U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003 Commission File Number: 0-8698 CONCORDE GAMING CORPORATION ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) COLORADO 84-0716683 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3290 LIEN STREET RAPID CITY, SOUTH DAKOTA 57709 (Address of principal executive offices) (605) 341-7738 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of, May 14, 2003 there were 25,070,402 shares of the issuer's $.01 par value common stock outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] INDEX CONCORDE GAMING CORPORATION PART 1 - FINANCIAL INFORMATION <Table> <Caption> Item 1. Financial Statements Page No. -------- Consolidated Balance Sheet at March 31, 2003 (unaudited) 1 Consolidated Statements of Operations for 3 Three Months and Six Months Ended March 31, 2003 and 2002 (unaudited) Consolidated Statements of Stockholders' Equity (Deficit) for Six Months Ended March 31, 2003 (unaudited) 4 Consolidated Statements of Cash Flows for 5 Six Months Ended March 31, 2003 and 2002 (unaudited) Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis or Plan of Operations 10 Item 3. Controls and Procedures 17 </Table> PART II - OTHER INFORMATION CONCORDE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, 2003 (Unaudited) <Table> <Caption> ASSETS - ------ Current assets Cash and cash equivalents $ 1,231,464 Restricted cash 400,000 Trade receivables - net of allowance for doubtful accounts of $167,289 107,592 Inventory 49,332 Prepaid expenses Dock lease 130,219 Other 258,619 ------------ Total current assets 2,177,226 ------------ Other assets 125,971 ------------ Property and equipment Land 2,738,388 Parking lots 2,560,527 Vessel and improvements 9,886,223 Gaming equipment, fixtures and furniture 5,521,997 Vehicles 174,300 Buildings and improvements 5,073,185 Restricted cash 504,663 ------------ 26,459,283 Less accumulated depreciation and amortization 4,688,336 ------------ 21,770,947 ------------ Intangibles and other Dock rights, net 262,035 Deferred financing costs, net 492,564 Goodwill, net 977,486 ------------ 1,732,085 ------------ $ 25,806,229 ============ </Table> See Notes to Consolidated Financial Statements. 1 <Table> <Caption> LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities Notes payable - bank $ 557,856 Current maturities of long-term debt 7,557,166 Accounts payable 1,129,091 Accrued expenses Payroll and payroll taxes 448,988 Accrued interest 123,368 Other 888,423 Dividends payable 163,666 ------------ Total current liabilities 10,868,558 ------------ Long-term debt, less current maturities 7,320,745 ------------ Note payable to related party 6,438,364 ------------ Stockholders' equity (deficit) Preferred stock, par value $1.00 per share, authorized issued and outstanding 3,500,000 shares net of discount 3,425,000 Common stock, par value $.01 per share, issued and outstanding 2003 - 25,070,402 250,704 Additional paid-in capital 4,014,576 Accumulated deficit (6,511,718) ------------ Total shareholders' equity $ 1,178,562 ------------ Total liabilities and shareholders' equity $ 25,806,229 ============ </Table> See Notes to Consolidated Financial Statements. 2 CONCORDE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <Table> <Caption> Three Months Ended March 31 Six Months Ended March 31 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Revenues Casino $ 5,173,127 $ 5,468,527 $ 9,788,214 $ 10,341,997 Food and beverage 367,335 517,926 634,088 872,284 Other 335,626 306,647 637,746 531,484 ------------ ------------ ------------ ------------ Gross revenues 5,876,088 6,293,100 11,060,048 11,745,765 Less: promotional allowance 686,264 738,593 1,221,394 1,275,570 ------------ ------------ ------------ ------------ Net revenues 5,189,824 5,554,507 9,838,654 10,470,195 ------------ ------------ ------------ ------------ Costs and expenses: Casino 2,563,907 2,429,609 4,933,068 4,754,421 Food and beverage 279,032 305,749 511,972 566,674 Selling, general and administrative 1,414,189 1,718,182 2,667,472 3,228,886 Depreciation and amortization 433,866 338,445 820,512 666,777 Loss on sale of equipment -- 100 -- 100 ------------ ------------ ------------ ------------ 4,690,994 4,792,085 8,933,024 9,216,858 ------------ ------------ ------------ ------------ Income from operations 498,830 762,422 905,630 1,253,337 ------------ ------------ ------------ ------------ Other income (expense): Interest income 2,961 280 8,518 910 Other income 1,502 32,503 3,674 47,881 Interest expense and financing costs: Related parties (127,637) (145,857) (259,257) (311,770) Other (408,651) (174,218) (785,952) (345,404) ------------ ------------ ------------ ------------ (531,825) (287,292) (1,033,017) (608,383) ------------ ------------ ------------ ------------ Income (loss) before income taxes (32,995) 475,130 (127,387) 644,954 Income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net income (loss) $ (32,995) $ 475,130 $ (127,387) $ 644,954 ============ ============ ============ ============ Preferred stock dividends 70,000 -- 140,000 -- ------------ ------------ ------------ ------------ Net income (loss) available to common stockholders $ (102,995) $ 475,130 $ (267,387) $ 644,954 ============ ============ ============ ============ Basic and diluted income (loss) per share $ (0.00) $ 0.02 $ (0.01) $ 0.03 ============ ============ ============ ============ </Table> See Notes to Consolidated Financial Statements. 3 CONCORDE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Six Months Ended March 31, 2003 (Unaudited) <Table> <Caption> Additional Preferred Common paid-in Accumulated stock stock capital deficit Total ----------- ----------- ----------- ----------- ----------- Balance September 30, 2002 $ 3,425,000 $ 250,704 $ 4,014,576 $(6,244,331) $ 1,445,949 Net loss -- -- -- (127,387) (127,387) Preferred stock dividends -- -- -- (140,000) (140,000) ----------- ----------- ----------- ----------- ----------- Balance March 31, 2003 $ 3,425,000 $ 250,704 $ 4,014,576 $(6,511,718) $ 1,178,562 =========== =========== =========== =========== =========== </Table> See Notes to Consolidated Financial Statements. 4 CONCORDE GAMING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended March 31, 2003 and 2002 (Unaudited) <Table> <Caption> 2003 2002 ----------- ----------- Cash flows from operating activities: Net Income (loss) $ (127,387) $ 644,954 Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization 820,512 666,777 Loss on disposal of property and equipment -- 100 Provision for doubtful accounts 13,001 14,194 Change in assets and liabilities: Decrease (increase) in trade receivables 48,230 (15,163) Decrease (increase) in prepaid expenses and inventory 23,179 (433,226) Increase (decrease) in accounts payable and accrued expenses 645,766 (322,160) ----------- ----------- Net cash provided by operating activities 1,423,301 555,476 ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (3,067,860) (510,680) Purchase of intangibles (73,264) (29,204) Proceeds from sale of property and equipment -- 2,325 Decrease (increase) in restricted cash 129,228 -- Increase (decrease) in other assets 25,402 (62,716) ----------- ----------- Net cash used in investing activities (2,986,494) (600,275) ----------- ----------- Cash flows from financing activities: Net change in short-term borrowings, other 11,646 251,847 Proceeds from long-term borrowings - other 2,355,066 116,780 Principal payments on long-term borrowings, related parties (117,656) (138,230) Principal payments on long-term borrowings, other (685,314) (478,654) Proceeds from sale of stock -- 50,000 ----------- ----------- Net cash provided by (used in) financing activities 1,563,742 (198,257) ----------- ----------- Net increase (decrease) in cash and cash equivalents 549 (243,056) Cash and cash equivalents: Beginning 1,230,915 1,787,765 ----------- ----------- Ending $ 1,231,464 $ 1,544,709 =========== =========== Supplemental Disclosures of Cash Flow Information Cash payments for interest $ 1,067,620 $ 725,484 </Table> See Notes to Consolidated Financial Statements. 5 CONCORDE GAMING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2003 (Unaudited) (1) Interim Financial Statements: The accompanying unaudited consolidated financial statements of Concorde Gaming Corporation and its majority-owned subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending September 30, 2003. The accompanying consolidated financial statements, and related notes thereto, should be read in conjunction with the audited consolidated financial statements of the Company, and notes thereto, for the year ended September 30, 2002 included in the Company's 2002 Annual Report on Form 10-KSB. (2) Description of Business and Consolidated Entities: The Company, through a wholly owned subsidiary, Concorde Cripple Creek, Inc., a Colorado corporation ("Concorde Cripple Creek"), owns and operates the Golden Gates Casino ("Golden Gates Casino"), a limited stakes casino in Black Hawk, Colorado, and through a wholly owned subsidiary, Concorde Black Hawk, Inc., a Colorado corporation ("Concorde Black Hawk"), owns and operates the Golden Gulch Casino ("Golden Gulch Casino"), a limited stakes casino in Black Hawk, Colorado. In addition, the Company, through its wholly owned subsidiaries, Concorde Cruises, Inc., a South Dakota corporation ("Concorde Cruises"), and Conami, Inc., a Florida corporation ("Conami"), owns 100% of Princesa Partners, a Florida general partnership ("Princesa Partners"), which owns an offshore gaming vessel ("Casino Princesa"). Pursuant to a charter agreement, Princesa Partners charters the Casino Princesa to Concorde Cruises, which operates from Bayfront Park, Miami, Florida. (3) Earnings Per Share: The following table sets forth the computation of basic and diluted earnings per share ("EPS"). Options outstanding were not included in the EPS calculation for the six months ending March 31, 2003, and 2002, because their effect is anti-dilutive. 6 <Table> <Caption> Three Months Ended Three Months Ended March 31, 2003 March 31, 2002 ----------------------------------------- ---------------------------------------- Weighted Per Weighted Per Average Share Average share Income Shares Amount Income Shares Amount ----------- ---------- ----------- ---------- ---------- ---------- Basic and Diluted EPS --------------------- Net Earnings (Loss) $ (102,995) 25,070,402 $ (0.00) $ 475,130 25,070,402 $ 0.02 ========== ========== ========== ========== ========== ========== </Table> <Table> <Caption> Six Months Ended Six Months Ended March 31, 2003 March 31, 2002 ----------------------------------------- ---------------------------------------- Weighted Per Weighted Per Average Share Average share Income Shares Amount Income Shares Amount ----------- ---------- ----------- ---------- ---------- ---------- Basic and Diluted EPS --------------------- Net Earnings (Loss) $ (267,387) 25,070,402 $ (0.01) $ 644,954 24,603,369 $ 0.03 ========== ========== ========== ========== ========== ========== </Table> (4) Long-Term Debt In October 1998, Princesa Partners entered into a Loan Agreement and Security Agreement with a group of lenders, as subsequently amended on December 27, 2001 that provided $8,400,000 in financing (the "Vessel Loan") for the Casino Princesa, related equipment and working capital. The Vessel Loan is secured by a mortgage on the Casino Princesa and all related furniture, furnishings, machinery and equipment (including gaming equipment) owned by Princesa Partners. In addition, the Company and Mr. Lien, the Company's majority stockholder, guaranteed the Vessel Loan. The Vessel Loan bears interest at 10.625% and calls for monthly payments of $130,258, including interest through January 2004 when the remaining balance is due. The Vessel Loan also requires mandatory prepayment of principal in an amount equal to 12% of the amount of Excess Revenue (as defined below) for each fiscal year, commencing January 2000. Excess Revenue as defined in the Vessel Loan equals the excess of (i) Princesa Partner's income from operations before taxes, depreciation and amortization minus principal and interest paid on the Vessel Loan during the fiscal year, over (ii) $4,000,000. The Vessel Loan contains typical covenants with respect to Princesa Partners, including net worth restrictions, debt service requirements and limitations on the amount of debt that can be incurred. As of September 30, 2002, Princesa Partners was in violation of the debt service covenant. On November 27, 2002, Princesa Partners received a waiver from the bank of the debt service covenant through January 2003. As of March 31, 2003 Princesa Partners was in violation of the debt service covenant. The Company believes that Princesa Partners will be in compliance with the applicable covenant by June 30, 2003. (5) Segment Information The Company's reportable segments are strategic business units that offer similar products and services at separate geographical locations. They are managed separately because each business requires different types of facilities and marketing strategies. There are two reportable segments: our Miami operation and our Black Hawk operation. The Miami operation consists of an offshore gaming vessel that operates out of Miami, 7 Florida. The Black Hawk operation consists of two limited stakes casinos in Black Hawk, Colorado, the Golden Gates Casino and the Golden Gulch Casino. The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies included in the Company's Annual Report on Form 10-KSB. The interest expense of each segment is specifically identifiable to debt directly incurred to acquire each segment's respective assets. No intercompany allocations or intersegment sales and transfers have been made. Management evaluates the performance of each segment based on profit or loss from operations before income taxes, exclusive of nonrecurring gains and losses. Financial information (in 000's) with respect to the reportable segments is as follows: <Table> <Caption> For Three Months Ended March 31 Miami Operations Black Hawk Operations Total 2003 2002 2003 2002 2003 2002 ------- ------- ------- ------- ------- ------- Revenues Casino $ 3,005 $ 3,528 $ 2,168 $ 1,940 $ 5,173 $ 5,468 Food and beverage 320 472 48 46 368 518 Other 323 290 12 16 335 306 ------- ------- ------- ------- ------- ------- Gross revenues 3,648 4,290 2,228 2,002 5,876 6,292 Less promotional allowance 642 696 44 42 686 738 ------- ------- ------- ------- ------- ------- Net revenues 3,006 3,594 2,184 1,960 5,190 5,554 ------- ------- ------- ------- ------- ------- Cost and expenses Casino 1,414 1,451 1,150 979 2,564 2,430 Food and beverage 240 271 39 35 279 306 Selling, general and administrative 1,021 1,341 177 125 1,198 1,466 Depreciation and amortization 240 234 176 88 416 322 Interest expense 187 172 221 1 408 173 ------- ------- ------- ------- ------- ------- Total costs and expenses 3,102 3,469 1,763 1,228 4,865 4,697 ------- ------- ------- ------- ------- ------- Segment profit (loss) $ (96) $ 125 $ 421 $ 732 $ 325 $ 857 ======= ======= ======= ======= ======= ======= </Table> <Table> <Caption> For Six Months Ended March 31 Miami Operations Black Hawk Operations Total 2003 2002 2003 2002 2003 2002 ------- ------- ------- ------- ------- ------- Revenues Casino $ 5,738 $ 6,602 $ 4,050 $ 3,740 $ 9,788 $10,342 Food and beverage 538 791 96 81 634 872 Other 609 495 28 37 637 532 ------- ------- ------- ------- ------- ------- Gross revenues 6,885 7,888 4,174 3,858 11,059 11,746 Less promotional allowance 1,131 1,200 90 76 1,221 1,276 ------- ------- ------- ------- ------- ------- Net revenues 5,754 6,688 4,084 3,782 9,838 10,470 ------- ------- ------- ------- ------- ------- Cost and expenses Casino 2,855 2,775 2,078 1,979 4,933 4,754 Food and beverage 437 501 75 65 512 566 Selling, general and administrative 1,894 2,452 326 301 2,220 2,753 Depreciation and amortization 475 462 310 173 785 635 Interest expense 382 342 403 1 785 343 ------- ------- ------- ------- ------- ------- Total costs and expenses 6,043 6,532 3,192 2,519 9,235 9,051 ------- ------- ------- ------- ------- ------- Segment profit (loss) $ (289) $ 156 $ 892 $ 1,263 $ 603 $ 1,419 ======= ======= ======= ======= ======= ======= </Table> 8 The following schedule is presented to reconcile amounts in the foregoing segment information to the amounts reported in the Company's consolidated financial statements (in 000's). <Table> Segment profit (loss) $ 325 $ 858 $ 603 $1,419 Unallocated amounts: Income Interest income 3 -- 9 1 Other 1 32 4 47 ------ ------ ------ ------ Total income items 4 32 13 48 ------ ------ ------ ------ Expense General and administrative 216 252 447 476 Depreciation and amortization 18 16 36 32 Corporate interest 128 147 260 314 ------ ------ ------ ------ Total expense items 362 415 743 822 ------ ------ ------ ------ Consolidated net income (loss) before income taxes $ (33) $ 475 $ (127) $ 645 ====== ====== ====== ====== </Table> (6) Adoption of Statement of Financial Accounting Standards No. 141 and 142: We adopted Statement of Accounting Standards ("SFAS") No. 141, "Business Combinations," effective October 1, 2002. SFAS No. 141 principally eliminated the pooling method for accounting for business combinations, and requires that intangible assets that meet certain criteria be reported separately from goodwill. We also adopted Statement of Accounting Standards ("SFAS") No. 142, "Goodwill and other Intangible Assets," effective October 1, 2002. SFAS No. 142 provides new guidance regarding the recognition and measurement of intangible assets, eliminates the amortization of certain intangibles and requires annual assessments for impairment of intangible assets that are not subject to amortization. Accordingly, effective October 1, 2002, the Company no longer amortizes goodwill and other intangible assets with indefinite useful lives. In accordance with SFAS No. 142, the Company recently completed the impairment test on each reporting unit for which it has recorded goodwill as of October 1, 2002. The Company contracted with a third-party valuation firm to complete the analysis. The resulting fair value of both the Miami and Black Hawk units' equity exceeded such unit's respective book value, indicating no good will impairment. For the six months ending March 31, 2003, the Company recorded goodwill amortization of $48,732 and $20,562 for its Miami operating unit and Black Hawk operating unit, respectively. (7) Property Purchase: On November 6 and 22, 2002, respectively, the Company entered into agreements to purchase the Jazz Alley Casino located in Black Hawk, Colorado, including real property, buildings and improvements, and the sellers' interests in fixtures, furniture and equipment located on or about the real property. The total purchase price was $1,575,000. The Company incurred debt of $2,080,000 in connection with the acquisition and remodeling expenses related to the casino. 9 On January 29, 2003, after two months of remodeling, the Company opened the Jazz Alley Casino under the name Golden Gulch Casino. The Golden Gulch Casino currently has 210 gaming devices. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE STATEMENTS CONTAINED IN THIS REPORT, IF NOT HISTORICAL, ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FINANCIAL RESULTS DESCRIBED IN SUCH FORWARD LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN GAMING REGULATIONS AND TAX RATES IN COLORADO, FLORIDA, AND OTHER JURISDICTIONS THAT COULD IMPACT THE COMPANY'S OPERATIONS, CHANGES IN ECONOMIC CONDITIONS, DECLINING POPULARITY OF GAMING, COMPETITION IN COLORADO AND FLORIDA AND OTHER JURISDICTIONS, AND THE LEVEL AND RATE OF GROWTH IN THE COMPANY'S OPERATIONS. THE SUCCESS OF OUR BUSINESS OPERATIONS IS IN TURN DEPENDENT ON FACTORS SUCH AS ACCESS TO CAPITAL, THE EFFECTIVENESS OF OUR MARKETING STRATEGIES TO GROW OUR CUSTOMER BASE AND IMPROVE CUSTOMER RESPONSE RATES, GENERAL COMPETITIVE CONDITIONS WITHIN THE GAMING INDUSTRY AND GENERAL ECONOMIC CONDITIONS AS SET FORTH UNDER "FACTORS AFFECTING OUR BUSINESS AND PROSPECTS" BELOW. FURTHER, ANY FORWARD LOOKING STATEMENT OR STATEMENTS SPEAK ONLY AS OF THE DATE ON WHICH SUCH STATEMENT WAS MADE, AND WE UNDERTAKE NO OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENT OR STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE ON WHICH SUCH STATEMENT IS MADE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THEREFORE, FORWARD-LOOKING STATEMENTS SHOULD NOT BE RELIED UPON AS A PREDICTION OF ACTUAL FUTURE RESULTS. OVERVIEW Through our wholly owned subsidiaries, Concorde Cripple Creek, Inc. and Concorde Black Hawk Inc., we own and operate the Golden Gates Casino and the Golden Gulch Casino both of which are limited stakes casinos in Black Hawk, Colorado. In addition, through our wholly owned subsidiaries, Concorde Cruises, Inc. and Conami, Inc., we own 100% of Princesa Partners, which owns the offshore gaming vessel, the Casino Princesa. Pursuant to a charter agreement, Princesa Partners charters the Casino Princesa to Concorde Cruises which operates the Casino Princesa from Bayfront Park, Miami, Florida. We have two reportable segments, our Miami operation and our Black Hawk operation, that offer similar products and services at separate geographical locations. These segments are managed separately because each business requires different facilities and marketing strategies. Our Miami operation consists of the Casino Princesa, while our Black Hawk operation consists of the Golden Gates Casino and the Golden Gulch Casino. 10 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002: REVENUES Net revenues were $5,189,824 for the three months ended March 31, 2003, compared to $5,554,507 for the three months ended March 31, 2002, a decrease of 6.6%. MIAMI OPERATIONS Net revenues from our Miami operation were $3,006,187 for the three months ended March 31, 2003, compared to $3,594,945 for the three months ended March 31, 2002, a decrease of 16.4%. This decrease was primarily the result of an 18.7% decrease in passenger counts in the three months ended March 31, 2003 over the same period in 2002, and a 6.7% decrease in the number of cruises in the three months ended March 31, 2003 over the same period in 2002. The average number of passengers per cruise, decreased to 241 passengers during the three months ending March 31, 2003 compared to an average of 276 passengers during the same period in 2002. During the three months ended March 31, 2003 there were 180 cruises compared to 193 cruises during the same period in 2002. Food and beverage revenues were $319,686 for the three months ended March 31, 2003, compared to $472,317 for the three months ended March 31, 2002, a decrease of 32.3%. The decrease was primarily due to reduced passenger counts. Other revenues, consisting primarily of cruise admission and valet parking revenues, were $323,910 for the three months ended March 31, 2003, compared to $290,313 for the three months ended March 31, 2002, an increase of 11.6%. This increase was primarily due to the Company assuming the valet parking operation in June 2002, thus receiving 100% of the valet parking revenue after such time versus 50% prior to June 2002. Promotional allowance expenses were $642,148 for the three months ended March 31, 2003, compared to $696,099 for the three months ended March 31, 2002, a decrease of 7.8%. This decrease was the result of an increase in complimentary admissions and matchplay coupons which increase was partially offset by a decrease in complimentary meals and drinks. BLACK HAWK OPERATIONS Net revenues from our Black Hawk operations were $2,183,637 for the three months ended March 31, 2003, compared to $1,959,562 for the three months ended March 31, 2002, an increase of 11.4%. This increase was primarily due to revenue generated by Golden Gulch Casino which opened in January 2003. COSTS AND EXPENSES Total costs and expenses were $4,690,994 for the three months ended March 31, 2003, compared to $4,792,085 for the three months ended March 31, 2002, a decrease of 2.1%. MIAMI OPERATIONS Casino expenses for our Miami operation were $1,413,693 for the three months ended March 31, 2003, compared to $1,451,029 for the three months ended March 31, 2002, a decrease 11 of 2.6%. This decrease was related to a decrease in repair and maintenance expense and coupons for slot machine play which were partially offset by increases in payroll, fuel, slot machine leases and point redemptions. Food and beverage expenses were $240,241 for the three months ended March 31, 2003, compared to $270,709 for the three months ended March 31, 2002, a decrease of 11.3%. This decrease was primarily due to reduced passenger counts. Selling, general, and administrative expenses were $1,021,355 for the three months ended March 31, 2003, compared to $1,340,712 for the three months ended March 31, 2002, a decrease of 23.8%. This decrease was due to a reduction in payroll, legal fees, and advertising. BLACK HAWK OPERATIONS Casino expenses for our Black Hawk operations were $1,150,214 for the three months ended March 31, 2003, compared to $978,580 for the three months ended March 31, 2002, an increase of 17.5%. This increase was related to expenses incurred at the Golden Gulch Casino partially offset by the reduction in rent expense of the Golden Gates Casino, which was leased from a third party during the second quarter of fiscal 2002. Selling, general and administrative expenses were $177,249 for the three months ended March 31, 2003, compared to $125,116 for the three months ended March 31, 2002, an increase of 41.7%. This increase was primarily the result of expenses incurred at the Golden Gulch Casino, as well as increased parking garage expenses and promotions at the Golden Gates Casino. Depreciation and amortization expenses were $175,902 for the three months ended March 31, 2003, compared to $87,981 for the three months ended March 31, 2002, an increase of 99.9%. This increase was primarily due to the acquisition of property and equipment for the Golden Gates Casino in fiscal 2002 and property and equipment for the Golden Gulch Casino in November 2002. OTHER INCOME AND EXPENSE Interest expense and financing costs with respect to related party debt were $127,637 for the three months ended March 31, 2003, compared to $145,857 for the three months ended March 31, 2002. This decrease was the result of our issuance of 3,500,000 shares of preferred stock in exchange for the cancellation of $3,500,000 of related party debt in July 2002. We accrued dividends with respect to the preferred stock of $70,000 for the three months ended March 31, 2003 and $140,000 for the six months ended March 31, 2003. Other interest and financing costs increased to $408,651 for the three months ended March 31, 2003, compared to $174,218 for the three months ended March 31, 2002, as a result of debt associated with the financing of our purchases of the Golden Gates Casino and the Golden Gulch Casino in August 2002, in November 2002, respectively. There was no income tax expense or benefit recorded in the quarters ended March 31, 2003 and March 31, 2002. We record an income tax benefit using the estimated effective tax rate for the fiscal year if the amount of loss incurred is reasonably expected to be offset by future income or is available for carry back to previous years. 12 RESULTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2003 COMPARED TO SIX MONTHS ENDED MARCH 31, 2002: REVENUES Net revenues were $9,838,654 for the six months ended March 31, 2003, compared to $10,470,195 for the six months ended March 31, 2002, a decrease of 6.0%. MIAMI OPERATIONS Net revenues from our Miami operation were $5,754,181 for the six months ended March 31, 2003, compared to $6,688,364 for the six months ended March 31, 2002, a decrease of 14%. This decrease was primarily the result of a 12.4% decrease in passenger count in the six months ended March 31, 2003 over the same period in 2002, and a 6.2% decrease in the number of cruises in the six months ended March 31, 2003 over the same period in 2002. The average number of passengers per cruise during the six month period ending March 31, 2003, decreased to 240 passengers compared to an average of 257 passengers during the same period in 2002. For the six months ended March 31, 2003 there were 347 cruises compared to 370 cruises during the same period in 2002. Food and beverage revenues were $537,521 for the six months ended March 31, 2003, compared to $791,094 for the six months ended March 31, 2002, a decrease of 32.1%. The decrease was primarily due to reduced passenger counts. Other revenues, consisting primarily of cruise admission and valet parking revenues, were $610,456 for the six months ended March 31, 2003, compared to $495,342 for the six months ended March 31, 2002, an increase of 23.2%. This increase was primarily due to the Company assuming the valet parking operations in June 2002 and thus receiving 100% of the valet parking revenue after such time versus 50% prior to June 2002. Promotional allowance expenses were $1,131,441 for the six months ended March 31, 2003, compared to $1,199,909 for the six months ended March 31, 2002, a decrease of 5.7%. This decrease was the result of an increase in complimentary admissions and matchplay coupons offset by a decrease in complimentary meals and drinks. BLACK HAWK OPERATIONS Net revenues from our Black Hawk operations were $4,084,473 for the six months ended March 31, 2003, compared to $3,781,831 for the six months ended March 31, 2002, an increase of 8.0%. This increase was primarily due to revenues generated by Golden Gulch Casino which opened in January 2003. COSTS AND EXPENSES Total costs and expenses were $8,933,024 for the six months ended March 31, 2003, compared to $9,216,858 for the six months ended March 31, 2002, a decrease of 3.1%. MIAMI OPERATIONS Casino expenses for our Miami operation were $2,855,195 for the six months ended March 31, 2003, compared to $2,775,067 for the six months ended March 31, 2002, an increase of 2.9%. This increase was related to an increase in payroll, fuel, slot machine leases and point 13 redemption expenses partially offset by a decrease in coupons for slot machine play. Food and beverage expenses were $437,248 for the six months ended March 31, 2003, compared to $501,180 for the six months ended March 31, 2002, a decrease of 12.8%. This decrease was primarily due to a reduction in complementary food and beverage sales. Selling, general, and administrative expenses were $1,894,480 for the six months ended March 31, 2003, compared to $2,451,592 for the six months ended March 31, 2002, a decrease of 22.7%. This decrease was primarily due to a reduction in payroll, legal fees, and advertising. BLACK HAWK OPERATIONS Casino expenses for our Black Hawk operations were $2,077,873 for the six months ended March 31, 2003, compared to $1,979,354 for the six months ended March 31, 2002, an increase of 5.0%. This increase was related to expenses incurred at the Golden Gulch Casino partially offset by the reduction in rent expense for the Golden Gates Casino, which was leased from a third party during the six months ending March 31, 2002. Selling, general and administrative expenses were $326,174 for the six months ended March 31, 2003, compared to $300,969 for the six months ended March 31, 2002, an increase of 8.4%. This increase was primarily the result of expenses at the Golden Gulch Casino, as well as an increase in promotions at the Golden Gates Casino. Depreciation and amortization expenses were $310,352 for the six months ended March 31, 2003, compared to $172,963 for the six months ended March 31, 2002, an increase of 79.4%. This increase was primarily due to the acquisition of the Golden Gates Casino and the Golden Gulch Casino in August 2002 and November 2002, respectively. OTHER INCOME AND EXPENSE Interest expense and financing costs with respect to related party debt decreased to $259,257 for the six months ended March 31, 2003, compared to $311,770 for the six months ended March 31, 2002. This decrease was the result of our issuance of 3,500,000 shares of preferred stock in exchange for the cancellation of $3,500,000 of related party debt in July 2002. We accrued dividends with respect to the preferred stock of $70,000 during the three months ended March 31, 2003 and $140,000 during the six months ended March 31, 2003. Other interest and financing costs increased to $785,952 for the six months ended March 31, 2003, compared to $345,404 for the six months ended March 31, 2002, as a result of debt incurred in connection with our purchases of the Golden Gates Casino property and equipment in August 2002, and the Golden Gulch Casino property and equipment in November 2002. There was no income tax expense or benefit recorded in the six months ended March 31, 2003 or March 31, 2002. We record an income tax benefit using the estimated effective tax rate for the fiscal year if the amount of loss incurred is reasonably expected to be offset by future income or is available for carry back to previous years. LIQUIDITY AND CAPITAL RESOURCES We had cash and cash equivalents of $1,231,464 at March 31, 2003, compared to $1,544,709 at March 31, 2002, a decrease of $313,245. During the six months ended March 31, 2003, net cash flow from operating activities was $1,423,301 compared to $555,476 for the six months ended March 31, 2002, primarily as a result of decreased payments related to accounts payable and accrued expenses. We expect that we will generate cash flow from operations in amounts sufficient to satisfy our short-term liquidity needs. 14 Investing activities used net cash of $2,986,494 during the six months ended March 31, 2003, compared to $600,275 during the six months ended March 31, 2002. This increase was primarily due to the purchase of the Golden Gulch Casino. Financing activities provided net cash of $1,563,742 for the six months ended March 31, 2003, compared to using cash of $198,257 for the six months ended March 31, 2002. The increase was primarily due to the $2,080,000 of new debt associated with the purchase of Golden Gulch Casino and two $100,000 short term notes due December 4, 2003 the proceeds of which were used to finance the remodeling and the purchase of equipment for the Golden Gulch Casino. FUTURE OPERATIONS Though revenues were down in the second quarter of 2003 as compared to the same quarter of 2002, we anticipate that our revenue will grow in the third and fourth quarters of fiscal 2003 due to the Golden Gulch Casino being in operation for the entire period and to our plan to focus marketing and promotions on slot machine players at the Casino Princesa and to expand the number of gaming devices at the Golden Gulch Casino, each as described below. The decrease in revenues was primarily attributable to a decrease in revenue from our Miami operations. We intend to increase revenues from the Casino Princesa by continuing our upgrading and purchasing of new slot machines and redirecting our marketing and promotions strategy from the table games to the slot machine player. We believe this strategy will increase the profitability of the Casino Princesa as expenses associated with slot machines are historically lower than expenses associated with table games. In addition, our Golden Gates Casino continues to do well and with the opening of the Golden Gulch Casino, we expect to take advantage of operational efficiencies to improve financial results and increase our cash flow from operating activities. We currently have 210 gaming devices at the Golden Gulch Casino and plan to expand to 250 gaming devices by June 30, 2003. FACTORS AFFECTING OUR BUSINESS AND PROSPECTS There are many factors that affect our business and the results of its operations, some of which are beyond our control. The following is a description of some of the important factors that may cause our results of operations in future periods to differ from those currently expected or desired. There are many factors that affect our business and the results of its operations, some of which are beyond our control. The following is a description of some of the important factors that may cause our results of operations in future periods to differ from those currently expected or desired. o Due to the current indebtedness, our ability to obtain additional financing in the future and our flexibility in reacting to changes in the industry and economic conditions may be limited. o In the past, we have relied upon loans from Mr. Brustuen "Bruce" H. Lien and BHL Capital, of which Mr. Lien is the majority shareholder, to obtain the capital necessary to purchase the interests in the Casino Princesa previously held by a third party and to fund working capital shortages. Mr. Lien has also been required to provide personal guarantees in order for us to obtain financing for the Casino Princesa, the Golden Gates Casino and the Golden Gulch Casino. There is no assurance that Mr. Lien and BHL 15 Capital will have the intent or the ability to fund future cash shortages, if any, to the extent funded in fiscal years 2000 and 2001 or to provide guarantees. If management is unable to continue to effectuate its operational plan and generate cash flow from operating activities, or if Mr. Lien or BHL Capital are unwilling or unable to provide additional funding, we may not be able to satisfy our long-term debt obligations. o Princesa Partners was in default on the vessel loan due to a failure to comply with the debt service covenants contained in the vessel loan agreements at September 30, 2002. On November 27, 2002, we received a waiver of the vessel loan's debt service covenants through January 2003; however, on January 31, 2003 we were not in compliance with the loan covenants relating to debt service requirements. Although we believe that we will be in compliance with the debt service covenants commencing with the quarter ending June 30, 2003, there is no guarantee that we will achieve such compliance or that we will not violate the terms of the vessel loan agreements in the future, which could result in the acceleration of all amounts owed under the loan. o Our success is partially dependent on our ability to anticipate changing products and amenities and to efficiently develop and introduce new products and amenities that will gain customer acceptance. If we are unable to anticipate and introduce such products and amenities, such inability may have an adverse effect on our business. o Our gaming operations in Colorado are highly regulated by governmental authorities. We will also be subject to regulation in Florida if it decides to regulate the day-cruise industry. If we conduct gaming activities in any other jurisdiction, the authorities in that jurisdiction may also subject us to regulation. Changes in applicable laws or regulations governing the gaming industry could have a significant effect on our operations. o Our business is affected by changes in local, national and international general economic and market conditions in the locations where we operate and where our customers live. The Casino Princesa is particularly affected by the economic situation in Latin America and South America. Changes in economic conditions could adversely affect our business. o From time to time, various state and federal legislators and officials have proposed changes in tax laws, or in the administration of the law, affecting the gaming industry. It is not possible to determine with certainty the likelihood of possible changes in the tax laws or their administration. These changes, if adopted, could have a material negative effect on our operating results. o Our success is partially dependent on attracting and retaining highly qualified management and gaming personnel. Our inability to recruit or retain such personnel could adversely affect our business. o The weather in Florida is a daily risk consideration. Air temperature, rain, high seas caused by winds, hurricanes and tropical storms affect daily passenger counts and may cause the cancellation of cruises, which directly affects our revenues. 16 ITEM 3. CONTROLS AND PROCEDURES Within the 90 days prior to the filing of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting him to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the date of this evaluation. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The exhibits set forth on the Exhibit Index attached to this report are incorporated herein by reference. (b) REPORTS ON FORM 8-K There were no reports on Form 8-K filed during the quarter ended December 31, 2002. 17 Signatures: In accordance with the requirements of the Exchange Act, the registrant caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. CONCORDE GAMING CORPORATION Date: May 14, 2003 By: /s/ Jerry L. Baum ---------------------------------------- Jerry L. Baum, Chief Executive Officer, Interim Chief Financial Officer 18 CERTIFICATIONS I, Jerry L. Baum, President, Chief Executive Officer and Interim Chief Financial Officer of Concorde Gaming Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Concorde Gaming Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 1 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Jerry L. Baum -------------------------------------- Jerry L. Baum President, Chief Executive Officer and Interim Chief Financial Officer 2 EXHIBIT INDEX <Table> <Caption> EXHIBIT NO. DESCRIPTION - ----------- ----------- 3.1 Amended and Restated Articles of Incorporation.(1) 3.2 Articles of Amendment to Articles of Incorporation filed on July 31, 2002.(2) 3.2 Fourth Amended and Restated Bylaws.(3) 4.1 Warrant dated July 30, 2002 to Purchase 200,000 shares of Common Stock in the name of BHL Capital Corporation.(2) 99.1 Certification of Chief Executive Officer and Interim Chief Financial Officer.(+) </Table> - ---------- (+) Filed herewith (1) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended September 30, 1995 (File No. 0-8698) and incorporated herein by this reference. (2) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 31, 2001 (File No. 0-8698) and incorporated herein by this reference. (3) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended September 30, 2001 (File No. 0-8698) and incorporated herein by this reference.