Wednesday, Aug. 2, 2000 | 11:07 a.m.
NevStar Gaming & Entertainment Corp., just months after voluntarily dismissing its bankruptcy petition, has once again asked for bankruptcy protection as a legal battle continues for control of its defunct Mesquite hotel-casino.
The 210-room Mesquite Star, apparently the company's only asset, was closed suddenly in March after the company voluntarily dismissed its first bankruptcy petition. More than 250 people lost their jobs in the closure.
Now, creditors say, NevStar's efforts to sell the casino have fallen through, triggering a scramble to sell the property at auction. Just days before the first of the auctions was to occur, NevStar again filed for bankruptcy protection.
The primary creditors at this point include A.F. Construction Co., builder of the property; Virgin River Casino Corp., owner of five casinos in Mesquite; and Dr. Richard Kelley, one of the primary investors in NevStar's efforts to build the Mesquite Star. The three are awaiting a state judge's ruling on whose claim will have first priority in the sale of the property.
In its July 10 bankruptcy filing, NevStar indicated that Kelley is now the largest creditor, with claims of $8.4 million, followed by a $5.45 million debt to Samuel Hon of San Diego. Virgin River claims it is owed $5.4 million, followed by a court-ordered judgment of more than $1 million held by A.F. Construction.
In all, NevStar said it owes $23.8 million, and reported assets of $22.2 million.
Had NevStar's plans to sell the property been successful, Virgin River said, there apparently would have been enough to satisfy the debts of the large secured creditors.
A.F. Construction had been moving forward with plans to sell the Mesquite Star in a sheriff's auction on May 16. A.F. Construction said it won this right after a court entered a default judgment against NevStar March 20, awarding it more than $1 million in unpaid construction fees and penalties.
But Virgin River, apparently unaware of this claim, acquired First Credit Bank's $5.4 million claim against the Mesquite Star in April.
After receiving a notice of the pending sale, Virgin River and four creditors sued A.F. Construction, asking for a delay in sheriff's sale. Virgin River claimed A.F. Construction had failed to disclose the existence of other claims, and called the lien judgment "frivolous" and "excessive." A.F. Construction responded that the priority status given to the other creditors' claims was improper, since construction had been proceeding for four years when the priority claims were issued.
Before a ruling could be issued, A.F. agreed to postpone the sale. Virgin River said in court filings this delay came after "an unrelated third-party buyer was interested in purchasing the property (and) paying off A.F., Virgin River, Kelley" and the property's remaining secured creditors.
Though the potential buyer was not identified in court filings, AmeriResource Technologies Inc. of Rolling Meadows, Ill., said in early May that it had reached an agreement to acquire the Mesquite Star. This agreement was reached, AmeriResource said, on March 30, just 13 days after a bankruptcy judge dismissed the NevStar case at the company's request.
A penny-stock company with no holdings in the gaming industry, AmeriResource's primary business is the construction industry, though the company had said it is trying to branch out into the assisted care business with holdings in apartments, mobile homes and "adult residential lifestyle communities." The company said in June that it has relocated its primary office from Illinois to Las Vegas.
The company reported revenues of just $82,000 in consulting fees in 1999, and a net loss of $4.5 million. Losses by the company are typically covered through the issuance of additional shares -- currently, the company has 550.8 million shares outstanding. Its shares currently trade at less than 5 cents per share, after a 52-week high of 71 cents per share.
But the truce between the creditors came to an end in June, Virgin River said, after sales negotiations with the unnamed buyer broke down.
AmeriResource, however, insists its plans to buy the property are still on track. In a July 19 press release, the company said it is working with NevStar President Michael Signorelli to secure financing for the property, a package it says will be in place within 90 days.
AmeriResource officials declined comment, saying it is company policy not to speak to the press. Signorelli could not be reached for comment.
With sales talks with at least one buyer apparently off, the creditors again moved forward with sales plans as A.F. Construction, Kelley and Virgin River each scheduled separate auctions of the property. A.F. Construction sued again, asking for an order blocking the sale -- and an order that any buyer of the property be forced to pay A.F. Construction its claim.
In mid-June, A.F. Construction suffered a setback when a state judge refused to block Virgin River's planned auction. But the Nevada Supreme Court awarded A.F. Construction a temporary stay while it considered its appeal.
With the second bankruptcy filing, all efforts to sell the Mesquite Star at auction have been temporarily stayed. Currently, however, Virgin River has asked the bankruptcy court to allow a state judge to rule on whose claim on the Mesquite Star has priority.
NevStar's bankruptcy petition prevents an immediate auction of the Mesquite Star. But Virgin River argues its legal battle with A.F. Construction doesn't include NevStar, and should be permitted to proceed as a "precautionary measure" while the bankruptcy case moves forward. A bankruptcy judge is now considering the request.
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