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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT of 1934 [NO FEE REQUIRED]
Commission file number 33-76368
BECKER GAMING, INC.
NEVADA 88-0303849
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
740 South Decatur Boulevard
Las Vegas, Nevada 89107
(Address of Principal Executive Offices)
Registrant's telephone number: (702) 258-5200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K: _______
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at September 15, 1997 was $0. The
number of shares of the Registrant's Common Stock outstanding as
of September 15, 1997 was 10,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Specified exhibits listed in Part IV of this report are
incorporated by reference
to the Registrant's previously filed Registration Statement on
Form S-1 (33-76368).
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PART I
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-K and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward- looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not
limited to, those relating to development and construction activities,
dependence on existing management, debt service (including sensitivity to
fluctuations in interest rates), domestic economic conditions, changes in
federal or state tax laws or the administration of such laws and changes in
gaming laws or regulations (including the legalization of gaming in certain
jurisdictions).
Item 1. Business
Becker Gaming, Inc.
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Becker Gaming, Inc. ("BGI" or the "Company") serves as a holding company
for the Becker family gaming interests. BGI's operating subsidiaries include
Arizona Charlie's, Inc. ("AC"), Sunset Coin, Inc. ("SC") and Becker Gaming
Group, Inc. ("BGG"), each of which is a Nevada corporation wholly owned by BGI.
The Company also wholly owns Capitol Queen & Casino, Inc. ("CQC"), a Missouri
corporation, the assets of which are being offered for sale pursuant to a
proposed debt restructuring plan. See "Capitol Queen & Casino, Inc." BGI does
not expect to engage in any business other than providing management and
administrative services to its existing and future operating subsidiaries.
AC owns and operates a locals-oriented casino-hotel named "Arizona
Charlie's Hotel-Casino" ("Arizona Charlie's") in Las Vegas, Nevada. SC owns and
operates a gaming machine route in the Las Vegas, Nevada area. BGG, directly and
through its subsidiary, Innerout, Inc., owns and operates five restaurants under
the "Charlie's" name in the Las Vegas area. CQC was organized to develop,
construct, own and operate the Capitol Queen riverboat casino (the "Capitol
Queen") in Jefferson City, Missouri, which project has been abandoned.
Management fees are payable to the Company by its subsidiaries at a rate of
5% (temporarily reduced to 1% for AC, as described below) of the gross revenues
of each such subsidiary. However, management fees payable by AC are restricted
by the Indenture governing the 12% First Mortgages due November 15, 2000 of AC
(the "AC Indenture" and "AC Notes," respectively). Under the AC Indenture, no
management fees will be payable by AC until AC has attained a specified fixed
charge coverage ratio of 2.25 to 1 and any management fees which are paid by AC
may not exceed $5,000,000 in any fiscal year. Although CQC is similarly
restricted under the Indenture governing its 12% First Mortgage Notes due
November 15, 2000 (the "CQC Indenture" and the "CQC Notes," respectively), such
restrictions are expected to be of no effect because CQC will not open the
Capitol Queen or pay any management fees to the Company. See "Capitol Queen &
Casino, Inc." As a result of the AC Indenture restrictions, AC has not paid and
does not anticipate that it will be permitted to pay management fees before
fiscal 1999. Any fees which become payable under the management agreement with
the Company but which may not be paid as a result of the restrictions contained
in the AC Indenture, will be accrued until paid. Due to the decision to suspend
development of CQC's riverboat casino project and sell its assets, the majority
of BGI's management and administrative services are anticipated to benefit AC in
the future. Accordingly, in late March 1995, BGI transferred approximately 40
employees involved in accounting and administrative functions from BGI to AC. In
connection with this transfer, in October 1995, the Company temporarily reduced
the amount of AC's management fee to 1.0% of AC's gross revenues (previously
5.0% of gross revenues) based on the reduction in services it will receive from
BGI in the future. See Note 9 of AC's Notes to Financial Statements.
The Company had made certain commitments in connection with the acquisition
of the rights to develop the Capitol Queen in Jefferson City, which commitments
are subject to CQC becoming licensed by the State of Missouri to open and
operate the Capitol Queen, and some of which rights have been terminated. See
"Capitol Queen & Casino, Inc." Because CQC's application for a gaming license in
Missouri was denied and later withdrawn, such commitments are no longer in
effect.
Arizona Charlie's, Inc.
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General
The Becker family opened Arizona Charlie's in April 1988 as a full-service
casino-hotel geared toward the Las Vegas locals market. Arizona Charlie's is
situated on a 12.5-acre site located prominently on a major north-south
thoroughfare in an established retail and residential neighborhood in the
western metropolitan area of Las Vegas. A 60-foot high neon sign located in
front of the facility provides Arizona Charlie's high visibility.
AC employs operating and marketing strategies formulated to build a loyal,
repeat resident customer base consisting principally of Las Vegas area employees
and retirees residing in surrounding well-established neighborhoods. Arizona
Charlie's market acceptance has resulted largely from its emphasis on providing
attractive pricing, friendly service, quality food, and exciting entertainment,
all in a comfortable atmosphere. In addition, the casino features a selection of
games that invite personal interaction and which management believes, based on
data published by state gaming regulators, are set for higher payout rates than
those at other Las Vegas casinos generally. See "Business Strategy."
From January 1994 to February 1995, AC expanded and enhanced Arizona
Charlie's (the "Expansion") through the addition of new casino space, hotel
rooms, specialty restaurants, and banquet/meeting room facilities, and the
expansion of existing restaurant, entertainment, and other facilities. The
Expansion also involved the general remodeling of existing hotel rooms, the
casino, and other interior areas, as well as the upgrading of the exterior
facade and addition of a porte cochere at the front entrance.
Casino. As of August 31, 1997, Arizona Charlie's had approximately 47,000
square feet of casino space open 24 hours a day, 365 days a year. At that date,
the casino included approximately 1,435 gaming machines and 25 table games
(blackjack, craps, roulette, Caribbean Stud, Let It Ride and poker), a 92-seat
race and sports book, and a 400-seat bingo parlor, which is operated on the
second floor.
Over 88% of Arizona Charlie's gaming machines consist of video poker games.
Although video poker machines are typically set for a lower net win rate for the
house and have longer playing time per bet as compared with traditional slot
machine games, Arizona Charlie's emphasizes video poker because it is popular
with local players and generates, as a result, high volumes of play and casino
revenues. Most of Arizona Charlie's table games are devoted to double-deck,
hand-dealt blackjack play, which locals prefer due to its potential for more
frequent payouts and greater customer interaction. For the year ended June 30,
1997, approximately 86.1% of gaming revenues was attributable to gaming machine
play and 9.6% of gaming revenues was generated by table games. Approximately
17.6% of its gaming machines are devoted to five dollar, dollar and half-dollar
play and approximately 82.4% to quarter and nickel play. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Arizona Charlie's, Inc. - Results of Operations."
AC maintains stringent controls on receipts and disbursements at the
casino. Security personnel, overhead cameras and other security devices are
deployed throughout the facilities. In addition, AC has established a series of
other controls, including locked cash boxes, independent auditors and observers,
and daily tabulation and balancing of all cash transactions within the gaming
areas.
Hotel. Arizona Charlie's hotel is comprised of an eight- story tower
consisting of 160 rooms and 10 suites opened on September 2, 1994 and a
three-story tower opened in 1988 consisting of an additional 100 rooms that
underwent minor upgrades in the Expansion. Arizona Charlie's hotel customers
include local residents and their out-of-town guests, as well as business and
leisure travelers who, because of location and cost considerations, choose not
to stay on the Las Vegas Strip or at other hotels in Las Vegas. Occupancy rates
for the years ended June 30, 1997 and 1996 averaged 86.1% and 86.9%,
respectively, at average daily rates of $43.00 and $39.81 per room,
respectively. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Arizona Charlie's, Inc. - Results of
Operations." Arizona Charlie's has generated high occupancy rates, particularly
during weekends, with little if any marketing of the hotel. Management believes
that its favorable room rates, which are indicative of the value it offers its
customers generally, have contributed to Arizona Charlie's ability to achieve
such occupancy rates. AC will continue to set aside a small percentage of rooms
and suites (approximately 5%) for complimentary use by its preferred casino
customers.
Food and Beverage. AC operates five restaurants at the facility. The
Sourdough Cafe, open 24 hours a day, is located adjacent to the casino floor and
seats 247 patrons. The all-you-can-eat Wild West Buffet is located on the second
floor and seats 238 patrons and the Food Court which was enlarged in July, 1997
is located in close proximity to the poker room and the race and sports book.
Two specialty restaurants, Charlie Chin's, which offers Chinese cuisine and the
Yukon Grille, an American-style steakhouse, with 100 seats each, attract guests
interested in a varied dining experience. The restaurants are designed to help
attract more diverse casino patrons. Arizona Charlie's also has three bars,
which include a lounge bar, a sports book bar and a bar to service the
restaurants.
As with many casinos, Arizona Charlie's food and beverage operations are
not directly profitable, but are used as marketing tools to stimulate casino
activity. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Arizona Charlie's, Inc." Nonetheless, costs are
minimized and operations are streamlined by using one kitchen to serve all five
restaurants. The Sourdough Cafe, the Wild West Buffet, Yukon Grille, the Food
Court and Charlie Chin's offer quality food and service at affordable prices. AC
believes that much of its casino and other business is attributable to traffic
created by the restaurants, and thus prices are set at levels designed to draw
patrons to the facility.
Entertainment and Other Facilities. Arizona Charlie's emphasis on
reasonably priced entertainment has been an integral component of its overall
customer appeal. The Naughty Ladies Saloon, a 108-seat facility, features a
variety of entertainment including celebrity acts, live bands, musician showcase
nights and jam sessions. AC also presents mini-concerts, boxing events, and
other events in its second, much larger entertainment facility-the Palace Grand
Theatre. This 700-seat showroom, located on the second floor, also serves as a
meeting and banquet facility. AC has focused added marketing emphasis on the
appeal of its entertainment programming. The larger showroom enables AC to
present better-recognized musical acts, when attainable, charge higher cover
prices and attract more gaming customers. The availability of two showrooms
allows AC to present more and varied entertainment. The banquet and meeting
space has enabled AC to expand its marketing efforts to visiting business
travelers and the small meetings market segment.
A small gift shop located adjacent to the casino provides a limited range
of inexpensive gift items, candy, newspapers, magazines and cigarettes. Added
focus has been placed on logo merchandise promoting the Arizona Charlie's name
and motif.
Parking Facility. Arizona Charlie's offers on-site valet and self-parking
lots with combined capacity for over 650 vehicles. Ease of access to the casino
is believed to be an important element in the appeal of Arizona Charlie's to
local customers.
Business Strategy
AC's strategy focuses on attracting Las Vegas residents, principally
retirees and employees of local businesses, who visit the casino on a regular
basis. These patrons, in contrast to the vacationers and conventioneers who
frequent the Las Vegas Strip, prefer a friendlier, more casual environment to
the large crowds, extravagance and less intimate atmosphere associated with the
Strip casinos. Accordingly, AC attempts to attract locals and achieve customer
loyalty by creating a more personal and relaxed, yet full-service, atmosphere
with an emphasis on value pricing. Since the Expansion, AC has also increased
its marketing efforts toward non-local customers.
Management's efforts to create a friendly and relaxed atmosphere begin
with its employees. AC strives to instill in each employee a commitment to
service excellence. Employees are trained to recognize and acknowledge regular
customers on a first-name basis. Employees are continually informed of upcoming
events and are trained to be responsive to customer inquiries about new
promotions. The high level of personal interaction between employees and
customers leads to improved employee morale that in turn further contributes to
the pleasant atmosphere.
Casino operations are geared toward the tastes of the local customer.
Arizona Charlie's emphasizes video poker machines, which local customers prefer
to other gaming machines because video poker offers longer playing times per bet
and more interactive features. In addition, AC's video poker machines are set at
higher payout rates than other gaming machines in the casino. As a result, based
on data compiled and published by state gaming regulators, payout rates at
Arizona Charlie's are believed by management to be higher than those at other
Las Vegas casinos generally. In addition, AC purchased and installed a
computerized on-line slot reporting and player tracking system in May, 1997 to
establish a slot club for patrons and to better evaluate casino promotions. By
utilizing the slot club, players are rewarded complimentary items such as food,
beverage and entertainment. Also, some player bonuses are paid in cash on the
casino floor, which patrons find appealing. Moreover, casino operations at
Arizona Charlie's are continually monitored and adjustments are made from time
to time to accommodate changing customer interests. The casino also offers
double-deck, hand-dealt blackjack that allows the players to handle their cards,
creating more player involvement in the game and the potential for more frequent
payouts. A four-table poker room has also helped to attract local regulars.
Arizona Charlie's also features a bingo parlor which management believes, though
not directly profitable, is an effective marketing tool because it attracts
locals on a regular basis who also engage in other gaming activities. Bingo
contributes to the casino's overall informal and friendly atmosphere. Finally, a
company-owned shuttle bus service provides free scheduled pick-up and drop-off
service for local customers, particularly the elderly. Management believes that,
as a result of its efforts to gear casino operations to the tastes of local
customers and to provide a more personal approach, the casino has become a
social gathering place for the surrounding communities.
AC provides complimentary food and beverages to valued casino patrons and
has expanded this practice since the Expansion. While AC issues credit to a
small portion of its customers, it does so judiciously, resulting in an average
provision for doubtful accounts of less than 1% of gaming revenues over the past
several years. Since the Expansion, AC has implemented, among a number of other
new marketing programs, efforts designed to attract more credit customers.
However, management continues to maintain stringent controls on its credit
policy and thus does not expect its provision for doubtful accounts as a
percentage of gaming revenues to increase significantly.
Marketing Strategy
General. AC promotes the casino through special events, television, radio,
print and billboard advertising, direct mail, video poker specials and its
popular, trademarked "Paycheck Poker" check-cashing promotion. Paycheck Poker
which many of AC's competitors have imitated, involves a no-fee check-cashing
service and the distribution of free scratch-game prize cards. Other promotions
successfully employed by AC include hand paid jackpots on video poker, which are
supplemental to the machine payout, and special event promotions on holidays.
The recently installed computerized on-line slot reporting and player tracking
system allows management to create and evaluate casino promotions. A slot player
club was established in May, 1997 to reward patrons with complimentaries based
upon patron play and other criteria established by management. The slot player
club and player tracking system also provides a database of patron information
that has been utilized to generate a list of qualified patrons for mail
promotions based upon management criteria. The computerized on-line slot
reporting also prepares slot accounting and management reports (slot drop,
fills, jackpots and patron head counts) that were previously prepared manually
by accounting and slot department personnel. Management believes that these
marketing tools will enable AC to fill the casino consistently without employing
expensive bus, coupon book or road-flier promotions commonly used by other
casinos in Las Vegas. Arizona Charlie's has also marketed the casino on the
basis of its reputation among locals for promoting professional boxing events
and entertaining country music and classic rock performances.
AC's marketing strategy is geared principally to attract locals who will
visit the casino on a repeat basis for entertainment and relaxation. AC's
ability to continue to draw these players will be critical to its long-term
success. In addition, management expects that the slot player club will
generally enable it to further increase revenues through the broadening of its
marketing programs which include more invited-guest events, increased house
credit (currently issued on a very limited basis), a greater number of
performances by better-recognized musical groups, and slot tournaments.
Local Residents. AC markets primarily to the local resident gaming
customer. AC relies heavily on Arizona Charlie's location, its favorable casino
odds, its modestly priced food and beverage facilities and its entertainment
programming to attract local-resident patrons. AC markets to local residents
through local print and billboard advertising, television commercials,
participation in community and other public activities, its slot player club and
in-house promotions and programs, such as its no-fee check-cashing promotion.
Arizona Charlie's also benefits from word-of-mouth endorsements from local
residents. AC continues to develop new in-house promotions designed to enhance
the image of Arizona Charlie's.
Leisure Travelers. The leisure travel segment of the Las Vegas gaming
customer market consists of persons who are not affiliated with groups and who
make their reservations directly with the hotel of their choice or through
independent travel agents. Currently, this segment represents only a small
portion of Arizona Charlie's customer base. Management believes, nevertheless,
that its affordably priced hotel rooms and off-Strip location are attractive to
a portion of the leisure travel segment and that Arizona Charlie's has
significant development potential in this area. The Company believes that many
repeat visitors who perceive Las Vegas residents as discerning, value-oriented
consumers of hotel and gaming facilities will be favorably influenced by the
hotel's popularity among locals. AC's management believes, further, that once
first-time visitors experience the value, quality and friendly atmosphere
offered by Arizona Charlie's, many of those visitors become repeat customers. AC
anticipates that it will periodically (as hotel occupancy projections dictate)
utilize print media, billboards and radio to advertise in Southern California,
and, to a lesser extent, in other leisure travel markets such as Arizona, Utah
and Idaho.
Special Casino Customers. The special casino customer segment is composed
of frequent gaming customers known to AC. AC monitors the profiles of its repeat
customers and offers complimentary or reduced-rate lodging, food and beverages
to the more active of these customers. AC identifies and tracks the play of
these customers through the issuance of a special guest card, its player
tracking system and by means of personal management contact. The special guest
card is presented by the guest when participating in gaming activities or dining
at Arizona Charlie's, enabling company employees to deliver personalized
service. Credit play is also made available for qualified customers in the
discretion of management based on the player's gaming and credit history. The
Expansion of Arizona Charlie's has enabled AC to market the casino more
effectively to credit customers who require certain amenities that AC can now
provide.
Selected Banquet and Meeting Groups. With the creation of approximately
15,000 square feet of banquet facilities and meeting rooms in the Expansion, AC
has expanded its marketing efforts within this segment with respect to groups
anticipated to have a generous amount of time to participate in gaming and
entertainment activities, such as meeting participants whose meetings are
scheduled for only a portion of the day. AC does not market to conventions or
large-scale meetings. AC's marketing department maintains data, makes contacts
and develops relationships with outside selected meeting planners.
Market & Competition
Las Vegas Market. The large and expanding Las Vegas gaming market includes
both local residents and visitors. Arizona Charlie's draws principally from the
local resident market and to a limited, but growing, extent attracts visiting
business and vacation travelers.
Located in southern Nevada's Clark County, Las Vegas is the largest city
in Nevada, with a local population that has grown dramatically over the past
decade. Further population increases are expected in coming years, based on
published growth projections for southern Nevada. Much of the recent and
anticipated population growth in Las Vegas may be attributed to the growth of
the local gaming industry, which has drawn and is expected to draw people from
other regions who are looking for employment. Arizona Charlie's attracts as
customers many employees of other casino properties, and expects to benefit from
the influx of people looking for employment, many of whom will likely choose to
reside in the growing neighborhoods to the west of and near Arizona Charlie's.
Arizona Charlie's will also benefit from the growth of these neighborhoods
resulting from the increased influx of retirees who move to Las Vegas for its
favorable climate, relatively low cost of living and wide selection of
entertainment activities.
Within its principal market, AC derives substantially all of its
casino-hotel business from customers residing in the immediately surrounding
neighborhoods. The outer areas of this geographic market have experienced, more
than any other area of Las Vegas, a growing residential base, most significantly
to the west of Arizona Charlie's.
Although AC does not emphasize the visitor market, its marketing efforts
toward that market have increased and the growth of the local gaming industry as
a whole contributes to the growth of Arizona Charlie's customer base. Therefore,
the level of Las Vegas visitor traffic has had an indirect effect on AC. With
increased visitor traffic and the growth of the local population, gaming has
been a strong and growing business in Las Vegas. The Las Vegas market has
historically achieved significant growth despite adverse economic and
competitive events during the past decade, including the expansion of the
Laughlin, Nevada market 90 miles south of Las Vegas, the introduction of the
California lottery in 1985, the growth in gaming in Atlantic City, New Jersey
and the introduction of riverboat, dockside and Indian gaming and other forms of
legalized gaming. More recently, as a result of the increased popularity and
public acceptance of gaming, Las Vegas has sought to increase its popularity as
a destination resort. An increasing number of casinos have developed non-gaming
entertainment to draw visitors and their families to Las Vegas. These include
major casino-hotel projects recently completed on or near the Strip, such as the
New York New York, MGM Grand, Luxor, Treasure Island, Circus Circus' Grand Slam
Canyon, Monte Carlo, the Stratosphere and others currently under development
such as The Circus Circus South Strip Project, The Venetian and The Bellagio.
These projects are expected to expand the Las Vegas gaming market and economy,
increase the local population and, therefore, increase Arizona Charlie's
customer base.
Competition. AC competes for many of its local gaming customers with other
casino-hotels located in the western area of Las Vegas and, to a much lesser
extent, with other casino-hotel operations located off the Strip. Competing
locals' casinos include principally the Palace Station, Gold Coast, Rio, Santa
Fe, Fiesta, Texas Station, Boulder Station, the Orleans (opened in December,
1996) and Sunset Station (opened in June, 1997) all but one of which is larger
than and each of which offers similar, if not greater, amenities than those
offered by Arizona Charlie's. The Fiesta, Santa Fe and Texas Station and to a
lesser extent the Orleans and Sunset Station continue to have a negative impact
on the slot revenues of Arizona Charlie's, however, management believes this is
temporary as AC competes with these facilities on the basis of the desirability
of its location, its high payout rates, personalized approach, Paycheck Poker
check cashing and other promotions in the casino, the comfort and value of its
restaurants and hotel rooms, and the excitement, variety and value of its
entertainment. See "Business Strategy."
AC believes that because of restrictive zoning laws, water rights issues
and other factors (including the ownership of surrounding parcels of land by the
Becker family), no new competing facilities are likely to be developed within a
two-mile radius of Arizona Charlie's. As a result, AC believes that Arizona
Charlie's is well positioned geographically to take advantage of its focus
market.
To the extent AC seeks to develop significant leisure travel business, it
will compete with other casino-hotel operations located not only in Las Vegas
but in the Laughlin and Reno-Lake Tahoe areas of Nevada and with state-sponsored
lotteries, off-track wagering, card parlors, riverboat and dockside gaming,
Indian gaming ventures and other forms of legalized gaming.
Sunset Coin, Inc.
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Operations. Since 1980, SC has operated a gaming machine route business in
the Las Vegas, Nevada area, which at June 30, 1997 consisted of approximately
280 coin-operated gaming devices in 28 locations. The machines are owned or
leased by SC and placed in locations owned by others, primarily retail outlets
in shopping centers, taverns, restaurants and convenience stores. SC generally
shares the net win with the property owner, although in 2 locations SC retains
all income generated by its machines and pays a fixed space rental fee to the
property owner. Approximately 221 of SC's machines are installed at 23 locations
controlled by the Becker family, and the associated contracts are expected to be
renewed as a matter of general course. As of June 30, 1997, the average
remaining life of contracts with other locations was approximately 5 years.
In addition to its gaming machine route, SC derives income from fees
earned pursuant to gaming machine service contracts with locations which operate
their own gaming machines. SC provides 24-hour maintenance and other services
for which it charges a fixed rate per month per machine. SC currently has
service contracts with six locations consisting of an aggregate of approximately
130 machines, including a total of 115 machines located at BGG's five
restaurants.
In order to open a new route location, SC must be licensed to operate
gaming machines at the site or, in the case of a revenue-sharing agreement, the
location operator must be licensed. Typically, it takes 120 to 180 days to
obtain the requisite licenses and to complete the necessary facility
improvements to accommodate the gaming machines, resulting in a delay in the
generation of route revenues following the execution of a contract for a new
route location. The opening of a route location generally requires capital
improvements, a portion of which may be funded, typically as a loan, by SC. SC
relies on cash from operations to fund the capital improvements and other
operational costs. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -
Sunset Coin, Inc. - Liquidity and Capital Resources." New locations typically
experience an initial stabilization period, during which SC determines the
appropriate number (subject to regulatory limits) and mix of gaming machines and
implements certain of its start-up marketing programs.
Competition. SC's gaming machine route operation competes on the basis of
its machines and its service. Unlike many other operators, SC uses only new
equipment with the latest technologies. These machines are believed to be more
attractive to gaming customers than older machines and, as a result, are
expected by gaming machine route site owners to generate more income. In
addition, SC supports its machines with 24-hour service, providing change,
jackpot payments and repair assistance, as needed. SC relies in part on customer
referrals and expansions by its customers into additional locations for new
business. SC also actively solicits business from other gaming machine route
locations having contracts with competitors that are scheduled to expire, and
from retail outlets in new shopping centers and restaurants. The availability of
sites held by the Becker family-controlled entities also provides SC with a
competitive advantage. The terms of the contracts (and extensions and renewals
thereof) entered into by SC with its customers are determined on the basis of
private negotiation and do not involve participation in public competitive
bidding processes.
Notwithstanding SC's ability to generate profits in recent years, the
operation of a gaming machine route in Nevada is a highly competitive business
and that competition continues to intensify. Many of SC's competitors have
significantly greater financial resources and manage substantially more gaming
machines. Competitors often provide substantial financial inducements to
prospective customers, some of which SC is not financially able to offer. Such
inducements include long-term commitments, guarantees and leases in favor of
owners of local establishments, substantial advance deposits, payments of lease
rentals in advance and loans for buildings and tenant-improvement costs.
Although SC has historically generated sufficient new contracts to offset the
loss of old ones, its revenues decreased in fiscal 1997 and 1996 compared to
fiscal 1995 as a result of a net loss of contracts and due to increased
competition and the increased sophistication and bargaining power of customers.
There can be no assurance that SC will be able to obtain new gaming machine
route contracts or renew or extend its existing contracts on their expiration or
termination, or that, if renewed or extended, the terms will be as favorable to
SC. See "Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Sunset Coin, Inc. - Results of Operations."
Becker Gaming Group
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Operations. BGG currently owns and operates five restaurant and bar
facilities (including one through its subsidiary, Innerout, Inc.) in Las Vegas
under the "Charlie's" name, each of which offers limited gaming. BGG's first
restaurant was opened in late 1986, the next four facilities were opened between
1988 and 1991, and the sixth was opened in April 1995. However, one facility,
Charlie's Saloon & Gambling Hall, was closed due to the expiration of its lease
in April 1996. Three of the restaurants-"Charlie's Bar," "Cantina Charlie's" and
"Charlie's Bar Down Under"-emphasize lower-priced menus in an informal
environment, and two more upscale locations-"Charlie's Lakeside Bar & Grill" and
"Cariba Charlie's,"-feature more formal dining and a greater selection of
dishes.
BGG expects to continue exploring expansion opportunities in the Las Vegas
area and has identified a suitable location for a new restaurant and bar
facility scheduled to open in late 1997. BGG's ability to open additional
restaurants depends on, among other factors, obtaining financing, locating
acceptable sites, negotiating favorable leases, securing appropriate government
permits and approvals, obtaining liquor licenses, and recruiting and training
qualified restaurant management personnel.
BGG depends on gaming revenue for a large percentage of its revenues and a
larger percentage of its profits, particularly at Charlie's Bar, Cantina
Charlie's and Charlie's Bar Down Under, where food and beverage operations have
not been directly profitable. Accordingly, the menus at Charlie's Bar, Cantina
Charlie's and Charlie's Bar Down Under are priced and include food selections
designed to attract casual diners interested in gaming entertainment. Unlike the
lower-priced facilities, Charlie's Lakeside and Cariba Charlie's are operated
with the intention of generating profit both from food and beverage sales and
from gaming activity. To that end, these restaurants feature a better selection
of dishes and wines to attract customers interested principally in a memorable
dining experience. Charlie's Lakeside and Charlie's Bar Down Under hold
nonrestricted gaming licenses allowing them to operate thirty-five video poker
machines with poker promotions and large progressive jackpots. BGG employs the
same state-of-the-art gaming machines and liberal pay-out approach made popular
at Arizona Charlie's.
BGG strives to maintain consistency in each of its restaurants through
the careful training and supervision of its personnel. The management of BGG
also closely monitors the tastes of the customers of each of its restaurants and
makes menu and other changes to accommodate these tastes. BGG maintains
financial and accounting controls for each of its restaurants through the use of
centralized accounting and management information systems.
Competition. The restaurant and food service industry in the Las Vegas
area is highly competitive and fragmented. There are many restaurant and other
food and beverage service operations that compete directly and indirectly with
BGG. BGG competes with these restaurants on the basis of its reasonable pricing,
quality food, focused menus and gaming entertainment. In addition, BGG employs
seasonal print and direct mail advertising and conducts some local restaurant
promotions. Many of BGG's competitors, however, have significantly greater
financial resources and higher sales volume than BGG does. The restaurant
business is often affected by changes in consumer taste and discretionary
spending priorities, national, regional or local economic conditions,
demographic trends, consumer confidence in the economy, traffic patterns,
weather conditions, employee availability, and the type, number and location of
competing restaurants. Any change in these factors could adversely affect BGG.
Factors such as inflation and increased food, liquor, labor and other employee
compensation costs could also adversely affect BGG. Management believes its
ability to compete effectively will continue to depend on its ability to offer
quality food for moderate prices in unique dining environments.
Capitol Queen & Casino, Inc.
- ----------------------------
CQC was formed to develop, construct, own and operate the Capitol Queen
riverboat casino in Jefferson City, Missouri, where it was granted a three-year
exclusive franchise by the city pursuant to a Riverfront Development Agreement
dated as of September 1, 1992 (the "Development Agreement"), subject to state
licensing to operate a gaming facility. CQC commenced development and
construction work on the Capitol Queen in November 1993. Such work was suspended
in August and September 1994 for the reasons discussed below. CQC's riverboat,
the construction of which was completed, is being stored by the builder. Funding
for the Capitol Queen project had been raised in November 1993 through the sale
of the CQC Notes and the concurrent sale of common stock purchase warrants by
the Company, which contributed the net proceeds therefrom to CQC.
On September 28, 1994, the Missouri Gaming Commission (the "Commission")
denied, without investigative review, CQC's application for a gaming license and
prohibited CQC from reapplying for a license for two years. The Commission's
ruling was based on a finding that CQC failed to disclose material and
substantive information on its gaming license application relating to a Purchase
Agreement dated September 20, 1993, pursuant to which BGI agreed to issue
promissory notes aggregating $5,925,000 in principal amount to various people in
Missouri in consideration for development services provided by them in
connection with the Capitol Queen project. The Purchase Agreement was rescinded
by the parties in early 1995.
CQC believes its Missouri application was complete and accurate. Moreover,
CQC fully disclosed the existence and terms of the Purchase Agreement, as well
as the services rendered by the persons to be compensated, in post-application
filings and communications with the Missouri Gaming Commission's staff. CQC also
disclosed these matters to the Nevada gaming authorities, who investigated and
conducted public hearings on these and other issues relating to applications for
licenses and approvals, all of which were unanimously granted to the Company in
May 1994. The Nevada gaming authorities most recently reexamined the issue in
connection with Becker Gaming Group and Innerout, Inc.'s applications for
licenses at Charlie's Bar Down Under, which were unanimously granted in March
1995. In addition, in anticipation of the pursuit of a possible gaming
development, the executive officers of the Company applied to the Mississippi
Gaming Commission for preliminary findings of suitability and were subsequently
found suitable by the Commission to engage in such activities in Mississippi.
CQC's then audited financial statements and public documents filed with the
Securities and Exchange Commission, all of which were submitted to the Missouri
Gaming Commission, also made these disclosures. Management believes that, based
on the foregoing, the Commission's ruling was and remains without basis.
Accordingly, CQC challenged the ruling through administrative and judicial
channels, which challenges have been largely successful. See "Item 3. - Legal
Proceedings".
Notwithstanding its efforts to seek redress of the Commission's ruling,
in December 1994, CQC, with the approval of the holders of the CQC Notes,
adopted a two-step plan (the "Repayment Plan") to repay the CQC Notes and any
accrued and unpaid interest thereon. The first step, effected in January 1995,
involved the repurchase of $20,000,000 principal amount of the CQC Notes and the
payment of accrued and unpaid interest thereon with proceeds then remaining in
the Capitol Queen project escrow account. The second step of the Repayment Plan,
not yet effected, required CQC, by March 31, 1995, to sell its riverboat, land
site and other project assets and to use the net proceeds realized upon the sale
of such assets to offer to repurchase additional CQC Notes.
CQC has actively marketed its riverboat and other assets for sale and
continues to do so, although such efforts have to date been unsuccessful in a
market that is deemed to be quite limited for vessels of the size and
configuration of that of the Capitol Queen. The failure of CQC to effect the
second step of the Repayment Plan has resulted in the Trustee under the
Indenture issuing a notice of acceleration of the debt and a demand for
immediate payment of the debt and accrued interest. Under the CQC Indenture, the
holders of 25% or more in principal amount of the CQC Notes may cause the CQC
Notes to be accelerated and declared to become immediately due and payable in
full. An aggregate of $20,000,000 principal amount of CQC Notes are outstanding.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that as a
matter of law the 1995 election did not affect the validity of the Development
Agreement. To avoid the cost and uncertainty of litigation, however, CQC and
Jefferson City in June 1996 entered into an agreement pursuant to which the
Development Agreement was rescinded and Jefferson City refunded $300,000 of the
$400,000 CQC had paid to the City pursuant to the Agreement.
Claims by Trustee
AC currently has outstanding $55,000,000 of 12% First Mortgages Notes due
2000. SC has issued a limited guaranty with respect to the AC Notes (the "SC
Limited Guaranty"). CQC currently has outstanding $20,000,000 of 12% First
Mortgage Notes due 2000. AC has issued a limited guaranty with respect to the
CQC Notes (the "AC Limited Guaranty"). The amount and extent of AC's guaranty of
the CQC Notes is in dispute due to certain provisions of the Indenture under
which the CQC Notes were issued, as well as certain provisions of State and/or
Federal Law that may be applicable in or with respect to financial
restructuring. It is AC's position that, based on advice from legal counsel, its
limited guaranty does not create a material liability on its part for the
payment of the obligations under the CQC Notes.
IBJ Schroder Bank & Trust Company, as Trustee under the Indentures under
which such Notes are outstanding, has declared the AC Notes and the CQC Notes to
be in default and has declared all such Notes to be immediately due and payable.
The Trustee has also notified AC that the purported obligations of AC under its
guaranty have been accelerated and has declared the obligations of AC thereunder
to be due. Management of AC and CQC and the holders of the Notes are discussing
possible financial restructuring of the AC and CQC obligations, but no such
restructuring has yet been agreed to. The Trustee has taken no further action to
enforce the Notes or the purported guaranties thereof or to foreclose on any
assets of AC or CQC. No assurance can be given, however, that the Trustee will
not do so.
Employees
As of September 1, 1997, the Company employed only one person, its chief
executive officer. Approximately 40 other Company employees were transferred to
the employ of AC in March 1995 in connection with the suspension of activity at
CQC. As of September 1, 1997, AC employed approximately 1,179, SC employed 26,
and BGG employed approximately 172. As of September 1, 1997, CQC had no
employees (other then its sole executive officer who is not compensated by CQC
for such services). None of the foregoing employees is employed pursuant to
collective bargaining or other union arrangements. Management believes its
employee relations are good.
Government Regulation
The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"), and (ii) various local regulation.
The gaming operations of the Company and its Nevada subsidiaries are subject to
the licensing and regulatory control of the Nevada Gaming Commission (the
"Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada
Board"), the Clark County Liquor and Gaming Licensing Board (the "Clark County
Board"), the City of Las Vegas and other local jurisdictions (collectively, the
"Nevada Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based on declarations of public policy that are concerned with,
among other things: (i) the prevention of unsavory or unsuitable persons from
having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on the gaming operations of the Nevada
subsidiaries.
The Company and its Nevada subsidiaries are required to be licensed by the
Nevada Gaming Authorities to engage in gaming activities. The gaming licenses
require the periodic payment of fees and taxes and are not transferable. No
person may become a stockholder of, or receive any percentage of profits from,
the Nevada subsidiaries without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company and its Nevada subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, approvals, permits
and licenses required to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship with the Company or its Nevada subsidiaries to determine
whether the individual is suitable or should be licensed as a business associate
of a gaming licensee. Officers, directors and certain key employees of such
companies must file applications with the Nevada Gaming Authorities and may be
required to be licensed or found suitable by the Nevada Gaming Authorities.
Others who are actively and directly involved in gaming activities may also be
required to be licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing for any cause
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability must pay all the costs of the investigation. Changes in licensed
positions must be reported to the Nevada Gaming Authorities and in addition to
their authority to deny an application for a finding of suitability or
licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a
change in corporate position.
The Company and its Nevada subsidiaries, would be required to sever all
relationships with any officer, director, or key employee who refuses to file
the appropriate applications or is found unsuitable for licensing or denied a
license by the Nevada Gaming Authorities, whose licensing and suitability
decisions are not subject to judicial review.
Substantially all material loans, leases, sales of securities and similar
financing transactions by the Company and its Nevada subsidiaries must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Company or any of its Nevada subsidiaries
had violated the Nevada Act, that Company's gaming license could be limited,
conditioned, suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, the company and the individuals involved
could be subject to substantial fines for each separate violation of the Nevada
Act at the discretion of the Nevada Commission. Further, a supervisor could be
appointed by the Nevada Commission to operate the company's gaming properties
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the company's gaming
properties) could be forfeited to the State of Nevada. Limitation, conditioning
or suspension of any gaming license or the appointment of a supervisor could
(and revocation of any gaming license would) materially adversely affect gaming
operations.
The Company and AC are registered publicly traded companies under the
Nevada Act and as such are subject to the provisions applicable to "registered
corporations." The Nevada Act requires any person who acquires more than 5% of a
registered corporation's voting securities to report the acquisition to the
Nevada Commission. The registered corporation is also required to report such
acquisitions. The Nevada Act requires that beneficial owners of more than 10% of
a registered corporation's voting securities apply to the Nevada Commission for
a finding of suitability if, and within 30 days after, the chairman of the
Nevada Board mails a written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Company's voting
securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds the voting securities for
investment purposes only. An institutional investor shall not be deemed to hold
voting securities for investment purposes unless the voting securities were
acquired and are held in the ordinary course of business as an institutional
investor and not for the purpose of causing, directly or indirectly, the
election of a majority of the members of the board of directors of the Company,
any change in the Company's corporate charter, bylaws, management, policies or
operations of the Company, or any of its gaming affiliates, or any other action
which the Nevada Commission finds to be inconsistent with holding the Company's
voting securities for investment purposes only. Activities which are not deemed
to be inconsistent with holding voting securities for investment purposes only
include: (i) voting on all matters voted on by stockholders; (ii) making
financial and other inquiries of management of the type normally made by
securities analysts for informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other activities as the
Nevada Commission may determine to be consistent with such investment intent. If
the beneficial holder of voting securities who must be found suitable is a
corporation, partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The applicant is
required to pay all costs of investigation.
The Company has issued common stock purchase warrants (the "Warrants") to
certain institutional investors. The Warrants do not constitute voting
securities for purposes of the Nevada Act. Nonetheless, the Company may redeem
the Warrants at their then fair market value in the event that (i) such
redemption is required by the Nevada Gaming Authorities, (ii) the Nevada Gaming
Authorities require the termination of any Warrant or (iii) the ownership of the
Warrants by a Warrantholder would materially impair the issuance of or result in
the imposition of a material burden on any gaming, liquor or other license
required for the operations of the Company or any of its Nevada subsidiaries.
Further, the Common Stock issuable on exercise of the Warrants will constitute
voting securities and, accordingly, Warrantholders that become owners of the
outstanding Common Stock on exercise of their Warrants will be subject to the
suitability requirements.
Each beneficial holder of the voting securities of a Nevada licensee that
is not a registered publicly traded company under the Nevada Act, regardless of
the number of shares owned, must file an application, be investigated, and have
his suitability as a beneficial holder of such voting securities determined. The
applicant must pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
The Company has been registered or found suitable, as the case may be, to
own the common stock of each of the Nevada subsidiaries.
Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada
Commission, may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after request, fails to identify the beneficial
owner. Any stockholder found unsuitable and who holds, directly or indirectly,
any beneficial ownership of the common stock of a gaming licensee or a
registered corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The gaming licensee or
registered corporation will be subject to disciplinary action if, after it
receives notice that a person is unsuitable to be a stockholder or to have any
other relationship with it, the company (i) pays that person any dividend or
interest on voting securities of the company, (ii) allows that person to
exercise, directly or indirectly, any voting right conferred through securities
held by that person, (iii) pays remuneration in any form to that person for
services rendered or otherwise, or (iv) fails to pursue all lawful efforts to
require such unsuitable person to relinquish his voting securities for cash at
fair market value. Additionally, the Nevada regulatory authorities have taken
the position that it has the authority to approve all persons owning or
controlling the stock of any corporation controlling a gaming licensee.
The Nevada Commission may, in its discretion, require the holder of any
debt security of a gaming licensee or a registered corporation to file
applications, be investigated and be found suitable to own the debt security of
a gaming licensee or a registered corporation. If the Nevada Commission
determines that a person is unsuitable to own such security, then pursuant to
the Nevada Act, the gaming licensee or registered corporation can be sanctioned,
including the loss of its licenses and approvals, if without the prior approval
of the Nevada Commission, it: (i) pays to the unsuitable person any dividend,
interest, or other distribution (ii) recognizes any voting right by the
unsuitable person in connection the such securities; (iii) pays the unsuitable
person remuneration in any form; or (iv) makes any payment to the unsuitable
person by way of principal, redemption, conversion, exchange, liquidation, or
similar transaction.
The Company and its Nevada subsidiaries are required to maintain current
stock ledgers in Nevada which the Nevada Gaming Authorities may examine at any
time. If any securities are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Nevada Gaming Authorities. Failure to make such disclosure may be grounds
for finding the record holder unsuitable. Each company is required to render
maximum assistance in determining the identity of any beneficial owner. The
Nevada Commission has the power to and has required the Nevada subsidiaries'
stock certificates to bear legends indicating that the securities are subject to
the Nevada Act.
The Company is not permitted to make a public offering of its securities
without the prior approval of the Nevada Commission if the securities or
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or to retire or extend obligations incurred for
such purposes. Any such approval, if granted, does not constitute a finding,
recommendation or approval by the Nevada Commission or the Nevada Board as to
the accuracy or adequacy of the prospectus or the investment merits of the
securities offered. Any representation to the contrary is unlawful.
A change in control of a registered publicly traded company, whether
through merger, consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby such person
obtains control, may not occur without the prior approval of the Nevada
Commission. Entities seeking to acquire control of a corporation subject to the
Nevada Act must first satisfy a variety of stringent standards imposed by the
Nevada Board and Nevada Commission. The Nevada Commission may also require
controlling stockholders, officers and directors of the entity seeking control,
and any other persons having material relationships or involvement with such
entity, to be investigated and licensed as part of the approval process relating
to the transaction.
The Nevada legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and corporate defense
tactics affecting Nevada gaming licensees and registered corporations that are
affiliated with those operations may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices on
Nevada's gaming industry and to advance Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environmental for the orderly governance of
corporate affairs. In certain circumstances, approvals are required from the
Nevada Commission before a regulated company can make exceptional repurchases of
voting securities above the current market price and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by a regulated
company's board of directors in response to a tender offer made directly to the
corporation's stockholders for the purpose of acquiring control of the
corporation.
License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Nevada licensees' operations are conducted.
Depending on the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based on either: (i) a
percentage of the gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operators where entertainment is furnished in
connection with the selling of food or refreshments.
Any person who is licensed, required to be licensed, registered, required
to be registered, or is under common control with such persons, and who proposes
to become involved in a gaming venture outside of Nevada ("foreign gaming") must
deposit and maintain with the Nevada Board, a revolving fund of $10,000 to pay
the Board's expenses of investigating the participation in foreign gaming. The
revolving fund is subject to increase or decrease at the discretion of the
Nevada Commission. Thereafter, such persons are required to comply with certain
reporting requirements imposed by the Nevada Act, and are subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employ a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the grounds of unsuitability.
Item 2. Properties
Arizona Charlie's is located at 740 South Decatur Boulevard, Las Vegas,
Nevada and comprises approximately 170,000 square feet on approximately 12.5
acres owned by AC. In addition, AC leases office, storage and laundry space
located in an adjacent shopping center owned by Charleston Heights Shopping
Center, a partnership owned by the Becker family, pursuant to two leases
expiring in 1998. The current annual rent payable (including insurance, tax and
common area maintenance payments) under these leases aggregates approximately
$222,000.
SC currently owns all 255 of the gaming machines included in its route. The
machines are located primarily in retail outlets in shopping centers,
restaurants, taverns and convenience stores owned by others.
All of BGG's five restaurants are held pursuant to long-term leases. Four
of the leases are with lessors owned in whole or part by Becker family members.
The newest restaurant, Charlie's Bar Down Under, was constructed by a
partnership including several Becker family members and their relatives, with
interior improvements constructed by SC. BGG's subsidiary leases the building
and land from the partnership and the furniture, fixtures, and equipment from
SC. Although BGG believes that its obligations with respect to leases entered
into with Becker family entities reflect market terms and rates, Becker family
members may have potential conflicts of interests in connection with these
leases. See "Item 13. Certain Relationships and Related Transactions."
CQC owns a site located across the Missouri River from the State capitol
in Jefferson City, Missouri, on which CQC had intended to construct the Capitol
Queen Square. The site, which was originally 80 acres, currently consists of
approximately 65 to 75 acres as a result of land lost to the Missouri River
during major flooding in the Midwest in 1993 and 1994. CQC has completed
construction of a riverboat casino that was to be located adjacent to the land
site. The riverboat vessel is approximately 218 feet long and 62 feet wide
providing approximately 26,000 square feet of interior space for up to
approximately 1,600 passengers.
The Company has, over the past several years been assessing possible
gaming opportunities in Mississippi, and in particular in Long Beach,
Mississippi where it had secured options and certain lease rights with respect
to a possible gaming location. In anticipation of the pursuit of such
development, the executive officers of the Company applied to the Mississippi
Gaming Commission for preliminary findings of suitability and were subsequently
found suitable by the Commission to engage in such activities in Mississippi.
The Company has, however, chosen not to actively pursue the Long Beach project
at this time pending an evaluation of the prospect of the Long Beach City
Council approval of a gaming project in Long Beach and the impact of significant
new gaming properties under construction in the Gulfport and Biloxi, Mississippi
areas which are scheduled to open in the next year. Long Beach is located
several miles west of these new resorts and other Gulfport/Biloxi area gaming
operations. No assurance can be given at this time that even if the Company
chose to proceed with a Long Beach development that necessary governmental or
other approvals could be obtained or that the required real estate could be
secured through leases, options or outright purchase. Due to the market
uncertainties created by the pending new resort development, the Company has
been unable to find a buyer for the rights it had acquired in Long Beach and has
allowed its principal option and lease rights to expire.
Item 3. Legal Proceedings
BGI, CQC, and the Nevada Operating Companies are parties to various
lawsuits relating to routine matters incidental to their respective businesses,
in addition to the litigation discussed below. Based on the amounts and issues
believed to be in controversy and management's evaluation of the merits of the
claims after consultation with counsel, management does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the results of operations, cash flows, or financial condition of BGI,
CQC, or the Nevada Operating Companies.
On October 31, 1994, CQC and BGI petitioned the Cole County, Missouri
Circuit Court in Jefferson City for a writ of mandamus with respect to the
ruling of the Missouri Gaming Commission (the "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 Commission had
violated Missouri gaming and open meeting laws. The Circuit Court issued a
preliminary writ of mandamus declaring the Commission's decision void and
ordering the Commission to immediately commence a full investigation and
thereafter to act on CQC's application. The Circuit Court ordered the Commission
to show cause within 30 days why the preliminary writ should not be made
permanent.
In response to the Circuit Court's order to show cause, the Commission
filed two actions, both unsuccessful, in the Missouri Court of Appeals for the
Western District. On November 16, 1994, the Commission petitioned the Court of
Appeals for a writ of prohibition against the Circuit Court, contending, among
other things, that CQC was not entitled to judicial relief because it had not
exhausted its administrative remedy of an evidentiary hearing before the
Commission. The Court of Appeals initially issued a preliminary writ of
prohibition staying further proceedings in the Circuit Court. However, in an
opinion issued on April 18, 1995, the Court of Appeals concluded that its
preliminary writ of prohibition had been improvidently granted, quashed the
preliminary writ, and denied the Commission's request for a permanent writ,
relegating the Commission to its remedies in the Circuit Court. On December 13,
1994, the Commission also filed an appeal of the Circuit Court's order to show
cause. On December 23, 1994 CQC moved to dismiss the appeal on the ground that
the preliminary writ of mandamus was not a final order and therefore was not
appealable. On January 5, 1995, the Court of Appeals granted CQC's motion and
dismissed the appeal.
On June 26, 1995, the Circuit Court issued a peremptory (permanent) writ
of mandamus similar to the preliminary writ, declaring the Commission's order
void and ordering the Commission to proceed with an investigation of CQC's
application "with all deliberate speed." On July 21, 1995, the Commission
appealed the Circuit Court's decision to the Missouri Court of Appeals for the
Western District, and on April 30, 1996, a three-judge panel of that Court ruled
that mandamus was not the proper vehicle for challenging the Commission's
decision. The Court of Appeals ruled that CQC may obtain judicial review only
after an administrative proceeding. The Court of Appeals also ruled that the
Missouri statutes did not prohibit the Commission from denying a license without
conducting an investigation, and that the claim that the Commission broke its
promise not to deny a license without first investigating should be raised in a
breach of contract action, not a mandamus petition. The Court of Appeals did not
address the merits; that is, it did not decide whether the Commission acted
arbitrarily or whether its decision was justified or a breach of its promises.
While CQC then asked the Missouri Supreme Court to review the Circuit Court's
decision, its ruling had immediate consequences for two reasons. First, a
Missouri Circuit Court in a separate action (discussed below) voided the
Commission's decision for the independent reason that it was made in violation
of Missouri's open meeting law. Second, after the decision in the open meeting
law case, CQC notified the Commission that it was withdrawing its application.
On November 1, 1994, concurrent with its efforts to obtain judicial
relief, CQC (with BGI as a co-party) requested an administrative hearing
pursuant to the Missouri gaming statutes, under which a denied applicant may
request an evidentiary hearing before a Commission appointed hearing officer.
The hearing officer's decision is subject to review by the Commission, and the
Commission's decision is in turn subject to judicial review. The Commission
filed an answer on November 29, 1994 alleging, among other things, that CQC was
not entitled to an administrative hearing because CQC had not been investigated.
On December 22, 1994 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,
1995 for the appointment of an impartial, independent hearing officer. The
Commission's attorney filed a response in opposition to this motion on April 12,
1995 but the Commission failed to respond 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. The Commission never acted on this request. Hearing
dates were vacated by stipulation, and, after the Circuit Court's orders voiding
the Commission's decision appeared to make the administrative proceeding
premature, the hearing was postponed indefinitely. The withdrawal of CQC's
application rendered the administrative hearing moot.
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.
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 then exercised its discretion to review the
case, and on January 27, 1997 the Missouri Supreme Court issued its ruling in
favor of CQC and Bruce Becker, holding that the prosecutions sought by the
Attorney General were barred by the applicable statute of limitations.
Accordingly, the Attorney General, or any other Missouri prosecutor, is
precluded from any further pursuit of the misdemeanor charges levied against CQC
and Bruce Becker in this matter.
By letters dated July 3, 1997 and July 17, 1997, IBJ Schroder Bank & Trust
Company, the trustee on the CQC Indenture dated as of November 15, 1993,
declared all of the Securities (as defined in the Indenture) to be immediately
due and payable, together with all accrued and unpaid interest thereon.
Subsequent letters from IBJ Schroder Bank & Trust Company, dated September 5,
1997, provided notices of defaults by CQC and AC under their respective
Indentures and also served Notice of Acceleration on AC with respect to its
Securities and its Limited Guaranty of the CQC debt. AC has 30 days from the
date of the Notice within which to correct such defaults cited in the notice. No
assurance is given that AC will be able to correct such defaults. CQC and AC
have retained counsel to assist them in dealing with the Bondholders and on July
16, 1997, a proposal for the financial restructuring of the CQC and AC
indebtedness was presented to the Bondholders through the Trustee and Counsel to
one of the major Bondholders. The Bondholders have orally responded to such
offer as of September 10, 1997 and the company is currently evaluating such
responses and the possible actions to be taken by AC and CQC as a result of that
response. No further action by the Trustee has been taken to foreclose on the
assets of CQC or to collect on any claims against any purported guarantees of
the CQC debt issued by AC.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters
There is no established public trading market for the Company's Common
Stock. There are five holders of the Common Stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management." The Company has not
declared or paid any cash dividends on its Common Stock and does not anticipate
the payment of cash dividends in the foreseeable future. The Company's ability
to pay cash dividends in the future will depend on the receipt of management
fees from its subsidiaries, the payment of which by AC and CQC is restricted by
the AC Indenture and CQC Indenture, respectively.
<TABLE>
Item 6. Selected Financial Data
================================================================================
Becker Gaming, Inc. and Subsidiaries Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
================================================================================
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Income Statement Data:
Operating revenues ............................ $ 69,525 $ 76,037
Operating income .............................. 904 4,742
Income (loss) before extraordinary item ....... (11,166) (11,227)
Extraordinary item-loss on early retirement
of debt (8) ................................. -- --
Net income (loss) ............................. (11,166) (11,227)
Income (loss) per share before extraordinary
item ........................................ (1.12) (1.12)
Extraordinary item-loss on early retirement
of debt (8) ................................. -- --
Net income (loss) per share (1)(2)............. (1.12) (1.12)
Pro forma data (reflecting change in tax status
of subsidiaries) (7)
Net income (loss) ........................... -- --
Net income (loss) per share of common
stock ..................................... -- --
Other Data:
Interest expense, net of amounts capitalized ... $ 11,148 $ 10,584
Capital expenditures ........................... 696 544
Distributions to stockholders (3) .............. -- --
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income Statement Data:
Operating revenues ........................... $ 69,079 $ 57,085 $ 55,776
Operating income ............................. 4,467 6,334 7,745
Income (loss) before extraordinary item ...... (7,640) (1,566) 6,152
Extraordinary item- loss on early retirement
of debt (8) ................................ (4,089) -- --
Net income (loss) ............................ (11,729) (1,566) 6,152
Income (loss) per share before extraordinary
item ....................................... (0.76) (0.17) 0.65
Extraordinary item- loss on early retirement
of debt (8) ................................ (0.41) -- --
Net income (loss) per share (1)(2)............ (1.17) (0.17) 0.65
Pro forma data (reflecting change in tax
status of subsidiaries) (7)
Net income (loss) .......................... -- (803) 4,030
Net income (loss) per share of common
stock .................................... -- (0.08) 0.43
Other Data:
Interest expense, net of amounts capitalized . $ 12,022 $ 8,530 $ 1,621
Capital expenditures ......................... 27,382 22,945 1,437
Distributions to stockholders (3) ............ -- 9,533 3,220
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance Sheet Data:
Unrestricted cash and cash equivalents $ 7,394 $ 6,745
Cash in escrow account restricted for
construction ..................... 41 40
Total assets ......................... 71,009 75,477
Long-term obligations (4)
Long-term debt (5)(6) ............ 10,314 9,330
Capitalized lease obligations (9) 98 197
Stockholders' equity (deficit) ....... (29,163) (17,997)
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance Sheet Data:
Unrestricted cash and cash equivalents $ 6,657 $ 6,455 $ 4,747
Cash in escrow account restricted for
construction ..................... 40 51,041 --
Total assets ......................... 84,786 116,860 32,893
Long-term obligations (4)
Long-term debt (5)(6) ............ 64,593 64,251 1,496
Capitalized lease obligations (9) 2,001 3,174 899
Stockholders' equity (deficit) ....... (6,770) 4,959 9,574
- ----------
<FN>
(1) The number of shares used in the computation of earnings (loss) per share
of common stock for the year ended June 30, 1997, 1996 and 1995 was
10,000,000 and 9,509,956 for the year ended June 30, 1994. Such amount does
not include 2,500,000 shares issuable upon exercise of the Warrants since
the inclusion of such shares would be anti-dilutive (decrease the loss per
share).
(2) The number of shares used in the computation of earnings (loss) per share
of common stock for the period ended June 30, 1993 was 9,466,071.
(3) Because AC, SC and BGG elected to be treated as S corporations prior to
January 1, 1994, a substantial portion of their net income in past years
was distributed to their stockholders. In December 1993, AC, SC and BGG
distributed $5,000, $3,000 and $800, respectively, of previously taxed
retained earnings to their stockholders. These amounts were loaned back to
AC, SC and BGG in exchange for stockholder notes. Effective January 1, 1994
AC, SC and BGG terminated their S corporation elections. The ability of AC
and SC to pay dividends is restricted under the AC Indenture.
(4) Excludes current maturities.
(5) At June 30, 1993, approximately $16,900 of bank debt of AC was classified
as current, as it was due and payable. Such amount was paid off from a
portion of the proceeds from the sale of the AC Notes in November, 1993.
(6) At June 30, 1995 and 1994, long-term debt includes the $55,000 of AC Notes
and $8,000 of subordinated stockholder notes. At June 30, 1997, 1996, 1995
and 1994, $17,908, $17,526, $17,118 and $33,164, respectively of CQC Notes
(net of unamortized original issue discount of $2,092, $2,474, $2,882 and
$6,836, respectively) was classified as current due to default. At June 30,
1997 and 1996, $55,000 of the AC Notes was classified as current due to
certain defaults of the AC Indenture. See Notes 2 and 9 of Notes to
Consolidated Financial Statements.
(7) Pro forma net income and pro forma net income per share of common stock
reflect adjustments to income taxes assuming that the termination of S
corporation elections of the Company's subsidiaries (AC, SC and BGG)
occurred as of the beginning of the earliest period presented. The pro
forma adjustments reflect income taxes at an effective rate of 34 percent
through December 31, 1992 and a 34 percent effective rate beginning on
January 1, 1993. The pro forma net loss for the year ended June 30, 1994
assumes the utilization of a carryback operating loss to prior years, and
the ability to offset taxable losses of certain subsidiaries against
taxable income of others in the consolidated group.
(8) During 1995, CQC retired $20,000 principal amount of the CQC Notes at 101%
of such principal amount plus accrued and unpaid interest. CQC incurred an
extraordinary loss of approximately $4,089, reflecting the premium paid to
retire the debt of $200, and the write-off of related, unamortized debt
issue costs and original issue discount in the aggregate of $3,889. No tax
benefit was available or recognized.
(9) At June 30, 1996 approximately $1,900 of capitalized lease obligations were
classified as current and the related obligations were paid off in July
1996 with proceeds from the sale of the related assets.
</FN>
</TABLE>
<TABLE>
================================================================================
Arizona Charlie's, Inc. Selected Financial Data
Years Ended June 30,
(amounts in thousands, except per share data)
================================================================================
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income Statement Data:
Operating revenues .................... $ 58,084 $ 63,301 $ 57,082
Operating income (loss)................ (341) 2,199 1,058
Net income (loss) ..................... (7,145) (4,559) (4,936)
Net income (loss) per share (1) ....... (7,145) (4,559) (4,936)
Other Data:
Interest expense, net of amounts
capitalized .......................... 7,275 7,095 6,574
Capital expenditures .................. 501 190 24,253
Distributions to stockholders (2) ..... -- -- --
Balance Sheet Data:
Unrestricted cash and cash
equivalents .......................... $ 5,481 $ 4,591 $ 5,404
Cash in escrow account restricted
for construction ..................... 10 10 10
Total assets .......................... 61,957 62,357 65,273
Long-term obligations (3)
Long-term debt (4) (5) ............ 6,284 5,000 60,000
Capitalized lease obligation ...... 29 22 4
Stockholder's equity (deficit) ........ (16,646) (9,501) (4,942)
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Income Statement Data:
Operating revenues ............................... $ 46,447 $45,880
Operating income (loss)........................... 5,105 6,032
Net income (loss) ................................ 1,134 4,585
Net income (loss) per share (1) .................. 1,134 4,585
Other Data:
Interest expense, net of amounts
capitalized ..................................... 4,763 1,440
Capital expenditures ............................. 11,379 1,067
Distributions to stockholders (2) ................ 5,317 2,140
Balance Sheet Data:
Unrestricted cash and cash equivalents ........... $ 4,014 $ 3,528
Cash in escrow account restricted for
construction .................................... 3,613 --
Total assets ..................................... 67,915 27,184
Long-term obligations (3)
Long-term debt (4) (5) .......................... 60,000 --
Capitalized lease obligation .................... 1 778
Stockholder's equity (deficit) ................... (6) 5,953
- ----------
<FN>
(1) The number of shares used in the computation of earnings (loss) per share
of common stock was 1,000 for each of the five years in the period ended
June 30, 1997. A total of 2,500 shares of common stock are authorized at
no par value, 1,000 shares of which are issued and outstanding.
(2) Because AC elected to be treated as an S corporation for the most of 1994,
and all of fiscal 1993, a substantial portion of its income in past years
was distributed to its stockholders. In December 1993, AC distributed
$5,000 of previously taxed retained earnings to its stockholders. This
amount was loaned back to AC in exchange for stockholder notes. Effective
January 1, 1994, AC terminated its S corporation tax status. The ability
of AC to pay dividends is restricted by the Indenture governing its 12%
First Mortgage Notes due November 15, 2000 (the "AC Notes"). See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations_Arizona Charlie's, Inc._General
(3) Includes subordinated notes to stockholders, non-current obligations under
capital leases, and excludes current maturities. At June 30, 1993,
approximately $16,900 of bank debt was classified as current, as it was
due and payable. See Management's Discussion and Analysis of Financial
Condition and Results of Operations_Arizona Charlie's, Inc._General and
"Notes to Financial Statements__Arizona Charlie's, Inc._ Long Term Debt."
(4) At June 30, 1996 and June 30, 1997 $55,000 of AC Notes was classified as
current due to certain defaults of the AC Indenture. See Notes 2 and 6 of
AC's Notes to Financial Statements.
(5) At June 30, 1993, approximately $16,900 of bank debt of AC was classified
as current as it was due and payable. Such amount was paid off from a
portion of the proceeds from the sale of the AC Notes in November, 1993.
</FN>
</TABLE>
<TABLE>
================================================================================
Sunset Coin, Inc. Selected Financial Data
As Of Or For Years Ended June 30, (amounts in thousands,
except per share data)
================================================================================
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income Statement Data:
Operating revenues ....................... $2,667 $2,649 $2,742
Operating income ......................... 838 817 1,128
Net income ............................... 591 381 688
Net income per share (1) ................. 1,477 952 1,720
Other Data:
Interest expense, net of amounts
capitalized ............................. 366 398 352
Capital expenditures ..................... 63 208 1,142
Distribution to stockholders (2) ......... -- -- --
Balance Sheet Data:
Unrestricted cash and cash
equivalents ............................. $ 707 $1,122 $ 506
Total assets (3) ......................... 6,507 5,891 5,349
Long-term obligations (4)
Long-term debt (5) ................... 3,305 3,502 3,664
Capitalized lease obligations ........ -- -- 28
Stockholders' equity ..................... 2,049 1,458 1,077
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Income Statement Data:
Operating revenues .................................. $2,859 $2,959
Operating income .................................... 1,333 1,382
Net income .......................................... 1,010 1,408
Net income per share (1) ............................ 2,525 3,520
Other Data:
Interest expense, net of amounts capitalized ........ 190 67
Capital expenditures ................................ 232 297
Distribution to stockholders (2) .................... 3,280 940
Balance Sheet Data:
Unrestricted cash and cash equivalents .............. $1,940 $ 854
Total assets (3) .................................... 3,845 3,270
Long-term obligations (4)
Long-term debt (5) .............................. 3,220 364
Capitalized lease obligations ................... 85 205
Stockholders' equity ................................ 389 2,659
- ----------
<FN>
(1) The number of shares used in the computation of earnings (loss) per share
of common stock was 400 for each of the five years in the period ended
June 30, 1997. A total of 25,000 shares of common stock are authorized at
no par value, 400 shares of which are issued and outstanding.
(2) Because SC elected to be treated as an S corporation during these periods,
a substantial portion of its net income in past years was distributed to
its stockholders. In December, 1993, SC distributed $3,000 of previously
taxed retained earnings to its stockholders. This amount was loaned back
to SC in exchange for stockholder notes. Effective January 1, 1994, SC
terminated its S corporation status. The ability of SC to pay dividends is
restricted under the Indenture governing the AC Notes. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations_Sunset Coin, Inc._General" and "Certain
Relationships and Related Transactions."
(3) Includes $3,150 in notes receivable from AC, resulting from advances made
by SC to AC. Due to the financial condition of AC, management believes it
is reasonably possible that a portion of the notes receivable will be
uncollectible. However, an estimate of the loss cannot presently be
determined. See Note 3 of SC's Notes to Financial Statements.
(4) Excludes current maturities. See "Notes to Financial
Statements_Sunset Coin, Inc._Long-Term Debt."
(5) At June 30, 1997, $322 of SC debt was classified as Current
Notes Payable.
</FN>
</TABLE>
<TABLE>
================================================================================
Capitol Queen & Casino, Inc.
Years Ended June 30,
(amounts in thousands, except per share data)
================================================================================
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income Statement Data:
Operating revenues .............................. $ -- $ --
Operating loss .................................. (413) (4,996)
Net loss before extraordinary item .............. (3,807) (7,785)
Extraordinary item-loss early retirement
of debt (1) ................................. -- --
Net loss ........................................ (3,807) (7,785)
Net loss per share before extraordinary item .... (38,070) (77,850)
Extraordinary item-loss on early
retirement of debt .......................... -- --
Net loss per share (2) .......................... (38,070) (77,850)
Other Data:
Interest expenses, net of amounts capitalized ... 3,395 2,789
Capital expenditures ............................ -- --
Balances Sheet Data:
Unrestricted cash and cash equivalents .......... $ -- $ --
Cash in restricted escrow account ............... 31 30
Total assets .................................... 8,257 8,449
Long-term obligations (3) ....................... -- --
Stockholders' equity (deficit) (4) .............. (17,865) (14,058)
1995 1994
---- ----
Income Statement Data:
Operating revenues .............................. $ -- $ --
Operating loss .................................. (1,388) (7,094)
Net loss before extraordinary item .............. (5,386) (9,530)
Extraordinary item-loss early retirement
of debt (1) ................................. (4,089) --
Net loss ........................................ (9,475) (9,530)
Net loss per share before extraordinary item .... (53,860) (95,300)
Extraordinary item-loss on early
retirement of debt .......................... (40,890) --
Net loss per share (2) .......................... (94,750) (95,300)
Other Data:
Interest expenses, net of amounts capitalized ... 4,608 3,091
Capital expenditures ............................ 1,724 11,212
Balances Sheet Data:
Unrestricted cash and cash equivalents .......... $ 45 $ 33
Cash in restricted escrow account ............... 30 24,929
Total assets .................................... 12,986 37,412
Long-term obligations (3) ....................... -- --
Stockholders' equity (deficit) (4) .............. (6,273) 3,202
- ----------
<FN>
(1) During 1995, CQC retired $20,000 principal amount of the CQC notes at 101%
of such principal amount plus accrued and unpaid interest. CQC incurred an
extraordinary loss of approximately $4,089, reflecting the premium paid to
retire the debt of $200 and the write-off of related, unamortized debt
issue costs and original issue discount in the aggregate of $3,889. No tax
benefit was available or recognized.
(2) The number of shares used in the computation of loss per share of common
stock was 100 for each of the four years in the period ended June 30,
1997. Common stock of 1,000 shares were authorized at a $1.00 par value,
but 100 shares were issued and outstanding.
(3) At June 30, 1997, 1996 and 1995 and 1994, $17,908, $17,526, $17,118
and $33,164 respectively of CQC notes (net of unamortized original
issue discount of $2,092, $2,474, $2,882 and $6,836, respectively) was
classified as current due to CQC's default of the Indenture governing the
CQC Notes.(4) The ability of CQC to pay dividends is restricted under
the CQC Indenture.
</FN>
</TABLE>
================================================================================
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
BGI serves as a holding company for, and provides management and
administrative services to, the Becker family gaming interests. BGI has not
engaged in any business other than providing such management and administrative
services to its subsidiaries.
BGI is currently receiving payment for management fees from SC and BGG,
and is accruing management fees from AC until such time as such fees may be paid
under the Indenture governing the AC Notes. BGI does not expect to receive
management fee income from CQC as a result of the events in Missouri adversely
affecting CQC's efforts to become licensed to conduct riverboat gaming in that
State. As a result of these developments, CQC has adopted a plan to sell its
assets and business. See "Item 1. Business - Capitol Queen & Casino, Inc." and
"Notes to Financial Statements - Capitol Queen & Casino, Inc."
BGI is continually evaluating future domestic and foreign development
opportunities including opportunities in jurisdictions in which gaming is not
currently permitted. BGI incurred development costs of $1,301,000 during fiscal
1997, compared to $504,000 in fiscal 1996 and $1,186,000 in fiscal 1995.
Development costs include professional fees, travel expenses, payments to third
parties for business development options and other expenses associated with
supporting this long term growth strategy.
As a result of the events adversely impacting CQC's ability to complete
and open the Capitol Queen (See "Item 1. Business - Capitol Queen and Casino,
Inc."), significant doubt exists about the ability of CQC to continue as a going
concern. Similar doubt exists with respect to AC as a result of its default
under the AC Notes and possibly as a result of its guaranty of the CQC Notes, to
the extent its guaranty is valid and enforceable. See "Item 1. Business -
Capitol Queen and Casino, Inc. - Claims by Trustee". Additionally, doubt exists
with respect to SC as a result of its limited guaranty of the AC Notes. See
"Sunset Coin, Inc. - General". AC, SC, BGG and CQC represent the Company's
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.
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain all future earnings for use in the development of
its business and does not anticipate paying any cash dividends in the
foreseeable future. The payment of all dividends will be at the discretion of
the Company's Board of Directors and will depend upon, among other things,
future earnings, operations, capital requirements, the general financial
condition of the Company and general business conditions. The ability of CQC, AC
and SC to pay dividends to the Company is restricted by the CQC and AC
Indentures.
Arizona Charlie's, Inc.
- -----------------------
General
AC's revenues are derived largely from gaming activities at its Arizona
Charlie's casino-hotel, and, to a lesser extent, from food and beverage,
lodging, entertainment and retail sales. AC generally views its non-casino
operations as complementary to its core casino operations. Accordingly, it
utilizes entertainment primarily as a casino marketing tool. Further, AC
maintains food and beverage pricing structures designed to benefit casino
volumes, often resulting in departmental operating losses, even in periods where
individual restaurants or bars report operating profits. AC seeks to maximize
profits from its hotel operations, however, while maintaining attractive room
rental rates. Gaming revenues represent the net win from gaming wins and losses.
The retail value of accommodations, food and beverage provided to customers
without charge is included in gross revenues and deducted as promotional
allowance. See "Notes to Financial Statements - Arizona Charlie's, Inc. -
Summary of Significant Accounting Policies." The estimated costs of providing
such promotional allowances have been classified as gaming expenses through
interdepartmental allocations as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hotel ......... $ 349 $ 261 $ 164
Food & Beverage 4,094 3,824 2,260
----- ----- -----
$4,443 $4,085 $2,424
====== ====== ======
</TABLE>
On November 18, 1993, AC issued $55,000,000 in principal amount of 12%
First Mortgage Notes due November 15, 2000 (the "AC Notes"), which resulted in
net proceeds of approximately $51,100,000. The AC Notes are currently in
default. See "Item 1. Business - Capitol Queen & Casino, Inc. - Claims by
Trustee". A portion of the net proceeds was used to retire approximately
$16,900,000 in bank debt plus accrued interest of $500,000. The balance of
approximately $33,700,000 was initially deposited into a restricted escrow
account and subsequently was used to fund the expansion and enhancement of
Arizona Charlie's (the "Expansion") through the addition of new casino space,
hotel rooms, specialty restaurants and banquet/meeting room facilities, and the
expansion of existing restaurants, entertainment and other facilities. See
"Notes to Financial Statements - Arizona Charlie's, Inc. - Long-Term Debt." AC
commenced construction of the Expansion in January 1994. The Expansion was
completed in February 1995 at an under-budget cost of approximately $35,632,000.
Concurrent with the private placement of the AC Notes, Capitol Queen &
Casino, Inc., a sister company, issued $40,000,000 in principal amount of 12%
First Mortgage Notes due November 15, 2000, $20,000,000 in principal of which
currently remain outstanding (the "CQC Notes"). AC has issued a limited guaranty
in respect to the payment of all principal of and interest on the CQC Notes, the
amount and extent of which are currently in dispute. See "Item 1. Business -
Capitol Queen & Casino, Inc. - Claims by Trustee". CQC currently does not have
any means to pay amounts owing on the CQC Notes which are in default. See
"Liquidity and Capital Resources". AC, which now operates as a "C" corporation,
was operated as an "S" corporation through December 31, 1993. See "Notes to
Financial Statements -
Arizona Charlie's Inc. - Summary of Significant Accounting Policies - Income
Taxes." In anticipation of the termination of S corporation status, in December
1993, AC distributed to its stockholders an aggregate of $5,000,000 of retained
earnings on which the stockholders had previously paid federal income taxes.
This amount was loaned back to AC in full in exchange for subordinated
stockholder notes in the principal amount of such distributions, which AC
stockholder notes bear interest payable monthly at the annual rate of 10.0% and
mature in January 2001. See "Notes to Financial Statements - Arizona Charlie's,
Inc. Related Party Transactions."
<TABLE>
Results of Operations
<CAPTION>
Years Ended June 30,
(dollars in thousands)
1997 1996 1995
---- ---- ----
<S> .............................. <C> <C> <C>
Revenues:
Gaming ........................ $ 47,857 $ 52,831 $ 47,466
Food/beverage ................. 13,583 13,401 10,877
Hotel ......................... 3,352 3,208 2,614
Gift Shop ..................... 553 590 577
Other (1) ..................... 923 948 682
Gross revenues ................... 66,268 70,978 62,216
Less, promotional allowances (2) . (8,184) (7,677) (5,134)
Net revenues .................. 58,084 63,301 57,082
Total operating expenses ...... 58,425 61,102 56,024
Total operating income (loss).. $ (341) $ 2,199 $ 1,058
- ----------
<FN>
(1) Includes primarily revenues from entertainment cover charges, PBX
operations (hotel switchboard and room telephone system) and commissions on
automated teller machines located in the casino.
(2) Amounts represent the retail value of rooms, food, beverage and other
promotional allowances provided to customers without charge.
</FN>
</TABLE>
Comparison of fiscal years ended June 30, 1997, 1996 and 1995. Despite a
reduction in operating expenses, results from operations for fiscal 1997 were
lower than the prior year as a result of decreased gaming revenues caused
primarily by lesser patron play at the gaming machines. Results from operations
for fiscal 1996 were higher than fiscal 1995 due to increased revenues
reflecting a full year of operations with the expanded casino-hotel facilities.
The Expansion added new gaming machines and table games, an expanded race and
sports book, a new hotel tower, a remodeled coffee shop, two new specialty
restaurants and a new delicatessen, an expanded buffet room, a remodeled floor-
level entertainment lounge and new second-floor showroom/banquet facility.
Net revenues at AC for fiscal years 1997, 1996 and 1995 were $58,084,000,
$63,301,000 and $57,082,000 respectively. Operating expenses for these same
fiscal periods were $58,425,000, $61,102,000 and $56,024,000. As such, the
operating loss for fiscal 1997 was $341,000, with a corresponding negative net
operating margin of 0.6%. Operating income for fiscal 1996 and fiscal 1995 was
$2,199,000 and $1,058,000, respectively, resulting in operating margins for such
years of 3.5% and 1.9%. For fiscal 1997, the decrease in revenues and resulting
decline in operating margin, despite decreases in operating expenses, is due to
decreased gaming revenues reflecting lesser patron play. The increase in
operating expenses and resulting decline in operating margin for fiscal 1996
resulted principally from increased gaming department expense, amounting to
$3,253,000, costs attributable to CQC in the amount of $601,000, and the
addition of staff personnel, equipment and related operating expenses
transferred to AC.
For fiscal 1997, AC had total gaming revenues of $47,857,000, as compared
to $52,831,000 and $47,466,000 for fiscal 1996 and 1995, respectively. The
decrease of 9.4% in fiscal 1997 is primarily attributed to gaming machine
revenues which decreased $3,426,000, or 7.7% from $44,612,000 for fiscal 1996 to
$41,186,000 for fiscal 1997, reflecting lesser play from patrons. In addition,
table game revenues decreased $281,000 or 5.8%. Other gaming revenues,
consisting of revenues from bingo, poker and race and sports decreased by
$1,267,000 for fiscal 1997 largely due to race and sports book revenues which
decreased $548,000 or 18.6% from $2,957,000 to $2,408,000 reflecting lesser
pari-mutuel horse race play from patrons. Such decrease is a result of fewer
televised races arising from a dispute over increased fees that began in
November 1996, between the Nevada Pari-Mutuel Association and both the
Thoroughbred Owners of California and the California Horse Racing Board who
provide and authorize televised disseminator services to Race & Sports books in
Nevada. Such dispute was eventually resolved and AC was able to resume
pari-mutuel horse race wagering beginning in August 1997. The increase in gaming
revenues of 11.3% for fiscal 1996 is primarily attributable to increases in
gaming machine revenues of 11.1% to $44,612,000 from $40,140,000 for fiscal
1995. The increase in gaming revenues for fiscal 1996 is primarily the result of
increased levels of play by patrons in response to additional slot promotional
events. Other gaming revenues for fiscal 1996 increased by 34.0% to $3,346,000
primarily as a result of the added pari-mutuel race facilities and increased
sports book revenues from the expanded race and sports facilities. For fiscal
1997, 1996 and 1995, 86.1%, 84.4% and 84.6%, respectively, of gaming revenues
were attributable to gaming machine play, compared to 9.6%, 9.2% and 10.2%,
respectively, attributable to table games and 4.3%, 6.4% and 5.2%, respectively,
attributable to other gaming revenues.
Food and beverage revenues increased 1.4% to $13,583,000 for fiscal 1997,
after increasing 23.2% to $13,401,000 for fiscal 1996 from $10,877,000 for
fiscal 1995. The fiscal 1997 and fiscal 1996 increases are due to increased
complimentary sales in the food and beverage department. Such sales are included
in revenues at retail value and are then deducted as a promotional allowance.
Increased complimentary sales in food and beverage departments are the result of
casino promotion and marketing efforts designed to attract, reward and retain
qualified patrons.
Hotel revenues increased to $3,352,000 for fiscal 1997, from $3,208,000 and
$2,614,000 for fiscal 1996 and 1995, respectively. The 4.5% and 22.7% increases
for fiscal 1997 and fiscal 1996, respectively, are the result of a slight
decrease in average occupancy rate from 86.9 % to 86.1% in fiscal 1997 and an
increase from 84.3% to 86.9% in fiscal 1996 combined with a larger increase in
the average room rate from $39.81 to $43.00 in fiscal 1997 and $37.27 to $39.81
in fiscal 1996.
Gift shop revenues decreased 6.3% to $553,000 in fiscal 1997 due to a
lesser number of patrons in the hotel/casino facility. Gift shop revenues
increased 2.3% to $590,000 in fiscal 1996 due primarily to the remodeling and
expansion of the gift shop area, which was re-opened in January 1995. Other
revenues decreased $25,000 or 2.6% during fiscal 1997 as a result of fewer
banquets and entertainment events including musical concerts and boxing events.
Other revenues increased $266,000 or 39.0% during fiscal 1996 as a result of
increases in entertainment cover charge revenues attributable to the addition of
a new showroom facility that opened in December 1994.
Gaming expenses decreased $1,383,000 or 7.4% to $17,229,000 for fiscal
1997 primarily due to management and staff reductions in the slot and table
games departments and fewer slot department promotions. Gaming expenses
increased by 21.2% to $18,612,000 for fiscal 1996. The increased expense
includes higher slot promotional expense of $638,000; higher gaming tax and
license fees of $406,000; increased salary and wages of $468,000 and the
additional expense of a newly created casino marketing department totaling
$479,000, all associated with the expansion of gaming facilities in 1995. Gaming
expenses represented 36.0%, 35.2% and 32.4% of gaming revenues for fiscal 1997,
1996 and 1995, respectively.
Food and beverage expenses decreased 1.4% to $12,337,000 for fiscal 1997
due to staff reductions in both the food and beverage departments. Food and
beverage expenses increased 9.9% to $12,511,000 for fiscal 1996 from $11,388,000
for fiscal 1995 due to salary and wage increases associated with increasing the
hours of operation at one specialty restaurant and normal salary and wage
increases for food and beverage employees.
Hotel expenses decreased 1.6% to $1,390,000 for fiscal 1997 as a result of
the staff reductions of room and laundry attendants, front desk personnel and
reservation clerks. Hotel expenses increased 2.6% to $1,413,000 for fiscal 1996
from $1,377,000 for fiscal 1995 as a result of normal salary and wage increases.
Net contribution by the hotel department (hotel revenues less hotel operating
expenses) improved to $1,962,000 for fiscal 1997 from $1,795,000 for fiscal 1996
and $1,237,000 for fiscal 1995.
Gift shop expenses increased by 9.3% to $519,000 for fiscal 1997 and 5.6%
to $475,000 for fiscal 1996 due to increased costs of inventory items in the
gift shop, combined with normal salary and wage increases.
General and administrative expenses decreased $197,000 or 1.1% to
$17,463,000 for fiscal 1997 resulting from staff reductions in the security,
entertainment and internal maintenance departments during the last quarter of
the fiscal year and a reduction in expense associated with the operation of a
jet airplane which was sold in July, 1996. General and administrative expenses
increased by 15.0% to $17,660,000 for fiscal 1996 from $15,358,000 for fiscal
1995. The increases resulted from additional staffing in the accounting,
payroll, personnel and technical services departments and the transfer of
executive personnel (and related departmental costs) in March 1995 to AC from
BGI. Other expenses transferred from BGI to AC include maintenance and other
operating expenses associated with an airplane and two boats. Other general and
administrative expenses included payments made on behalf of CQC in the amount of
$220,000 for fiscal 1997 and $601,000 for fiscal 1996 and $1,592,000 for fiscal
1995 for insurance, maintenance and interest payments made on the CQC bonds. AC
accrued management fees payable to BGI of $664,000, $1,396,000 and $3,099,000
for fiscal 1997, 1996 and 1995, respectively. Due to a decision to suspend
development of CQC's riverboat casino project and sell its assets, the majority
of BGI's management and administrative services are anticipated to benefit AC in
the future. Accordingly, in late March 1995, BGI transferred approximately 40
employees involved in accounting and administrative functions from BGI to AC. In
connection with this transfer, in October 1995, BGI temporarily reduced the
amount of AC's management fee to 1.0% of AC's gross revenues (previously 5.0% of
gross revenues) based on the reduction in services it will receive from BGI in
the future. (See Note 9 of AC's Notes to Financial Statements). As a percentage
of net revenues, general and administrative expenses were 30.1%, 27.9% and 26.9%
for fiscal 1997, 1996 and 1995, respectively.
Advertising and promotion expenses increased $87,000 or 1.8% to $4,813,000
due to additional newspaper advertising associated with the computerized slot
club and player tracking system purchased and installed in May, 1997.
Advertising and promotion expenses were $4,726,000 for fiscal 1996, as compared
to $3,837,000 for fiscal 1995. The increase of $889,000, or 23.1% is due to
additional television advertising of $466,000, new casino related promotions of
$166,000, and salary and wage increases of $116,000. The additional advertising
and promotions were conducted in an effort to increase casino patronage and
compete with other "local" casinos opened in western Las Vegas in fiscal 1995,
including Texas Station and the Fiesta. Management anticipates that it will need
to maintain advertising expenditures at the 1997 level in order to continue
attracting customers and to promote entertainment events and the restaurant
facilities in its expanded facilities.
Depreciation and amortization expense increased by 2.2% to $3,568,000 for
fiscal 1997. Also, depreciation and amortization expense increased by 3.5% to
$3,491,000 for fiscal 1996 from $3,373,000 for fiscal 1995. These increases are
attributable to additional depreciation expense associated with the newer
expansion assets.
AC had other expenses (net of other income) of $6,804,000 for fiscal 1997
compared to $6,758,000 and $5,994,000 for fiscal years 1996 and 1995. The fiscal
1997 increase is due to additional interest expense of $180,000 on the SC notes
and the financing of the computerized slot club and player tracking system and a
decrease in interest income of $14,000 offset by an increase in other income,
primarily a gain on sale of assets of $129,000. The fiscal 1996 increase of
$764,000 is due to a reduction of capitalized interest in the amount of
$676,000, a decrease of interest income of $294,000 partially offset by a
decrease of interest expense in the amount of $155,000 and a increase in other
income of $51,000.
Income Taxes
As a result of the termination of its election to be treated as an S
corporation, AC is liable (as part of the BGI consolidated group) for income
taxes on income earned from and after January 1, 1994. Prior to such
termination, AC did not incur or pay income taxes but distributed cash to its
stockholders in amounts sufficient to pay their income tax liability in respect
to income of AC. See "Notes to Financial Statements - Arizona Charlie's, Inc. -
Summary of Significant Accounting Policies - Income Taxes; - Related Party
Transactions." Since terminating its S corporation status, AC generated a net
operating loss for income tax purposes of approximately $17,165,000. Due to low
operating margins and high interest and depreciation costs, management does not
anticipate that AC will generate taxable income in the foreseeable future.
<TABLE>
Liquidity and Capital Resources
<CAPTION>
As of or for the years ended June 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents ........... $ 5,481 $ 4,591 $ 5,404
Working capital (deficit) (1) ....... (62,380) (58,530) 2,920
Cash provided by operating activities 1,200 1,639 2,772
Cash used for investing activities .. (1,003) (2,240) (3,401)
Cash provided by (used for)
financing activities .............. 693 (212) 2,019
- ----------
<FN>
(1) At June 30, 1997 and 1996, the AC Notes are reflected as a current
liability in the amount of $55,000 due to default under Covenants.
</FN>
</TABLE>
For fiscal 1997, cash provided by operating activities decreased $439,000
to $1,200,000 from $1,639,000 in fiscal 1996. The 26.8% decrease is the result
of a higher net loss, a decrease in accounts payable and an increase in
management fees, partially offset by a significant increase in accrued expenses,
which consists primarily of $3,300,000 in accrued interest on the AC Notes, that
was due on May 15, 1997. For fiscal 1996, cash provided by operating activities
decreased to $1,639,000 from $2,772,000 for fiscal 1995. The decrease is
attributable to a reduction in net income, prior to consideration of management
fees and other non-cash items, and changes in operating assets and operating
liabilities.
For fiscal 1997, cash flows used in investing activities was $1,003,000,
down from $2,240,000 in 1996. The decrease was due to a small increase in BGI
receivables compared to the prior year, partially offset by an increase in
capital expenditures. Cash flows used in investing activities for fiscal 1996
were $2,240,000 compared to $3,401,000 for fiscal 1995. The decrease is due to
(i) a reduction in cash advances to BGI resulting in decreased receivables from
BGI of $4,154,000, (ii) a reduction in notes issued to CQC of $1,200,000, and
(iii) a reduction in capital expenditures of $24,063,000 (reflecting the
completion of the majority of the construction of the expanded facility in
fiscal 1995), partially offset by a $26,102,000 net reduction in restricted cash
which was utilized for the expansion in fiscal 1995). Cash flows from investing
and financing activities for fiscal 1995 were significantly impacted by the
November 1993 issuance of the AC Notes.
Cash flows provided by financing activities increased in fiscal 1997 to
$693,000 from ($212,000) in fiscal 1996, as a direct result of additional loans
from related parties in the amount of $900,000. Cash flows provided by financing
activities for fiscal 1996 decreased to ($212,000) from $2,019,000 for fiscal
1995. The decrease is due to a reduction of proceeds from borrowing, marginally
offset by a decrease in principal payments on notes and an increase in payments
under capital lease obligations.
AC is currently in default under the Indenture governing the AC Notes
because it has not made its required semi-annual interest payment in the amount
of $3,300,000 due on May 15, 1997 and has neither maintained the required
minimum level of consolidated tangible net worth nor offered to repurchase a
portion of the AC Notes as required if such minimum level of consolidated
tangible net worth is not maintained. In addition, AC has failed to maintain the
minimum consolidated fixed charge coverage ratio required under the Indenture
and has advanced funds to BGI in excess of the amounts permitted to be so
advanced under the Indenture. Also, AC incurred new notes payable (in the amount
of approximately $1,748,000) for the purchase of an on-line reporting and player
club system in excess of the $1,000,000 allowed. See "Item 1. Business - Capitol
Queen & Casino, Inc. Claims by Trustee".
The AC Notes are reflected as a current liability at June 30, 1997 and
1996 as a result of the above default. AC's long-term obligations, approximately
$6,313,000 at June 30, 1997, consist of the stockholder notes and capitalized
equipment notes and leases. AC has annual interest expense aggregating
$6,600,000 and $500,000 with respect to the AC Notes and the stockholder notes,
respectively. Beginning May 1, 1997 the stockholders have voluntarily postponed
the receipt of interest payments on the AC Notes. As of June 30, 1997, unpaid
interest on the AC Notes and the stockholder notes amount to $3,300,000 and
$85,000, respectively. In addition, AC is expected to have future annual capital
expenditure requirements of approximately $1,000,000.
AC has a contingent obligation resulting from a limited guaranty issued by
it on the CQC Notes, an aggregate of $20,000,000 in principal amount of which
remain outstanding. The amount and extent of such guaranty are in dispute. See
"Item 1. Business - Capitol Queen & Casino, Inc. - Claims by Trustee" As a
result of a September 1994 ruling of the Missouri Gaming Commission denying
CQC's gaming license application, CQC has adopted a plan to sell its assets for
the purpose of repaying, to the extent possible, the outstanding CQC Notes and
accrued interest thereon. See "Business - Capitol Queen & Casino, Inc." There
can be no assurance that CQC will be successful in its efforts to sell its
assets or, that if a sale is effected, the proceeds will be sufficient to fully
or substantially repay the CQC Notes and accrued interest thereon. To the extent
any funds CQC may realize from the sale of its assets are not sufficient to
repay the CQC Notes and accrued interest thereon, AC may be obligated under the
AC Limited Guaranty of the CQC Notes to fund the a portion of shortfall.
Moreover, because it has failed to pay interest due on the Notes and it
has not yet effected the sale of its assets, CQC is in default of the CQC Notes.
CQC is not able to pay the outstanding CQC Notes without an infusion of capital,
which is not expected to be available. If AC is obligated under the AC Limited
Guaranty to pay a portion of the CQC Notes it is not expected to have the
resources to satisfy such obligation should it materialize. If the AC Notes and
the CQC Notes are accelerated, substantial doubt exists about AC's ability to
continue as a going concern. See "Notes to Financial Statements - Arizona
Charlie's, Inc. - CQC Gaming License, Default Under Indebtedness Management's
Plans, and Going Concern".
AC's ability to obtain capital, is significantly restricted under the
Indentures governing the AC Notes and the CQC Notes. The ability of AC to
service its debt obligations (and to comply with the consolidated tangible net
worth covenant) will be dependent upon its future performance, which performance
will be influenced by prevailing economic conditions and financial, business and
competitive factors, many of which are beyond AC's control.
Competitive Environment
Various forms of casino-style gaming have been legalized in numerous new
jurisdictions within the past few years, including casino riverboats,
limited-stakes frontier town gambling, full-scale casinos on Indian
reservations, card rooms and video lottery terminals, which resemble AC's gaming
machines. In addition, several major casino-hotels were completed and opened in
Las Vegas in the past year, continuing the transformation of Las Vegas into an
entertainment destination offering much more than gaming. Management expects the
legalization of gaming to continue to spread and that Las Vegas will continue to
experience at least limited expansion. See "Item 1. Business - Market and
Competition."
In fiscal 1997, casino revenues at Arizona Charlie's (and for Las Vegas
generally) have declined. Lesser play from patrons at AC are the result of
increased competition from surrounding hotels/casinos that appeal to AC's
"local" patron. However, management believes that AC has and will continue to
benefit from the expansion of the Las Vegas market, which has resulted in
continued growth in the residential population from which AC generates the
majority of its revenues. There can be no assurance, however, that the spread of
legalized gaming, or the construction of new casino-hotels in Las Vegas, will
not have an adverse impact on future revenues.
Inflation
AC believes that its results of operations are not dependent upon, or
materially affected by, the rate of inflation.
Sunset Coin, Inc.
- -----------------
General
SC derives its revenues and profits largely from its gaming machine route
pursuant to participation contracts and, to a lesser extent, space leases. See
"Notes to Financial Statements Sunset Coin, Inc. - Summary of Significant
Accounting Policies Revenue." Under its participation contracts, SC pays a
percentage of the net win (amounts wagered less winnings paid) from its gaming
machines to the site owner. The balance is retained by SC. Under its space
leases, SC pays the site owner a fixed space rental fee and retains all of the
net win. SC's gaming revenues under participation contracts represent SC's share
of the net win after payments to the location, and under space leases represent
all revenues before lease payments, which are treated as expenses. A majority of
SC's gaming machines are installed at locations controlled by the Becker family
and the contracts with such locations are expected to be renewed as a matter of
general course. See "Item 1. Business - Sunset Coin, Inc."
In addition to the operation of its gaming machine route, SC services
gaming machines owned by other operators for fixed service fees. Included among
its service agreement are contracts with each of the five BGG restaurants, which
are expected to be renewed in general course, and one additional location owned
by unrelated parties. See "Item 1. Business - Sunset Coin, Inc." and "Notes to
Financial Statements - Sunset Coin, Inc. - Related Party Transactions."
AC currently has outstanding $55,000,000 of 12% First Mortgages Notes due
2000. SC has issued a limited guaranty with respect to the AC Notes (the "SC
Limited Guaranty"). CQC currently has outstanding $20,000,000 of 12% First
Mortgage Notes due 2000. AC has issued a limited guaranty with respect to the
CQC Notes (the "AC Limited Guaranty"). IBJ Schroder Bank & Trust Company, as
Trustee under the Indenture under which such notes are outstanding has declared
the AC Notes and the CQC Notes to be immediately due and payable. The amount and
extent of SC's guaranty of the AC Notes is in dispute due to certain provisions
of the Indenture under which the AC Notes were issued, as well as certain
provisions of State and/or Federal Law that may be applicable in or with respect
to financial restructuring.
As in the case of AC, SC operated as an S corporation through December 31,
1993. In connection with the termination of S corporation status, SC distributed
$3,000,000 of previously taxed retained earnings to its stockholders. This
amount was loaned back to SC in full in exchange for stockholder notes bearing
interest at the annual rate of 10.0% and maturing in January 2001. The payment
of the SC stockholder notes is subordinated to any payments required to be made
by SC under the SC Limited Guaranty of the AC Notes.
<TABLE>
Results of Operations
<CAPTION>
Years ended June 30,
(dollar in thousands)
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gaming machine route:
Participation contracts ................. $2,481 $2,294 $2,535
Spaces leases ........................... 69 229 75
--- --- --
Total gaming machine revenues .............. 2,550 2,523 2,610
Gaming machine services fees ............... 117 126 132
--- --- ---
Total revenues ............................. $2,667 $2,649 $2,742
====== ====== ======
Operating income:
Gaming machine route:
Slot route and service .................. $1,350 $1,311 $1,112
General and administration............... 51 86 103
Management fees to related parties ...... 140 137 150
Depreciation and amortization............ 288 298 249
--- --- ---
Total operating expenses ................... 1,829 1,832 1,614
--- --- -----
Total operating income ..................... $ 838 $ 817 $1,128
====== ====== ======
</TABLE>
During fiscal 1997, two participation locations were added and one
participation contract was terminated.
Comparison of Fiscal Years Ended June 30, 1997, 1996 and 1995. SC's
results of operations increased for 1997 compared to 1996. Net income before
income taxes increased by 41.2% to $817,000 from $577,000 in fiscal 1996. Such
increase is attributable to four factors: the absence of the $101,000 loss on
sale of Charlie's Saloon assets in fiscal 1996, additional interest income
associated with the new $900,000 note to AC, recoveries of bad debt previously
written-off of $57,000 and lower interest expense from the payoff of four notes
payable in late fiscal 1996. For 1996 compared to 1995, net income declined due
to Charlie's Saloon loss noted above, increased depreciation costs resulting
from additional gaming machine purchases and increased payroll and related
staffing costs needed for additional security personnel.
SC's total revenues increased during fiscal 1997 by 0.7% to $2,667,000.
This slight increase was a result of two participating locations added in 1997
and the conversion of some coin only gaming machines to coin and bill validator
gaming machines. For 1996, the primary reason revenues declined compared to 1995
was the reduction in slot route revenues at locations not controlled by related
parties. Gaming machine service fee revenue decreased 7.1% to $117,000 for
fiscal 1997 from $126,000 in 1996 and 4.5% from $132,000 in 1995 to 1996. The
declines are mainly the resulting loss of 15 gaming machines from the Charlie's
Saloon closing in April, 1996.
The total number of gaming machines operated by SC including BGG machines
in fiscal 1997 were 385 compared to 395 in 1996 and 397 in 1995, the reductions
were due to the closing of participating locations. The total number of gaming
machines from BGG locations that are serviced by SC was 115 for the past two
fiscal years compared to 130 for 1995, reduction due to aforementioned closing
of Charlie's Saloon (BGG Bar). Correspondingly, slot service fees from BGG
decreased to $85,000 from $93,000 for the last fiscal year. Revenues from the
locations controlled by the Becker family increased from $2,370,000 in 1996 to
$2,424,000 in 1997, primarily due to two additional locations and increased
gaming play at other locations.
Gaming machine route expenses increased by 3.0% to $1,350,000 in fiscal
1997 compared to 1996 primarily due to added security personnel plus repair and
maintenance costs, payroll and related staffing costs. For 1996 compared to 1995
the increase of $199,000 (17.9%) was due to the significant increases in
security personnel to offset the added crime rates in Las Vegas. General and
administrative expenses for fiscal 1997 were significantly lower compared to
1996 and 1995 due to the write-off of bad debts in the prior years. Also, the
write-off recoveries in the amount of $57,000 in 1997 was recorded to other
income, resulting in an increase when compared to prior years. Management fees
due to Becker Gaming, Inc. remained relatively unchanged from 1997 to both 1996
and 1995 fiscal years. Depreciation and amortization decreased by 3.4% to
$288,000 for 1997, reflecting decreased depreciation costs associated with the
April, 1996 closing of Charlie's Saloon. SC abandoned furniture, fixtures and
equipment contained in this bar at the time of the closing. In 1996 depreciation
was higher than 1995 due to additional depreciation on new gaming machine
purchases in 1996.
Interest income and other income increased during 1997 due to the
additional $900,000 note to AC and the $57,000 write-off recovery. The $115,000
loss on sale of assets in 1996 was mainly due to the closing of Charlie's
Saloon. Interest expense declined by 8.0% in 1997 attributable to reduced
interest expense resulting from four notes paid-off in the fourth quarter of
fiscal 1996.
Income Taxes
As a result of the termination of its election to be treated as an S
corporation, SC is liable (as part of the BGI consolidated group) for income
taxes on income earned from and after January 1, 1994. Prior to such
termination, SC did not incur or pay income taxes but distributed cash to its
stockholders in amounts sufficient to pay their income tax liability in respect
of income of SC. See "Item 13. Certain Relationships and Related Transactions"
and "Notes to Financial Statements - Sunset Coin, Inc. - Summary of Significant
Accounting Policies - Income Taxes; - Related Party Transactions." In fiscal
1997 and 1996, no estimated income tax payments were paid. In fiscal 1995, SC
made an estimated income tax payment of $102,000 This payment was based upon an
anticipated effective federal income tax rate approximating the statutory rate
of 34%.
Liquidity and Capital Resources
Cash provided by operating activities remained virtually unchanged at
$1,003,000 in fiscal 1996 to $992,000 in fiscal 1997. For 1996, cash provided by
operating activities declined from $1,138,000 in 1995 to $1,003,000 due to a
lower net income partially offset by a loss on sale of equipment relating to the
abandonment of Charlie's Saloon in April, 1996.
Cash used in investing activities for fiscal 1997 increased from $180,000
in 1996 to $1,074,000 in 1997 due to the increase in related party notes and
advances partially offset by a reduction on capital expenditures. For 1996
compared to 1995 a significant reduction of $2,954,000 or 94% resulted from the
absence of additional related party notes and advances in 1996 and reduced
capital expenditures for gaming machines.
Cash provided by financing activities decreased each year from $562,000 in
fiscal 1995 and $(207,000) in 1996 to $(333,000) in fiscal 1997 due to the
reduction of proceeds of additional notes and recurring payments toward existing
notes in the 1997 and 1996 fiscal years.
SC's indebtedness includes the stockholder notes and notes collateralized
by its gaming equipment and other assets. The collateralized notes bear interest
at annual rates of approximately 10.89%, in the case of fixed rate loans, or at
prime plus 1.5% in the case of a collateralized line of credit, the outstanding
aggregate balance of which was converted to a note at July 1, 1994, with monthly
payments through June 1998. SC requested advances through October 28, 1995, at
which time the Company's right to receive advances under the agreement was
terminated. The $1.5 million non-revolving line of credit includes an
acceleration clause which would cause the full amount of the obligation to
become due on demand if a material adverse change occurs in the borrower's
financial condition, business operations or ownership or management.
In July 1994, SC entered into an agreement with a bank for a $1,200,000
non-revolving line of credit. Each advance under the line shall be evidenced by
a separate promissory note with a maturity date not exceeding 66 months from the
date of the respective advance giving rise to the note. During fiscal 1995, SC
drew down an aggregate of $738,000 and in fiscal 1996, an aggregate of $109,000
of the non-revolving line of credit with various monthly payments through April
2001. Advances under the agreement bear interest at the bank's prime rate plus
1.5% to 2.0%. SC's management believes that it has sufficient funds through cash
generated by operations to meet its projected needs for existing operations and
limited expansion of its gaming machine route business. Should SC determine to
expand on more than a limited basis, it is likely that further capital would be
necessary. SC's access to additional capital will be significantly restricted
under the AC Indenture so long as SC is a guarantor of the AC Notes. Such
guaranty, although limited, will be released upon AC's achievement of a fixed
charge coverage ratio of 2.25 to 1, which is not currently anticipated to occur.
Because AC is in default under the Indenture governing the AC Notes, the
AC Notes have been accelerated. See "Arizona Charlie's, Inc._Liquidity and
Capital Resources." AC does not have the resources to pay the AC Notes. In
addition, AC may have limited liability under the AC Limited Guaranty of the CQC
Notes which may exceed the amount which it could immediately support or repay.
In either case, SC, as guarantor of the AC Notes, may have liability under the
SC Limited Guaranty, and such liability could exceed the amount which it could
immediately support. Accordingly, substantial doubt exists about SC's ability to
continue as a going concern if the Trustee for the AC Notes and CQC Notes is
able to enforce its acceleration thereof. See "Notes to Financial Statements -
Sunset Coin, Inc. - Guarantee Obligation, Management's Plans and Going Concern."
Competitive Environment
As SC's gaming machine route contracts reach maturity, SC is required to
compete for renewals with numerous route operators in the Las Vegas area, some
of which are significantly larger and better capitalized and manage
substantially more gaming machines than SC. Although SC's management believes
that the continuing expansion of the Las Vegas gaming market has resulted in
substantial growth of the local residential population, the market in which SC
generates the majority of its route business, there can be no assurance that
increased competition for gaming machine route locations will not have an
adverse impact on the future revenues. In addition, the spread of legalized
gaming into new jurisdictions may also impact the competitive position of SC.
See "Item 1. Business - Sunset Coin, Inc."
Inflation
Management believes that SC's results of operations are not dependent
upon, or materially affected by, the rate of inflation.
Capitol Queen & Casino, Inc.
- ----------------------------
Analysis of Development Stage Activities for the period January 20, 1993
(the date of inception) through June 30, 1997
CQC was organized on January 20, 1993 for the purpose of developing,
constructing, owning and operating the Capitol Queen. Since inception, CQC's
activities have been limited to, in addition to the financing transaction
described below, the acquisition of a land site in Jefferson City, Missouri and
the rights to develop the Capitol Queen thereon, the preparation and prosecution
of applications to become licensed to own and operate the Capitol Queen in
Missouri and for all other required permits and approvals, the preparation of
preliminary design plans, drawings and budgets for the project, construction of
a riverboat vessel and other pre-opening development activities. As of August
1994, CQC suspended the development of the Capitol Queen, other than completion
of the riverboat. As a result of a September 28, 1994 ruling by the Missouri
Gaming Commission denying CQC's license application, CQC subsequently terminated
the Capitol Queen project and is currently marketing its assets for sale. Such
assets include its riverboat and the Jefferson City land site.
As of January 1, 1995, the CQC Indenture was amended to (i) eliminate
CQC's obligation to construct and open the Capitol Queen and (ii) permit a
two-step purchase of the CQC Notes at 101% of principal plus accrued and unpaid
interest with funds remaining in the project escrow account and the net proceeds
from a sale of assets. The repurchase of $20,000,000 principal amount of the CQC
Notes (plus accrued and unpaid interest thereon) was completed on January 17,
1995 with funds from the project escrow account at a total cost of $20,200,000.
CQC incurred an extraordinary loss of approximately $4,089,000 in 1995,
reflecting the premium paid to retire the debt of $200,000 and the write-off of
related, unamortized debt issue costs and original issue discount in the
aggregate of $3,889,000. At June 30, 1997, approximately $31,000 remained in the
escrow account and an aggregate of $20,000,000 principal amount of the CQC Notes
remained outstanding. However, the dates by which CQC previously agreed with the
holders of the CQC Notes to effect the sale of its assets and repurchase the
remaining CQC Notes have passed.
The CQC Notes outstanding require annual interest payments of $2,400,000,
payable in equal installments semi-annually on May 15 and November 15. CQC was
not able to make its scheduled interest payments of $1,200,000 on each of
November 15, 1995, May 15, 1996, November 15, 1996 and May 15, 1997. Further, AC
does not have available funds to advance on behalf of CQC. See "Item 1. Business
- - Capitol Queen & Casino, Inc. - Claims by Trustee".
During the period from inception through June 30, 1997, CQC had total
operating expenses of $13,891,000 consisting primarily of an abandonment loss of
$6,034,000 arising from the denial of the company's license application and
management's subsequent decision to terminate the Capitol Queen project and sell
its assets. Also, at March, 1996, CQC wrote-down the cost of the riverboat
assets to their net realizable value based on estimates provided by a
shipbuilder and marine brokers which resulted in an additional abandonment loss
of $4,392,000 in the 1996 fiscal year. Also included in operating expenses are
amortization expense of $1,474,000 associated with debt issue costs and
$1,991,000 of project development costs. For the same period, CQC incurred
$14,566,000 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 $1,266,000 for the period from
inception to June 30, 1997.
Liquidity and Capital Resources
For the period from inception through June 30, 1997, net cash used in
development stage activities was $5,245,000. Cash flows used in investing
activities for the period was $13,921,000 which included $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson City land site. At June 30, 1997, CQC had expended a total of
approximately $21,680,000 on the development and construction of the Capitol
Queen project including on-going maintenance and insurance costs.
CQC's obligations consist of the $20,000,000 in principal amount of the
outstanding CQC Notes and past due interest thereon of $5,646,000 at June 30,
1997, which includes amounts accrued on unpaid interest. There can be no
assurance that CQC, will be successful in its efforts to sell its assets or,
that if a sale is effected, the proceeds will be sufficient to fully or
substantially repay the CQC Notes and accrued interest thereon. Additionally, on
July 3, 1997 CQC received a notice of acceleration from the trustee of the CQC
Notes. Moreover, CQC, because it has not paid certain interest due on its Notes
and has not yet effected the sale of its assets, is in default of the CQC
Indenture. As a result of the above items the CQC Notes have been classified as
a current liability as of June 30, 1997 and 1996. See "Item 1. Business -
Capitol Queen & Casino, Inc. Claims by Trustee".
Item 8. Financial Statements and Supplementary Data
The Index to Financial Statements and Schedules appear at pages F-1 and
F-2 hereof, the Report of Registrant's Independent Accountants appears at page
F-3 hereof, and the Consolidated Financial Statements and Notes to Consolidated
Financial Statements of the Registrant appear at page F-4 through F-33 hereof.
The Financial Statements and Notes to Financial Statements for AC, SC and CQC
appear at page F-35 through F-93 hereof.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with
respect to the directors and executive officers of BGI and each
of its subsidiaries.
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C>
Bruce F. Becker 46 Chairman, President, Chief Executive
Officer of BGI and each subsidiary,
Treasurer and Secretary of BGI,
Treasurer and Vice-President of CQC
and Sole Officer and Director of
Innerout, Inc.
Barry W. Becker 52 Assistant Secretary and Director of
BGI, Secretary and Director of each
Nevada subsidiary, other than
Innerout, Inc. and Secretary of CQC
Ron Lurie 56 Director of Corporate Development of
BGI, General Manager of SC and
Director of Marketing of AC
Jerry Griffis 41 Chief Financial Officer of BGI and
Controller of each subsidiary
Gerald Heetland 57 General Counsel of BGI and each
subsidiary
Ernest A. Becker III 78 Director of BGI and each Nevada
subsidiary and Treasurer of each Nevada
subsidiary, other than Innerout, Inc.
Ernest A. Becker IV 54 Director of BGI and Vice President
and Director of each Nevada
subsidiary, other than Innerout, Inc.
W. Bucky Howard 59 General Manager of Arizona Charlie's,
Inc. and Becker Gaming Group and
Director of International Operations
of Becker Gaming, Inc.
Paul Tomba 49 Food and Beverage Director of AC and
BGG
Debra Pingul 39 Director of Personnel of each Nevada
subsidiary
Doug Hardesty 45 Director of Technical Services of
each Nevada subsidiary
</TABLE>
Bruce F. Becker has served as Chairman of the Board of Directors,
President, Chief Executive Officer and Treasurer of BGI since its inception in
July 1993 and as Secretary since November 1993. He has served each of the Nevada
subsidiaries as President and Chief Executive Officer since July 1989. Mr.
Becker has also been a director and Chairman of AC since its inception in July
1984 and Chairman of the Board of Directors of SC and BGG since their inceptions
in 1980 and 1986, respectively. He is the Chairman, President and Chief
Executive Officer of CQC, and the Sole Officer and Director of Innerout, Inc.
Mr. Becker also sits on the Board of Directors of the Nevada Resort Association.
Barry W. Becker has served as Assistant Secretary of BGI since November
1993, and as Secretary of BGI from its inception until November 1993. He has
served each Nevada subsidiary (other than Innerout, Inc.) as a Director since
its respective inception and as Secretary since July 1989. Mr. Becker is also
the Sales Manager for Becker Enterprises, a Becker family-owned company that
purchases, sells and leases residential and commercial property. He is a past
president of the Southern Nevada Builders Association and serves the community
as a member on the boards of directors of the Rotary Club, Las Vegas Chamber of
Commerce, Boys Club of Clark County and the Boy Scouts of America. Mr. Becker
was appointed by the then Governor of the State of Nevada to the State
Environment Commission and was an Environmental Commissions Representative on
the State Multiple Use Advisory Land Committee.
Ron Lurie has served as the General Manager of Sunset Coin, Inc. since
November 1990. He has also served as Director of Marketing of Arizona Charlie's,
Inc. since February of 1995 and Director of Corporate Development of BGI since
inception. He has been involved with the gaming industry since 1978, serving in
several capacities prior to being employed by Sunset Coin, Inc., including Sales
Manager for International Game Technology and regional Sales Director for Sigma
Games. In addition to Mr. Lurie's fourteen years in the gaming industry, he also
served fourteen years as a Las Vegas City Councilman and four years as the Mayor
of Las Vegas.
Jerry Griffis has served as Chief Financial Officer of BGI and Controller
of CQC since their respective dates of inception, and as Controller of the
Nevada subsidiaries since February 1989. Prior to joining the Nevada
subsidiaries, Mr. Griffis was employed as a Certified Public Accountant. Prior
thereto, Mr. Griffis acted as Assistant Controller for the Silver Slipper Casino
from 1981 to 1983 and the Frontier Hotel & Casino from 1979 to 1981. Mr. Griffis
is a CPA and a member of the Nevada Society of CPA's and the American Institute
of Certified Public Accountants.
Gerald Heetland has 30 years of corporate legal and business experience,
with over 15 years in the gaming industry. He has served as General Counsel of
Becker Gaming, Inc. and subsidiaries since January 1997. Prior to joining Becker
Gaming, Inc., he served as Vice President, General Counsel and Secretary of
Fitzgeralds Gaming Corporation and its subsidiaries for over 5 years and as Vice
President, General Counsel and Secretary Counsel of Del Webb Hotels and Casinos
for 8 years, starting at the positions of Associate General Counsel and
Assistant Secretary of Del Webb Corporation in Phoenix, Arizona in 1981 and
relocating to Las Vegas, Nevada in May 1986.
Ernest A. Becker III is a director of BGI and has served each of the
Nevada subsidiaries (other than Innerout, Inc.) as a Director since its
respective inception and as Treasurer since July 1989. Mr. Becker has been an
active developer of residential, recreational and commercial properties in both
Southern California and Southern Nevada since 1952. Mr. Becker organized the
Charleston Heights Water Company in 1954, which paved the way for the growth of
the northwestern area of Las Vegas. He is a past president and Life Director of
the National Association of Home Builders.
Ernest A. Becker IV is a director of BGI and has served each of the Nevada
subsidiaries (other than Innerout, Inc.) as a Director since its respective
inception and as Vice President since July 1989. He currently operates Becker
Built, a construction company owned by the Becker family. Mr. Becker has served
as a Director of the Southern Nevada Home Builders Association for the past
fourteen years and has held positions with the Fair Housing Task Force,
Development Permit Committee, Community Housing Resource Board and Plumbers
Examining Board for the City of Las Vegas and the Citizens Advisory Council for
Liquor and Gaming Control.
W. Bucky Howard was appointed General manager of Arizona Charlie's, Inc.
and Becker Gaming Group in January, 1997 and has served as Director of
International Operations of Becker Gaming, Inc. since October 1996. Mr. Howard
has been in Resort Gaming over thirty years, and has operational, marketing, and
pre-opening experience in Nevada, New Jersey and Mississippi. Mr. Howard served
the Hilton Corporation for eleven years in various capacities up to Vice
President of Casino Operations in Atlantic City. Mr. Howard also served five
years with the Trump Organization as Vice President Casino Operations, Executive
Vice President of Operations and as President of Trump Taj Mahal. Mr. Howard was
involved in planning, developing, designing, training and implementing all
phases of operations.
Paul Tomba has served AC and BGG as Food and Beverage Director since June
1995. Prior to his employment at Arizona Charlie's, he served as Beverage
Manager for Caesar's Palace and the Golden Nugget Hotel and Casino in Las Vegas.
Mr. Tomba also managed private country clubs in the greater Cleveland area and
has over twenty-six years experience in the food and beverage industry.
Debra Pingul was appointed Director of Personnel of AC in February 1991.
Prior thereto, Ms. Pingul held supervisory positions in human resources with the
Marina Hotel and Casino from 1985 to 1990 and Vacation Village from 1990 to
1991.
Doug Hardesty was appointed Director of Technical Services of each of the
Nevada subsidiaries in April 1991. From March 1988 to April 1991, Mr. Hardesty
served as Operations Officer of AC. Prior thereto, he held managerial positions
with firms engaged in the sale and servicing of systems hardware.
Item 11. Executive Compensation
The following table sets forth the compensation paid by BGI (including its
subsidiaries) for services rendered in all capacities to BGI (and its
subsidiaries) during the fiscal year ended June 30, 1997, with respect to the
Chief Executive Officer of BGI and all other persons who served as executive
officers of BGI during the year ended June 30, 1997 and whose aggregate annual
compensation exceeded $100,000 for such period. No compensation has been paid to
executives by CQC for services rendered during the year ended June 30, 1997.
<TABLE>
Summary Compensation Table
--------------------------
<CAPTION>
Annual Compensation
-------------------
All Other
Name and Position Salary Bonus Compensation
- ----------------- ------ ----- ------------
<S> <C> <C> <C>
Bruce F. Becker, Chief
Executive Officer
and President of
BGI and each subsidiary .... $500,000(1) $ 0 $ 51,520(2)(3)
Ron Lurie, Director-Corporate
Development of BGI, General
Manager of SC and Director
of Marketing of AC ......... $140,539(4) $ 0 $ 1,587(4)
W. Bucky Howard, General
Manager of AC, BGG and
Director of International
Operations at BGI .......... $118,077 $ 0 $ -
Bart Masi, General Manager
of AC and BGG (terminated
January 5, 1997)............ $108,000 $ 0 $ 2,700(3)
Duke Pettit, Director of Slot
Operations (terminated July
17, 1997) $104,030 $ 0 $ 3,641(3)
- ----------
<FN>
(1) Does not include amounts entitled to under employment agreement. Mr. Becker
has voluntarily postponed scheduled salary increases of $100,000 for calendar
year 1995, $200,000 for calendar year 1996 and $300,000 for calendar year 1997.
These salary amounts have been accrued by BGI, but have not yet been paid to Mr.
Becker. All of Mr.Becker's compensation is paid by BGI.
(2) Includes $49,338 paid by BGI during the fiscal year ended June 30, 1997 in
premiums on life insurance held by Bruce F. Becker for the benefit of a family
trust administered by Mr. Becker. Such life insurance, which has an aggregate
death benefit of $5,076,376, has been collateral assigned to BGI such that upon
the death of Mr. Becker, BGI shall be refunded all premiums previously paid by
it under the policy before the distribution of benefits to the named
beneficiary.
(3) BGI and each Nevada Subsidiary has adopted a 401(k) defined contribution
plan covering substantially all of its employees. Eligible employees may
contributed up to 6% of their annual compensation to the plan, up to certain
limits prescribed by the Internal Revenue Service. BGI and the Nevada subsidiary
have each agreed to contribute an amount equal to 25% of each employee's
contribution, up to an amount equal to 2% of each employee's compensation.
Employees may contribute an additional 4% to the Plan which is not matched by
BGI or Nevada subsidiary.
(4) Mr. Lurie's compensation is paid by SC. However, 50% of such compensation is
reimbursed to SC from AC.
</FN>
</TABLE>
Compensation of Directors
The directors of BGI may receive $2,000 for each meeting of the Board of
Directors attended. The directors of the Operating Companies do not receive any
compensation for serving in such capacities.
Employment Agreement
In May 1994, BGI entered into a seven-year employment agreement with Bruce
F. Becker in his capacities as Chief Executive Officer and President. Under the
employment agreement, Mr. Becker is required to devote all of his business time
to the affairs of BGI and its affiliated companies. The agreement provides for
an annual base salary of $800,000 per year during calendar year 1997, increasing
by $100,000 each calendar year thereafter through December 31, 2001. However,
for the third consecutive year, Mr. Becker has elected to postpone his scheduled
annual salary increase. These deferred salary amounts, aggregating $450,000
through June 30, 1997, and have been accrued by BGI, but have not yet been paid
to Mr. Becker. Mr. Becker is also entitled to the use of an automobile and such
bonuses and other benefits as the Board of Directors may award from time to time
in its discretion. In addition, BGI maintains certain life insurance coverage
referred to under Executive Compensation above.
The employment agreement provides that if Mr. Becker's employment is
terminated either (i) by BGI other than for cause or by reason of physical or
mental disability, or (ii) by Mr. Becker for good reason, Mr. Becker will be
entitled to a severance payment equal to four times his then annual base salary
if such termination occurs during the first year of the agreement or three times
his then annual base salary if such termination occurs after the first year of
the agreement. Such severance payment will be payable in a lump sum within
thirty (30) days of termination. Under the agreement, BGI shall have cause to
terminate Mr. Becker if he consistently refuses to substantially perform, or
engages in willful misconduct in the substantial performance of his duties and
obligations under the employment agreement or if he materially breaches the
agreement. Mr. Becker may terminate his employment for good reason if he is
assigned by BGI to a position of lesser or inconsistent authority than that
described in the employment agreement or is required to relocate outside Las
Vegas, or if BGI fails to substantially comply with the employment agreement.
Consulting Agreements
BGI entered into consulting agreements with Ernest A. Becker III, Ernest A.
Becker IV and Barry W. Becker (the "Consultants"). The agreements have
three-year terms which expired on May 31, 1997. The agreements provided for
monthly consulting fees of $12,500, $8,334 and $8,334, respectively. These
agreements were renewed for additional three-year terms, however, beginning June
1, 1997 the Consultants have voluntarily postponed receipt of the monthly
consulting fees. At June 30, 1997, such fees in the total amount of $29,168 have
been accrued by BGI but have not been paid to the Consultants. The agreements
provide for indemnification of the Consultants for claims arising out of their
services to BGI, other than claims arising from gross negligence, willful
malfeasance or fraud. The Consultants are prohibited from competing with BGI or
its affiliates or soliciting for employment any person employed or recently
employed by BGI or its affiliates. Such obligations also apply beyond the
consulting period.
Compensation Committee Interlocks and Insider Participation
None of the board of directors of BGI or its subsidiaries has had or
currently has a compensation committee or other committee performing equivalent
functions. During the fiscal year ended June 30, 1997, Ernest A. Becker, III and
Bruce F. Becker in their capacities as directors of each of the Nevada
subsidiaries participated in deliberations concerning compensation of the
executive officers of such companies.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth as of September 1, 1997 certain information
with respect to beneficial ownership of shares of BGI's Common Stock by (i) each
person known by BGI to be a beneficial owner of more than 5 percent of the
outstanding shares of Common Stock, (ii) each of BGI's directors, (iii) each
executive officer named in the summary compensation Table under the caption
"Executive Compensation" and (iv) all directors and officers as a group.
<TABLE>
<CAPTION>
Name and Address (1) Amount and Nature(2) Percentage of
of Beneficial Owner of Beneficial Ownership Shares Outstanding
- ------------------- ----------------------- ------------------
<S> <C> <C>
Ernest A. Becker, III .... 3,611,134 36.11%
Bruce F. Becker .......... 2,761,275 27.61%
Ernest A. Becker, IV ..... 1,546,831 15.47%
Barry W. Becker .......... 1,546,831 15.47%
Bart Masi ................ 0 0.00%
Bucky Howard ............. 0 0.00%
Duke Pettit .............. 0 0.00%
Ron Lurie ................ 0 0.00%
Charlie's Land Company (3) 533,929 5.34%
All officers and directors
as a group (4) .......... 10,000,000 100.00%
- ----------
<FN>
(1) The address of each of the Becker family members, Charlie's Land Company
and Messrs. Masi, Howard, Pettit and Lurie is 740 South Decatur Boulevard,
Las Vegas, Nevada 89107.
(2) 1BGI believes that the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(3) Charlie's Land Company is a Nevada general partnership owned, by the Becker
family members in the following percentages: Ernest A. Becker, III -
50.11%; Bruce F. Becker - 16.63%; Ernest A. Becker, IV - 16.63% and Barry
W. Becker - 16.63%.
(4) Includes shares owned beneficially by (a) Bruce F. Becker, (b) the other
Becker family members identified above, and (c) Charlie's Land Company,
which is owned by the Becker family as set forth in footnote 3 above.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
Since June 1, 1994, the Company has provided managerial and related
services to its subsidiaries. The Company has entered into a management
agreement with each of the AC, SC and BGG (and CQC, which is not expected to
have any operations) to provide executive and administrative services in
exchange for a management fee equal to 5% of each such company's gross operating
revenues (before deduction of promotional allowances). However, the AC Indenture
will prohibit the payment of management fees by AC until certain conditions have
been satisfied and thereafter in excess of specified amounts. See "Item 1.
Business - Becker Gaming, Inc." The rate at which management fees are to be
payable was determined based on the level of management support to be provided
by the Company to the operating companies, the level of expense anticipated to
be incurred by the Company in connection with such support, and the
gaming-related experience of the persons expected to provide such support on
behalf of Becker Gaming and their familiarity with the operating companies and
their businesses. Accordingly, such fee does not necessarily reflect that which
could be obtained from an unaffiliated party, which could not be expected to
provide the same support or to possess the same gaming-related experience or
familiarity with the operating companies. However, based on its knowledge of
similar management service arrangements entered into by other Las Vegas
casino-hotels, such rate is believed to be at or near the top of the range of
fees customarily paid for such services in such market. Due to the decision to
suspend development of CQC's riverboat casino project and sell its assets, the
majority of BGI's management and administrative services are anticipated to
benefit AC in the future. Accordingly, in late March 1995, BGI transferred
approximately 40 employees involved in accounting and administrative functions
from BGI to AC. These employees were originally employees of AC and were
transferred to the Company in June 1994. In connection with this transfer, in
October 1995, the Company temporarily reduced the amount of AC's management fee
to a net 1.0% of AC's gross revenues (previously 5.0% of gross revenues) based
on the reduction in services it will receive from BGI in the future. Such
temporary reduction remained in place through fiscal 1997 and is not to be
further modified during fiscal 1998. AC, SC and BGG incurred management fees of
$664,000, $140,000 and $518,000, respectively, to the Company in fiscal 1997.
AC has issued a limited guaranty of the payment of principal of and
interest on the CQC Notes. See "Item 1. Business - Capitol Queen & Casino, Inc.
- - Claims by Trustee" Similarly, SC has issued a limited guaranty in connection
with the payment of principal of and interest on the AC Notes.
During fiscal 1997, AC leased office, storage and laundry space from
Charleston Heights Shopping Center ("CHSC"), a partnership owned by the Becker
family. Total lease rental payments (including insurance, tax and common area
maintenance payments) of approximately $222,000 were paid by AC to CHSC in
fiscal 1997. Based on rental rates offered for properties which are similarly
situated and offer comparable features, AC believes that such rental rates were
below comparable market rates.
Each of the Nevada subsidiaries previously operated as a subchapter S
corporation under the federal tax laws. As of December 31, 1993, the S
corporation status of each of the Nevada subsidiaries was terminated. Prior to
the termination of S corporation status, each of the Nevada subsidiaries
distributed to their stockholders undistributed income on which such
stockholders had previously paid federal income taxes equal to $5,000,000, in
the case of AC, $3,000,000, in the case of SC, and $800,000, in the case of BGG.
The amounts distributed were loaned back to such companies in full by the
stockholders. The AC and SC loans are repayable pursuant to subordinated
stockholder notes maturing in 2001 and bearing interest at the rate of 10%
annually, payable monthly. However, beginning May 1, 1997 the stockholders have
voluntary postponed the receipt of interest associated with the AC Notes. The
BGG loans are repayable pursuant to notes maturing in December 1997 and bearing
interest at the rate of 10% annually, payable monthly. In addition, the Nevada
subsidiaries have agreed to distribute to their stockholders cash sufficient to
satisfy the federal income tax obligations of such stockholders resulting from
their ownership interests therein (including taxes payable with respect to
income earned previously) through the date of termination of S corporation
status, subject to limitations imposed under the Indentures. The stockholders
have filed all tax returns for the periods during which the Nevada subsidiaries
operated as S corporations. Accordingly, the exposure of the Nevada subsidiaries
under the tax indemnities will be limited to taxes which may become payable in
the future with respect to periods through 1993 as a result of any audit of a
stockholder return by tax authorities. Such amounts may be material, although
the AC Indenture limits such payments by AC and SC to an aggregate of
$2,250,000.
SC has executed gaming machine service agreements with BGG pursuant to
which SC provides gaming machine maintenance and other services to each BGG bar
and restaurant for a fixed fee. Fees paid by BGG to SC for such services totaled
approximately $85,000 in fiscal 1997. The gaming machine maintenance fees
payable by BGG to SC reflect rates which management believes (based on market
research conducted on an informal basis, from time to time, by SC) are charged
for similar services by other gaming machine service companies operating in the
Las Vegas area.
During 1991, SC purchased the assets of a restaurant/bar facility for
approximately $525,000 for use by BGG. The Company entered into an agreement to
lease (as lessor) the facility to BGG under an agreement which was terminated
when the facility was closed on April 21, 1996 and the worthless improvements
and equipment were abandoned. The liquor license will be transferred to a new
BGG location currently under construction which is expected to open in late
1997.
BGG leases several of its properties from partnerships controlled by the
Becker family members. Cantina Charlie's is leased at current annual rent
(including property taxes) of approximately $121,000, subject to cost of living
increases, pursuant to an agreement scheduled to expire in 1998, unless renewed
by BGG for up to an additional 25 years, however, pending required licensing and
operator approval from Nevada Gaming and Regulating Authorities, Cantina
Charlie's has entered into an agreement to be sold to a prospective non-related
party buyer, subject to the aforementioned requirements and satisfactory escrow
procedures. The Charlie's Lakeside site is held pursuant to a ground lease at
current annual rent (including property taxes) of approximately $39,000, subject
to cost of living increases. The ground lease is scheduled to expire in 2006 but
may be extended by BGG for up to an additional 20 years. BGG operates Charlie's
Bar pursuant to a lease requiring current rental payments (including property
taxes) of approximately $37,000 per year, subject to cost of living increases.
The lease expired in October 1995, and was renewed by BGG for an additional
three years. Charlie's Bar Down Under, a 4,400 square-foot building is leased
for an annual rent of $145,320 payable in equal monthly installments. The lease
term commenced on February 1, 1995 and expires on January 31, 2005, with options
to extend for three additional terms of five years each. Management believes,
based on its experience and knowledge of the commercial leasing market in and
around Las Vegas, that the foregoing leases reflect market terms and rates.
SC purchased and leased to BGG's wholly owned subsidiary the personal
property used at Charlie's Bar Down Under. This lease calls for annual rent of
$94,392 to be paid in equal monthly installments in advance, beginning on April
1, 1995.
The Becker family members have guaranteed the payment of a $126,000 note
payable of SC, various term loans held by SC and a term loan to BGG. The
outstanding principal balances of the SC and BGG term loans were $499,000 and
$828,000, respectively, as of June 30, 1997.
Bruce F. Becker resides in one of Arizona Charlie's suites at a rental
rate of $1,520 per month payable in advance, pursuant to a one-year lease which
commenced January 1, 1995. This lease automatically renews for successive terms
of one-year each unless terminated.
Bruce F. Becker operates a sole proprietorship under the name "Becker
Vending" which places arcade, cigarette, music and other vending machines at
Arizona Charlie's, BGG's restaurants, and several of SC's slot route locations.
AC provides nominal collection and accounting services to Becker Vending in
connection with these machines. None of the Nevada subsidiaries receives or is
expected to receive any rental fee or other payment from Becker Vending in
connection with these arrangements. Becker Vending retains all amounts deposited
in its vending machines. Becker Vending also sells to AC cigarettes, candy and
similar items at wholesale prices for resale in the Arizona Charlie's gift shop.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
The following are filed as part of this Report:
(a)1. Financial Statements
An Index to Financial Statements appears at page F-1 hereof.
(a)2. Financial Statement Schedules
An index to Financial Statement Schedules appears at
page F-2 hereof:
(a)3. Exhibits
<TABLE>
EXHIBIT INDEX
<S> <C>
3.1 Articles of Incorporation of the Company.*
3.2 By-Laws of the Company.*
4.1 Indenture dated November 15, 1993 among Arizona Charlie's, as issuer,
Sunset Coin, as guarantor, and IBJ Schroder Bank & Trust Company
("IBJ"), as trustee, as amended by First Supplemental Indenture dated
January 1, 1995.*
4.2 Indenture dated November 15, 1993 among Capitol Queen, as issuer,
Arizona Charlie's, as guarantor, and IBJ, as trustee, as amended by
First Supplemental Indenture dated January 1, 1995.*
10.1 Form of amended Warrant Agreement among the Company and the
purchasers named therein (the "Purchasers").*
10.2 Fee and Leasehold Deed of Trust, Assignment of Leases and Subleases,
Security Agreement and Fixture Filing dated November 15, 1993 by
Arizona Charlie's and CLC, as grantors, to Land Title of Nevada,
Inc., as trustee, for the benefit of IBJ, as collateral agent.*
10.3 Deed of Trust, Assignment of Leases, Security Agreement and Fixture
Filing dated November 15, 1993 by Capitol Queen, as grantor, to
Charles W. Riley, as trustee, for the benefit of IBJ, as collateral
agent.*
10.4 Form of First Preferred Ship Mortgage Securing an
Indenture between Capitol Queen and IBJ.*
10.5 Form of Security Agreements dated November 15, 1993 between each of
Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*
10.6 Form of Stock Pledge Agreements dated November 15, 1993 between each
of Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*
10.7 Form of Collateral Agency Agreement dated November 15, 1993 among
Arizona Charlie's, CLC and IBJ, as trustee and collateral agent and
between Capitol Queen and IBJ, as trustee and collateral agent.*
10.8 Promissory Notes dated December 24, 1993 made by each of the Beckers
in favor of Arizona Charlie's.*
10.9 Promissory Notes dated December 24, 1993 made by each of the Beckers
in favor of Sunset Coin.*
10.10 Tax Indemnity Agreement dated December 24, 1993 among
Arizona Charlie's, Sunset Coin, Becker Gaming Group
and each of the Beckers.*
10.11 Registration Rights Agreements dated as of May 31, 1994 among the
Company and each of the Beckers.*
10.12 Form of Management Agreements dated as of May 31, 1994 between the
Company and each of Arizona Charlie's, Capitol Queen, Sunset Coin and
Becker
Gaming Group.*
10.13 Form of Tax Allocation Agreements dated as of May 31, 1994 between
the Company and each of Arizona Charlie's, Sunset Coin, Becker Gaming
Group and
Capitol Queen.*
10.14 Form of Consulting Agreements dated as of May 31, 1994 between the
Company and each of Ernest A. Becker, III, Ernest A. Becker, IV and
Barry W.
Becker.*
10.15 Employment Agreement dated as of May 31, 1994 between
the Company and Bruce F. Becker.*
10.16 Stockholders Agreements dated as of May 31, 1994 among each of the
Beckers.*
10.17 Leases dated May 1, 1988 and August 21, 1990 between Charleston
Heights Shopping Center and Arizona Charlie's.*
10.18 Ground Lease dated December 1, 1986 between Becker Investment Company
and Becker Family Trust No. 2 and Becker Gaming Group; Assignment
dated September 16, 1987 assigning the interest of Becker Investment
Company and Becker Family Trust No. 2 to Lakeside
Partners.*
10.19 Lease dated August 12, 1986 between Fremont West
Shopping Center and Becker Gaming Group.*
10.20 Lease dated July 27, 1988 between Becker Investment
Co. and Becker Gaming Group.*
10.21 Lease dated September 19, 1994 between Weddington Investment
Partnership and Innerout, Inc.*
10.22 Lease dated March 24, 1995 between Sunset Coin, Inc.
and Innerout, Inc.*
10.23 Lease agreement between Arizona Charlie's, Inc. and
Bruce F. Becker.*
10.24 Aircraft Purchase Agreement dated July 1, 1996 between Arizona
Charlie's and Limerick Holdings, LLC.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule
- ----------
<FN>
* Incorporated by reference to the Company's Registration Statement on Form S-1
(33-76368) declared effective by the Securities and Exchange Commission on May
20, 1994.
(b) Reports on Form 8-K
None.
</FN>
</TABLE>
================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BECKER GAMING, INC.
Dated: September 26, 1997 By: /s/Bruce F. Becker
-------------------------------
Bruce F. Becker, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 26th day of September, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/Bruce F. Becker President, Chief Executive
- -------------------------- Officer (Principal
Bruce F. Becker Executive Officer) and Director
/s/Jerry Griffis Chief Financial Officer
- -------------------------- (Principal Financial
Jerry Griffis and Accounting Officer)
/s/ Barry W. Becker Director
- --------------------------
Barry W. Becker
/s/ Ernest A. Becker, III Director
- -------------------------
Ernest A. Becker, III
/s/ Ernest A. Becker, IV Director
- -------------------------
Ernest A. Becker, IV
</TABLE>
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act
The Company has not and does not intend to send to its security holders
any annual report with respect to the Registrant's most recent fiscal year or
any proxy statement, form of proxy or other proxy soliciting material with
respect to a meeting of security holders.
================================================================================
INDEX TO FINANCIAL STATEMENTS
BECKER GAMING, INC. AND SUBSIDIARIES
Report of Independent Accountants ..............................
Consolidated Balance Sheets as of June 30, 1997 and 1996 .......
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995 ...................................
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended June 30, 1997, 1996 and 1995 ...............
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995 ...................................
Notes to Consolidated Financial Statements .....................
ARIZONA CHARLIE'S, INC.
Report of Independent Accountants ..............................
Balance Sheets as of June 30, 1997 and 1996 ....................
Statements of Operations for the Years Ended June 30, 1997,
1996 and 1995 .................................................
Statements of Stockholder's Equity (Deficit) for the Years
Ended 1997, 1996 and 1995 ......................................
Statements of Cash Flows for the Years Ended June 30, 1997,
1996 and 1995 .................................................
Notes to Financial Statements ..................................
SUNSET COIN, INC.
Report of Independent Accountants ..............................
Balance Sheets as of June 30, 1997 and 1996 ....................
Statements of Income for the Years Ended June 30, 1997, 1996
and 1995 .......................................................
Statements of Stockholder's Equity for the Years Ended June
30, 1997, 1996 and 1995 ........................................
Statements of Cash Flows for the Years Ended June 30, 1997,
1996 and 1995 ..................................................
Notes to Financial Statements ..................................
CAPITOL QUEEN & CASINO, INC.
Report of Independent Accountants ..............................
Balance Sheets as of June 30, 1997 and 1996 ....................
Statements of Loss Incurred During the Development Stage
for the Years Ended June 30, 1997, 1996 and 1995 and for
the period from January 20, 1993 (the date of inception)
through June 30, 1997 ..........................................
Statements of Stockholder's Equity (Deficit) for the Years
Ended June 30, 1997, 1996 and 1995 and for period from
January 20, 1993 (the date of inception) through June 30,
1997 ...........................................................
Statements of Cash Flows for the Years Ended June 30, 1997
1996 and 1995 and for the period from January 20, 1993
(the date of inception) through June 30, 1997 ..................
Notes to Financial Statements ..................................
INDEX TO FINANCIAL STATEMENT SCHEDULES
BECKER GAMING, INC. AND SUBSIDIARIES:
Schedule I Condensed Financial Information of the
Company as of and for the Years Ended
June 30, 1997, 1996 and 1995 ....................
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1997, 1996
and 1995 ........................................
ARIZONA CHARLIE'S, INC.:
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1997, 1996
and 1995 ........................................
SUNSET COIN, INC.:
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1997, 1996
and 1995 .........................................
CAPITOL QUEEN & CASINO, INC.:
Schedule II Valuation and Qualifying Accounts as of and
for the Years Ended June 30, 1997, 1996
and 1995 ........................................
Schedules other than those listed above are omitted because they are not
required or are not applicable, or because the required information is shown in
the financial statements or notes to the financial statements. Columns omitted
from schedules filed have been omitted because the information is not
applicable.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Becker Gaming, Inc. and Subsidiaries
We have audited the consolidated financial statements and the financial
statement schedules of Becker Gaming, Inc. and Subsidiaries listed in Item 14(a)
of this Form 10-K. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Becker Gaming,
Inc. and Subsidiaries as of June 30, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1997 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
The accompanying financial statements have been prepared assuming that Becker
Gaming, Inc. will continue as a going concern. As more fully described in Note
2, certain of the Company's principal subsidiaries are in default of debt
covenants, resulting in a demand for immediate payment of the debt and
classification of such debt as currently payable. The Company and its
subsidiaries do not have sufficient resources to repay the indebtedness on a
current basis. Management's plans with respect to these matters are also
described in Note 2. These matters raise substantial doubt about the ability of
the Company's principal subsidiaries (and thus, the Company) to continue as a
going concern. The final outcome of these matters is not presently determinable
and the June 30, 1997 financial statements of the Company do not include any
adjustment that might result from the outcome of this uncertainty.
/(s)/ Coopers & Lybrand L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
Las Vegas, Nevada August 22, 1997,
except for Note 2,
as to which the date is
September 5, 1997
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As Of June 30, 1997 And 1996
(Dollars In Thousands)
================================================================================
ASSETS
1997 1996
------- -------
Current assets:
Cash and cash equivalents ..................... $ 7,394 $ 6,745
Restricted cash, in escrow account............. 41 40
Trade and other accounts receivable............ 374 626
Current portion of receivables from
related parties................................ 22 33
Inventories ................................... 665 729
Prepaid expenses .............................. 1,119 1,244
Current portion of notes receivable............ 256 153
Assets held for sale........................... 382 3,233
------- -------
Total current assets......................... 10,253 12,803
------- -------
Property and equipment:
Land improvements.............................. 1,628 1,628
Building and improvements...................... 38,284 38,282
Leasehold improvements......................... 663 983
Furniture and equipment........................ 29,013 27,773
------- -------
69,588 68,666
Less, accumulated depreciation................. (21,266) (19,078)
------- -------
48,322 49,588
Land .......................................... 208 208
Construction in progress....................... 443 --
------- -------
Net property and equipment................. 48,973 49,796
------- -------
Other assets:
Assets held for sale........................... 7,754 7,754
Notes receivable, less
current portion, net........................... 268 472
Receivables from related parties,
less current portion........................... 165 165
Deposits and other............................. 1,187 1,375
Financing costs, net........................... 2,409 3,112
------- -------
Total other assets......................... 11,783 12,878
------- -------
Total assets $ 71,009 $ 75,477
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
1997 1996
------------ ------------
Current liabilities:
Trade accounts payable ....................... $ 1,355 $ 1,761
Construction accounts payable ................ 443 --
Accrued interest ............................. 9,998 3,354
Accrued expenses ............................. 3,125 3,055
Notes payable ................................ 106 110
Current portion of
subordinated notes payable to
stockholders ................................ 800 800
Current portion of long term debt ............ 887 381
Long-term debt classified as
current due to default under
covenants, net of unamortized
original issue discount of
$2,092 (1997)and $2,474 (1996) .............. 72,908 72,526
Current portion of obligations under
capital leases ............................... 138 1,960
------------ ------------
Total current liabilities .............. 89,760 83,947
Long-term debt, less current portion ........... 2,314 1,330
Subordinated notes payable to
stockholders, less current portion ........... 8,000 8,000
Obligations under capital leases, less
current portion ................................ 98 197
------------ ------------
Total liabilities ...................... 100,172 93,474
------------ ------------
Commitments and contingencies
Stockholders'
equity (deficit):
Common stock, $.01 par value, 20,000,000
shares authorized, 10,000,000 shares
issued outstanding ......................... 100 100
Preferred stock, $1 par value, 5,000,000
shares authorized, none issued and
outstanding ................................ -- --
Additional paid-in capital ................... 9,006 9,006
Retained earnings (deficit) .................. (38,269) (27,103)
------------ ------------
Total stockholders' equity (deficit) ... (29,163) (17,997)
------------ ------------
Total liabilities and
stockholders' equity (deficit) ......... $ 71,009 $ 75,477
============ ============
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except Per Share Data)
================================================================================
Year Ended June 30,
--------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenues:
Gaming .............................. $ 56,515 $ 62,377 $ 56,773
Food and beverage ................... 17,829 18,207 14,900
Hotel ............................... 3,352 3,208 2,614
Gift shop ........................... 553 590 577
Other ............................... 975 1,013 742
----------- ------------ ----------
Gross revenues .................. 79,224 85,395 75,606
Less, promotional allowances ........... (9,699) (9,358) (6,527)
----------- ------------ ----------
Net revenues .................... 69,525 76,037 69,079
Operating expenses:
Gaming .............................. 19,978 21,923 19,039
Food and beverage ................... 16,197 16,787 14,318
Hotel ............................... 1,390 1,413 1,377
Gift shop ........................... 519 475 450
Advertising and promotion ........... 4,833 4,831 3,948
General and administrative .......... 20,905 21,053 20,571
Rent expense paid to related party .. 567 411 470
Depreciation and amortization ....... 4,232 4,402 4,439
----------- ------------ ----------
Total operating expenses ........ 68,621 71,295 64,612
----------- ------------ ----------
Operating income ................ 904 4,742 4,467
----------- ------------ ----------
Other income(expenses):
Loss on disposal of assets .......... -- (438) --
Abandonment losses and write-downs
of assets held for sale .......... -- (4,503) --
Development costs ................... (1,301) (504) (1,186)
Interest income ..................... 125 101 1,171
Interest expense .................... (11,148) (10,584) (12,698)
Interest capitalized ................ -- -- 676
Other, net .......................... 254 (41) (70)
----------- ------------ ----------
Total other income (expense) .... (12,070) (15,969) (12,107)
----------- ------------ ----------
Income (loss) before income taxes
and extraordinary item ......... (11,166) (11,227) (7,640)
Provision for income taxes ............. -- -- --
----------- ------------ ----------
Income (loss) before
extraordinary item ............. (11,166) (11,227) (7,640)
----------- ------------ ----------
Extraordinary item-loss on early
retirement of debt (no income
tax benefit available) ............. -- -- (4,089)
----------- ------------ ----------
Net income (loss)
$ (11,166) $ (11,227)$ (11,729)
=========== ============ ==========
Net income (loss) per common share:
Income (loss) before
extraordinary item ................. $ (1.12) $ (1.12)$ (0.76)
Extraordinary item-loss on
early retirement of debt ........... -- -- (0.41)
----------- ------------ ----------
Net income (loss) per share of
common stock .......................... $ (1.12) $ (1.12)$ (1.17)
=========== ============ ==========
Weighted average common shares
outstanding ........................... 10,000,000 10,000,000 10,000,000
=========== ============ ==========
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT) For The
Years Ended June 30, 1997, 1996 And 1995
(Dollars In Thousands)
================================================================================
Common Stock
-------------------------
Shares Amount
---------- ----------
Balances, June 30, 1994 ................... 10,000,000 $ 100
Net loss .................................. -- --
---------- ----------
Balances, June 30, 1995 ................... 10,000,000 100
Net loss .................................. -- --
---------- ----------
Balances, June 30, 1996 ................... 10,000,000 100
Net loss .................................. -- --
---------- ----------
Balances, June 30, 1997 ................... 10,000,000 $ 100
========== ==========
Preferred Stock
-------------------------------
Shares Amount
------ -----
Balances, June 30, 1994 ................................... -- $--
Net loss .................................................. -- --
------ -----
Balances, June 30, 1995 ................................... -- --
Net loss .................................................. -- --
------ -----
Balances, June 30, 1996 ................................... -- --
Net loss .................................................. -- --
------ -----
Balances, June 30, 1997 ................................... -- $--
====== =====
Additional Retained
Paid-In Earnings
Capital (Deficit) Total
---------- ---------- --------
Balances, June 30, 1994 ..................... $ 9,006 $ (4,147) $ 4,959
Net loss .................................... -- (11,729) (11,729)
--------- --------
Balances, June 30, 1995 ..................... 9,006 (15,876) (6,770)
Net loss .................................... -- (11,227) (11,227)
--------- --------
Balances, June 30, 1996 ..................... 9,006 (27,103) (17,997)
Net loss .................................... -- (11,166) (11,166)
--------- --------
Balances, June 30, 1997 ..................... $ 9,006 $ (38,269) $(29,163)
========== ========== ========
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
===============================================================================
Year Ended June 30,
----------------------------------
1997 1996 1995
----- ----- -----
Cash flows from operating activities:
Net (loss) income .......................... $(11,166) $(11,227)$(11,729)
-------- -------- --------
Adjustments to reconcile net (loss) income to net cash provided by (used in)
operating activities:
Depreciation and amortization ............. 4,232 4,402 4,439
Amortization of original issue
discount ................................ 382 408 834
Provision for losses on receivables ....... -- 44 44
Write-downs of assets held for sale ....... 60 4,942 --
Net (gain) loss on sale of equipment ...... (130) 119 87
Loss on early retirement of debt .......... -- -- 4,089
(Increase) decrease in operating assets:
Receivables ............................... 252 159 (646)
Receivables from related parties .......... 11 -- 135
Inventories ............................... 64 123 (158)
Prepaid expenses .......................... 125 333 (363)
Deposits and other assets ................. 246 (199) (182)
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts for
capital expenditures ..................... (406) (54) 169
Accrued interest .......................... 6,644 1,980 (151)
Accrued expenses .......................... 70 786 558
-------- -------- --------
Total adjustments ..................... 11,550 13,043 8,855
-------- -------- --------
Net cash provided by (used in)
operating activities .................. 384 1,816 (2,874)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net of
accounts payable ........................... (696) (544) (27,382)
Proceeds from sale of fixed assets........... 3,319 37 792
Net (additions to) reductions in
restricted cash equivalents ................ (1) -- 51,001
Issuance of note receivable ................. -- -- (33)
Payments of notes receivable ................ 101 104 243
-------- -------- --------
Net cash provided by (used in)
investing activities .................... 2,723) (403) 24,621
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowing under note payable .. -- 109 738
Payments under notes payable and long term debt (442) (625) (20,676)
Payments under capital lease obligations .... (2,016) (809) (1,607)
-------- -------- --------
Net cash (used in) provided by
financing activities .................... (2,458) (1,325) (21,545)
-------- -------- --------
Net increase in cash and cash
equivalents ............................. 649 88 202
Cash and cash equivalents, beginning
of year .................................... 6,745 6,657 6,455
-------- -------- --------
Cash and cash equivalents, end of year
$ 7,394 $ 6,745 $ 6,657
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
================================================================================
BECKER GAMING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Summary Of Significant Accounting Policies:
Basis Of Presentation
---------------------
Becker Gaming, Inc. ("Becker Gaming", "BGI" or the
"Company") was incorporated on June 24, 1993 for the purpose
of serving as a holding company for the following entities:
* Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
* Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
formed to develop a riverboat casino in Jefferson City, Missouri
(the "Capitol Queen"). CQC currently has no significant
operations other than to market and sell its riverboat and other
assets.
* Sunset Coin, Inc. ("SC"), a Nevada corporation which
operates a Las Vegas gaming machine route and service business.
* Becker Gaming Group ("BGG"), a Nevada corporation which (together with
its wholly owned subsidiary, Innerout, Inc.) owns and operates
restaurants and bars in Las Vegas under the "Charlie's" name, each of
which offers gaming machines.
In November 1993, the Company issued 2,989,537 shares of common stock for
all of the outstanding common stock of CQC. At the time of the transaction,
CQC was wholly owned and controlled by the stockholders of the Company.
On June 1, 1994, the stockholders of AC, SC and BGG (collectively, the
"Nevada Gaming Entities") exchanged all of their stock for 6,476,534 shares
of Becker Gaming stock. This transaction was a part of a corporate
reorganization (the "Reorganization") which had been contemplated in
connection with the private placement debt financing, which is further
discussed in Note 9.
Each of the above transactions was accounted for at historical cost in a
manner similar to a pooling of interests since they involved the
combination of entities under common control. Accordingly, the Company's
consolidated financial statements have been restated for all periods prior
to the combination to include the financial positions, results of
operations and cash flows of CQC and the Nevada Gaming Entities.
Adjustments have been made to the Company's consolidated financial
statements to eliminate the impact of intercompany transactions which
occurred prior to the combination.
Principles Of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
Revenue
-------
In accordance with industry practice, AC and BGG recognize as gaming
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
The primary source of gaming revenue for SC is from slot route
participation agreements with unaffiliated locations in which SC recognizes
as slot revenue a predetermined percentage (operator's share) of the net
win from SC-owned machines at the slot locations. In accordance with
industry practice, net win from slot activities consists of the slot drop
less jackpots and fills. The percentage of the net win that SC and the slot
locations receive is determined by individual participation agreements
between the parties.
In addition, SC also generates gaming revenue under slot service
agreements. Under the agreements, SC receives a fixed fee and certain cost
reimbursements in exchange for maintaining proprietor-owned slot machines.
SC's participation agreements and slot service agreements range between 1
and 9 years in length and expire, subject to renewal, at various dates
through 2003. At June 30, 1997, approximately 221 (85%) of the machines
operated or serviced by SC were installed at unaffiliated locations
controlled by the stockholders of BGI (as lessor), through restrictive
lease provisions.
Gaming revenues from slot route and service agreements at locations
controlled by the stockholders of BGI amounted to $2,424,000, $2,370,000
and $2,331,000 in the years ended June 30, 1997, 1996 and 1995,
respectively.
Promotional Allowances
----------------------
The retail value of hotel accommodations, food and beverage provided to
customers without charge is included in gross revenues and then deducted as
promotional allowances to arrive at net revenues. The estimated costs of
providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocations, as follows:
<TABLE>
Years Ended June 30,
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hotel ....................... $ 349,000 $ 261,000 $ 164,000
Food and Beverage ........... 5,003,000 4,833,000 3,813,000
--------- --------- ---------
$5,352,000 $5,094,000 $3,977,000
========== ========== ==========
</TABLE>
Cash Equivalents And Concentration Of Credit Risk
-------------------------------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company has
cash on deposit with financial institutions in excess of federally insured
amounts.
Inventories
-----------
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property And Equipment
----------------------
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense when incurred. Upon retirement or disposal of assets,
the cost and accumulated depreciation are eliminated from the accounts and
the resulting gain or loss is credited or charged to income, as
appropriate.
Building, building improvements, leasehold improvements and land
improvements are depreciated using the straight-line method over the lesser
of the estimated useful lives of 5 to 40 years or the lease term. Furniture
and equipment are depreciated using straight-line and declining balance
methods over estimated useful lives of 5 to 10 years.
Preopening Costs
----------------
Certain preopening costs, consisting principally of personnel costs,
training and other costs directly associated with the opening of a new
hotel-casino or significant expansions of the existing hotel-casino are
capitalized and charged to expense over a period not to exceed one year
following the commencement of related operations. During the years ended
June 30, 1997, 1996 and 1995, the Company capitalized $-0-, $-0- and
$31,000 respectively, of preopening costs.
Financing Costs
---------------
Costs associated with the issuance of debt are deferred and amortized over
the life of the related indebtedness using the effective interest method.
Federal Income Taxes
--------------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
In connection with the Reorganization described above, beginning June 1,
1994, AC, SC and BGG are included in the consolidated federal income tax
returns filed by BGI. Their tax allocations are based on the amount of tax
they would incur if they filed separate returns.
Earnings Per Share
------------------
Net income (loss) per share of common stock is computed based on the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding during the period. Common stock equivalents were
not included in the computation of loss per common share for the years
ended June 30, 1997, 1996 and 1995 as their effect would have been
antidilutive.
Reclassifications
-----------------
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates,
particularly with respect to the matters more fully described in Notes 2
and 3.
2. Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern:
CQC was formed to develop, own and operate the "Capitol Queen" riverboat
casino and related land-based facilities in Jefferson City, Missouri. On
September 28, 1994, CQC was notified that its application for a gaming
license was rejected by the Missouri Gaming Commission (the "Commission").
At the time CQC was notified of the Commission's decision, construction of
the riverboat under contract with a shipbuilder was almost completed. CQC
had also obtained the necessary permits for the land-based development
portion of the project and performed certain dredging and other site
preparation work. Immediately following the Commission's decision,
management temporarily suspended further development of the Capitol Queen
project, pending an appeal of the decision and legal remedies potentially
available to the Company. Costs associated with the development of the
project which had been deferred during the development stage were
written-off in the fourth quarter of the fiscal year ended June 30, 1994.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Management
ultimately determined to abandon the project, and is currently looking for
alternative uses for the riverboat, including opportunities to sell or
lease it to another operator.
CQC financed the Capitol Queen project through the issuance of $40,000,000
in principal amount of 12% First Mortgage Notes due November 15, 2000 (the
"CQC Notes"). As of January 1, 1995, the indenture governing the CQC Notes
was amended to (i) eliminate CQC's obligation to construct and open the
Capitol Queen and (ii) permit a two-step purchase of the CQC Notes at 101%
of principal plus accrued and unpaid interest from a sale of assets. The
first step repurchase of $20,000,000 principal amount of the CQC Notes
(plus accrued and unpaid interest) was completed on January 17, 1995, with
unexpended funds from the project escrow account, and an aggregate of
$20,000,000 principal amount of the CQC Notes remained outstanding.
However, the dates by which CQC previously agreed with the holders of the
CQC Notes to effect the sale of its assets and repurchase the remaining CQC
Notes have passed, and CQC is thus in default of the amended covenants.
The remaining CQC Notes require annual interest payments of $2,400,000,
payable in equal installments semi-annually on May 15 and November 15. CQC
was not able to make its scheduled interest payments of $1,200,000 on
November 15, 1995, May 15, 1996, November 15, 1996 and May 15, 1997 and AC
(which has guaranteed the CQC Notes as more fully described below) did not
have available funds to advance on behalf of CQC.
Concurrent with the issuance of the CQC Notes, AC completed a private
placement debt financing of $55,000,000 in principal amount of 12% First
Mortgage Notes due November 15, 2000 (the "AC Notes"). The AC Notes require
annual interest payments of $6,600,000, payable in equal installments
semi-annually on May 15 and November 15. AC was not able to make its
scheduled interest payment of $3,300,000 on May 15, 1997 and SC (which has
guaranteed the AC Notes as more fully described below) did not have
available funds to advance on behalf of AC. AC is also in default of
certain covenants under the AC Notes, as more fully described in Note 9. AC
is restricted from selling assets under the covenants governing the AC
Notes and management believes that access to additional capital from other
sources is restricted as a result of the above described circumstances. AC
does not have sufficient financial resources (including a guaranty of the
AC Notes by SC, as more fully described below) to repay the AC Notes on a
current basis and satisfy its guaranty obligation (as more fully described
below) with respect to the CQC Notes.
The CQC Notes are guaranteed by AC (which guaranty is subject to release
only upon licensing of the Capitol Queen, which is not expected). The AC
Notes are guaranteed by SC (which guaranty is subject to release upon
completion of the Expansion, which management believes has been satisfied,
and the attainment of a fixed-coverage ratio by AC of 2.25 to 1 following
the completion of the Expansion, which has not been satisfied). The amount
and extent of AC's guaranty of the CQC Notes is in dispute. Legal counsel
has advised management that, under the terms of the CQC indenture regarding
fraudulent conveyance and limitation of guarantor's liability, the guaranty
liability of AC is not expected to be material.
On July 3, 1997, CQC received a notice of acceleration (the "Notice") from
the trustee and collateral agent for the CQC Notes. Pursuant to section
6.02 of the indenture governing the CQC Notes, due to certain violations of
the indenture (as more fully described in Note 9), all of the outstanding
CQC Notes are immediately due and payable together with all accrued and
unpaid interest thereon.
On September 5, 1997, AC received a notice of acceleration from the trustee
and collateral agent for the AC Notes. Pursuant to section 6.02 of the
indenture governing the AC Notes, due to certain violations of the
indenture (as more fully described in Note 9), all of the outstanding AC
Notes are immediately due and payable together with all accrued and unpaid
interest thereon.
In connection with the decision to abandon the project, CQC had entered
into an Asset Purchase Agreement dated April 10, 1995, for the sale of its
assets to Aerie Riverboat Casinos of Missouri, Inc. at a purchase price of
$18,000,000, which price exceeded the carrying value of the CQC assets.
However, the consummation of the Aerie purchase agreement was subject to
the satisfaction of several conditions which could not be satisfied timely,
including, among others, that Jefferson City consent to the assignment of
its Development Agreement with CQC, that Aerie be found preliminarily
suitable to hold a Missouri Gaming license, and that riverboat gaming is
legally permitted in Jefferson City. As a result, the agreement with Aerie
was terminated without penalty when the December 31, 1995 expiration date
passed. As more fully described in Note 3, a further write-down in the
carrying value of the riverboat was recognized in the third quarter of
1996, after the election in Jefferson City, the expiration of the Aerie
contract, and due to deteriorating market conditions.
CQC continues to market its riverboat assets to prospective buyers.
Management of the Company, AC and CQC are currently undergoing discussions
with an informal committee representing the holders of the AC Notes and CQC
notes (the "Bondholder Committee") regarding a proposed restructuring plan.
Based on current market conditions, management does not expect that CQC
will generate sufficient funds through the sale of its assets to repurchase
all of the outstanding CQC Notes. The proposed restructuring plan therefore
contemplates, amongst other terms and conditions, (i) liquidation of CQC's
remaining assets for the benefit of the CQC bondholders, (ii) a limited
cash payment by AC as full and complete satisfaction of AC's guaranty of
the CQC Notes, and (iii) AC's issuance of a reduced amount of new notes as
full and complete satisfaction of the existing AC Notes. However, no
satisfactory offers for the riverboat are currently available, and no
agreement has been reached with the Bondholder Committee regarding the
proposed restructuring plan. Accordingly, these matters raise substantial
doubt about the ability of the Company's principal subsidiaries (and, thus
the Company) to continue as a going concern. The final outcome of these
matters is not presently determinable and the June 30, 1997 financial
statements of the Company do not include any adjustment that might result
from the outcome of this uncertainty.
3. Construction Project And Related Contingencies:
Capitol Queen Project
---------------------
The Capitol Queen project, as originally contemplated by CQC, was to
include the riverboat, dockside facilities, restaurants and related
ancillary facilities to be built on land acquired by the Company in July
1993. As a result of the decision to abandon the project, all costs
associated with the design and development of the facilities were
written-off in the fourth quarter of the Company's 1994 fiscal year, with
the exception of the historical cost of the land and related dredging.
The Company had contracted with shipbuilder to construct the Capitol Queen
riverboat. The total cost of the riverboat was $11,892,000, including
construction period interest and other costs. During the third quarter of
the year ended June 30, 1996, based on deteriorating market conditions
after the expiration of the Aerie contract, the Company recognized a loss
of $4,392,000 and wrote-down the carrying value of the riverboat to
$7,500,000. Such revised carrying value represents management's best
estimate of the riverboat's current net realizable value in a cash sale,
based on information obtained from shipbuilders, marine brokers, and
purchase offers made to the Company from third parties.
Jefferson City Development Agreement
------------------------------------
CQC acquired the franchise rights to operate the Capitol Queen under a
development agreement with the City of Jefferson City, Missouri (the
"Development Agreement"), beginning September 1, 1993 for a period of seven
years. CQC's rights and obligations under the Development Agreement were
contingent upon receiving a gaming license which, until the occurrence of
the events described in Note 2, management believed was probable.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that
as matter of law the 1995 election does not affect the validity of the
Development Agreement. However, to avoid the cost and uncertainty of
litigation, CQC and Jefferson City in June 1996 entered into an agreement
pursuant to which the Development Agreement was rescinded and Jefferson
City refunded $300,000 of the $400,000 CQC had originally paid to the City
under the Development Agreement.
Other Development Agreements
----------------------------
As discussed below, the Company and CQC have each entered into additional
agreements in connection with the development of the Capitol Queen project,
which have been terminated as a result of the decision by the Missouri
Gaming Commission.
In January 1993, prior to incorporation, the stockholders of CQC agreed
that, upon being licensed in Missouri to own and operate the Capitol Queen,
CQC would issue shares of its common stock to three individuals who
assisted the then existing stockholders of CQC in obtaining the rights to
develop the Capitol Queen (the "CQC Stock Agreement"). The aggregate amount
of stock subject to the CQC Stock Agreement represents 5.25% of the
outstanding common stock of CQC, and was subject to increase to 8.25% if a
convention center required under the Development Agreement was not
constructed on land controlled by the parties to the CQC Stock Agreement.
CQC has the option to repurchase any or all of such stock, except for 25%
held by one individual, for a period of three years from their issuance at
an aggregate purchase price equal to $750,000 ($1,200,000 if the additional
shares were issued). In addition to the above requirements of the CQC Stock
Agreement, CQC also agreed to pay a lump-sum fee of $350,000 to two of the
above individuals after receiving a license and the commencement of
operations of the Capitol Queen.
At the time CQC was awarded the Development Agreement, and until the
occurrence of the events described in Note 2, management believed it was
probable it would receive a gaming license in Missouri. Accordingly, to
reflect the CQC Stock Agreement, the Company recorded a minority interest
in subsidiary subscribed of $788,000 (using the $750,000 value described
above for 5.0% of the stock to determine the value of the remaining 25%
interest), recorded amounts payable under the agreement for $350,000 and
recorded a corresponding total charge of $1,138,000 to development costs,
to be amortized over the life of the Development Agreement. As a result of
the decision by the Missouri Gaming Commission and the abandonment of the
Capitol Queen project, management believes that it has been relieved of
these obligations. Accordingly, the subscribed stock, the $350,000
liability and the related deferred costs (net of amortization from
September 1, 1993 to June 30, 1994) were written-off in the fourth quarter
of fiscal 1994.
In September 1993, Becker Gaming agreed that it would repurchase certain
rights to acquire equity in CQC (the "Repurchase Agreement") which it had
previously granted to various parties (the "Sellers"). The Sellers assisted
Becker Gaming and CQC, through the Becker Gaming stockholders, in obtaining
the approval to develop, own and operate the Capitol Queen in Jefferson
City. Under the terms of the Repurchase Agreement, Becker Gaming agreed to
pay the Sellers an aggregate amount of $5,925,000, payable in installments
through July 1, 1997 and bearing interest at 10% per annum from the date
the Capitol Queen opens for business. Becker Gaming also agreed that if
prior to maturity, the Company proposed to sell any of its common stock in
an underwritten public offering, the Sellers may accept registered shares
in lieu of the payments required based on the public offering price of such
shares (less any underwriters' discount) subject to certain underwriter
limitations.
The Repurchase Agreement provided that in the event the development,
ownership or operation of a riverboat gaming business in Jefferson City
becomes unlawful or CQC is declined a gaming license, the Repurchase
Agreement becomes null and void. At the time Becker Gaming entered the
Repurchase Agreement, and until the occurrence of the events described in
Note 2, the Company believed it was probable it would receive a gaming
license in Missouri. Accordingly, the Company recorded a liability under
the Repurchase Agreement and the related present value of the costs to the
Sellers of $5,232,000 was recorded as deferred development costs to be
amortized over the life of the Development Agreement.
As a result of the decision by the Missouri Gaming Commission and the
abandonment of the Capitol Queen project, Becker Gaming believes that it
has been relieved of its obligations under the Repurchase Agreement.
Accordingly, the liability to the Sellers and the related deferred costs
(net of amortization from September 1, 1993 to June 30, 1994) were
written-off in the fourth quarter of fiscal 1994.
In addition to the above, in the fourth quarter of fiscal 1994, CQC
wrote-off other previously capitalized expenditures of $1,375,000 and
wrote-off capitalized preopening expenses of $340,000 associated with the
development of the Capitol Queen project.
4. Related-Party Transactions:
In anticipation of the January 1, 1994 termination of the S corporation
elections by AC, BGG and SC, on December 24, 1993 AC, BGG and SC
distributed $5,000,000, $800,000 and $3,000,000, respectively, to their
stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to AC, BGG and SC by the
stockholders in the form of subordinated notes payable. The AC and SC notes
bear interest at an annual rate of 10%, payable monthly, with the entire
principal amount due on January 1, 2001. However, beginning May 1, 1997 the
stockholders have voluntarily postponed the receipt of interest on the AC
stockholder notes. The BGG notes bear interest at an annual rate of 10%,
payable monthly with the entire principal amount due in December 1997.
Prior to the transaction, the Company borrowed funds from its stockholders
as described in Note 9. Interest expense incurred under stockholder notes
was $892,000, $898,000, and $887,000 for the years ended June 30, 1997,
1996 and 1995, respectively. The Company also has various receivables from
its stockholders, totaling $187,000 and $198,000 at June 30, 1997 and 1996,
respectively. The receivables are unsecured and bear interest at a rate of
4.5% per annum.
The Company's subsidiary BGG has a number of leases of land on which
certain of its operations are located. These leases are with companies
related to Becker Gaming through common ownership. Total rental expense
under these leases amounted to $345,000, $437,000 and $314,000 for the
years ended June 30, 1997, 1996 and 1995, respectively.
Charleston Heights Shopping Center ("CHSC") an entity also owned by the
Becker Gaming stockholders, owns the land on which certain of the Company's
administrative offices are located and, prior to the Reorganization,
Charlie's Land Company ("CLC") an entity also owned by the BGI stockholders
owned the land on which AC's operations are located. Rent expense paid to
CHSC and CLC and included in results of operations of the Company was
$222,000, $217,000 and $191,000 for the years ended June 30, 1997, 1996 and
1995, respectively. The rental fees include the cost of insurance, taxes
and common area maintenance on the land.
The Company's president operates a sole proprietorship under the name
"Becker Vending" which places arcade, cigarette, music and other vending
machines at AC and SC and BGG locations. The Company provides nominal
collection and accounting services to Becker Vending in connection with
these machines. The Company does not receive any rental fee or other
payment from Becker Vending in connection with these agreements. Becker
Vending retains all amounts deposited in its vending machines. Becker
Vending also sells to AC cigarettes, candy and similar items for resale in
the AC gift shop.
5. Supplemental Cash Flow Information:
The following are supplemental disclosures of cash flow information for the
years ended June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid, net of
amounts capitalized ....... $ 4,504,000 $ 7,922,000 $12,005,000
=========== =========== ===========
Income taxes paid ........... $ - $ - $ 338,000
=========== =========== ===========
Capitalize lease
obligations incurred ...... $ 95,000 $ 166,000 $ 222,000
=========== =========== ===========
Assets acquired through
issuance of long-term debt. $ 1,928,000 $ - $ -
=========== =========== ===========
</TABLE>
6. Notes Receivable:
Notes receivable consist of loans to various proprietors who have entered
into slot route agreements with SC. Such loans are primarily used to
finance long-term facility improvements to the slot locations, are
collateralized by related assets of the proprietors' facilities, bear
interest at rates up to prime plus 2.5%, and are due in varying weekly or
monthly installments through 2003.
7. Accrued Expenses:
Major classes of accrued expenses consist of the following as of June 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Wages payable and accrued salaries ......... $1,429,000 $1,100,000
Accrued vacation ........................... 336,000 306,000
Group insurance ............................ 447,000 352,000
Gaming taxes ............................... 225,000 250,000
Payroll and other taxes .................... 392,000 405,000
Progressive slot liability ................. 124,000 100,000
Other accrued expenses ..................... 172,000 542,000
---------- ----------
$3,125,000 $3,055,000
========== ==========
</TABLE>
8. Notes Payable:
Notes payable consist of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Nonrelated parties:
5.96% note payable in monthly installments
of $21,616, including interest, through
Decemeber, 1997, uncollateralized .............. $ 106,000 $ 110,000
--------- ---------
106,000 110,000
Less, current portion (106,000) (110,000)
$ - $ -
=========== ===========
</TABLE>
9. Long-Term Debt:
Long-term debt consists of the following as of June 30, 1997 and 1996 :
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
12% First Mortgage Notes Due November 15,
2000 (the "AC Notes") with interest
payable semi-annually, collateralized by the
assets of AC and guaranteed by SC (A) ....... $ 55,000,000 $ 55,000,000
12% First Mortgage Notes Due November 15,
2000 (the "CQC Notes")with interest
payable semi-annually, collateralized
by the assets of CQC and guaranteed by
AC, less unamortized original issue discount
of $2,092,000 (1997)and $2,474,000 (1996)(A) 17,908,000 17,526,000
Prime plus 1.5%, $1.5 million revolving
line of credit available through June
1994, (line expired and not renewed);
amounts outstanding under the line of
credit at June 30, 1994 were converted to
a term note payable with interest and
principal due monthly through June 1998,
collaterlized by substantially all of
the assets of SC and personal
guarantees of the Company's stockholders .... 33,000 113,000
Prime plus 1.5%, term note payable with
interest and principal due monthly
through January 1, 2001 collateralized
by Security agreement dated July 15,
1994 and a right to lien without notice all
property and deposit accounts of SC
Borrowings were made under a $1.2 million
non-revolving line of
credit agreement of SC (B) .................. 115,000 162,000
Prime plus 2.0%, term note payable with
interest and principal due monthly
through April 23, 2000 collaterlized by a
security agreement dated July 15,
1994 and right to lien without notice all
property and deposits accounts of SC.
Borrowings were made under a $1.2 million
non-revolving line credit
agreement of SC (B) ......................... 192,000 262,000
Prime plus 2.0%, term note payable with
interest and principal due monthly
through May 9, 2000 collaterlized by a
security agreement dated July 15, 1994
and right to lien without notice all
property and deposits accounts of SC.
Borrowings were made under a $1.2 million
non-revolving line credit
agreement of SC (B) ......................... 86,000 119,000
Prime plus 1.5%, term note payable with
interest and principal due monthly
through April 10, 2001, collateralized by
security agreement dated October 2,
1995 and a right to lien without notice all
property and deposit accounts of
SC. Borrowings made under a $1.2 million
non-revolving line of
credit agreement of SC (B) .................. 73,000 102,000
Prime plus 1.6% note payable, due in
monthly installments of $7,450 plus
interest through April 2004, collateralized
by the assets of the stockholders
of the Company and
substantially all assets owned by BGG ....... 828,000 930,000
12.75% note payable with interest and principal
due in monthly installments
through May, 2002 collateralized by various
slot equipment of AC and personal
guarantees of the
stockholders of BGI ......................... 1,540,000 -
Other notes payable due in monthly principal
only installments through June,
1998 collateralized by slot machine equipment
of the Company .............................. 208,000 -
Other notes payable .......................... 126,000 23,000
------------ ------------
76,109,000 74,237,000
Less current portion (including
the CQC and AC Notes which have
been classified as current) ............... (73,795,000) (72,907,000)
------------ ------------
$ 2,314,000 $ 1,330,000
============ ============
</TABLE>
(A) On November 18, 1993, CQC completed a private placement debt financing of
the CQC Notes. The offering generated net proceeds of approximately
$30,666,000 (after deducting original issue discount of $7,500,000 and debt
issue costs). Interest on the CQC Notes is payable semiannually and the CQC
Notes mature on November 15, 2000.
The CQC Notes are guaranteed by AC (which guarantee is subject to release
only upon licensing of the Capitol Queen, which is not expected) and are
collateralized by a first mortgage on substantially all of the assets of
the Capitol Queen project. The CQC Notes have been classified as currently
payable at June 30, 1997 and 1996 due to the acceleration upon default and
management's plans to restructure the indebtedness, as more fully described
in Note 2. The Company incurred an extraordinary loss of $4,089,000 in 1995
reflecting a $200,000 premium paid to retire $20,000,000 principal amount
of the debt and the write-off of related, unamortized original issue
discount and financing costs in the aggregate of $3,889,000.
Also on November 18, 1993, AC completed a private placement debt financing
of the AC Notes. The offering generated net proceeds of approximately
$33,684,000 (after deducting debt financing costs and approximately
$16,791,000 used to repay principal and interest, to a bank which was due
and payable on November 18, 1993). Interest on the AC Notes is payable
semiannually and the AC Notes mature on November 15, 2000. The AC Notes are
guaranteed by SC (which guaranty is subject to release upon completion of
the Expansion, which management believes has been satisfied, and the
attainment of a fixed-coverage ratio by AC of 2.25 to 1, following the
completion of the expansion, which has not been satisfied) and are
collateralized by a first mortgage on substantially all of the assets of
AC, including the Expansion.
As of June 30, 1997, AC is in default of certain debt covenants under the
Indenture governing the AC Notes. These covenant violations include (i) a
failure to meet a minimum Fixed Charge Coverage ratio, as defined in the
Indenture; (ii) advances by AC to Becker Gaming, Inc. which exceed amounts
allowed for under the Indenture (which advances remain outstanding at June
30, 1997); (iii) beginning in the fourth quarter of fiscal 1997, exceeding
the amount of new indebtedness allowed for under the Indenture; (iv)
beginning with the quarter ending December 31, 1995, AC has not met the
Minimum Tangible Net Worth Ratio of 1.5 to 1.0, as defined in the
Indenture; and (v) AC did not make its required semi-annual interest
payment of $3,300,000 on May 15, 1997. In addition, beginning with the
quarter ending December 31, 1995, AC has not met the Minimum Tangible Net
Worth requirement defined in the Indenture. Under the terms of the
Indenture, AC is technically required to offer to buy back $33,000,000 of
the outstanding AC Notes at June 30, 1997 due to the failure to meet this
covenant, increasing by $5,500,000 each fiscal quarter. AC has not made
such offer and does not intend to do so while the discussions with the
Bondholder Committee are in process. As a result of these defaults under
covenants and demand for payment made by the Trustee, the AC Notes have
been classified as currently payable in the accompanying financial
statements. Management's plans are more fully described in Note 2.
Concurrent with the placement of the CQC and AC Notes, Becker Gaming sold
warrants (the "Warrants") exercisable for 2,500,000 shares of Becker Gaming
common stock for net proceeds of $7,005,000 (after deducting issuance
costs). The gross proceeds from the sale of the Warrants of $7,500,000 were
contributed to CQC. The Warrants are exercisable at June 30, 1994 and
continue to be exercisable up to and including November 15, 2000. The
exercise price of $.01 per warrant and the number of shares of common stock
issuable upon exercise of the Warrants are subject to adjustment in certain
circumstances.
The Indenture governing the CQC Notes (the "CQC Indenture") limits the use
of the net proceeds from the offering and the sale of the Warrants to fund
the cost of the development and construction of the Capitol Queen project.
The proceeds were placed in escrow with a trustee pending draws for
qualifying project expenditures. As more fully explained in Note 2, certain
of the proceeds were used in January 1995 in connection with the first step
of the plan to repay the CQC Notes. The CQC Notes are not subject to
mandatory redemption, except upon a change of control, or other
circumstances as defined in the Indenture. CQC has the option to redeem the
CQC Notes at a premium of 106% beginning on November 15, 1997, declining to
par value on November 15, 1999. If prior to November 15, 1997, Becker
Gaming consummates an initial public offering of its common stock, CQC may
also redeem the CQC Notes, at a premium of 108%.
The CQC Indenture contains covenants that, among other things, limit the
ability of CQC and, in certain cases, AC, to pay dividends or management
fees, or incur additional indebtedness. At June 30, 1997, CQC had a net
deficit of approximately $18,000,000.
The indenture governing the AC Notes (the "AC Indenture") limits the use of
the net proceeds from the offering to fund the cost of the Expansion. The
proceeds were placed in escrow with a trustee pending drawdowns for
qualifying project expenditures. The AC Notes are not subject to mandatory
redemption, except upon a change of control, decline in tangible net worth,
or certain asset sales, all as defined in the AC Indenture. AC has the
option to redeem the AC Notes at a premium of 106% beginning on November
15, 1997, declining to par value on November 15, 1999.
The AC Indenture contains covenants that, among other things, limit the
ability of AC and, in certain cases, SC, to pay dividends or management
fees, or incur additional indebtedness. At June 30, 1997 approximately
$2,000,000 of SC's net assets were restricted by such Indenture covenants;
while AC had a net deficit of approximately $16,600,000. The AC Indenture
also requires the Expansion to be completed in a specified manner and time
frame, which management believes has been achieved.
(B) In July 1994 SC entered into an agreement with a bank for a
$1.2 million non-revolving line of credit. Each advance was
evidenced by a separate promissory note with a maturity date
not exceeding 66 months from the date of the respective
advance. SC was able to request advances through October 28,
1995 at which time SC's right to receive advances under the
agreement was terminated until the defaults under other
indebtedness are cured. Advances under the agreement bear
interest at rates ranging from 1.5% to 2.0%
plus the bank's prime rate. The $1.2 million non-revolving
line of credit includes an acceleration clause which would
cause the full amount of the obligation to become due on
demand if a material adverse change occurs in SC's financial
condition, business operations or ownership or management.
Maturities of long-term debt at June 30, 1997 (including the CQC Notes and
AC Notes which have been classified as current) are as follows:
<TABLE>
<S> <C>
1998 $73,795,000
1999 552,000
2000 525,000
2001 455,000
2002 461,000
Thereafter 321,000
-----------
$76,109,000
===========
</TABLE>
10. Income Taxes:
For the fiscal years ended June 30, 1997, 1996 and 1995, the Company
incurred net operating losses for federal income tax purposes, and
accordingly, these financial statements do not include provision for
federal income tax purposes.
The components included in determining the provision for income taxes for
the years ended June 30, 1997, 1996 and 1995, net of extraordinary items,
are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at federal
income tax statutory rate ........... $(3,796,000) $(3,817,000) $(2,598,000)
Increase (decrease) in taxes resulting from:
Unrecognized tax benefit from net
operating losses ................... 3,736,000 3,677,000 2,525,000
Other ............................... 60,000 140,000 73,000
------- ------- ------
Income tax provision ................ $ -- $ -- $ --
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes. The major
components of deferred tax liabilities and assets as of June 30, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Liabilities:
- ------------
<S> <C> <C>
Depreciation ................................ $ 960,000 $ 863,000
----------- -----------
Assets:
- -------
Federal net operating loss carryforwards .... 12,240,000 7,320,000
Valuation allowances for assets held for sale 1,494,000 1,643,000
Bad debt expense ............................ -- 30,000
--------- ---------
Total deferred tax assets ............... 13,734,000 8,993,000
--------- ---------
Valuation allowance ......................... (12,774,000) (8,130,000)
---------- ----------
Net deferred taxes ...................... $ -- $ --
---------- ----------
</TABLE>
As of June 30, 1997 the Company had a federal net operating loss
carryforward of approximately $35,999,000 which expires between 2009 and
2012.
11. Leases And Commitments:
The Company has entered into capital lease agreements whereby the Company
leases various equipment under three-, five-, seven-, and ten-year leases
which expire at various dates through 2000.
Property and equipment includes the following property leased under capital
leases as of June 30, 1997 and 1996 :
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Equipment ................... $ 442,000 $ 4,201,000
Less accumulated depreciation ( 76,000) (672,000)
----------- -----------
$ 366,000 $ 3,529,000
=========== ===========
</TABLE>
The Company also leases various other equipment under operating leases
which expire in varying years through 2001.
The Company leases office space under a 10-year operating lease, which
expires in 1998, from CHSC, as more fully described in Note 4.
Future minimum lease payments, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms
of one year or more consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C> <C>
1998 $ 158,000 $ 749,000
1999 72,000 372,000
2000 37,000 295,000
2001 8,000 294,000
2002 -- 288,000
Thereafter ........................ -- 905,000
--------- ---------
Total minimum lease payments ...... $ 275,000 $2,903,000
========== ==========
Less amount representing interest (39,000)
------
Present value of net
minimum lease payments ........ 236,000
Less current portion ............ (138,000)
--------
Obligations under capital lease . $ 98,000
==========
</TABLE>
The total rental expense included in operations for operating leases during
the years ended June 30, 1997, 1996 and 1995 was $613,000, $694,000 and
$617,000, respectively.
12. Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending
litigation and claims will not have a material effect on the Company's
results of operations, cash flows, or financial position.
13. Defined Contribution Plan:
The Company has adopted a 401(k) Defined Contribution Plan (the "Plan")
covering substantially all of its employees. Eligible employees may
contribute up to 10% of their annual compensation to the Plan, up to
certain limits prescribed by the Internal Revenue Service. The Company
matches 25% of each eligible employee's contributions up to a maximum of 6%
of their individual earnings. In addition, the Company contributes an
amount equal to 2% of each participant's earnings. The Plan went into
effect July 1, 1990.
The Company recorded charges for contributions of $622,000, $560,000 and
$449,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
14. Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, capital lease
obligations and notes payable approximate their respective fair values due
to the short-term maturities and approximate market interest rates of these
instruments.
Management is unable to determine a fair value for the outstanding
$55,000,000 principal amount of 12% First Mortgage Notes due November 15,
2000 of Arizona Charlie's, Inc. (the "AC Notes") or the outstanding
$20,000,000 principal amount ($17,908,000 carrying amount at June 30, 1997)
of 12% First Mortgage Notes due November 15, 2000 of Capitol Queen and
Casino, Inc. (the "CQC Notes"). As of June 30, 1997, the effective interest
rates of the AC Notes and CQC Notes were 12% and 16%, respectively. It is
not practicable to determine the fair value of these financial instruments
due to the debt covenant violations and related uncertainties involved in
negotiations with the holders of the AC Notes and CQC Notes, as more fully
discussed in Note 2.
15. BGG Property Transactions:
BGG entered into an agreement to sell one of its bars ("Cantina Charlie's")
to a prospective, unrelated buyer, subject to approval by Nevada Gaming
Authorities, for which licensing and operator approval is pending. The sale
is subject to the aforementioned requirements and satisfactory escrow
procedures. Accordingly, the fixed assets of Cantina Charlie's which total
$382,000 have been classified as assets held for sale in the accompanying
financial statements.
A new BGG bar is currently under construction and is expected to be opened
in late calendar year 1997. At June 30, 1997, $443,000 has been expended on
the project and is classified as Construction in process on the
accompanying financial statements.
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Arizona Charlie's, Inc.
We have audited the financial statements and the financial statement schedule of
Arizona Charlie's, Inc. (a wholly owned subsidiary of Becker Gaming, Inc.)
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arizona Charlie's, Inc. as of
June 30, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying financial statements have been prepared assuming that Arizona
Charlie's, Inc. ("AC") will continue as a going concern. As more fully described
in Note 2, AC is in default of debt covenants, resulting in a demand for
immediate payment of the debt and classification of such debt as currently
payable. AC is also obligated as a guarantor under indebtedness of an affiliated
company, and such indebtedness is also in default. AC does not have sufficient
resources to repay the indebtedness or honor its guarantee on a current basis.
Management's plans with respect to these matters are also described in Note 2.
These matters raise substantial doubt about the ability of Arizona Charlie's,
Inc. to continue as a going concern. The final outcome of these matters is not
presently determinable and the June 30, 1997 financial statements of the Arizona
Charlie's, Inc. do not include any adjustment that might result from the outcome
of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
As Of June 30, 1997 and 1996
(Dollars In Thousands)
----------
================================================================================
ASSETS
1997 1996
-------- --------
Current assets:
Cash and cash equivalents.................... $ 5,481 $ 4,591
Restricted cash, in escrow account........... 10 10
Trade and other accounts receivable.......... 240 473
Receivable from related parties.............. 2,665 1,539
Inventories ................................. 529 575
Prepaid expenses ............................ 985 1,118
-------- --------
Total current assets...................... 9,910 8,306
-------- --------
Property and equipment:
Building and improvements ................... 37,490 37,488
Furniture and equipment...................... 23,916 22,575
Land improvements ........................... 1,629 1,628
-------- --------
63,035 61,691
Less, accumulated depreciation .............. (18,303) (16,218)
-------- --------
44,732 45,473
Land ........................................ 208 208
-------- --------
Net property and equipment.............. 44,940 45,681
-------- --------
Other assets:
Receivable from related party, noncurrent.... 210 987
Deposits and other .......................... 544 460
Notes receivable from related party ......... 4,416 4,416
Financing costs, less accumulated
amortization of $1,923 (1997)
and $1,366 (1996) 1,937 2,507
-------- --------
Total other assets...................... 7,107 8,370
-------- --------
Total assets ........................... $ 61,957 $ 62,357
======== ========
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
1997 1996
-------- --------
Current liabilities:
Trade accounts payable...................... $ 1,047 $ 1,452
Accounts payable to related parties......... -- 4
Accrued expenses ........................... 2,642 2,329
Accrued interest ........................... 4,522 994
Management fees due Becker Gaming, Inc...... 5,347 4,682
Notes payable, current portion.............. 106 110
Notes payable to related party.............. 3,150 2,250
Current portion of
obligations under capital leases......... 12 15
Current portion of long-term debt .......... 464 --
Long-term debt classified as
current due to default
under covenants ......................... 55,000 55,000
-------- --------
Total current liabilities............ 72,290 66,836
Long-term debt, less current portion.......... 1,284 --
Subordinated notes payable to prior
stockholders ............................... 5,000 5,000
Obligations under capital leases,
less current portion ......... 29 22
-------- --------
Total liabilities.................... 78,603 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)................. (17,115) (9,970)
-------- --------
Total stockholder's equity
(deficit)................. (16,646) (9,501)
-------- --------
Total liabilities and
stockholder's equity (deficit)....... $ 61,957 $ 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
(Dollars In Thousands)
================================================================================
Year Ended June 30,
------------------------------------------------
1997 1996 1995
---- ---- ----
Revenues:
Gaming ............................. $ 47,857 $ 52,831 $ 47,466
Food and beverage .................. 13,583 13,401 10,877
Hotel .............................. 3,352 3,208 2,614
Gift shop .......................... 553 590 577
Other .............................. 923 948 682
-------- -------- --------
Gross revenues ................. 66,268 70,978 62,216
Less, promotional allowances ......... (8,184) (7,677) (5,134)
-------- -------- --------
Net revenues ................... 58,084 63,301 57,082
-------- -------- --------
Operating expenses:
Gaming ............................. 17,229 18,612 15,359
Food and beverage .................. 12,337 12,511 11,388
Hotel .............................. 1,390 1,413 1,377
Gift shop .......................... 519 475 450
Advertising and promotion .......... 4,813 4,726 3,837
General and administrative ......... 17,463 17,660 15,358
Provision for losses on related
party receivlables ................ 220 601 1,592
Management fees - Becker Gaming,
Inc., net 664 1,396 3,099
Rent expense paid to related party . 222 217 191
Depreciation and amortization ...... 3,568 3,491 3,373
-------- -------- --------
Total operating expenses ....... 58,425 61,102 56,024
-------- -------- --------
Operating income (loss)......... (341) 2,199 1,058
-------- -------- --------
Other income (expenses):
Interest income .................... 272 286 580
Interest expense ................... (7,275) (7,095) (7,250)
Interest capitalized ............... - - 676
Other, net ......................... 199 51 -
-------- -------- --------
Total other expenses ........... (6,804) (6,758) (5,994)
-------- -------- --------
Net (loss)income before income tax (7,145) (4,559) (4,936)
Provision for income taxes - - -
-------- -------- --------
Net (loss) income ................ $ (7,145) $ (4,559) $ (4,936)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) For The Years
Ended June 30, 1997, 1996 And 1995
(Dollars In Thousands)
================================================================================
Additional
Common Stock Paid-in
------------
Shares Amount Capital
------ ------- ------
Balances, June 30, 1994 ............ 1,000 $ 469 $-
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1995 ............ 1,000 469 --
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1996 ............ 1,000 469 --
Net loss .......................... -- -- --
------ ------- ------
Balances, June 30, 1997 ............ 1,000 $ 469 $-
====== ======= ======
Retained
Earnings
(Deficit) Total
------- -------
Balances, June 30, 1994 ............ $ (475) $ (6)
Net loss .......................... (4,936) (4,936)
------- -------
Balances, June 30, 1995 ............ (5,411) (4,942)
Net loss .......................... (4,559) (4,559)
------- -------
Balances, June 30, 1996 ............ $(9,970) $(9,501)
Net loss .......................... (7,145) (7,145)
------- -------
Balances, June 30, 1997 ............ $(17,115) $(16,646)
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
--------
1997 1996 1995
-------- -------- --------
Cash flows from operating activities:
Net income (loss) ............................ $ (7,145) $ (4,559) $ (4,936)
-------- -------- --------
Adjustments to reconcile net income
(loss) to net provided by (used by)
operating activities:
Provision for losses on related
party receivables .......................... 220 601 1,592
Depreciation and amortization ............... 3,568 3,491 3,373
(Gain) loss on sale of equipment ............ (129) 11 (2)
(Increase) decrease in operating assets:
Receivables ................................. 233 185 (387)
Inventories ................................. 46 86 (108)
Prepaid expenses ............................ 322 241 (339)
Deposits and other .......................... (12) (41) (92)
Increase (decrease) in operating liabilities:
Accounts payable, net of amounts
for capital expenditures.................... (409) 3 (144)
Accrued interest ............................ 3,528 (21) 135
Accrued expenses ............................ 313 247 581
Management fees due to Becker Gaming, Inc. .. 665 1,395 3,099
-------- -------- --------
Total adjustments ......................... 8,345 6,198 7,708
-------- -------- --------
Net cash provided by operating activities . 1,200 1,639 2,772
-------- -------- --------
Cash flows from investing activities:
Note receivable issued to CQC ............... -- -- (1,200)
Capital expenditures, net of amounts in
accounts payable ........................... (501) (190) (24,253)
Increase in receivable from Becker Gaming,
Inc. ........................................ (569) (2,065) (4,154)
Net (additions to) reductions in restricted
cash equivalents .......................... -- -- 26,102
Proceeds from assets sales .................. 67 15 104
-------- -------- --------
Net cash used in investing activities ..... (1,003) (2,240) (3,401)
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowing under notes payable . 900 -- 2,250
Principal payments on notes payable ......... (193) (208) (199)
Payments under capital lease obligations .... (14) (4) (32)
-------- -------- --------
Net cash provided by (used in) financing
activities ................................. 693 (212) 2,019
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ................................ 890 (813) 1,390
Cash and cash equivalents, beginning of
the year .................................... 4,591 5,404 4,014
-------- -------- --------
Cash and cash equivalents, end of the year .... $ 5,481 $ 4,591 $ 5,404
======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
ARIZONA CHARLIE'S, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
1.Summary Of Significant Accounting Policies:
Nature Of Operations
- --------------------
Arizona Charlie's, Inc. ("AC" or the "Company") owns and operates
a casino and related hotel in Las Vegas, Nevada.
In connection with the financing transaction more fully discussed in Note 6, the
stockholders of AC exchanged all of their stock in the Company for stock of
Becker Gaming, Inc. ("BGI") (the "Reorganization") and, effective June 1, 1994,
AC became a wholly owned subsidiary of BGI. BGI has no independent activities
other than providing management and administrative services to, and exploring
and developing business opportunities for its subsidiaries, and serves as a
holding company for AC and the following entities:
* Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
formed to develop a riverboat casino in Jefferson City, Missouri
(the "Capitol Queen").
* Sunset Coin, Inc. ("SC"), a Nevada corporation which
operates a Las Vegas gaming machine route and service business.
* Becker Gaming Group ("BGG"), a Nevada corporation which, together with
its wholly owned subsidiary Innerout, Inc., owns and operates restaurants
and bars in Las Vegas under the "Charlie's" name, each of which offers
gaming machines.
Subsequent to the Reorganization, certain overhead expenses of the Company
(primarily related to executive compensation), have been eliminated. However,
effective June 1, 1994, the Company is required to pay a management fee to BGI
in connection with executive services equal to a percentage of the Company's
gross operating revenues. Under the AC Indenture, no management fees will be
paid by AC until AC has attained a specified fixed charge coverage ratio of 2.25
to 1. However, such fees accrue without interest, until paid. See Note 9 of AC's
Notes to Financial Statements.
Gaming Revenue
- --------------
In accordance with industry practice, the Company recognizes as gaming revenue
the net win from gaming activities, which is the difference between gaming wins
and losses.
Promotional Allowances
- ----------------------
The retail value of hotel accommodations, food, beverage and gift shop items
provided to customers without charge is included in gross revenues and then
deducted as promotional allowances to arrive at net revenues. The estimated
costs of providing such promotional allowances have been classified as gaming
expenses through interdepartmental allocations, as follows:
<TABLE>
Years Ended June 30,
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hotel ....................... $ 349,000 $ 261,000 $ 164,000
Food and Beverage ........... 4,094,000 3,824,000 2,260,000
--------- --------- ---------
$4,443,000 $4,085,000 $2,424,000
========== ========== ==========
</TABLE>
Cash Equivalents And Concentration Of Credit Risk
- -------------------------------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company has cash on deposit
with financial institutions in excess of federally insured amounts.
Inventories
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market.
Property And Equipment
- ----------------------
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense when incurred. Upon retirement or disposal of assets, the cost and
accumulated depreciation are eliminated from the accounts and the resulting gain
or loss is credited or charged to income, as appropriate.
Building, building improvements and land improvements are depreciated using the
straight-line method over estimated useful lives of 5 to 40 years. Furniture and
equipment are depreciated using straight-line and declining balance methods over
estimated useful lives of 5 to 10 years.
Financing Costs
- ---------------
Costs associated with the issuance of debt are deferred and amortized over the
life of the related indebtedness using the effective interest method.
Preopening Expense
- ------------------
Certain preopening costs, consisting principally of personnel costs, training
and other costs directly associated with the opening of a new hotel-casino or
significant expansions of the existing hotel-casino are capitalized and charged
to expense over a period not to exceed one year following the commencement of
related operations. During the year ended June 30, 1994, the Company capitalized
$27,000 of preopening costs which were amortized during the year ended June 30,
1995 after the expansion was completed. During the years ended June 30, 1997 and
1996, the Company did not capitalize any preopening costs.
Federal Income Taxes
- --------------------
Effective January 1, 1994, the Company terminated its S corporation election and
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
In connection with the Reorganization, beginning June 1, 1994, the Company is
included in the consolidated federal income tax returns filed by BGI. AC's tax
allocation is based on the amount of tax it would incur if it filed a separate
return.
Reclassifications
- -----------------
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates, particularly with respect to
the matters discussed in Note 2.
2.CQC Gaming License, Default Under Indebtedness, Management's Plans, And Going
Concern:
CQC was formed to develop, own and operate the "Capitol Queen" riverboat casino
and related land-based facilities in Jefferson City, Missouri. On September 28,
1994, CQC was notified that its application for a gaming license was rejected by
the Missouri Gaming Commission (the "Commission"). At the time CQC was notified
of the Commission's decision, construction of the riverboat under contract with
a shipbuilder was almost completed. CQC had also obtained the necessary permits
for the land-based development portion of the project and performed certain
dredging and other site preparation work. Immediately following the Commission's
decision, management temporarily suspended further development of the Capitol
Queen project, pending an appeal of the decision and legal remedies potentially
available to the Company.
On November 7, 1995, voters in Jefferson City rejected an ordinance permitting
riverboat gambling, reversing the vote of an earlier election in which Jefferson
City voters approved riverboat gambling. Management subsequently abandoned the
project and is currently looking for alternative uses for the riverboat,
including opportunities to sell or lease it to another operator.
CQC financed the Capitol Queen project through the issuance of $40,000,000 in
principal amount of 12% First Mortgage Notes due November 15, 2000 (the "CQC
Notes"). As of January 1, 1995, the indenture governing the CQC Notes was
amended to (i) eliminate CQC's obligation to construct and open the Capitol
Queen and (ii) permit a two-step purchase of the CQC Notes at 101% of principal
plus accrued and unpaid interest from a sale of assets. The first step
repurchase of $20,000,000 principal amount of the CQC Notes (plus accrued and
unpaid interest) was completed on January 17, 1995, with unexpended funds from
the project escrow account, and an aggregate of $20,000,000 principal amount of
the CQC Notes remained outstanding. However, the dates by which CQC previously
agreed with the holders of the CQC Notes to effect the sale of its assets and
repurchase the remaining CQC Notes have passed, and CQC is thus in default of
the amended covenants.
The remaining CQC Notes require annual interest payments of $2,400,000, payable
in equal installments semi-annually on May 15 and November 15. CQC was not able
to make its scheduled interest payments of $1,200,000 on November 15, 1995, May
15, 1996, November 15, 1996 and May 15, 1997 and AC (which has guaranteed the
CQC Notes as more fully described below) did not have available funds to advance
on behalf of CQC.
Concurrent with the issuance of the CQC Notes, AC completed a private placement
debt financing of $55,000,000 in principal amount of 12% First Mortgage Notes
due November 15, 2000 (the "AC Notes"). The AC Notes require annual interest
payments of $6,600,000, payable in equal installments semi-annually on May 15
and November 15. AC was not able to make its scheduled interest payment of
$3,300,000 on May 15, 1997 and SC (which has guaranteed the AC Notes as more
fully described below) did not have available funds to advance on behalf of AC.
AC is also in default of certain covenants under the AC Notes as more fully
described in Note 6. AC is restricted from selling assets under the covenants
governing the AC Notes and management believes that access to additional capital
from other sources is restricted as result of the above-described circumstances.
AC does not have sufficient financial resources (including a guarantee of the AC
Notes by SC, as more fully described below) to repay the AC Notes on a current
basis and satisfy its guarantee obligation (as more fully described below) with
respect to the CQC Notes.
The CQC Notes are guaranteed by AC (which guarantee is subject to release only
upon licensing of the Capitol Queen, which is not expected). The AC Notes are
guaranteed by SC (which guarantee is subject to release upon completion of the
Expansion, which management believes has been satisfied, and the attainment of a
fixed-coverage ratio by AC of 2.25 to 1 following the completion of the
Expansion, which has not been satisfied). The amount and extent of AC's guaranty
of the CQC Notes is in dispute. Legal counsel has advised management that, under
the terms of CQC indenture regarding fraudulent conveyance, the guarantee
liability of AC is not expected to be material.
On July 3, 1997 CQC received a notice of acceleration (the "Notice") from the
trustee and collateral agent for the CQC Notes. Pursuant to section 6.02 of the
indenture governing the CQC Notes, due to certain violations of the indenture
(as more fully described above), all of the outstanding CQC Notes are
immediately due and payable together with all accrued and unpaid interest
thereon.
On September 5, 1997, AC received a notice of acceleration from the trustee and
collateral agent for the AC Notes. Pursuant to section 6.02 of the indenture
governing the AC Notes, due to certain violations of the indenture (as more
fully described in Note 6), all of the outstanding AC Notes are immediately due
and payable together with all accrued and unpaid interest thereon.
CQC continues to market its riverboat assets to prospective buyers. Management
of the Company, AC and CQC are currently undergoing discussions with an informal
committee representing the holders of the AC Notes and CQC Notes (the
"Bondholder Committee") regarding a proposed restructuring plan. Based on
current market conditions, management does not expect that CQC will generate
sufficient funds through the sale of its assets to repurchase all of the
outstanding CQC Notes. The proposed restructuring plan therefore contemplates,
amongst other terms and conditions, (i) liquidation of CQC's remaining assets
for the benefit of the CQC bondholders, (ii) a limited cash payment by AC as
full and complete satisfaction of AC's guaranty of the CQC Notes, and (iii) AC's
issuance of a reduced amount of new notes as full and complete satisfaction of
the existing AC Notes. However, no satisfactory offers for the riverboat are
currently available, and no agreement has been reached with the Bondholder
Committee regarding the proposed restructuring plan. Accordingly, these matters
raise substantial doubt about the ability of AC to continue as a going concern.
The final outcome of these matters is not presently determinable and the June
30, 1997 financial statements of AC do not include any adjustment that might
result from the outcome of this uncertainty.
3.Supplemental Cash Flow Information:
The following are supplemental disclosures of cash flow information for the
years ended June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> .................................. <C> <C> <C>
Interest paid, net of amounts
capitalized ........................ $3,747,000 $7,116,000 $7,115,000
========== ========== ==========
Capitalized lease obligations
incurred ........................... $ 17,000 $ 34,000 $ 9,000
========== ========== ==========
Assets acquired through issuance of
long-term debt ................ .... $1,748,000 $ -- $ --
========== ========== ==========
Net transfer of assets and related
liabilities from Becker Gaming, Inc. $ -- $ -- $ 25,000
========== ========== ==========
</TABLE>
4.Accrued Expenses:
Major classes of accrued expenses consist of the following as of June 30, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Wages payable and accrued salaries $ 824,000 $ 811,000
Accrued vacation ................. 336,000 306,000
Group insurance .................. 447,000 352,000
Gaming taxes ..................... 221,000 239,000
Payroll and other taxes .......... 356,000 405,000
Charlie Card slot club liability . 221,000 -
Progressive slot and table games .
liability ....................... 124,000 88,000
Other accrued expenses ........... 113,000 128,000
------- -------
$2,642,000 $2,329,000
========== ==========
</TABLE>
5.Notes Payable:
Notes payable consist of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Related parties:
Notes payable to SC with interest at 5.56%
uncollateralized and due May 1998 ............ $2,250,000 $2,250,000
Note payable to SC with interest at 4.50%
uncollateralized and due January, 1998 ..... 900,000 -
Nonrelated parties:
5.96% note payable in monthly
installments of $21,616, including interest,
through December, 1997, uncollateralized .... $ 106,000 $ 110,000
---------- ----------
3,256,000 2,360,000
Less current portion ........... (3,256,000) (2,360,000)
$ - $ -
========== ==========
</TABLE>
6.Long-Term Debt:
Long-term debt consists of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
12.75% note payable with interest and
principle due in monthly installments
through May, 2002 collateralized by
various slot equipment of AC and
personal guarantees of the
stockholders BGI ...................... $ 1,540,000 $ -
Othernotes payable due in monthly principle
only installments through June,
1998 collateralized by slot
machine equipment of the company ...... 208,000 -
12% First Mortgage Notes Due November 15,
2000 (the "AC Notes") with interest
payable semiannually classified as
currently payable due to defaults under
covenants (see below) ................. 55,000,000 55,000,000
---------- ----------
56,748,000 55,000,000
Less current portion ... (55,464,000) (55,000,000)
$ 1,284,000 $ -
=========== ============
</TABLE>
On November 18, 1993, the Company completed a private placement of the AC Notes.
The offering generated net proceeds of approximately $33,684,000 (after
deducting debt financing costs and approximately $16,791,000 used to repay
principal and accrued interest to a bank which was due and payable on November
18, 1993). The AC Notes are guaranteed by SC (which guarantee is subject to
release upon completion of the Expansion which management believes has been
satisfied and the attainment of a fixed coverage ratio by the Company of 2.25 to
1, following the completion of the Expansion, which has not been satisfied) and
are collateralized by a first mortgage on substantially all of assets of the
Company, including the Expansion.
As of June 30, 1997, AC is in default of certain debt covenants under the
Indenture governing the AC Notes. These covenant violations include (i) a
failure to meet a minimum Fixed Charge Coverage ratio, as defined in the
Indenture; (ii) advances by AC to Becker Gaming, Inc. which exceed amounts
allowed for under the Indenture (which advances remain outstanding at June 30,
1997); (iii) beginning in the fourth quarter of fiscal 1997, exceeding the
amount of new indebtedness allowed for under the Indenture; (iv) beginning with
the quarter ending December 31, 1995, AC has not met the Minimum Tangible Net
Worth Ratio of 1.5 to 1.0, as defined in the Indenture; and (v) AC did not make
its required semi-annual interest payment of $3,300,000 on May 15, 1997. In
addition, beginning with the quarter ending December 31, 1995, AC has not met
the Minimum Tangible Net Worth requirement defined in the Indenture. Under the
terms of the Indenture, AC is technically required to offer to buy back
$33,000,000 of the outstanding AC Notes at June 30, 1997 due to the failure to
meet this covenant, increasing by $5,500,000 each fiscal quarter. AC has not
made such offer and does not intend to do so while the discussions with the
Bondholder Committee are in process. As a result of these defaults under
covenants and demand for payment made by the Trustee, the AC Notes have been
classified as currently payable in the accompanying financial statements.
Management's plans are more fully described in Note 2.
The Indenture governing the AC Notes limits the use of the net proceeds from the
offering to fund the cost of the Expansion. The proceeds were placed in escrow
with a trustee pending draw- downs for qualifying project expenditures and are
classified as restricted cash, in escrow account, in the accompanying financial
statements. The AC Notes are not subject to mandatory redemption, except upon a
change of control, decline in tangible net worth, or certain assets sales, all
as defined in the Indenture. The Company has the option to redeem the AC Notes
at a premium of 106% beginning on November 15, 1997, declining to par value on
November 15, 1999.
The Indenture contains covenants that, among other things, limit the ability of
the Company and, in certain cases, SC, to pay dividends or management fees, or
incur additional indebtedness. The Indenture also requires the Expansion to be
completed in a specified manner and time frame, which management believes has
been achieved.
In connection with AC's guarantee of the CQC Notes, the Indenture governing the
CQC Notes imposes certain restrictive covenants on the Company, including
minimum cash flow and net worth requirements and restrictions on additional
borrowings and distributions of earnings.
Maturities of long-term debt at June 30, 1997 (including the AC Notes which have
been classified as current) are as follows:
<TABLE>
<S> <C>
1998 $55,464,000
1999 270,000
2000 304,000
2001 348,000
2002 362,000
Thereafter -
-----------
$56,748,000
===========
</TABLE>
7.Income Taxes:
For the fiscal years ended June 30, 1997, 1996 and 1995, the Company incurred
net operating losses for federal income tax purposes, and accordingly, these
financial statements do not include a provision for federal income taxes.
The components included in determining the provision for income taxes are shown
below for the years ended June 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision at federal income tax
statutory rate ............... $(2,429,000) $(1,550,000) $(1,678,000)
Increase (decrease) in taxes
resulting from:
Unrecognized tax benefit from
net operating losses ......... 2,373,000 1,489,000 1,633,000
Other ........................ 56,000 61,000 45,000
------ ------ ------
Income tax provision $ -- $ -- $ --
=========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes. The major components of
deferred tax liabilities and assets as of June 30, 1997 and 1996 were as
follows: <TABLE> <CAPTION>
1997 1996
---- ----
Liabilities
- -----------
<S> <C> <C>
Depreciation ........................... $ 960,000 $ 542,000
----------- -----------
Assets
- ------
Allowances for bad debts ............... 820,000 745,000
Federal net operating loss carryforwards 5,836,000 3,119,000
--------- ---------
Total deferred tax assets ..... 6,656,000 3,864,000
Valuation allowance .................... (5,696,000) (3,322,000)
---------- ----------
Net deferred taxes ............ $ -- $ --
=========== ===========
</TABLE>
As of June 30, 1997, the Company had a federal net operating loss carryforward
of approximately $17,165,000 which expires between 2009 and 2012.
8.Leases And Commitments:
The Company has entered into capital lease agreements whereby the Company leases
various equipment under three-and five-year leases which expire at various dates
through 2001.
Property and equipment includes the following property leased under capital
leases as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment ................... $ 60,000 $ 43,000
Less accumulated depreciation (9,000) (3,000)
------ ------
$ 51,000 $ 40,000
======== ========
</TABLE>
The Company leases office space under a 10-year operating lease, which expires
in 1998, from Charleston Heights Shopping Center ("CHSC"), a company related
through common ownership, as more fully described in Note 9.
Future minimum lease payments, by year and in the aggregate, under capital
leases and noncancellable operating leases with initial or remaining terms of
one year or more consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
Capital Lease Operating Leases
------------- ----------------
<S> <C> <C>
1998 15,000 $226,000
1999 15,000 --
2000 14,000 --
2001 4,000 --
- ---- ----- -----
Total minimum lease payments .......... $ 48,000 $226,000
========
Less amount representing interest ............ (7,000)
-----
Present value of net minimum
lease payments ....................... 41,000
Less current portion ......................... (12,000)
-------
Obligations under capital leases $ 29,000
========
</TABLE>
Aggregate rental expense under operating leases for the years ended June 30,
1997, 1996 and 1995 was $222,000, $217,000 and $191,000, respectively.
The following balances due to or from related parties existed as of June 30,
1997 and 1996. The identified related parties are stockholders of the Company or
affiliated companies related through common ownership.
<TABLE>
June 30, 1997
================================================================================
<CAPTION>
Current Noncurrent Notes
Receivables Receivables Receivable
----------- ----------- -----------
<S> <C> <C> <C>
Former Stockholders of the
Company ..................... $ 22,000 $ 165,000 --
BGI ......................... 2,584,000 -- $ 4,416,000
Sunset Coin ................. (63,000) -- --
Becker Vending .............. (15,000) -- --
Becker Enterprises .......... 1,000 -- --
CQC ......................... 1,213,000 -- 1,200,000
BGG:
Charlie's Lakeside ...... 5,000 -- --
Charlie's Bar ........... 16,000 -- --
Cantina Charlie's ....... 19,000 -- --
Cariba Charlie's ........ 26,000 45,000 --
Charlie's Saloon ........ 11,000 -- --
Charlie's Down Under .... 59,000 -- --
----------- ----------- -----------
Total ....................... 3,878,000 210,000 5,616,000
Less: Allowance for doubful
collection of amounts
due from CQC ........ (1,213,000) -- (1,200,000)
----------- ----------- -----------
$ 2,665,000 $ 210,000 $ 4,416,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Management
Fee and Subordinated
Accounts Notes Notes
Payable Payable Payable
---------- ---------- ----------
<S> <C> <C> <C>
Former Stockholders of the
Company ......................... $ -- $ -- $5,000,000
BGI ............................. 5,347,000 -- --
Sunset Coin ..................... -- 3,150,000 --
Becker Vending .................. -- -- --
Becker Enterprises .............. -- -- --
CQC ............................. -- -- --
BGG:
Charlie's Lakeside .......... -- -- --
Charlie's Bar ............... -- -- --
Cantina Charlie's ........... -- -- --
Cariba Charlie's ............ -- -- --
Charlie's Saloon ............ -- -- --
Charlie's Down Under ........ -- -- --
---------- ---------- ----------
Total ........................... 5,347,000 3,150,000 5,000,000
Less: Allowance for doubful
collection of amounts
due from CQC ............ -- -- --
---------- ---------- ----------
$5,347,000 $3,150,000 $5,000,000
========== ========== ==========
</TABLE>
<TABLE>
June 30, 1996
================================================================================
<CAPTION>
Current Noncurrent Notes
Receivables Receivables Receivable
----------- ----------- -----------
<S> <C> <C> <C>
Former Stockholders of the
Company .......................... $ 14,000 $ 165,000 $ --
BGI .............................. 1,400,000 747,000 4,416,000
Sunset Coin ...................... 47,000 -- --
Becker Vending ................... -- -- --
Becker Enterprises ............... 1,000 -- --
CQC .............................. 993,000 -- 1,200,000
BGG:
Charlie's Lakeside ........... (7,000) -- --
Charlie's Bar ................ 10,000 -- --
Cantina Charlie's ............ 11,000 -- --
Cariba Charlie's ............. 13,000 75,000 --
Charlie's Saloon ............. 6,000 -- --
Charlie's Down Under ......... 44,000 -- --
----------- ----------- -----------
Total ............................ 2,532,000 987,000 5,616,000
Less: Allowance for doubful
collection of amounts
due from CQC ............. (993,000) -- (1,200,000)
----------- ----------- -----------
$ 1,539,000 $ 987,000 $ 4,416,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Management Fee Subordinated
and Accounts Notes Notes
Payable Payable Payable
---------- ---------- ----------
<S> <C> <C> <C>
Former Stockholders of the
Company ........................... $ 4,000 $ -- $5,000,000
BGI ............................... 4,682,000 -- --
Sunset Coin ....................... -- $2,250,000 --
Becker Vending .................... -- -- --
Becker Enterprises ................ -- -- --
CQC ............................... -- -- --
BGG:
Charlie's Lakeside ............ -- -- --
Charlie's Bar ................. -- -- --
Cantina Charlie's ............. -- -- --
Cariba Charlie's .............. -- -- --
Charlie's Saloon .............. -- -- --
Charlie's Down Under .......... -- -- --
---------- ---------- ----------
Total ............................. 4,686,000 2,250,000 5,000,000
Less: Allowance for doubful
collection of amounts
due from CQC .............. -- -- --
---------- ---------- ----------
$4,686,000 $2,250,000 $5,000,000
========== ========== ==========
</TABLE>
CHSC owns the land on which the Company's administrative offices are located
and, prior to the Reorganization, CLC owned the land on which the Company's
operations are located. Rent expense paid to CHSC and CLC and included in
results of operations of the Company was $222,000, $217,000 and $191,000 for the
years ended June 30, 1997, 1996 and 1995, respectively. The rental fees include
the cost of insurance, taxes and common area maintenance on the land.
Receivables from BGG, stockholders of the Company and BGI bear interest at 8.0%,
4.5% and 6.0%, respectively. Interest income from related parties was $265,000,
$245,000 and $168,000 for the years ended June 30, 1997, 1996 and 1995,
respectively.
In anticipation of the January 1, 1994 termination of the Company's S
corporation election, on December 24, 1993, the Company distributed $5,000,000
to its stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable monthly, with the entire principal amount due on January 1, 2001.
During the years ended June 30, 1995 and 1997, the Company borrowed $2,250,000
and $900,000, respectively from SC for general working capital purposes. As
described in Note 5 these obligations are due in 1998 with interest payable at
5.56% and 4.50%, respectively.
Interest expense incurred under related party notes was $651,000, $633,000 and
$550,000 for the years ended June 30, 1997, 1996 and 1995, respectively. As of
June 30, 1997 and 1996 accrued interest expense under related party notes was
$397,000 and $169,000, respectively.
In May, 1995, CQC borrowed $1,200,000 from AC in order to have funds to make the
semi-annual interest payment due on the CQC Notes. The borrowing was executed as
an uncollateralized note payable to AC due May, 1996 with interest at the rate
of 5.56%. Due to the current financial condition of CQC, management has
determined that collectibility of the note, and of other advances of $301,000
(1995), $692,000 (1996) and $220,000 (1997) made to CQC, is doubtful.
Accordingly, provisions were made to fully reserve the advances and note payable
and losses have been recorded in the accompanying financial statements as
payments under guarantee obligations.
The Company has advanced to BGI an aggregate of approximately $6,364,000 to fund
BGI's operating expenses from June 1994 through June 1997 of which $4,416,000
represented notes receivable that are interest bearing and have been classified
as noncurrent based on management's expectation for the timing of repayments
from BGI. At June 30, 1997, accrued interest receivable on the interest bearing
portion of the advances to BGI totaled $636,000. The matters described in Note 2
raise substantial doubt about the ability of BGI's principal subsidiaries (and,
thus BGI) to continue as a going concern. Accordingly, management of the Company
believes it is reasonably possible that a portion, or the entire balance, of the
notes receivable from BGI will be uncollectible. However, an estimate of the
loss cannot presently be determined and no adjustment has been made to the
carrying value or classification of the notes receivable at June 30, 1997.
At June 30, 1997, the Company owed BGI approximately $5,347,000 in accrued
management fees. Under the terms of the indenture governing the AC Notes, these
fees cannot be paid to BGI until a specified fixed charge coverage ratio is
achieved.
Due to the decision to suspend development of CQC's riverboat casino project and
sell its assets, the majority of BGI's management and administrative services
are anticipated to benefit AC in the future. Accordingly, in late March 1995,
BGI transferred approximately 40 employees involved in accounting and
administrative functions from BGI to AC. These employees were originally
employees of AC and were transferred to BGI in June 1994, when the
Reorganization became effective. In connection with this transfer, in October
1995, the Company temporarily reduced the amount of the BGI management fee to a
net 1.0% of AC's gross revenues (previously 5.0% of gross revenues) based on the
reduction in services it will receive from BGI in the future. Such reduced
management fees continue to be in effect at June 30, 1997.
The Company's president operates a sole proprietorship under the name "Becker
Vending" which places arcade, cigarette, music and other vending machines at
Arizona Charlie's. The Company provides nominal collection and accounting
services to Becker Vending in connection with these machines. The Company does
not receive any rental fee or other payment from Becker Vending in connection
with these agreements. Becker Vending retains all amounts deposited in its
vending machines. Becker Vending also sells to the Company cigarettes, candy and
similar items for resale in the Arizona Charlie's gift shop.
10.Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending litigation
and claims will not have a material effect on the Company's results of
operations, cash flows, or financial position.
11. Defined Contributions Plan:
The Company has adopted a 401(k) Defined Contribution Plan (the "Plan") covering
substantially all of its employees. Eligible employees may contribute up to 10%
of their annual compensation to the Plan, up to certain limits prescribed by the
Internal Revenue Service. The Company matches 25% of each eligible employee's
contributions up to a maximum of 6% of their individual earnings. In addition,
the Company contributes an amount equal to 2% of each participant's earnings.
The Plan went into effect July 1, 1990.
The Company recorded charges for contributions of $548,000, $495,000 and
$395,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
12. Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
payable approximate their respective fair values due to the short-term
maturities and approximate market interest rates of these instruments.
Management is unable to determine a fair value for the outstanding $55,000,000
principal amount of 12% First Mortgage Notes due November 15, 2000 of Arizona
Charlie's, Inc. (the "AC Notes") or the outstanding $20,000,000 principal amount
($17,908,000 carrying amount at June 30, 1997) of 12% First Mortgage Notes due
November 15, 2000 of Capitol Queen and Casino, Inc. (the "CQC Notes"), which are
guaranteed by AC. As of June 30, 1997 the effective interest rate of the AC
Notes was 12%. It is not practicable to determine the fair value of these
financial instruments due to the debt covenant violations and related
uncertainties involved in negotiations with the holders of AC Notes and CQC
Notes, as more fully discussed in Note 2.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors
Sunset Coin, Inc.
We have audited the financial statements and the financial statement schedule of
Sunset Coin, Inc. (a wholly owned subsidiary of Becker Gaming, Inc.) listed in
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunset Coin, Inc. as of June
30, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
The accompanying financial statements and financial statement schedule have been
prepared assuming that Sunset Coin, Inc. will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company is obligated as a
guarantor of certain of the indebtedness of Arizona Charlie's, Inc. ("AC"), a
company affiliated through common ownership, and such indebtedness is in default
of certain of its covenants and demand has been made for immediate payment of
the debt. AC is currently negotiating a restructuring of this indebtedness and
management's plans are described in Note 2. Should AC be unsuccessful in
modifying this indebtedness, the Company may be required to then satisfy its
guarantee obligation. The Company does not have sufficient resources available
to satisfy such obligation. These matters raise substantial doubt about the
ability of Sunset Coin, Inc. to continue as a going concern. The final outcome
of these matters is not presently determinable and the June 30, 1997 financial
statements of Sunset Coin, Inc. do not include any adjustment that might result
from the outcome of this uncertainty.
/(s)/ Coopers & Lybrand L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
BALANCE SHEETS
As Of June 30, 1997 And 1996
(Dollars In Thousands)
================================================================================
ASSETS
1997 1996
------- -------
Current assets:
Cash ............................................. $ 707 $ 1,122
Current portion of notes receivable, net ......... 222 117
Notes receivable from related party .............. 3,150 2,250
Advances to related parties ...................... 312 111
Other receivables ................................ 27 105
Interest receivable from related party ........... 313 169
Prepaid expenses ................................. 45 46
------- -------
Total current assets ......................... 4,776 3,920
------- -------
Property and equipment:
Building and leasehold improvements .............. 174 174
Furniture, fixtures and equipment ................ 3,068 2,885
------- -------
3,242 3,059
Less, accumulated depreciation ................... (1,604) (1,370)
------- -------
Net property and equipment ................ 1,638 1,689
------- -------
Notes receivable, less current portion, net ........ 18 194
Other assets, less accumulated amortization
of $37 (1997) and $24 (1996) ..................... 75 88
------- -------
Total other assets ........................... 93 282
------- -------
Total assets ................................. $ 6,507 $ 5,891
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
1997 1996
------ ------
Current liabilities:
Trade accounts payable ................................. $ 13 $ 44
Accrued expenses ....................................... 39 55
Accrued taxes payable to related party ................. 779 553
Current portion of long- term debt ..................... 322 279
------ ------
Total current liabilities ........................ 1,153 931
------ ------
Long-term liabilities:
Long-term debt, less current portion .................. 305 502
Subordinated notes payable to
prior stockholders .................................. 3,000 3,000
------ ------
Total liabilities .................................. 4,458 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 ...................................... 2,022 1,431
------ ------
Total stockholder's equity ......................... 2,049 1,458
------ ------
Total liabilities and stockholder's
equity ............................................. $6,507 $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
(Dollars In Thousands)
================================================================================
Year Ended
June 30,
----------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenues:
Slot route:
From locations controlled by
related parties ............. $2,424 $2,370 $2,331
Other ......................... 126 153 279
Slot service fees:
From related parties .......... 85 93 77
Other ......................... 32 33 55
----------- ----------- -----------
Total revenues ........... 2,667 2,649 2,742
Operating expenses:
Slot route and service .......... 1,350 1,311 1,112
General and administrative ...... 51 86 103
Management fee -
Becker Gaming, Inc. ........... 140 137 150
Depreciation and amortization ... 288 298 249
----------- ----------- -----------
Total operating
expenses ............... 1,829 1,832 1,614
----------- ----------- -----------
Operating income ......... 838 817 1,128
----------- ----------- -----------
Other income (expense):
Interest income ................. 191 171 146
Interest expense ................ (366) (398) (356)
Rental and other income ......... 153 102 101
Net gain (loss)on sales of
equipment ..................... 1 (115) (13)
----------- ----------- -----------
Total other income
(expense) .............. (21) (240) (122)
----------- ----------- -----------
Income before
income taxes ........... 817 577 1,006
Provision for income taxes ........ (226) (196) (318)
----------- ----------- -----------
Net income ............... $591 $381 $688
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY For The Years Ended
June 30, 1997, 1996 And 1995
(Dollars In Thousands)
================================================================================
Common
Stock
-----------------------------------
Shares Amount
------ ------
Balances, June 30, 1994 ................ 400 $ 27
Net income .......................... -- --
------ ------
Balances, June 30, 1995 ................ 400 27
Net income ........................... -- --
------ ------
Balances, June 30, 1996 ................ 400 27
------ ------
Net income .......................... -- --
------ ------
Balance, June 30, 1997 ................. 400 $ 27
====== ======
Retained
Earnings Total
------- -------
Balances, June 30, 1994 .................................. $ 362 $ 389
Net income ............................................ 688 688
------- -------
Balances, June 30, 1995 .................................. 1,050 1,077
Net income ............................................. 381 381
------- -------
Balances, June 30, 1996 .................................. 1,431 1,458
------- -------
Net income ............................................ 591 591
------- -------
Balance, June 30, 1997 ................................... $ 2,022 $ 2,049
======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary of Becker Gaming, Inc.)
STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
================================================================================
Year Ended June 30,
-----------------------------
1997 1996 1995
------- ------- -------
Cash flows from operating activities:
Net income ................................... $ 591 $ 381 $ 688
------- ------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for losses on notes receivable ... -- 44 44
Depreciation and amortization .............. 288 298 249
Net loss on sales of equipment ............. (1) 115 13
(Increase) decrease in operating assets:
Other receivables ......................... 78 (3) (5)
Interest receivable from related party .... (144) (125) (44)
Prepaid expenses .......................... 1 -- (2)
Other assets .............................. -- (6) (59)
Increase (decrease)in operating liabilities:
Accounts payable .......................... (31) (25) (6)
Accrued expenses .......................... (16) 128 158
Accrued taxes payable to related .......... 226 196 102
------- ------- -------
Total adjustments ...................... 401 622 450
------- ------- -------
Net cash provided by operating
activities ............................ 992 1,003 1,138
------- ------- -------
Cash flows from investing activities:
Capital expenditures ......................... (63) (208) (1,142)
Proceeds from sales of equipment ............. 19 12 26
Increase in related parties notes receivable . (900) -- (2,250)
Increase (decrease) in advances to
related parties ............................. (201) (72) 96
Issuance of notes receivable ................. -- -- (25)
Repayments of notes receivable ............... 71 88 161
------- ------- -------
Net cash provided by (used in)
investing activities .................. (1,074) (180) (3,134)
------- ------- -------
Cash flows from financing activities:
Proceeds from notes payable .................. -- 109 738
Principal payments on notes payable .......... (333) (316) (176)
------- ------- -------
Net cash used (provided)
in financing activities ............... (333) (207) 562
------- ------- -------
Net increase in cash ................... (415) 616 (1,434)
Cash, beginning of year ........................ 1,122 506 1,940
------- ------- -------
Cash, end of year .............................. $ 707 $ 1,122 $ 506
======= ======= =======
Supplemental cash flow disclosures:
Interest paid ................................. $ 395 $ 395 $ 352
======= ======= =======
Assets acquired through issuance of
long-term debt .............................. $ 180 $ 69 $ --
======= ======= =======
Income taxes paid ............................. $ -- $ -- $ 102
======= ======= =======
Assets acquired by forgiveness of
accounts receivable .......................... $ -- $ 49 $ --
======= ======= =======
The accompanying notes are an integral part of these financial statements.
================================================================================
SUNSET COIN, INC.
(A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
1.Summary Of Significant Accounting Policies:
Nature Of Operations
- --------------------
Sunset Coin, Inc. ("SC" or the "Company") operates a slot route in Las Vegas,
Nevada. The Company owns slot machines which it places in licensed locations. In
addition, the Company provides slot machine maintenance services to other owners
of slot machines pursuant to service agreements. At June 30, 1997, the Company
had route and service agreements with 32 slot locations which have between 4 and
35 slot machines each.
Effective June 1, 1994, the stockholders of SC exchanged all of their stock in
the Company for stock of Becker Gaming, Inc. ("BGI") (the "Reorganization"), and
SC became a wholly owned subsidiary of BGI. BGI has no independent business
activities other than providing management and administrative services to, and
exploring and developing business opportunities for, its subsidiaries, and
serves as a holding company for SC and the following entities:
* Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
* Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
formed to develop a riverboat casino in Jefferson City, Missouri
(the "Capitol Queen").
* Becker Gaming Group ("BGG"), a Nevada corporation which (together with
its wholly owned subsidiary, Innerout, Inc.) owns and operates
restaurants and bars in Las Vegas under the "Charlie's" name, each of
which offers gaming machines.
Effective June 1, 1994, the Company pays a management fee to BGI in connection
with executive and administrative services equal to 5% of the Company's gross
operating revenues.
Revenue
- -------
The primary source of revenue is from slot route participation agreements with
unaffiliated locations in which the Company recognizes as slot revenue a
predetermined percentage (operator's share) of the net win from Company-owned
machines at the slot locations. In accordance with industry practice, net win
from slot activities consists of the slot drop less jackpots and fills. The
percentage of the net win that the Company and the slot locations receive is
determined by individual participation agreements between the parties.
In addition, the Company also generates revenue under slot service agreements.
Under the agreements, the Company receives a fixed fee and certain cost
reimbursements in exchange for maintaining proprietor-owned slot machines.
The Company's participation agreements and slot service agreements range between
1 and 9 years in length and expire, subject to renewal, at various dates through
2003. At June 30, 1997, 221 (approximately 85%) of the machines operated or
serviced by the Company were installed at unaffiliated locations controlled by
the stockholders of BGI (as lessor), through restrictive lease provisions.
Property And Equipment, And Depreciation
- ----------------------------------------
Property and equipment are stated at cost. Expenditures for additions, renewals
and betterments are capitalized and expenditures for repairs and maintenance are
charged to expense as incurred. Upon retirement or disposal of assets, the cost
and accumulated depreciation are eliminated from the accounts and the resulting
gain or loss is credited or charged to income. Depreciation is computed by
either the straight-line or declining balance method over estimated useful lives
of 5 to 10 years for furniture, fixtures and equipment or, for buildings and
leasehold improvements, the lesser of the useful life or the lease term which
range from 5 to 40 years.
Cash Equivalents And Concentration Of Credit Risk
- -------------------------------------------------
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company has cash on deposit
with financial institutions in excess of federally insured amounts.
Income Tax Status
- -----------------
Effective January 1, 1994, the Company terminated its S corporation election and
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
In connection with the Reorganization, beginning June 1, 1994, the Company is
included in the consolidated federal income tax returns filed by BGI. SC's tax
allocation is based on the amount of tax it would incur if it filed a separate
return.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates, particularly with respect to
the matters described in Notes 2 and 3.
Reclassifications
- -----------------
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.
2. Guarantee Obligation, Management's Plans, and Going Concern:
SC has guaranteed the payment of interest and $55,000,000 principal amount of
12% First Mortgage Notes due November 15, 2000 issued by AC (the "AC Notes"). AC
is in default of certain covenants under the AC Notes as of June 30, 1997, and
on September 5, 1997 AC received a notice of acceleration from the trustee and
collateral agent for the AC Notes, and all of the outstanding AC Notes are
immediately due and payable together with all accrued and unpaid interest
thereon. In addition, AC has guaranteed the payment of interest and principal of
notes payable issued by CQC, (the amount and extent of which guaranty is in
dispute) of which $20,000,000 principal amount are outstanding at June 30, 1997.
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, amongst other terms and conditions, (i) liquidation
of CQC's remaining assets for the benefit of the CQC bondholders, (ii) a limited
cash payment by AC as full and complete satisfaction of AC's guarantee of the
CQC Notes, and (iii) AC's issuance of a reduced amount of new notes as full and
complete satisfaction of the existing AC Notes. However, no satisfactory offers
for the riverboat are currently available, and no agreement has been reached
with the holders of the AC Notes and CQC Notes regarding the proposed
restructuring plan.
Should AC be unable to complete its restructuring plan, it will not have the
financial resources to repay the AC Notes and honor its guarantee obligation
under the CQC Notes. The Company would thus likely be required to honor its
guarantee obligation of the AC Notes, and the Company does not have sufficient
resources to satisfy such obligation. Accordingly, these matters raise
substantial doubt about the ability of SC to continue as a going concern. The
final outcome of these matters is not presently determinable and the June 30,
1997 financial statements of SC do not include any adjustment that might result
from the outcome of this uncertainty.
3. Related-Party Transactions:
In anticipation of the January 1, 1994 termination of the Company's S
corporation election, on December 24, 1993, the Company distributed $3,000,000
to its stockholders, representing previously taxed, undistributed income. This
distribution was immediately loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable monthly, with the entire principal amount due on January 1, 2001.
Interest expense incurred by SC under the notes payable to prior shareholders
was $300,000, $300,000 and $300,000 for the years ended June 30, 1997, 1996 and
1995, respectively.
The payment of the SC stockholder notes is subordinated to any payments required
to be made by SC under its guarantee of the AC Notes.
The Company is involved in numerous other transactions with companies related
through common ownership. Such related-party transactions are summarized as
follows:
<TABLE>
Arizona Charlie's, Inc.
- -----------------------
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Uncollateralized notes receivable from AC
(interest at 5.56% and 4.50%)due May 1998
and Janaury, 1998 respectively ........... $ 3,150,000 $ 2,250,000
=========== ===========
Interest receivable from AC .................. 313,000 169,000
======= =======
Payables to AC .............................. - (46,000)
======= =======
Receivables from AC .......................... 67,000 -
======= =======
</TABLE>
The uncollateralized notes receivable from AC result from advances made by the
Company to AC for general working capital purposes. Due to the present financial
condition of AC, as described in Note 2, management of the Company believes it
is reasonably possible that a portion, or the entire balance, of the notes
receivable from AC will be uncollectible. However, an estimate of the loss
cannot presently be determined and no adjustment has been made to the carrying
value or classification of the notes receivable at June 30, 1997. Interest
earned by SC on the notes receivable from AC was $144,000, $125,000 and $44,000
for the years ended June 30, 1997, 1996 and 1995, respectively. The interest
receivable from AC and payables to AC are included in other receivables and
advances to related parties, respectively.
<TABLE>
Becker Gaming Group
- -------------------
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Advances to BGG ............................... $ 235,000 $ 149,000
========= =========
</TABLE>
The Company has executed slot service agreements with each of the BGG
restaurant/bar locations under which SC provides slot machine maintenance and
other services for a fixed fee. Fees paid by BGG to SC under the agreements are
included in slot service fee revenue in the accompanying financial statements
and totaled approximately $85,000, $93,000 and $77,000 in 1997, 1996 and 1995,
respectively.
During 1991, SC purchased the assets of a restaurant/bar facility for
approximately $525,000 for use by BGG. The Company entered into an agreement to
lease (as lessor) the facility (d.b.a. Charlie's Saloon) to BGG under an
agreement which was terminated when the facility was closed due to loss of a
third-party lease on April 21, 1996. In connection with the closing of the
facility, certain leasehold improvements and equipment were abandoned, and the
Company recognized a loss of $101,000 in 1996 representing the net book value of
the related assets. The liquor license with net book value of $60,000 is the
only remaining asset from the closed facility and will be transferred to a new
BGG location which is anticipated to open in late 1997.
Total lease payments for the years ended June 30, 1997, 1996 and 1995 included
as rental income in the accompanying financial statements amounted to $-0-,
$64,000 and $89,000, respectively. The total cost of depreciation expense
related to the Charlie's Saloon facility included in the accompanying financial
statements of Sunset Coin totaled $-0-, $17,000 and $22,000 in 1997, 1996 and
1995, respectively.
In 1995, SC purchased and leased personal property to be used by BGG in one of
its bar operations (d.b.a. Charlie's Bar Down Under). The purchase was financed
with long-term debt, as more fully described in Note 5. The net investment in
the assets leased to Charlie's Down Under as of June 30, 1997 and 1996 is listed
below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Building and improvements ..................... $ 174,000 $ 174,000
Furniture, fixtures and equipment ............. 550,000 550,000
------- -------
724,000 724,000
Less, accumulated depreciation ................ (138,000) (76,000)
-------- --------
$ 586,000 $ 648,000
========= =========
</TABLE>
On April 1, 1995, Charlie's Bar Down Under (the Lessee) entered into a 10 year
lease agreement with SC for the above property at an annual lease cost of
$95,000. BGG did not make any rental payments under the lease from the time
Charlie's Down Under opened through March 31, 1996, and the rentals were
forgiven, without recourse, by the Company. Due to the related-party nature of
the above transaction, SC recognized no income (as lessor) or loss through March
31, 1996 in the accompanying financial statements for this agreement. Total
lease payments for the years ended June 30, 1997 and 1996 included as rental
income in the accompanying financial statements amounted to $95,000 and $24,000
respectively.
The terms of the Charlie's Down Under lease require BGG to pay all taxes, normal
maintenance and insurance on the facility. The total cost of depreciation
expense related to the Charlie's Bar Down Under facility included in the
accompanying financial statements of SC totaled $61,000, $61,000 and $15,000 for
the years ended June 30, 1997, 1996 and 1995 respectively.
<TABLE>
Becker Gaming, Inc.
- -------------------
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Advances to BGI ........................... $7,000 $8,000
====== ======
Tax provisions payable to BGI (Note 6) .... $779,000 $553,000
======== ========
</TABLE>
SC pays management fees to BGI at 5% of the gross gaming revenues, effective
with the Reorganization on June 1, 1994. Total management fees included in the
accompanying financial statements were $140,000, $137,000 and $150,000 in 1997,
1996 and 1995, respectively.
4. Notes Receivable:
Notes receivable consist of loans to various proprietors who have entered into
slot route agreements with the Company. Such advances are primarily used to
finance long-term facility improvements to the slot locations and are as follows
at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prime plus 2.5% note receivable,
due in weekly payments of $675
including interest through August
1998, collateralized by assets of
the related slot location ................... $ 47,000 $ 75,000
10% note receivable, due in weekly payments of $650 including interest through
January 2003,
paid-in full in July, 1997 .................. 157,000 175,000
Other collateralized and uncollateralized notes with varying interest rates up
to prime plus 2.5%, due at various
dates through December 2003 ................. 36,000 149,000
------- -------
240,000 399,000
Allowance for doubtful accounts ........ - (88,000)
------- -------
240,000 311,000
Less, current maturities .......... (222,000) (117,000)
-------- --------
$ 18,000 $ 194,000
========= =========
</TABLE>
5. Long-Term Debt:
Long-term debt consists of the following at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Prime plus 1.5%, $1.5 million revolving
line of credit available through June 1994,
(line expired and not renewed);
amounts outstanding under the line of credit
at June 30, 1995 were converted to
a term note payable with interest and principal
due monthly through June 1998,
collateralized by substantially all of the assets
of SC and personal guarantees
of the stockholders of Becker
Gaming, Inc. ...................................... $ 33,000 $ 113,000
Prime plus 1.5%, term note payable with
interest and principal due monthly
through January 1, 2001, collateralized by
security agreement dated July 15,
1994 and a right to lien without notice on all
property and deposit accounts of
SC Borrowings made under a non-revolving line
of credit agreement (see below) ................... 115,000 162,000
Prime plus 2.0%, term note payable with
interest and principal due monthly
through April 23, 2000, collateralized by a
security agreement dated July 15,
1994 and a right to lien without notice on all
property and eposits accounts of
SC. Borrowings made under a non-revolving
line of credit agreement (see below) .............. 192,000 262,000
Prime plus 2.0%, term note payable with
interest and principal due monthly
through April 23, 2000, collateralized by a
security agreement dated July 15,
1994 and a right to lien without notice on all
property and deposit accounts of
SC. Borrowings made under a non-revolving line of
credit agreement (see below) ...................... 88,000 119,000
Prime plus 1.5%, term note payable with
interest and principal due monthly
through April 10, 2001, collateralized by
security agreement dated October 2,
1995 and a right to lien without notice on all
property and deposit accounts of
SC. Borrowings made under a non-revolving line of
credit agreement (see below) ....................... 73,000 102,000
Other notes payable due in monthly installments
including interest through
April, 1998 collateralized by slot machine equipment
of the Company and BGG ............................. 126,000 23,000
------ ------
627,000 781,000
Less, current portion ...................... (322,000) (279,000)
-------- --------
$ 305,000 $ 502,000
========= =========
</TABLE>
In July 1994, the Company entered into an agreement with a bank for a $1.2
million non-revolving line of credit. Each advance was evidenced by a separate
promissory note with a maturity date not exceeding 66 months from the date of
the respective advance. The Company was able to request advances through October
28, 1995 at which time the Company's right to receive advances under the
agreement was terminated until the defaults under the AC Notes and CQC Notes are
cured. Advances under the agreement bear interest at rates ranging from 1.5% to
2.0% plus the bank's prime rate.
The $1.2 million non-revolving line of credit includes an acceleration clause
which would cause the full amount of the obligation to become due on demand if a
material adverse change occurs in the SC's financial condition, business
operations, ownership or management.
Maturities of long-term debt at June 30, 1997 are as follows:
<TABLE>
<S> <C> <C>
1998 $322,000
1999 180,000
2000 120,000
2001 5,000
---- -----
$627,000
========
</TABLE>
6. Income Taxes:
The components of the income tax provision are summarized for June 30, 1997,
1996 and 1995 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Current:
<S> <C> <C> <C>
Federal ......................... $226,000 $196,000 $318,000
Deferred:
Federal ......................... -- -- --
-------- -------- --------
Total income tax provision $226,000 $196,000 $318,000
======== ======== ========
</TABLE>
The components included in determining the provision for income taxes are shown
below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at federal
income tax statutory rate ..... $ 285,000 $ 202,000 $ 342,000
Other ........................... (59,000) (6,000) (24,000)
--------- --------- ---------
Income tax provision
per statements of income $ 226,000 $ 196,000 $ 318,000
========= ========= =========
</TABLE>
Differences between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes were nominal.
Accordingly, deferred taxes have not been recognized.
7. Leases and Commitments:
Future minimum operating lease commitments at June 30, 1997, are as follows:
<TABLE>
<S> <C> <C>
1998 $35,200
1999 33,200
2000 11,200
2001 9,700
2002 5,200
------
$ 94,500
========
</TABLE>
Aggregate rent expense was $46,000, $40,000 and $38,000 in 1997, 1996 and 1995,
respectively.
8. Contingencies:
The Company is subject to various litigation and claims which arise in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the disposition of all such pending litigation
and claims will not have a material effect on the Company's results of
operations, cash flows, or financial position.
9. Employee Benefit Plans:
The Company participates in a 401(k) Defined Contribution Plan (the "Plan")
sponsored by AC which covers substantially all employees of SC. Participants may
contribute up to 10% of their annual compensation to the Plan, up to certain
limits prescribed by the Internal Revenue Service. The Company matches 25% of
each eligible employee's contribution up to a maximum of 6% of their individual
earnings. In addition, the Company contributes an amount equal to 2% of each
participant's earnings. The Plan went into effect July 1, 1990.
The Company recorded charges for contributions of $21,000, $19,000 and $15,000
for the years ended June 30, 1997, 1996 and 1995, respectively.
10.Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable, capital lease obligations and notes
approximate fair values due to the short-term maturities and the approximately
market interest rates of these instruments.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Board of Directors
Capitol Queen & Casino, Inc.
We have audited the financial statements and the financial statement schedule of
Capitol Queen & Casino, Inc. (a development stage company and a wholly owned
subsidiary of Becker Gaming, Inc.) listed in Item 14(a) of this Form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capitol Queen & Casino, Inc. as
of June 30, 1997 and 1996, and its loss incurred during the development stage
and its cash flows for each of the three years in the period ended June 30,
1997, and for the period from January 20, 1993 (the date of inception) through
June 30, 1997, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
The accompanying financial statements and financial statement schedule have been
prepared assuming that Capitol Queen & Casino, Inc. will continue as a going
concern. As more fully described in Notes 2 and 4, the Company is in default of
certain debt covenants and has received a notice of acceleration from the
trustee for this debt resulting in classification of such debt as currently
payable. The Company does not have sufficient resources to repay its
indebtedness. Management's plans with respect to these matters are also
described in Note 2. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The final outcome of these matters is
not presently determinable and the June 30, 1997 financial statements of the
Company do not include any adjustment that might result from the outcome of this
uncertainty.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary
Of Becker Gaming, Inc.)
BALANCE SHEETS
As Of June 30, 1997 And 1996
(Dollars In Thousands)
================================================================================
ASSETS
1997 1996
------- -------
Current assets:
Restricted cash, in escrow account .............. $ 31 $ 30
------- -------
Total current assets ......................... 31 30
------- -------
Other assets:
Assets held for sale ............................. 7,754 7,754
Financing costs, net of accumulated
amortization of $445 (1997) and
and $312 (1996), respectively .................. 472 605
Deposits and other assets ........................ - 60
------- -------
Total other assets ........................... 8,226 8,419
------- -------
Total assets ................................ $ 8,257 $ 8,449
======= =======
LIABILITIES & STOCKHOLDER'S EQUITY(DEFICIT)
1997 1996
-------- --------
Current liabilities:
Advances from related parties ........................ $ 1,226 $ 1,006
Accrued interest ..................................... 5,788 2,775
Notes payable to related parties ..................... 1,200 1,200
Long-term debt classified as current due to
default under covenants, net of unamortized
original issue discount of $2,092 (1997)
and $2,474 (1996) ................................ 17,908 17,526
-------- --------
Total current liabilities .................... 26,122 22,507
-------- --------
Total liabilities ............................ 26,122 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 ....... (30,597) (26,790)
-------- --------
Total stockholder's equity (deficit) ......... (17,865) (14,058)
-------- --------
Total liabilities and stockholder's
equity(deficit) .............................. $ 8,257 $ 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)
================================================================================
For The Period
January 20, 1993
(The Date Of
Inception)
Through
Year Ended June 30, June 30,
1997 1996 1995 1997
-------- -------- -------- --------
Revenues ....................... $ -- $ -- $ -- $ --
Operating expenses:
Amortization of financing
and other costs .............. 133 100 202 1,474
Abandonment losses and
write-downs of assets held
for sale ...................... -- 4,392 -- 10,426
Development costs ............. 280 504 1,186 1,991
-------- -------- -------- --------
Total operating expenses .. 413 4,996 1,388 13,891
-------- -------- -------- --------
Operating loss ................. (413) (4,996) (1,388) (13,891)
Other income (expenses):
Interest income ............... 1 -- 610 1,266
Interest expense .............. (3,395) (2,789) (4,608) (14,566)
Interest capitalized .......... -- -- -- 683
-------- -------- -------- --------
Total other expenses ........... (3,394) (2,789) (3,998) (12,617)
-------- -------- -------- --------
Net loss before
extraordinary item ............ (3,807) (7,785) (5,386) (26,508)
Extraordinary item:
Loss on early retirement
of debt (no income tax
benefit available) ........... -- -- (4,089) (4,089)
-------- -------- -------- --------
Net loss ....................... $ (3,807) $ (7,785) $ (9,475) $(30,597)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary
Of Becker Gaming, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
For The Period From January 20, 1993
(The Date Of Inception) Through June 30, 1997
And For The Years Ended June 30, 1997, 1996 And 1995
(Dollars In Thousands)
================================================================================
Common Stock
--------------------------------
Shares Amount Subscribed
----------- ----------- -----------
Balances, January 20,
1993 (the date of inception) ... $ -- $ -- $ --
Issuance of common stock ......... 100 -- --
----------- ----------- -----------
Balances, June 30, 1993 .......... 100 -- --
Cash contribution from Becker
Gaming, Inc. relating to sale
of warrants .................... -- -- --
Common stock subscribed .......... -- -- 788
Contribution by Becker Gaming,
Inc. relating to liability
incurred under development
agreement ...................... -- -- --
Write-off of common stock
subscribed due to abandonment
of development project ......... -- -- (788)
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1994 .......... 100 -- --
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1995 .......... 100 -- --
----------- ----------- -----------
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1996 .......... 100 -- --
----------- ----------- -----------
Net loss ......................... -- -- --
----------- ----------- -----------
Balances, June 30, 1997 .......... $ 100 $ -- $ --
=========== =========== ===========
<PAGE>
Deficit
Accumulated
Additional During The
Paid-In Development
Capital Stage Total
-------- -------- --------
Balances, January 20,
1993 (the date of inception) ............. $-- $-- $--
Issuance of common stock ................... -- -- --
-------- -------- --------
Balances, June 30, 1993 .................... -- -- --
Cash contribution from Becker
Gaming, Inc. relating to sale
of warrants .............................. 7,500 -- 7,500
Common stock subscribed .................... -- -- 788
Contribution by Becker Gaming,
Inc. relating to liability
incurred under development
agreement ................................ 5,232 -- 5,232
Write-off of common stock
subscribed due to abandonment
of development project ................... -- -- (788)
Net loss ................................... -- (9,530) (9,530)
-------- -------- --------
Balances, June 30, 1994 .................... 12,732 (9,530) 3,202
Net loss ................................... -- (9,475) (9,475)
-------- -------- --------
Balances, June 30, 1995 .................... 12,732 (19,005) (6,273)
-------- -------- --------
Net loss ................................... -- (7,785) (7,785)
-------- -------- --------
Balances, June 30, 1996 .................... 12,732 (26,790) (14,058)
Net loss ................................... -- (3,807) (3,807)
-------- -------- --------
Balances, June 30, 1996 .................... $ 12,732 $(30,597) $(17,865)
======== ======== ========
The accompanying notes are integral part of these consolidated 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)
================================================================================
Year Ended June 30,
---------------------------------
1997 1996 1995
-------- -------- --------
Cash flows from development stage activities:
Net loss ................................ $ (3,807) $ (7,785) $ (9,475)
-------- -------- --------
Adjustments to reconcile net loss
to net cash used in development
stage activities:
Amortization of financing and other costs 133 100 202
Amortization of original issue discount . 382 408 834
Abandonment losses and write-downs of
assets held for sale ................... 60 4,392 --
Extraordinary loss on retirement of debt -- -- 4,089
Increase(decrease) in accounts payable
and accruals, net of amounts for
capital expenditures ................... 3,013 2,238 (216)
Increase in advances from related
party payable ......................... 220 602 392
-------- -------- --------
Total adjustments ................. 3,808 7,740 5,301
-------- -------- --------
Net cash provided by (used in)
development stage activities ..... 1 (45) (4,174)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .......... -- -- (1,724)
Deposits and other assets ............... -- -- 12
Capitalization of preopening costs ...... -- -- --
Development costs ....................... -- -- --
Net (additions to) reductions in
restricted cash equivalents ............ (1) -- 24,898
-------- -------- --------
Net cash provided by (used in)
investing activities .............. (1) -- 23,186
-------- -------- --------
Cash flows from financing activities:
Principal payments on First Mortgage
Notes .................................. -- -- (20,200)
Proceeds from issuance of First
Mortgage Notes, net of financing costs . -- -- --
Proceeds from borrowings under
notes payable to related parties ....... -- -- 1,200
Equity contribution from Becker
Gaming, Inc.relating to sale of
warrants ............................... -- -- --
-------- -------- --------
Net cash (used in) provided by
financing activities .............. -- -- (19,000)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents .............. -- (45) 12
Cash and cash equivalents, beginning
of period ............................... -- 45 33
-------- -------- --------
Cash and cash equivalents, end of period .. $ -- $ -- $ 45
======== ======== ========
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized $ -- $ -- $ 4,020
======== ======== ========
Original issue discount that did not
affect cash ............................ $ -- $ -- $ --
======== ======== ========
Equity contribution by Becker Gaming that
did not affect cash .................... $ -- $ -- $ --
======== ======== ========
(The Date Of Inception)Through June 30,
---------------------------------------
1996
--------
Cash flows from development stage activities:
Net loss .................................... $(30,597)
--------
Adjustments to reconcile net loss
to net cash used in development
stage activities:
Amortization of financing and other costs ... 1,474
Amortization of original issue discount ..... 2,289
Abandonment losses and write-downs of
assets held for sale ....................... 10,486
Extraordinary loss on retirement of debt .... 4,089
Increase(decrease) in accounts payable
and accruals, net of amounts for
capital expenditures ....................... 5,800
Increase in advances from related
party payable ............................. 1,214
--------
Total adjustments ..................... 25,352
--------
Net cash provided by (used in)
development stage activities ......... (5,245)
--------
Cash flows from investing activities:
Capital expenditures, net of
construction accounts payable .............. (12,936)
Deposits and other assets ................... (60)
Capitalization of preopening costs .......... (340)
Development costs ........................... (553)
Net (additions to) reductions in
restricted cash equivalents ................ (32)
--------
Net cash provided by (used in)
investing activities .................. (13,921)
--------
Cash flows from financing activities:
Principal payments on First Mortgage
Notes ...................................... (20,200)
Proceeds from issuance of First
Mortgage Notes, net of financing costs ..... 30,666
Proceeds from borrowings under
notes payable to related parties ........... 1,200
Equity contribution from Becker
Gaming, Inc.relating to sale of
warrants ................................... 7,500
--------
Net cash (used in) provided by
financing activities .................. 19,166
--------
Net increase (decrease) in cash
and cash equivalents .................. --
Cash and cash equivalents, beginning of period --
--------
Cash and cash equivalents, end of period ...... $ --
========
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized ... $ 5,807
========
Original issue discount that did not
affect cash ................................ $ 7,500
========
Equity contribution by Becker Gaming that did
not affect cash ........................ $ 5,233
========
The accompanying notes are integral part of these consolidated financial
statements.
================================================================================
CAPITOL QUEEN & CASINO, INC.
(A Development Stage Company And A Wholly Owned Subsidiary Of
Becker Gaming, Inc.)
NOTES TO FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies:
Basis Of Presentation
Capitol Queen & Casino, Inc. ("CQC" or the "Company"), a development stage
company, was incorporated in Missouri on January 20, 1993, and had acquired
a franchise from the City of Jefferson City, Missouri to develop,
construct, own and operate a riverboat casino (the "Capitol Queen"),
subject to state licensure. The Company has abandoned the Capitol Queen
project, as more fully described in Note 2. Subsequent to incorporation,
the stockholders of the Company exchanged all of the outstanding stock of
the Company for common stock of a Nevada holding company, Becker Gaming,
Inc. ("BGI"), in a tax-free exchange. BGI is wholly owned by the Becker
family and serves as a holding company for the Becker family gaming
interests, which include CQC and the following wholly owned subsidiaries:
* Sunset Coin, Inc. ("SC"), a Nevada corporation which
operates a Las Vegas gaming machine route and service business.
* Becker Gaming Group ("BGG"), a Nevada corporation which (together with
its wholly owned subsidiary Innerout, Inc.) owns and operates restaurants
and bars in Las Vegas under the "Charlie's" name, each of which offers
gaming machines.
* Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
operates a Las Vegas hotel and casino.
Cash Equivalents And Concentration Of Credit Risk
-------------------------------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company has
cash on deposit with financial institutions in excess of federally insured
amounts.
Property And Equipment
----------------------
Property and equipment are recorded at cost and include interest
capitalized during the construction period. The Company's policy is to
compute depreciation using the straight-line method. No depreciation has
been recorded while the Company is in the development stage.
Debt Issue Costs
----------------
Costs associated with the issuance of debt are deferred and amortized over
the life of the related indebtedness using the effective interest method.
Federal Income Taxes
--------------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. The Company adopted SFAS
109 at inception (January 20, 1993).
The Company is included in the consolidated federal income tax returns
filed by BGI. CQC's tax allocation is based on the amount of tax it would
incur if it filed a separate return.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates,
particularly with respect to the matters described in Notes 2 and 3.
2. Missouri Gaming License, Default Under Indebtedness,
Management's Plans, and Going Concern:
CQC was formed to develop, own and operate the "Capitol Queen" riverboat
casino and related land-based facilities in Jefferson City, Missouri. On
September 28, 1994, CQC was notified that its application for a gaming license
was rejected by the Missouri Gaming Commission (the "Commission"). At the time
CQC was notified of the Commission's decision, construction of the riverboat
under contract with a shipbuilder was almost completed. CQC had also obtained
the necessary permits for the land-based development portion of the project and
performed certain dredging and other site preparation work. Immediately
following the Commission's decision, management temporarily suspended further
development of the Capitol Queen project, pending an appeal of the decision and
legal remedies potentially available to the Company. Costs associated with the
development of the project which had been deferred during the development stage
were written-off in the fourth quarter of the fiscal year ended June 30, 1994.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote of an earlier election in
which Jefferson City voters approved riverboat gambling. Management has
abandoned the project, and is currently looking for alternative uses for
the riverboat, including opportunities to sell or lease it to another
operator.
CQC financed the Capitol Queen project through the issuance of $40,000,000
in principal amount of 12% First Mortgage Notes due November 15, 2000 (the
"CQC Notes"). As of January 1, 1995, the indenture governing the CQC Notes
was amended to (i) eliminate CQC's obligation to construct and open the
Capitol Queen and (ii) permit a two-step purchase of the CQC Notes at 101%
of principal plus accrued and unpaid interest from a sale of assets. The
first step repurchase of $20,000,000 principal amount of the CQC Notes
(plus accrued and unpaid interest) was completed on January 17, 1995, with
unexpended funds from the project escrow account, and an aggregate of
$20,000,000 principal amount of the CQC Notes remained outstanding.
However, the dates by which CQC previously agreed with the holders of the
CQC Notes to effect the sale of its assets and repurchase the remaining CQC
Notes have passed, and CQC is thus in default of the amended covenants.
The remaining CQC Notes require annual interest payments of $2,400,000,
payable in equal installments semi-annually on May 15 and November 15. CQC
was not able to make its scheduled interest payments of $1,200,000 on
November 15, 1995, May 15, 1996, November 15, 1996 and May 15, 1997 and AC
(which has guaranteed the CQC Notes as more fully described in below) did
not have available funds to advance on behalf of CQC.
Concurrent with the issuance of the CQC Notes, AC completed a private
placement debt financing of $55,000,000 in principal amount of 12% First
Mortgage Notes due November 15, 2000 (the "AC Notes"). The AC Notes require
annual interest payments of $6,600,000, payable in equal installments
semi-annually on May 15 and November 15. AC was not able to make its
scheduled interest payment of $3,300,000 on May 15, 1997 and SC (which has
guaranteed the AC Notes as more fully described below) did not have
available funds to advance on behalf of AC). AC is also in default of
certain covenants under the AC Notes. AC is restricted from selling assets
under the covenants governing the AC Notes and management believes that
access to additional capital from other sources is restricted as a result
of the above-described circumstances. AC does not have sufficient financial
resources including a guarantee of the AC Notes by SC, (as more fully
described below) to repay the AC Notes on a current basis and satisfy its
guarantee obligation (as more fully described below) with respect to the
CQC Notes.
The CQC Notes are guaranteed by AC (which guarantee is subject to release
only upon licensing of the Capitol Queen, which is not expected). The AC
Notes are guaranteed by SC (which guarantee is subject to release upon
completion of the Expansion, which management believes has been satisfied,
and the attainment of a fixed-coverage ratio by AC of 2.25 to 1 following
the completion of the Expansion, which has not been satisfied). The amount
and extent of AC's guaranty of the CQC Notes is in dispute. Legal counsel
has advised management that, under the terms of CQC indenture regarding
fraudulent conveyance, the guarantee liability of AC is not expected to be
material.
On July 3, 1997 the Company received a notice of acceleration (the
"Notice") from the trustee and collateral agent for the CQC Notes. Pursuant
to section 6.02 of the Indenture, due to certain violations of the
Indenture by the Company (as more fully described above and in Note 4) all
of the outstanding CQC Notes are immediately due and payable, together with
all accrued and unpaid interest thereon. Accordingly, the CQC Notes have
been classified as currently payable at June 30, 1997.
On September 5, 1997, AC received a notice of acceleration from the trustee
and collateral agent for the AC Notes. Pursuant to section 6.02 of the
indenture governing the AC Notes, due to certain violations of the
indenture, all of the outstanding AC Notes are immediately due and payable
together with all accrued and unpaid interest thereon.
In connection with the decision to abandon the project, CQC had entered
into an Asset Purchase Agreement dated April 10, 1995, for the sale of its
assets to Aerie Riverboat Casinos of Missouri, Inc. at a purchase price of
$18,000,000, which price exceeded the carrying value of the CQC assets.
However, the consummation of the Aerie purchase agreement was subject to
the satisfaction of several conditions which could not be satisfied timely,
including, among others, that Jefferson City consent to the assignment of
its Development Agreement with CQC, that Aerie be found preliminarily
suitable to hold a Missouri gaming license, and that riverboat gaming is
legally permitted in Jefferson City. As a result, the agreement with Aerie
was terminated without penalty when the December 31, 1995 expiration date
passed. As more fully described in Note 3, a further write-down in the
carrying value of the riverboat was recognized in the fourth quarter of
1996, after the election in Jefferson City, the expiration of the Aerie
contract, and due to deteriorating market conditions.
CQC continues to market its riverboat assets to prospective buyers.
Management of the Company, AC and CQC are currently undergoing discussions
with an informal committee representing the holders of the AC Notes and CQC
Notes (the "Bondholder Committee") regarding a proposed restructuring plan.
Based on current market conditions, management does not expect that CQC
will generate sufficient funds through the sale of its assets to repurchase
all of the outstanding CQC Notes. The proposed restructuring plan therefore
contemplates, amongst other terms and conditions, (i) liquidation of CQC's
remaining assets for the benefit of the CQC bondholders, (ii) a limited
cash payment by AC as full and complete satisfaction of AC's guaranty of
the CQC Notes, and (iii) AC's issuance of a reduced amount of new notes as
full and complete satisfaction of the existing AC Notes. However, no
satisfactory offers for the riverboat are currently available, and no
agreement has been reached with the Bondholder Committee regarding the
proposed restructuring plan. Accordingly, these matters raise substantial
doubt about the ability of CQC to continue as a going concern. The final
outcome of these matters is not presently determinable and the June 30,
1997 financial statements of CQC do not include any adjustment that might
result from the outcome of this uncertainty.
3. Construction Project And Related Contingencies:
Capitol Queen Project
---------------------
The Capitol Queen project, as originally contemplated by the Company, was
to include the riverboat, dockside facilities, restaurants and related
ancillary facilities to be built on land acquired by the Company in July
1993. As a result of the decision to discontinue the project, all costs
associated with the design and development of the facilities were written
off in the fourth quarter of the Company's 1994 fiscal year, with the
exception of the historical cost of the land and the riverboat which was
reclassified to assets held for sale.
The Company had contracted with a shipbuilder to construct the Capitol
Queen riverboat. The total cost of the riverboat was $11,892,000, including
construction period interest and other assets. During the third quarter of
the year ended June 30, 1996, based on deteriorating market conditions
after the expiration of the Aerie contract, the Company recognized a loss
of $4,392,000 and wrote-down the carrying value of the riverboat to
$7,500,000. Such revised carrying value represents management's best
estimate of the riverboat's current net realizable value in a cash sale,
based on information obtained from shipbuilders, marine brokers, and
purchase offers made to the Company from third parties.
Jefferson City Development Agreement
------------------------------------
The Company acquired the franchise rights to operate the Capitol Queen
under a development agreement with the City of Jefferson City, Missouri
(the "Development Agreement"), beginning September 1, 1993 for a period of
seven years. The Company's rights and obligations under the Development
Agreement were contingent upon receiving a gaming license which, until the
occurrence of the events described in Note 2, management believed was
probable.
On November 7, 1995, voters in Jefferson City rejected an ordinance
permitting riverboat gambling, reversing the vote an earlier election in
which Jefferson City voters approved riverboat gambling. Because CQC's
Development Agreement with Jefferson City was entered into pursuant to the
earlier ordinance permitting riverboat gambling, the Company believes that
as matter of law the 1995 election does not affect the validity of the
Development Agreement. However, to avoid the cost and uncertainty of
litigation, CQC and Jefferson City in June 1996 entered into an agreement
pursuant to which the Development Agreement was rescinded and Jefferson
City refunded $300,000 of the $400,000 CQC had originally paid to the City
under the Development Agreement.
Other Development Agreement
---------------------------
As discussed below, the Company and BGI have each entered into additional
agreements in connection with the development of the Capitol Queen project,
which have been terminated as a result of the decision by the Missouri
Gaming Commission.
In January 1993, prior to incorporation, the stockholders of the Company
agreed that, upon being licensed in Missouri to own and operate the Capitol
Queen, the Company would issue shares of its common stock to three
individuals who assisted the then existing stockholders of the Company in
obtaining the rights to develop the Capitol Queen (the "CQC Stock
Agreement"). The aggregate amount of stock subject to the CQC Stock
Agreement represents 5.25% of the outstanding common stock of the Company,
and was subject to increase to 8.25% if the convention center required
under the Development Agreement was not constructed on land controlled by
the parties to the CQC Stock Agreement. The Company had the option to
repurchase any or all of such stock, except for 25% held by one individual,
for a period of three years from issuance at an aggregate purchase price of
$750,000 ($1,200,000 if the additional shares were issued). In addition to
the above requirements of the CQC Stock Agreement, the Company also agreed
to pay a lump-sum fee of $350,000 to two of the above individuals after
receiving a license and the commencement of operations of the Capitol
Queen.
At the time CQC was awarded the Development Agreement, and until the
occurrence of the events described in Note 2, the Company believed it was
probable it would receive a gaming license in Missouri. Accordingly, to
reflect the CQC Stock Agreement, CQC recorded subscribed stock of $788,000
(using the $750,000 value described above for 5.0% of the stock to
determine the value of the remaining 25% interest), recorded amounts
payable under the agreement for $350,000 and recorded a corresponding total
charge of $1,138,000 to development costs, to be amortized over the life of
the Development Agreement. As a result of the decision by the Missouri
Gaming Commission and the abandonment of the Capitol Queen project,
management believes that it has been relieved of these obligations.
Accordingly, the subscribed stock, the $350,000 liability and the related
deferred costs (net of amortization from September 1, 1993 to June 30,
1994) were written-off in the fourth quarter of fiscal 1994.
In September 1993, the Company's parent, BGI, agreed that it would
repurchase certain rights to acquire equity in CQC (the "Repurchase
Agreement") which it had previously granted to various parties (the
"Sellers"). The Sellers assisted BGI and the Company, through the BGI
stockholders, in obtaining the approval to develop, own and operate the
Capitol Queen in Jefferson City. Under the terms of the Repurchase
Agreement, BGI agreed to pay the Sellers an aggregate amount of $5,925,000,
payable in installments through July 1, 1997 and bearing interest at 10%
per annum from the date the Capitol Queen opens for business. BGI also
agreed that if prior to maturity, BGI proposed to sell any of its common
stock in an underwritten public offering, the Sellers may accept registered
shares in lieu of the payments required based on the public offering price
of such shares (less any underwriters discount) subject to certain
underwriter limitations.
The Repurchase Agreement provided that in the event the development,
ownership or operation of a riverboat gaming business in Jefferson City
becomes unlawful or CQC is declined a gaming license, the Repurchase
Agreement becomes null and void. At the time BGI entered the Repurchase
Agreement, and until the occurrence of the events described in Note 2, the
Company believed it was probable it would receive a gaming license in
Missouri. Accordingly, the assumption of the liability under the Repurchase
Agreement was treated as an additional investment in CQC by BGI, and the
related present value of the costs to the Sellers of $5,232,000 was
recorded as deferred development costs to be amortized over the life of the
Development Agreement.
As a result of the decision by the Missouri Gaming Commission and the
abandonment of the Capitol Queen project, BGI believes that it has been
relieved of its obligations under the Repurchase Agreement. Accordingly,
the deferred costs under the Repurchase Agreement (net of amortization from
September 1, 1993 to June 30, 1994) were written-off in the fourth quarter
of fiscal 1994.
In addition to the above, in the fourth quarter of fiscal 1994, CQC
wrote-off previously capitalized expenditures of $1,375,000 and capitalized
pre-opening expenses of $340,000 associated with the development of the
Capitol Queen project.
4. Long-Term Debt:
On November 18, 1993, the Company completed a private placement debt
financing of $40,000,000 principal amount of 12% First Mortgage Notes Due
November 15, 2000 (the " CQC Notes"). The offering generated net proceeds
of approximately $30,666,000 (after deducting original issue discount of
$7,500,000 and debt issue costs). Interest on the Notes is payable
semi-annually. The Notes are guaranteed by AC (which guarantee is subject
to release only upon licensing of the Capitol Queen, which is not expected)
and are collateralized by a first mortgage on substantially all of the
assets of the Company.
As described in Note 2, the Company was unable to make the interest
payments due under the CQC Notes on November 15, 1995, May 15, 1996,
November 15, 1996 and May 15, 1997. Such past due interest, including
accrued interest on unpaid interest, in the amount of $5,788,000 has been
accrued in the accompanying financial statements.
As of January 1, 1995, CQC's obligations under the Indenture governing the
CQC Notes were amended with the requisite consent of the holders of the CQC
Notes. CQC's previous obligations to complete and open the Capitol Queen
have been eliminated and CQC has agreed to a two-step plan to repay the CQC
Notes. The first step, which was consummated on January 17, 1995, involved
the repurchase of $20,000,000 principal amount of the CQC Notes at 101% of
such principal amount plus accrued and unpaid interest with funds held in
the restricted project escrow account. The Company incurred an
extraordinary loss of approximately $4,089,000 in 1995, reflecting the
premium paid to retire the debt of $200,000 and the write-off of related,
unamortized debt issue costs and original issue discount in the aggregate
of $3,889,000. The second step permitted a purchase of the CQC Notes at
101% of principal plus accrued and unpaid interest from a sale of assets.
However, the dates by which CQC previously agreed with the holders of the
CQC Notes to effect the sale of assets and repurchase the remaining CQC
Notes have passed, and CQC is thus in default of the amended covenants.
Concurrent with the placement of the Notes, BGI sold 2,500,000 warrants
(the "Warrants") exercisable for BGI common stock for gross proceeds of
$7,500,000. The gross proceeds from the sale of the Warrants were
contributed to the Company.
The Indenture governing the CQC Notes (the "Indenture") limits the use of
the net proceeds from the offering and the sale of the Warrants to fund the
cost of the development and construction of the Capitol Queen project, the
development of a convention center in Jefferson City, Missouri and initial
interest payments. The proceeds were placed in escrow with a trustee
pending drawdowns for qualifying project expenditures. As more fully
explained above and in Note 2, certain of the proceeds were used in January
1995 in connection with the first step of the plan to repay the CQC Notes.
Prior to the receipt of the Notice on July 3, 1997, the CQC Notes were not
subject to mandatory redemption, except upon a change of control, or other
circumstances as defined in the Indenture. The Company had the option to
redeem the Notes at a premium of 106% beginning on November 15, 1997,
declining to par value on November 15, 1999. If prior to November 15, 1997,
BGI consummated an initial public offering of its common stock, the Company
may also have redeemed the CQC Notes, at a premium of 108%.
The Indenture contains covenants that, among other things, limit the
ability of the Company and, in certain cases, AC, to pay dividends or
management fees, or incur additional indebtedness.
5. Related-Party Transactions:
Prior to the inception of CQC and through November 18, 1993, AC advanced a
total of approximately $1,090,000 to fund development costs of CQC which
was fully repaid on November 18, 1993 with proceeds from the private
placement financing transaction. As of June 30, 1997 and 1996, the amounts
payable to AC by the Company for additional advances were $1,213,000 and
$993,000, respectively. The advances are non-interest bearing.
In May, 1995, CQC borrowed $1.2 million from AC in order to make the
semi-annual interest payment due on the CQC Notes. The borrowing was
executed as an uncollateralized note payable to AC due June 30, 1998, with
interest at an annual rate of 5.56%. Interest expense incurred in relation
to the note payable to AC was $67,000, $67,000 and $8,000 during the years
ended June 30, 1997, 1996 and 1995, respectively. The Company has not paid
any interest to AC for this obligation.
6. Income Taxes:
For the fiscal years June 30, 1997, 1996 and 1995, the Company incurred net
operating losses for federal income tax purposes, and accordingly, these
financial statements do not include provision for federal income tax
purposes.
The components included in determining the provision for income taxes for
the years ended June 30, 1997, 1996, and 1995, net of extraordinary items,
are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at federal
income tax statutory rate ....... $(1,294,000) $(2,647,000) $(1,831,000)
Unrecognized tax benefit from net
operating losses ................ 1,294,000 2,574,000 1,831,000
Other ............................ -- 73,000 --
----------- ----------- -----------
Income tax provision .... $ -- $ -- $ --
----------- ----------- -----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes, and the amounts used for income tax purposes. The major
components of deferred taxes as of June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Liabilities: $ -- $ --
----------- -----------
Assets:
Federal net operating loss carryforwards 5,877,000 5,500,000
Valuation allowance for assets held
for sale ........................... 1,494,000 1,494,000
--------- ---------
Total deferred tax assets ............ 7,371,000 6,994,000
--------- ---------
Valuation allowance .................. (7,371,000) (6,994,000)
---------- ----------
Net deferred taxes ................... $ -- $ --
----------- -----------
</TABLE>
As of June 30, 1997, the Company had a federal net operating loss
carryforward of approximately $17,285,000 which expires between 2009 and
2012.
7. Fair Value of Financial Instruments:
The estimated fair value of the Company's financial instruments have been
determined by the Company using available market information and
appropriate valuation methodologies. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, capital lease
obligations and notes approximate fair values due to the short-term
maturities and approximate market interest rates of these instruments.
Management is unable to determine a fair value for the outstanding
$20,000,000 principal amount ($17,908,000 carrying amount at June 30, 1997) of
12% First Mortgage Notes due November 15, 2000 of Capitol Queen and Casino, Inc.
(the "CQC Notes"). As of June 30, 1997 the effective interest rate of the CQC
Notes was 16%. It is not practicable to determine the fair value of these
financial instruments due to the debt covenant violations and related
uncertainties involved in negotiations with the holders of the AC Notes and CQC
Notes, as more fully discussed in Note 2.
- --------------------------------------------------------------------------------
SCHEDULE I
BECKER GAMING, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
The following condensed financial statements reflect the parent company (Becker
Gaming, Inc.) only, accounting for its wholly owned subsidiaries on the equity
method of accounting. All footnote disclosures have been omitted since the
information has been included in the Company's consolidated financial statements
included elsewhere in this Annual Report an Form 10-K.
BECKER GAMING, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF LOSS
(Dollars In Thousands)
Year Ended June 30,
--------------------------------------
1997 1996 1995
-------- -------- --------
Revenues:
Management fee revenue from
subsidiaries ................ $ 1,323 $ 2,125 $ 3,787
-------- -------- --------
Operating expenses:
General and administrative ... 1,194 1,204 3,398
Depreciation and amortization 29 253 362
-------- -------- --------
1,223 1,457 3,760
-------- -------- --------
Other income (expenses):
Interest expense ............. (311) (441) (454)
Interest Income .............. 34 -- --
Write-down of assets to net
realizable value ............ -- (439) --
Development costs ............ (1,021) -- --
Loss on sale of assets ....... -- -- (76)
Equity interest in loss
of subsidiaries ............. (10,177) (11,785) (13,424)
-------- -------- --------
(11,475) (12,665) (13,954)
-------- -------- --------
Loss before provision for
income taxes ................ (11,375) (11,997) (13,927)
Provision (benefit) for
income taxes ................ (209) (171) (607)
-------- -------- --------
Net income (loss) ......... (11,166) (11,826) (13,320)
Retained deficit,
beginning of year .......... (34,683) (22,857) (9,537)
-------- -------- --------
Retained deficit,
end of year ................ $(45,849) $(34,683) $(22,857)
======== ======== ========
- --------------------------------------------------------------------------------
BECKER GAMING, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
BECKER GAMING, INC.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
(Dollars In Thousands)
As of June 30,
-----------------------------------
1997 1996
-------- --------
ASSETS
Current assets:
Cash .............................. $ 429 $ 27
Income taxes receivable
from subsidiaries ................ 987 778
Prepaid expenses .................. -- --
-------- --------
Total current assets ........... 1,416 805
-------- --------
Furniture and equipment ........... 308 308
Less accumulated depreciation ..... (123) (108))
-------- --------
Net property and equipment ..... 185 200
-------- --------
Other assets:
Assets held for sale .............. -- 3,233
Deposits and other ................ 354 523
Investments in subsidiaries ....... 3,188 2,630
Management fees receivable from
subsidiaries ..................... 10,123 6,780
Financing costs, net .............. -- --
-------- --------
Total other assets ............ 13,665 13,166
-------- --------
Total assets ................... $ 15,266 $ 14,171
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................. $ 8 $ 1
Accounts payable to related parties 6,766 3,901
Accrued expenses .................. 1,137 624
Current portion of notes payable .. 4,416 4,416
Current portion of obligations
under capital leases ............. -- 1,858
----- -----
Total current
liabilities ................... 12,327 10,800
-------- --------
Obligations under capital leases,
less current portion .............. -- --
-------- --------
Total liabilities .............. 12,327 10,800
-------- --------
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 ........ 48,688 37,954
Accumulated deficit ............... (45,849) (34,683)
-------- --------
Total stockholders' equity ..... 2,939 3,371
-------- --------
Total liabilities and .......... $ 15,266 $ 14,171
stockholders' equity .......... ======== =========
- --------------------------------------------------------------------------------
BECKER GAMING, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF THE COMPANY
BECKER GAMING, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Year Ended June 30,
----------------------------------------
1997 1996 1995
-------- -------- --------
Cash flows from operating activities:
Net loss ............................. $(11,166) $(11,826) $(13,320)
-------- -------- --------
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Equity interest in loss
of subsidiaries ..................... 10,177 11,785 13,424
Depreciation and amortization ........ 29 253 362
Write-down of assets to net
realizable value ....................
Loss on sale of assets ............... -- 439 76
(Increase) decrease in operating assets:
Income taxes receivable from
subsidiaries ........................ (209) (171) (607)
Prepaid expenses ..................... -- 14 3
Increase (decrease) in
operating liabilities:
Accounts payable ..................... 7 (126) (25)
Accrued expenses ..................... 513 453 90
Payables to subsidiaries ............. 2,865 3,434 22
-------- -------- --------
Total adjustments ................. 13,382 16,081 13,345
-------- -------- --------
Net cash provided by
operating activities ............. 2,216 4,255 25
Cash flows from investing activities:
Increase in management fees receivable
from subsidiaries ................... (3,343) (3,405) (3,109)
Capital expenditures ................. -- (31) (118)
Decrease in deposits and other ....... 154 (113) (48)
Proceeds from sale of assets ......... 3,233 -- 662
-------- -------- --------
Net cash used in
investing activities ............. 44 (3,549) (2,613)
-------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
notes payable ....................... -- -- 4,116
Payments on capital
lease obligations ................... (1,858) (719) (1,495)
-------- -------- --------
Net cash provided by (used in)
financing activities ............. (1,858) (719) 2,621
-------- -------- --------
Net increase in cash and cash
equivalents ...................... 402 (13) 33
Cash and cash equivalents,
beginning of period ................... 27 40 7
-------- -------- --------
Cash and cash equivalents, end
of period ............................. $ 429 $ 27 $ 40
======== ======== ========
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE II
BECKER GAMING, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
June 30, 1997, 1996 And 1995
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
----------- ------- -------- --------
Allowance for doubtful accounts:
<S> <C> <C> <C>
Year ended June 30, 1997 .............. $ 88,000 $ -- $ --
========== ========== ==========
Year ended June 30, 1996 .............. $ 44,000 $ 44,000 $ --
========== ========== ==========
Year ended June 30, 1995 .............. $ -- $ 44,000 $ --
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
----------- ---------- ----
Allowance for doubtful accounts:
<S> <C> <C>
Year ended June 30, 1997 ............. $ 88,000 $ --
========== ==========
Year ended June 30, 1996 ............. $ -- $ 88,000
========== ==========
Year ended June 30, 1995 ............. $ -- $ 44,000
</TABLE>
========== ==========
<TABLE>
<S> <C> <C> <C>
Deferred Tax Asset Valuation Allowance:
Year ended June 30, 1997 .............. $8,130,000 $ -- $4,644,000
========== ========== ==========
Year ended June 30, 1996 .............. $5,343,000 $ -- $2,787,000
========== ========== ==========
Year ended June 30, 1995 .............. $1,378,000 $ -- $3,965,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Deferred Tax Asset Valuation Allowance:
<S> <C> <C>
Year ended June 30, 1997 ............. $ -- $12,774,000
========== ===========
Year ended June 30, 1996 ............. $ -- $ 8,130,000
========== ===========
Year ended June 30, 1995 ............. $ -- $ 5,343,000
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE II
ARIZONA CHARLIE'S, INC.
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended June 30, 1997, 1996 And 1995
<CAPTION>
Additions
----------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
----------- ------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1997 .............. $2,193,000 $ 220,000 $ --
========== ========== ==========
Year ended June 30, 1996 .............. $1,592,000 $ 601,000 $ --
========== ========== ==========
Year ended June 30, 1995 .............. $ -- $1,592,000 $ --
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
----------- ---------- ----
<S> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1997 ............. $ -- $2,413,000
========== ==========
Year ended June 30, 1996 ............. $ -- $2,193,000
========== ==========
Year ended June 30, 1995 ............. $ -- $1,592,000
========== ==========
</TABLE>
<TABLE>
Deferred Tax Asset Valuation Allowance:
<S> <C> <C> <C>
Year ended June 30, 1997 .............. $3,322,000 $ -- $2,374,000
========== ========== ==========
Year ended June 30, 1996 .............. $1,840,000 $ -- $1,482,000
========== ========== ==========
Year ended June 30, 1995 .............. $ 213,000 $ -- $1,627,000
========== ========== ==========
</TABLE>
<TABLE>
Deferred Tax Asset Valuation Allowance:
<S> <C> <C>
Year ended June 30, 1997 ............. $ -- $5,696,000
========== ==========
Year ended June 30, 1996 ............. $ -- $3,322,000
========== ==========
Year ended June 30, 1995 ............. $ -- $1,840,000
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
SCHEDULE II
SUNSET COIN, INC.
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended
June 30, 1997, 1996 And 1995
Additions
------------------------
<CAPTION>
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
- -------------------------------------- ----------- ----------- -----------
Allowance for doubtful accounts
<S> <C> <C> <C>
Year ended June 30, 1997 ............ $ 88,000 $ -- $ --
=========== =========== ===========
Year ended June 30, 1996 ............ $ 44,000 $ 44,000 $ --
=========== =========== ===========
Year ended June 30, 1995 ............ $ -- $ 44,000 $ --
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
- -------------------------------------- ----------- --------
<S> <C> <C>
Allowance for doubtful accounts
Year ended June 30, 1997 ............ $ 88,000 $ --
=========== ========
Year ended June 30, 1996 ............ $ -- $ 88,000
=========== ========
Year ended June 30, 1995 ............ $ -- $ 44,000
=========== ========
</TABLE>
- --------------------------------------------------------------------------------
SCHEDULE II
CAPITOL QUEEN & CASINO, INC.
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended June 30,
1997, 1996 And 1995
<TABLE>
<CAPTION>
Additions
------------------------
Balance at Charged to Charged to
Beginning Costs and Other
Description of Year Expenses Accounts
- -------------------------------------- ----------- ----------- -----------
Deferred tax asset valuation allowance
<S> <C> <C> <C>
Year ended June 30, 1997 ............ $ 6,994,000 $ -- $ 377,000
=========== =========== ===========
Year ended June 30, 1996 ............ $ 4,420,000 $ -- $ 2,574,000
=========== =========== ===========
Year ended June 30, 1995 ............ $ 1,181,000 $ -- $ 3,239,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Balance at
End of
Description Deductions Year
- -------------------------------------- ----------- --------
<S> <C> <C>
Deferred tax asset valuation allowance
Year ended June 30, 1997 ............ $ -- $ 7,371,000
=========== ===========
Year ended June 30, 1996 ............ $ -- $ 6,994,000
=========== ===========
Year ended June 30, 1995 ............ $ -- $ 4,420,000
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
EXHIBIT INDEX
-------------
<S> <C>
3.1 Articles of Incorporation of the Company.*
3.2 By-Laws of the Company.*
4.1 Indenture dated November 15, 1993 among Arizona Charlie's, as issuer,
Sunset Coin, as guarantor, and IBJ Schroder Bank & Trust Company
("IBJ"), as trustee, as amended by First Supplemental Indenture dated
January 1, 1995.*
4.2 Indenture dated November 15, 1993 among Capitol Queen, as issuer,
Arizona Charlie's, as guarantor, and IBJ, as trustee, as amended by
First Supplemental Indenture dated January 1, 1995.*
10.1 Form of amended Warrant Agreement among the Company and the
purchasers named therein (the "Purchasers").*
10.2 Fee and Leasehold Deed of Trust, Assignment of Leases and Subleases,
Security Agreement and Fixture Filing dated November 15, 1993 by
Arizona Charlie's and CLC, as grantors, to Land Title of Nevada,
Inc., as trustee, for the benefit of IBJ, as collateral agent.*
10.3 Deed of Trust, Assignment of Leases, Security Agreement and Fixture
Filing dated November 15, 1993 by Capitol Queen, as grantor, to
Charles W. Riley, as trustee, for the benefit of IBJ, as collateral
agent.*
10.4 Form of First Preferred Ship Mortgage Securing an
Indenture between Capitol Queen and IBJ.*
10.5 Form of Security Agreements dated November 15, 1993 between each of
Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*
10.6 Form of Stock Pledge Agreements dated November 15, 1993 between each
of Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*
10.7 Form of Collateral Agency Agreement dated November 15, 1993 among
Arizona Charlie's, CLC and IBJ, as trustee and collateral agent and
between Capitol Queen and IBJ, as trustee and collateral agent.*
10.8 Promissory Notes dated December 24, 1993 made by each of the Beckers
in favor of Arizona Charlie's.*
10.9 Promissory Notes dated December 24, 1993 made by each of the Beckers
in favor of Sunset Coin.*
10.10 Tax Indemnity Agreement dated December 24, 1993 among
Arizona Charlie's, Sunset Coin, Becker Gaming Group
and each of the Beckers.*
10.11 Registration Rights Agreements dated as of May 31, 1994 among the
Company and each of the Beckers.*
10.12 Form of Management Agreements dated as of May 31, 1994 between the
Company and each of Arizona Charlie's, Capitol Queen, Sunset Coin and
Becker
Gaming Group.*
10.13 Form of Tax Allocation Agreements dated as of May 31, 1994 between
the Company and each of Arizona Charlie's, Sunset Coin, Becker Gaming
Group and
Capitol Queen.*
10.14 Form of Consulting Agreements dated as of May 31, 1994 between the
Company and each of Ernest A. Becker, III, Ernest A. Becker, IV and
Barry W.
Becker.*
10.15 Employment Agreement dated as of May 31, 1994 between
the Company and Bruce F. Becker.*
10.16 Stockholders Agreements dated as of May 31, 1994 among each of the
Beckers.*
10.17 Leases dated May 1, 1988 and August 21, 1990 between Charleston
Heights Shopping Center and Arizona Charlie's.*
10.18 Ground Lease dated December 1, 1986 between Becker Investment Company
and Becker Family Trust No. 2 and Becker Gaming Group; Assignment
dated September 16, 1987 assigning the interest of Becker Investment
Company and Becker Family Trust No. 2 to Lakeside
Partners.*
10.19 Lease dated August 12, 1986 between Fremont West
Shopping Center and Becker Gaming Group.*
10.20 Lease dated July 27, 1988 between Becker Investment
Co. and Becker Gaming Group.*
10.21 Lease dated September 19, 1994 between Weddington Investment
Partnership and Innerout, Inc.*
10.22 Lease dated March 24, 1995 between Sunset Coin, Inc.
and Innerout, Inc.*
10.23 Lease agreement between Arizona Charlie's, Inc. and
Bruce F. Becker.*
10.24 Aircraft Purchase Agreement dated July 1, 1996 between Arizona
Charlie's and Limerick Holdings, LLC.
21.1 Subsidiaries of the Company.
27.1 Financial Data Schedule
- -----------
<FN>
* Incorporated by reference to the Company's Registration Statement on Form S-1
(33-76368) declared effective by the Securities and Exchange Commission on May
20, 1994.
(b) Reports on Form 8-K
None.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,435,000
<SECURITIES> 0
<RECEIVABLES> 396,000
<ALLOWANCES> 0
<INVENTORY> 665,000
<CURRENT-ASSETS> 10,253,000
<PP&E> 68,588,000
<DEPRECIATION> 21,266,000
<TOTAL-ASSETS> 71,009,000
<CURRENT-LIABILITIES> 89,760,000
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> (29,263,000)
<TOTAL-LIABILITY-AND-EQUITY> 71,009,000
<SALES> 0
<TOTAL-REVENUES> 69,525,000
<CGS> 0
<TOTAL-COSTS> 68,621,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,148,000
<INCOME-PRETAX> (11,166,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,166,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,166,000)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
