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.