<PAGE> 1
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, 1996
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 57702
----------------------------------------
(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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of April 30, 1996, there
were 26,755,193 shares of the issuer's $.01 par value common stock outstanding.
A subsidiary of the issuer owns 4,825,400 shares of the issuer resulting, for
financial statement reporting purposes only, in a total of 21,929,793 shares
outstanding.
Transitional Small Business Disclosure Format (check one): Yes / / No / X /
<PAGE> 2
INDEX
CONCORDE GAMING CORPORATION
and Subsidiaries
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
at March 31, 1996 (unaudited) 1
Condensed Consolidated Statements of Earnings for
Three Months Ended March 31, 1996 and 1995 and
for Six Months Ended March 31, 1996 and 1995 (unaudited) 3
Condensed Consolidated Statements of Stockholders'
Equity for the Periods Ended March 31, 1996,
September 30, 1995 and March 31, 1995 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for
Six Months Ended March 31, 1996 and 1995 (unaudited) 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE> 3
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 166,547
Receivables:
Trade 20,662
Management agreement 252,127
Interest 55,946
Current maturities of long-term receivables:
The Three Affiliated Tribes 1,603,800
Notes receivable 292,566
Prepaid expenses 183,327
------------
Total current assets $ 2,574,975
------------
Investments and long-term receivables:
Long-term receivables from The Three Affiliated Tribes $ 4,901,374
Notes receivable, less current maturities 175,023
Other 16,750
------------
$ 5,093,147
------------
Property and equipment, at cost:
Land $ 50,000
Building and improvements 205,511
Video lottery equipment 2,486,161
Furniture and equipment 241,482
Leasehold improvements 303,746
Vehicles 120,825
------------
$ 3,407,725
Less accumulated depreciation (1,267,765)
------------
$ 2,139,960
------------
Intangibles:
Noncompetition agreements, net $ 51,649
Other, principally goodwill, net 389,241
Casino development and financing costs, net 540,322
------------
$ 981,212
------------
$ 10,789,294
============
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Liabilities and Stockholder's Equity
<S> <C>
Current liabilities:
Notes payable:
Current maturities of long-term debt $ 4,413,571
Accounts payable:
Trade 294,731
Construction and property and equipment related 267,029
Accrued expenses:
Lottery state share 181,593
Other 88,586
Income taxes payable 14,734
------------
Total current liabilities $ 5,260,244
------------
Long-term debt, less current maturities $ 1,187,858
------------
Note payable to related party $ 690,000
------------
Deferred income taxes $ 68,200
------------
Stockholders' equity:
Common stock, par value $.01 per share; authorized
500,000,000 shares; issued 26,755,193 at March 31, 1996 $ 267,552
Preferred stock, par value $.01 per share; authorized
10,000,000 shares; no shares issued and outstanding 0
Additional paid-in capital 3,889,918
Accumulated deficit (50,964)
------------
$ 4,106,506
Less stock subscription in the form of a note
and related accrued interest receivable (205,912)
Less cost of treasury stock, 4,825,400 shares (317,602)
------------
$ 3,582,992
------------
$ 10,789,294
============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995, and Six Months Ended
March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, 1996 and 1995 March 31, 1996 and 1995
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Video lottery $ 2,172,860 $ 2,281,006 $ 4,643,656 $ 3,163,989
Management agreement 391,143 561,753 914,553 1,048,361
Other 38,424 6,345 44,916 8,600
------------ ------------ ------------ ------------
$ 2,602,427 $ 2,849,104 $ 5,603,125 $ 4,220,950
------------ ------------ ------------ ------------
Costs and expenses:
Video lottery state share $ 1,081,389 $ 935,696 $ 2,307,847 $ 1,157,477
Video lottery location share 681,861 835,822 1,497,411 1,300,874
Compensation expenses 241,928 182,916 437,890 318,485
Business development costs 22,345 14,409 36,286 69,082
Operating expenses 489,529 316,894 922,933 681,242
------------ ------------ ------------ ------------
Total costs and expenses $ 2,517,052 $ 2,285,737 $ 5,202,367 $ 3,527,160
------------ ------------ ------------ ------------
Operating income $ 85,375 $ 563,367 $ 400,758 $ 693,790
------------ ------------ ------------ ------------
Other income (expense):
Interest income $ 153,858 $ 163,874 $ 293,361 $ 302,666
Loss on sale of equipment (6,274) (1,301) (6,731) (49,826)
Other income 1,662 25,000 2,883 50,824
Interest expense and financing costs (219,079) (318,909) (446,314) (852,347)
------------ ------------ ------------ ------------
$ (69,833) $ (131,336) $ (156,801) $ (548,683)
------------ ------------ ------------ ------------
Earnings before income taxes $ 15,542 $ 432,031 $ 243,957 $ 145,107
Federal and state income taxes $ 4,950 $ 155,205 $ 87,800 $ 52,005
------------ ------------ ------------ ------------
Net earnings $ 10,592 $ 276,826 $ 156,157 $ 93,102
============ ============ ============ ============
Net earnings per common and
common equivalent share $0.00 $0.01 $0.01 $0.00
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 21,938,246 21,936,085 21,958,489 22,009,276
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Periods Ended March 31, 1996, September 30, 1995 and March 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Number of
Common Additional
Shares Common paid-in Accumulated
Outstanding stock capital deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, September 30, 1994 26,987,593 $ 269,876 $ 3,898,745 $(1,266,994)
Net loss 0 0 0 93,102
Cancellation of 153,400 shares of common stock
relating to merger with Bruce H. Lien Company (153,400) (1,534) 1,534 0
Cancellation of 79,000 shares of
common stock held in treasury (79,000) (790) (83,683) 0
Issuance of warrant for 40,000 shares of common
stock in connection with note payable 0 0 4,000 0
Interest earned on note receivable 0 0 22,888 0
Principal payments received on note receivable 0 0 0 0
----------- ----------- ----------- -----------
Balance, March 31, 1995 26,755,193 267,552 3,843,484 (1,173,892)
Net income 0 0 0 966,771
Issuance of warrant for 360,000 shares of common
stock in connection with note payable 0 0 4,000 0
Interest earned on note receivable 0 0 21,291 0
Principal payments received on note receivable 0 0 0 0
----------- ----------- ----------- -----------
Balance, September 30, 1995 26,755,193 267,552 3,868,775 (207,121)
Net income 0 0 0 156,157
Issuance of warrant for 80,000 shares of common
stock in connection with note payable 0 0 1,600 0
Interest earned on note receivable 0 0 19,543 0
Principal payments received on note receivable 0 0 0 0
=========== =========== =========== ===========
Balance, March 31, 1996 26,755,193 $ 267,552 $ 3,889,918 $ (50,964)
=========== =========== =========== ===========
<CAPTION>
Stock
subscription
in the form
of a note
and related
interest Treasury
receivable stock Total
------------ ----------- -----------
<S> <C> <C> <C>
Balance, September 30, 1994 $ (261,181) $ (402,075) $ 2,238,371
Net loss 0 0 93,102
Cancellation of 153,400 shares of common stock
relating to merger with Bruce H. Lien Company 0 0 0
Cancellation of 79,000 shares of
common stock held in treasury 0 84,473 0
Issuance of warrant for 40,000 shares of common
stock in connection with note payable 0 0 4,000
Interest earned on note receivable 169 0 23,057
Principal payments received on note receivable 16,607 0 16,607
----------- ----------- -----------
Balance, March 31, 1995 (244,405) (317,602) 2,375,137
Net income 0 0 966,771
Issuance of warrant for 360,000 shares of common
stock in connection with note payable 0 0 4,000
Interest earned on note receivable 186 0 21,477
Principal payments received on note receivable 18,187 0 18,187
----------- ----------- -----------
Balance, September 30, 1995 (226,032) (317,602) 3,385,572
Net income 0 0 156,157
Issuance of warrant for 80,000 shares of common
stock in connection with note payable 0 0 1,600
Interest earned on note receivable 202 0 19,745
Principal payments received on note receivable 19,918 0 19,918
=========== =========== ===========
Balance, March 31, 1996 $ (205,912) $ (317,602) $ 3,582,992
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 156,157 $ 93,102
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation 209,441 210,733
Amortization 92,793 129,146
Warrants issued 1,600 0
Loss on disposal of video lottery equipment held for resale 0 52,221
Loss (gain) on sale of property and equipment 6,733 (2,391)
Deferred income taxes 0 52,005
Other 0 (50,824)
Changes in assets and liabilities:
Receivables - trade, management fees, interest 56,539 65,498
Prepaid expenses (37,347) (103,476)
Accounts payable and accrued expenses 169,932 401,452
Income taxes payable (16,954) 0
----------- -----------
Net cash provided by operating activities $ 638,894 $ 847,466
----------- -----------
Cash flows from investing activities:
Advances on long-term receivables $ (84,500) $ (29,733)
Principal payments received on long-term receivables 1,004,733 743,842
Proceeds from sale of property and equipment 40,304 37,050
Purchase of property and equipment (329,910) (17,032)
Payments for casino development costs (164,790) (16,709)
Other 0 (18,796)
----------- -----------
Net cash provided by investing activities $ 465,837 $ 698,622
----------- -----------
Cash flows from financing activities:
Proceeds from long-term borrowing $ 12,992 $ 170,405
Principal payments on long-term debt (1,496,277) (1,208,196)
Net change in short-term borrowings (15,000) (90,000)
Payment of accounts payable, construction related 0 (149,596)
Payment of accounts payable, property and equipment related 0 (162,171)
Payments received on stock subscription in the form of a
note and related interest receivable 39,663 39,664
----------- -----------
Net cash (used in) financing activities $(1,458,622) $(1,399,894)
----------- -----------
Net increase (decrease) in cash $ (353,891) $ 146,194
Cash:
Beginning 520,438 147,287
----------- -----------
Ending $ 166,547 $ 293,481
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 8
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six Months Ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $448,623 $556,844
======== ========
Income taxes $105,000 $ 59,000
======== ========
Supplemental schedule of noncash investing and
financing activities:
Property and equipment acquired by issuance of long-term debt $190,000
========
Property and equipment acquired by incurring accounts payable $ 67,174
========
Long-term note receivable for the sale
of video lottery casino assets $152,800
========
Cancellation of 79,000 common shares held in treasury $ 84,473
========
Cancellation of 153,400 common shares returned to the Company
in accordance with a lookback provision involved with a merger $ 1,534
========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 9
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
(1) Interim Financial Statements
The accompanying unaudited condensed 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 of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the six month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the
year ending September 30, 1996.
The accompanying condensed consolidated financial statements, and
related notes thereto, should be read in conjunction with the audited
financial statements of the Company, and notes thereto, for the year
ended September 30, 1995 included in the Company's 1995 Annual Report
on Form 10-KSB.
(2) Concentration of Revenues/Credit Risk
A substantial portion of the Company's revenues are derived from the
management of the 4 Bears Casino & Lodge (the "Casino") pursuant to a
management agreement (the "Management Agreement") between Bruce H.
Lien Company, a wholly-owned subsidiary of the Company ("BHL"), and
the Three Affiliated Tribes ("TAT"). A significant portion of the
Company's assets are notes receivable related to the Management
Agreement. The Company's ability to continue to earn management fees,
collect on the outstanding notes receivable, and fund its existing
obligations is highly dependent upon the future earnings and cash flow
from the Management Agreement. Any adverse change in the operations
of the Casino, the Company's relationship with TAT, compliance with
TAT's gaming compact with the State of North Dakota, or an adverse
ruling in the current arbitration proceedings between the Company and
TAT could have a material adverse effect on the financial condition
and operations of the Company.
7
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(unaudited)
(3) NIGC Review
In June 1995, the National Indian Gaming Commission (the "NIGC")
requested that TAT and BHL submit the Management Agreement and certain
related documents to the NIGC for review. The deadline for the NIGC
completing the review of the Management Agreement is May 21, 1996.
The NIGC reviews management agreements to determine whether they
comply with the Indian Gaming Regulatory Act (the "IGRA"). If the
NIGC determines that the Management Agreement does not comply with the
IGRA, it may (i) require the parties to modify the Management
Agreement, including but not limited to, reducing the management fee
and the term of the Management Agreement, or (ii) void the Management
Agreement. Any reduction in the management fee or the term of the
Management Agreement or the voiding of the Management Agreement would
have a material adverse effect on the Company. In addition, any
reduction in the management fee or the term of the Management
Agreement would substantially reduce the value of the Management
Agreement to the Company. The Company does not believe that the NIGC
has the authority to require a modification of or to void the
Management Agreement since the Bureau of Indian Affairs previously
determined in February 1993 that the terms of the Management Agreement
complied with the IGRA. As a result, the Company believes the
Management Agreement does comply with IGRA and that the NIGC review
will not adversely impact the Company. In the event the NIGC requires
a modification of or voids the Management Agreement, the Company
intends to seek judicial relief to stay such action pending a judicial
determination of the NIGC's authority to take such actions. However,
there can be no assurances that such judicial relief would be granted
or that a court would stay any actions of the NIGC.
In March 1996, the Company met informally with representatives of TAT
and the acting Chairman of the NIGC. The NIGC called the meeting to
facilitate a settlement of the disputes between the Company and TAT
and to address issues arising out of the NIGC's review of the
Management Agreement. The Company expects to meet with TAT and the
NIGC again prior to the May 21, 1996 deadline.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
On June 22, 1994, the South Dakota Supreme Court issued a decision
holding that video lottery was not a lottery as defined in the South Dakota
Constitution, and therefore, was unconstitutional. The court's decision became
effective on August 13, 1994, and resulted in the shutdown of all video lottery
machines in South Dakota (the "State"). In November 1994, the voters of South
Dakota approved a constitutional amendment legalizing video lottery as it had
been operated in South Dakota. After a 100-day shutdown, the Company
reinstated its video lottery operations in South Dakota on November 22, 1994,
the effective date of the constitutional amendment. Due to the video lottery
shutdown extending 52 days into the six month period ended March 31, 1995 (the
"1994 Shutdown"), the financial results for the six months ended March 31, 1995
have been adversely impacted.
RESULTS OF OPERATIONS
Three Months ended March 31, 1996 Compared to Three Months ended March 31, 1995
Revenues. Total revenues decreased 8.7% to $2,602,427 for the three
months ended March 31, 1996, compared to $2,849,104 for the three months ended
March 31, 1995. The decrease was attributable to decreases in video lottery
revenues and management agreement revenues. Video lottery revenues decreased
4.7% to $2,172,860 for the three months ended March 31, 1996, compared to
$2,281,006 for the three months ended March 31, 1995. Revenues from the
Management Agreement decreased 30.4% to $391,143 for the three months ended
March 31, 1996, compared to $561,753 for the three months ended March 31, 1995,
due to the decreased profitability of the Casino primarily resulting from harsh
winter weather.
Costs and expenses. Total costs and expenses increased 10.1% to
$2,517,052 for the three months ended March 31, 1996, compared to $2,285,737
for the three months ended March 31, 1995. The increase was primarily
attributable to increases in video lottery state share, compensation expense
and operating expenses. Video lottery state share increased 15.6% to
$1,081,389 for the three months ended March 31, 1996, compared to $935,696 for
the three months ended March 31, 1995, due to an increase in the percentage
paid to the State to 50% for three months ended March 31, 1996, compared to 37%
for the three months ended March 31, 1995. Compensation expense increased
32.3% to $241,928 for the three months ended March 31, 1996, compared to
$182,916 for the three months ended March 31, 1995, due primarily to an
increase in the number of employees in Company-operated video lottery casinos.
Operating expenses, primarily depreciation, amortization, marketing, legal,
video lottery license fees and supplies, and facility costs such as rent and
utilities, increased 54.5% to $489,529 for the three months ended March 31,
1996, compared to $316,894 for the three months ended March 31,
9
<PAGE> 12
1995. The increase in operating expenses was primarily related to an increase
in marketing costs associated with video lottery operations and legal expenses
related to the arbitration with TAT. The increase in total costs and expenses
was offset, in part, by a decrease in video lottery location share of 18.4% to
$681,861 for the three months ended March 31, 1996, compared to $835,822 for
the three months ended March 31, 1995. Video lottery location share, as a
percentage of video lottery revenues, decreased to 31.4% for the three months
ended March 31, 1996, compared to 36.6% for the three months ended March 31,
1995. This decrease is directly related to the increase in the video lottery
state share, as the location share is computed on video lottery revenues after
the State share.
Operating Income. Operating income decreased 84.9% to $85,375 for the
three months ended March 31, 1996, compared to $563,367 for the three months
ended March 31, 1995. The decrease in operating income was primarily
attributable to the reduced profitability of the Casino, increased legal
expenses relating to the disputes with TAT, and increased costs associated with
the video lottery operations as described above.
Other Income and Expense. Other income and expense resulted in a net
expense of $69,833 for the three months ended March 31, 1996, compared to a net
expense of $131,336 for the three months ended March 31, 1995, a decrease of
$61,503. Interest expense and financing costs decreased 31.3% to $219,079 for
the three months ended March 31, 1996, compared to $318,909 for the three
months ended March 31, 1995. The decrease in interest expense was a result of
the Company having reduced its notes payable to $6,291,429 as of March 31,
1996, compared to $9,550,254 at March 31, 1995, which was partially offset by
an increase in the interest rate on a $2.4 million note payable. Interest
income decreased 6.1% to $153,858 for the three months ended March 31, 1996,
compared to $163,874 for the three months ended March 31, 1995, due primarily
to a reduction in the long-term receivable relating to the Casino, despite an
increase in the interest rate on this long-term receivable.
Federal and State Income Taxes. The Company recorded Federal and
State income taxes of $4,950 for the three months ended March 31, 1996,
compared to $155,205 for the three months ended March 31, 1995, a decrease of
$150,255. The Company records income tax expense using the estimated effective
tax rate for the fiscal year.
Six Months ended March 31, 1996 Compared to Six Months ended March 31, 1995
Revenues. Total revenues increased 32.8% to $5,603,125 for the six
months ended March 31, 1996, compared to $4,220,950 for the six months ended
March 31, 1995 which was primarily attributable to video lottery revenues
increasing 46.8% to $4,643,656 for the three months ended March 31, 1996,
compared to $3,163,989 for the three months ended March 31, 1995. The increase
in video lottery revenues was primarily attributable to the operation of video
lottery during the entire six month period ended March 31, 1996, compared to
less than four and one-half months during the six month period ended March 31,
1995, due to the 1994 Shutdown. Revenues from the Management Agreement
decreased 12.8% to $914,553 for the six months
10
<PAGE> 13
ended March 31, 1996, compared to $1,048,361 for the six months ended March
31, 1995, due to the decreased profitability of the Casino primarily resulting
from harsh winter weather during the three months ended March 31, 1996.
Costs and expenses. Total costs and expenses increased 47.5% to
$5,202,367 for the six months ended March 31, 1996, compared to $3,527,160 for
the six months ended March 31, 1995. The increase was primarily attributable
to increases in video lottery state share, video lottery location share,
compensation expense and operating expenses. Video lottery state share
increased 99.4% to $2,307,847 for the six months ended March 31, 1996, compared
to $1,157,477 for the six months ended March 31, 1995, due to (i) an increase
in the percentage paid to the State to 50% for the six months ended March 31,
1996, compared to 37% for the six months ended March 31, 1995, and (ii) the
effects of the 1994 Shutdown. Video lottery location share increased 15.1% to
$1,497,411 for the six months ended March 31, 1996, compared to $1,300,874 for
the six months ended March 31, 1995, due primarily to the effects of the 1994
Shutdown. Video lottery location share, as a percentage of video lottery
revenues, however, decreased to 32.3% for the six months ended March 31, 1996,
compared to 41.1% for the six months ended March 31, 1995. The decrease is
directly related to the increase in the video lottery state share, as the
location share is computed on video lottery revenues after the State share.
Compensation expense increased 37.5% to $437,890 for the six months ended March
31, 1996, compared to $318,485 for the six months ended March 31, 1995, due to
the reinstatement of officers' salaries and an increase in the number of
employees in video lottery operations, both of which were reduced during the
1994 Shutdown. Operating expenses, primarily depreciation, amortization,
marketing, legal and accounting, video lottery license fees and supplies, and
facility costs such as rent and utilities, increased 35.5% to $922,933 for the
six months ended March 31, 1996, compared to $681,242 for the six months ended
March 31, 1995. The increase in operating expenses was primarily related to an
increase in marketing costs associated with the video lottery operations, legal
expenses related to the arbitration with TAT, accounting and travel expenses.
Operating Income. Operating income decreased 42.2% to $400,758 for
the six months ended March 31, 1996, compared to $693,790 for the six months
ended March 31, 1995. The decrease in operating income was primarily
attributable to the reduced profitability of the Casino, increased legal
expense relating to the disputes with TAT, and increased costs associated with
the video lottery operations as described above.
Other Income and Expense. Other income and expense resulted in a net
expense of $156,801 for the six months ended March 31, 1996, compared to a net
expense of $548,683 for the six months ended March 31, 1995, a decrease of
$391,882. Interest expense and financing costs decreased 47.6% to $446,314 for
the six months ended March 31, 1996, compared to $852,347 for the six months
ended March 31, 1995. The decrease in interest expense and financing costs was
a result of (i) the Company having reduced its notes payable to $6,291,429 as
of March 31, 1996, compared to $9,550,254 at March 31, 1995, and (ii) no
one-time fees and penalties (reported as interest expense) incurred during the
six months ended March 31,
11
<PAGE> 14
1996, compared to $320,863 of one-time fees and penalties incurred during the
six months ended March 31, 1995. The decrease in interest expense and
financing costs was offset, in part, by an increase in the effective interest
rate on a $2.4 million note payable. Interest income decreased 3.1% to
$293,361 for the six months ended March 31, 1996, compared to $302,666 for the
six months ended March 31, 1995, due primarily to a reduction in the long-term
receivable relating to the Casino, despite an increase in the interest rate on
this long-term receivable.
Federal and State Income Taxes. The Company recorded Federal and
State income taxes of $87,800 for the six months ended March 31, 1996, compared
to $52,005 for the six months ended March 31, 1995, an increase of $35,795.
The Company records income tax expense using the estimated effective tax rate
for the fiscal year.
FUTURE OPERATIONS
The Company's future revenues from the Management Agreement may be
adversely affected if the Company is not able to favorably resolve its disputes
with TAT or if the NIGC determines that the Management Agreement is not in
compliance with IGRA. See "Notes 2 and 3 to Notes to Condensed Consolidated
Financial Statements."
The Company expects to continue to incur expenses related to the
evaluation and development of additional gaming opportunities. However, there
can be no assurance that the Company will be successful in continuing or
expanding its current operations.
In addition, the Company has entered into a Development Agreement with
the City of Lexington, Missouri, whereby the Company will develop and operate a
riverboat gaming facility in Lexington contingent upon, among other things, the
Company receiving a riverboat gaming license. If the Company is successful in
obtaining a riverboat gaming license, the Company will seek to raise
approximately $17 million of equity or debt in the private and/or public
markets to fund the construction and development of the riverboat gaming vessel
and related facilities. There is no assurance that the Company will be able to
obtain the gaming license or that financing will be available on terms
satisfactory to the Company, if at all.
SEASONALITY/QUARTERLY FLUCTUATIONS
On a historic basis, the revenues and cash flow of the Casino have
been higher during the Company's third and fourth quarters due to better
weather and travel conditions and increased tourism.
12
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $166,547 at March 31,
1996, compared to $520,438 at September 30, 1995, a decrease of $353,891. The
decrease was primarily attributable to cash used for principal payments on
long-term debt and for the purchase of property and equipment. During the six
months ended March 31, 1996, the Company generated $638,894 of cash flow from
operating activities, compared to $847,466 during the six months ended March
31, 1995. The decrease in cash flow from operating activities is due primarily
to an approximately $170,000 increase in accrued expenses that resulted during
the six months ended March 31, 1995 as a result of the reinstatement of the
Company's video lottery operations following the 1994 Shutdown.
Investing activities provided cash of $465,837 during the six months
ended March 31, 1996, compared to $698,622 during the six months ended March
31, 1995. Principal payments received on long-term receivables provided cash
of $1,004,733 during the six months ended March 31, 1996, compared to $743,842
during the six months ended March 31, 1995. Purchases of property and
equipment used cash of $329,910 during the six months ended March 31, 1996,
compared to $17,032 during the six months ended March 31, 1995. The additions
to property and equipment during the six months ended March 31, 1996 were
primarily for to the Company's video lottery casinos.
Financing activities used cash of $1,458,622 during the six months
ended March 31, 1996, compared to $1,399,894 during the six months ended March
31, 1995. Principal payments on long-term debt used cash of $1,496,277 during
the six months ended March 31, 1996, compared to $1,208,196 during the six
months ended March 31, 1995.
The Company has a working capital deficit of $2,685,269 at March 31,
1996, compared to $1,969,771 at September 30, 1995, an increase of $715,498 due
to an increase in the current maturities of long-term debt. The working
capital deficits are a result of the Company's long-term borrowings having
repayment periods of three years or less.
During the three months ended March 31, 1996, the Company experienced
a decrease in revenues as a result of the reduced profitability of the Casino
due to harsh winter weather conditions and a decrease in revenues from the
Company's video lottery operations. The Company experienced an increase in
expenses due to increased operating expenses and an increase in the State share
to 50%. The decrease in revenues and the increased expenses negatively
impacted the Company's cash flow. In addition, cash flow was adversely
impacted by increased capital investment in Company-operated video lottery
casinos and increased casino development costs related to the proposed
Lexington riverboat project. As a result of the reduction in cash flow, the
Company does not believe that cash flow from future operations will be
sufficient to pay all outstanding current maturities of long-term debt as they
come due. The Company is currently engaged in discussions with certain lenders
for additional financing. In addition, the Company is currently in discussions
with existing lenders to attempt to restructure
13
<PAGE> 16
a portion of its long-term debt.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<S> <C>
11 Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for which
this report is filed.
14
<PAGE> 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 2, 1996 By: /s/ David L. Crabb
--------------------------------
David L. Crabb,
Chief Financial Officer
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
------- --- -----------
<S> <C>
11 Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding, net of
treasury stock, beginning of period 21,929,793 21,929,793 21,929,793 22,083,193
Shares cancelled in accordance with a
lookback provision of a merger 0 0 0 (77,543)
Adjustments for common stock equivalents (1) 8,453 6,292 28,696 3,626
------------ ------------ ------------ ------------
Weighted average common and common equivalent
shares outstanding, end of period 21,938,246 21,936,085 21,958,489 22,009,276
============ ============ ============ ============
Net earnings $ 10,592 $ 276,826 $ 156,157 $ 93,102
============ ============ ============ ============
Net earnings per common and common equivalent share $ 0.00 $ 0.01 $ 0.01 $ 0.00
============ ============ ============ ============
</TABLE>
(1) Represents adjustments computed under the treasury stock method for stock
options and warrants granted at fair market value at date of grant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 166,547
<SECURITIES> 0
<RECEIVABLES> 7,301,498
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,574,975
<PP&E> 3,407,725
<DEPRECIATION> 1,267,765
<TOTAL-ASSETS> 10,789,294
<CURRENT-LIABILITIES> 5,260,244
<BONDS> 0
<COMMON> 267,552
0
0
<OTHER-SE> 3,315,440
<TOTAL-LIABILITY-AND-EQUITY> 10,789,294
<SALES> 44,916
<TOTAL-REVENUES> 5,603,125
<CGS> 0
<TOTAL-COSTS> 5,202,367
<OTHER-EXPENSES> 6,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,314
<INCOME-PRETAX> 243,957
<INCOME-TAX> 87,800
<INCOME-CONTINUING> 156,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,157
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
