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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-76368
BECKER GAMING, INC.
-------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0303849
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 S. Decatur
Las Vegas, Nevada 89107
- ----------------- -----
(Address of principal (Zip Code)
executive offices)
(702) 258-5200
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of common stock October 30, 1996
- --------------------- --------------
$.01 par value 10,000,000 shares
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BECKER GAMING, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Page
BECKER GAMING, INC. AND SUBSIDIARIES
Consolidated Balance Sheets as of September 30, 1996 and
June 30, 1996............................................................1
Consolidated Statements of Operations and Retained Earnings
(Deficit) for the Three-Month Periods Ended
September 30, 1996 and 1995..............................................2
Consolidated Statements of Cash Flows for the Three-Month
Periods Ended September 30, 1996 and 1995................................3
Notes to Consolidated Financial Statements....................................4
ARIZONA CHARLIE'S, INC.
Balance Sheets as of September 30, 1996 and June 30, 1996.................... 8
Statements of Operations and Retained Earnings (Deficit) for the
Three- Month Periods Ended September 30, 1996
and 1995.................................................................9
Statements of Cash Flows for the Three-Month Periods
Ended September 30, 1996 and 1995.......................................10
Notes to Financial Statements................................................11
SUNSET COIN, INC.
Balance Sheets as of September 30, 1996 and June 30, 1996....................14
Statements of Income and Retained Earnings for the Three-
Month Periods Ended September 30, 1996 and 1995..............................15
Statements of Cash Flows for the Three-Month Periods Ended
September 30, 1996 and 1995..................................................16
Notes to Financial Statements................................................17
CAPITOL QUEEN & CASINO, INC.
Balance Sheets as of September 30, 1996 and June 30, 1996....................19
Statements of Loss Incurred During the Development Stage
for the Three-Month Periods Ended September 30, 1996
and 1995 and for the period from January 20, 1993
(the date of inception) through September 30, 1996......................20
Statements of Cash Flows for the for Three-Month Periods Ended
September 30, 1996 and 1995 the period from January 20,
1993 (the date of inception) through September 30, 1996.................21
Notes to Financial Statements................................................22
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Becker Gaming, Inc...........................................................25
Arizona Charlie's, Inc.......................................................25
Sunset Coin, Inc.............................................................30
Capitol Queen & Casino, Inc..................................................33
Part II. Other Information
Item 1. Legal Proceedings....................................................35
Item 6. Exhibits and Reports on Form 8-K.....................................38
Signatures ..................................................................39
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands, Except Share Data)
ASSETS
September 30, June 30,
1996 1996
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents ........................... $ 9,088 $ 6,745
Restricted cash, in escrow account .................. 40 40
Trade and other accounts receivable ................. 483 626
Receivables from related parties .................... 44 33
Inventories ......................................... 740 729
Prepaid expenses .................................... 1,067 1,244
Current portion of notes receivable ................. 142 153
Assets held for sale ................................ -- 3,233
-------- --------
Total current assets .......................... 11,604 12,803
-------- --------
Property and equipment:
Land improvements ................................... 1,628 1,628
Building and improvements ........................... 38,282 38,282
Leasehold improvements .............................. 983 983
Furniture and equipment ............................. 27,992 27,773
-------- --------
68,885 68,666
Less, accumulated depreciation ...................... (19,913) (19,078)
-------- --------
48,972 49,588
Land ............................................... 208 208
-------- --------
Net property and equipment ..................... 49,180 49,796
-------- --------
Other assets:
Assets held for sale ................................ 7,754 7,754
Notes receivable, less
current portion, net .............................. 453 472
Receivables from related parties,
less current portion .............................. 165 165
Deposits and other .................................. 1,406 1,375
Financing costs, net ................................ 2,940 3,112
-------- --------
Total other assets ............................. 12,718 12,878
-------- --------
Total assets ................................... $ 73,502 $ 75,477
======== ========
LIABILITIES AND STOCKHOLDERS'EQUITY(DEFICIT)
September 30, June 30,
1996 1996
-------- --------
(Unaudited)
Current liabilities:
Trade accounts payable ............................... $ 1,886 $ 1,761
Accrued expenses ..................................... 9,207 6,409
Notes payable ........................................ 45 110
Current portion of subordinated
notes payable to stockholders ..................... 800 800
Current portion of
long term debt .................................... 407 381
Long-term debt classified as
current, net of unamortized
original issue discount of
$2,339 and $2,474, respectively ................... 72,661 72,526
Current portion of obligations
under capital leases .............................. 101 1,960
-------- --------
Total current liabilities ...................... 85,107 83,947
Long-term debt, less current portion ................... 1,240 1,330
Subordinated notes payable to
stockholders, less current portion ............... 8,000 8,000
Obligations under capital leases,
less current portion .............................. 172 197
-------- --------
Total liabilities .............................. 94,519 93,474
-------- --------
Commitments and contingencies
Stockholders' equity(deficit):
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 ........................... 9,006 9,006
Retained earnings (deficit) .......................... (30,123) (27,103)
-------- --------
Total stockholders'
equity (deficit) ............................... (21,017) (17,997)
-------- --------
Total liabilities
and stockholders'
equity(deficit) ................................ $ 73,502 $ 75,477
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (DEFICIT)
(Dollars In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended September 30,
1996 1995
------------ ------------
Revenues:
Gaming .......................... $ 14,430 $ 15,326
Food and beverage ............... 4,583 4,271
Hotel ........................... 761 722
Gift shop ....................... 131 155
Other ........................... 271 318
------------ ------------
Gross revenues ............. 20,176 20,792
Less, promotional allowances ....... (2,583) (2,088)
------------ ------------
Net revenues ............... 17,593 18,704
Operating expenses:
Gaming .......................... 3,855 4,146
Food and beverage ............... 5,491 5,174
Hotel ........................... 479 398
Gift shop ....................... 124 107
Advertising and promotion ....... 1,330 1,205
General and administrative ...... 5,456 5,347
Rent expense paid to
related party ................. 104 96
Depreciation and
amortization .................... 1,022 1,127
------------ ------------
Total operating
expenses ................... 17,861 17,600
------------ ------------
Operating income ........... (268) 1,104
------------ ------------
Other income(expenses):
Development costs ............... (73) (165)
Interest income ................. 31 5
Interest expense ................ (2,740) (2,581)
Other, net ..................... 30 42
------------ ------------
Total other
income (expense) ......... (2,752) (2,699)
------------ ------------
Loss before
income taxes ............. (3,020) (1,595)
------------ ------------
Net loss ................... (3,020) (1,595)
Retained earnings (deficit),
beginning of period ..... (27,103) (15,876)
------------ ------------
Retained earnings(deficit),
end of period ............ $ (30,123) $ (17,471)
============ ============
Net loss per share of common
stock .................... $ (0.30) $ (0.16)
============ ============
Weighted average common
shares outstanding ....... 10,000,000 10,000,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Three Months Ended September 30,
1996 1995
------- -------
Cash flows from operating activities:
Net (loss) income .......................... ($3,020) ($1,595)
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization .............. 1,022 1,127
Amortization of original issue discount .... 135 134
(Increase) decrease in operating assets:
Receivables ................................ 160 (878)
Receivables from related parties ........... (11) --
Inventories ................................ (11) 64
Prepaid expenses ........................... 177 218
Deposits and other assets .................. (31) (1)
Increase (decrease) in operating liabilities:
Accounts payable net of amounts for
capital expenditures ....................... 125 1,552
Accrued expenses ........................... 2,698 1,606
------- -------
Total adjustments ....................... 4,264 3,822
------- -------
Net cash provided by
operating activities ............... 1,244 2,227
------- -------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable ........... (233) (305)
Proceeds from sale of equipment ............ 3,315 3
Issuance of notes receivable ............... -- (31)
Payments of notes receivable ............... 30 39
------- -------
Net cash provided by (used in)
investing activities ............... 3,112 (294)
------- -------
Cash flows from financing activities:
Payments under notes payable ............... (129) (322)
Payments under capital lease obligations ... (1,884) (27)
------- -------
Net cash used in financing activities ... (2,013) (349)
------- -------
Net increase in cash and cash equivalents 2,343 1,584
Cash and cash equivalents, beginning of period 6,745 6,657
------- -------
Cash and cash equivalents, end of period ..... $ 9,088 $ 8,241
======= =======
Supplemental cash flow disclosures:
Interest paid, net of amount capitalized ... $ 351 $ 281
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
BECKER GAMING, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1) Basis of Presentation:
The accompanying consolidated financial statements of Becker Gaming, Inc. ("BGI"
or the "Company") are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments and normal recurring accruals
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended June 30, 1997.
The accompanying unaudited consolidated financial statements and footnotes
should be read in conjunction with the financial statements included in the
Company's annual report on Form 10-K for the year ended June 30, 1996.
2) Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern:
Capitol Queen and Casino, Inc. ("CQC"), a wholly owned subsidiary of BGI, 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 (the "CQC 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
repurchase of $20,000,000 principal amount of 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 remain 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
May 15, 1996, will not be able to make such payment on November 15, 1996.
Arizona Charlie's, Inc. ("AC"), another wholly owned subsidiary of BGI and a
guarantor of the CQC Notes, will not have funds available to advance on behalf
of CQC on November 15, 1996. AC is restricted from selling assets under the
covenants governing its 12% First Mortgage Notes due November 15, 2000 (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 to satisfy its guarantee obligation with
respect to the CQC Notes.
As of September 30, 1996, AC is in default of certain debt covenants under the
Indenture (the "AC Indenture") governing the AC Notes. These covenant violations
include (i) a failure to meet a minimum fixed charge coverage ratio, as defined
in the AC Indenture, and (ii) advances by AC to BGI in excess of amounts
permitted under the AC Indenture. Such advances remain outstanding at September
30, 1996. In addition, beginning with the quarter ending December 31, 1995, AC
has not met the minimum tangible net worth requirement set forth the AC
Indenture. Under the terms of the AC Indenture, AC is required to offer to buy
back $16,500,000 of the outstanding AC Notes at September 30, 1996 due to the
failure to meet this covenant, and such amounts shall increase by $5,500,000
each fiscal quarter so long as AC is in default of the covenant. AC has not made
such offer and does not intend to do so while discussions with the Bondholder
Committee described below are in process. As a result of these covenant defaults
under covenants, the AC Notes have been classified as currently payable in the
accompanying financial statements.
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, BGI
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 September 30, 1996, CQC had a net deficit of
approximately $15,000,000.
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, Sunset Coin, Inc. ("SC"), another wholly owned
subsidiary of BGI and a guarantor of the AC Notes, to pay dividends or
management fees, or incur additional indebtedness. At September 30, 1996, AC had
a net deficit of approximately $12,000,000 and $1,600,000 of SC's net assets
were restricted by such indenture covenants.
CQC continues to market its riverboat assets to prospective buyers and
management is continuing its 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 September 30, 1996 financial statements of the Company do not include any
adjustment that might result from the outcome of this uncertainty.
3) Assets Held For Sale:
At September 30, 1996, BGI had $7,754,000 of assets held for sale, consisting of
land and riverboat assets which were written down to a carrying value based on
management's best estimate of the riverboat's current net realizable value in a
cash sale, based on information obtained from shipbuilders, marine brokers, and
purchase offers made to the Company from third parties.
Also, on July 26, 1996, the Company sold its corporate aircraft for net proceeds
of approximately $3,200,000 and retired a related capital lease obligation of
approximately $1,800,000. During the quarter 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.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEET
(Dollars In Thousands)
----------
ASSETS
September 30, June 30,
1996 1996
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents ....................... $ 5,426 $ 4,591
Restricted cash, in escrow account ............. 10 10
Trade and other accounts receivable ............. 304 473
Receivable from related parties ................ 2,649 1,539
Inventories ..................................... 581 575
Prepaid expenses ............................... 950 1,118
-------- --------
Total current assets ......................... 9,920 8,306
-------- --------
Property and equipment:
Building and improvements ....................... 37,488 37,488
Furniture and equipment ........................ 22,679 22,575
Land improvements ............................... 1,628 1,628
-------- --------
61,795 61,691
Less, accumulated depreciation .................. (16,937) (16,218)
-------- --------
44,858 45,473
Land ........................................... 208 208
-------- --------
Net property and equipment ................. 45,066 45,681
-------- --------
Other assets:
Receivable from related
party, noncurrent ............................. 210 987
Deposits and other .............................. 472 460
Notes receivable from related party ............. 4,416 4,416
Financing costs, less
accumulated amortization
of $1,505 September 30, 1996 and $1,336
June 30, 1996 ................................. 2,368 2,507
-------- --------
Total other assets ......................... 7,466 8,370
-------- --------
Total assets ............................... $ 62,452 $ 62,357
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
September 30, June 30,
1996 1996
-------- --------
(Unaudited)
Current liabilities:
Trade accounts payable ........................... $ 1,368 $ 1,452
Accounts payable to related parties .............. 1 4
Accrued expenses ................................. 5,649 3,323
Management fees due Becker Gaming, Inc. .......... 4,851 4,682
Notes payable .................................... 45 110
Notes payable to related party ................... 2,250 2,250
Current portion of obligations
under capital leases ........................... 11 15
Long-term debt classified as
current due to default
under covenants ................................ 55,000 55,000
-------- --------
Total current liabilities .................. 69,175 66,836
Subordinated notes payable to
prior stockholders ............................... 5,000 5,000
Obligations under capital
leases, less current portion ..................... 22 22
-------- --------
Total liabilities ......................... 74,197 71,858
-------- --------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, no par value,
2,500 shares authorized, 1,000
shares issued and outstanding ................ 469 469
Retained earnings (deficit) ..................... (12,214) (9,970)
-------- --------
Total stockholder's equity (deficit) ....... (11,745) (9,501)
-------- --------
Total liabilities and
stockholder's equity (deficit) .......... $ 62,452 $ 62,357
======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS(DEFICIT)
(Dollars In Thousands)
(Unaudited)
Three Months Ended September 30,
1996 1995
-------- --------
Revenues:
Gaming ............................. $ 12,229 $ 12,891
Food and beverage .................. 3,501 3,033
Hotel .............................. 761 722
Gift shop .......................... 131 155
Management fee-affiliates .......... 676 --
Other .............................. 258 299
-------- --------
Gross revenues ................. 17,556 17,100
Less, promotional allowances ......... (2,195) (1,668)
-------- --------
Net revenues ................... 15,361 15,432
-------- --------
Operating expenses:
Gaming ............................. 3,284 3,539
Food and beverage .................. 4,297 3,835
Hotel .............................. 479 398
Gift shop .......................... 124 107
Advertising and promotion .......... 1,287 1,176
General and administrative ......... 4,663 4,798
Management fee - Becker Gaming, Inc. 845 857
Rent expense paid to related party . 55 54
Depreciation and amortization ...... 858 886
-------- --------
Total operating expenses ....... 15,892 15,650
-------- --------
Operating income (loss) ........ (531) (218)
-------- --------
Other income (expenses):
Interest income .................... 68 69
Interest expense ................... (1,811) (1,714)
Other, net ......................... 30 28
-------- --------
Total other income (expenses) .. (1,713) (1,617)
-------- --------
Loss before income taxes ....... (2,244) (1,835)
-------- --------
Net loss ....................... (2,244) (1,835)
Retained earnings(deficit),
beginning of period ............. (9,970) (5,411)
-------- --------
Retained earnings(deficit),
end of period ................... $(12,214) $ (7,246)
======== ========
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)
(Unaudited)
Three Months Ended September 30,
1996 1995
------- -------
Cash flows from operating activities:
Net loss .......................................... ($2,244) ($1,835)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Provision for losses on related party receivables 73 1,149
Depreciation and amortization ................... 858 886
(Increase) decrease in operating assets:
Receivables ..................................... 169 (1,358)
Inventories ..................................... 59 (6)
Prepaid expenses ................................ 168 193
Deposits and other .............................. (12) 15
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts for capital
expenditures .................................... (87) 995
Management fees due to Becker Gaming, Inc. ...... 169 857
Accrued expenses ................................ 2,326 320
------- -------
Total adjustments ............................. 3,658 3,116
------- -------
Net cash provided by operating activities ..... 1,414 1,281
------- -------
Cash flows from investing activities:
Capital expenditures, net of amounts in accounts
payable ....................................... (104) (74)
Increase in related party receivables ........... (406) --
Proceeds from assets sales ...................... -- 2
------- -------
Net cash used in investing activities ......... (510) (72)
------- -------
Cash flows from financing activities:
Principal payments on notes payable ............. (65) (40)
Payments under capital lease obligations ........ (4) (2)
------- -------
Net cash used in financing activities ......... (69) (42)
------- -------
Net increase (decrease) in cash and cash
equivalents ............................... 835 1,167
Cash and cash equivalents, beginning of the period .. 4,591 5,404
------- -------
Cash and cash equivalents, end of the period ........ $ 5,426 $ 6,571
======= =======
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized ...... $ 129 $ 129
======= =======
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) Basis of Presentation:
Arizona Charlie's, Inc. ("AC" or the "Company") is a wholly owned
subsidiary of Becker Gaming, Inc. ("BGI"). The accompanying financial statements
of AC have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments and normal recurring accruals considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the year ended June 30, 1997. The unaudited financial statements
should be read in conjunction with the financial statements and footnotes
included in AC's annual report on Form 10-K for the year ended June 30, 1996.
2) Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern:
AC has guaranteed the payment of principal of and interest on the 12% First
Mortgage Notes due November 15, 2000 (the "CQC" Notes") issued by Capitol Queen
& Casino, Inc. ("CQC"). An aggregate of $20,000,000 in principal amount and
$2,400,000 in accrued interest are outstanding on the CQC Notes 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 CQC Notes. As of January 1, 1995, the Indenture (the "CQC
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 repurchase of $20,000,000 principal amount of 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 remain 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
May 15, 1996 and will not be able to make such payment on November 15, 1996. AC
will not have funds available to advance on behalf of CQC on November 15, 1996.
AC is restricted from selling assets under the covenants governing its 12% First
Mortgage Notes due November 15, 2000 (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 to satisfy its guarantee obligation with respect to the CQC Notes.
As of September 30, 1996, AC is in default of certain debt covenants under the
Indenture (the "AC Indenture") governing the AC Notes. These covenant violations
include (i) a failure to meet a minimum fixed charge coverage ratio, as defined
in the AC Indenture, and (ii) advances by AC to BGI in excess of amounts
permitted under the AC Indenture. Such advances remain outstanding at September
30, 1996. In addition, beginning with the quarter ending December 31, 1995, AC
has not met the minimum tangible net worth requirement, set forth in the AC
Indenture. Under the terms of the AC Indenture, AC is required to offer to buy
back $16,500,000 of the outstanding AC Notes at September 30, 1996 due to the
failure to meet this covenant, and such amount shall increase by $5,500,000 each
fiscal quarter so long as AC is in default of the covenant. AC has not made such
offer and does not intend to do so while the discussions with the Bondholder
Committee described below are in process. As a result of these covenants
defaults , the AC Notes have been classified as currently payable 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.
In connection with its guarantee of the CQC Notes, the CQC Indenture imposes
certain restrictive covenants on the Company, including minimum cash flow and
net worth requirements and restrictions on additional borrowings and
distributions of earnings.
CQC continues to market its riverboat assets to prospective buyers and
management is continuing its 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 September 30, 1996 financial statements of AC do not
include any adjustment that might result from the outcome of this uncertainty.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
(Dollars In Thousands)
ASSETS
September 30, une 30,
1996 1996
------- -------
(Unaudited)
Current assets:
Cash ................................................... $ 1,207 $ 1,122
Current portion of notes receivable .................... 106 117
Note receivable from related party ..................... 2,250 2,250
Other receivables ...................................... 250 274
Prepaid expenses ....................................... 39 46
------- -------
Total current assets ............................... 3,852 3,809
------- -------
Property and equipment:
Building and leasehold improvements .................... 174 174
Furniture, fixtures and equipment ...................... 2,951 2,885
------- -------
3,125 3,059
Less, accumulated depreciation ......................... (1,434) (1,370)
------- -------
Net property and equipment ......................... 1,691 1,689
------- -------
Notes receivable, less current
portion ................................................ 181 194
Advances to related parties .............................. 140 111
Other assets, less accumulated
amortization of $26 at September 30, 1996
and $24 at June 30 , 1996 .............................. 84 88
------- -------
Total assets ....................................... $ 5,948 $ 5,891
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
September 30, une 30,
1996 1996
------ ------
(Unaudited)
Current liabilities:
Trade accounts payable ................................. $ 12 $ 44
Accrued expenses ....................................... 637 608
Current portion of long term debt ...................... 306 279
------ ------
Total current liabilities .......................... 955 931
Long-term liabilities:
Long-term debt, less current portion .................. 437 502
Subordinated notes payable to
former stockholders ................................. 3,000 3,000
------ ------
Total liabilities .................................. 4,392 4,433
------ ------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 2,500
shares authorized, 400 shares
issued and outstanding ................................. 27 27
Retained earnings ........................................ 1,529 1,431
------ ------
Total stockholder's equity ......................... 1,556 1,458
------ ------
Total liabilities and stockholder's
equity ............................................. $5,948 $5,891
====== ======
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 AND RETAINED EARNINGS
(Dollars In Thousands)
(Unaudited)
Three Months Ended September 30,
1996 1995
------- -------
Revenues:
Slot route:
From locations controlled by related parties $ 567 $ 563
Other ...................................... 35 45
Slot service fees:
From related parties ....................... 21 24
Other ...................................... 8 8
------- -------
Total revenues ........................... 631 640
Operating expenses:
Slot route and service ........................ 347 302
General and administrative..................... 23 24
Management fee - Becker Gaming, Inc............ 33 34
Depreciation and amortization.................. 71 73
------- -------
Total operating expenses.................... 474 433
------- -------
Operating income .................................. 157 207
------- -------
Other income (expense):
Interest income ............................... 47 41
Interest expense .............................. (91) (99)
Other income .................................. 24 22
------- -------
Total other income (expense)................ (20) (36)
------- -------
Net income before income tax....................... 137 171
Provision for income tax .......................... (39) (58)
------- -------
Net income ........................................ 98 113
Retained earnings, beginning of period............. 1,431 1,050
------- -------
Retained earnings, end of period................... $ 1,529 $ 1,163
======= =======
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)
(Unaudited)
Three Months Ended September 30,
1996 1995
------- -------
Cash flows from operating activities:
Net income ...................... $ 98 $ 113
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization ... 71 73
(Increase) decrease in operating assets:
Other receivables ........... 24 16
Prepaid expenses ............ 7 5
Increase (decrease) in operating liabilities:
Accounts payable ............... (32) 46
Notes Payable .................. 44 --
Accrued expenses ............ 29 174
------- -------
Total adjustments
143 314
------- -------
Net cash provided by
operating activities . 241 427
------- -------
Cash flows from investing activities:
Capital expenditures ............. (70) (135)
Increase in advances to related
parties ........................ (29) (21)
Repayments of notes receivable ... 24 6
------- -------
Net cash used in investing
activities ..................... (75) (150)
------- -------
Cash flows from financing activities:
Principal payments on notes
payable ................... (81) (80)
------- -------
Net cash used in financing
activities ................ (81) (80)
------- -------
Net increase in cash
85 197
Cash, beginning of period ........... 1,122 506
------- -------
Cash, end of period ................. $ 1,207 $ 703
======= =======
Supplemental cash flow disclosures:
Interest paid ................... $ 91 $ 101
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN
(A wholly owned subsidiary of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
----------
1) Basis of Presentation:
Sunset Coin, Inc. ("SC" or the "Company") is wholly owned subsidiary of Becker
Gaming, Inc. ("BGI"). The accompanying financial statements of SC are unaudited
and have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments and normal recurring accruals considered necessary for a fair
presentation have been included. Operating results for the three period ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1997. The accompanying unaudited financial
statements and footnotes should be read in conjunction with the financial
statements included in the Company's annual report on Form 10-K for the year
ended June 30, 1996.
2) Guarantee Obligation, Management's Plans, and Going
Concern:
SC has guaranteed the payment of the $55,000,000 principal amount of and
interest on the 12% First Mortgage Notes due November 15, 2000 (the "AC Notes")
issued by Arizona Charlie's, Inc. ("AC"), another wholly owned subsidiary of
BGI. AC is in default of certain covenants under the Indenture (the "AC
Indenture") governing the AC Notes as of September 30, 1996. In addition, AC has
guaranteed the payment of principal and interest on certain mortgage notes
issued by CQC (the "CQC Notes"). An aggregate $20,000,000 in principal amount
and $2,400,000 in accrued interest are outstanding on the CQC Notes at September
30, 1996. Capitol Queen & Casino, Inc. ("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 Indenture to cure the current
defaults and (ii) the issuance of additional AC Notes to fulfill AC's guarantee
obligation for remaining principal of and accrued interest on 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, which the Company does not have sufficient
resources to satisfy. 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 September 30, 1996 financial
statements of the Company do not include any adjustment that might result from
the outcome of this uncertainty.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary
of Becker Gaming, Inc.)
BALANCE SHEETS
(Dollars In Thousands, Except Share Data)
ASSETS
September 30, June 30,
1996 1996
------ ------
(Unaudited)
Current assets:
Restricted cash, in escrow account .................... $ 30 $ 30
------ ------
Total current assets ............................... 30 30
------ ------
Other assets:
Assets held for sale ................................... 7,754 7,754
Financing costs, net of accumulated
amortization of $345 at September 30,
1996 and $312 at June 30, 1996 ....................... 572 605
Deposits and other assets .............................. 60 60
------ ------
Total other assets ................................. 8,386 8,419
------ ------
Total assets ....................................... $8,416 $8,449
------ ------
------ ------
LIABILITIES & STOCKHOLDER'S EQUITY(DEFICIT)
September 30, June 30,
1996 1996
-------- --------
(Unaudited)
Current liabilities:
Advances from related parties ....................... $ 1,079 $ 1,006
Accrued interest .................................... 3,392 2,775
Notes payable to related parties ................... 1,200 1,200
Long-term debt classified as current,
net of unamortized original issue discount
of $2,339 and $2,474, respectively ................ 17,661 17,526
-------- --------
Total liabilities ........................... 23,332 22,507
-------- --------
Commitments and contingencies
Stockholder's equity(deficit):
Common stock, $1.00 par value, 1,000 shares
authorized, 100 shares issued and outstanding .... -- --
Additional paid-in capital .......................... 12,732 12,732
Deficit accumulated during development stage ........ (27,648) (26,790)
-------- --------
Total stockholder's equity (deficit) ............ (14,916) (14,058)
-------- --------
Total liabilities and stockholder's
equity(deficit) ............................. $ 8,416 $ 8,449
-------- --------
-------- --------
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned
Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF LOSS INCURRED DURING THE DEVELOPMENT STAGE
(Dollars In Thousands)
(Unaudited)
For The Period
January 20, 1993
(The Date Of
Inception)
Three Months Ended Through
September 30, September 30,
1996 1995 1996
-------- -------- --------
Revenues ................................. $- $- $-
Operating expenses:
Amortization of financing and
other costs .......................... 33 33 1,374
Abandonment loss and write-downs
of assets held for sale .............. -- -- 10,426
Development costs ...................... 73 165 1,784
-------- -------- --------
Total operating expenses ........... 106 198 13,584
-------- -------- --------
Operating loss ........................... (106) (198) (13,584)
Other income (expenses):
Interest income ........................ -- -- 1,265
Interest expense ....................... (752) (686) (11,923)
Interest capitalized ................... -- -- 683
-------- -------- --------
Total other income (expense) ............. (752) (686) (9,975)
-------- -------- --------
Net loss before extraordinary item
(858) (884) (23,559)
Extraordinary item:
Loss on early retirement of
debt(no income tax benefit available) -- -- (4,089)
-------- -------- --------
Net loss ................................. $ (858) $ (884) $(27,648)
======== ======== ========
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 Thousands)
(Unaudited)
Three Months Ended
September 30,
1996 1995
-------- --------
Cash flows from development stage activities:
Net loss .................................... $ (858) $ (884)
Adjustments to reconcile net loss
to net cash provided by
used in development stage activities:
Amortization of financing and other costs . 33 33
Amortization of original issue discount ... 135 134
Abandonment losses and write-downs of
assets held for sale ..................... -- --
Extraordinary loss on retirement of debt .. -- --
Increase in accounts payable and accruals,
net of amounts for capital expenditures .. 617 448
Increase (decrease) in advances
from related parties .................... 73 227
-------- --------
Total adjustments ..................... 858 842
-------- --------
Net cash used in development stage
activities ......................... -- (42)
-------- --------
Cash flows from investing activities:
Capital expenditures, net of construction
accounts payable ........................ -- --
Decrease in deposits and other assets ....... -- --
Capitalization of preopening costs .......... -- --
Development costs ........................... -- --
Net (additions to) reductions in ............
restricted cash equivalents .............. -- --
-------- --------
Net cash provided by (used in)
investing activities ................ -- --
-------- --------
Cash flows from financing activities:
Principal payments on First Mortgage Note ... -- --
Proceeds from issuance of First
Mortgage Notes, net of financing costs ... -- --
Proceeds from borrowings under notes payable
to related parties ....................... -- --
Equity contribution from Becker Gaming, Inc.
relating to sale of warrants ........... -- --
-------- --------
Net cash provided by financing activities -- --
-------- --------
Net (decrease) increase in cash and cash
equivalents ......................... -- (42)
Cash and cash equivalents, beginning of period -- 45
-------- --------
Cash and cash equivalents, end of period ...... $- $ 3
-------- --------
-------- --------
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized ... $- $-
-------- --------
-------- --------
Original issue discount that
did not affect cash ...................... $- $-
-------- --------
-------- --------
Equity contribution by Becker Gaming
that did not affect cash ................. $- $-
-------- --------
-------- --------
For The Period
January 20, 1993
(The Date Of
Inception)
Through
September 30,
1996
--------
Cash flows from development stage activities:
Net loss .................................... $(27,648)
Adjustments to reconcile net loss
to net cash provided by
used in development stage activities:
Amortization of financing and other costs . 1,374
Amortization of original issue discount ... 2,042
Abandonment losses and write-downs of
assets held for sale ..................... 10,426
Extraordinary loss on retirement of debt .. 4,089
Increase in accounts payable and accruals,
net of amounts for capital expenditures .. 3,404
Increase (decrease) in advances
from related parties .................... 1,067
--------
Total adjustments ..................... 22,402
--------
Net cash used in development stage
activities ......................... (5,246)
--------
Cash flows from investing activities:
Capital expenditures, net of construction
accounts payable ........................ (12,936)
Decrease in deposits and other assets ....... (60)
Capitalization of preopening costs .......... (340)
Development costs ........................... (553)
Net (additions to) reductions in ............ ..
restricted cash equivalents .............. (31)
--------
Net cash provided by (used in)
investing activities ................ (13,920)
--------
Cash flows from financing activities:
Principal payments on First Mortgage Note ... (20,200)
Proceeds from issuance of First
Mortgage Notes, net of financing costs ... 30,666
Proceeds from borrowings under notes payable
to related parties ....................... 1,200
Equity contribution from Becker Gaming, Inc.
relating to sale of warrants ........... 7,500
--------
Net cash provided by financing activities 19,166
--------
Net (decrease) increase in cash and cash
equivalents ......................... --
Cash and cash equivalents, beginning of period --
--------
Cash and cash equivalents, end of period ...... $-
--------
--------
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized ... $ 5,807
--------
--------
Original issue discount that
did not affect cash ...................... $ 7,500
--------
--------
Equity contribution by Becker Gaming
that did not affect cash ................. $ 5,232
--------
--------
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A development stage company and
a wholly owned subsidiary of Becker Gaming,Inc.)
NOTES TO THE FINANCIAL STATEMENTS
----------
1) Basis of Presentation:
Capitol Queen & Casino, Inc. ("CQC" or the "Company") is wholly owned subsidiary
of Becker Gaming, Inc. ("BGI"). The accompanying financial statements of CQC
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
and normal recurring accruals considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1997. The unaudited financial statements should be read in
conjunction with the financial statements and footnotes included in CQC's annual
report on Form 10-K for the year ended June 30, 1996.
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 (the "CQC 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
repurchase of $20,000,000 principal amount of 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 remain 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
May 15, 1996, will not be able to make such payment on November 15, 1996.
Arizona Charlie's, Inc. ("AC"), another wholly owned subsidiary of BGI and a
guarantor of the CQC Notes, will not have funds available to advance on behalf
of CQC on November 15, 1996. Further, 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 the Indenture governing
its 12% First Mortgage Notes due November 15, 2000 (the "AC Notes").
As mentioned previously, CQC's obligations under the CQC Indenture was amended
with the requisite consent of the holders of the CQC Notes. CQC's previous
obligations to complete and open the Capitol Queen have been eliminated and CQC
has agreed to a two-step plan to repay the CQC Notes. The first step, which was
consummated on January 17, 1995, involved the repurchase of $20,000,000
principal amount of the CQC Notes at 101% of such principal amount plus accrued
and unpaid interest with funds held in the restricted project escrow account.
The Company incurred an extraordinary loss of approximately $4,089,000 in 1995,
reflecting the premium paid to retire the debt of $200,000 and the write-off of
related, unamortized debt issue costs and original issue discount in the
aggregate of $3,889,000.
The CQC Notes are not subject to mandatory redemption, except upon a change of
control, or other circumstances as defined in the CQC Indenture. The Company 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, BGI. consummates an initial public offering of its common stock, the
Company may also redeem the CQC Notes, at a premium of 108%.
The CQC 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.
CQC continues to market its riverboat assets to prospective buyers and
management is continuing its 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 September 30, 1996 financial statements of the Company do
not include any adjustment that might result from the outcome of this
uncertainty.
3) Assets Held For Sale:
At September 30, 1996, CQC had $7,754,000 of assets held for sale, consisting of
land and riverboat assets which were written down to a carrying value based on
management's best estimate of the riverboat's current net realizable value in a
cash sale, based on information obtained from shipbuilders, marine brokers, and
purchase offers made to the Company from third parties.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Becker Gaming, Inc.
The Company serves as a holding company for, and provides management and
administrative services to, the Becker family gaming interests, including
Arizona Charlie's, Inc. ("AC"), Sunset Coin, Inc. ("SC"), Becker Gaming Group
("BGG"), and Capitol Queen & Casino, Inc. ("CQC").
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 "Capitol Queen & Casino, Inc. - General" 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, 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 department operating losses. AC seeks to maximize
profits from its hotel operations, however, while maintaining attractive room
rental rates. Gaming revenues represent the net win from gaming wins and losses.
The retail value of accommodations, food and beverage provided to customers
without charge is included in gross revenues and deducted as promotional
allowance.
Results of Operations for the three-months ended September
30, 1996 and 1995
Net revenues at AC decreased by $71,000, or 0.5%, from $15,432,000 to
$15,361,000 for the three-month period ended September 30, 1996 compared to the
three-month period ended September 30, 1995. In the same period to period
comparison, operating expenses, including depreciation and amortization,
increased by 1.6% to $15,892,000 from $15,650,000. This resulted in a increase
in operating losses of $313,000 from a loss of $218,000 to a loss of $531,000
for the more recent period.
Gaming revenues decreased 5.1% from $12,891,000 to $12,229,000. The
largest portion of the decrease in gaming revenues is attributable to gaming
machine revenues which decreased 4.2% from $10,931,000 to $10,472,000. The
decrease reflects lesser play from slot patrons during the more recent period.
Revenues from table games increased 3.9% from $1,169,000 to $1,215,000. The
increase in table games revenues for the three-month period ended September 30,
1996 is primarily the result of marketing efforts to attract table games patrons
utilizing select player events, including professional boxing and golfing
tournaments. Reflecting reduced sports play from patrons, race and sports book
revenues decreased by $120,000, or 16.9%, to $597,000 from $718,000 for the
three-month period ended September 30, 1996 compared to the same period in 1995.
Bingo revenues decreased by $116,000 for the three-month period ended September
30, 1996 when compared to the same period of the prior year due to higher than
normal payouts combined with a decrease in play by patrons.
Food and beverage revenues increased 15.4% to $3,501,000 from $3,033,000
for the three-month period ended September 30, 1996 compared to the same period
of the prior year. The increase in revenues is primarily 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 the food and beverage departments are the
result of casino promotion and marketing efforts to attract, reward and retain
qualified patrons.
Hotel revenues increased from $722,000 to $761,000 for the three-months
ended September 30, 1996 compared to the same period in 1995. The increase of
5.4% in the 1996 period is primarily due to an increase in occupancy and average
room rates of 91% and $40.40, respectively, compared to 85% and $36.92 in the
1995 period.
Gift shop revenues decreased from $155,000 to $131,000 for the
three-months ended September 30, 1996 compared to the same period in 1995. The
decrease of 15.5% is primarily due to reducing the hours of operation in the
1996 period.
Management fees from BGI were $676,000 for the three-month period ended
September 30, 1996. Such fees were implemented on October 1, 1995 and are
designed to recover expenses associated with the addition of approximately 40
employees in the accounting, payroll, personnel (and related departmental costs)
and technical services departments and the transfer of certain executive
personnel in March 1995 to AC from BGI. The management fee is also designed to
recover other expenses transferred from BGI to AC, including the maintenance and
other operating expenses associated with an airplane and two boats. Management
fee revenue to AC from BGI is equal to 80% of the management fee expense to BGI.
The management fee is not collected from BGI, but serves as a vehicle to offset
the above described additional expenses and costs incurred by AC.
Other revenues, which include receipts from entertainment cover charges,
ATM commissions and revenues from PBX and banquets, decreased from $299,000 to
$258,000 for the three-months ended September 30, 1996 compared to the same
period in the prior year. The decrease of 13.7% is the primarily the result of
decreases in entertainment cover charge revenues.
Gaming expenses decreased by $255,000, or 7.2%, to $3,284,000 for the
three-month period ended September 30, 1996 from $3,539,000 for the same period
of the prior year reflecting a reduction in staffing levels for the table games
department and lower gaming tax and license fees associated with the decrease in
gaming revenues.
Food & beverage expenses increased by $462,000, or 12.0%, to $4,297,000
for the three-month period ended September 30, 1996 from $3,835,000 for the same
period of the prior year, due primarily to an increase in food cost of $164,000,
an increase in beverage cost of $41,000 and an increase in salaries and wages in
the Food Department of $112,000, all associated with the increase in food and
beverage revenues during the 1996 quarter.
Hotel expenses increased by $81,000, or 20.4%, to $479,000 for the
three-month period ended September 30, 1996 from $398,000 for the same period of
the prior year. The increase is primarily due to the expense of refurbishing the
older hotel rooms and normal wage and salary increases.
General and administrative expenses decreased by $135,000, or 2.8%, to
$4,663,000 for the three-month period ended September 30, 1996 from $4,798,000
for the same period of the prior year. The decrease is primarily the result of a
reduction in staffing in the security, purchasing, entertainment, porters and
aviation departments. The decrease is also due to a reduction in expenses
associated with the operation of a jet airplane which was sold in July 1996.
Advertising and promotion expenses increased by $111,000, or 9.4% to
$1,287,000 for the three-month period ended September 30, 1996 from $1,176,000
for the same period of the prior year. Management believes that these increased
levels of promotional expenditures are necessary to attract and maintain the
desired customer levels, to promote the entertainment events, and support the
other existing facilities throughout the property. Management believes that
frequent promotions are necessary to compete with the newer hotel/casinos that
are located close to AC.
Depreciation and amortization decreased by $28,000, or 3.2%, to $858,000
for the three-month period ended September 30, 1996 from $886,000 for the same
period in prior year, as a result of decreased depreciation expenses associated
with older assets.
Gift shop expenses increased by $17,000, or 15.9%, to $124,000 for the
three-month period ended September 30, 1996 compared to $107,000 for the same
period reflecting increases in wholesale item costs associated with the gift
shop operation.
Management fees to BGI decreased by $12,000, or 1.4%, to $845,000 for the
three-month period ended September 30, 1996 from $857,000 for the same period in
the prior year. Management fees are determined based on the gross revenues of
AC. As such, decreased gross revenues bring about lower management fees. Since
inception of the management fees agreement, management fees payable to BGI have
been and continue to be accrued by AC, and may not be paid under the Indenture
governing the AC Notes until such time that AC meets a specified fixed charged
coverage ratio.
Other expense (net of other income) amounted to $1,713,000 for the
three-month period ended September 30, 1996 compared to $1,617,000 for the same
period in the prior year. The increase in expense of $96,000, or 5.9%, reflects
an adjustment to correct the calculation of interest associated with the AC
notes
Income Taxes
As a result of the termination of its election to be treated as an S
corporation, AC is liable for income taxes on income earned from and after
January 1, 1994, prior to such termination, AC did not incur or pay income taxes
but distributed cash to its stockholders in amounts sufficient to pay their
income tax liability in respect to income of AC. Since terminating its S
corporation status, AC generated a net operating loss for income tax purposes of
approximately $11,250,000. Management anticipates that AC will generate taxable
income and that its effective federal income tax rate will approximate the
statutory rate of 34%, prior to consideration of the benefit from the net
operating losses, which may be utilized to offset taxable income.
Liquidity and Capital Resources
At September 30, 1996, AC had a working capital deficit of $59,255,000
compared to a working capital deficit of $58,530,000 at June 30, 1996. The
decrease in working capital in the amount of $725,000 was caused primarily by
increased accruals on the AC Notes and accrued management fees payable to BGI.
For the three-month period ended September 30, 1996, cash provided by
operating activities increased approximately $133,000, or 10.4%, to $1,414,000
from $1,281,000 for the same period in 1995. The increase in the 1996 period is
primarily attributable to a net increase in operating assets of $1,410,000, and
an increase in operating liabilities of $236,000 partially offset by a decrease
in net income of $409,000, a decrease in the provision for losses on related
party receivables of $1,076,000 and a decrease in depreciation and amortization
of $28,000.
For the three-month period ended September 30, 1996, net cash used in
investing activities decreased to $510,000 for the three-month period ended
September 30, 1996 compared with $72,000 for the same period in 1995. The
decrease of $438,000 was caused primarily by a $406,000 decrease in related
party receivable and a decrease in capital expenditures of $30,000.
Cash flows used in financing activities for the three-month period ended
September 30, 1996 was $69,000, reflecting payments on notes payable and capital
leases. For the three-month period ended September 30, 1995, cash flows used in
financing activities was $42,000.
AC's long-term obligations, approximately $5,022,000 at September 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 (classified as current due to default under covenants) and the stockholder
notes. Further, AC is expected to have annual capital expenditure requirements
of approximately $600,000.
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 BGI 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.
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. 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.
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.
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. 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 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.
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 agreements are contracts with five Becker Gaming Group ("BGG")
locations and one additional location owned by an unrelated party, which are
expected to be renewed in general course. Results of operations for the three
months ended September 30, 1996 and 1995
SC's results of operations declined for the three-month period ended
September 30, 1996 compared to the same period in the prior year. Revenues
decreased by 13.3% from $113,000 for the 1995 three-month period to $98,000 for
the 1996 three-month period. The decrease in revenues is attributable to the
expiration of contracts that were not renewed with one participation and one
service fee location in the more recent period, the effect of which was slightly
offset by the addition of two participation locations and the conversion of
another location from a participation contract to a more favorable space lease
contract. A decrease in service revenues in the more recent three-month period
was due to the discontinued operation of Charlie's Saloon (a BGG bar).
The average number of gaming machines operated during the three-month
period ended September 30, 1996 was 254 compared to 259 in the prior year
period. The average number of gaming machines at BGG locations serviced by SC
was 115 for the three-month period ended September 30, 1996 compared to 130 for
the same period in 1995. Slot service fees from BGG for the three-month period
ended September 30, 1996 were $29,000, down from $32,000 for the same period in
the prior year, due to the discontinued operation of Charlie's Saloon on April
21, 1996.
Gaming machine route expenses for the three-month period ended September
30, 1996 increased by 14.9% to $347,000 when compared to the same period in the
prior year reflecting increased salaries and wages, due to additional staffing
requirements in slot route service and the transfer of management personnel from
BGI to SC, as well as additional security guard wage expense for increased
protection in response to greater slot route theft. Other increased expenses for
repairs and maintenance, automotive and complimentary expenses were partially
offset by a decrease in loss and damage, advertising, and supplies expenses.
General and administrative expenses for the three-month period decreased by
4.2% to $23,000 from $24,000 , reflecting decreases in professional fees,
donations, office and supplies expenses, and bad debts.
Management fees (based upon gross revenues) decreased by 2.9% to $33,000
for the three-month period ended September 30, 1996 when compared to the same
period in the prior year. This decrease is attributable to lower gross revenues
in the more recent period.
Depreciation and amortization decreased by 2.7% to $71,000 for the
three-month period ended September 30, 1996, reflecting decreased depreciation
and amortization costs associated with the April 1996 closing of Charlie's
Saloon (a BGG bar). SC abandoned furniture, fixtures and equipment contained in
this bar.
During the three-month period ended September 30, 1996, SC had other
expenses (net of other income) of approximately $20,000 compared to $36,000 for
the same period in 1995. The decrease is attributable to reduced interest
expense relating to notes payable paid in the previous year for existing
locations.
Income Taxes
As a result of the termination of its election to be treated as S
corporation, SC became liable for income taxes on income earned from and after
January 1, 1995. Prior to such termination, SC did not incur or pay their income
tax liability in respect to income of SC. Estimated income tax payable for the
three-month period ended September 30, 1996 was $39,000 compared to $58,000 for
the same period in the prior year. These were based on an anticipated effective
federal income tax rate approximating the statutory rate of 34%.
Liquidity and Capital Resources
Cash provided by operating activities for the three-month period ended
September 30, 1996 decreased to $241,000 from $427,000 for the three-month
period ended September 30, 1995, mostly due to a net decrease in operating
liabilities of $179,000 and depreciation and amortization of $2,000 offset by an
increase in operating assets of $10,000, and decrease in revenues of $15,000.
Cash flows used in investing activities for the three months ended
September 30, 1996 amounted to $75,000, including repayment of notes receivable
of $24,000, an increase in advances to related parties of $29,000, and purchases
of slot machines of $70,000.
Cash flows used in financing activities for the three months ended
September 30, 1996 amounted to $81,000, reflecting principal payments on notes
payable.
SC's indebtedness includes stockholder notes and notes collateralized by
its gaming equipment and other assets. The stockholder notes aggregate
$3,000,000 in principal amount, bear interest at an annual rate of 10% and
mature January 2001. 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, $272,000, was converted to a note at July 1, 1994 with monthly
payments through June 1998.
In July 1994, SC entered into an agreement with a bank for a new
$1,200,000 non-revolving line of credit. Each advance under the line shall be
evidenced by a separate promissory note with maturity date not exceeding 66
months from the date of the respective advance giving rise to the note. Under
the agreement, SC originally could request advances through October 28, 1995
only, at which time its rights to advances under the agreement were terminated.
In December 1995, the agreement was amended, making available the unused portion
of $1,200,000 until October 20, 1996. Advances under the agreement bear interest
at the bank's prime rate plus 1.5% up to a maximum rate of 2.0%. As of September
30, 1996, the amount outstanding under the non- revolving line of credit totaled
$693,000.
SC's management believes that it has sufficient funds through the
non-revolving line of credit and 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, however, 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. SC has guaranteed the
payment of the AC Notes, which guarantee is subject to release upon attainment
by AC of a fixed charge coverage ratio of 2.25 to 1. In connection with its
guarantee, the Indenture imposes restrictions on the distribution of earnings.
SC's management believes that it has sufficient funds through the non-revolving
line of credit and 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.
AC may have liability under its guarantee of the CQC Notes beyond that
which it could immediately support. AC is in technical default under the
Indenture governing the AC Notes and SC, as guarantor of the AC Notes, would
have liability under its guarantee. Such liability would likely exceed the
amount which SC could immediately support, including amounts available under its
non-revolving line of credit.
Capitol Queen & Casino, Inc.
Analysis of Development Stage Activities for the period January 20, 1993
(the date of inception) through September 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
September 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, and will not be able to make it's scheduled
interest payment on November 15, 1996. Further, 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.
During the period from inception through September 30, 1996, CQC had total
operating expenses of $13,584,000 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 1996
fiscal year. Also included in operating expenses are amortization expense of
$1,374,000 associated with debt issue costs and $1,784,000 of project
development costs. For the same period, CQC incurred $11,923,000 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 September 30,
1996.
Liquidity and Capital Resources
For the period from inception through September 30, 1996, net cash used in
development stage activities was $5,246,000. Cash flows used in 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 October 31, 1996, CQC had expended a total of
approximately $21,500,000 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 and accrued interest thereon of $2,400,000 at September
30, 1996. 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 Becker Gaming, Inc.
PART II. OTHER INFORMATION
Item 1. 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 or financial condition of BGI, CQC, or the
Nevada Operating Companies.
On October 31, 1994, CQC and BGI petitioned the Cole County Circuit Court
in Jefferson City, Missouri, 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
thirty 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.
The Missouri Supreme Court declined to review the decision. However, the Court
of Appeals' ruling had no 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. Because of the withdrawal of
CQC's application, the administrative proceeding is 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 and has scheduled argument for November 19, 1996. 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 6. Exhibits and Reports on Form 8-K
No exhibits are included herein:
The Company did not file any reports on from 8-K during the Three Months
ended September 30, 1996.
================================================================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Becker Gaming, Inc.
(Registrant)
Date: November 14, 1996
/S/ Bruce F. Becker
- -------------------
Bruce F. Becker
President, Chief Executive
Officer(Principal Executive Officer)
Date: November 14, 1996
/S/ Jerry Griffis
- -----------------
Jerry Griffis
Chief Financial Officer
(Principal Financial and Accounting Officer)
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