amount of the AC Notes the ability to
accelerate the AC Notes. If the AC Notes and the CQC Notes are accelerated,
substantial doubt exists about AC's ability to continue as a going concern. See
"Notes to Financial Statements - Arizona Charlie's, Inc. - CQC Gaming License,
Default Under Indebtedness Management's Plans, and Going Concern".
AC's management believes that, assuming the AC Notes and CQC Notes are not
accelerated, it has sufficient funds to meet its projected needs for financing
of existing operations and to service its debt obligations. However, AC's
ability to obtain capital, should it be required, is significantly restricted
under the Indentures governing the AC Notes and the CQC Notes. The ability of AC
to service its debt obligations (and to comply with the consolidated tangible
net worth covenant) will be dependent upon its future performance, which
performance will be influenced by prevailing economic conditions and financial,
business and competitive factors, many of which are beyond AC's control.
Competitive Environment
Various forms of casino-style gaming have been legalized in numerous new
jurisdictions within the past few years, including casino riverboats,
limited-stakes frontier town gambling, full-scale casinos on Indian
reservations, card rooms and video lottery terminals, which resemble AC's gaming
machines. In addition, several major casino-hotels were completed and opened in
Las Vegas in the past year, continuing the transformation of Las Vegas into an
entertainment destination offering much more than gaming. Management expects the
legalization of gaming to continue to spread and that Las Vegas will continue to
experience at least limited expansion. See "Item 1. Business - Market and
Competition."
To date, casino revenues at Arizona Charlie's (and for Las Vegas
generally) have continued to grow despite the spread of legalized gaming.
Moreover, management believes that AC has and will continue to benefit from the
expansion of the Las Vegas market, which has resulted in continued growth in the
residential population, from which AC generates the majority of its revenues.
There can be no assurance, however, that the spread of legalized gaming, or the
construction of new casino-hotels in Las Vegas, will not have an adverse impact
on future revenues.
Inflation
AC believes that its results of operations are not dependent upon, or
materially affected by, the rate of inflation.
Sunset Coin, Inc.
- -----------------
General
SC derives its revenues and profits largely from its gaming machine route
pursuant to participation contracts and, to a lesser extent, space leases. See
"Notes to Financial Statements Sunset Coin, Inc. - Summary of Significant
Accounting Policies Revenue." Under its participation contracts, SC pays a
percentage of the net win (amounts wagered less winnings paid) from its gaming
machines to the site owner. The balance is retained by SC. Under its space
leases, SC pays the site owner a fixed space rental fee and retains all of the
net win. SC's gaming revenues under participation contracts represent SC's share
of the net win after payments to the location, and under space leases represent
all revenues before lease payments, which are treated as expenses. A majority of
SC's gaming machines are installed at locations controlled by the Becker family
and the contracts with such locations are expected to be renewed as a matter of
general course. See "Item 1. Business - Sunset Coin, Inc."
In addition to the operation of its gaming machine route, SC
services gaming machines owned by other operators for fixed
service fees. Included among its service agreement are contracts
with each of the five BGG restaurants, which are expected to be
renewed in general course, and two additional locations owned by
unrelated parties. See "Item 1. Business - Sunset Coin, Inc." and
"Notes to Financial Statements - Sunset Coin, Inc. - Related
Party Transactions."
SC has unconditionally and fully guaranteed the payment of the principal
of and interest on the AC Notes, until such time as AC obtains a specified fixed
charge coverage ratio. AC does not anticipate that it will obtain such fixed
charge coverage ratio in the foreseeable future. As in the case of AC, SC
operated as an S corporation through December 31, 1993. In connection with the
termination of S corporation status, SC distributed $3,000,000 of previously
taxed retained earnings to its stockholders. This amount was loaned back to SC
in full in exchange for stockholder notes bearing interest at the annual rate of
10.0% and maturing in January 2001. The payment of the SC stockholder notes is
subordinated to any payments required to be made by SC under its guarantee of
the AC Notes.
<TABLE>
<CAPTION>
Results of Operations
Years ended June 30,
(dollar in thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gaming machine route:
Participation contracts ................. $2,294 $2,535 $2,496
Spaces leases ........................... 229 75 212
--- -- ---
Total gaming machine revenues .............. 2,523 2,610 2,708
Gaming machine services fees ............... 126 132 151
--- --- ---
Total revenues ............................. $2,649 $2,742 $2,859
====== ====== ======
Operating income:
Gaming machine route:
Participation contracts ................. $ 713 $1,043 $1,164
Spaces leases ........................... 71 30 99
-- -- --
Total gaming machine route expenses ........ 784 1,073 1,263
Gaming machine services fees ............... 33 55 70
-- -- --
Total operating income ..................... $ 817 $1,128 $1,333
====== ====== ======
</TABLE>
During fiscal 1996, two participation locations were added, and one
participation contract was converted to a more favorable space lease contract. A
new BGG bar, Charlie's Down Under was opened in April 1995 and paid service fees
to SC for all of fiscal 1996. However, in April 1996, another BGG bar, Charlie's
Saloon, was closed resulting in the loss by SC of a participation service
agreement.
Comparison of Fiscal Years Ended June 30, 1996, 1995 and 1994. SC's
results of operations declined for fiscal 1996 compared to fiscal 1995. The
decrease in operating income was substantially a result of the increased payroll
and related costs needed to increase security measures for the protection of
slot technicians and cash on hand in response to a recent increase in related
crime activity in the Las Vegas area.
While revenues decreased by 3.4% to $2,649,000 for fiscal 1996 from
$2,742,000 for fiscal 1995, operating expenses, including depreciation and
amortization, increased by 13.5% to $1,832,000 for fiscal 1996 from $1,614,000
for fiscal 1995. This resulted in an overall decrease in operating income of
27.6% to $817,000 from $1,128,000, and a decline in net operating margin to
30.8% for fiscal 1996 from 41.1% for fiscal 1995. A smaller decrease in net
operating margin was experienced for fiscal 1995 to 41.1% from 46.6% for fiscal
1994, during which period revenues decreased by 4.1% and operating income
decreased by 15.4%.
The decrease in revenues for fiscal 1996 is due to a decrease in gaming
machine route revenues of 3.3% to $2,523,000 for fiscal 1996 from $2,610,000 for
fiscal 1995. Such revenues also decreased 3.6% for fiscal 1995 from $2,708,000
for fiscal 1994. Gaming machine service fee revenue decreased 4.6% for fiscal
1996 to $126,000 from $132,000 for fiscal 1995, following a 12.6% decrease for
fiscal 1995 from $151,000 for fiscal 1994. The decrease in gaming machine route
revenues reflects the net loss of 26 slot machines within the gaming machine
route between June 30, 1995 and June 30, 1996, most of which includes 15
machines operated at the former Charlie's Saloon. SC operated 27 route locations
for fiscal 1996 and 26 route locations in fiscal 1995 and 1994, with
approximately 265, 267 and 279 machines included in the route at June 30 of such
fiscal years, respectively. Revenues from the locations controlled by the Becker
family were $2,370,000, $2,331,000 and $2,333,000 for fiscal years 1996, 1995
and 1994, respectively. Fees from BGG accounted for approximately $93,000,
$77,000 and $71,000 of gaming machine service fees for fiscal 1996, 1995 and
1994, respectively. The increase in gaming machine service fees for fiscal 1996
reflects the net effect of the additional contract at Charlie's Down Under
during the full fiscal year of 1996, partially offset by the lost service fee
contract at Charlie's Saloon in April, 1996.
Gaming machine route and service expenses increased by 17.9% to $1,311,000
for fiscal 1996 from $1,112,000 for fiscal 1995. This increase, which consists
primarily of payroll and related taxes and benefits, follows an increase of
13.0% for fiscal 1995 from fiscal 1994 expense of $984,000. As a percentage of
revenues, route and service expenses increased to 49.5% for fiscal 1996 from
40.6% and 34.4% for fiscal 1995 and for fiscal 1994, respectively. General and
administrative expenses decreased 16.5% for fiscal 1996 to $86,000 from $103,000
for fiscal 1995, after a significant decrease of 22.0% from fiscal 1994. The
decrease for fiscal 1996 was the result of reduced expense associated with poker
giveaways, due to conversions of certain traditional video poker machines to
bonus poker machines. Management fees paid by SC to related parties decreased by
8.7% to $137,000 for fiscal 1996 from $150,000 for fiscal 1995 and $102,000 for
fiscal 1994. Effective June 1, 1994, a management fee of 5% of SC's gross
revenue was paid to BGI, as opposed to the lower flat monthly fee paid to AC
prior to that date. Management fees paid to BGI in fiscal 1996 totaled $137,000
compared to $150,000 for fiscal 1995. Depreciation and amortization expense
increased by 19.7% to $298,000 for fiscal 1996 from $249,000 for fiscal 1995,
following a decrease of 19.2% from $308,000 for fiscal 1994. The increase in
depreciation was due to the addition of bonus poker gaming machines placed in
service for fiscal 1996, net of slot machines sold.
SC had other expense (net of other income) of $240,000 for fiscal 1996,
$122,000 for fiscal 1995 and $136,000 for fiscal 1994. The increase in other
expense is the result of a loss due to a write-off of equipment and leasehold
improvements deemed worthless when Charlie's Saloon was abandoned on April 21,
1996.
Income Taxes
As a result of the termination of its election to be treated as an S
corporation, SC became liable for income taxes on income earned from and after
January 1, 1994. Prior to such termination, SC did not incur or pay income taxes
but distributed cash to its stockholders in amounts sufficient to pay their
income tax liability in respect of income of SC. See "Item 13. Certain
Relationships and Related Transactions" and "Notes to Financial Statements
Sunset Coin, Inc. - Summary of Significant Accounting Policies - Income Taxes;
Related Party Transactions." In fiscal 1996, no estimated income tax payments
were paid. In fiscal 1995 and fiscal 1994, SC made estimated income tax payments
of $102,000 and $187,000 for the respective time periods. These payments were
based upon an anticipated effective federal income tax rate approximating the
statutory rate of 34%.
Liquidity and Capital Resources
For fiscal 1996, cash provided by operating activities decreased to
$1,003,000 from $1,139,000 for fiscal 1995 and $1,458,000 for fiscal 1994. The
decrease in fiscal 1996 is attributable to a $307,000 decrease in net income, a
$49,000 increase in depreciation and amortization, offset by the net effect of
decreases in receivables and increases in payables. Cash provided by operating
activities for fiscal 1995 decreased from 1994 by $319,000, attributable to a
$322,000 decrease in net income, a $59,000 decrease in depreciation and
amortization, a $29,000 decrease in provision for losses on notes receivable
recorded during the period as partially offset by an increase in receivables and
payables.
Cash flows used in investing activities were $180,000 for fiscal 1996,
which includes $208,000 in capital expenditures and $72,000 in loans to related
parties including loans to AC that were utilized to pay interest on the AC
Notes. SC's proceeds from the sale of fixed assets and the repayment of a note
receivable were $12,000 and $88,000, respectively.
Cash flows from financing activities for fiscal 1996 were $207,000,
reflecting proceeds from notes payable of $109,000, offset by principal payments
on notes of $316,000.
Apart from its anticipated obligation with respect to the AC Notes, SC's
indebtedness includes the stockholder notes and notes collateralized by its
gaming equipment and other assets. The collateralized notes bear interest at
annual rates of approximately 10.89%, in the case of fixed rate loans, or at
prime plus 1.5% in the case of a collateralized line of credit, the outstanding
aggregate balance of which was converted to a note at July 1, 1994, with monthly
payments through June 1998. SC requested advances through October 28, 1995, at
which time the Company's right to receive advances under the agreement was
terminated. The $1.5 million non-revolving line of credit includes an
acceleration clause which would cause the full amount of the obligation to
become due on demand if a material adverse change occurs in the borrower's
financial condition, business operations or ownership or management.
In July 1994, SC entered into an agreement with a bank for a $1,200,000
non-revolving line of credit. Each advance under the line shall be evidenced by
a separate promissory note with a maturity date not exceeding 66 months from the
date of the respective advance giving rise to the note. During fiscal 1995, SC
drew down an aggregate of $738,000 and in fiscal 1996, an aggregate of $109,000
of the non-revolving line of credit with various monthly payments through April
2001. Advances under the agreement bear interest at the bank's prime rate plus
1.5% to 2.0%. SC's management believes that it has sufficient funds through cash
generated by operations to meet its projected needs for existing operations and
limited expansion of its gaming machine route business. Should SC determine to
expand on more than a limited basis, it is likely that further capital would be
necessary. SC's access to additional capital will be significantly restricted
under the AC Indenture so long as SC is a guarantor of the AC Notes. Such
guarantee will be released upon AC's achievement of a fixed charge coverage
ratio of 2.25 to 1, which is not currently anticipated to occur.
Because AC is in technical default under the Indenture governing the AC
Notes, the AC Notes could be accelerated. See "Arizona Charlie's, Inc._Liquidity
and Capital Resources." In such event, AC is not expected to have the resources
to pay the AC Notes. In addition, AC is expected to have liability under its
guarantee of the CQC Notes which may exceed the amount which it could
immediately support or repay. In either case, SC, as guarantor of the AC Notes,
would have liability under its guarantee, and such liability would likely exceed
the amount which it could immediately support. Accordingly, substantial doubt
exists about SC's ability to continue as a going concern if the AC Notes or CQC
Notes are accelerated. See "Notes to Financial Statements - Sunset Coin, Inc.
Guarantee Obligation, Management's Plans and Going Concern."
Competitive Environment
As SC's gaming machine route contracts reach maturity, SC is required to
compete for renewals with numerous route operators in the Las Vegas area, some
of which are significantly larger and better capitalized and manage
substantially more gaming machines than SC. Although SC's management believes
that the continuing expansion of the Las Vegas gaming market has resulted in
substantial growth of the local residential population, the market in which SC
generates the majority of its route business, there can be no assurance that
increased competition for gaming machine route locations will not have an
adverse impact on the future revenues. In addition, the spread of legalized
gaming into new jurisdictions may also impact the competitive position of SC.
See "Item 1. Business - Sunset Coin, Inc."
Inflation
Management believes that SC's results of operations are not dependent
upon, or materially affected by, the rate of inflation.
Capitol Queen & Casino, Inc.
- ----------------------------
Analysis of Development Stage Activities for the period January 20, 1993
(the date of inception) through June 30, 1996
CQC was organized on January 20, 1993 for the purpose of developing,
constructing, owning and operating the Capitol Queen. Since inception, CQC's
activities have been limited to, in addition to the financing transaction
described below, the acquisition of a land site in Jefferson City, Missouri and
the rights to develop the Capitol Queen thereon, the preparation and prosecution
of applications to become licensed to own and operate the Capitol Queen in
Missouri and for all other required permits and approvals, the preparation of
preliminary design plans, drawings and budgets for the project, construction of
a riverboat vessel and other pre-opening development activities. As of August
1994, CQC suspended the development of the Capitol Queen, other than completion
of the riverboat. As a result of a September 28, 1994 ruling by the Missouri
Gaming Commission denying CQC's license application, CQC subsequently terminated
the Capitol Queen project and is currently marketing its assets for sale. Such
assets include its riverboat and the Jefferson City land site.
As of January 1, 1995, the CQC Indenture was amended to (i) eliminate
CQC's obligation to construct and open the Capitol Queen and (ii) permit a
two-step purchase of the CQC Notes at 101% of principal plus accrued and unpaid
interest with funds remaining in the project escrow account and the net proceeds
from a sale of assets. The repurchase of $20,000,000 principal amount of the CQC
Notes (plus accrued and unpaid interest thereon) was completed on January 17,
1995 with funds from the project escrow account at a total cost of $20,200,000.
At June 30, 1996, approximately $30,000 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 and May 15, 1996. AC does not have available funds to advance
on behalf of CQC. The management of AC and CQC are currently in discussions with
an informal committee representing the holders of the AC Notes and CQC Notes
regarding a proposed restructuring plan. However, an agreement has not yet been
reached.
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. "Aerie" at a
purchase price of $18,000,000. 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 the Development Agreement, 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 to any party when the expiration date of December 31,
1995 passed. CQC is actively marketing its riverboat assets to prospective
buyers.
During the period from inception through June 30, 1996, CQC had total
operating expenses of $13,478,000 consisting primarily of an abandonment loss of
$10,426,000 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. At June 30, 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
current fiscal year. Also included in operating expenses are amortization
expense of $1,341,000 associated with debt issue costs and $1,711,000 of project
development costs. For the same period, CQC incurred $11,171,000 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 $1,265,000 for the period from inception to June 30, 1996.
Liquidity and Capital Resources
For the period from inception through June 30, 1996, net cash used by
development stage activities was $5,246,000. Cash flows used by investing
activities for the period was $13,920,000 which included $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson City land site. At August 31, 1996, CQC had expended a total of
approximately $21,400,000 on the development and construction of the Capitol
Queen.
CQC's obligations consist of the $20,000,000 in principal amount of the
outstanding CQC Notes. 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. Moreover, CQC because it has not yet effected the sale of its assets,
is in default of the CQC Indenture. As a result, the holders of 25% or more in
principal amount of the CQC Notes may cause the CQC Notes to be accelerated, in
which event they would become immediately due and payable in full. If the CQC
Notes were to be accelerated, CQC would not be able to pay the outstanding CQC
Notes without an infusion of capital, which is not expected to be available. CQC
is not expected to engage in any activities after the sale of its assets,
although it may continue to pursue legal relief with respect to the injury
caused by the ruling of Missouri Gaming Commission. The cost of pursuing such
relief is expected to be borne by BGI.
Item 8. Financial Statements and Supplementary Data
The Index to Financial Statements and Schedules appear at pages F-1 and
F-2 hereof, the Report of Registrant's Independent Accountants appears at page
F-3 hereof, and the Consolidated Financial Statements and Notes to Consolidated
Financial Statements of the Registrant appear at page F-4 through F-31 hereof.
The Financial Statements and Notes to Financial Statements for AC, SC and CQC
appear at page F-32 through F-89 hereof.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to the
directors and executive officers of BGI and each of its subsidiaries.
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Bruce F. Becker 45 Chairman, President, Chief Executive
Officer of BGI and each subsidiary,
Treasurer and Secretary of BGI,
Treasurer and Vice-President of CQC
and Sole Officer and Director of
Innerout, Inc.
Barry W. Becker 51 Assistant Secretary and Director of
BGI, Secretary and Director of each
Nevada subsidiary and Secretary of
CQC
Ron Lurie 55 Director of Corporate Development of
BGI, General Manager of SC and
Director of Marketing of AC
Jerry Griffis 40 Chief Financial Officer of BGI and
Controller of each subsidiary
Mark Lerner 46 General Counsel of BGI and each
subsidiary
Ernest A. Becker 77 Director of BGI and each Nevada
III subsidiary and
Treasurer of each Nevada subsidiary, other than
Innerout, Inc.
Ernest A. Becker 53 Director of BGI and Vice President
IV and Director of each Nevada
subsidiary, other than Innerout, Inc.
Bart Masi 52 General Manager of AC and BGG
Paul Tomba 48 Food and Beverage Manager of AC and
BGG
Debra Pingul 38 Director of Personnel of each Nevada
subsidiary
Doug Hardesty 44 Director of Technical Services of
each Nevada subsidiary
</TABLE>
Bruce F. Becker has served as Chairman of the Board of Directors,
President, Chief Executive Officer and Treasurer of BGI since its inception in
July 1993 and as Secretary since November 1993. He has served each of the Nevada
subsidiaries as President and Chief Executive Officer since July 1989. Mr.
Becker has also been a director and Chairman of AC since its inception in July
1984 and Chairman of the Board of Directors of SC and BGG since their inceptions
in 1980 and 1986, respectively. He is the Chairman, President and Chief
Executive Officer of CQC, and the Sole Officer and Director of Innerout, Inc.
Mr. Becker also sits on the Board of Directors of the Nevada Resort Association.
Barry W. Becker has served as Assistant Secretary of BGI since November
1993, and as Secretary of BGI from its inception until November 1993. He has
served each Nevada subsidiary (other than Innerout, Inc.) as a Director since
its respective inception and as Secretary since July 1989. Mr. Becker is also
the Sales Manager for Becker Enterprises, a Becker family-owned company that
purchases, sells and leases residential and commercial property. He is a past
president of the Southern Nevada Builders Association and serves the community
as a member on the boards of directors of the Rotary Club, Las Vegas Chamber of
Commerce, Boys Club of Clark County and the Boy Scouts of America. Mr. Becker
was appointed by the then Governor of the State of Nevada to the State
Environment Commission and was an Environmental Commissions Representative on
the State Multiple Use Advisory Land Committee.
Ron Lurie has served as Director of Corporate Development of BGI since its
inception and as the General Manager of SC since November 1990. He has also
served as Director of Marketing of AC since February of 1995. He has been
involved with the gaming industry since 1978, serving in several capacities
prior to being employed by SC, including Sales Manager for International Game
Technology and regional Sales Director for Sigma Games. In addition to Mr.
Lurie's fourteen years in the gaming industry, he also served fourteen years as
a Las Vegas City Councilman and four years as the Mayor of Las Vegas.
Jerry Griffis has served as Chief Financial Officer of BGI and Controller
of CQC since their respective dates of inception, and as Controller of the
Nevada subsidiaries since February 1989. Prior to joining the Nevada
subsidiaries, Mr. Griffis was employed as a Certified Public Accountant. Prior
thereto, Mr. Griffis acted as Assistant Controller for the Silver Slipper Casino
from 1981 to 1983 and the Frontier Hotel & Casino from 1979 to 1981. Mr. Griffis
is a CPA and a member of the Nevada Society of CPA's and the American Institute
of Certified Public Accountants.
Mark Lerner joined BGI and subsidiaries as general counsel in August 1994.
Prior thereto, he was a partner with Jones, Jones, Close & Brown, a Nevada law
firm with offices in Las Vegas and Reno, where since 1987 he had practiced
primarily in the areas of gaming and administrative law. From 1983 to 1987, he
was a deputy in the gaming division of the Nevada Attorney General's office,
serving as counsel to the Nevada Gaming Commission and State Gaming Control
Board. Mr. Lerner was admitted to the Nevada bar in 1980.
Ernest A. Becker III is a director of BGI and has served each of the
Nevada subsidiaries (other than Innerout, Inc.) as a Director since its
respective inception and as Treasurer since July 1989. Mr. Becker has been an
active developer of residential, recreational and commercial properties in both
Southern California and Southern Nevada since 1952. Mr. Becker organized the
Charleston Heights Water Company in 1954, which paved the way for the growth of
the northwestern area of Las Vegas. He is a past president and Life Director of
the National Association of Home Builders.
Ernest A. Becker IV is a director of BGI and has served each of the Nevada
subsidiaries (other than Innerout, Inc.) as a Director since its respective
inception and as Vice President since July 1989. He currently operates Becker
Built, a construction company owned by the Becker family. Mr. Becker has served
as a Director of the Southern Nevada Home Builders Association for the past
fourteen years and has held positions with the Fair Housing Task Force,
Development Permit Committee, Community Housing Resource Board and Plumbers
Examining Board for the City of Las Vegas and the Citizens Advisory Council for
Liquor and Gaming Control.
Bart Masi was appointed General Manager of AC and BGG in September 1994.
Prior thereto, Mr. Masi was General Manager and Marketing Director of Southern
Wine & Spirits of Nevada from May 1975 through August 1994. Mr. Masi has over
twenty-six years managerial experience and has been serving the hotel, casino
and gaming industry in Nevada for twenty-six years.
Paul Tomba has served AC and BGG as Food and Beverage Manager since June
1995. Prior to his employment at Arizona Charlie's, he served as Beverage
Manager for Caesar's Palace and the Golden Nugget Hotel and Casino in Las Vegas.
Mr. Tomba also managed private country clubs in the greater Cleveland area and
has over twenty-five years experience in the food and beverage industry.
Debra Pingul was appointed Director of Personnel of AC in February 1991.
Prior thereto, Ms. Pingul held supervisory positions in human resources with the
Marina Hotel and Casino from 1985 to 1990 and Vacation Village from 1990 to
1991.
Doug Hardesty was appointed Director of Technical Services of each of the
Nevada subsidiaries in April 1991. From March 1988 to April 1991, Mr. Hardesty
served as Operations Officer of AC. Prior thereto, he held managerial positions
with firms engaged in the sale and servicing of systems hardware.
Item 11. Executive Compensation
The following table sets forth the compensation paid by BGI (including its
subsidiaries) for services rendered in all capacities to BGI (and its
subsidiaries) during the fiscal year ended June 30, 1996, with respect to the
Chief Executive Officer of BGI and all other persons who served as executive
officers of BGI during the year ended June 30, 1996 and whose aggregate annual
compensation exceeded $100,000 for such period. No compensation has been paid to
executives by CQC for services rendered during the year ended June 30, 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------
All Other
Name and Position Salary Bonus Compensation
- ----------------- ------ ----- ------------
<S> <C> <C> <C>
Bruce F. Becker, Chief
Executive Officer
and President of
BGI and each subsidiary .... $500,000(1) $ 0 $ 60,763(1)(2)
(3)
Bart Masi, General Manager
of AC and BGG .............. $180,692 $ 0 $ 4,050(3)
Mark Lerner, General Counsel
of BGI and each subsidiary
$150,577 $ 0 $ 10,123(3)
Ron Lurie, Director-Corporate
Development of BGI, General
Manager of SC and Director
of Marketing of AC ......... $140,539 $ 0 $ 14,751(3)
</TABLE>
- ----------
(1) Does not include amounts entitled to under employment
agreement. Mr. Becker has voluntarily postponed scheduled salary
increases of $100,000 for calendar year 1995 and $200,000 for
calendar year 1996. These salary amounts have been accrued by
BGI, but have not yet been paid to Mr. Becker.
(2) Includes $49,341 paid by BGI during the fiscal year ended June 30, 1996 in
premiums on life insurance held by Bruce F. Becker for the benefit of a family
trust administered by Mr. Becker. Such life insurance, which has an aggregate
death benefit of $5,076,376, has been collateral assigned to BGI such that upon
the death of Mr. Becker, BGI shall be refunded all premiums previously paid by
it under the policy before the distribution of benefits to the named
beneficiary.
(3) BGI and each Nevada Subsidiary has adopted a 401(k) defined contribution
plan covering substantially all of its employees. Eligible employees may
contributed up to 6% of their annual compensation to the plan, up to certain
limits prescribed by the Internal Revenue Service. BGI and the Nevada subsidiary
have each agreed to contribute an amount equal to 25% of each employee's
contribution, up to an amount equal to 2% of each employee's compensation.
Employees may contribute an additional 4% to the Plan which is not matched by
BGI or Nevada subsidiary.
Compensation of Directors
The directors of BGI may receive $2,000 for each meeting of the Board of
Directors attended. The directors of the Operating Companies do not receive any
compensation for serving in such capacities.
Employment Agreement
In May 1994, BGI entered into a seven-year employment agreement with Bruce
F. Becker in his capacities as Chief Executive Officer and President. Under the
employment agreement, Mr. Becker is required to devote all of his business time
to the affairs of BGI and its affiliated companies. The agreement provides for
an annual base salary of $700,000 per year during calendar year 1996, increasing
by $100,000 each calendar year thereafter through December 31, 2001. However,
for the second consecutive year, Mr. Becker has elected to postpone his
scheduled annual salary increase. These deferred salary amounts, aggregating
$300,000, each of 1995, and have been accrued by BGI, but have not yet been paid
to Mr. Becker. Mr. Becker is also entitled to the use of an automobile and such
bonuses and other benefits as the Board of Directors may award from time to time
in its discretion. In addition, BGI maintains certain life insurance coverage
referred to under Executive Compensation above.
The employment agreement provides that if Mr. Becker's employment is
terminated either (i) by BGI other than for cause or by reason of physical or
mental disability, or (ii) by Mr. Becker for good reason, Mr. Becker will be
entitled to a severance payment equal to four times his then annual base salary
if such termination occurs during the first year of the agreement or three times
his then annual base salary if such termination occurs after the first year of
the agreement. Such severance payment will be payable in a lump sum within
thirty (30) days of termination. Under the agreement, BGI shall have cause to
terminate Mr. Becker if he consistently refuses to substantially perform, or
engages in willful misconduct in the substantial performance of, his duties and
obligations under the employment agreement or if he materially breaches the
agreement. Mr. Becker may terminate his employment for good reason if he is
assigned by BGI to a position of lesser or inconsistent authority than that
described in the employment agreement or is required to relocate outside Las
Vegas, or if BGI fails to substantially comply with the employment agreement.
Consulting Agreements
BGI entered into consulting agreements with Ernest A. Becker III, Ernest A.
Becker IV and Barry W. Becker (the "Consultants"). The agreements have
three-year terms expiring May 31, 1997. The agreements provide for monthly
consulting fees of $12,500, $8,334 and $8,334, respectively. The agreements
provide for indemnification of the Consultants for claims arising out of their
services to BGI, other than claims arising from gross negligence, willful
malfeasance or fraud. The Consultants are prohibited from competing with BGI or
its affiliates or soliciting for employment any person employed or recently
employed by BGI or its affiliates. Such obligations also apply beyond the
consulting period.
Compensation Committee Interlocks and Insider Participation
None of the board of directors of BGI or its subsidiaries has had or
currently has a compensation committee or other committee performing equivalent
functions. During the fiscal year ended June 30, 1995, Ernest A. Becker, III and
Bruce F. Becker in their capacities as directors of each of the Nevada
subsidiaries participated in deliberations concerning compensation of the
executive officers of such companies.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth as of September 1, 1995 certain information
with respect to beneficial ownership of shares of BGI's Common Stock by (i) each
person known by BGI to be a beneficial owner of more than 5 percent of the
outstanding shares of Common Stock, (ii) each of BGI's directors, (iii) each
executive officer named in the summary compensation Table under the caption
"Executive Compensation" and (iv) all directors and officers as a group.
<TABLE>
<CAPTION>
Name and Address (1) Amount and Nature(2) Percentage of
of Beneficial Owner of Beneficial Ownership Shares Outstanding
- ------------------- ----------------------- ------------------
<S> <C> <C>
Ernest A. Becker, III .... 3,611,134 36.11%
Bruce F. Becker .......... 2,761,275 27.61%
Ernest A. Becker, IV ..... 1,546,831 15.47%
Barry W. Becker .......... 1,546,831 15.47%
Bart Masi ................ 0 0.00%
Mark Lerner .............. 0 0.00%
Ron Lurie ................ 0 0.00%
Charlie's Land Company (3) 533,929 5.34%
The Putnam Companies (4) . 800,000(5) 7.41%
All officers and directors
as a group (6) .......... 10,000,000 100.00%
</TABLE>
- ----------
(1) The address of each of the Becker family members, Charlie's Land Company
and Messrs. Masi, Lerner and Lurie is 740 South Decatur Boulevard, Las
Vegas, Nevada 89107. The address of The Putnam Companies is One Post Office
Square, Boston, Massachusetts 02109.
(2) BGI believes that the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(3) Charlie's Land Company is a Nevada general partnership
owned, directly and indirectly, by the Becker family members
in the following percentages: Ernest A. Becker, III -
44.29%; Bruce F. Becker - 15.34%; Ernest A. Becker, IV -
15.34%; Barry W. Becker - 15.34%; and Alvernie Apartments,
Inc. - 9.69%. Alvernie Apartments, Inc. is owned by the
Becker family as follows: Ernest A. Becker, III and Betty W.
Becker, as joint tenants - 60.1%; Bruce F. Becker - 13.3%;
Ernest A. Becker, IV - 13.3%; and Barry W. Becker - 13.3%.
(4) Includes Warrants held by several different investment trusts and/or mutual
funds which have a common corporate owner.
(5) Represents shares of the Common Stock which may be acquired by such person
within sixty (60) days from the date of this report upon exercise of
Warrants. BGI's knowledge with respect to the ownership of its Warrants is
based on information provided by BGI's warrant agent.
(6) Includes shares owned beneficially by (a) Bruce F. Becker, (b) the other
Becker family members identified above, and (c) Charlie's Land Company,
which is owned by the Becker family as set forth in footnote 3 above.
Item 13. Certain Relationships and Related Transactions
Since June 1, 1994, the Company has provided managerial and related
services to its subsidiaries. The Company has entered into a management
agreement with each of the AC, SC and BGG (and CQC, which is not expected to
have any operations) to provide executive and administrative services in
exchange for a management fee equal to 5% of each such company's gross operating
revenues (before deduction of promotional allowances). However, the AC Indenture
will prohibit the payment of management fees by AC until certain conditions have
been satisfied and thereafter in excess of specified amounts. See "Item 1.
Business - Becker Gaming, Inc." The rate at which management fees are to be
payable was determined based on the level of management support to be provided
by the Company to the operating companies, the level of expense anticipated to
be incurred by the Company in connection with such support, and the
gaming-related experience of the persons expected to provide such support on
behalf of Becker Gaming and their familiarity with the operating companies and
their businesses. Accordingly, such fee does not necessarily reflect that which
could be obtained from an unaffiliated party, which could not be expected to
provide the same support or to possess the same gaming-related experience or
familiarity with the operating companies. However, based on its knowledge of
similar management service arrangements entered into by other Las Vegas
casino-hotels, such rate is believed to be at or near the top of the range of
fees customarily paid for such services in such market. Due to the decision to
suspend development of CQC's riverboat casino project and sell its assets, the
majority of BGI's management and administrative services are anticipated to
benefit AC in the future. Accordingly, in late March 1995, BGI transferred
approximately 40 employees involved in accounting and administrative functions
from BGI to AC. In connection with this transfer, in October 1995, the Company
temporarily reduced the amount of AC's management fee to a net 1.0% of AC's
gross revenues (previously 5.0% of gross revenues) based on the reduction in
services it will receive from BGI in the future. AC incurred and SC and BGG
incurred and paid, management fees of $1,396,000, $137,000 and $592,000,
respectively, to the Company in fiscal 1996.
Due to the decision to suspend development of CQC's riverboat casino
project and sell its assets, the majority of the Company's management and
administrative services are anticipated to benefit AC. Accordingly, in late
March 1995, the Company transferred approximately 40 of its employees involved
in accounting and administrative functions to AC. These employees were
originally employees of AC and were transferred to the Company in June 1994.
Effective October 1, 1995, an amount equal to 4% of the consolidated gross
revenues of the Company will be returned to AC for the accounting and
administrative functions that AC now provides for the benefit of each of the
Company's subsidiaries as mentioned above.
AC has fully and unconditionally guaranteed the payment of principal of
and interest on the CQC Notes. See "Item 1. Business - Capitol Queen & Casino,
Inc." Similarly, SC has fully and unconditionally guaranteed the payment of
principal of and interest on the AC Notes until such time as AC achieves a
specified fixed charge coverage ratio.
During fiscal 1996, AC leased office, storage and laundry space from
Charleston Heights Shopping Center ("CHSC"), a partnership owned by the Becker
family. Total lease rental payments (including insurance, tax and common area
maintenance payments) of approximately $217,000 were paid by AC to CHSC in
fiscal 1996. Based on rental rates offered for properties which are similarly
situated and offer comparable features, AC believes that such rental rates were
below comparable market rates.
Each of the Nevada subsidiaries previously operated as a subchapter S
corporation under the federal tax laws. As of December 31, 1993, the S
corporation status of each of the Nevada subsidiaries was terminated. Prior to
the termination of S corporation status, each of the Nevada subsidiaries
distributed to their stockholders undistributed income on which such
stockholders had previously paid federal income taxes equal to $5,000,000, in
the case of AC, $3,000,000, in the case of SC, and $800,000, in the case of BGG.
The amounts distributed were loaned back to such companies in full by the
stockholders. The AC and SC loans are repayable pursuant to subordinated
stockholder notes maturing in 2001 and bearing interest at the rate of 10%
annually, payable monthly. The BGG loans are repayable pursuant to notes
maturing in December 1996 and bearing interest at the rate of 10% annually,
payable monthly. In addition, the Nevada subsidiaries have agreed to distribute
to their stockholders cash sufficient to satisfy the federal income tax
obligations of such stockholders resulting from their ownership interests
therein (including taxes payable with respect to income earned previously)
through the date of termination of S corporation status, subject to limitations
imposed under the Indentures. The stockholders have filed all tax returns for
the periods during which the Nevada subsidiaries operated as S corporations.
Accordingly, the exposure of the Nevada subsidiaries under the tax indemnities
will be limited to taxes which may become payable in the future with respect to
periods through 1993 as a result of any audit of a stockholder return by tax
authorities. Such amounts may be material, although the AC Indenture limits such
payments by AC and SC to an aggregate of $2,250,000.
SC has executed gaming machine service agreements with BGG pursuant to
which SC provides gaming machine maintenance and other services to each BGG bar
and restaurant for a fixed fee. Fees paid by BGG to SC for such services totaled
approximately $93,000 in fiscal 1996. The gaming machine maintenance fees
payable by BGG to SC reflect rates which management believes (based on market
research conducted on an informal basis, from time to time, by SC) are charged
for similar services by other gaming machine service companies operating in the
Las Vegas area.
During 1991, SC purchased the assets of a restaurant/bar facility for
approximately $525,000 for use by BGG. The purchase, the Company entered into an
agreement to lease (as lessor) the facility to BGG under an agreement was
terminated when the facility was closed on April 21, 1996 and the worthless
improvements and equipment were abandoned. The liquor license will be
transferred to a new BGG location currently under construction which will open
in early 1997.
BGG leases several of its properties from partnerships controlled by the
Becker family members. Cantina Charlie's is leased at current annual rent
(including property taxes) of approximately $118,000, subject to cost of living
increases, pursuant to an agreement scheduled to expire in 1998, unless renewed
by BGG for up to an additional 25 years. The Charlie's Lakeside site is held
pursuant to a ground lease at current annual rent (including property taxes) of
approximately $39,000, subject to cost of living increases. The ground lease is
scheduled to expire in 2006 but may be extended by BGG for up to an additional
20 years. BGG operates Charlie's Bar pursuant to a lease requiring current
rental payments (including property taxes) of approximately $37,000 per year,
subject to cost of living increases. The lease expired in October 1995, and was
renewed by BGG for an additional three years. Charlie's Bar Down Under, a 4,400
square-foot building is leased for an annual rent of $145,320 payable in equal
monthly installments. The lease term commenced on February 1, 1995 and expires
on January 31, 2005, with options to extend for three additional terms of five
years each. Management believes, based on its experience and knowledge of the
commercial leasing market in and around Las Vegas, that the foregoing leases
reflect market terms and rates.
During 1992, SC purchased for approximately $123,000, and resold to BGG
for the same price, gaming machines for use in two BGG restaurants. At June 30,
1996, BGG had repaid the full amounts owed on the gaming machines to SC.
SC purchased and leased to BGG's wholly owned subsidiary the personal
property used at Charlie's Bar Down Under. This lease calls for annual rent of
$145,000 to be paid in equal monthly installments in advance, beginning on April
1, 1995.
The Becker family members have guaranteed the payment of a $272,000 note
payable of SC, various term loans held by SC and a term loan to BGG. The
outstanding principal balances of the SC and BGG term loans were $757,000 and
$930,000, respectively, as of June 30, 1996.
Bruce F. Becker resides in one of Arizona Charlie's suites at a rental
rate of $1,520 per month payable in advance, pursuant to a one-year lease which
commenced January 1, 1995. This lease entered automatically renews for
successive terms of one-year each unless terminated.
Bruce F. Becker operates a sole proprietorship under the name "Becker
Vending" which places arcade, cigarette, music and other vending machines at
Arizona Charlie's, BGG's restaurants, and several of SC's slot route locations.
AC provides nominal collection and accounting services to Becker Vending in
connection with these machines. None of the Nevada subsidiaries receives or is
expected to receive any rental fee or other payment from Becker Vending in
connection with these arrangements. Becker Vending retains all amounts deposited
in its vending machines. Becker Vending also sells to AC cigarettes, candy and
similar items at wholesale prices for resale in the Arizona Charlie's gift shop.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
The following are filed as part of this Report:
(a)1. Financial Statements
An Index to Financial Statements appears at page F-1 hereof.
(a)2. Financial Statement Schedules
An index to Financial Statement Schedules appears at
page F-2 hereof:
(a)3. Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Articles of Incorporation of the Company.*
3.2 By-Laws of the Company.*
4.1 Indenture dated November 15, 1993 among Arizona Charlie's,
as issuer, Sunset Coin, as guarantor, and IBJ Schroder Bank
& Trust Company ("IBJ"), as trustee, as amended by First
Supplemental Indenture dated January 1, 1995.*
4.2 Indenture dated November 15, 1993 among Capitol Queen, as
issuer, Arizona Charlie's, as guarantor, and IBJ, as
trustee, as amended by First Supplemental Indenture dated
January 1, 1995.*
10.1 Form of amended Warrant Agreement among the Company and the
purchasers named therein (the "Purchasers").*
10.2 Fee and Leasehold Deed of Trust, Assignment of Leases and
Subleases, Security Agreement and Fixture Filing dated
November 15, 1993 by Arizona Charlie's and CLC, as grantors,
to Land Title of Nevada, Inc., as trustee, for the benefit
of IBJ, as collateral agent.*
10.3 Deed of Trust, Assignment of Leases, Security Agreement and
Fixture Filing dated November 15, 1993 by Capitol Queen, as
grantor, to Charles W. Riley, as trustee, for the benefit of
IBJ, as collateral agent.*
10.4 Form of First Preferred Ship Mortgage Securing an Indenture
between Capitol Queen and IBJ.* 10.5 Form of Security
Agreements dated November 15, 1993 between each of Arizona
Charlie's and Capitol Queen and IBJ, as collateral agent.*
10.6 Form of Stock Pledge Agreements dated November 15, 1993
between each of Arizona Charlie's and Capitol Queen and IBJ,
as collateral agent.*
10.7 Form of Collateral Agency Agreement dated November 15, 1993
among Arizona Charlie's, CLC and IBJ, as trustee and
collateral agent and between Capitol Queen and IBJ, as
trustee and collateral agent.*
10.8 Promissory Notes dated December 24, 1993 made by each of the
Beckers in favor of Arizona Charlie's.*
10.9 Promissory Notes dated December 24, 1993 made by each of the
Beckers in favor of Sunset Coin.* 10.10 Tax Indemnity
Agreement dated December 24, 1993 among Arizona Charlie's,
Sunset Coin, Becker Gaming Group and each of the Beckers.*
10.11 Registration Rights Agreements dated as of May 31, 1994
among the Company and each of the Beckers.*
10.12 Form of Management Agreements dated as of May 31, 1994
between the Company and each of Arizona Charlie's, Capitol
Queen, Sunset Coin and Becker Gaming Group.*
10.13 Form of Tax Allocation Agreements dated as of May 31, 1994
between the Company and each of Arizona Charlie's, Sunset
Coin, Becker Gaming Group and Capitol Queen.*
10.14 Form of Consulting Agreements dated as of May 31, 1994
between the Company and each of Ernest A. Becker, III,
Ernest A. Becker, IV and Barry W. Becker.*
10.15 Employment Agreement dated as of May 31, 1994 between the
Company and Bruce F. Becker.* 10.16 Stockholders Agreements
dated as of May 31, 1994 among each of the Beckers.* 10.17
Leases dated May 1, 1988 and August 21, 1990 between
Charleston Heights Shopping Center and Arizona Charlie's.*
10.18 Ground Lease dated December 1, 1986 between Becker
Investment Company and Becker Family Trust No. 2 and Becker
Gaming Group; Assignment dated September 16, 1987 assigning
the interest of Becker Investment Company and Becker Family
Trust No. 2 to Lakeside Partners.*
10.19 Lease dated August 12, 1986 between Fremont West Shopping
Center and Becker Gaming Group.* 10.20 Lease dated July 27,
1988 between Becker Investment Co. and Becker Gaming Group.*
10.21 Lease dated September 19, 1994 between Weddington
Investment Partnership and Innerout, Inc.* 10.22 Lease dated
March 24, 1995 between Sunset Coin, Inc. and Innerout, Inc.*
10.23 Lease agreement between Arizona Charlie's, Inc. and
Bruce F. Becker.*
10.24 Aircraft Purchase Agreement dated July 1, 1996 between
Arizona Charlie's and Limerick Holdings, LLC.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule
</TABLE>
- -----------
* Incorporated by reference to the Company's Registration Statement on Form S-1
(33-76368) declared effective by the Securities and Exchange Commission on May
20, 1994.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BECKER GAMING, INC.
Dated: September 27, 1996 By: /s/Bruce F. Becker
-------------------------------
Bruce F. Becker, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 27th day of September, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/Bruce F. Becker President, Chief Executive
- -------------------------- Officer (Principal
Bruce F. Becker Executive Officer) and Director
/s/Jerry Griffis Chief Financial Officer
- -------------------------- (Principal Financial
Jerry Griffis and Accounting Officer)
/s/ Barry W. Becker Director
- --------------------------
Barry W. Becker
/s/ Ernest A. Becker, III Director
- -------------------------
Ernest A. Becker, III
/s/ Ernest A. Becker, IV Director
- -------------------------
Ernest A. Becker, IV
</TABLE>
Supplemental Information to be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which Have
Not Registered Securities Pursuant to Section 12 of the Act
The Company has not and does not intend to send to its security holders
any annual report with respect to the Registrant's most recent fiscal year or
any proxy statement, form of proxy or other proxy soliciting material with
respect to a meeting of security holders.
INDEX TO FINANCIAL STATEMENTS
BECKER GAMING, INC. AND SUBSIDIARIES
Report of Independent Accountants
Consolidated Balance Sheets as of June 30, 1996 and 1995 Consolidated
Statements of Operations for the Years Ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
ARIZONA CHARLIE'S, INC.
Report of Independent Accountants
Balance Sheets as of June 30, 1996 and 1995
Statements of Operations for the Years Ended June 30, 1996,
1995 and 1994
Statements of Stockholder's Equity (Deficit) for the Years
Ended 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended June 30, 1996,
1995 and 1994
Notes to Financial Statements
SUNSET COIN, INC.
Report of Independent Accountants
Balance Sheets as of June 30, 1996 and 1995
Statements of Income for the Years Ended June 30, 1996, 1995
and 1994
Statements of Stockholder's Equity for the Years Ended June
30, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended June 30, 1996,
1995 and 1994
Notes to Financial Statements
CAPITOL QUEEN & CASINO, INC.
Report of Independent Accountants
Balance Sheets as of June 30, 1996 and 1995
Statements of Loss Incurred During the Development Stage for the Years
Ended June 30, 1996, 1995 and 1994 and for the period from January 20,
1993 (the date of inception) through June 30, 1996
Statements of Stockholder's Equity (Deficit) for the Years Ended June 30,
1996, 1995 and 1994 and for period from January 20, 1993 (the date of
inception) through June 30, 1996
Statements of Cash Flows for the Years Ended June 30, 1996 1995 and 1994
and for the period from January 20, 1993 (the date of inception) through
June 30, 1996
Notes to Financial Statements
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule I Condensed Financial Information of the
Company as of and for the Years Ended June 30, 1996,
1995 and 1994
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1996, 1995 and 1994
ARIZONA CHARLIE'S, INC.:
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1996, 1995 and 1994
SUNSET COIN, INC.:
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1996, 1995 and 1994
CAPITOL QUEEN & CASINO, INC.:
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1996, 1995 and 1994
Schedules other than those listed above are omitted because they are not
required or are not applicable, or because the required information is shown in
the financial statements or notes to the financial statements. Columns omitted
from schedules filed have been omitted because the information is not
applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Becker Gaming, Inc. and Subsidiaries
We have audited the consolidated financial statements and the financial
statement schedules of Becker Gaming, Inc. and Subsidiaries listed in Item 14(a)
of this Form 10-K. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Becker Gaming,
Inc. and Subsidiaries as of June 30, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1996 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
The accompanying financial statements have been prepared assuming that Becker
Gaming, Inc. will continue as a going concern. As more fully described in Note
2, certain of the Company's principal subsidiaries are in default of debt
covenants, resulting in the classification of such debt as currently payable.
The Company and its subsidiaries do not have sufficient resources to repay the
indebtedness on a current basis and management's plans are also described in
Note 2. These matters raise substantial doubt about the ability of the Company's
principal subsidiaries (and thus, the Company) to continue as a going concern.
The final outcome of these matters is not presently determinable and the June
30, 1996 financial statements of the Company do not include any adjustment that
might result from the outcome of this uncertainty.
Las Vegas, Nevada
August 9, 1996
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As Of June 30, 1996 And 1995
(Dollars In Thousands)
================================================================================
ASSETS
1996 1995
------- -------
Current assets:
Cash and cash equivalents ..................... $ 6,745 $ 6,657
Restricted cash, in escrow account............. 40 40
Trade and other accounts receivable............ 626 1,088
Current portion of receivables from
related parties................................ 33 33
Inventories ................................... 729 852
Prepaid expenses .............................. 1,244 1,318
Current portion of notes receivable............ 153 233
Assets held for sale........................... 3,233 --
------- -------
Total current assets......................... 12,803 10,221
------- -------
Property and equipment:
Land improvements.............................. 1,628 1,628
Building and improvements...................... 38,282 38,566
Leasehold improvements......................... 983 1,098
Furniture and equipment........................ 27,773 27,927
------- -------
68,666 69,219
Less, accumulated depreciation................. (19,078) (16,648)
------- -------
49,588 52,571
Land .......................................... 208 208
------- -------
Net property and equipment................. 49,796 52,779
------- -------
Other assets:
Assets held for sale........................... 7,754 15,987
Notes receivable, less
current portion, net........................... 472 502
Receivables from related parties,
less current portion........................... 165 165
Deposits and other............................. 1,375 1,411
Financing costs, net........................... 3,112 3,721
------- -------
Total other assets......................... 12,878 21,786
------- -------
Total assets $ 75,477 $84,786
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
1996 1995
------------ ------------
Current liabilities:
Trade accounts payable ....................... $ 1,761 $ 2,028
Accrued expenses ............................. 6,409 3,674
Notes payable ................................ 110 121
Current portion of
subordinated notes payable to
stockholders ................................ 800 800
Current portion of long term debt ............ 381 356
Long-term debt classified as
current due to default under
covenants, net of unamortized
original issue discount of
$2,474 (1996)and $2,882 (1995) .............. 72,526 17,118
Current portion of obligations under
capital leases ............................... 1,960 865
------------ ------------
Total current liabilities .............. 83,947 24,962
Long-term debt, less current portion ........... 1,330 56,593
Subordinated notes payable to
stockholders, less current portion ........... 8,000 8,000
Obligations under capital leases, less
current portion ................................ 197 2,001
------------ ------------
Total liabilities ...................... 93,474 91,556
------------ ------------
Commitments and contingencies
Stockholders'
equity (deficit):
Common stock, $.01 par value, 20,000,000
shares authorized, 10,000,000 shares
issued outstanding ......................... 100 100
Preferred stock, $1 par value, 5,000,000
shares authorized, none issued and
outstanding ................................ -- --
Additional paid-in capital ................... 9,006 9,006
Retained earnings (deficit) .................. (27,103) (15,876)
------------ ------------
Total stockholders' equity (deficit) ... (17,997) (6,770)
------------ ------------
Total liabilities and
stockholders' equity (deficit) ......... $ 75,477 $ 84,786
============ ============
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except Per Share Data)
================================================================================
Year Ended June 30,
--------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues:
Gaming .............................. $ 62,377 $ 56,773 $ 47,303
Food and beverage ................... 18,010 14,670 12,292
Hotel ............................... 3,208 2,614 1,219
Bowling ............................. -- -- 251
Gift shop ........................... 590 577 535
Other ............................... 1,210 972 438
----------- ----------- -----------
Gross revenues .................. 85,395 75,606 62,038
Less, promotional allowances ........... (9,358) (6,527) (4,953)
----------- ----------- -----------
Net revenues .................... 76,037 69,079 57,085
Operating expenses:
Gaming .............................. 21,923 19,039 13,560
Food and beverage ................... 16,787 14,318 12,535
Hotel ............................... 1,413 1,377 714
Bowling ............................. -- -- 387
Gift shop ........................... 475 450 458
Advertising and promotion ........... 4,831 3,948 3,093
General and administrative .......... 21,053 20,571 15,804
Rent expense paid to related party . 411 470 344
Depreciation and amortization ....... 4,402 4,439 3,856
----------- ----------- -----------
Total operating expenses ........ 71,295 64,612 50,751
----------- ----------- -----------
Operating income ................ 4,742 4,467 6,334
----------- ----------- -----------
Other income(expenses):
Loss on disposal of assets .......... (438) -- --
Abandonment losses and write-downs
of assets held for sale .......... (4,503) -- (492)
Development costs ................... (504) (1,186) --
Interest income ..................... 101 1,171 1,452
Interest expense .................... (10,584) (12,698) (9,673)
Interest capitalized ................ -- 676 1,143
Other, net .......................... (41) (70) 10
----------- ----------- -----------
Total other income (expense) .... (15,969) (12,107) (7,560)
----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item ......... (11,227) (7,640) (1,226)
Provision for income taxes ............. -- -- (340)
----------- ----------- -----------
Income (loss) before
extraordinary item ............. (11,227) (7,640) (1,566)
----------- ----------- -----------
Extraordinary item-loss on early
retirement of debt (no income
tax benefit available) ............. -- (4,089) --
----------- ----------- -----------
Net income (loss)
$ (11,227) $ (11,729) $ (1,566)
=========== =========== ===========
Net income (loss) per common share:
Income (loss) before
extraordinary item ................. $ (1.12) $ (0.76) $ (0.17)
Extraordinary item-loss on
early retirement of debt ........... -- (0.41) --
----------- ----------- -----------
Net income (loss) per share of
common stock .......................... $ (1.12) $ (1.17) $ (0.17)
=========== =========== ===========
Weighted average common shares
outstanding ........................... 10,000,000 10,000,000 9,509,956
=========== =========== ===========
Pro forma data (reflecting
change in tax status
of subsidiaries):
Income tax benefit ............. $ 423
===========
Net income (loss) ............... $ (803)
===========
Net income (loss) per share
of common stock ................. $ (0.08)
============
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT) For The
Years Ended June 30, 1996, 1995 And 1994
(Dollars In Thousands)
================================================================================
Common Stock
-------------------------
Shares Amount
---------- ----------
Balances, June 30, 1993 .................. 9,466,071 $ 95
Issuance of warrants to purchase common
stock, net of issuance cost ............ -- --
Distributions to stockholders ............. -- --
Reclassification of undistributed earnings
to additional paid-in capital upon
termination of S corporation election .. -- --
Contribution of land from Charlie's Land
Company in connection with the
Reorganization ......................... 533,929 5
Forgiveness of receivable from Charlie's
Land Company in connection with the
Reorganization ......................... -- --
Net loss .................................. -- --
---------- ----------
Balances, June 30, 1994 ................... 10,000,000 100
Net loss .................................. -- --
---------- ----------
Balances, June 30, 1995 ................... 10,000,000 100
Net loss .................................. -- --
---------- ----------
Balances, June 30, 1996 ................... 10,000,000 $ 100
========== ==========
Preferred Stock
------------------------------
Shares Amount
------ -----
Balances, June 30, 1993 .................................. -- $--
Issuance of warrants to purchase common
stock, net of issuance cost ............................ -- --
Distributions to stockholders ............................. -- --
Reclassification of undistributed earnings
to additional paid-in capital upon
termination of S corporation election .................. -- --
Contribution of land from Charlie's Land
Company in connection with the
Reorganization ......................................... -- --
Forgiveness of receivable from Charlie's
Land Company in connection with the
Reorganization ......................................... -- --
Net loss .................................................. -- --
------ -----
Balances, June 30, 1994 ................................... -- --
Net loss .................................................. -- --
------ -----
Balances, June 30, 1995 ................................... -- --
Net loss .................................................. -- --
------ -----
Balances, June 30, 1996 ................................... -- $--
====== =====
Additional Retained
Paid-In Earnings
Capital (Deficit) Total
---------- ---------- --------
Balances, June 30, 1993 .................... $ 1,722 $ 7,757 $ 9574
Issuance of warrants to purchase common
stock, net of issuance cost .............. 7,005 -- 7,005
Distributions to stockholders ............... -- (9,533) (9,533)
Reclassification of undistributed earnings
to additional paid-in capital upon
termination of S corporation election .... 805 (805) --
Contribution of land from Charlie's Land
Company in connection with the
Reorganization ........................... 203 -- 208
Forgiveness of receivable from Charlie's
Land Company in connection with the
Reorganization ........................... (729) -- (729)
Net loss .................................... -- (1,566) (1,566)
--------- --------
Balances, June 30, 1994 ..................... 9,006 (4,147) 4,959
Net loss .................................... -- (11,729) (11,729)
--------- --------
Balances, June 30, 1995 ..................... 9,006 (15,876) (6,770)
Net loss .................................... -- (11,227) (11,227)
--------- --------
Balances, June 30, 1996 ..................... $ 9,006 $ (27,103) $(17,997)
========== ========== ========
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
----------------------------------
1996 1995 1994
----- ----- -----
Cash flows from operating activities:
Net (loss) income .......................... $(11,227) $(11,729) $ (1,566)
-------- -------- --------
Adjustments to reconcile net (loss)
income to net cash provided by (used in)
operating activities:
Depreciation and amortization ............. 4,402 4,439 3,856
Amortization of original issue
discount and other ....................... 408 834 991
Provision for losses on receivables ....... 44 44 --
Write-downs of assets held for sale ....... 4,942 -- --
Net (gain) loss on sale of equipment ...... 119 87 (10)
Abandonment loss .......................... -- -- 492
Loss on early retirement of debt .......... -- 4,089 --
(Increase) decrease in operating assets:
Receivables ............................... 159 (646) 82
Receivables from related parties .......... -- 135 (62)
Inventories ............................... 123 (158) 25
Prepaid expenses .......................... 333 (363) 442
Deposits and other assets ................. (86) (146) --
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts for
capital expenditures ..................... (54) 169 1,063
Accrued expenses .......................... 2,766 407 1,519
-------- -------- --------
Total adjustments ..................... 13,156 8,891 8,398
-------- -------- --------
Net cash provided by (used in)
operating activities .................. 1,929 (2,838) 6,832
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .............. (544) (27,382) (22,945)
Proceeds from sale of equipment ............. 37 792 475
Net (additions to) reductions in
restricted cash equivalents ................ -- 51,001 (51,041)
Issuance of note receivable ................. -- (33) (321)
Payments of notes receivable ................ 104 243 468
Increase in deposits and other assets ....... (113) (36) (238)
-------- -------- --------
Net cash provided by (used in)
investing activities .................... (516) 24,585 (73,602)
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowing under note payable .. 109 738 16
Payments under notes payable ................ (625) (20,676) (530)
Payments under capital lease obligations .... (809) (1,607) (1,011)
Payments under development agreements ....... -- -- (92)
Proceeds from issuance of First
Mortgage Notes, net of financing cost ...... -- -- 81,771
Payments under long-term debt ............... -- -- (17,219)
Proceeds from issuance of subordinated
notes payable to stockholders .............. -- -- 8,800
Distributions to stockholders ............... -- -- (9,533)
Proceeds from issuance of warrants of
purchase common stock, net of issuance costs -- -- 7,005
Payments on mortgage indebtedness associated
with land contributed by related party ..... -- -- (729)
-------- -------- --------
Net cash (used in) provided by
financing activities .................... (1,325) (21,545) 68,478
-------- -------- --------
Net increase in cash and cash
equivalents ............................. 88 202 1,708
Cash and cash equivalents, beginning
of year .................................... 6,657 6,455 4,747
-------- -------- --------
Cash and cash equivalents, end of year
$ 6,745 $ 6,657 $ 6,455
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
BECKER GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Summary Of Significant Accounting Policies:
Basis Of Presentation
---------------------
Becker Gaming, Inc. ("Becker Gaming" or the "Company") was
incorporated on June 24, 1993 for the purpose of serving as
a holding company for the following entities:
o Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
o Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
in the development stage of construction of a riverboat casino in
Jefferson City, Missouri (the "Capitol Queen"). CQC currently
has no significant operations other than to market and sell its
riverboat and other assets..
o Sunset Coin, Inc. ("SC"), a Nevada corporation which
operates a Las Vegas gaming machine route and service business.
o Becker Gaming Group ("BGG"), a Nevada corporation which (together with
its wholly owned subsidiary, Innerout, Inc.) owns and operates
restaurants and bars in Las Vegas under the "Charlie's" name, each of
which offers gaming machines.
In November 1993, the Company issued 2,989,537 shares of common stock for
all of the outstanding common stock of CQC. At the time of the transaction,
CQC was wholly owned and controlled by the stockholders of the Company.
On June 1, 1994, the stockholders of AC, SC and BGG (collectively, the
"Nevada Gaming Entities") exchanged all of their stock for 6,476,534 shares
of Becker Gaming stock. This transaction was a part of a corporate
reorganization (the "Reorganization") which had been contemplated in
connection with the private placement debt financing, which is further
discussed in Note 9.
Each of the above transactions was accounted for at historical cost in a
manner similar to a pooling of interests since they involved the
combination of entities under common control. Accordingly, the Company's
consolidated financial statements have been restated for all periods prior
to the combination to include the financial positions, results of
operations and cash flows of CQC and the Nevada Gaming Entities.
Adjustments have been made to the Company's consolidated financial
statements to eliminate the impact of intercompany transactions which
occurred prior to the combination.
Principles Of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
Revenue
-------
In accordance with industry practice, AC and BGG recognize as gaming
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
The primary source of gaming revenue for SC is from slot route
participation agreements with unaffiliated locations in which SC recognizes
as slot revenue a predetermined percentage (operator's share) of the net
win from SC-owned machines at the slot locations. In accordance with
industry practice, net win from slot activities consists of the slot drop
less jackpots and fills. The percentage of the net win that SC and the slot
locations receive is determined by individual participation agreements
between the parties.
In addition, SC also generates gaming revenue under slot service
agreements. Under the agreements, SC receives a fixed fee and certain cost
reimbursements in exchange for maintaining proprietor-owned slot machines.
SC's participation agreements and slot service agreements range between 1
and 9 years in length and expire, subject to renewal, at various dates
through 2003. At June 30, 1996, approximately 254 (90%) of the machines
operated or serviced by SC were installed at unaffiliated locations
controlled by the stockholders of BGI (as lessor), through restrictive
lease provisions.
Gaming revenues from slot route and service agreements at locations
controlled by the stockholders of BGI amounted to $2,370,000, $2,331,000
and $2,333,000 in the years ended June 30, 1996, 1995 and 1994,
respectively.
Promotional Allowances
----------------------
The retail value of hotel accommodations, food and beverage provided to
customers without charge is included in gross revenues and then deducted as
promotional allowances to arrive at net revenues. The estimated costs of
providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocations, as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Hotel ....................... $ 261,000 $ 164,000 $ 119,000
Food and Beverage ........... 4,833,000 3,813,000 3,410,000
--------- --------- ---------
$5,094,000 $3,977,000 $3,529,000
========== ========== ==========
</TABLE>
Cash Equivalents And Concentration Of Credit Risk
-------------------------------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company has
cash on deposit with financial institutions in excess of federally insured
amounts.
Inventories
-----------
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property And Equipment
----------------------
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense when incurred. Upon retirement or disposal of assets,
the cost and accumulated depreciation are eliminated from the accounts and
the resulting gain or loss is credited or charged to income, as
appropriate.
Building, building improvements, leasehold improvements and land
improvements are depreciated using the straight-line method over the lesser
of the estimated useful lives of 5 to 40 years or the lease term. Furniture
and equipment are depreciated using straight-line and declining balance
methods over estimated useful lives of 5 to 10 years.
Preopening Costs
----------------
Certain preopening costs, consisting principally of personnel costs,
training and other costs directly associated with the opening of new
hotel-casino or significant expansions of the existing hotel-casino are
being capitalized and will be charged to expense over a period not to
exceed one year following the commencement of related operations. During
the years ended June 30, 1996, 1995 and 1994, the Company capitalized $-0-,
$31,000 and $70,000 respectively, of preopening costs.
Financing Costs
---------------
Costs associated with the issuance of debt are deferred and amortized over
the life of the related indebtedness using the effective interest method.
Federal Income Taxes
--------------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. The Company adopted SFAS
109 in 1994. The impact of adoption was not material to the Company's
financial position or results of operations.
Prior to January 1, 1994, AC, SC and BGG were taxed under Section 1362
(Subchapter S) of the Internal Revenue Code which provides that, in lieu of
corporate income taxes, the stockholders are taxed on their proportionate
share of a company's taxable income or loss. Therefore, these financial
statements do not include any provision or liability for corporate income
taxes for the periods prior to December 31, 1993 for those subsidiaries.
Effective January 1, 1994 AC, SC & BGG terminated their S corporation
elections and adopted SFAS 109. The adoption of SFAS 109 by these
subsidiaries was not material to the Company's financial position or
results of operations.
In connection with the Reorganization described above, beginning June 1,
1994, AC, SC and BGG are included in the consolidated federal income tax
returns filed by BGI. Their tax allocations are based on the amount of tax
they would incur if they filed separate returns, except they do not receive
any benefit from carrybacks to prior years.
Net income (loss) per share of common stock is computed based on the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding during the period. Common stock equivalents were
not included in the computation of loss per common share for the years
ended June 30, 1996, 1995 and 1994 as their effect would have been
antidilutive.
Pro Forma Information
---------------------
The consolidated pro forma provision for income taxes for the years ended
June 30, 1994 and the related pro forma net income and pro forma net income
per share of common stock, reflect adjustments to income taxes assuming
that the termination of S corporation status of the Company's subsidiaries
(AC, SC and BGG) occurred as of July 1, 1993.
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform with the 1996 presentation.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates,
particularly with respect to the matters more fully described in Notes 2
and 3.
2. Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern:
CQC was formed to develop, own and operate the "Capitol Queen" riverboat
casino and related land-based facilities in Jefferson City, Missouri. On
September 28, 1994, CQC was notified that its application for a gaming
license was rejected by the Missouri Gaming Commission (the "Commission").
At the time CQC was notified of the Commission's decision, construction of
the riverboat under contract with a shipbuilder was almost completed. CQC
had also obtained the necessary permits for the land-based development
portion of the project and performed certain dredging and other site
preparation work. Immediately following the Commission's decision,
Management temporarily suspended further development of the Capitol Queen
project, pending an appeal of the decision and legal remedies potentially
available to the Company. Costs associated with the development of the
project which had been deferred during the development stage were
written-off in the fourth quarter of the fiscal year ended June 30, 1994.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Management
ultimately determined to abandon 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 and $1,200,000 on May 15, 1996 and AC (which has
guaranteed the CQC Notes as more fully described in Note 9) did not have
available funds to advance on behalf of CQC. AC is also in default of
certain covenants under its indebtedness (the "AC Notes", as more fully
described in Note 9). 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 in Note 9) to repay the AC Notes on a current basis and satisfy
its guarantee obligation with respect to the CQC Notes.
In connection with the decision to abandon the project, CQC had entered
into an Asset Purchase Agreement dated April 10, 1995, for the sale of its
assets to Aerie Riverboat Casinos of Missouri, Inc. at a purchase price of
$18,000,000, which price exceeded the carrying value of the CQC assets.
However, the consummation of the Aerie purchase agreement was subject to
the satisfaction of several conditions which could not be satisfied timely,
including, among others, that Jefferson City consent to the assignment of
its Development Agreement with CQC, that Aerie be found preliminarily
suitable to hold a Missouri Gaming license, and that riverboat gaming is
legally permitted in Jefferson City. As a result, the agreement with Aerie
was terminated without penalty when the December 31, 1995 expiration date
passed. As more fully described in Note 3, a further write-down in the
carrying value of the riverboat was recognized in the fourth quarter of
1996, after the election in Jefferson City, the expiration of the Aerie
contract, and due to deteriorating market conditions.
CQC continues to market its riverboat assets to prospective buyers and
Management of the Company, AC and CQC are currently undergoing discussions
with an informal committee representing the holders of the AC Notes and CQC
notes (the "Bondholder Committee") regarding a proposed restructuring plan.
Based on current market conditions, management does not expect that CQC
will generate sufficient funds through the sale of its assets to repurchase
all of the outstanding CQC Notes. The proposed restructuring plan therefore
contemplates the issuance of additional AC Notes to fulfill AC's guarantee
obligation for remaining principal and accrued interest of the CQC Notes
after applying sale proceeds. However, no satisfactory offers for the
riverboat are currently available, and no agreement has been reached with
the Bondholder Committee regarding the proposed restructuring plan.
Accordingly, these matters raise substantial doubt about the ability of the
Company's principal subsidiaries (and, thus the Company) to continue as a
going concern. The final outcome of these matters is not presently
determinable and the June 30, 1996 financial statements of the Company do
not include any adjustment that might result from the outcome of this
uncertainty.
3. Construction Project And Related Contingencies:
Capitol Queen Project
---------------------
The Capitol Queen project, as originally contemplated by CQC, was to
include the riverboat, dockside facilities, restaurants and related
ancillary facilities to be built on land acquired by the Company in July
1993. As a result of the decision to abandon the project, all costs
associated with the design and development of the facilities were
written-off in the fourth quarter of the Company's 1994 fiscal year, with
the exception of the historical cost of the land and related dredging.
The Company had contracted with shipbuilder to construct the Capitol Queen
riverboat. The total cost of the riverboat was $11,892,000, including
construction period interest and other costs. During the fourth quarter of
the year ended June 30, 1996, based on deteriorating market conditions
after the expiration of the Aerie contract, the Company recognized a loss
of $4,392,000 and wrote-down the carrying value of the riverboat to
$7,500,000. Such revised carrying value represents management's best
estimate of the riverboat's current net realizable value in a cash sale,
based on information obtained from shipbuilders, marine brokers, and
purchase offers made to the Company from third parties.
Jefferson City Development Agreement
------------------------------------
CQC acquired the franchise rights to operate the Capitol Queen under a
development agreement with the City of Jefferson City, Missouri (the
"Development Agreement"), beginning September 1, 1993 for a period of seven
years. CQC's rights and obligations under the Development Agreement were
contingent upon receiving a gaming license which, until the occurrence of
the events described in Note 2, management believed was probable.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that
as matter of law the 1995 election does not affect the validity of the
Development Agreement. However, to avoid the cost and uncertainty of
litigation, CQC and Jefferson City in June 1996 entered into an agreement
pursuant to which the Development Agreement was rescinded and Jefferson
City refunded $300,000 of the $400,000 CQC had originally paid to the City
under the Development Agreement.
Other Development Agreements
----------------------------
As discussed below, the Company and CQC have each entered into additional
agreements in connection with the development of the Capitol Queen project,
which have been terminated as a result of the decision by the Missouri
Gaming Commission.
In January 1993, prior to incorporation, the stockholders of CQC agreed
that, upon being licensed in Missouri to own and operate the Capitol Queen,
CQC would issue shares of its common stock to three individuals who
assisted the then existing stockholders of CQC in obtaining the rights to
develop the Capitol Queen (the "CQC Stock Agreement"). The aggregate amount
of stock subject to the CQC Stock Agreement represents 5.25% of the
outstanding common stock of CQC, and was subject to increase to 8.25% if a
convention center required under the Development Agreement was not
constructed on land controlled by the parties to the CQC Stock Agreement.
CQC has the option to repurchase any or all of such stock, except for 25%
held by one individual, for a period of three years from their issuance at
an aggregate purchase price equal to $750,000 ($1,200,000 if the additional
shares were issued). In addition to the above requirements of the CQC Stock
Agreement, CQC also agreed to pay a lump-sum fee of $350,000 to two of the
above individuals after receiving a license and the commencement of
operations of the Capitol Queen.
At the time CQC was awarded the Development Agreement, and until the
occurrence of the events described in Note 2, management believed it was
probable it would receive a gaming license in Missouri. Accordingly, to
reflect the CQC Stock Agreement, the Company recorded a minority interest
in subsidiary subscribed of $788,000 (using the $750,000 value described
above for 5.0% of the stock to determine the value of the remaining 25%
interest), recorded amounts payable under the agreement for $350,000 and
recorded a corresponding total charge of $1,138,000 to development costs,
to be amortized over the life of the Development Agreement. As a result of
the decision by the Missouri Gaming Commission and the abandonment of the
Capitol Queen project, management believes that it has been relieved of
these obligations. Accordingly, the subscribed stock, the $350,000
liability and the related deferred costs (net of amortization from
September 1, 1993 to June 30, 1994) were written-off in the fourth quarter
of fiscal 1994.
In September 1993, Becker Gaming agreed that it would repurchase certain
rights to acquire equity in CQC (the "Repurchase Agreement") which it had
previously granted to various parties (the "Sellers"). The Sellers assisted
Becker Gaming and CQC, through the Becker Gaming stockholders, in obtaining
the approval to develop, own and operate the Capitol Queen in Jefferson
City. Under the terms of the Repurchase Agreement, Becker Gaming agreed to
pay the Sellers an aggregate amount of $5,925,000, payable in installments
through July 1, 1997 and bearing interest at 10% per annum from the date
the Capitol Queen opens for business. Becker Gaming also agreed that if
prior to maturity, the Company proposed to sell any of its common stock in
an underwritten public offering, the Sellers may accept registered shares
in lieu of the payments required based on the public offering price of such
shares (less any underwriters' discount) subject to certain underwriter
limitations.
The Repurchase Agreement provided that in the event the development,
ownership or operation of a riverboat gaming business in Jefferson City
becomes unlawful or CQC is declined a gaming license, the Repurchase
Agreement becomes null and void. At the time Becker Gaming entered the
Repurchase Agreement, and until the occurrence of the events described in
Note 2, the Company believed it was probable it would receive a gaming
license in Missouri. Accordingly, the Company recorded a liability under
the Repurchase Agreement and the related present value of the costs to the
Sellers of $5,232,000 was recorded as deferred development costs to be
amortized over the life of the Development Agreement.
As a result of the decision by the Missouri Gaming Commission and the
abandonment of the Capitol Queen project, Becker Gaming believes that it
has been relieved of its obligations under the Repurchase Agreement.
Accordingly, the liability to the Sellers and the related deferred costs
(net of amortization from September 1, 1993 to June 30, 1994) were
written-off in the fourth quarter of fiscal 1994.
In addition to the above, in the fourth quarter of fiscal 1994, CQC
wrote-off other previously capitalized expenditures of $1,375,000 and
wrote-off capitalized preopening expenses of $340,000 associated with the
development of the Capitol Queen project.
4. Related-Party Transactions:
In anticipation of the January 1, 1994 termination of the S corporation
elections by AC, BGG and SC, on December 24, 1993 AC, BGG and SC
distributed $5,000,000, $800,000 and $3,000,000, respectively, to their
stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to AC, BGG and SC by the
stockholders in the form of subordinated notes payable. The AC and SC notes
bear interest at an annual rate of 10%, payable monthly, with the entire
principal amount due on January 1, 2001. The BGG notes bear interest at an
annual rate of 10%, payable monthly with the entire principal amount due in
December 1996. Prior to the transaction, the Company borrowed funds from
its stockholders as described in Note 9. Interest expense incurred under
stockholder notes was $898,000, $887,000, and $456,000 for the years ended
June 30, 1996, 1995 and 1994, respectively. The Company also has various
receivables from its stockholders, totaling $198,000 at June 30, 1996 and
1995. The receivables are unsecured and bear interest at a rate of 4.5% per
annum.
As part of the Reorganization, in June 1994, the stockholders also caused
the ownership of the land underlying AC's hotel and casino facilities to be
transferred to the Company from Charlie's Land Company ("CLC"), an entity
also owned by the Becker Gaming stockholders. The land was first conveyed
to Becker Gaming by CLC in exchange for 533,929 shares of Becker Gaming
stock and then contributed by Becker Gaming to AC. The Company has valued
the stock issued to CLC using the BGI stockholders' historical basis of the
land ($208,000), due to the related party nature of the transaction.
Concurrent with the contribution of the CLC land, the Company forgave
$729,000 due from CLC which arose when AC paid-off CLC's mortgage on the
land in contemplation of the Reorganization. The forgiveness of
indebtedness from CLC has been reflected as a distribution to the
stockholders in the 1994 financial statements.
The Company's subsidiary BGG has a number of leases of land on which
certain of its operations are located. These leases are with companies
related to Becker Gaming through common ownership. Total rental expense
under these leases amounted to $437,000, $314,000 and $229,000 for the
years ended June 30, 1996, 1995 and 1994, respectively.
Charleston Heights Shopping Center ("CHSC") an entity also owned by the
Becker Gaming stockholders, owns the land on which certain of the Company's
administrative offices are located and, prior to the Reorganization, CLC
owned the land on which AC's operations are located. Rent expense paid to
CHSC and CLC and included in results of operations of the Company was
$217,000, $191,000 and $343,000 for the years ended June 30, 1996, 1995 and
1994, respectively. The rental fees include the cost of insurance, taxes
and common area maintenance on the land.
The Company's president operates a sole proprietorship under the name
"Becker Vending" which places arcade, cigarette, music and other vending
machines at AC and SC and BGG locations. The Company provides nominal
collection and accounting services to Becker Vending in connection with
these machines. The Company does not receive any rental fee or other
payment from Becker Vending in connection with these agreements. Becker
Vending retains all amounts deposited in its vending machines. Becker
Vending also sells to AC cigarettes, candy and similar items for resale in
the AC gift shop.
5. Supplemental Cash Flow Information:
The following are supplemental disclosures of cash flow information for the
years ended June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid, net of
amounts capitalized ....... $ 7,922,000 $12,005,000 $ 6,096,000
=========== =========== ===========
Income taxes paid ........... $ $ 338,000 $ 340,000
=========== =========== ===========
Capitalize lease
obligations incurred ...... $ 166,000 $ 222,000 $ 3,694,000
=========== =========== ===========
</TABLE>
6. Notes Receivable:
Notes receivable consist of loans to various proprietors who have entered
into slot route agreements with SC. Such loans are primarily used to
finance long-term facility improvements to the slot locations, are
collateralized by related assets of the proprietors' facilities, bear
interest at rates up to prime plus 2.5%, and are due in varying weekly or
monthly installments through 2003.
7. Accrued Expenses:
Major classes of accrued expenses consist of the following as of June 30,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Wages payable and salaries ................. $1,100,000 $ 769,000
Accrued vacation ........................... 306,000 255,000
Group insurance ............................ 352,000 300,000
Gaming taxes ............................... 250,000 273,000
Payroll and other taxes .................... 405,000 445,000
Progressive slot liability ................. 100,000 102,000
Accrued interest (including
past-due interest of CQC
in the amount of $2,400,000) ............. 3,354,000 1,374,000
Other accrued expenses ..................... 542,000 156,000
---------- ----------
$6,409,000 $3,674,000
========== ==========
</TABLE>
8. Notes Payable:
Notes payable as of June 30, 1996 and 1995 consist of a 5.96%
uncollateralized note payable in monthly installments of $22,532, including
interest, through January 1997.
9. Long-Term Debt:
Long-term debt consists of the following as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
12% First Mortgage Notes Due November 15, 2000 (the "AC Notes") with interest
payable semi-annually, collateralized by the assets of AC and
guaranteed by SC (A) .................... $ 55,000,000 $ 55,000,000
12% First Mortgage Notes Due November 15, 2000 (the "CQC Notes")with interest
payable semi-annually, collateralized by the assets of CQC and guaranteed by
AC, less unamortized original issue discount of $2,474,000 (1996)
and $2,882,000 (1995)(A) .................... 17,526,000 17,118,000
Prime plus 1.5%, $1.5 million revolving line of credit available through June
1994, (line expired and not renewed); amounts outstanding under the line of
credit at June 30, 1994 were converted to a term note payable with interest and
principal due monthly through June 1998, collaterlized by substantially all of
the assets of SC and personal
guarantees of the Company's stockholders .... 113,000 199,000
Prime plus 1.5%, term note payable with interest and principal due monthly
through January 1, 2001 collateralized by Security agreement dated July 15,
1994 and a right to lien without notice all property and deposit accounts of SC
Borrowings were made under a $1.2 million non-revolving line of
credit agreement of SC (B) .................. 162,000 214,000
Prime plus 2.0%, term note payable with interest and principal due monthly
through April 23, 2000 collaterlized by a security agreement dated July 15,
1994 and right to lien without notice all property and deposits accounts of SC.
Borrowings were made under a $1.2 million non-revolving line credit
agreement of SC (B) ......................... 262,000 331,000
Prime plus 2.0%, term note payable with interest and principal due monthly
through May 9, 2000 collaterlized by a security agreement dated July 15, 1994
and right to lien without notice all property and deposits accounts of SC.
Borrowings were made under a $1.2 million non-revolving line credit
agreement of SC (B) ......................... 119,000 147,000
Prime plus 1.5%, term note payable with interest and principal due monthly
through April 10, 2001, collateralized by security agreement dated October 2,
1995 and a right to lien without notice all property and deposit accounts of
SC. Borrowings made under a $1.2 million non-revolving line of
credit agreement of SC (B) .................. 102,000 --
Prime plus 1.6% note payable, due in monthly installments of $7,450 plus
interest through April 2004, collateralized by the assets of the stockholders
of the Company and
substantially all assets owned by BGG ....... 930,000 1,030,000
Other notes payable .......................... 23,000 28,000
------------ ------------
74,237,000 74,067,000
Less current portion (including
the CQC and AC Notes which have
been classified as current) ............... (72,907,000) (17,474,000)
------------ ------------
$ 1,330,000 $ 56,593,000
============ ============
</TABLE>
(A) On November 18, 1993, CQC completed a private placement debt financing of
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 CQC Notes is payable semiannually and the CQC
Notes mature on November 15, 2000.
The CQC Notes are guaranteed by AC (which guarantee is subject to release
only upon licensing of the Capitol Queen, which is not expected) and are
collateralized by a first mortgage on substantially all of the assets of
the Capitol Queen project. The CQC Notes have been classified as currently
payable at June 30, 1996 and 1995 due to anticipated acceleration upon
default and management's plans to negotiate a payoff of the indebtedness,
as more fully described in Note 2. The Company incurred an extraordinary
loss of $4,089,000 in 1995 reflecting a $200,000 premium paid to retire
$20,000,000 principal amount of the debt and the write-off of related,
unamortized original issue discount and financing costs in the aggregate of
$3,889,000.
Also on November 18, 1993, AC completed a private placement debt financing
of the AC Notes. The offering generated net proceeds of approximately
$33,684,000 (after deducting debt issue costs and approximately $16,924,000
and $497,000 used to repay principal and interest, respectively, to a bank
which was due and payable). Interest on the AC Notes is payable
semiannually and the AC Notes mature on November 15, 2000. The AC Notes are
guaranteed by SC (which guarantee is subject to release upon completion of
the Expansion, which management believes has been satisfied, and the
attainment of a fixed-coverage ratio by AC of 2.25 to 1, following the
completion of the expansion, which has not been satisfied) and are
collateralized by a first mortgage on substantially all of the assets of
AC, including the Expansion.
As of June 30, 1996, AC is in default of certain debt covenants under the
Indenture governing the AC Notes. These covenant violations include (i) a
failure to meet a minimum Fixed Charge Coverage ratio, as defined in the
Indenture, and (ii) advances by AC to Becker Gaming, Inc. which exceed
amounts allowed for under the Indenture. Such advances remain outstanding
at June 30, 1996. In addition, beginning with the quarter ending December
31, 1995, AC has not met the Minimum Tangible Net Worth requirement,
defined in the AC Indenture. Under the terms of the Indenture, AC is
technically required to offer to buy back $11,000,000 of the outstanding AC
Notes at June 30, 1996 due to the failure to meet this covenant, increasing
by $5,500,000 each fiscal quarter. AC has not made such offer and does not
intend to do so while the discussion's with the Bondholder Committee are in
process. As a result of these defaults under covenants, the AC Notes have
been classified as currently payable in the accompanying financial
statements. Management's plans are more fully described in Note 2.
Concurrent with the placement of the CQC and AC Notes, Becker Gaming sold
warrants (the "Warrants") exercisable for 2,500,000 shares of Becker Gaming
common stock for net proceeds of $7,005,000 (after deducting issuance
costs). The gross proceeds from the sale of the Warrants of $7,500,000 were
contributed to CQC. The Warrants are exercisable at June 30, 1994 and
continue to be exercisable up to and including November 15, 2000. The
exercise price of $.01 per warrant and the number of shares of common stock
issuable upon exercise of the Warrants are subject to adjustment in certain
circumstances.
The Indenture governing the CQC Notes (the "CQC 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 proceeds were placed in escrow with a trustee pending draws for
qualifying project expenditures. As more fully explained in Note 2, certain
of the proceeds were used in January 1995 in connection with the first step
of the plan to repay the CQC Notes. The CQC Notes are not subject to
mandatory redemption, except upon a change of control, or other
circumstances as defined in the Indenture. CQC has the option to redeem the
CQC 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, Becker
Gaming consummates an initial public offering of its common stock, CQC may
also redeem the CQC Notes, at a premium of 108%.
The CQC Indenture contains covenants that, among other things, limit the
ability of CQC and, in certain cases, AC, to pay dividends or management
fees, or incur additional indebtedness. At June 30, 1996, CQC had a net
deficit of approximately $14,000,000.
The indenture governing the AC Notes (the "AC Indenture") limits the use of
the net proceeds from the offering to fund the cost of the Expansion. The
proceeds were placed in escrow with a trustee pending drawdowns for
qualifying project expenditures. The AC Notes are not subject to mandatory
redemption, except upon a change of control, decline in tangible net worth,
or certain asset sales, all as defined in the AC Indenture. AC has the
option to redeem the AC Notes at a premium of 106% beginning on November
15, 1997, declining to par value on November 15, 1999.
The AC Indenture contains covenants that, among other things, limit the
ability of AC and, in certain cases, SC, to pay dividends or management
fees, or incur additional indebtedness. At June 30, 1996 approximately
$1,500,000 of SC net assets were restricted by such Indenture covenants; AC
had a net deficit of approximately $9,500,000 at June 30, 1996. The AC
Indenture also requires the Expansion to be completed in a specified manner
and time frame, which management believes has been achieved.
(B) In July 1994 SC entered into an agreement with a bank for a
$1.2 million non-revolving line of credit. Each advance was
evidenced by a separate promissory note with a maturity date
not exceeding 66 months from the date of the respective
advance. SC was able to request advances through October 28,
1995 at which time SC's right to receive advances under the
agreement was terminated until the defaults under other
indebtedness are cured. Advances under the agreement bear
interest at rates ranging from 1.5% to 2.0%
plus the bank's prime rate. The $1.2 million non-revolving
line of credit includes an acceleration clause which would
cause the full amount of the obligation to become due on
demand if a material adverse change occurs in SC's financial
condition, business operations or ownership or management.
Maturities of long-term debt at June 30, 1996 (including the CQC Notes and
AC Notes which have been classified as current) are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $72,907,000
1998 312,000
1999 278,000
2000 216,000
2001 102,000
Thereafter 422,000
-----------
$74,237,000
===========
</TABLE>
10. Income Taxes:
The components of the income tax provision for the years ended June 30,
1996, 1995 and 1994, net of extraordinary items, are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Current:
Federal ............................. $ -- $ -- $340,000
Deferred:
Federal ............................. -- -- --
------ ------ ------
Total income tax provision ..... $ -- $ -- $340,000
====== ====== ========
</TABLE>
The components included in determining the provision for income taxes for
the years ended June 30, 1996, 1995 and 1994, net of extraordinary items,
are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at federal
income tax statutory rate ........... $(3,817,000) $(2,598,000) $ (417,000)
Income tax liability borne by
stockholders during period of S
corporation status .................. -- -- (866,000)
Increase (decrease) in taxes resulting from:
Unrecognized tax benefit from net
operating losses ................... 3,677,000 2,525,000 1,418,000
Future deductible amounts arising
from abandonment of assets ......... -- -- 175,000
Other ............................... 140,000 73,000 30,000
------- ------ ------
Income tax provision ................ $ -- $ -- $ 340,000
======= ======= ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes. The major
components of deferred tax liabilities and assets as of June 30, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities:
Depreciation ................................ $ 863,000 $ 221,000
Assets:
Federal net operating loss carryforwards .... 7,320,000 5,564,000
Accrued interest expense .................... 918,000 --
Valuation allowances for assets held for sale 1,643,000 --
Bad debt expense ............................ 30,000 --
Other ....................................... -- --
--------- ---------
Total deferred tax assets ............... 9,911,000 5,564,000
--------- ---------
Valuation allowance ......................... (9,048,000) (5,343,000)
---------- ----------
Net deferred taxes ...................... $ -- $ --
---------- ----------
</TABLE>
As of June 30, 1996 the Company had a federal net operating loss carryforward
of approximately $21,529,000 which expires between 2009 and 2011.
11. Leases And Commitments:
The Company has entered into capital lease agreements whereby the Company
leases various equipment under three-, five-, seven-, and ten-year leases
which expire at various dates through 2000.
Property and equipment includes the following property leased under capital
leases as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Equipment ................... $ 4,201,000 $ 4,969,000
Less accumulated depreciation (672,000) (643,000)
----------- -----------
$ 3,529,000 $ 4,326,000
=========== ===========
</TABLE>
The Company also leases various other equipment under operating leases
which expire in varying years through 2001.
The Company leases office space under a 10-year operating lease, which
expires in 1998, from CHSC, as more fully described in Note 4.
Future minimum lease payments, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms
of one year or more consist of the following at June 30, 1996 (refer to
Note 13 regarding pay-off of a portion of the obligation subsequent to June
30, 1996):
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
1997 $2,073,000 $ 773,000
1998 129,000 718,000
1999 53,000 379,000
2000 17,000 302,000
2001 -- 301,000
Thereafter ........................ -- 1,274,000
--------- ---------
Total minimum lease payments ...... $2,272,000 $3,747,000
========== ==========
Less amount representing interest 115,000
Present value of net
minimum lease payments ........ 2,157,000
Less current portion ............ 1,960,000
Obligations under capital lease . $ 197,000
==========
</TABLE>
The total rental expense included in operations for operating leases during
the years ended June 30, 1996, 1995 and 1994 was $694,000, $617,000 and
$792,000, respectively.
12. Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending
litigation and claims will not have a material effect on the Company's
results of operations, cash flows, or financial position.
13. Defined Contribution Plan:
The Company has adopted a 401(k) Defined Contribution Plan (the "Plan")
covering substantially all of its employees. Eligible employees may
contribute up to 10% of their annual compensation to the Plan, up to
certain limits prescribed by the Internal Revenue Service. The Company
matches 25% of each eligible employee's contributions up to a maximum of 6%
of their individual earnings. In addition, the Company contributes an
amount equal to 2% of each participant's earnings. The Plan went into
effect July 1, 1990.
The Company recorded charges for contributions of $560,000, $449,000 and
$405,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
14. Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, capital lease
obligations and notes payable approximate their respective fair values due
to the short-term maturities and approximate market interest rates of these
instruments.
Management is unable to determine a fair value for the outstanding
$55,000,000 principal amount of 12% First Mortgage Notes due November 15,
2000 of Arizona Charlie's, Inc. (the "AC Notes") or the outstanding
$20,000,000 principal amount ($17,526,000 carrying amount at June 30, 1996)
of 12% First Mortgage Notes due November 15, 2000 of Capitol Queen and
Casino, Inc. (the "CQC Notes"). It is not practicable to determine the fair
value of these financial instruments due to the debt covenant violations
and related uncertainties involved in negotiations with the holders of the
AC Notes and CQC Notes, as more fully discussed in Note 2.
15. Subsequent Event:
On July 26, 1996, the Company sold its corporate aircraft for net proceeds
of approximately $3,200,000 and retired a related obligation under capital
lease of approximately $1,800,000. During the fourth quarter of the year
ended June 30, 1996, the Company recognized a write-down in the carrying
value of the aircraft of approximately $440,000 based upon the difference
between the carrying value and the contracted sales price. The aircraft is
classified as an asset held for sale at June 30, 1996 in the accompanying
financial statements.
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Arizona Charlie's, Inc.
We have audited the financial statements and the financial statement schedule of
Arizona Charlie's, Inc. (a wholly owned subsidiary of Becker Gaming, Inc.)
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arizona Charlie's, Inc. as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying financial statements have been prepared assuming that Arizona
Charlie's, Inc. ("AC") will continue as a going concern. As more fully described
in Note 2, AC is in default of debt covenants, resulting in the classification
of such debt as currently payable. AC is also obligated as a guarantor under
indebtedness of an affiliated company, and such indebtedness is also in default.
AC does not have sufficient resources to repay the indebtedness or honor its
guarantee on a current basis and management's plans are also described in Note
2. These matters raise substantial doubt about the ability of Arizona Charlie's,
Inc. to continue as a going concern. The final outcome of these matters is not
presently determinable and the June 30, 1996 financial statements of the Arizona
Charlie's, Inc. do not include any adjustment that might result from the outcome
of this uncertainty.
Las Vegas, Nevada
August 9, 1996
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEET
As Of June 30, 1996 and 1995
(Dollars In Thousands)
----------
================================================================================
ASSETS
1996 1995
-------- --------
Current assets:
Cash and cash equivalents.................... $ 4,591 $ 5,404
Restricted cash, in escrow account........... 10 10
Trade and other accounts receivable.......... 473 658
Receivable from related parties.............. 1,539 820
Notes receivable from related party.......... -- 4,416
Inventories ................................. 575 661
Prepaid expenses ............................ 1,118 1,162
-------- --------
Total current assets...................... 8,306 13,131
-------- --------
Property and equipment:
Building and improvements ................... 37,488 37,485
Furniture and equipment...................... 22,575 22,609
Land improvements ........................... 1,628 1,628
-------- --------
61,691 61,722
Less, accumulated depreciation .............. (16,218) (13,572)
-------- --------
45,473 48,150
Land ........................................ 208 208
-------- --------
Net property and equipment.............. 45,681 48,358
-------- --------
Other assets:
Receivable from related party, noncurrent.... 987 240
Deposits and other .......................... 460 551
Notes receivable from related party ......... -- 4,416
Financing costs, less accumulated
amortization of $1,366 (1996)
and $880 (1995) 2,507 2,993
-------- --------
Total other assets...................... 8,370 3,784
-------- --------
Total assets ........................... $ 62,357 $ 65,273
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
1996 1995
-------- --------
Current
liabilities:
Trade accounts payable...................... $ 1,452 $ 1,449
Construction accounts payable .............. --
Accounts payable to related parties......... 4 3
Accrued expenses ........................... 3,323 3,097
Management fees due Becker Gaming, Inc...... 4,682 3,287
Notes payable............................... 110 121
Notes payable to related party.............. 2,250 2,250
Current portion of
obligations under capital leases......... 15 4
Long-term debt classified as
current due to default
under covenants ......................... 55,000 --
-------- --------
Total current liabilities............ 66,836 10,211
Long-term debt, less current portion.......... -- 55,000
Subordinated notes payable to prior
stockholders ............................... 5,000 5,000
Obligations under capital leases,
less current portion ......... 22 4
-------- --------
Total liabilities.................... 71,858 70,215
-------- --------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, no par value, 2,500
shares authorized, 1,000 shares
issued and outstanding................... 469 469
Retained earnings (deficit)................. (9,970) (5,411)
-------- --------
Total stockholder's equity
(deficit)................. (9,501) (4,942)
-------- --------
Total liabilities and
stockholder's equity (deficit)....... $ 62,357 $ 65,273
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF OPERATIONS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
------------------------------------------------
1996 1995 1994
Revenues:
Gaming ............................. $ 52,831 $ 47,466 $ 38,955
Food and beverage .................. 13,204 10,647 8,459
Hotel .............................. 3,208 2,614 1,219
Bowling ............................ - - 251
Gift shop .......................... 590 577 535
Management fee from affiliates ..... - - 281
Other .............................. 1,145 912 399
-------- -------- --------
Gross revenues ................. 70,978 62,216 50,099
Less, promotional allowances ......... (7,677) (5,134) (3,652)
-------- -------- --------
Net revenues ................... 63,301 57,082 46,447
-------- -------- --------
Operating expenses:
Gaming ............................. 18,612 15,359 11,681
Food and beverage .................. 12,511 11,388 8,389
Hotel .............................. 1,413 1,377 714
Bowling ............................ - - 387
Gift shop .......................... 475 450 458
Advertising and promotion .......... 4,726 3,837 3,093
General and administrative ......... 17,660 15,358 13,867
Payments under guarantee obligation 601 1,592 -
Management fee - Becker Gaming, Inc. 1,396 3,099 188
Rent expense paid to related party . 217 191 343
Depreciation and amortization ...... 3,491 3,373 2,222
-------- -------- --------
Total operating expenses ....... 61,102 56,024 41,342
-------- -------- --------
Operating income ............... 2,199 1,058 5,105
-------- -------- --------
Other income (expenses):
Interest income .................... 286 580 769
Interest expense ................... (7,095) (7,250) (5,223)
Interest capitalized ............... 676 460
Other, net ......................... 51 - 23
Total other expenses ........... (6,758) (5,994) (3,971)
-------- -------- --------
Net (loss)income before income tax (4,559) (4,936) 1,134
Provision for income taxes - - -
-------- -------- --------
Net (loss) income ................ $ (4,559) $ (4,936) $ 1,134
======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc. )
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) For The Years
Ended June 30, 1996, 1995 And 1994
(Dollars In Thousands)
================================================================================
Additional
Common Stock Paid-in
Shares Amount Capital
------ ------- ------
Balances, June 30, 1993 ............ 1,000 $ 1,513 $-
Distributions to stockholders .....
Reclassification of undistributed
earnings to additional paid-in
capital upon termination of S
corporation election .......... -- -- 732
Contribution of land from
Becker Gaming, Inc. ........... -- -- 208
Forgiveness of receivable from
Charlie's Land Company in
connection with the
Reorganization ................ -- -- (729)
Net transfer of certain assets
and liabilities to Becker
Gaming, Inc. as part of
the Reorganization ............ -- (1,044) (211)
Net income ........................ -- -- --
------ ------- ------
Balances, June 30, 1994 ............ 1,000 469 --
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1995 ............ 1,000 469 --
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1996 ............ 1,000 $ 469 $-
====== ======= ======
Retained
Earnings
(Deficit) Total
------- -------
Balances, June 30, 1993 ............ $ 4,440 $ 5,953
Distributions to stockholders ..... (5,317) (5,317)
Reclassification of undistributed
earnings to additional paid-in
capital upon termination of S
corporation election .......... (732) --
Contribution of land from
Becker Gaming, Inc. ........... -- 208
Forgiveness of receivable from
Charlie's Land Company in
connection with the
Reorganization ................ -- (729)
Net transfer of certain assets
and liabilities to Becker
Gaming, Inc. as part of
the Reorganization ............ -- (1,255)
Net income ........................ 1,134 1,134
------- -------
Balances, June 30, 1994 ............ (475) (6)
Net loss .......................... (4,936) (4,936)
------- -------
Balances, June 30, 1995 ............ (5,411) (4,942)
Net loss .......................... (4,559) (4,559)
------- -------
Balances, June 30, 1996 ............ $(9,970) $(9,501)
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
--------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income (loss) ............................ $ (4,559) $ (4,936) $ 1,134
-------- -------- --------
Adjustments to reconcile net income
(loss) to net provided by (used by)
operating activities:
Provision for losses on related
party receivables .......................... 601 1,592 --
Depreciation and amortization ............... 3,491 3,373 2,222
(Gain) loss on sale of equipment ............ 11 (2) (23)
(Increase) decrease in operating assets:
Receivables ................................. 185 (387) 408
Inventories ................................. 86 (108) 33
Prepaid expenses ............................ 241 (339) 433
Deposits and other .......................... (41) (92) --
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts
for capital ................................ 3 (144) 633
expenditures
Accrued expenses ............................ 226 716 848
Management fees due to Becker Gaming, Inc. .. 1,395 3,099 188
-------- -------- --------
Total adjustments ......................... 6,198 7,708 4,742
-------- -------- --------
Net cash provided by operating activities . 1,639 2,772 5,876
-------- -------- --------
Cash flows from investing activities:
Note receivable issued to CQC ............... -- (1,200) --
Capital expenditures, net of amounts in
accounts payable ........................... (190) (24,253) (11,379)
Increase in receivable from Becker Gaming,
Inc ........................................ (2,065) (4,154) (300)
Net (additions to) reductions in restricted
cash equivalents .......................... -- 26,102 (26,112)
Proceeds from assets sales .................. 15 104 269
Deposits and other .......................... -- -- 342
-------- -------- --------
Net cash used in investing activities ..... (2,240) (3,401) (37,180)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable, net of
financing costs ............................ -- -- 51,105
Proceeds from subordinated notes payable to . -- -- 5,000
stockholders
Proceeds from borrowing under notes payable . -- 2,250 --
Principal payments on notes payable ......... (208) (199) (17,421)
Payments under capital lease obligations ...... (4) (32) (848)
Distributions to former stockholders ........ -- -- (5,317)
Payment of liability for Charlie's Land
Company .................................... -- -- (729)
-------- -------- --------
Net cash provided by (used in) financing
activities ................................. (212) 2,019 31,790
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ................................ (813) 1,390 486
Cash and cash equivalents, beginning of
the year .................................... 5,404 4,014 3,528
-------- -------- --------
Cash and cash equivalents, end of the year .... $ 4,591 $ 5,404 $ 4,014
======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
----------
1. Summary Of Significant Accounting Policies:
Nature Of Operations
- --------------------
Arizona Charlie's, Inc. ("AC" or the "Company") owns and operates
a casino and related hotel in Las Vegas, Nevada.
In connection with the financing transaction more fully discussed in Note 6, the
stockholders of AC exchanged all of their stock in the Company for stock of
Becker Gaming, Inc. ("BGI") (the "Reorganization") and, effective June 1, 1994,
AC became a wholly owned subsidiary of BGI. BGI has no independent activities
other than providing management and administrative services to, and exploring
and developing business opportunities for its subsidiaries, and serves as a
holding company for AC and the following entities:
o Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
in the development stage of construction of a riverboat casino in
Jefferson City, Missouri (the "Capitol Queen").
o Sunset Coin, Inc. ("SC"), a Nevada corporation which
operates a Las Vegas gaming machine route and service business.
o Becker Gaming Group ("BGG"), a Nevada corporation which, together with
its wholly owned subsidiary Innerout, Inc., owns and operates restaurants
and bars in Las Vegas under the "Charlie's" name, each of which offers
gaming machines.
As a part of the Reorganization described above, the following transactions
occurred:
o The stockholders of BGI caused the ownership of the land underlying and
adjacent to Arizona Charlie's to be transferred to the Company from
Charlie's Land Company ("CLC"), an entity also then owned by the BGI
stockholders. The land was first conveyed to BGI by CLC in exchange for
BGI stock and then contributed by BGI to AC at its historical cost basis
of approximately $208,000. Concurrent with the transfer of land, AC
forgave $729,000 due the Company from CLC which arose in November 1993
when the Company paid-off CLC's mortgage on the land in contemplation of
the Reorganization.
o Certain property and equipment, consisting of aircraft and
boats with a net book value of approximately $5,254,000, accounts
payable relating to such property and equipment of approximately
$252,000, and related encumbrances in the form of capital lease
obligations totaling approximately $3,900,000, were transferred
from AC to BGI. In addition, certain prepaid expenses totaling
approximately $153,000 were transferred from AC to BGI. Such
prepaid expenses consisted primarily of insurance related to
certain personnel who were transferred from the Company to BGI in
connection with the Reorganization. The net effect of the above
transactions was to transfer net assets with a historical book
value of approximately $1,255,000.
The forgiveness of indebtedness from CLC and the transfer of net assets to BGI
are reflected as distributions to stockholders in the Company's June 30, 1994
Statement of Stockholder's Equity
(Deficit).
Subsequent to the Reorganization, certain overhead expenses of the Company
(primarily related to executive compensation), have been eliminated. However,
effective June 1, 1994, the Company is required to pay a management fee to BGI
in connection with executive services equal to a percentage of the Company's
gross operating revenues. Under the AC Indenture, no management fees will be
payable by AC until completion of AC's ongoing expansion project and such time
as AC has attained a specified fixed charge coverage ratio of 2.25 to 1.
However, such fees accrue until paid. See Note 9 of AC's Notes to Financial
Statements.
Gaming Revenue
- --------------
In accordance with industry practice, the Company recognizes as gaming revenue
the net win from gaming activities, which is the difference between gaming wins
and losses.
Promotional Allowances
- ----------------------
The retail value of hotel accommodations, food, beverage and gift shop items
provided to customers without charge is included in gross revenues and then
deducted as promotional allowances to arrive at net revenues. The estimated
costs of providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocations, as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Hotel ......... $ 261 $ 164 $ 119
Food & Beverage 3,824 2,260 2,005
----- ----- -----
$4,085 $2,424 $2,124
====== ====== ======
</TABLE>
Cash Equivalents And Concentration Of Credit Risk
- -------------------------------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company has cash on deposit
with financial institutions in excess of federally insured amounts.
Inventories
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market.
Property And Equipment
- ----------------------
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense when incurred. Upon retirement or disposal of assets, the cost and
accumulated depreciation are eliminated from the accounts and the resulting gain
or loss is credited or charged to income, as appropriate.
Building, building improvements and land improvements are depreciated using the
straight-line method over estimated useful lives of 5 to 40 years. Furniture and
equipment are depreciated using straight-in declining balance methods over
estimated useful lives of 5 to 10 years.
Financing Costs
- ---------------
Costs associated with the issuance of debt are deferred and amortized over the
life of the related indebtedness using the effective interest method.
Preopening Expense
- ------------------
Certain preopening costs, consisting principally of personnel cost, training and
other costs directly associated with the opening of new hotel-casino or
significant expansions of the existing hotel-casino are capitalized and charged
to expense over a period not to exceed one year following the commencement of
related operations. During the year ended June 30, 1994, the Company capitalized
$27,000 of preopening costs which were amortized during the year ended June 30,
1995 after the expansion was completed. During the years ended June 30, 1996 and
1995, the Company did not capitalize any preopening costs.
Federal Income Taxes
- --------------------
Prior to January 1, 1994, the Company was taxed under Section 1362 (Subchapter
S) of the Internal Revenue Code, which provides that, in lieu of corporate
income taxes, the stockholders are taxed on their proportionate share of the
Company's taxable income or loss. Therefore, these financial statements do not
include any provision or liability for corporate income taxes for the periods
prior to December 31, 1993.
Effective January 1, 1994, the Company terminated its S corporation election and
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment position or results of operations.
In connection with the Reorganization, beginning June 1, 1994, the Company is
included in the consolidated federal income tax returns filed by BGI. AC's tax
allocation is based on the amount of tax it would incur if it filed a separate
return, except the Company does not receive any benefit from carrybacks to prior
years.
Reclassifications
- -----------------
Certain amounts in the 1994 and 1995 financial statements have been reclassified
to conform with the 1996 presentation.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates, particularly with respect to
the matters discussed in Note 2.
2.CQC Gaming License, Default Under Indebtedness, Management's Plans,
and Going Concern:
AC has guaranteed the payment of principal and interest of 12% First Mortgage
Notes due November 15, 2000 issued by CQC, of which $20,000,000 principal amount
and $2,400,000 in past-due accrued interest are outstanding at June 30, 1996.
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 ultimately determined to
abandon 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 and
$1,200,000 on May 15, 1996 and AC did not have available funds to advance on
behalf of CQC. AC is also in default of certain covenants under its indebtedness
(the "AC Notes", as more fully described in Note 6). AC is restricted from
selling assets under the covenants governing the AC Notes and management
believes that access to additional capital from other sources is restricted as 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 in Note 6) to repay the AC Notes on a current basis and satisfy its
guarantee obligation with respect to the CQC Notes. 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.
CQC continues to market its riverboat assets to prospective buyers and
Management of the Company, AC and CQC are currently undergoing discussions with
an informal committee representing the holders of the AC Notes and CQC notes
(the "Bondholder Committee") regarding a proposed restructuring plan. Based on
current market conditions, management does not expect that CQC will generate
sufficient funds through the sale of its assets to repurchase all of the
outstanding CQC Notes. The proposed restructuring plan therefore contemplates
the issuance of additional AC Notes to fulfill AC's guarantee obligation for
remaining principal and accrued interest of the CQC Notes after applying sale
proceeds. However, no satisfactory offers for the riverboat are currently
available, and no agreement has been reached with the Bondholder Committee
regarding the proposed restructuring plan. Accordingly, these matters raise
substantial doubt about the ability of AC to continue as a going concern. The
final outcome of these matters is not presently determinable and the June 30,
1996 financial statements of AC do not include any adjustment that might result
from the outcome of this uncertainty.
3.Supplemental Cash Flow Information:
The following are supplemental disclosures of cash flow information for the
years ended June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest paid, net of amounts
capitalized ........................ $7,116,000 $7,115,000 $3,883,000
========== ========== ==========
Capitalized lease obligations
incurred ........................... $ 34,000 $ 9,000 $3,650,000
========== ========== ==========
Net transfer of assets and
liabilities to Becker Gaming, Inc. . $ -- $ -- $1,255,000
========== ========== ==========
Contribution of land to AC from
Becker Gaming, Inc. ................ $ -- $ -- $ 208,000
========== ========== ==========
Net transfer of assets and related
liabilities from Becker Gaming, Inc. $ -- $ 25,000 $ --
========== ========== ==========
</TABLE>
4.Accrued Expenses:
Major classes of accrued expenses consist of the following as of June 30, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Wages payable and accrued salaries $ 811,000 $ 703,000
Accrued vacation ................. 306,000 251,000
Group insurance .................. 352,000 300,000
Gaming taxes ..................... 239,000 260,000
Payroll and other taxes .......... 405,000 381,000
Progressive slot liability ....... 88,000 94,000
Other accrued expenses ........... 128,000 93,000
Accrued interest ................. 994,000 1,015,000
------- ---------
$3,323,000 $3,097,000
========== ==========
</TABLE>
5.Notes Payable:
Notes payable consist of the following as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Related parties:
Notes payable to SC with interest at 5.56%
uncollaterized and due May 1997 ............ $2,250,000 $2,250,000
Nonrelated parties:
5.96% note payable in monthly
installments of $22,352, including interest,
through January, 1997, uncollateralized .... $ 110,000 $ 121,000
----- ---------- ----------
Total notes payable ........... $2,360,000 $2,371,000
========== ==========
</TABLE>
6.Long-Term Debt:
Long-term debt consists of the following as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
12% First Mortgage Notes Due November 15, 2000 (the "AC Notes") with interest
payable semiannually classified as currently payable due to defaults under
covenants (see below) ................. $55,000,000 $55,000,000
=========== ===========
</TABLE>
On November 18, 1993, the Company completed a private placement of the AC Notes.
The offering generated net proceeds of approximately $33,684,000 (after
deducting debt issue costs of approximately $16,294,000 and $497,000 used to
repay principal and accrued interest, respectively, to a bank which was due and
payable on November 18, 1993). The AC Notes are guaranteed by SC (which
guarantee is subject to release upon completion of the Expansion which
management believes has been satisfied, and the attainment of a fixed coverage
ratio by the Company of 2.25 to 1, following the completion of the Expansion,
which has not been satisfied) and are collateralized by a first mortgage on
substantially all of assets of the Company, including the Expansion.
As of June 30, 1996, AC is in default of certain debt covenants under the
Indenture governing the AC Notes. These covenant violations include (i) a
failure to meet a minimum Fixed Charge Coverage ratio, as defined in the
Indenture, and (ii) advances by AC to Becker Gaming, Inc. which exceed amounts
allowed for under the Indenture. Such advances remain outstanding at June 30,
1996. In addition, beginning with the quarter ending December 31, 1995, AC has
not met the Minimum Tangible Net Worth requirement, defined in the AC Indenture.
Under the terms of the Indenture, AC is technically required to offer to buy
back $11,000,000 of the outstanding AC Notes at June 30, 1996 due to the failure
to meet this covenant, increasing by $5,500,000 each fiscal quarter. AC has not
made such offer and does not intend to do so while the discussions with the
Bondholder Committee are in process. As a result of these defaults under
covenants, the AC Notes have been classified as currently payable in the
accompanying financial statements. Management's plans are more fully described
in Note 2.
The Indenture governing the AC Notes (the "Indenture") limits the use of the net
proceeds from the offering to fund the cost of the Expansion. The proceeds were
placed in escrow with a trustee pending draw-downs for qualifying project
expenditures and are classified as restricted cash, in escrow account, in the
accompanying financial statements. The AC Notes are not subject to mandatory
redemption, except upon a change of control, decline in tangible net worth, or
certain assets sales, all as defined in the Indenture. The Company has the
option to redeem the AC Notes at a premium of 106% beginning on November 15,
1997, declining to par value on November 15, 1999.
The Indenture contains covenants that, among other things, limit the ability of
the Company and, in certain cases, SC, to pay dividends or management fees, or
incur additional indebtedness. The Indenture also requires the Expansion to be
completed in a specified manner and time frame, which management believes has
been achieved.
In connection with AC's guarantee of the CQC Notes, the Indenture governing the
CQC Notes imposes certain restrictive covenants on the Company, including
minimum cash flow and net worth requirements and restrictions on additional
borrowings and distributions of earnings.
7.Income Taxes:
During the period from January 1, 1994 (the effective termination date of the
Company's S corporation election) to June 30, 1994 and for the fiscal years
ended June 30, 1996 and 1995, the Company incurred net operating losses for
federal income tax purposes, and accordingly, these financial statements do not
include a provision for federal income taxes.
The components included in determining the provision for income taxes are shown
below for the years ended June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax provision at federal income tax
statutory rate ............... $(1,550,000) $(1,678,000) $ 386,000
Income tax liability borne by
stockholders during period of
S corporation status ......... -- -- (538,000)
Increase (decrease) in taxes
resulting from:
Unrecognized tax benefit from
net operating losses ......... 1,489,000 1,633,000 122,000
Other ........................ 61,000 45,000 30,000
------ ------ ------
Income tax provision $ -- $ -- $ --
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes. The major components of
deferred tax liabilities and assets as of June 30, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities
Depreciation ........................... $ 542,000 $ --
----------- -----------
Assets
Allowances for bad debts ............... 745,000 541,000
Federal net operating loss carryforwards 3,119,000 1,292,000
Other .................................. -- 7,000
----------- -----------
Total deferred tax assets ..... 3,864,000 1,840,000
Valuation allowance .................... (3,322,000) (1,840,000)
---------- ----------
Net deferred taxes ............ $ -- $ --
=========== ===========
</TABLE>
As of June 30, 1996, the Company had a federal net operating loss carryforward
of approximately $9,174,000 which expires between 2009 and 2011.
8.Leases And Commitments:
The Company has entered into capital lease agreements whereby the Company leases
various equipment under three-and five-year leases which expire at various dates
through 2000.
Property and equipment includes the following property leased under capital
leases as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Equipment ................... $ 43,000 $ 67,000
Less accumulated depreciation (3,000) (23,000)
------ -------
$ 40,000 $ 44,000
======== ========
</TABLE>
The Company leases office space under a 10-year operating lease, which expires
in 1998, from Charleston Heights Shopping Center ("CHSC"), a company related
through common ownership, as more fully described in Note 9.
Future minimum lease payments, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms of
one year or more consist of the following at June 30, 1996:
<TABLE>
<CAPTION>
Capital Lease Operating Leases
------------- ----------------
<S> <C> <C>
1997 15,000 242,000
1998 11,000 226,000
1999 11,000 --
2000 10,000 --
------ ------
Total minimum lease payments .......... $ 47,000 $468,000
========
Less amount representing interest ............ 10,000
------
Present value of net minimum
lease payments . 37,000
Less current portion ......................... 15,000
------
Obligations under capital leases,
noncurrent $ 22,000
========
</TABLE>
The total rental expense under operating leases is as follows for the years
ended June 30, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Noncancellable airplane hangar
and equipment leases .... $ -- $ -- $110,000
Land and office leases ....... 217,000 191,000 344,000
------- ------- -------
$217,000 $191,000 $454,000
======== ======== ========
</TABLE>
9.Related-Party Transactions:
<TABLE>
<CAPTION>
The following balances due to or from related parties existed as of June 30,
1996 and 1995. The identified realted parties are stockholders of the Company or
affiliated companies related through common ownership.
June 30, 1996
-------------
Current Noncurrent Notes
Receivables Receivables Receivable
----------- ----------- -----------
<S> <C> <C> <C>
Former Stockholders of the
Company ..................... $ 14,000 $ 165,000 --
BGI ......................... 1,400,000 747,000 $ 4,416,000
Sunset Coin ................. 47,000 -- --
Becker Vending .............. -- -- --
Becker Enterprises .......... 1,000 -- --
CQC ......................... 993,000 -- 1,200,000
BGG:
Charlie's Lakeside ...... (7,000) -- --
Charlie's Bar ........... 10,000 -- --
Cantina Charlie's ....... 11,000 -- --
Cariba Charlie's ........ 13,000 75,000 --
Charlie's Saloon ........ 6,000 -- --
Charlie's Down Under .... 44,000 -- --
----------- ----------- -----------
Total ....................... 2,532,000 987,000 5,616,000
Less: Allowance for doubful
collection of amounts
due from CQC ........ (993,000) -- (1,200,000)
----------- ----------- -----------
$ 1,539,000 $ 987,000 $ 4,416,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Management
Fee and Subordinated
Accounts Notes Notes
Payable Payable Payable
---------- ---------- ----------
<S> <C> <C> <C>
Former Stockholders of the
Company ......................... $ 4,000 -- $5,000,000
BGI ............................. 4,682,000 -- --
Sunset Coin ..................... -- $2,250,000 --
Becker Vending .................. -- -- --
Becker Enterprises .............. -- -- --
CQC ............................. -- -- --
BGG:
Charlie's Lakeside .......... -- -- --
Charlie's Bar ............... -- -- --
Cantina Charlie's ........... -- -- --
Cariba Charlie's ............ -- -- --
Charlie's Saloon ............ -- -- --
Charlie's Down Under ........ -- -- --
---------- ---------- ----------
Total ........................... 4,686,000 2,250,000 5,000,000
Less: Allowance for doubful
collection of amounts
due from CQC ............ -- -- --
---------- ---------- ----------
$4,686,000 $2,250,000 $5,000,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995
-------------------------------------------------------------------------------
Current Noncurrent Notes
Receivables Receivables Receivable
----------- ----------- -----------
<S> <C> <C> <C>
Former Stockholders of the
Company .......................... $ 25,000 $ 165,000 --
BGI .............................. 608,000 -- $ 4,416,000
Sunset Coin ...................... 103,000 -- --
Becker Vending ................... 10,000 -- --
Becker Enterprises ............... 1,000 -- --
CQC .............................. 392,000 -- 1,200,000
BGG:
Charlie's Lakeside ........... (7,000) -- --
Charlie's Bar ................ 6,000 -- --
Cantina Charlie's ............ 9,000 -- --
Cariba Charlie's ............. 11,000 75,000 --
Charlie's Saloon ............. 12,000 -- --
Charlie's Down Under ......... 42,000 -- --
----------- ----------- -----------
Total ............................ 1,212,000 240,000 5,616,000
Less: Allowance for doubful
collection of amounts
due from CQC ............. (392,000) -- (1,200,000)
----------- ----------- -----------
$ 820,000 $ 240,000 $ 4,416,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Management Fee Subordinated
and Accounts Notes Notes
Payable Payable Payable
---------- ---------- ----------
<S> <C> <C> <C>
Former Stockholders of the
Company ........................... $ 3,000 -- $5,000,000
BGI ............................... 3,287,000 -- --
Sunset Coin ....................... -- $2,250,000 --
Becker Vending .................... -- -- --
Becker Enterprises ................ -- -- --
CQC ............................... -- -- --
BGG:
Charlie's Lakeside ............ -- -- --
Charlie's Bar ................. -- -- --
Cantina Charlie's ............. -- -- --
Cariba Charlie's .............. -- -- --
Charlie's Saloon .............. -- -- --
Charlie's Down Under .......... -- -- --
---------- ---------- ----------
Total ............................. 3,290,000 2,250,000 5,000,000
Less: Allowance for doubful
collection of amounts
due from CQC .............. -- -- --
---------- ---------- ----------
$3,290,000 $2,250,000 $5,000,000
========== ========== ==========
</TABLE>
CHSC owns the land on which the Company's administrative offices are located
and, prior to the Reorganization, CLC owned the land on which the Company's
operations are located. Rent expense paid to CHSC and CLC and included in
results of operations of the Company was $217,000, $191,000 and $343,000, for
the years ended June 30, 1996, 1995 and 1994, respectively. The rental fees
include the cost of insurance, taxes and common area maintenance on the land.
Receivables from BGG, stockholders of the Company and BGI bear interest at 8.0%,
4.5% and 6.0%, respectively. Interest income from related parties was $245,000,
$168,000 and $64,000 for the years ended June 30, 1996, 1995 and 1994,
respectively.
In anticipation of the January 1, 1994 termination of the Company's S
corporation election, on December 24, 1993, the Company distributed $5,000,000
to its stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable monthly, with the entire principal amount due on January 1, 2001.
Interest expense incurred under related-party notes was $508,000, $507,000 and
$266,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
In May, 1995, CQC borrowed $1,200,000 from AC in order to have funds to make the
semi-annual interest payment due on the CQC Notes. The borrowing was executed as
an uncollateralized note payable to AC due May, 1996 with interest at the rate
of 5.56%. Due to the current financial condition of CQC, management has
determined that collectibility of the note, and of other advances of $301,000
(1995) and $692,000 (1996) made to CQC, is doubtful. Accordingly, provisions
were made to fully reserve the advances and note payable and losses have been
recorded in the accompanying financial statements as payments under guarantee
obligations.
The Company has loaned to BGI an aggregate of approximately $4,416,000 to fund
BGI's operating expenses from June 1994 through March 1995. The advances are
interest bearing and have been classified as non-current based on Management's
expectation for the timing of repayments from BGI. At June 30, 1996, the Company
owed BGI approximately $4,682,000 in accrued management fees. Under the terms of
the Indenture governing the AC Notes, these fees cannot be paid to BGI until a
specified fixed charge coverage ratio is achieved.
Due to the decision to suspend development of CQC's riverboat casino project and
sell its assets, the majority of BGI's management and administrative services
are anticipated to benefit AC in the future. Accordingly, in late March 1995,
BGI transferred approximately 40 employees involved in accounting and
administrative functions from BGI to AC. These employees were originally
employees of AC and were transferred to BGI in June 1994, when the
Reorganization became effective. In connection with this transfer, in October
1995, the Company temporarily reduced the amount of the BGI management fee to a
net 1.0% of AC's gross revenues (previously 5.0% of gross revenues) based on the
reduction in services it will receive from BGI in the future.
Included in other revenues is income from management and accounting services
performed by the Company for SC and BGG of $281,000 for the year ended June 30,
1994.
The Company's president operates a sole proprietorship under the name "Becker
Vending" which places arcade, cigarette, music and other vending machines at
Arizona Charlie's. The Company provides nominal collection and accounting
services to Becker Vending in connection with these machines. The Company does
not receive any rental fee or other payment from Becker Vending in connection
with these agreements. Becker Vending retains all amounts deposited in its
vending machines. Becker Vending also sells to the Company cigarettes, candy and
similar items for resale in the Arizona Charlie's gift shop.
10.Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending litigation
and claims will not have a material effect on the Company's results of
operations, cash flows, or financial position.
11. Defined Contributions Plan:
The Company has adopted a 401(k) Defined Contribution Plan (the "Plan") covering
substantially all of its employees. Eligible employees may contribute up to 10%
of their annual compensation to the Plan, up to certain limits prescribed by the
Internal Revenue Service. The Company matches 25% of each eligible employee's
contributions up to a maximum of 6% of their individual earnings. In addition,
the Company contributes an amount equal to 2% of each participant's earnings.
The Plan went into effect July 1, 1990.
The Company recorded charges for contributions of $495,000, $395,000 and
$350,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
12. Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
payable approximate their respective fair values due to the short-term
maturities and approximate market interest rates of these instruments.
Management is unable to determine a fair value for the outstanding $55,000,000
principal amount of 12% First Mortgage Notes due November 15, 2000 of Arizona
Charlie's, Inc. (the "AC Notes") or the outstanding $20,000,000 principal amount
($17,526,000 carrying amount at June 30, 1996) of 12% First Mortgage Notes due
November 15, 2000 of Capitol Queen and Casino, Inc. (the "CQC Notes"), which are
guaranteed by AC. It is not practicable to determine the fair value of these
financial instruments due to the debt covenant violations and related
uncertainties involved in negotiations with the holders of AC Notes and CQC
Notes, as more fully discussed in Note 2.
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Sunset Coin, Inc.
We have audited the financial statements and the financial statement schedule of
Sunset Coin, Inc. (a wholly owned subsidiary of Becker Gaming, Inc.) listed in
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunset Coin, Inc. as of June
30, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying financial statements have been prepared assuming that Sunset
Coin, Inc. will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is obligated as a guarantor under indebtedness
of Arizona Charlie's, Inc. ("AC"), a company affiliated through common
ownership, and such indebtedness is in default of covenants. AC is currently
negotiating a restructuring of its indebtedness and management's plans are
described in Note 2. Should AC be unsuccessful in modifying the indebtedness,
the Company may be required to then satisfy its guarantee obligation. The
Company does not have sufficient resources available to satisfy such obligation.
These matters raise substantial doubt about the ability of Sunset Coin, Inc. to
continue as a going concern. The final outcome of these matters is not presently
determinable and the June 30, 1996 financial statements of the Sunset Coin, Inc.
do not include any adjustment that might result from the outcome of this
uncertainty.
As discussed in Note 3 to the financial statements, AC owes the Company
approximately $2,250,000 resulting from advances made by the Company to AC. Due
to the financial condition of AC, as described above, management of the Company
believes it is reasonably possible that a portion of the notes receivable from
AC will be uncollectible. However, an estimate of the loss cannot presently be
determined.
Las Vegas, Nevada
August 9, 1996
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
As Of June 30, 1996 And 1995
(Dollars In Thousands)
================================================================================
ASSETS
1996 1995
------- -------
Current assets:
Cash ............................................. $ 1,122 $ 506
Current portion of notes receivable, net ......... 117 175
Notes receivable from related party .............. 2,250 2,250
Other receivables ................................ 274 146
Prepaid expenses ................................. 46 46
------- -------
Total current assets ......................... 3,809 3,123
------- -------
Property and equipment:
Building and leasehold improvements .............. 174 461
Furniture, fixtures and equipment ................ 2,885 2,984
------- -------
3,059 3,445
Less, accumulated depreciation ................... (1,370) (1,710)
------- -------
Net property and equipment ................ 1,689 1,735
------- -------
Notes receivable, less current portion, net ........ 194 267
Advances to related parties ........................ 111 86
Other assets, less accumulated amortization
of $24 (1996) and $19 (1995) ..................... 88 138
------- -------
Total other assets ........................... 393 491
------- -------
Total assets ................................. $ 5,891 $ 5,349
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
1996 1995
------ ------
Current liabilities:
Trade accounts payable ................................. $ 44 $ 69
Accrued expenses ....................................... 608 284
Current portion of long- term debt ..................... 279 255
------ ------
Total current liabilities ........................ 931 608
------ ------
Long-term liabilities:
Long-term debt, less current portion .................. 502 664
Subordinated notes payable to
prior stockholders .................................. 3,000 3,000
------ ------
Total liabilities .................................. 4,433 4,272
------ ------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 2,500 shares
authorized, 400 shares issued and outstanding ......... 27 27
Retained earnings ...................................... 1,431 1,050
------ ------
Total stockholder's equity ......................... 1,458 1,077
------ ------
Total liabilities and stockholder's
equity ............................................. $5,891 $5,349
====== ======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF INCOME
(Dollars In Thousands)
================================================================================
Year Ended
June 30,
----------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues:
Slot route:
From locations controlled by $2,370 $2,331 $2,333
related parties
Other 153 279 375
Slot service fees:
From related 93 77 71
parties
Other 33 55 80
----------- ----------- -----------
Total revenues 2,649 2,742 2,859
Operating expenses:
Slot route and service 1,311 1,112 984
General and 86 103 132
administrative
Management fee - Arizona 88
Charlie's, Inc. - -
Management fee - 137 150 14
Becker Gaming, Inc.
Depreciation and 298 249 308
amortization
----------- ----------- -----------
Total operating 1,832 1,614 1,526
expenses
----------- ----------- -----------
Operating income 817 1,128 1,333
----------- ----------- -----------
Other income (expense):
Interest income 171 146 62
Interest expense (398) (356) (189)
Rental and other 102 101
income -
Net loss on sales of (115) (13) (9)
equipment
----------- ----------- -----------
Total other income (240) (122) (136)
(expense)
----------- ----------- -----------
Income before 577 1,006 1,197
income taxes
Provision for income taxes (196) (318) (187)
----------- ----------- -----------
Net income $381 $688 $1,010
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY
For The Years Ended June 30, 1996, 1995 And 1994
(Dollars In Thousands)
================================================================================
Common
Stock
-----------------------------------
Shares Amount
------ ------
Balances, June 30, 1993 ................ 400 $ 34
Distributions to stockholders ........ -- --
Adjustment to retained earnings to
reflect the termination of S
corporation election ................ -- (7)
Net income .......................... -- --
------ ------
Balances, June 30, 1994 ................ 400 27
Net income ........................... -- --
------ ------
Balances, June 30, 1995 ................ 400 27
------ ------
Net income .......................... -- --
------ ------
Balance, June 30, 1996 ................. 400 $ 27
====== ======
Retained
Earnings Total
------- -------
Balances, June 30, 1993 .................................. $ 2,625 $ 2,659
Distributions to stockholders .......................... (3,280) (3,280)
Adjustment to retained earnings to
reflect the termination of S
corporation election .................................. 7 --
Net income ............................................ 1,010 1,010
------- -------
Balances, June 30, 1994 .................................. 362 389
Net income ............................................. 688 688
------- -------
Balances, June 30, 1995 .................................. 1,050 1,077
------- -------
Net income ............................................ 381 381
------- -------
Balance, June 30, 1996 ................................... $ 1,431 $ 1,458
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
-----------------------------
1996 1995 1994
------- ------- -------
Cash flows from operating activities:
Net income ................................... $ 381 $ 688 $ 1,010
------- ------- -------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for losses on notes receivable ... 44 44 15
Depreciation and amortization .............. 298 249 308
Net loss on sales of equipment ............. 115 13 9
(Increase) decrease in operating assets
Other receivables ......................... (128) (49) 50
Prepaid expenses .......................... -- (2) 11
Other assets .............................. (6) (59) --
Increase (decrease) in operating liabilities:
Accounts payable .......................... (25) (6) 70
Accrued expenses .......................... 324 260 (15)
------- ------- -------
Total adjustments ...................... 622 450 448
------- ------- -------
Net cash provided by operating
activities ............................ 1,003 1,138 1,458
------- ------- -------
Cash flows from investing activities:
Capital expenditures ......................... (208) (1,142) (232)
Proceeds from sales of equipment ............. 12 26 209
Decrease (increase) in advances to
related parties ............................. (72) (2,154) 48
Issuance of notes receivable ................. -- (25) (321)
Repayments of notes receivable ............... 88 161 415
------- ------- -------
Net cash provided by (used in)
investing activities .................. (180) (3,134) 119
------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable .................. 109 738 --
Principal payments on notes payable .......... (316) (176) (211)
Proceeds from subordinated notes payable
to stockholders ............................. -- -- 3,000
Distributions to prior stockholders .......... -- -- (3,280)
------- ------- -------
Net cash used in financing activities .. (207) 562 (491)
------- ------- -------
Net increase (decrease) in cash ........ 616 (1,434) 1,086
Cash, beginning of year ........................ 506 1,940 854
------- ------- -------
Cash, end of year .............................. $ 1,122 $ 506 $ 1,940
======= ======= =======
Supplemental cash flow disclosures:
Interest paid ................................. $ 395 $ 352 $ 190
======= ======= =======
Assets acquired by incurring notes payable .. $ 69 $ -- $ --
======= ======= =======
Income taxes paid ............................. $ -- $ 102 $ 187
======= ======= =======
Assets acquired by forgiveness of
accounts receivable .......................... $ 49 $ -- $ --
======= ======= =======
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
----------
Summary Of Significant Accounting Policies:
Nature Of Operations
- --------------------
Sunset Coin, Inc. ("SC" or the "Company") operates a slot route in Las Vegas,
Nevada. The Company owns slot machines which it places in licensed locations. In
addition, the Company provides slot machine maintenance services to other owners
of slot machines pursuant to service agreements. At June 30, 1996, the Company
had route and service agreements with 26 slot locations which have between 4 and
35 slot machines each.
In connection with the financing transaction more fully discussed in Note 8, the
stockholders of SC exchanged all of their stock in the Company for stock of
Becker Gaming, Inc. ("BGI") (the "Reorganization"), and effective June 1, 1994,
SC became a wholly owned subsidiary of BGI. BGI has no independent business
activities other than providing management and administrative services to, and
exploring and developing business opportunities for, its subsidiaries, and
serves as a holding company for SC and the following entities:
o Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
o Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
in the development stage of construction of a riverboat casino in
Jefferson City, Missouri (the "Capitol Queen").
o Becker Gaming Group ("BGG"), a Nevada corporation which (together with
its wholly owned subsidiary, Innerout, Inc.) owns and operates
restaurants and bars in Las Vegas under the "Charlie's" name, each of
which offers gaming machines.
Prior to the Reorganization, certain services to the Company (primarily related
to executive compensation, accounting personnel, administration and data
processing expenses) were provided by AC and charged to the Company at an amount
which approximated cost. However, effective June 1, 1994, this arrangement with
AC was terminated (although AC will continue to provide certain administrative
services to SC) and the Company became subject to the payment of a management
fee BGI in connection with executive and administrative services equal to 5% of
the Company's gross operating revenues.
Revenue
- -------
The primary source of revenue is from slot route participation agreements with
unaffiliated locations in which the Company recognizes as slot revenue a
predetermined percentage (operator's share) of the net win from Company-owned
machines at the slot locations. In accordance with industry practice, net win
from slot activities consists of the slot drop less jackpots and fills. The
percentage of the net win that the Company and the slot locations receive is
determined by individual participation agreements between the parties.
In addition, the Company also generates revenue under slot service agreements.
Under the agreements, the Company receives a fixed fee and certain cost
reimbursements in exchange for maintaining proprietor-owned slot machines.
The Company's participation agreements and slot service agreements range between
1 and 9 years in length and expire, subject to renewal, at various dates through
2003. At June 30, 1996, 254 (approximately 90%) of the machines operated or
serviced by the Company were installed at unaffiliated locations controlled by
the stockholders of BGI (as lessor), through restrictive lease provisions.
Property And Equipment, And Depreciation
- ----------------------------------------
Property and equipment are stated at cost. Expenditures for additions, renewals
and betterments are capitalized; expenditures for repairs and maintenance are
charged to expense as incurred. Upon retirement or disposal of assets, the cost
and accumulated depreciation are eliminated from the accounts and the resulting
gain or loss is credited or charged to income. Depreciation is computed by
either the straight-line or declining balance method over estimated useful lives
of 5 to 10 years for furniture, fixtures and equipment or, for buildings and
leasehold improvements, the lesser of the useful life or the lease term.
Cash Equivalents And Concentration Of Credit Risk
- -------------------------------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company has cash on deposit
with financial institutions in excess of federally insured amounts.
Income Tax Status
- -----------------
Prior to 1994, the Company was taxed under Section 1362 (Subchapter S) of the
Internal Revenue Code, which provides that, in lieu of corporate income taxes,
the stockholders are taxed on their proportionate share of the Company's taxable
income or loss. Therefore, these financial statements do not include any
provision or liability for corporate income taxes for the periods prior to
December 31, 1993.
Effective January 1, 1994, the Company terminated its S corporation election and
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The adoption of SFAS 109 did not have a material
impact on the Company's financial position or results of operations.
In connection with the Reorganization, beginning June 1, 1994, the Company is
included in the consolidated federal income tax returns filed by BGI. SC's tax
allocation is based on the amount of tax it would incur if it filed a separate
return, except the Company does not receive any benefit from carry-backs to
prior years.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
2. Guarantee Obligation, Management's Plans, and Going Concern:
SC has guaranteed the payment of interest and $55,000,000 principal amount of
12% First Mortgage Notes due November 15, 2000 issued by AC (the "AC Notes"). AC
is in default of certain covenants under the AC Notes as of June 30, 1996. In
addition, AC has guaranteed the payment of interest and principal of notes
payable issued by CQC, of which $20,000,000 principal amount are outstanding at
June 30, 1996. CQC is a development stage company which has abandoned its
project to develop, own and operate a riverboat casino, and is currently
attempting to sell its assets to prospective buyers. Based on current market
conditions, management does not expect that CQC will generate sufficient funds
through the sale of its assets to repurchase all of the outstanding CQC Notes. A
proposed restructuring plan therefore contemplates (i) the modification of
covenants under the AC Notes to cure the current defaults and (ii) the issuance
of additional AC Notes to fulfill AC's guarantee obligation for remaining
principal and accrued interest of the CQC Notes after applying sale proceeds.
However, no satisfactory offers for the riverboat are currently available, and
no agreement has been reached with the holders of the AC Notes and CQC Notes
regarding the proposed restructuring plan.
Should AC be unable to complete its restructuring plan, it will not have the
financial resources to repay the AC Notes and honor its guarantee obligation
under the CQC Notes. The Company would thus likely be required to honor its
guarantee obligation of the AC Notes, and the Company does not have sufficient
resources to satisfy such obligation. Accordingly, these matters raise
substantial doubt about the ability of the Company to continue as a going
concern. The final outcome of these matters is not presently determinable and
the June 30, 1996 financial statements of the Company do not include any
adjustment that might result from the outcome of this uncertainty.
3. Related-Party Transactions:
In anticipation of the January 1, 1994 termination of the Company's S
corporation election, on December 24, 1993, the Company distributed $3,000,000
to its stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable monthly, with the entire principal amount due on January 1, 2001.
Interest expense incurred by SC under the notes payable to prior shareholders
was $300,000, $300,000 and $150,000 for the years ended June 30, 1996, 1995 and
1994, respectively.
The payment of the SC stockholder notes is subordinated to any payments required
to be made by SC under its guarantee of the AC Notes.
The Company is involved in numerous other transactions with companies related
through common ownership. Such related-party transactions are summarized as
follows:
<TABLE>
<CAPTION>
Arizona Charlie's, Inc.
- ----------------------- June 30,
1996 1995
---- ----
<S> <C> <C>
Uncollateralized notes receivable from AC
(interest at 5.56%) due May 1997 ......... $ 2,250,000 $ 2,250,000
=========== ===========
Interest receivable from AC .................. 169,000 44,000
======= ======
Payables to AC .............................. (46,000) (98,000)
======= =======
</TABLE>
The uncollateralized notes receivable from AC result from advances made by the
Company to AC for general working capital purposes. Due to the present financial
condition of AC, as described in Note 2, management of the Company believes it
is reasonably possible that a portion of the notes receivable from AC will be
uncollectible. However, an estimate of the loss cannot presently be determined
and no adjustment has been made to the carrying value or classification of the
notes receivable at June 30, 1996. Interest earned by SC on the notes receivable
from AC was $125,000, $44,000 and $-0- for the years ended June 30, 1996, 1995
and 1994, respectively. The interest receivable from AC and payables to AC are
included in other receivables and advances to related parties, respectively.
Prior to the Reorganization, AC provided accounting, general and administrative
services for the Company. Additionally, AC has and will continue to provide
security personnel, and safeguard the coin and currency used in SC's route
operations.
In connection with these services, the Company paid AC management fees $88,000
for the year ended June 30, 1994.
<TABLE>
<CAPTION>
Becker Gaming Group
- -------------------
June 30,
1996 1995
---- ----
<S> <C> <C>
Advances to BGG ............................... $ 149,000 $ 194,000
========= =========
</TABLE>
The Company has executed slot service agreements with each of the BGG
restaurant/bar locations under which SC provides slot machine maintenance and
other services for a fixed fee. Fees paid by BGG to SC under the agreements are
included in slot service fee revenue in the accompanying financial statements
and totaled approximately $93,000, $77,000 and $71,000 in 1996, 1995 and 1994,
respectively.
During 1991, SC purchased the assets of a restaurant/bar facility for
approximately $525,000 for use by BGG. The Company entered into an agreement to
lease (as lessor) the facility (d.b.a. Charlie's Saloon) to BGG under an
agreement which was terminated when the facility was closed due to loss of a
third-party lease on April 21, 1996. In connection with the closing of the
facility, certain leasehold improvements and equipment were abandoned, and the
Company recognized a loss of $101,000 in 1996 representing the net book value of
the related assets. The liquor license from the closed facility will be
transferred to a new BGG location which is anticipated to open in early 1997.
The net investment in the assets leased to BGG for Charlie's Saloon as of June
30, 1996 and 1995 is listed below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Building and improvements ..................... $ -- $ 335,000
Furniture, fixtures and equipment ............. -- 130,000
Liquor license ................................ 60,000 60,000
------ ------
60,000 525,000
Less, accumulated depreciation ................ -- (342,000)
-------- --------
$ 60,000 $ 183,000
========= =========
</TABLE>
The terms of the Charlie's Saloon lease required BGG to pay all taxes, normal
maintenance and insurance on the facility, and provided for annual rental
payments to Sunset Coin of $89,000, until the closing date of April 21, 1996.
BGG did not make any rental payments under the lease from the time Charlie's
Saloon opened, through June 30, 1994, and the rentals were forgiven, without
recourse, by the Company. Due to the related-party nature of the above
transaction, SC recognized no income (as lessor) or loss in 1994 in the
accompanying financial statements for this agreement. Total lease payments for
the years ended June 30, 1996 and 1995 included as rental income in the
accompanying financial statements amounted to $64,000 and $89,000, respectively.
The total cost of depreciation expense related to the Charlie's Saloon facility
included in the accompanying financial statements of Sunset Coin totaled
$17,000, $22,000 and $58,000 in 1996, 1995 and 1994, respectively.
In 1995, SC purchased and leased personal property to be used by BGG in one of
its bar operations (d.b.a. Charlie's Bar Down Under). The purchase was financed
with long-term debt, as more fully described in Note 6. The net investment in
the assets leased to Charlie's Down Under as of June 30, 1996 and 1995 is listed
below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Building and improvements ................... $ 174,000 $ 126,000
Furniture, fixtures and equipment ............ 550,000 550,000
------- -------
724,000 676,000
Less, accumulated depreciation ............... (76,000) (15,000)
------- -------
$ 648,000 $ 661,000
========= =========
</TABLE>
On April 1, 1995, Charlie's Bar Down Under (the Lessee) entered into a lease
agreement with SC for the above property at an annual lease cost of $95,000. BGG
did not make any rental payments under the lease from the time Charlie's Down
Under opened through March 31, 1996, and the rentals were forgiven, without
recourse, by the Company. Due to the related-party nature of the above
transaction, SC recognized no income (as lessor) or loss through March 31, 1996
in the accompanying financial statements for this agreement. Total lease
payments for the period from April 1, 1996 through June 30, 1996 included in the
accompanying financial statements of Sunset Coin totaled $24,000.
The terms of the Charlie's Down Under lease require BGG to pay all taxes, normal
maintenance and insurance on the facility. The total cost of depreciation
expense related to the Charlie's Bar Down Under facility included in the
accompanying financial statements of SC totaled $61,000 and $15,000 for the
years ended June 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Becker Gaming, Inc.
- -------------------
June 30,
1996 1995
---- ----
<S> <C> <C>
Advances to BGI ........................... $8,000 --
======
Management fees payable ................... -- $(10,000)
========
</TABLE>
SC pays management fees to BGI at 5% of the gross gaming revenues, effective
with the Reorganization on June 1, 1994. Total management fees included in the
accompanying financial statements were $137,000, $150,000 and $14,000 in 1996,
1995 and 1994, respectively.
4. Other Receivables:
Other receivable at June 30, 1996 and 1995 consist of uncollateralized,
non-interest bearing short-term advances to various proprietors who have entered
into slot route agreements with the Company.
5. Notes Receivable:
Notes receivable consist of loans to various proprietors who have entered into
slot route agreements with the Company. Such advances are primarily used to
finance long-term facility improvements to the slot locations and are as follows
at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Prime plus 2.5% note receivable,
due in weekly payments of $675 including
interest through August 1998, collateralized
by assets of the related slot location .......... $ 75,000 $ 101,000
10% note receivable, due in weekly payments
of $650 including interest through
January 2003, personally guaranteed by a
stockholder of the related slot
location ........................... 175,000 190,000
Other collateralized and uncollateralized
notes with varying interest rates up
to prime plus 2.5%, due at various
dates through December 2003 ........ 149,000 195,000
------- -------
399,000 486,000
Allowance for doubtful accounts (88,000) (44,000)
------- -------
311,000 442,000
Less, current maturities (117,000) (175,000)
-------- --------
$ 194,000 $ 267,000
========= =========
</TABLE>
6. Long-Term Debt:
Long-term debt consists of the following at June 30, 1996 and 1995,
respectively:
Prime plus 1.5%, $1.5 million revolving line of credit available through June
1994, (line expired and not renewed); amounts outstanding under the line of
credit at June 30, 1994 were converted to a term note payable with interest and
principal due monthly through June 1998, collateralized by substantially all of
the assets of SC and personal guarantees of the stockholders of Becker
Gaming, Inc. ...................................... $ 113,000 $ 199,000
Prime plus 1.5%, term note payable with interest and principal due monthly
through January 1, 2001, collateralized by security agreement dated July 15,
1994 and a right to lien without notice on all property and deposit accounts of
SC; Borrowings made under a non-revolving line
of credit agreement (see below) ................... 162,000 214,000
Prime plus 2.0%, term note payable with interest and principal due monthly
through April 23, 2000, collateralized by a security agreement dated July 15,
1994 and a right to lien without notice on all property and eposits accounts of
SC. Borrowings made under a non-revolving
line of credit agreement (see below) .............. 262,000 331,000
Prime plus 2.0%, term note payable with interest and principal due monthly
through April 23, 2000, collateralized by a security agreement dated July 15,
1994 and a right to lien without notice on all property and deposit accounts of
SC. Borrowings made under a non-revolving line of credit
agreement (see below) ............................. 119,000 147,000
Prime plus 1.5%, term note payable with interest and principal due monthly
through April 10, 2001, collateralized by security agreement dated October 2,
1995 and a right to lien without notice on all property and deposit accounts of
SC. Borrowings made under a non-revolving line of credit
agreement (see below) ............................. 102,000 --
Other notes payable due in monthly installments
including interest through June 1996 collateralized
by slot machine equipment of the Company and BGG .. 23,000 28,000
------ ------
781,000 919,000
Less, current portion ...................... (279,000) (255,000)
-------- --------
$ 502,000 $ 664,000
========= =========
In July 1994, the Company entered into an agreement with a bank for a $1.2
million non-revolving line of credit. Each advance was evidenced by a separate
promissory note with a maturity date not exceeding 66 months from the date of
the respective advance. The Company was able to request advances through October
28, 1995 at which time the Company's right to receive advances under the
agreement was terminated until the defaults under the AC Notes and CQC Notes are
cured. Advances under the agreement bear interest at rates ranging from 1.5% to
2.0% plus the bank's prime rate.
The $1.2 million non-revolving line of credit includes an acceleration clause
which would cause the full amount of the obligation to become due on demand if a
material adverse change occurs in the SC's financial condition, business
operations or ownership or management.
<TABLE>
<CAPTION>
Maturities of long-term debt at June 30, 1996 are as follows:
<S> <C>
1997 $279,000
1998 210,000
1999 177,000
2000 115,000
---- -------
$781,000
========
</TABLE>
7. Income Taxes:
The components of the income tax provision are summarized for June 30, 1996,
1995 and 1994 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal ......................... $196,000 $318,000 $187,000
Deferred:
Federal ......................... -- -- --
-------- -------- --------
Total income tax provision $196,000 $318,000 $187,000
======== ======== ========
</TABLE>
The components included in determining the provision for income taxes are shown
below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at federal
income tax statutory rate ..... $ 202,000 $ 342,000 $ 407,000
Income tax liability borne
by stockholders during period
of S corporation status ....... -- -- (220,000)
Other ........................... (6,000) (24,000) --
--------- --------- ---------
Income tax provision
per statements of income $ 196,000 $ 318,000 $ 187,000
========= ========= =========
</TABLE>
Differences between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes were nominal.
Accordingly, deferred taxes have not been recognized.
8. Commitments:
Future minimum operating lease commitments at June 30, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $40,600
1998 40,600
1999 38,600
2000 16,600
2001 15,100
------
$151,500
========
</TABLE>
Aggregate rent expense was $40,000, $38,000 and $103,000 in 1996, 1995 and 1994,
respectively.
9. Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending litigation
and claims will not have a material effect on the Company's results of
operations, cash flows, or financial position.
10. Employee Benefit Plans:
The Company participates in a 401(k) Defined Contribution Plan (the "Plan")
sponsored by AC which covers substantially all employees of SC. Participants may
contribute up to 10% of their annual compensation to the Plan, up to certain
limits prescribed by the Internal Revenue Service. The Company matches 25% of
each eligible employee's contribution up to a maximum of 6% of their individual
earnings. In addition, the Company contributes an amount equal to 2% of each
participant's earnings. The Plan went into effect July 1, 1990.
The Company recorded charges for contributions of $19,000, $15,000 and $15,000
for the years ended June 30, 1996, 1995 and 1994, respectively.
11.Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
approximate fair values due to the short-term maturities and the approximately
market interest rates of these instruments.
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Board of Directors
Capitol Queen & Casino, Inc.
We have audited the financial statements and the financial statement schedule of
Capitol Queen & Casino, Inc. (a development stage company and a wholly owned
subsidiary of Becker Gaming, Inc.) listed in Item 14(a) of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capitol Queen & Casino, Inc. as
of June 30, 1996 and 1995, and its loss incurred during the development stage
and its cash flows for each of the three years in the period ended June 30,
1996, and for the period from January 20, 1993 (the date of inception) through
June 30, 1996, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
The accompanying financial statements have been prepared assuming that Capitol
Queen & Casino, Inc. will continue as a going concern. As more fully described
in Note 2, the Company is in default of debt covenants, resulting in
classification of such debt as currently payable. The Company does not have
sufficient resources to repay its indebtedness and management's plans are also
described in Note 2. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The final outcome of these matters is
not presently determinable and the June 30, 1996 financial statements of the
Company do not include any adjustment that might result from the outcome of this
uncertainty.
Las Vegas, Nevada
August 9, 1996
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary
Of Becker Gaming, Inc.)
BALANCE SHEETS
As Of June 30, 1996 And 1995
(Dollars In Thousands)
================================================================================
ASSETS
1996 1995
------- -------
Current assets:
Cash and cash equivalents ....................... $ -- $ 45
Restricted cash, in escrow account .............. 30 30
------- -------
Total current assets ......................... 30 75
------- -------
Other assets:
Assets held for sale ............................. 7,754 12,146
Financing costs, net of accumulated
amortization of $312 (1996) and
and $212 (1995), respectively .................. 605 705
Deposits and other assets ........................ 60 60
------- -------
Total other assets ........................... 8,419 12,911
------- -------
Total assets ................................ $ 8,449 $12,986
======= =======
LIABILITIES & STOCKHOLDER'S EQUITY(DEFICIT)
1996 1995
-------- --------
Current liabilities:
Accounts payable ..................................... $ -- $ 142
Accrued interest ..................................... 2,775 395
Advances from related parties ........................ 1,006 404
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 $2,474 (1996)
and $2,882 (1995) ................................ 17,526 17,118
-------- --------
Total current liabilities .................... 22,507 19,259
-------- --------
Total liabilities ............................ 22,507 19,259
-------- --------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $1.00 par value, 1,000 shares
authorized, 100 shares issued and outstanding ..... -- --
Additional paid-in capital ......................... 12,732 12,732
Deficit accumulated during development stage ....... (26,790) (19,005)
-------- --------
Total stockholder's equity (deficit) ......... (14,058) (6,273)
-------- --------
Total liabilities and stockholder's
equity(deficit) .............................. $ 8,449 $ 12,986
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned
Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF LOSS INCURRED DURING THE DEVELOPMENT STAGE
(Dollars In Thousands)
================================================================================
For The Period
January 20, 1993
(The Date Of
Inception)
Through
Year Ended June 30, June 30,
1996 1995 1994 1996
-------- -------- -------- --------
Revenues ....................... $ -- $ -- $ -- $ --
Operating expenses:
Amortization of financing
and other costs .............. 100 202 1,039 1,341
Abandonment losses and
write-downs of assets held
for sale ...................... 4,392 -- 6,034 10,426
Development costs ............. 504 1,186 21 1,711
-------- -------- -------- --------
Total operating expenses .. 4,996 1,388 7,094 13,478
-------- -------- -------- --------
Operating loss ................. (4,996) (1,388) (7,094) (13,478)
Other income (expenses):
Interest income ............... -- 610 655 1,265
Interest expense .............. (2,789) (4,608) (3,774) (11,171)
Interest capitalized .......... -- -- 683 683
-------- -------- -------- --------
Total other expenses ........... (2,789) (3,998) (2,436) (9,223)
-------- -------- -------- --------
Net loss before
extraordinary item ............ (7,785) (5,386) (9,530) (22,701)
Extraordinary item:
Loss on early retirement
of debt (no income tax
benefit available) ........... -- (4,089) -- (4,089)
-------- -------- -------- --------
Net loss ....................... $ (7,785) $ (9,475) $ (9,530) $(26,790)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned
Subsidiary Of Becker Gaming, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
For The Period From January 20, 1993
(The Date Of Inception) Through June 30, 1996
And For The Years Ended June 30, 1996, 1995 And 1994
(Dollars In Thousands)
-------------
================================================================================
Common Stock
--------------------------------
Shares Amount Subscribed
----------- ----------- -----------
Balances, January 20,
1993 (the date of inception) ... -- $- $-
Issuance of common stock ......... 100 -- --
----------- ----------- -----------
Balances, June 30, 1993 .......... 100 -- --
Cash contribution from Becker
Gaming, Inc. relating to sale
of warrants .................... -- -- --
Common stock subscribed .......... -- -- 788
Contribution by Becker Gaming,
Inc. relating to liability
incurred under development
agreement ...................... -- -- --
Write-off of common stock
subscribed due to abandonment
of development project ......... -- --
Net loss ......................... --
----------- ----------- -----------
Balances, June 30, 1994 .......... 100 -- --
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1995 .......... 100 -- --
----------- ----------- -----------
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1996 .......... 100 $- $-
=========== =========== ===========
Deficit
Accumulated
Additional During The
Paid-In Development
Capital Stage Total
-------- -------- --------
Balances, January 20,
1993 (the date of inception) ............. $- $- $-
Issuance of common stock ................... -- -- --
-------- -------- --------
Balances, June 30, 1993 .................... -- -- --
Cash contribution from Becker
Gaming, Inc. relating to sale
of warrants .............................. 7,500 -- 7,500
Common stock subscribed .................... -- -- 788
Contribution by Becker Gaming,
Inc. relating to liability
incurred under development
agreement ................................ 5,232 -- 5,232
Write-off of common stock
subscribed due to abandonment
of development project ................... (788) -- (788)
Net loss ................................... -- (9,530) (9,530)
-------- -------- --------
Balances, June 30, 1994 .................... 12,732 (9,530) 3,202
Net loss ................................... -- (9,475) (9,475)
-------- -------- --------
Balances, June 30, 1995 .................... 12,732 (19,005) (6,273)
-------- -------- --------
Net loss ................................... -- (7,785) (7,785)
-------- -------- --------
Balances, June 30, 1996 .................... $ 12,732 $(26,790) $(14,058)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
( A Development Stage Company And A Wholly Owned Subsidiary
Of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In For The Period Thousands)
January 20, 1993
------------------
================================================================================
Year Ended June 30,
---------------------------------
1996 1995 1994
-------- -------- --------
Cash flows from development stage activities:
Net loss ................................ $ (7,785) $ (9,475) $ (9,530)
-------- -------- --------
Adjustments to reconcile net loss
to net cash used in development
stage activities:
Amortization of financing and other costs 100 202 1,039
Amortization of original issue discount . 408 834 665
Abandonment losses and write-downs of
assets held for sale ................... 4,392 -- 6,034
Extraordinary loss on retirement of debt -- 4,089 --
Increase(decrease) in accounts payable
and accruals, net of amounts for
capital expenditures ................... 2,238 (216) 765
Increase in advances from related
party payable ......................... 602 392 --
-------- -------- --------
Total adjustments ................. 7,740 5,301 8,503
-------- -------- --------
Net cash used in development
stage activities ................. (45) (4,174) (1,027)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .......... -- (1,724) (11,212)
Deposits and other assets ............... -- 12 (72)
Capitalization of preopening costs ...... -- -- (340)
Development costs ....................... -- -- (553)
Net (additions to) reductions in
restricted cash equivalents ............ -- 24,898 (24,929)
-------- -------- --------
Net cash provided by (used in)
investing activities .............. -- 23,186 (37,106)
-------- -------- --------
Cash flows from financing activities:
Principal payments on First Mortgage
Notes .................................. -- (20,200) --
Proceeds from issuance of First
Mortgage Notes, net of financing costs . -- -- 30,666
Proceeds from borrowings under
notes payable to related parties ....... -- 1,200 --
Equity contribution from Becker
Gaming, Inc.relating to sale of
warrants ............................... -- -- 7,500
-------- -------- --------
Net cash (used in) provided by
financing activities .............. -- (19,000) 38,166
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents .............. (45) 12 33
Cash and cash equivalents, beginning
of period ............................... 45 33 --
-------- -------- --------
Cash and cash equivalents, end of period .. $ -- $ 45 $ 33
======== ======== ========
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized $ -- $ 4,020 $ 1,787
======== ======== ========
Original issue discount that did not
affect cash ............................ $ -- $ -- $ 7,500
======== ======== ========
Equity contribution by Becker Gaming that
did not affect cash .................... $ -- $ -- $ 5,232
======== ======== ========
(The Date Of Inception)Through June 30,
---------------------------------------
1996
--------
Cash flows from development stage activities:
Net loss .................................... $(26,790)
--------
Adjustments to reconcile net loss
to net cash used in development
stage activities:
Amortization of financing and other costs ... 1,341
Amortization of original issue discount ..... 1,907
Abandonment losses and write-downs of
assets held for sale ....................... 10,426
Extraordinary loss on retirement of debt .... 4,089
Increase(decrease) in accounts payable
and accruals, net of amounts for
capital expenditures ....................... 2,787
Increase in advances from related
party payable ............................. 994
--------
Total adjustments ..................... 21,544
--------
Net cash used in development
stage activities ..................... (5,246)
--------
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 ................ (31)
--------
Net cash provided by (used in)
investing activities .................. (13,920)
--------
Cash flows from financing activities:
Principal payments on First Mortgage
Notes ...................................... (20,200)
Proceeds from issuance of First
Mortgage Notes, net of financing costs ..... 30,666
Proceeds from borrowings under
notes payable to related parties ........... 1,200
Equity contribution from Becker
Gaming, Inc.relating to sale of
warrants ................................... 7,500
--------
Net cash (used in) provided by
financing activities .................. 19,166
--------
Net increase (decrease) in cash
and cash equivalents .................. --
Cash and cash equivalents, beginning of period --
--------
Cash and cash equivalents, end of period ...... $ --
========
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized ... $ 5,807
========
Original issue discount that did not
affect cash ................................ $ 7,500
========
Equity contribution by Becker Gaming that did
not affect cash ........................ $ 5,232
========
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary
Of Becker Gaming, Inc.
NOTES TO FINANCIAL STATEMENTS
----------
1. Summary Of Significant Accounting Policies:
Basis Of Presentation
---------------------
Capitol Queen & Casino, Inc. ("CQC" or the "Company"), a development stage
company, was incorporated in Missouri on January 20, 1993, and had acquired
a franchise from the City of Jefferson City, Missouri to develop,
construct, own and operate a riverboat casino (the "Capitol Queen"),
subject to state licensure. the Company has abandoned the Capitol Queen
project, as more fully described in Note 2. Subsequent to incorporation,
the stockholders of the Company exchanged all of the outstanding stock of
the Company for common stock of a Nevada holding company, Becker Gaming,
Inc. ("BGI"), in a tax-free exchange. BGI is wholly owned by the Becker
family and serves as a holding company for the Becker family gaming
interests, which include CQC and the following wholly owned subsidiaries:
o Sunset Coin, Inc. ("SC"), a Nevada corporation which
operates a Las Vegas gaming machine route and service business.
o Becker Gaming Group ("BGG"), a Nevada corporation which (together with
its wholly owned subsidiary Innerout, Inc.) owns and operates restaurants
and bars in Las Vegas under the "Charlie's" name, each of which offers
gaming machines.
o Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
Cash Equivalents And Concentration Of Credit Risk
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company has
cash on deposit with financial institutions in excess of federally insured
amounts.
Property And Equipment
----------------------
Property and equipment are recorded at cost and include interest
capitalized during the construction period. The Company's policy is to
compute depreciation using the straight-line method. No depreciation has
been recorded while the Company is in the development stage.
Debt Issue Costs
----------------
Costs associated with the issuance of debt are deferred and amortized over
the life of the related indebtedness using the effective interest method.
Federal Income Taxes
--------------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. The Company adopted SFAS
109 at inception (January 20, 1993).
The Company is included in the consolidated federal income tax returns
filed by BGI. CQC's tax allocation is based on the amount of tax it would
incur if it filed a separate return except the Company does not receive any
benefits from carry-backs to prior years.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates,
particularly with respect to the matters described in Notes 2 and 3.
2. Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern:
CQC was formed to develop, own and operate the "Capitol Queen" riverboat
casino and related land-based facilities in Jefferson City, Missouri. On
September 28, 1994, CQC was notified that its application for a gaming
license was rejected by the Missouri Gaming Commission (the "Commission").
At the time CQC was notified of the Commission's
decision, construction of the riverboat under contract with a shipbuilder
was almost completed. CQC had also obtained the necessary permits for the
land-based development portion of the project and performed certain
dredging and other site preparation work. Immediately following the
Commission's decision, Management temporarily suspended further development
of the Capitol Queen project, pending an appeal of the decision and legal
remedies potentially available to the Company. Costs associated with the
development of the project which had been deferred during the development
stage were written-off in the fourth quarter of the fiscal year ended June
30, 1994.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Management
ultimately determined to abandon 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 and $1,200,000 on May 15, 1996 and AC (which has
guaranteed the CQC Notes as more fully described in Note 4) did not have
available funds to advance on behalf of CQC. Further, Management believes
that AC does not have sufficient financial resources to satisfy its
guarantee obligation with respect to the CQC Notes, particularly because AC
is in default of covenants under indebtedness AC (the "AC Notes"). In
connection with the decision to abandon the project, CQC had entered into
an Asset Purchase Agreement dated April 10, 1995, for the sale of its
assets to Aerie Riverboat Casinos of Missouri, Inc. at a purchase price of
$18,000,000, which price exceeded the carrying value of the CQC assets.
However, the consummation of the Aerie purchase agreement was subject to
the satisfaction of several conditions which could not be satisfied timely,
including, among others, that Jefferson City consent to the assignment of
its Development Agreement with CQC, that Aerie be found preliminarily
suitable to hold a Missouri gaming license, and that riverboat gaming is
legally permitted in Jefferson City. As a result, the agreement with Aerie
was terminated without penalty when the December 31, 1995 expiration date
passed. As more fully described in Note 3, a further write-down in the
carrying value of the riverboat was recognized in the fourth quarter of
1996, after the election in Jefferson City, the expiration of the Aerie
contract, and due to deteriorating market conditions.
CQC continues to market its riverboat assets to prospective buyers and
Management is currently undergoing discussions with an informal committee
representing the holders of the AC Notes and CQC notes (the "Bondholder
Committee") regarding a proposed restructuring plan. Based on current
market conditions, management does not expect that CQC will generate
sufficient funds through the sale of its assets to repurchase all of the
outstanding CQC Notes. The proposed restructuring plan therefore
contemplates the issuance of additional AC Notes to fulfill AC's guarantee
obligation for remaining principal and accrued interest of the CQC Notes
after applying sale proceeds. However, no satisfactory offers for the
riverboat are currently available, and no agreement has been reached with
the Bondholder Committee regarding the proposed restructuring plan.
Accordingly, these matters raise substantial doubt about the ability of CQC
to continue as a going concern. The final outcome of these matters is not
presently determinable and the June 30, 1996 financial statements of the
Company do not include any adjustment that might result from the outcome of
this uncertainty.
3. Construction Project And Related Contingencies:
Capitol Queen Project
---------------------
The Capitol Queen project, as originally contemplated by the Company, was
to include the riverboat, dockside facilities, restaurants and related
ancillary facilities to be built on land acquired by the Company in July
1993. As a result of the decision to discontinue the project, all costs
associated with the design and development of the facilities were written
off in the fourth quarter of the Company's 1994 fiscal year, with the
exception of the historical cost of the land and the riverboat which was
reclassified to assets held for sale.
The Company had contracted with a shipbuilder to construct the Capitol
Queen riverboat. The total cost of the riverboat was $11,892,000, including
construction period interest and other assets. During the fourth quarter of
the year ended June 30, 1996, based on deteriorating market conditions
after the expiration of the Aerie contract, the Company recognized a loss
of $ $4,392,000 and wrote-down the carrying value of the riverboat to
$7,500,000. Such revised carrying value represents management's best
estimate of the riverboat's current net realizable value in a cash sale,
based on information obtained from shipbuilders, marine brokers, and
purchase offers made to the Company from third parties.
Jefferson City Development Agreement
------------------------------------
The Company acquired the franchise rights to operate the Capitol Queen
under a development agreement with the City of Jefferson City, Missouri
(the "Development Agreement"), beginning September 1, 1993 for a period of
seven years. The Company's rights and obligations under the Development
Agreement were contingent upon receiving a gaming license which, until the
occurrence of the events described in Note 2, management believed was
probable.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote an earlier election in
which Jefferson City voters approved riverboat gambling. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that
as matter of law the 1995 election does not affect the validity of the
Development Agreement. However, to avoid the cost and uncertainty of
litigation, CQC and Jefferson City in June 1996 entered into an agreement
pursuant to which the Development Agreement was rescinded and Jefferson
City refunded $300,000 of the $400,000 CQC had originally paid to the City
under the Development Agreement.
Other Development Agreement
---------------------------
As discussed below, the Company and BGI have each entered into additional
agreements in connection with the development of the Capitol Queen project,
which have been terminated as a result of the decision by the Missouri
Gaming Commission.
In January 1993, prior to incorporation, the stockholders of the Company
agreed that, upon being licensed in Missouri to own and operate the Capitol
Queen, the Company would issue shares of its common stock to three
individuals who assisted the then existing stockholders of the Company in
obtaining the rights to develop the Capitol Queen (the "CQC Stock
Agreement"). The aggregate amount of stock subject to the CQC Stock
Agreement represents 5.25% of the outstanding common stock of the Company,
and was subject to increase to 8.25% if the convention center required
under the Development Agreement was not constructed on land controlled by
the parties to the CQC Stock Agreement. The Company has the option to
repurchase any or all of such stock, except for 25% held by one individual,
for a period of three years from issuance at an aggregate purchase price of
$750,000 ($1,200,000 if the additional shares were issued). In addition to
the above requirements of the CQC Stock Agreement, the Company also agreed
to pay a lump-sum fee of $350,000 to two of the above individuals after
receiving a license and the commencement of operations of the Capitol
Queen.
At the time CQC was awarded the Development Agreement, and until the
occurrence of the events described in Note 2, the Company believed it was
probable it would receive a gaming license in Missouri. Accordingly, to
reflect the CQC Stock Agreement, CQC recorded subscribed stock of $788,000
(using the $750,000 value described above for 5.0% of the stock to
determine the value of the remaining 25% interest), recorded amounts
payable under the agreement for $350,000 and recorded a corresponding total
charge of $1,138,000 to development costs, to be amortized over the life of
the Development Agreement. As a result of the decision by the Missouri
Gaming Commission and the abandonment of the Capitol Queen project,
management believes that it has been relieved of these obligations.
Accordingly, the subscribed stock, the $350,000 liability and the related
deferred costs (net of amortization from September 1, 1993 to June 30,
1994) were written-off in the fourth quarter of fiscal 1994.
In September 1993, the Company's parent, BGI, agreed that it would
repurchase certain rights to acquire equity in CQC (the "Repurchase
Agreement") which it had previously granted to various parties (the
"Sellers"). The Sellers assisted BGI and the Company, through the BGI
stockholders, in obtaining the approval to develop, own and operate the
Capitol Queen in Jefferson City. Under the terms of the Repurchase
Agreement, BGI agreed to pay the Sellers an aggregate amount of $5,925,000,
payable in installments through July 1, 1997 and bearing interest at 10%
per annum from the date the Capitol Queen opens for business. BGI also
agreed that if prior to maturity, BGI proposed to sell any of its common
stock in an underwritten public offering, the Sellers may accept registered
shares in lieu of the payments required based on the public offering price
of such shares (less any underwriters discount) subject to certain
underwriter limitations.
The Repurchase Agreement provided that in the event the development,
ownership or operation of a riverboat gaming business in Jefferson City
becomes unlawful or CQC is declined a gaming license, the Repurchase
Agreement becomes null and void. At the time BGI entered the Repurchase
Agreement, and until the occurrence of the events described in Note 2, the
Company believed it was probable it would receive a gaming license in
Missouri. Accordingly, the assumption of the liability under the Repurchase
Agreement was treated as an additional investment in CQC by BGI, and the
related present value of the costs to the Sellers of $5,232,000 was
recorded as deferred development costs to be amortized over the life of the
Development Agreement.
As a result of the decision by the Missouri Gaming Commission and the
abandonment of the Capitol Queen project, BGI believes that it has been
relieved of its obligations under the Repurchase Agreement. Accordingly,
the deferred costs under the Repurchase Agreement (net of amortization from
September 1, 1993 to June 30, 1994) were written-off in the fourth quarter
of fiscal 1994.
In addition to the above, in the fourth quarter of fiscal 1994, CQC
wrote-off previously capitalized expenditures of $1,375,000 and capitalized
pre-opening expenses of $340,000 associated with the development of the
Capitol Queen project.
4. Long-Term Debt:
On November 18, 1993, the Company completed a private placement debt
financing of $40,000,000 principal amount of 12% First Mortgage Notes Due
November 15, 2000 (the " CQC Notes"). The offering generated net proceeds
of approximately $30,666,000 (after deducting original issue discount of
$7,500,000 and debt issue costs). Interest on the Notes is payable
semi-annually. The Notes are guaranteed by AC (which guarantee is subject
to release only upon licensing of the Capitol Queen, which is not expected)
and are collateralized by a first mortgage on substantially all of the
assets of the Company. The CQC Notes have been classified as currently
payable at June 30, 1996 due to anticipated acceleration upon default and
management's plans to negotiate a payoff of the indebtedness, as more fully
described in Note 2.
As also described in Note 2, the Company was unable to make the interest
payments due under the CQC Notes on November 15, 1995 and May 15, 1996.
Such past due interest in the amount of $2,400,000 has been accrued in the
accompanying financial statements.
As of January 1, 1995, CQC's obligations under the Indenture governing the
CQC Notes were amended with the requisite consent of the holders of the
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.
Concurrent with the placement of the Notes, BGI sold 2,500,000 warrants
(the "Warrants") exercisable for BGI common stock for gross proceeds of
$7,500,000. The gross proceeds from the sale of the Warrants were
contributed to the Company.
The Indenture governing the CQC Notes (the "Indenture") limits the use of
the net proceeds from the offering and the sale of the Warrants to fund the
cost of the development and construction of the Capitol Queen project, the
development of a convention center in Jefferson City, Missouri and initial
interest payments. The proceeds were placed in escrow with a trustee
pending drawdowns for qualifying project expenditures. As more fully
explained in Note 2, certain of the proceeds were used in January 1995 in
connection with the first step of the plan to repay the CQC Notes. The CQC
Notes are not subject to mandatory redemption, except upon a change of
control, or other circumstances as defined in the Indenture. The Company
has 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 consummates an initial public offering of its common
stock, the Company may also redeem the CQC Notes, at a premium of 108%.
The Indenture contains covenants that, among other things, limit the
ability of the Company and, in certain cases, AC, to pay dividends or
management fees, or incur additional indebtedness.
5. Related-Party Transactions:
Prior to the inception of CQC and through November 18, 1993, AC advanced a
total of approximately $1,090,000 to fund development costs of CQC which
was fully repaid on November 18, 1993 with proceeds from the private
placement financing transaction. As of June 30, 1996 and 1995, the amounts
payable to AC by the Company for additional advances were $993,000 and
$392,000, respectively. The advances are non-interest bearing.
In May, 1995, CQC borrowed $1.2 million from AC in order to have funds to
make the semi-annual interest payment due on the CQC Notes. The borrowing
was executed as an uncollateralized note payable to AC due June 30, 1997,
with interest at an annual rate of 5.56%.
6. Income Taxes:
The components included in determining the provision for income taxes for
the years ended June 30, 1996, 1995, and 1994, net of extraordinary items,
are shown below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at federal
income tax statutory rate ....... $(2,647,000) $(1,831,000) $(3,240,000)
Unrecognized tax benefit from net
operating losses ................ 2,574,000 1,831,000 3,240,000
Other ............................ 73,000 -- --
----------- ----------- -----------
Income tax provision .... $ -- $ -- $ --
----------- ----------- -----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes. The major
components of deferred taxes as of June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Liabilities ............................ $ -- $ --
--------- ---------
Assets:
Federal net operating loss carryforwards 4,582,000 4,420,000
Accrued interest expense ............. 918,000 --
Valuation allowance for assets held
for sale ........................... 1,494,000 --
Total deferred tax assets ............ 6,994,000 4,420,000
--------- ---------
Valuation allowance .................. (6,994,000) (4,420,000)
---------- ----------
Net deferred taxes ................... $ -- $ --
--------- ---------
</TABLE>
As of June 30, 1996, the Company had a federal net operating loss
carryforward of approximately $13,478,000 which expires between 2009 and
2011.
7. Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, capital lease
obligations and notes approximate fair values due to the short-term
maturities and approximate market interest rates of these instruments.
Management is unable to determine a fair value for the outstanding
$20,000,000 principal amount ($17,526,000 carrying amount at June 30, 1996)
of 12% First Mortgage Notes due November 15, 2000 of Capitol Queen and
Casino, Inc. (the "CQC Notes"). It is not practicable to determine the fair
value of these financial instruments due to the debt covenant violations
and related uncertainties involved in negotiations with the holders of the
AC Notes and CQC Notes, as more fully discussed in Note 2.
================================================================================
SCHEDULE I
BECKER GAMING, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
The following condensed financial statements reflect the parent company (Becker
Gaming, Inc.) only, accounting for its wholly owned subsidiaries on the equity
method of accounting. All footnote disclosures have been omitted since the
information has been included in the Company's consolidated financial statements
included elsewhere in this Annual Report an Form 10-K.
BECKER GAMING, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF LOSS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
--------------------------------------
1996 1995 1994
-------- -------- --------
Revenues:
Management fee revenue from
subsidiaries ................ $ 2,125 $ 3,787 $ 240
-------- -------- --------
Operating expenses:
General and administrative ... 1,204 3,398 264
Depreciation and amortization 253 362 30
-------- -------- --------
1,457 3,760 294
-------- -------- --------
Other income (expenses):
Interest expense ............. (441) (454) (337)
Gain on write-off of
liability relating to the
CQC project abandonment ..... -- -- 309
Write-down of assets to net
realizable value ............ (439) -- --
Loss on sale of assets ....... -- (76) --
Equity interest in loss
of subsidiaries ............. (11,785) (13,424) (9,455)
-------- -------- --------
(12,665) (13,954) (9,483)
-------- -------- --------
Loss before provision for
income taxes ................ (11,997) (13,927) (9,537)
Provision (benefit) for
income taxes ................ (171) (607) --
-------- -------- --------
Net income (loss) ......... (11,826) (13,320) (9,537)
Retained deficit,
beginning of year .......... (22,857) (9,537) --
-------- -------- --------
Retained deficit,
end of year ................ $(34,683) $(22,857) $ (9,537)
======== ======== ========
================================================================================
SCHEDULE I (continued)
BECKER GAMING, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
BECKER GAMING, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
(Dollars In Thousands)
As of June 30,
-----------------------------------
1996 1995
-------- --------
ASSETS
Current assets:
Cash .............................. $ 27 $ 40
Income taxes receivable
from subsidiaries ................ 778 607
Prepaid expenses .................. -- 14
Assets held for sale .............. 3,233 --
-------- --------
Total current assets ........... 4,038 661
-------- --------
Furniture and equipment ........... 308 4,565
Less accumulated depreciation ..... (108) (509)
-------- --------
Net property and equipment ..... 200 4,056
-------- --------
Other assets:
Deposits and other ................ 523 425
Investments in subsidiaries ....... 2,630 2,071
Management fees receivable from
subsidiaries ..................... 6,780 3,375
Financing costs, net .............. -- 23
-------- --------
Total other assets ............ 9,933 5,894
-------- --------
Total assets ................... $ 14,171 $ 10,611
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................. $ 1 $ 127
Accounts payable to related parties 3,901 467
Accrued expenses .................. 624 171
Current portion of notes payable .. 4,416 4,416
Current portion of obligations .... 1,858 779
under capital leases ............. -- --
Total current
liabilities ................... 10,800 5,960
-------- --------
Obligations under capital leases,
less current portion .............. -- 1,798
-------- --------
Total liabilities .............. 10,800 7,758
-------- --------
Common stock, $.01 par value,
20,000,000 shares authorized,
10,000,000 shares issued and
outstanding ...................... 100 100
Preferred stock, $1 par value,
5,000,000 shares authorized,
none issued and outstanding ...... -- --
Additional paid-in capital ........ 37,954 25,610
Accumulated deficit ............... (34,683) (22,857)
-------- --------
Total stockholders' equity ..... 3,371 2,853
-------- --------
Total liabilities and .......... $ 14,171 $ 10,611
stockholders' equity .......... ======== =========
================================================================================
SCHEDULE I (continued)
BECKER GAMING, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
BECKER GAMING, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Year Ended June 30,
----------------------------------------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net loss ............................. $(11,826) $(13,320) $ (9,537)
-------- -------- --------
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Equity interest in loss
of subsidiaries ..................... 11,785 13,424 9,455
Depreciation and amortization ........ 253 362 30
Loss on sale of assets ............... 439 76 --
(Increase) decrease in
operating assets: ................... -- -- --
Income taxes receivable from
subsidiaries ........................ (171) (607) --
Prepaid expenses ..................... 14 3 2
Increase (decrease) in
operating liabilities:
Accounts payable ..................... (126) (25) 152
Accrued expenses ..................... 453 90 82
Payables to subsidiaries ............. 3,434 22 445
-------- -------- --------
Total adjustments ................. 16,081 13,345 10,166
-------- -------- --------
Net cash provided by
operating activities ............. 4,255 25 629
Cash flows from investing activities:
Increase in management fees receivable
from subsidiaries ................... (3,405) (3,109) (240)
Capital expenditures ................. (31) (118) (31)
Increase in deposits and other ....... (113) (48) (76)
Proceeds from sale of assets ......... -- 662 --
Contribution to Capitol Queen &
Casino, Inc. ........................ -- -- (7,500)
-------- -------- --------
Net cash used in
investing activities ............. (3,549) (2,613) (7,847)
-------- -------- --------
Cash flows from financing activities: Proceeds from issuance of warrants, ..
net of issuance costs ............... -- -- 7,004
Proceeds from issuance of
notes payable ....................... -- 4,116 300
Payments on capital
lease obligations ................... (719) (1,495) (79)
-------- -------- --------
Net cash provided by (used in)
financing activities ............. (719) 2,621 7,225
-------- -------- --------
Net increase in cash and cash
equivalents ...................... (13) 33 7
Cash and cash equivalents,
beginning of period ................... 40 7 --
-------- -------- --------
Cash and cash equivalents, end
of period ............................. $ 27 $ 40 $ 7
======== ======== ========
================================================================================
SCHEDULE II
BECKER GAMING, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
June 30, 1996, 1995 And 1994
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
----------- ------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1996 .............. $ 44,000 $ 44,000 $ --
========== ========== ==========
Year ended June 30, 1995 .............. $ -- $ 44,000 $ --
========== ========== ==========
Year ended June 30, 1994 .............. $ 150,000 $ 14,689 $ --
========== ========== ==========
Deferred Tax Asset Valuation Allowance:
Year ended June 30, 1996 .............. $5,343,000 $ -- $3,705,000
========== ========== ==========
Year ended June 30, 1995 .............. $1,378,000 $ -- $3,965,000
========== ========== ==========
Year ended June 30, 1994 .............. $ -- $ -- $1,378,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
----------- ---------- ----
<S> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1996 ............. $ -- $ 88,000
========== ==========
Year ended June 30, 1995 ............. $ -- $ 44,000
========== ==========
Year ended June 30, 1994 ............. $ 164,689 $ --
========== ==========
Deferred Tax Asset Valuation Allowance:
Year ended June 30, 1996 ............. $ -- $9,048,000
========== ==========
Year ended June 30, 1995 ............. $ -- $5,343,000
========== ==========
Year ended June 30, 1994 ............. $ -- $1,378,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE II
ARIZONA CHARLIE'S, INC.
VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
June 30, 1996, 1995 And 1994
Additions
----------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
----------- ------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1996 .............. $1,592,000 $ 601,000 $ --
========== ========== ==========
Year ended June 30, 1995 .............. $ -- $1,592,000 $ --
========== ========== ==========
Year ended June 30, 1994 .............. $ -- $ -- $ --
========== ========== ==========
Deferred Tax Asset Valuation Allowance:
Year ended June 30, 1996 .............. $1,840,000 $ -- $1,482,000
========== ========== ==========
Year ended June 30, 1995 .............. $ 213,000 $ -- $1,627,000
========== ========== ==========
Year ended June 30, 1994 .............. $ -- $ -- $ 213,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
----------- ---------- ----
<S> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1996 ............. $ -- $2,193,000
========== ==========
Year ended June 30, 1995 ............. $ -- $1,592,000
========== ==========
Year ended June 30, 1994 ............. $ -- $ --
========== ==========
Deferred Tax Asset Valuation Allowance:
Year ended June 30, 1996 ............. $ -- $3,322,000
========== ==========
Year ended June 30, 1995 ............. $ -- $1,840,000
========== ==========
Year ended June 30, 1994 ............. $ -- $ 218,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE II
SUNSET COIN, INC.
VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
June 30, 1996, 1995 And 1994
Additions
------------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
- -------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Allowance for doubtful accounts
Year ended June 30, 1996 ............ $ 44,000 $ 44,000 $ --
=========== =========== ===========
Year ended June 30, 1995 ............ $ -- $ 44,000 $ --
=========== =========== ===========
Year ended June 30, 1994 ............ $ 150,000 $ 14,689 $ --
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
- -------------------------------------- ----------- --------
<S> <C> <C>
Allowance for doubtful accounts
Year ended June 30, 1996 ............ $ -- $ 88,000
=========== ========
Year ended June 30, 1995 ............ $ -- $ 44,000
=========== ========
Year ended June 30, 1994 ............ $ 164,689 $ --
=========== ========
</TABLE>
SCHEDULE II
CAPITOL QUEEN & CASINO, INC.
VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
June 30, 1996, 1995 And 1994
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
- -------------------------------------- ----------- ----------- -----------
Allowance for doubtful accounts
<S> <C> <C> <C>
Year ended June 30, 1996 ............ $ 4,420,000 $ -- $ 2,574,000
=========== =========== ===========
Year ended June 30, 1995 ............ $ 1,181,000 $ -- $ 3,239,000
=========== =========== ===========
Year ended June 30, 1994 ............ $ -- $ -- $ 1,181,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
- -------------------------------------- ----------- --------
<S> <C> <C>
Allowance for doubtful accounts
Year ended June 30, 1996 ............ $ -- $ 6,994,000
=========== ===========
Year ended June 30, 1995 ............ $ -- $ 4,420,000
=========== ===========
Year ended June 30, 1994 ............ $ -- $ 1,181,000
=========== ===========
</TABLE>
EXHIBIT
3.1 Articles of Incorporation of the Company.*
3.2 By-Laws of the Company.*
4.1 Indenture dated November 15, 1993 among Arizona Charlie's,
as issuer, Sunset Coin, as guarantor, and IBJ Schroder Bank
& Trust Company ("IBJ"), as trustee, as amended by First
Supplemental Indenture dated January 1, 1995.*
4.2 Indenture dated November 15, 1993 among Capitol Queen, as
issuer, Arizona Charlie's, as guarantor, and IBJ, as
trustee, as amended by First Supplemental Indenture dated
January 1, 1995.*
10.1 Form of amended Warrant Agreement among the Company and the
purchasers named therein (the "Purchasers").*
10.2 Fee and Leasehold Deed of Trust, Assignment of Leases and
Subleases, Security Agreement and Fixture Filing dated
November 15, 1993 by Arizona Charlie's and CLC, as grantors,
to Land Title of Nevada, Inc., as trustee, for the benefit
of IBJ, as collateral agent.*
10.3 Deed of Trust, Assignment of Leases, Security Agreement and
Fixture Filing dated November 15, 1993 by Capitol Queen, as
grantor, to Charles W. Riley, as trustee, for the benefit of
IBJ, as collateral agent.*
10.4 Form of First Preferred Ship Mortgage Securing an Indenture
between Capitol Queen and IBJ.* 10.5 Form of Security
Agreements dated November 15, 1993 between each of Arizona
Charlie's and Capitol Queen and IBJ, as collateral agent.*
10.6 Form of Stock Pledge Agreements dated November 15, 1993
between each of Arizona Charlie's and Capitol Queen and IBJ,
as collateral agent.*
10.7 Form of Collateral Agency Agreement dated November 15, 1993
among Arizona Charlie's, CLC and IBJ, as trustee and
collateral agent and between Capitol Queen and IBJ, as
trustee and collateral agent.*
10.8 Promissory Notes dated December 24, 1993 made by each of the
Beckers in favor of Arizona Charlie's.*
10.9 Promissory Notes dated December 24, 1993 made by each of the
Beckers in favor of Sunset Coin.* 10.10 Tax Indemnity
Agreement dated December 24, 1993 among Arizona Charlie's,
Sunset Coin, Becker Gaming Group and each of the Beckers.*
10.11 Registration Rights Agreements dated as of May 31, 1994
among the Company and each of the Beckers.*
10.12 Form of Management Agreements dated as of May 31, 1994
between the Company and each of Arizona Charlie's, Capitol
Queen, Sunset Coin and Becker Gaming Group.*
10.13 Form of Tax Allocation Agreements dated as of May 31, 1994
between the Company and each of Arizona Charlie's, Sunset
Coin, Becker Gaming Group and Capitol Queen.*
10.14 Form of Consulting Agreements dated as of May 31, 1994
between the Company and each of Ernest A. Becker, III,
Ernest A. Becker, IV and Barry W. Becker.*
10.15 Employment Agreement dated as of May 31, 1994 between the
Company and Bruce F. Becker.* 10.16 Stockholders Agreements
dated as of May 31, 1994 among each of the Beckers.* 10.17
Leases dated May 1, 1988 and August 21, 1990 between
Charleston Heights Shopping Center and Arizona Charlie's.*
10.18 Ground Lease dated December 1, 1986 between Becker
Investment Company and Becker Family Trust No. 2 and Becker
Gaming Group; Assignment dated September 16, 1987 assigning
the interest of Becker Investment Company and Becker Family
Trust No. 2 to Lakeside Partners.*
10.19 Lease dated August 12, 1986 between Fremont West Shopping
Center and Becker Gaming Group.* 10.20 Lease dated July 27,
1988 between Becker Investment Co. and Becker Gaming Group.*
10.21 Lease dated September 19, 1994 between Weddington
Investment Partnership and Innerout, Inc.* 10.22 Lease dated
March 24, 1995 between Sunset Coin, Inc. and Innerout, Inc.*
10.23 Lease agreement between Arizona Charlie's, Inc. and
Bruce F. Becker.*
10.24 Aircraft Purchase Agreement dated July 1, 1996 between
Arizona Charlie's and Limerick Holdings, LLC.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule
AIRCRAFT PURCHASE AGREEMENT
This Agreement, made this 1st day of July, 1996 ("Agreement"), by and between
Arizona Charlie's, a Nevada corporation (hereinafter referred to as "Seller")
having its principal office at 740 South Decatur Boulevard, Las Vegas, Nevada
89107, and Limerick Holdings, LLC (hereinafter referred to as "Purchaser")
having its office at 252 Clayton Street, Denver, Colorado 80206.
NOW THEREFORE, in consideration of the mutual covenants herein contained, the
parties agree as follows:
SECTION 1. SALE OF AIRCRAFT; SALE PRICE; PAYMENT; ETC.
A. SALE OF AIRCRAFT
Purchaser agrees to purchase and Seller agrees to sell one (1) Gulfstream
Model G1159 Aircraft bearing Federal Aviation Administration registration
number N57BG and bearing manufacturer's serial number 061, together with
two (2) installed Rolls Royce Spey MK 511-8 engines bearing manufacturer's
serial number 8642 and 8631 (collectively, the "Aircraft") pursuant to the
terms and conditions set forth in this Agreement. A description of the
Aircraft is set forth in Exhibit A hereto.
B. SALE PRICE
The sale price for the Aircraft shall be three million three hundred forty
four thousand dollars ($3,344,000.00).
C. PAYMENT
Purchaser has previously deposited two hundred fifty thousand dollars
($250,000.00) with Insured Aircraft Title Service, Inc. (the "Escrow
Agent") to be applied toward the sale of the Aircraft and transferred to
Seller upon delivery of the Aircraft to Purchaser. On the Closing Date (as
defined below), Purchaser shall pay three million ninety four thousand
dollars ($3,094,000.00) to seller by wire transfer of immediately available
funds to the Escrow Agent. In addition, Purchaser shall instruct the Escrow
Agent to release the deposit of two hundred fifty thousand dollars
($250,000.00) it holds to Seller.
D. CLOSING DATE
The closing shall take place on July 20, 1996, or such other date as
mutually agreed by the parties hereto (the "Closing Date").
E. AIRWORTHINESS CERTIFICATE
A standard Airworthiness Certificate will be on the Aircraft on the Closing
Date.
F. RECORDS
Seller will transfer to Purchaser on the Closing Date all log books and
such other records pertaining to the operation and maintenance of the
Aircraft.
SECTION 2. DELIVERY OF AIRCRAFT
Seller shall deliver the Aircraft to Purchaser at Denver, Colorado on the
Closing Date. Purchaser shall evidence the delivery of the Aircraft by
executing the Delivery Receipt, substantially in the form attached hereto
as Exhibit B. Seller shall deliver to Purchaser on the Closing Date a
standard FAA Bill of Sale for the Aircraft or other document in the normal
and usual form conveying title of said Aircraft to Purchaser free and clear
of all liens, charges or encumbrances other than those specified herein. On
the Closing Date, Purchaser shall pay for such Aircraft according to
section 1 (C) above, and title to, risk of loss with respect to, and
responsibility for such Aircraft shall pass to Purchaser. Upon delivery of
the Aircraft to Purchaser, such Aircraft shall be in "as is", "where is"
condition at Denver, Colorado.
SECTION 3. WARRANTIES
Aircraft is being sold on an "as is" basis, and there are no warranties
which extend beyond the description of the Aircraft in Exhibit A. Seller
disclaims all express or implied warranties or representations of any kind
or nature whatsoever including merchantability or fitness for a particular
purpose. Seller warrants that the Aircraft will be delivered with the FAA
Bill of Sale.
To the extent that any manufacturers' warranties are still in effect with
respect to the Aircraft (other than warranties which by their terms are
unassignable), Seller will reasonably assist Purchaser to process warranty
claims directly with the manufacturers.
Seller will transfer or aid in the transfer of all revision and/or
subscription services, including but not limited to, Gulfstream Computer
Maintenance Program (CMP), Aircraft Technical Publications (ATP),
Gulfstream Technical Publications, Gulfstream Flight Manuals, Global Data
Base (NDB 2), and any credit remaining for these services to Purchaser.
SECTION 4. TAXES
Purchaser hereby agrees to pay any and all taxes, duties or fees assessed
or levied by any federal, state or local taxing authority as result of the
sale, delivery, transfer or registration of Aircraft.
Seller shall not be liable for any failure of or delay in delivery of the
Aircraft for the period that such failure or delay is due to acts of God or
the public enemy; civil war, insurrection or riots, fires, explosions or
serious accidents; governmental priorities or allocations; strikes or labor
disputes; inability to obtain necessary materials, accessories, equipment
or parts from the manufacturers thereof, or any other cause and to carry
out this Agreement as promptly as practicable after such cause is
terminated.
This Agreement may not be assigned by either party without the prior
written consent of the other.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Nevada, without regard to principles of conflicts of
laws.
This Agreement shall not be notified or amended except by an instrument in
writing agreed to and signed by fully authorized representatives of the
parties.
Upon a failure by Purchaser to accept the Aircraft under the terms and
conditions of this Agreement, upon written notice to Purchaser, Seller may
cancel this Agreement, retain the deposit or downpayment as liquidated
damages and proceed to otherwise sell or dispose of the Aircraft with no
further liability to the Purchaser.
Purchaser warrants that the terms and conditions of this Agreement were
fully read and understood, and that they constitute the entire agreement
between the parties. There are no other agreements written or oral which
pertain to the sale of the Aircraft.
If any one or more provisions of this Agreement shall be found to be
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
This Agreement shall be binding upon and insure to the benefit of the
respective legal representatives and heirs of the individual parties,
except as otherwise herein provided.
Purchaser agrees to cause tail number N57BG to be changed within 180 days
of closing.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be
executed by their duly authorized representative on the date first written.
ARIZONA CHARLIE'S LIMERICK HOLDINGS, LLC
BY: /s/ Bruce F. Becker BY: /s/ Pat Broe
------------------------ -----------------------
Name: Bruce F. Becker Name:Pat Broe
Title: CEO Title: President
July 18, 1996
Pat Broe
The Broe Companies, Inc./ Limerick Holdings, L.L.C.
752 Clayton Street
Denver, CO 80206
Dear Mr. Broe:
In reply to your letter dated July 17, 1996 regarding an extension of time to
close the sale of the Gulfstream II, a July 19, 1996 delivery to Denver,
installation of new equipment items including a TCAS II, dual GNS XLS's, DME 42s
and AFIS, and the cost of the July lease payment, we will acknowledge and agree
with these items if the following additional conditions and considerations are
met:
The buyer will immediately forward the non-refundable escrow deposit
of $250,000.00 to the seller (bank wire instructions attached) to be
applied against purchase price.
The buyer agrees that the Gulfstream will not be flown until the full
and complete proceeds have been disbursed to US Bankcorp Leasing Company
and to the seller.
A written document needs to be completed by the buyer and addressed to
Stevens Aviation indicating that the seller can retrieve the Gulfstream
II if the sale is not closed on or before Friday, July 26, 1996. Payment
for the installed new equipment will be made by Limerick Holdings, LLC
and, if required, the aircraft will be returned with improvements
completed and free of liens. A copy of such document is to be forwarded
to the seller as soon as completed.
Buyer acknowledges that when seller delivers the Gulfstream II to
Denver on July 19, 1996, that such delivery constitutes delivery and
acceptance of the Gulfstream II, evidenced by a delivery receipt.
(attached) At the closing, Buyer will pay an additional $5,000 to the
seller to defray the July lease cost of the Gulfstream II.
Except as otherwise expressly provided herein, the aircraft purchase
agreement dated July 01, 1996, shall remain in full force and effect.
If you have any questions or desire additional information, please contact Tom
Burks.
Sincerely,
/s/ Jerry Griffis
- -----------------
Jerry Griffis
Chief Financial Officer
Becker Gaming, Inc.
ACKNOWLEDGED AND AGREED TO THIS DAY OF ,
1996.
BUYER: Limerick Holding, LLC
By: /s/Pat Broe
----------------
Pat Broe
Title: President
cc: Bruce F. Becker, President Becker Gaming Group
Tom Burks, Business Aviation
Chris Kearns, Chief Pilot
July 17, 1996
Mr. Tom Burks
Business Aviation
8614 Townhouse
Dallas, TX 75225
Re: Gulfstream II, S/N 61
Dear Mr. Burks:
This letter details the issues discussed during our telephone conversation this
afternoon. As we discussed, I am interested in closing this quickly, and will
help negotiate with the lessor tomorrow if required. During our conversation, I
outlined the following items that are critical to me:
Seller extends the closing until Friday, July 26, 1996.
Seller delivers the aircraft to Denver on Friday, July 19, 1996 in order
for improvements to be made. I will pay the cost of having the seller deliver
the aircraft to Denver. We have Stevens Aviation scheduled to perform the
following improvements: Installation of TCASII, dual GNS XLS's, new DME 42s
and ASIS. The total workscope is worth approximately $340,000. If the closing
does not occur as schedule under Item 1 above, the aircraft will be returned
to you with improvements completed free of any liens.
I am to open to discussion of defraying the July lease cost. However,
based on our conversation, I have no feel for the dollar magnitude of this
cost, and am not willing to pay for a significant amount.
Please acknowledge agreement with these times by signing below. If you have any
questions, please call me at (303) 393-0033.
Sincerely,
/s/ Pat Broe
- ------------
Pat Broe
ACKNOWLEDGED AND AGREED TO THIS DAY OF , 1996.
SELLER:
By:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,785,000
<SECURITIES> 0
<RECEIVABLES> 1,449,000
<ALLOWANCES> 0
<INVENTORY> 729,000
<CURRENT-ASSETS> 12,803,000
<PP&E> 68,874,000
<DEPRECIATION> 19,078,000
<TOTAL-ASSETS> 75,477,000
<CURRENT-LIABILITIES> 83,947,000
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> (18,097,000)
<TOTAL-LIABILITY-AND-EQUITY> 75,477,000
<SALES> 76,037,000
<TOTAL-REVENUES> 76,037,000
<CGS> 0
<TOTAL-COSTS> 71,295,000
<OTHER-EXPENSES> 5,385,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,584,000
<INCOME-PRETAX> (11,227,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,227,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,227,000)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
