<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, 1998
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)
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 May 15, 1998, there were
23,673,126 shares of the issuer's $.01 par value common stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
INDEX
CONCORDE GAMING CORPORATION
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
--------
<S> <C>
Condensed Consolidated Balance Sheet at March 31, 1998 (unaudited) 1
Condensed Consolidated Statements of Operations for 2
Three Months Ended March 31, 1998 and 1997 and for
Six Months Ended March 31, 1998 and 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for 3
Six Months Ended March 31, 1998 and 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
<PAGE> 3
CONCORDE GAMING CORPORATION
Condensed Consolidated Balance Sheet
March 31, 1998
(unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 694,057
Restricted cash 153,552
Trade and other receivables 49,119
Prepaid expenses 267,469
Other 609,424
----------
Total current assets 1,773,621
Property and equipment, net 5,558,420
Intangibles, net 1,026,313
Deferred income taxes 102,000
Other 253,699
----------
$8,714,053
==========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable, related party $1,812,500
Notes payable, bank 980,939
Current maturities of long-term debt 101,420
Accounts payable 42,957
Accrued payroll and related costs 104,487
Other 335,829
Income taxes payable 0
----------
Total current liabilities 3,378,132
----------
Long-term debt, less current maturities 430,051
----------
Stockholders' equity:
Common stock, $.01 par value; authorized 500,000,000 shares,
issued 23,673,126 at March 31, 1998 236,731
Preferred stock, $.01 par value; authorized 10,000,000 shares,
no shares issued and outstanding 0
Additional paid-in capital 3,855,246
Retained earnings 813,893
----------
4,905,870
----------
$8,714,053
==========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
CONCORDE GAMING CORPORATION
Condensed Consolidated Statements Of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 976,209 -- $ 1,756,332 --
Food and beverage 70,487 11,646 136,868 24,009
Video lottery -- 1,872,243 53,499 3,836,937
Management agreement -- -- -- 208,371
Other 3,083 432 11,069 1,892
------------ ------------- ------------ -------------
Gross revenues 1,049,779 1,884,321 1,957,768 4,071,209
Less: promotional allowances (20,409) -- (41,394) --
------------ ------------- ------------ -------------
Net revenues 1,029,370 1,884,321 1,916,374 4,071,209
------------ ------------- ------------ -------------
Costs and expenses:
Casino 572,686 -- 1,144,078 --
Food and beverage 46,710 6,409 86,060 13,198
Video lottery -- 1,783,977 69,498 3,639,735
Other operating expense -- 34,788 -- 74,603
Selling, general and administrative 338,414 206,468 721,237 389,270
Business development 212,041 43,385 373,125 66,402
Depreciation and amortization 88,249 165,649 172,276 331,330
------------ ------------- ------------ -------------
Total costs and expenses 1,258,100 2,240,676 2,566,274 4,514,538
------------ ------------- ------------ -------------
Loss from operations (228,730) (356,355) (649,900) (443,329)
------------ ------------- ------------ -------------
Other income (expense):
Interest income 4,605 31,967 12,238 32,549
Gain on termination of management agreement -- 2,819,750 -- 2,819,750
Other income 2,512 21,348 5,014 44,114
Interest expense and financing costs (58,631) (85,928) (87,396) (243,716)
------------ ------------- ------------ -------------
(51,514) 2,787,137 (70,144) 2,652,697
------------ ------------- ------------ -------------
Income (loss) before income taxes (280,244) 2,430,782 (720,044) 2,209,368
Federal and state income taxes (benefit) (94,400) 850,300 (253,200) 769,100
------------ ------------- ------------ -------------
Net income (loss) $ (185,844) 1,580,482 $ (466,844) 1,440,268
============ ============= ============ =============
Basic and diluted earnings (loss) per share $ (0.01) 0.07 $ (0.02) 0.07
============ ============= ============ =============
Weighted-average common shares outstanding 23,673,126 21,929,793 23,673,126 21,929,793
============ ============= ============ =============
Weighted-average common and
common equivalent shares outstanding 23,673,126 22,587,776 23,673,126 22,180,524
============ ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
CONCORDE GAMING CORPORATION
Condensed Consolidated Statements Of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (466,844) 1,440,268
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization 172,276 331,330
(Gain) on termination of management agreement -- (2,819,750)
Deferred income tax (36,000) --
Other 95,410 (11,115)
Changes in assets and liabilities:
Receivables 11,352 269,102
Prepaid expenses and other 244,303 18,227
Accounts payable and accrued expenses 72,409 (119,259)
Income taxes payable (206,471) 714,600
----------- ------------
Net cash used in operating activities (113,565) (176,597)
----------- ------------
Cash flows from investing activities:
Principal payments received on long-term receivables 51,000 5,760,495
Proceeds from termination of management agreement -- 2,851,061
Purchase of property and equipment (2,535,076) (8,842)
Payments for casino development costs (244,867) (40,770)
Other 54,636 49,455
----------- ------------
Net cash provided by (used in) investing activities (2,674,307) 8,611,399
----------- ------------
Cash flows from financing activities:
Principal payments on long-term debt (515,252) (3,113,486)
Net change in short-term borrowings 2,793,439 (595,000)
Payments received on stock subscription 129,832 39,662
----------- ------------
Net cash provided by (used in) financing activities 2,408,019 (3,668,824)
----------- ------------
Net increase (decrease) in cash (379,853) 4,765,978
Cash, beginning of period 1,073,910 120,572
----------- ------------
Cash, ending of period $ 694,057 4,886,550
=========== ============
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 60,927 371,264
=========== ============
Income taxes $ -- 50,000
=========== ============
Supplemental schedule of noncash investing and financing activities:
Cancellation of treasury stock $ 317,602
============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
CONCORDE GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(unaudited)
(1) Summary of Significant Accounting Policies:
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 only of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six
month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1998.
The accompanying condensed 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, 1997 included in the Company's 1997
Annual Report on Form 10-KSB.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standard # 128,
Earnings Per Share, in the current fiscal year. This statement
established standards for computing and presenting earnings per share
and required restatement of all prior-period earnings per share data
presented. A reconciliation of income and shares for basic and diluted
earnings per share ("EPS") is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
----------------------------------------- ----------------------------------------
Per- Per-
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
net income (loss) $ (145,644) 23,673,126 $ (0.01) $1,580,482 21,929,793 $ 0.07
Effect of Dilutive
Securities:
Options 0 657,983
---------- ------------ ---------- ---------- ------------ ----------
Diluted EPS
net income (loss) $ (145,644) 23,673,126 $ (0.01) $1,580,482 22,587,776 $ 0.07
========== ============ ========== ========== ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1998 March 31, 1997
----------------------------------------- ----------------------------------------
Per- Per-
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
net income (loss) $ (426,644) 23,673,126 $ (0.02) $1,440,268 21,929,793 $ 0.07
Effect of Dilutive
Securities:
Options 0 250,731
---------- ------------ ---------- ---------- ------------ ----------
Diluted EPS
net income (loss) $ (426,644) 23,673,126 $ (0.02) $1,440,268 22,180,524 $ 0.07
========== ============ ========== ========== ============ ==========
</TABLE>
4
<PAGE> 7
(2) Obligations to Bayfront Ventures/Subsequent Events
The Company is a party to a joint venture agreement ("JV Agreement")
dated August 27, 1997 with Goldcoast Entertainment Cruises, Inc.
("Goldcoast"). The joint venture ("Bayfront Ventures") was formed for
the purpose of constructing, owning, operating and managing an offshore
gaming vessel (the "Vessel") from dockage at Bayfront Park in Miami,
Florida. The JV Agreement requires a minimum capital contribution of
$6,405,000 (the "Capital Contribution") from the Company. At March 31,
1998, the Company had contributed approximately $3,570,000 to Bayfront
Ventures. Although Bayfront Ventures has obtained financing for the
vessel (as described below), its ability to purchase operational
equipment, fund start-up costs and meet other working capital
requirements are contingent upon the Company making its Capital
Contribution.
On April 20, 1998, the Company entered into an agreement with Bruce H.
Lien, the majority shareholder of the Company, whereby Mr. Lien has
agreed to provide the Company with a line of credit in the amount of
$3,000,000 (the "Project Line of Credit"), which may be used by the
Company to fund the Capital Contribution. Advances under the Project
Line of Credit will bear interest at a rate of 18% per annum, which
interest shall accrue until the Option Expiration Date (defined below),
and principal and interest shall be payable over three years beginning
on the Option Expiration Date. In consideration of the Project Line of
Credit, the Working Capital Line of Credit (defined below) and the
guaranty by Mr. Lien under the Line of Credit (defined below), the
Company granted Mr. Lien an option (the "Option") to purchase all or a
portion of the Company's interest in Bayfront Ventures pursuant to an
option agreement dated April 20, 1998. The Option may be exercised by
Mr. Lien at any time on or prior to the date one year from the date of
grant ("Option Exercise Date"). The exercise price shall be equal to
the Capital Contribution plus accrued interest under the Project Line
of Credit, less any advances made under the Project Line of Credit,
each as of the date of exercise. In addition, Mr. Lien shall be
required to assume all of the Company's obligations related to Bayfront
Ventures.
In March 1998, Bayfront Ventures obtained a line of credit of up to
$5.0 million (the "Line of Credit") in order to complete the
construction of the Vessel. The Line of Credit bears interest at an
adjustable rate equal to 3.75% per annum above the prime rate, as
published in the Wall Street Journal (currently 12.25%). The Line of
Credit will be secured by, among other things, a First Preferred Ship
Mortgage on the Vessel and the guaranties of Mr. Lien, Mrs. Lien, the
Company, Goldcoast and certain other individuals (the "Guarantors").
The Line of Credit is due and payable upon the initial funding of the
Permanent Financing (defined below).
In March 1998, Bayfront Ventures also received a commitment for
permanent financing (the "Permanent Financing"), which will replace the
Line of Credit after the Vessel construction has been completed. The
Permanent Financing will be the lower of $5,200,000 or 70% of the
lesser of the cost of the Vessel or its estimated fair market value at
the time of delivery. The Permanent Financing will be evidenced by a
promissory note payable in fifty-nine (59) equal payments calculated on
an eight (8) year amortization, along with accrued interest, with a
final balloon payment equal to the outstanding principal and interest
at maturity. The interest rate will be fixed at the five-year U.S.
Treasury Note Rate plus 4%. The Permanent Financing will be secured by,
among other things, a First Preferred Ship Mortgage on the Vessel, a
first priority security interest in the Vessel's gear, equipment and
property, excluding gaming equipment. The Permanent Financing will also
be guarantied by the Guarantors.
5
<PAGE> 8
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 the Company's business operations is in
turn dependent on factors such as the effectiveness of the Company's marketing
strategies to grow its customer base and improve customer response rates,
general competitive conditions within the gaming industry and general economic
conditions. Further, any forward looking statement or statements speak only as
of the date on which such statement was made, and the Company undertakes 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
The management agreement ("Management Agreement") between the Company
and the Three Affiliated Tribes pursuant to which it managed the 4 Bears Casino
& Lodge was terminated upon the closing of an agreement (the "Settlement
Agreement") effective February 13, 1997. In addition, in 1997 the Company
transferred substantially all of the assets related to its video lottery route
operations in South Dakota ("Video Lottery Assets") for substantially all of the
assets used in the operation of the Golden Gates Casino ("Golden Gates"),
located in Black Hawk, Colorado. The transfer of the Video Lottery Assets was
completed in June 1997 and the Golden Gates assets were transferred to the
Company on July 21, 1997. As a result of these transactions, the Company will
not receive any future revenues pursuant to the Management Agreement or from the
Video Lottery Assets. Currently, Golden Gates is the Company's sole source of
revenue.
RESULTS OF OPERATIONS
Three Months ended March 31, 1998 Compared to Three Months ended March 31, 1997
Revenues. Total revenues decreased 45.4% to $1,029,370 for the three
months ended March 31, 1998, compared to $1,884,321 for the three months ended
March 31, 1997, primarily as a result of the transfer of the Video Lottery
Assets in June 1997. There were no video lottery revenues for the three months
ended March 31, 1998, compared to $1,872,243 for the three months ended March
31, 1997. Golden Gates generated gaming revenues of $976,209 and other revenues,
primarily food and beverage of $73,570, for the three months ended March 31,
1998.
Costs and Expenses. Total costs and expenses decreased 44.9% to
$1,258,100 for the three months ended March 31, 1998, compared to $2,240,676 for
the three months ended March 31, 1997, primarily as a result of the transfer of
the Video Lottery Assets in June 1997. Casino operating expenses for Golden
Gates were $572,686 for the three months ended March 31, 1998. There were no
video lottery costs for the three months ended March 31, 1998, compared to
$1,783,977 for the three months ended March 31, 1997. Selling, general and
administrative expenses increased 63.9% to $338,414 for the three months ended
March 31, 1998, compared to $206,468 for the three months ended March 31, 1997,
due primarily to costs associated with Golden Gates. Business development
expenses increased to $212,041 for the three months ended March 31, 1998,
compared to $43,385 for the three months ended March 31, 1997, as a result of
costs related to the development and management of Bayfront Ventures.
Depreciation and amortization decreased 46.7% to $88,249 for the three months
ended March 31, 1998, compared to $165,649 for the three months ended March 31,
1997, due primarily to the transfer of the Video Lottery Assets in June 1997.
Other Income and Expense. Interest expense and financing costs
decreased to $58,631 for the three months ended March 31, 1998, compared to
$85,928 for the three months ended March 31, 1997. This decrease is primarily
attributable to the capitalization of $53,088 of interest expense related to the
construction of the Vessel. During the three months ended March 31,
6
<PAGE> 9
1997, the closing of the Settlement Agreement resulted in a $2,819,750 gain on
termination of the Management Agreement.
Federal and State Income Taxes. The Company recorded a Federal and
State income tax benefit of $94,400 for the three months ended March 31, 1998,
compared to income tax expense of $850,300 for the three months ended March 31,
1997 that was due primarily to the gain on the termination of the Management
Agreement. The Company records 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.
Six Months ended March 31, 1998 Compared to Six Months ended March 31, 1997
Revenues. Total revenues decreased 52.9% to $1,916,374 for the six
months ended March 31, 1998, compared to $4,071,209 for the six months ended
March 31, 1997, primarily as a result of the transfer of the Video Lottery
Assets in June 1997. Video lottery revenues decreased to $53,499 for the six
months ended March 31, 1998, compared to $3,836,937 for the six months ended
March 31, 1997. The Company ceased operating its remaining video lottery casino
in December 1997. Golden Gates generated gaming revenues of $1,756,332 and other
revenues, primarily food and beverage of $98,513, for the six months ended March
31, 1998.
Costs and Expenses. Total costs and expenses decreased 44.2% to
$2,566,274 for the six months ended March 31, 1998, compared to $4,514,538 for
the six months ended March 31, 1997, primarily as a result of the transfer of
the Video Lottery Assets in June 1997. Casino operating expenses for Golden
Gates were $1,144,078 for the six months ended March 31, 1998. Video lottery
costs decreased to $69,498 for the six months ended March 31, 1998, compared to
$3,639,735 for the six months ended March 31, 1997. Selling, general and
administrative expenses increased 85.3% to $721,237 for the six months ended
March 31, 1998, compared to $389,270 for the six months ended March 31, 1997,
due primarily to costs associated with Golden Gates. Business development
expenses increased to $373,125 for the six months ended March 31, 1998, compared
to $66,402 for the six months ended March 31, 1997, as a result of costs related
to the development and management of Bayfront Ventures. Depreciation and
amortization decreased 48% to $172,276 for the six months ended March 31, 1998,
compared to $331,330 for the six months ended March 31, 1997, due primarily to
the transfer of the Video Lottery Assets in June 1997.
Other Income and Expense. Interest expense and financing costs
decreased to $87,396 for the six months ended March 31, 1998, compared to
$243,716 for the six months ended March 31, 1997. This decrease is attributable
to the Company using the proceeds from the Settlement Agreement to payoff the
majority of its notes payable in February 1997 and the capitalization of $66,561
of interest expense related to the construction of the Vessel.
Federal and State Income Taxes. The Company recorded a Federal and
State income tax benefit of $253,200 for the six months ended March 31, 1998,
compared to income tax expense of $769,100 for the six months ended March 31,
1997 that was due primarily to the gain on termination of the Management
Agreement. The Company records 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
The Company had cash and cash equivalents of $694,057 at March 31,
1998, compared to $1,073,910 at September 30, 1997, a decrease of $379,853. In
accordance with lending agreements, the Company had restricted cash of $153,552
at March 31, 1998, compared to $288,894 at September 30, 1997. Cash of $288,894
was released in March 1998 when a bank term note was retired. The decrease in
cash reflects the use of funds primarily for the construction of the Vessel.
During the six months ended March 31, 1998, the Company used cash flow
for operating activities of $113,565, compared to $176,597 during the six months
ended March 31, 1997.
Investing activities used cash of $2,674,307 during the six months
ended March 31, 1998, compared to cash provided by investing activities of
$8,611,399 during the six months ended March 31, 1997. The Company used
$2,535,076 during the six months ended March 31, 1998 for the acquisition of
property and equipment (primarily for the construction of the Vessel),
7
<PAGE> 10
compared to $8,842 during the six months ended March 31, 1997. Principal
payments received on long-term receivables were $51,000 during the six months
ended March 31, 1998, compared to $5,760,495 during the six months ended March
31, 1997, which primarily represents payments made in connection with the
Settlement Agreement. During the six months ended March 31, 1997, the Company
received additional proceeds of $2,851,061 from the closing of the Settlement
Agreement.
Financing activities provided cash of $2,408,019 during the six months
ended March 31, 1998, compared to cash used in financing activities of
$3,668,824 during the six months ended March 31, 1997. Short-term borrowings
provided cash of $2,793,439 during the six months ended March 31, 1998, while
short-term borrowings were reduced by $595,000 during the six months ended March
31, 1997. Principal payments on long-term debt were $515,252 during the six
months ended March 31, 1998, compared to $3,113,486 during the six months ended
March 31, 1997. Payments received on stock subscription provided cash of
$129,832 during the six months ended March 31, 1998, compared to $39,662 during
the six months ended March 31, 1997, an increase of $90,170. This increase is a
result of the sale of the promissory note reported as a stock subscription for
$110,000 to BHL Capital Corporation ("BHL Capital"), a company controlled by Mr.
Lien. The sales price of the promissory note was approximately $8,000 less than
the remaining principal balance and as a result, Additional Paid-In Capital was
reduced by this amount.
The Company had a working capital deficit of $1,604,511 at March 31,
1998. The working capital deficit is a result of the Company using short-term
borrowings for the construction of the Vessel.
From November 1997 through March 1998, the Company borrowed $1,440,000
from Mr. Lien and BHL Capital in order to meet its obligations under the JV
Agreement and for working capital. The amounts were borrowed pursuant to
promissory notes that are due on demand and bear interest at 18%. In March 1998,
the Company borrowed an additional $500,000 from Mr. Lien to repay the bank term
note that was due in June 1998 and for working capital. This loan is evidenced
by a promissory note which requires monthly payments of $8,500 plus accrued
interest at 12% per annum, with the balance due on February 28, 1999. The
Company was required to pledge all of the assets of Golden Gates to a third
party lender of Mr. Lien. In April 1998, Mr. Lien signed a commitment letter
whereby he has agreed to provide additional working capital to the Company in an
amount not to exceed $500,000 (the "Working Capital Line of Credit"), the terms
of which will be negotiated in the event advances are made under the Working
Capital Line of Credit. In addition, on April 20, 1998 Mr. Lien agreed to
provide the Company with a line of credit in the amount of $3,000,000 which may
be used to fund the Capital Contribution under the JV Agreement. See "Note 2 to
Consolidated Financial Statements" for a more detailed description of Bayfront
Ventures.
Future Operations
As of March 31, 1998, the Company's cash flow from operations was not
sufficient to meet the Company's current working capital requirements. However,
due to increased cash flow from Golden Gates combined with Vessel financing
commitments and the financing commitment from Mr. Lien, the Company believes it
will have sufficient cash flow to meet such requirements. See "Note 2 to
Consolidated Financial Statements."
8
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit No. Description
10* Letter Agreement between Bayfront Ventures and Caterpillar
Financial Services Corporation dated March 5, 1998.
27* Financial Data Schedule.
- ----------------
* Filed herewith.
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter for which
this report is filed.
9
<PAGE> 12
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 15, 1998 By: /s/ David L. Crabb
David L. Crabb, Chief Financial Officer
<PAGE> 13
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10* Letter Agreement between Bayfront Ventures and Caterpillar
Financial Services Corporation dated March 5, 1998.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10
[CATERPILLAR LETTERHEAD]
March 5, 1998
Mr. David Grossman
Bayfront Ventures
1002 Shadyside Lane
Weston, FL 33327
Dear Mr. Grossman:
This letter represents the Commitment of Caterpillar Financial Services
Corporation to finance your purchase of the P/V "Miami Princess", a 2OO' vessel
to be used for offshore gaming. The Vessel must be exclusively powered by new
Caterpillar engine package(s) consisting of 2 x 3412 propulsion engines; 2 x
3412 and I x 3208 generator sets; and I x 3116 bow thruster purchased from a
Caterpillar dealer approved by Lender. This commitment is subject to
satisfaction of the general terms and conditions outlined in this letter,
together with any other conditions required by Lender in its sole discretion.
A. PARTIES TO THE TRANSACTION
BORROWER: Bayfront Ventures, a Florida partnership.
LENDER: Caterpillar Financial Services Corporation, a Delaware
corporation.
GUARANTOR(S): Bruce and Deanna Lien, Individuals David and Patricia
Grossman, an Individuals Michael and Deborah L. Hlavsa, an
Individuals Concorde Gaming Corporation
SHIPBUILDER: Keith Marine
B. PROPOSED STRUCTURE OF THE TRANSACTION
1. FINANCED AMOUNT: $5,200,000, but not to exceed the lessor of seventy
percent (70%) of the total Vessel purchase price or estimated fair market value
at the time of delivery and acceptance, to be determined by a marine surveyor
approved by Lender.
1
<PAGE> 2
2. REPAYMENT: The loan shall be evidenced by a promissory note in the
principal amount equal TO the Financed Amount, which shall be paid in
installments of principal plus accrued interest on the principal amount
outstanding from time to time. Interest shall begin to accrue from the
promissory note date. The repayment structure shall be as follows:
- - Principal amount to be paid in fifty-nine (59) equal payments each calculated
on a ninety-six (96) month amortization, along with accrued interest due on such
principal amount, with a final balloon payment equal to then outstanding
principle and interest at maturity. The Maturity date of the promissory note
shall be fifty-nine (59) months from the date of the first advance.
3. INTEREST RATE: The interest rate shall be at a fixed per annum rate
equal to the five year U.S. Treasury Note Rate plus 4% (400 basis points). The
U. S. Treasury Note Rate will be determined by Lender based on the Reuters Daily
Closing - U.S. Treasury Bid Yield Screen (RTRTSY5), as quoted for new issues,
ten business days prior to the funding date upon which the fixed rate shall be
effective.
For example, on February 13th, the 5-year Treasury Note Rate was
6.0314%, which after adding 400 basis points would result in a rate of 10.0314%
if the loan funded today, and this rate would be effective for the entire period
of the loan.
4. PREPAYMENT: Borrower may prepay the balance due under the promissory note
in its entirety and at any time beginning thirteen (13) months after the
promissory note date, provided that: (I) Borrower gives advance written notice
of thirty (30) days, (ii) the prepayment occurs on a scheduled installment due
date, and (iii), in the event a fixed rate of interest is in effect, Borrower
pays a prepayment fee equal to the greater of (a) one percent (I%) of the loan
balance multiplied by the number of years remaining until Maturity of the loan,
or (b) the actual costs incurred by Lender in terminating the loan before the
scheduled Maturity date.
5. FEES: Lender's Commitment to finance is contingent on acceptance of the
Commitment by Borrower, and receipt by Lender of a non-refundable $26,000.00 fee
equal to 1/2% of the Financed Amount.
6. COLLATERAL: The primary security and collateral to be granted to Lender
by Borrower in consideration of the loan provided includes the following:
1st Preferred Ship Mortgage on the vessel "Miami Princess".
1st Priority security interest in the vessel's gear, equipment
and property excluding gaming equipment.
Assignment of insurance in form and content satisfactory to
Lender.
Executed loan and security documents in form and content
satisfactory to Lender.
2
<PAGE> 3
C. GENERAL CONDITIONS:
FINANCIAL REPORTING: Borrower and Guarantor shall provide Lender with financial
statements, tax returns, and other financial information which may be reasonable
requested by Lender.
FINANCIAL COVENANTS: Borrower agrees to maintain a minimum net worth of at least
$2.0 million at all times and not exceed a debt:equity ration of 6:1.
Disbursements to partners can only be made once the Debtor has reached a net
worth of $4.5 million and thereafter agrees to maintain a minimum net worth of
$4.5 million. Corporate guarantor, Concorde Gaming Corporation, agrees to
maintain a minimum net worth of $2.0 million and not exceed a debt:equity ratio
of 4: 1. Personal guarantors, for 70% of the loan amount, Bruce and Deanna Lien
agree to maintain a minimum net worth of $1.0 million. All intercompany debt is
to be subordinated to Lender.
TAXES/DUTIES: Borrower shall pay all fees, taxes, and duties, including sales or
use tax, that may become due or payable as a result of this transaction, and
shall , upon request, evidence satisfactory to Lender that payment of such
required amounts has been made.
DEFAULT INTEREST: In the event any amount of principal or interest is not paid
when due, Borrower shall pay on demand, interest on the past due amount at a
rate equal to the rate in effect under the promissory note, plus nine percent
(9%) per annum
INSURANCE: The following summarizes minimum requirements of Lender related to
insurance of the vessel(s) which comprise security and collateral under this
transaction.
o Underwriters must have a maintain a Best Rating (or equivalent)
of B+, 10 or better.
o Hull & Machinery - Equal to higher of market value of vessel or
loan balance.
o Breach of Warranty - Equal to the outstanding loan balance.
o P & I - Minimum per occurrence coverage $ 1,000,000.
o Lender to be added as additional assured and sole loss payee, as
requested by Lender.
VESSEL REGISTRY: The vessel shall be documented and maintain registry under the
laws of the United States of America.
OWNERSHIP AND CHARTER: There shall be no change in the ownership of the vessel
during the term of the loan without prior written consent of Lender. Borrower
agrees not to charter or lease the vessel other than to an entity which is
specified and described in the loan documents, without prior written consent of
Lender.
EXPENSES: Costs and expenses which may be incurred by Lender in connection with
preparation, execution and enforcement of the loan and security documents,
including reasonable fees and out-of-pocket expenses incurred if outside counsel
for Lender is consulted, fees of marine surveyors, and other actual fees and
expenses, are all for the account of the Borrower.
3
<PAGE> 4
APPLICABLE LAW AND JURISDICTION: This transaction and Commitment will be
governed by and construed under the laws of the State of Tennessee, or at the
option of Lender, under other applicable law which may include the laws of the
State or jurisdiction in which the Borrower is domiciled, or in which the vessel
or other security is located.
CONDITIONS TO FUNDING AND DISBURSEMENT: Prior to any funding or disbursement
under this Commitment, specific loan documents are required to be received,
and/or executed by Borrower and Guarantor, all in form and substance
satisfactory to Lender. A summary of the minimum items to be received by Lender
prior to funding is attached at EXHIBIT A.
D. UTILIZATION:
All disbursements are to be completed by October 31, 1998; thereafter, Lender
shall have no further obligation to advance funds under this Commitment.
E. CHANGE IN INFORMATION:
This Commitment may be rescinded by Lender if information becomes available to
Lender which if known at the time the Commitment was given would have negatively
influenced its credit decision. This information includes discovery by Lender
that information received from Borrower or Guarantor was false, or that relevant
information of material nature was known but not provided by Borrower or
Guarantor, or information becomes available to Lender documenting a material
adverse change in the financial condition of Borrower or Guarantor which impairs
the ability of Borrower or Guarantor to perform under the terms of this
Commitment and any loan made by Lender.
F. AVAILABILITY DATE:
This Commitment is issued on behalf of the Marine Division of Caterpillar
Financial. If you are in agreement with the terms and conditions outlined
herein, the commitment shall become binding upon receipt of the required fees
and return of this letter signed by the Borrower and Guarantors acknowledging
agreement, and the signature of an authorized representative from Caterpillar
Financial in Nashville. If we have not received either your signed
acknowledgment or specified fees before March 20, 1998, this commitment letter
is subject to cancellation by Lender.
This letter should not be construed as an unconditional binding commitment to
finance the Vessel. The commitment of Lender is subject to the conditions
specified above and those included in the final loan documents. Completed loan
documents remain conditions to financing and will take precedent over the terms
and conditions outlined in this letter.
4
<PAGE> 5
We are pleased to offer this financing commitment, and look forward to
completing the proposed transaction as soon as practical.
Sincerely,
Julio Santana
International Accounts Manager
FOR BORROWER: FOR GUARANTOR:
Agreed to and accepted this Agreed to and accepted this
9th day of March, 1998 6th day of March, 1998
Name (sign): /s/ Jerry L. Baum Name (sign): /s/ Bruce H. Lien
------------------- ----------------------
Name (print): Jerry L. Baum Name (print): Bruce H. Lien
------------------ ---------------------
Bruce Lien
FOR GUARANTOR: FOR GUARANTOR:
Agreed to and accepted this Agreed to and accepted this
6th day of March, 1998 8th day of March, 1998
Name (sign): /s/ Deanna B. Lien Name (sign): /s/ David Grossman
------------------- ----------------------
Name (print): Deanna B. Lien Name (print): David Grossman
------------------ ---------------------
Deanna Lien David Grossman
FOR GUARANTOR: FOR GUARANTOR:
Agreed to and accepted this Agreed to and accepted this
8th day of March, 1998 5th day of March, 1998
Name (sign): /s/ Patricia Grossman Name (sign): /s/ Michael Hlavsa
---------------------- ----------------------
Name (print): Patricia Grossman Name (print): Michael Hlavsa
--------------------- ---------------------
Patricia Grossman Michael Hlavsa
5
<PAGE> 6
FOR GUARANTOR: FOR GUARANTOR:
Agreed to and accepted this Agreed to and accepted this
5th day of March, 1998 9th day of March, 1998
Name (sign): /s/ Deborah L. Hlavsa Name (sign): /s/ Jerry L. Baum
---------------------- ----------------------
Name (print): Deborah L. Hlavsa Name (print): Jerry L. Baum
--------------------- ---------------------
Deborah L. Hlavsa
Title: President/CEO
----------------------------
Concorde Gaming Corporation
Authorized acknowledgment by Caterpillar Financial Services Corporation in
Nashville, Tennessee on the 10th day of March, 1998
By: /s/ William K. Luetzow Title: Manager/Marine Division
-------------------------------- -------------------------------
6
<PAGE> 7
EXHIBIT A
GENERAL CONDITIONS TO FUNDING AND DISBURSEMENT
Prior to any funding or disbursement under the terms of any loan documents and
promissory note, the following items must be received by Lender, executed where
necessary, in form and substance satisfactory to Lender in its sole discretion.
1. Commitment Letter dated March 5, 1998 signed by Borrower,
Guarantor and authorized representative of Lender.
2. Copy of executed purchase and sales agreement or ship
construction contract from Shipbuilder which evidences total
sales price of the vessel.
3. Executed and recorded (as necessary) loan and security documents,
which may include a loan agreement, promissory note, preferred
ships mortgage, guarantees, opinion of counsel charter
assignments, and other loan and security documents reasonably
required by Lender.
4. Executed personal guarantees from Bruce Lien, Deanna Lien, David
Grossman, Patricia Grossman, Michael Hlavsa, and Deborah L.
Hlavsa.
5. Executed corporate guarantee from Concorde Gaming Corporation.
6. Resolutions, bylaws, organizational documents, certificates,
opinions, and other instruments and documents deemed applicable
by Lender to evidence the authority of Borrower to enter into the
transaction and to confirm the enforceability of the Loan
Documents and Guarantees.
7. Evidence that the vessel offered as security to Lender is free
and clear of all liens and encumbrances other than the mortgage
granted to Lender.
8. Evidence of insurance specifying policies, amount of coverage,
and names of underwriters. Evidence also to be provided naming
Lender as additional assured and loss payee in accordance with
Lender's request.
9. Evidence that the 1st preferred ships mortgage has been filed.
10. Evidence that all necessary permits to operate the vessel have
been obtained from the appropriate regulatory agencies.
11. Completed marine survey including an estimated fair market value
of the vessel of not less than $6,880,000.
Please note that while we have made every effort to ascertain the documentation
that win be required to fulfill Lender's requirements for funding, documents in
addition to the ones contained herein may be required.
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<PERIOD-END> MAR-31-1998
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<COMMON> 236,731
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