<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, 1999
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, 1999, there were
24,010,402 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, 1999 (unaudited) 1
Condensed Consolidated Statements of Operations for 2
Three Months Ended March 31, 1999 and 1998 and for
Six Months Ended March 31, 1999 and 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows for 3
Six Months Ended March 31, 1999 and 1998 (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 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 3
CONCORDE GAMING CORPORATION
Condensed Consolidated Balance Sheet
March 31, 1999
(unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 1,500,009
Trade receivables 274,342
Inventory 48,046
Prepaid expenses, other 792,965
------------
Total current assets 2,615,362
Property and equipment, net 12,612,861
Notes receivable, less current maturities 95,000
Investment in unconsolidated subsidiary 27,112
Intangibles, net 1,262,703
Deferred income taxes 285,000
Other 166,684
------------
$ 17,064,722
============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable, related party $ 389,500
Current maturities of long-term debt 1,101,557
Accounts payable 475,821
Accrued payroll and related costs 142,934
Other 704,357
Income taxes payable 0
------------
Total current liabilities 2,814,169
------------
Long-term debt, less current maturities 12,981,099
------------
Stockholders' equity:
Common stock, $.01 par value; authorized 500,000,000 shares,
issued 24,010,402 at March 31, 1999 240,104
Preferred stock, $.01 par value; authorized 10,000,000 shares,
no shares issued and outstanding 0
Additional paid-in capital 3,900,594
Accumulated deficit (2,871,244)
------------
1,269,454
------------
$ 17,064,722
============
</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,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 3,991,449 $ 976,209 $ 6,753,343 $ 1,756,332
Food and beverage 431,667 70,487 743,195 136,868
Video lottery -- -- -- 53,499
Other 425,727 3,083 760,375 11,069
------------ ------------ ------------ ------------
Gross revenues 4,848,843 1,049,779 8,256,913 1,957,768
Less: promotional allowances (610,737) (20,409) (1,024,303) (41,394)
------------ ------------ ------------ ------------
Net revenues 4,238,106 1,029,370 7,232,610 1,916,374
------------ ------------ ------------ ------------
Costs and expenses:
Casino 1,891,442 572,686 3,123,150 1,144,078
Food and beverage 337,199 46,710 712,971 86,060
Video lottery -- -- -- 69,498
Management fees, to minority partner, related party 45,000 60,000 135,000 160,000
Business development costs (30,000) 152,041 (30,000) 173,125
Selling, general and administrative 1,789,886 338,414 3,239,525 721,237
Depreciation and amortization 253,749 88,249 508,033 167,684
Start-up costs -- 139,208 540,952 284,867
------------ ------------ ------------ ------------
Total costs and expenses 4,287,276 1,397,308 8,229,631 2,806,549
------------ ------------ ------------ ------------
Loss from operations (49,170) (367,938) (997,021) (890,175)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 2,987 4,605 16,967 12,238
Equity in loss of unconsolidated subsidiary (13,305) -- (13,305) --
Other income 58,615 2,512 70,127 5,014
Interest expense and financing costs:
Related parties (272,101) (19,434) (522,790) (38,443)
Other (230,323) (39,197) (471,817) (48,953)
------------ ------------ ------------ ------------
(454,127) (51,514) (920,818) (70,144)
------------ ------------ ------------ ------------
Loss before income taxes and
cumulative effect of accounting change (503,297) (419,452) (1,917,839) (960,319)
Federal and state income tax benefit (111,700) (94,400) (220,000) (253,200)
------------ ------------ ------------ ------------
Loss before cumulative effect of accounting change (391,597) (325,052) (1,697,839) (707,119)
Cumulative effect of change in accounting principle
related to pre-opening and start-up costs -- -- -- (259,181)
------------ ------------ ------------ ------------
Net loss $ (391,597) $ (325,052) $ (1,697,839) $ (966,300)
============ ============ ============ ============
Basic and diluted loss per share:
Loss before cumulative effect of accounting change $ (0.02) $ (0.01) $ (0.07) $ (0.03)
Cumulative effect of change in accounting principle -- -- -- (0.01)
------------ ------------ ------------ ------------
Net loss $ (0.02) $ (0.01) $ (0.07) $ (0.04)
============ ============ ============ ============
Weighted-average common shares outstanding 23,932,308 23,673,126 23,801,293 23,673,126
============ ============ ============ ============
Weighted-average common and
common equivalent shares outstanding 23,932,308 23,673,126 23,801,293 23,673,126
============ ============ ============ ============
</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,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,697,839) (966,300)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization 508,033 167,684
Deferred income tax -- (36,000)
Other 163,190 95,410
Changes in assets and liabilities:
Receivables (237,142) 11,352
Prepaid expenses and other (701,504) 244,303
Accounts payable and accrued expenses (1,703,221) 72,409
Income taxes payable (57,872) (206,471)
----------- -----------
Net cash used in operating activities (3,726,355) (617,613)
----------- -----------
Cash flows from investing activities:
Principal payments received on long-term receivables -- 51,000
Purchase of property and equipment (400,947) (2,535,076)
Other (372,996) 313,817
----------- -----------
Net cash used in investing activities (773,943) (2,170,259)
----------- -----------
Cash flows from financing activities:
Net change in short-term borrowings:
Related parties (101,000) 1,812,500
Other -- 980,939
Proceeds from long-term borrowings:
Related parties 1,775,000 --
Other 9,991,097 --
Principal payments on long-term debt, other (6,384,895) (515,252)
Payments received on stock subscription -- 129,832
Other 5,341 --
----------- -----------
Net cash provided by (used in) financing activities 5,285,543 2,408,019
----------- -----------
Net increase (decrease) in cash 785,245 (379,853)
Cash, beginning of period 714,764 1,073,910
----------- -----------
Cash, end of period $ 1,500,009 694,057
=========== ===========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 928,910 60,927
=========== ===========
Income taxes $ -- --
=========== ===========
Supplemental schedule of noncash investing and financing activities:
Interest rolled into long-term debt $ 301,042
===========
</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, 1999
(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, 1999 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1999.
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, 1998 included in the Company's 1998
Annual Report on Form 10-KSB.
Recently Issued Accounting Standard:
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information was issued in June 1997. This statement establishes
additional standards for segment reporting in the financial statements
and is effective for fiscal years beginning after December 15, 1997.
The Company believes the segment information required to be disclosed
under this statement will be more comprehensive than previously
provided, including expanded disclosure of income statement and balance
sheet items for each of its reportable segments. The Company has not
yet completed its analysis of which operating segments it will report
on but intends to be in compliance by September 30, 1999.
Pre-opening and Start-up Costs:
The American Institute of Certified Public Accountants' Accounting
Standards Executive Committee issued SOP No. 98-5, Reporting on the
Costs of Start-up Activities. This standard provides guidance on the
financial reporting for start-up costs and requires that such costs be
expensed as incurred. The standard is effective for fiscal years
beginning after December 15, 1998.
4
<PAGE> 7
The Company adopted this standard in the quarter ending September 30,
1998, and accordingly restated previous quarters to conform to this
standard.
Earnings Per Share
In 1998, the Company adopted Statement of Financial Accounting Standard
No. 128, Earnings per Share. This statement established standards for
computing and presenting earnings per share and required restatement of
all prior-period earnings per share data presented. Options to purchase
2,200,000 shares of common stock ranging from $.15 to $.42 per share,
80,000 shares of common stock at $1.50 per share, 2,000,000 shares of
common stock at $1 per share and 960,000 shares of common stock ranging
from $.75 to $1 per share were outstanding during the three month and
six month periods ending March 31, 1999, but were not included in the
computation of diluted EPS because the effect is anti-dilutive or the
exercise price was greater than the average market price of the common
shares. 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, 1999 March 31, 1998
----------------------------------------- -----------------------------------
Per Per
Share share
Loss Shares Amount Loss Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net loss $ (391,597) 23,932,308 $ (0.02) $ (325,052) 23,673,126 $ (0.01)
Effect of dilutive securities:
Options -- --
Diluted EPS
---------- ---------- ---------- ---------- ---------- ----------
Net loss $ (391,597) 23,932,308 $ (0.02) $ (325,052) 23,673,126 $ (0.01)
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1999 March 31, 1998
-------------------------------------- -------------------------------------
Per Per
Share share
Loss Shares Amount Loss Shares Amount
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Loss before cumulative effect
of accounting change $(1,697,839) $ (0.07) $ (707,119) $ (0.03)
Cumulative effect of
accounting change -- -- (259,181) (0.01)
----------- ---------- ---------- ---------- ---------- ----------
Net loss $(1,697,839) 23,801,293 $ (0.07) $ (966,300) 23,673,126 $ (0.04)
Effect of dilutive securities:
Options -- --
Diluted EPS
Loss before cumulative effect
of accounting change $(1,697,839) $ (0.07) $ (707,119) $ (0.03)
Cumulative effect of
accounting change -- -- (259,181) (0.01)
----------- ---------- ---------- ---------- ---------- ----------
Net loss $(1,697,839) 23,801,293 $ (0.07) $ (966,300) 23,673,126 $ (0.04)
=========== ========== ========== ========== ========== ==========
</TABLE>
5
<PAGE> 8
(2) Princesa Financing
In October, 1998, Bayfront Ventures, a Florida general partnership of
which the Company, through a wholly-owned subsidiary, owns an 80%
ownership ("Casino Princesa"), entered into a Loan Agreement and
Security Agreement with a group of lenders, which provided $8,400,000
in financing for the Casino Princesa ("Princesa"), related equipment
and working capital (the "Vessel Loan"). The Vessel Loan is secured by
a ship mortgage and all related furniture, furnishings, machinery and
equipment (including gaming equipment) owned by Casino Princesa or
Princesa Partners ("Princesa Partners"), a Florida general partnership
of which the Company, through a wholly-owned subsidiary, owns an 80%
ownership interest. In addition, Casino Princesa, the Company,
Goldcoast and certain individuals, including Mr. Brustuen H. Lien, the
majority shareholder, director and chairman of the board of the
Company, guaranteed the Vessel Loan. The Vessel Loan bears interest at
10.625% with interest only payments through January 1999. Monthly
payments of $130,258, including interest, commence February 1999 for
sixty consecutive months, with the remaining balance due January 2004.
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 is the excess of (i) the combined earnings
of Princesa Partners and Casino Princesa before taxes, depreciation and
amortization minus the 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 and Casino
Princesa, including net worth restrictions, debt service requirements
and limitations on the amount of debt that can be incurred.
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.
6
<PAGE> 9
INTRODUCTION
Concorde Gaming Corporation (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
wholly-owned subsidiaries, Concorde Cruises, Inc., a South Dakota corporation
("Concorde Cruises"), and Conami, Inc., a Florida corporation ("Conami"), owns
an 80% interest in two joint ventures, Bayfront Ventures, a Florida general
partnership which conducts business under the name Casino Princesa ("Casino
Princesa"), and Princesa Partners, a Florida general partnership ("Princesa
Partners"), which own and operate an offshore gaming vessel (the "Princesa")
from Bayfront Park, Miami, Florida. Concorde Cruises owns an 80% interest in
Casino Princesa and Conami owns an 80% interest in Princesa Partners. Princesa
Partners owns the Princesa and, pursuant to a Charter Agreement (the "Charter")
dated October 2, 1998, charters the Princesa to Casino Princesa, which operates
the Princesa. The Princesa was completed and commenced operations in October,
1998.
RESULTS OF OPERATIONS
Three Months ended March 31, 1999 Compared to Three Months ended March 31, 1998
Revenues. Total revenues increased 311.7% to $4,238,106 for the three
months ended March 31, 1999, compared to $1,029,370 for the three months ended
March 31, 1998, primarily as a result of the commencement of operations of the
Princesa in October 1998. The Princesa had revenues of $3,156,384 for the three
months ended March 31, 1999. Golden Gates Casino generated revenues of
$1,081,722 for the three months ended March 31, 1999, compared to revenues of
$1,029,267 for the three months ended March 31, 1998.
Costs and Expenses. Total costs and expenses increased 206.8% to
$4,287,276 for the three months ended March 31, 1999, compared to $1,397,308 for
the three months ended March 31, 1998, primarily as a result of the commencement
of operations of the Princesa in October 1998. Operating expenses for Casino
Princesa were $1,189,288 for the three months ended March 31, 1999. Operating
expenses for Golden Gates Casino were $702,154 for the three months ended March
31, 1999, compared to $572,686 for the three months ended March 31, 1998, due
primarily to an increase in rent and gaming taxes due to increased revenues.
Management fees paid to Goldcoast Entertainment Cruises, Inc. ("Goldcoast"),
which owns a 20% interest in each of Casino Princesa and Princesa Partners,
related to Casino Princesa were $45,000 for the three months ended March 31,
1999, compared to $60,000 for the three months ended March 31, 1998, due to
reduced fees paid to Goldcoast, which reduction Goldcoast disputes. Business
development costs were $30,000, due to an adjusting entry, for the three months
ended March 31, 1999, compared to $152,041 for the three months ended March 31,
1998. Selling, general and administrative expenses increased 428.9% to
$1,789,886 for the three months ended March 31, 1999, compared to $338,414 for
the three months ended March 31, 1998, due primarily to costs associated with
Casino Princesa. Depreciation and amortization increased 187.5% to $253,749 for
the three months ended March 31, 1999, compared to $88,249 for the three months
ended March 31, 1998, due primarily to amortization and depreciation related to
the Princesa and the gaming equipment related thereto. Start-up costs, primarily
related to the Princesa, were $0 for the
7
<PAGE> 10
three months ended March 31, 1999, compared to $139,208 for the three months
ended March 31, 1998.
Other Income and Expense. Interest expense and financing costs to
related parties increased to $272,101 for the three months ended March 31, 1999,
compared to $19,434 for the three months ended March 31, 1998, primarily due to
interest expense related to the $5,000,000 promissory note to BHL Capital
Corporation ("BHL Capital"), a company controlled by Brustuen H. Lien, the
majority shareholder, director and chairman of the board of the Company. Other
interest and financing costs increase to $230,323 for the three months ended
March 31, 1999, compared to $39,197 for the three months ended March 31, 1998,
primarily due to the financing costs related to the Princesa. Prior to the
completion of the Princesa in October 1998, interest costs related to the
Princesa were capitalized as start-up costs rather than expensed.
Federal and State Income Taxes. The Company recorded a Federal and
State income tax benefit of $111,700 for the three months ended March 31, 1999,
compared to a benefit of $94,400 for the three months ended March 31, 1998. 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, 1999 Compared to Six Months ended March 31, 1998
Revenues. Total revenues increased 277.4% to $7,232,610 for the six
months ended March 31, 1999, compared to $1,916,374 for the six months ended
March 31, 1998, primarily as a result of the commencement of operations of the
Princesa in October 1998. The Casino Princesa had revenues of $4,992,014 for the
six months ended March 31, 1999. Golden Gates Casino generated revenues of
$2,240,596 for the six months ended March 31, 1999, compared to revenues of
$1,854,742 for the six months ended March 31, 1998.
Costs and Expenses. Total costs and expenses increased 193.2% to
$8,229,631 for the six months ended March 31, 1999, compared to $2,806,549 for
the six months ended March 31, 1998, primarily as a result of the commencement
of operations of the Princesa in October 1998. Operating expenses for Casino
Princesa were $3,123,150 for the six months ended March 31, 1999. Operating
expenses for Golden Gates Casino were $1,369,142 for the six months ended March
31, 1999, compared to $1,144,078 for the six months ended March 31, 1998 due to
increased rent expense and gaming taxes resulting from increases in revenue.
Management fees paid to Goldcoast related to Casino Princesa were $135,000 for
the six months ended March 31, 1999, compared to $160,000 for the six months
ended March 31, 1998. Business development costs were $(30,000), due to an
adjusting entry, for the six months ended March 31, 1999, compared to $173,125
for the six months ended March 31, 1998. Selling, general and administrative
expenses increased 349.2% to $3,239,525 for the six months ended March 31, 1999,
compared to $721,237 for the six months ended March 31, 1998, due primarily to
costs associated with Casino Princesa. Depreciation and amortization increased
203% to $508,033 for the six months ended March 31, 1999, compared to $167,684
for the six months ended March 31, 1998, due primarily to amortization and
depreciation related to the Princesa and the gaming equipment related thereto.
Start-up costs, primarily related to the Princesa, were $540,952 for the six
months ended March 31, 1999, compared to $284,867 for the six months ended March
31, 1998.
8
<PAGE> 11
Other Income and Expense. Interest expense and financing costs to
related parties increased to $522,790 for the six months ended March 31, 1999,
compared to $38,443 for the six months ended March 31, 1998, primarily due to
interest expense related to the $5,000,000 promissory note to BHL Capital. Other
interest and financing costs increase to $471,817 for the six months ended March
31, 1999, compared to $48,953 for the six months ended March 31, 1998, primarily
due to the financing costs related to the Princesa. Prior to the completion of
the Princesa in October 1998, interest costs related to the Princesa were
capitalized as start-up costs rather than expensed.
Federal and State Income Taxes. The Company recorded a Federal and
State income tax benefit of $220,000 for the six months ended March 31, 1999,
compared to a benefit of $253,200 for the six months ended March 31, 1998. 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 $1,500,009 at March 31,
1999, compared to $714,764 at September 30, 1998, an increase of $785,245.
During the six months ended March 31, 1999, the Company used cash flow
from operating activities of $3,726,355, compared to $617,613 during the six
months ended March 31, 1998.
Investing Activities. Investing activities used cash of $773,943 during
the six months ended March 31, 1999, compared $2,170,259 during the six months
ended March 31, 1998. The Company used $400,947 during the six months ended
March 31, 1999 for the acquisition of property and equipment, compared to
$2,535,076 during the six months ended March 31, 1998.
Financing Activities. Financing activities provided cash of $5,285,543
during the six months ended March 31, 1999, compared to $2,408,019 during the
six months ended March 31, 1998. Long-term borrowings from related parties
provided $1,775,000 for the six months ended March 31, 1999, compared to $0 for
the six months ended March 31, 1998, primarily due to the Company signing the
promissory note for $5,000,000 with BHL Capital, which promissory note replaced
previous borrowing from BHL Capital and Mr. Lien. This promissory note is due on
demand, however, BHL Capital has waived its right to demand payment of this
promissory note until March 31, 2000 pursuant to a letter agreement dated April
28, 1999. Long-term borrowings from other sources provided $9,991,097 during the
six months ended March 31, 1999, compared to $0 during the six months ended
March 31, 1998, primarily due to completion of the Vessel Loan. Short-term
borrowings with related parties were reduced by $101,000 during the six months
ended March 31, 1999, while short-term borrowings with related parties provided
$1,812,500 during the six months ended March 31, 1998. There were no short-term
borrowings from other sources for the six months ended March 31, 1999, while
short-term borrowings from other sources provided $980,939 during the six months
ended March 31, 1998. Principal payments on long-term debt were $6,384,895
during the six months ended March 31, 1999, compared to $515,252 during the six
months ended March 31, 1998.
9
<PAGE> 12
There were no payments received on stock subscription during the six months
ended March 31, 1999, compared to $129,832 during the six months ended March 31,
1998.
FUTURE OPERATIONS
The Company's ability to meet its working capital requirements is
dependent upon the future operations of the Casino Princesa and Golden Gates
Casino. For the quarter ending March 31, 1999, the net cash provided by
operating activities of the Casino Princesa and Golden Gates Casino was
positive. Although there can be no assurance given, the Company believes that
cash flow from the Casino Princesa and the Golden Gates Casino will be
sufficient to meet its current working capital requirements.
As of March 31, 1999, the Company has used the available funds from its
current financing sources. Management does not foresee any capital spending that
will be required during the fiscal year ending September 30, 1999. However,
management believes that should capital spending be required additional
financing may be available.
The Company's business plan includes pursuing selective acquisitions
and strategic alliances. The Company will continue to evaluate opportunities
and, as attractive opportunities develop, the Company will consider
acquisitions. The Company expects to meet additional capital needs relating to
any such acquisitions or alliances with the proceeds from sales or issuance of
equity securities and borrowings. There can be no assurance, however, that the
Company will be successful in raising sufficient additional capital on terms
acceptable to the Company, if at all. The failure to raise and generate
sufficient funds may require the Company to delay or abandon future expansion
which could have a material adverse effect on the future growth of the Company.
YEAR 2000
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
date-sensitive computer software may recognize a date using "00" as the year
1900 rather than the year 2000. This is generally referred to as the "Year 2000
Problem." If this situation occurs, the potential exists for computer system
failures or miscalculations by computer programs, which could disrupt
operations.
The Company has commenced a comprehensive review, including testing, of
its, and its subsidiaries', computer and other systems (including systems that
use embedded technology that may be subject to the Year 2000 Problem) deemed to
be date sensitive to assess its exposure to the Year 2000 Problem. The Company
is in the process of modifying or replacing those systems that are not Year 2000
compliant. Based upon the findings of the comprehensive review to date,
management believes that the Company's systems are compliant or will be
compliant by August 1999. However, if modifications are not made or not
completed within an adequate time frame, the Year 2000 Problem could have a
material adverse effect on the operations of the Company.
In addition, the Company has commenced communications with its major
vendors and suppliers to
10
<PAGE> 13
determine their state of readiness relative to the Year 2000 Problem and the
Company's exposure to third party Year 2000 issues. Specifically, the Company
has received assurance from its major supplier of gaming equipment that such
equipment does not have a Year 2000 Problem. However, there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
timely converted, or that representations made to the Company by third parties
are in fact accurate. As a result, the failure of a major vendor or supplier to
adequately address their Year 2000 Problem could have a material adverse effect
on the operations of the Company.
All costs related to the Company's Year 2000 Problem are expensed as
incurred, provided, however, that the cost of new hardware or software is
capitalized and amortized over its expected useful life. To date, the costs
related to the Year 2000 Problem have been funded from cash flow from
operations. The costs associated with Year 2000 compliance have not been and are
not anticipated to be material to the Company's financial position or results of
operations. The Company intends to continue to examine the potential impact of
the Year 2000 issues and will develop a contingency plan relative to the Year
2000 issues, if it believes one is necessary.
During the six months ended March 31, 1999, management continued its
review of the risks associated with the Year 2000 Problem. The Company has not
incurred any additional costs nor discovered any material adverse effects on the
operations of the Company stemming from the Year 2000 Problem.
RISK FACTORS
In addition to the other information contained in this Report, the
Company cautions stockholders and potential investors that the following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's actual results of operations and could cause the
Company's actual results to differ materially from those expressed in any
forward-looking statements made by on or on-behalf of, the Company. The
following information is not intended to limit in any way the characterization
of other statements or information under other captions as cautionary statements
for such purpose:
o The Company has incurred a significant amount of indebtedness and the
Company's cash flow from operations is not sufficient to fund debt service
related thereto.
o Due to the current indebtedness, the Company's ability to obtain additional
financing in the future and the Company's flexibility in reacting to
changes in the industry and economic conditions generally may be limited.
o The Company's success is partially dependent on attracting and retaining
highly qualified management and gaming personnel and an inability to
attract and retain such persons in the future may have an adverse impact on
the results of the Company's future operations.
o The Company's success is partially dependent on its ability to anticipate
changing products and amenities and to efficiently develop and introduce
new products and amenities that will gain customer acceptance. If the
Company is unable to anticipate and introduce such products and amenities,
such inability may have an adverse impact on the results of the Company's
future operations.
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<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 15, 1999, the Association for Disabled Americans, Inc., The
Coral Springs Advocacy Committee for the Handicapped, Inc., Daniel Ruiz, Jorge
Luis Rodriquez, Ernst Rosenkrantz and Robert Cohen filed a lawsuit against the
Company and Goldcoast in the United States District Court for the Southern
District of Florida alleging violations of the Americans with Disabilities Act
(the "ADA") with respect to the Princesa and the facilities at which the
Princesa docks. The lawsuit seeks injunctive relief including an order requiring
modifications to the Princesa and the docking facilities to comply with the ADA,
and the closure of the Princesa and the docking facilities until such
modifications are complete. Although the Company intends to defend the lawsuit
vigorously, the impact, if any, of the lawsuit on the Company cannot at this
time be determined.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit No. Description
- ----------- -----------
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.
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<PAGE> 15
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 17, 1999 By: /s/ Jerry L. Baum
--------------------------------
Jerry L. Baum, Chief Executive Officer
and Principal Accounting Officer
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,500,009
<SECURITIES> 0
<RECEIVABLES> 274,342
<ALLOWANCES> 0
<INVENTORY> 48,046
<CURRENT-ASSETS> 2,615,362
<PP&E> 12,612,861
<DEPRECIATION> 508,033
<TOTAL-ASSETS> 17,064,722
<CURRENT-LIABILITIES> 2,814,169
<BONDS> 0
0
0
<COMMON> 240,104
<OTHER-SE> 1,029,350
<TOTAL-LIABILITY-AND-EQUITY> 17,064,722
<SALES> 0
<TOTAL-REVENUES> 7,232,610
<CGS> 0
<TOTAL-COSTS> 8,229,631
<OTHER-EXPENSES> 920,818
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 994,607
<INCOME-PRETAX> (1,917,839)
<INCOME-TAX> (220,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,697,839)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
