<PAGE>
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 Quarter Ended: MARCH 31, 1997 Commission file number 1-12780
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BOARDWALK CASINO, INC.
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(Exact name of small business issuer as specified in its charter)
STATE OF NEVADA 88-0304201
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(State of incorporation) (I.R.S. Employer Identification No.)
3750 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89109
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (702) 735-2400
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as the close of the period covered by this report:
Class Outstanding at March 31, 1997
- ----------------------------- -----------------------------
Common Stock, $.001 par value 7,179,429
Transitional Small Business Disclosure Format
Yes No X
<PAGE>
BOARDWALK CASINO, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
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(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................................... $ 2,310,188 $ 4,772,549
Receivables, net of allowance for doubtful
accounts of $3,276 and $17,105............................................ 548,768 439,857
Inventory ..................................................................... 100,970 73,719
Prepaid expenses .............................................................. 765,603 573,964
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Total current assets ................................................. 3,725,529 5,860,089
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PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $7,165,988 and $5,705,685 ..................................... 57,602,049 55,486,285
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OTHER ASSETS:
Deferred costs, net of accumulated amortization
of $427,074 and $239,436.................................................. 1,460,171 1,645,090
Other ......................................................................... 309,695 179,485
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Total other assets ................................................... 1,769,866 1,824,575
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Total assets ......................................................... $ 63,097,444 $ 63,170,949
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................................. $ 1,601,260 $ 1,281,657
Construction accounts payable ................................................. 516,667 171,283
Accrued expenses .............................................................. 2,819,485 2,547,615
Current maturities of contracts and notes payable.............................. 3,455,007 3,115,522
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Total current liabilities ............................................ 8,392,419 7,116,077
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LONG-TERM DEBT, less current portion .............................................. 41,011,801 40,909,523
CONTRACTS AND NOTES PAYABLE, less current portion ................................. 2,636,575 3,400,234
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Total liabilities .................................................... 52,040,795 51,425,834
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 15,000,000 shares
authorized, none issued .................................................. - -
Common stock, $.001 par value; 50,000,000 shares
authorized; 7,179,429 issued
and outstanding .......................................................... 7,179 7,179
Additional paid-in capital .................................................... 22,435,083 22,435,083
Accumulated deficit ........................................................... (11,385,613) (10,697,147)
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Total shareholders' equity ........................................... 11,056,649 11,745,115
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Total liabilities and shareholders' equity ........................... $ 63,097,444 $ 63,170,949
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</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES:
Casino .............................................. $ 5,507,295 $ 4,021,612 $ 10,588,275 $ 6,416,988
Rooms ............................................... 2,992,597 1,250,171 6,270,826 2,026,154
Food and beverage ................................... 1,753,665 922,270 3,238,321 1,670,435
Other ............................................... 458,525 159,273 934,711 218,585
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Gross revenue .............................. 10,712,082 6,353,326 21,032,133 10,332,162
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Less promotional allowances ............................. (604,536) (305,874) (1,118,381) (513,777)
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10,107,546 6,047,452 19,913,752 9,818,385
COSTS AND EXPENSES:
Casino .............................................. 3,285,007 2,650,671 6,291,694 4,552,933
Rooms ............................................... 1,230,515 652,699 2,435,789 1,114,119
Food and beverage ................................... 1,675,830 951,897 3,195,529 1,779,318
Other ............................................... 54,224 14,412 130,640 38,451
Selling, general and administrative ................. 1,723,976 931,382 3,392,656 1,780,674
Depreciation and amortization ....................... 824,738 494,128 1,647,942 967,769
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8,794,290 5,695,189 17,094,250 10,233,264
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Income (loss) from operations .......................... 1,313,256 352,263 2,819,502 (414,879)
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OTHER (INCOME) EXPENSE:
Interest income ..................................... (36,165) (127,441) (77,266) (351,364)
Interest expense .................................... 2,023,363 2,040,740 3,987,520 4,150,041
Interest capitalized ................................ (210,000) (672,615) (402,286) (1,069,635)
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1,777,198 1,240,684 3,507,968 2,729,042
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Income (loss) before income taxes........................ (463,942) (888,421) (688,466) (3,143,921)
Income tax provision ................................... - - - -
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Net income (loss) ...................................... $ (463,942) $ (888,421) $ (688,466) $ (3,143,921)
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EARNINGS (LOSS) PER SHARE ............................... $ (.06) $ (.15) $ (.09) $ (.52)
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WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING .................................. 7,179,429 6,080,204 7,179,429 6,080,025
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</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................................... $ (688,466) $ (3,143,921)
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Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization .......................................... 1,647,942 967,769
Amortization of original issue discount ................................. 102,278 543,702
Changes in operating assets and liabilities
(Increase) decrease in receivables ................................... (108,911) (148,253)
(Increase) decrease in inventory ...................................... (27,251) (3,167)
(Increase) decrease in prepaid expenses................................ (191,639) 12,922
Increase (decrease) in payables and accrued expenses................... 936,857 3,452,589
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Net cash provided (used) by operating activities .......................... 1,670,810 1,681,641
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................................... (3,261,501) (19,776,565)
(Increase) decrease in restricted cash equivalents ...................... - 12,947,552
(Increase) decrease in deferred costs ................................... (2,719) -
(Increase) decrease in other assets ..................................... (130,210) (412,845)
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Net cash provided (used) by investing activities .......................... (3,394,430) (7,241,858)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes and contracts payable ....................... (1,338,741) (2,519,054)
Proceeds from borrowings, net of issuance costs ......................... 600,000 5,140,755
Principal payments of long-term debt .................................... - (198,063)
Proceeds from issuance of common stock and warrants ..................... - 1,878,955
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Net cash provided (used) by financing activities .......................... (738,741) 4,302,593
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Net increase (decrease) in cash .............................................. (2,462,361) (1,257,624)
Cash and equivalents, beginning of period ..................................... 4,772,549 5,114,244
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Cash and equivalents, end of period ........................................... $ 2,310,188 $ 3,856,620
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .................................................... $ 3,697,565 $ 1,125,591
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquisitions financed by
contracts payable ....................................................... $ 314,567 $ 1,208,240
Discount associated with common stock and
warrants issued with bridge loan financing .............................. $ - $ 284,400
</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-QSB and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well
as other capital spending, financing sources and the effects of regulation
(including gaming and tax regulation) and competition. Such forward-looking
information involves important risks and uncertainties that could
significantly affect anticipated results in the future and, accordingly, such
results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include,
but are not limited to, those relating to development and construction
activities, dependence on existing management, debt service (including
sensitivity to fluctuations in interest rates), domestic or global economic
conditions, changes in federal or state tax laws or the administration of
such laws and changes in gaming laws or regulations (including the
legalization of gaming in certain jurisdictions).
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Boardwalk Casino, Inc. ("BCI") was formed in July 1993 for the purpose of
operating a casino and a hotel (the "Boardwalk Hotel and Casino") in Las
Vegas, Nevada.
The accompanying unaudited condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although management believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these interim condensed financial statements
be read in conjunction with the Company's most recent audited financial
statements and notes thereto included in the Company's 10-KSB for the fiscal
year ended September 30, 1996. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim period presented have been made. Operating results for
the period ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 1997.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROMOTIONAL ALLOWANCES
The retail value of hotel accommodations, food and beverage provided to
customers without charge is included in gross revenues and then deducted as
promotional allowances to arrive at net revenues. The estimated costs of
providing such promotional allowances have been classified as gaming expenses
through interdepartmental allocation.
RECLASSIFICATIONS
Certain amounts in the quarter and six months ended March 31, 1996
financial statements have been reclassified to conform with the quarter and
six months ended March 31, 1997.
2. CONSTRUCTION OBLIGATIONS:
The Company completed and opened the 2nd floor buffet on March 21, 1997.
A general contractor had been engaged for the construction activities
relating to the buffet. Of the approximate $2,555,000 total cost to complete
the buffet, the Company has expended approximately $2,094,560 as of March 31,
1997, leaving an unexpended balance of approximately $460,440.
The Company has engaged a general contractor for the construction
activities relating to the meeting rooms at an estimated cost of $638,000.
The project is expected to be completed in the month of June 1997.
3. EARNING PER COMMON SHARE:
Earnings per share is based on the weighted average number of shares of
common stock outstanding during each period. Warrants and options to
purchase common stock which were issued in 1994 through 1996 were excluded
from the calculation of earnings (loss) per share, as their inclusion would
have been anti-dilutive (by reducing the loss per share).
4. OPERATING RESULTS, FINANCIAL CONDITION AND MANAGEMENT'S PLANS:
The Company had net losses of $688,466 and $3,143,921 for the six months
ended March of 1997 and 1996, respectively, and has a working capital
deficiency of approximately $4,666,890 at March 31, 1997.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
4. OPERATING RESULTS, FINANCIAL CONDITION AND MANAGEMENT'S PLANS, CONTINUED:
With the completion of the new hotel tower and expanded casino,
restaurant, buffet and meeting rooms opened and the presence of its neighbors
(Monte Carlo -June 21, 1996 and New York, New York, - January 3, 1997),
management expects to generate cash flows from operations to improve on its
working capital position in fiscal 1997.
The Company's $40,000,000 debt financing of the BCI Notes has an annual
debt service requirement of $6,600,000. At March 31, 1997 the Company paid
$3,300,000 in interest on the $40,000,000 debt.
The Company completed and opened the 2nd floor buffet on March 21, 1997.
A general contractor had been engaged for the construction activities
relating to the buffet. Of the approximate $2,555,000 total cost to complete
the buffet, the Company has expended approximately $2,094,560 as of March 31,
1997, leaving an unexpended balance of approximately $460,440.
The Company has engaged a general contractor for the construction
activities relating to the meeting rooms at an estimated cost of $638,000.
The project is expected to be completed in the month of June 1997.
The Company has also arranged for up to $4,000,000 of available working
capital borrowings which has been made available by a director and a group of
other private investors who have provided other short-term financing to the
Company in the past. Such uncollateralized borrowings are available to the
Company on an as-needed basis through December 31, 1997 on terms
substantially similar to those which had been available to the Company during
1996.
During the second quarter of 1997 the Company issued a $600,000
short-term note with 13.5% a year interest payable monthly and the principal
due September 25, 1997, to a private investor who has provided other
short-term financing to the Company in the past.
The Company violated a covenant in the Indenture with its First Mortgage
Lender with the execution of the promissory note in the amount of $600,000;
thereby exceeding the limitation of $5,000,000 of working capital
indebtedness. The Company plans to cure this default by fiscal year end with
full payment of the principal.
Management believes that the combination of expected cash flows from
operations in 1997, and the remaining available borrowing capacity are
sufficient to meet the Company's obligations as they become due during fiscal
1997. The outstanding warrants to purchase common stock at March 31, 1997
also represent a potential significant source
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
4. OPERATING RESULTS, FINANCIAL CONDITION AND MANAGEMENT'S PLANS, CONTINUED:
of capital to the Company, although management cannot control or accurately
predict the timing of proceeds, if any, from the exercise of warrants.
5. COMMITMENTS AND CONTINGENCIES:
The Company has pending certain legal actions and claims incurred in the
normal course of business and is actively pursuing the defense thereof. In
the opinion of management, these actions and claims are either without merit
or are covered by insurance and will not have a material adverse effect on
the Company's financial position, results of operation or cash flows.
GAMING TAX ASSESSMENT
In fiscal year 1996, based on the advice of legal counsel, the Company
accrued a total loss contingency of $500,000 related to a gaming tax
assessment from the Nevada Gaming Control Board ("NGCB"). The Company plans
to appeal the assessment; however, the likelihood of a successful outcome
cannot be determined.
OFFICE SPACE LEASE
The Company leased office space and storage facilities for its corporate
offices from the majority shareholders for approximately $8,375 per month for
the previous year.
Effective October 1, 1996, the Company amended the lease and the monthly
rental increased to approximately $70,000 per month. The lease term is for
two years and allows the Company to use the facilities for any purpose. The
Company has options to extend the lease up to an additional 28 years. The
lease agreement provides the Company with the first right of refusal to
purchase the land and building at their fair value should the shareholders
decide to sell them. The lease agreement also entitles the Company to the
rental income from the existing lessees during the lease term. The existing
lessees are on short-term renewable leases with current rents totaling
approximately $28,000 per month.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Income from operations has increased $3,234,381 or 780% to $2,819,502 for
the six months ended March 31, 1997 compared to an operating loss of $414,879
for the six months ended March 31, 1996. The results of operations for the
first quarter ended March 31, 1997 reflects the positive impact of increased
revenues associated with opening of the hotel tower with an additional 451
rooms (during the second and third quarters of 1996), increased pedestrian
traffic resulting from an elimination of construction activities that blocked
access and the opening of a major resort next to the Company's property, the
availability of 550 additional parking spaces during the second quarter of
1996 from the second parking garage, the attraction of several significant
patrons to the race and sports books and the retaining of a professional
hotel sales department, which produces room sales in addition to the Holiday
Inn -Registered Trademark- reservation system.
The Company completed construction of a 2nd floor buffet in March 1997.
A general contractor had been engaged for the construction activities
relating to the buffet. Of the approximate $2,555,000 total cost to complete
the buffet, the Company has expended approximately $2,094,560 as of March 31,
1997, leaving an unexpended balance of approximately $460,440. The balance
of the construction will be financed using existing cash, operating cash flow
and cash available from other sources as more fully described in "Liquidity
and Capital Resources."
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
The Company had income from operations of $1,313,256 in the second
quarter of 1997 compared to $352,263 in the second quarter of the prior year,
an increase of $960,993 or 273%.
The $960,993 increase in operating income was primarily due to a greater
increase in revenues than the associated increase in costs and expenses. The
second quarter net revenues were $10,107,546 compared to $6,047,452 for the
same period in fiscal 1996, an increase of 67% ($4,060,094). Total costs and
expenses increased 54% ($3,099,101) to $8,794,290 for the second quarter in
fiscal 1997, from $5,695,189 during the same period in fiscal 1996.
CASINO OPERATIONS
Gaming revenues increased 37% ($1,485,683) to $5,507,295 for the second
quarter in fiscal 1997, from $4,021,612 when compared to the same period in
fiscal 1996. The increase was primarily due to: (i) increased slot machine
revenue of $1,075,072 (69%) to $2,639,344 for the current quarter from
$1,564,272 for the second quarter last year, (ii) increased table game play
generated an additional $392,560 (76%) to $910,618 in revenue for the current
quarter from $518,058 for the second quarter last year and (iii) race and
sports revenue increased $18,049.
<PAGE>
Casino expenses increased $634,336 (24%) to $3,285,007 for second quarter
in fiscal 1997 from $2,650,671 for the same period of 1996. The increase in
casino expenses were due to: (i) additional payroll expenses of $361,021,
(ii) additional gaming taxes of $201,570, (iii) additional race wire fees
of $136,171 and (iv) the cost of providing complimentary services increased
$100,798. The increases were primarily offset by a decrease in gaming
incentives of $148,943.
ROOM OPERATIONS
Gross room revenues increased $1,742,426 or 139%, to $2,992,597 for the
second quarter 1997 from $1,250,171 for the comparable quarter in fiscal
1996. This reflects the positive impact of the opening of the hotel tower
with an additional 451 rooms (during the second and third quarters of 1996)
and the retaining of a professional sales department, which has since opened
several corporate accounts.
Room nights available increased 33,386 (132%) to 58,770 room nights
available for the current quarter from 25,384 for the same period of last
year. Room nights occupied increased 28,016 (140%) to 48,077 room nights
occupied for the first quarter of fiscal year 1997 from 20,061 for the same
period of 1996. The occupancy percentage increased to 82% for the first
quarter of 1997 compared to 79% for the same period of fiscal 1996. The
average room rate decreased by $.06 to $62.25 for the current period.
Promotional allowance for rooms increased $52,333 (99%) to $105,294 for
the current period compared to $52,961 for the same period of 1996. The
increase in promotional or complimentary rooms to qualified individuals was
do to the increase in available rooms from the completed hotel tower. Net
room revenues increased $1,690,093 or 141% to $2,887,303 for the second
quarter of fiscal 1997 from $1,197,210 for the same period of 1996.
Hotel expenses increased $577,816 or 89%, to $1,230,515 for first quarter
1997 from $652,699 for the same period of 1996. The increased expenses
reflect the expanded support services necessary to handle the 140% increase
in occupied room nights as follows; (i) personnel costs increased $400,462,
(ii) Franchise and Holiday Inn-Registered Trademark- promotional fees
increased $118,307, (iii) additional linen, laundry and room supplies totaled
$57,741, (iv) additional credit card fees of $38,619 and (v) increased travel
agent fees of $23,566. The gross increases were offset by the allocation of
promotional allowance costs. These promotional costs increased by $52,000
and were removed from hotel expenses and reclassified to other departments
and capitalized as part of construction activities.
FOOD AND BEVERAGE OPERATIONS
<PAGE>
Gross food and beverage revenues increased $831,395 or 90%, to $1,753,665
for the second quarter 1997 from $922,270 for the comparable quarter in
fiscal 1996. The increase in gross food and beverage revenues was
attributable to the following: (i) an additional 56,052 (138%) guests staying
in the hotel totaling 96,655 hotel guests for the second quarter of fiscal
1997 compared to 40,603 for the same period of fiscal 1996, (ii) increased
pedestrian traffic.
Promotional allowance for food and beverage increased $246,329 (97%) to
$499,242 for the current period compared to $252,913 for the same period of
1996. Net food and beverage revenues increased $585,066 or 87% to $1,254,423
for the second quarter of fiscal 1997 from $669,357 for the same period of
1996.
Food and beverage expenses increased $723,933, or 76%, to $1,675,830 for
second quarter 1997 from $951,897 for the same period of fiscal 1996. This
is the direct result of increased cost of sales and additional wages and
benefits resulting from the increased seating capacity and additional
beverage outlet.
Food and beverage expenses as a percentage of gross food and beverage
revenues decreased to 95.6% for the second quarter of fiscal 1997 from 103.2%
for the same period of 1996. This decrease is a direct result of increased
casino promotional activity with an increase in food and beverage served on a
complimentary basis, which food and beverage costs are included in casino
expense.
OTHER REVENUES AND EXPENSES
Other revenues increased $299,252, or 188%, to $458,525 for the second
quarter 1997 from $159,273 for the same period of fiscal 1996. The increase
of other revenues consists principally of the following: (i) increased rents
from retail space of $145,902, (ii) additional fees of $88,054 from increased
guest telephone usage, in-room movies and commissions on phones and (iii)
increased revenues from arcade games, guest laundry services and ATM rebates.
Other expenses increased $39,812, or 276%, to $54,224 for the second
quarter 1997 from $14,412 for the same period of fiscal 1996. The increase of
other expenses is principally due to costs associated with increased revenues
from telephone calls by guests, movies and vending revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $792,594, or 85%,
to $1,723,976 for second quarter 1997 from $931,382 for the same period of
fiscal 1996. The increase was due primarily to (i) a master lease on the
adjacent building housing the administrative staff which increased rents by
$188,250, (ii) executive, administrative, security, count teams and porters
salaries were increased at a cost of $56,947, (iii) advertising,
complimentary and promotional costs increased $279,454, (iv) utilities
expense increased $99,984, (v) legal and professional fees increased by
47,123, (vi) general
<PAGE>
insurance increased $14,547 and (vii) the remaining increases are from
facility repairs and supplies.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $824,738 in the second quarter in
fiscal 1997, reflecting a $330,610 (67%) increase over the second quarter in
fiscal 1996 amount of $494,128 due to the depreciable costs of the hotel
tower with furnishings, parking garages, improvements to facilities and
additional casino equipment.
OTHER INCOME AND EXPENSES
Interest income decreased $91,276 to $36,165 in the second quarter of
fiscal 1997 compared to $127,441 for the second quarter of 1996. Interest
income relates to the Company's investments in marketable securities,
principally U.S. treasury securities and short-term corporate commercial
paper. Management expects interest income to continue to decrease in 1997 as
funds are used to pay for the remaining portion of phase three of the
Expansion.
Net interest expense increased to $1,813,363 in the second quarter of
fiscal 1997 from $1,368,125 in the second quarter of fiscal 1996.
Approximately $210,000 of interest was capitalized in the second quarter of
fiscal year 1997 in connection with the Expansion, compared to $672,615 for
the same period of 1996. The expenditures of the second floor gave rise to
the capitalized interest in the current quarter and the hotel tower, second
parking garage and 2nd floor of the casino gave rise to the capitalized
interest for the second quarter of fiscal 1996. The hotel tower and 2nd
parking garage were completed in the second quarter of 1996.
INCOME TAX PROVISION
No income tax benefit was recorded. Because the Company is a new
taxpayer, it cannot carryback such loss to offset taxable income in prior
years and therefore has a net operating loss carryforward.
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
The Company's income from operations increased 780% ($3,234,382) to an
operating income of $2,819,503 for the first half of fiscal 1997, from an
operating loss of $414,879 when compared to the same period in fiscal 1996.
The increase in operating income is primarily due to net revenues increasing
103% ($10,095,367) to $19,913,752 for the second half of fiscal 1997, from
$9,818,385 during the same period in fiscal 1996. Costs
<PAGE>
and expenses increased by 67% ($6,860,985) to $17,094,249 for the first half
of fiscal 1997 from $10,233,264 when compared to the same period in fiscal
1996.
CASINO OPERATIONS
Gaming revenues increased 65% ($4,171,287) to $10,588,275 for the first
half of fiscal 1997, from $6416,988 when compared to the same period in
fiscal 1996. The increase in revenue was due to: (i) increased slot machine
revenue of $2,104,724, (ii) increased race and sports book revenue of
$1,162,322 and (iii) increased table game revenue of $904,241.
Casino expenses increased 38% ($1,738,761) to $6,291,694 for first half
1997 from $4,552,933 for the same period of 1996. The increase in casino
expenses were due to: (i) additional payroll expenses of $669,812, (ii)
additional gaming taxes of $513,425, (iii) additional race wire fees of
$658,868 and (iv) the cost of providing complimentary services increased
$140,130. The increases were primarily offset by a decrease in incentive
programs of $147,437 and $250,482 in security costs were reflected under
casino expenses in 1996 and $304,457 in security costs reflected under
general and administrative expenses in 1997.
ROOM OPERATIONS
Room revenues increased $4,244,672 or 209%, to $6,270,826 for the first
half of 1997 from $2,026,154 for the comparable period in fiscal 1996.
Room nights available increased 74,878 (170%) to 118,846 room nights
available for the first six months of fiscal year 1997 from 43,968 for the
same period of last year. Room nights occupied increased 63,006 (204%) to
93,824 room nights occupied for the first six months of fiscal year 1997 from
30,818 for the same period of 1996. The occupancy percentage increased to
79% for the first six months of 1997 compared to 70% for the same period of
fiscal 1996. The average room rate increased by $1.09 to $66.84 for the
current period.
Promotional allowance for rooms increased $117,605 (183%) to $181,841
for the current period compared to $64,236 for the same period of 1996. The
increase in promotional or complimentary rooms to qualified individuals was
do to the increase in available rooms from the completed hotel tower. Net
room revenues increased $4,127,067 or 210% to $6,088,985 for the first six
months of fiscal 1997 from $1,961,918 for the same period of 1996.
Room expenses increased $1,321,670 or 119%, to $2,435,789 for first half
of 1997 from $1,114,119 for the same period of 1996. The increase in hotel
expenses was due to (i) an increase in hotel personnel to service the
additional rooms and patrons at an additional cost of $864,830, (ii)
increased franchise fees of $288,895, (iii) additional linen, laundry and
room supplies totaled $65,682, (iv) additional credit card fees of $81,740
and (v)
<PAGE>
increased travel agent fees of $66,691. The gross increases were offset by
the increase in promotional allowances that were reclassified to other
departments.
FOOD AND BEVERAGE OPERATIONS
Food and beverage revenues increased $1,567,886 or 94%, to $3,238,321 for
the first six months of 1997 from $1,670,435 for the comparable period in
fiscal 1996. This increase corresponds to the expanded restaurant and bar
facilities constructed to serve the additional hotel guests.
Food and beverage expenses increased $1,416,211, or 80%, to $3,195,529
for first six months of fiscal 1997 from $1,779,318 for the same period of
fiscal 1996. The increase in restaurant expenses was due to: (i) an increase
in personnel to staff the expanded facilities at a cost of $533,945 and
(ii) the cost of the increased food and beverage sales.
OTHER REVENUES
Other revenues increased $716,126 or 328%, to $934,711 for first six
months of fiscal 1997 from $218,585 for the same period of fiscal 1996. The
increase of other revenues consist principally of rents on retail space, fees
for telephone calls from guest rooms and incidental vending revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $1,611,982, or
91%, to $3,392,656 for first half of fiscal 1997 from $1,780,674 for the
same period of fiscal 1996. The increase was due primarily to (i)
advertising, complimentary and promotional costs increased $441,504, (ii) a
master lease on the adjacent building housing the administrative staff
increased rents by $373,125, (iii) executive, administrative, security, count
teams and porters salaries were increased at a cost of $399,765 ( $250,482
in security costs were reflected under casino expenses in 1996), (iv)
utilities expense increased $188,576, (v) legal and professional fees
increased by 111,795, and (vi) the remaining increases are from facility
repairs and supplies.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $1,647,942 in the first six months
of fiscal 1997, reflecting a $680,173 (70%) increase over the first six
months of fiscal 1996 amount of $967,769. The increase is due to the
completion's of the new hotel facility and the second parking garage and the
acquisitions of additional hotel furnishings and fixtures, slot machines and
casino related equipment.
<PAGE>
OTHER INCOME AND EXPENSES
Interest income decreased 78%, ($274,098) to $77,266 in the first six
months of fiscal 1997 from $351,364 due to the Company's investment of the
proceeds from the issuance of the BCI Notes in marketable securities,
principally U.S. treasury securities and short-term corporate commercial
paper. Management expects interest income to continue to decrease in 1997 as
funds are used to pay for the remaining portion of phase three of the
Expansion.
Net interest expense increased to $3,585,234 in the first six months of
fiscal 1997 from $3,080,406 in the first six months of fiscal 1996.
Approximately $402,286 of interest was capitalized in the first half of
fiscal year 1997 in connection with the construction of the 2nd floor buffet
compared to $1,069,635 capitalized in the first half of fiscal year 1995 for
the hotel tower and 2nd floor construction.
INCOME TAX PROVISION
No income tax benefit was recorded. Because the Company is a new
taxpayer, it cannot carryback such loss to offset taxable income in prior
years and therefore has a net operating loss carryforward.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $2,310,188 (3.7% of total
assets) at March 31, 1997 compared to $4,772,549 (7.6% of total assets) at
September 30, 1996. The ratio of current assets to current liabilities was
.44 to 1 at March 31, 1997 and .82 to 1 at September 30, 1996.
Although operating activities provided cash flow in 1997 of $1,670,810,
the Company had a working capital deficit of approximately $4.7 million at
March 31, 1997. The deficit is primarily due to obligations due under
short-term financing arrangements.
Investing activities for fiscal 1997 used approximately $3.4 million
resulting from capital expenditures for the expansion.
Financing activities provided approximately $600,000 from additional
borrowings during the year. Such proceeds were offset by $1,339,000 of
principal payments on long-term debt notes and contracts payable during
fiscal 1997.
With the completion of the new hotel tower and expanded casino,
restaurant, buffet, which opened March 21, 1997, and meeting rooms, scheduled
for completion in June 1997, and the presence of its neighbors (Monte Carlo -
June 21, 1996 and New York,
<PAGE>
New York, - January 3, 1997), management expects to generate cash flows from
operations to improve on its working capital position in fiscal 1997.
The Company's $40,000,000 debt financing of the BCI Notes has an annual
debt service requirement of $6,600,000. At March 31, 1997 the Company paid
$3,300,000 in interest on the $40,000,000.
The Company completed and opened the 2nd floor buffet on March 21, 1997.
A general contractor had been engaged for the construction activities
relating to the buffet. Of the approximate $2,555,000 total cost to complete
the buffet, the Company has expended approximately $2,094,560 as of March 31,
1997, leaving an unexpended balance of approximately $460,440.
The Company has engaged a general contractor for the construction
activities relating to the meeting rooms at an estimated cost of $638,000.
The project is expected to be completed in the month of June 1997.
The Company has also arranged for up to $4,000,000 of available working
capital borrowings which has been made available by a director and a group of
other private investors who have provided other short-term financing to the
Company in the past. Such uncollateralized borrowings are available to the
Company on an as-needed basis through December 31, 1997 on terms
substantially similar to those which had been available to the Company during
1996.
During the second quarter of 1997 the Company issued a $600,000
short-term note with 13.5% a year interest payable monthly and the principal
due September 25, 1997, to a private investor who has provided other
short-term financing to the Company in the past.
The Company violated a covenant in the Indenture with its First Mortgage
Lender with the execution of the promissory note in the amount of $600,000;
thereby exceeding the limitation of $5,000,000 of working capital
indebtedness. The Company plans to cure this default by fiscal year end with
full payment of the principal.
Management believes that the combination of expected cash flows from
operations in 1997, and the remaining available borrowing capacity are
sufficient to meet the Company's obligations as they become due during fiscal
1997. The outstanding warrants to purchase common stock at March 31, 1997
also represent a potential significant source of capital to the Company,
although management cannot control or accurately predict the timing of
proceeds, if any, from the exercise of warrants.
<PAGE>
BOARDWALK CASINO, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
(a) On January 20, 1997, the Board of Directors has elected Avis
P. Jansen as Chairperson of the Board of Directors. Ms. Jansen succeeds
her husband, and Boardwalk founder, Norbert Jansen. Mr. Jansen passed away
on January 6, 1997.
(b) Effective March 19, 1997, the Company entered into a
three-year employment agreement with Steve Greathouse as the Company's new
Chief Executive Officer. The agreement provides for an annual base salary
of $350,000 with performance based bonuses and options.
Item 6. Exhibits and Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOARDWALK CASINO, INC.
-----------------------------
Registrant
Date 05/12/97 Steve Greathouse
------------------------------
Chief Executive Officer
Date 05/12/97 Louis J. Sposato
------------------------------
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,310,188
<SECURITIES> 0
<RECEIVABLES> 552,044
<ALLOWANCES> 3,276
<INVENTORY> 100,970
<CURRENT-ASSETS> 3,725,529
<PP&E> 64,768,037
<DEPRECIATION> 7,165,988
<TOTAL-ASSETS> 63,097,444
<CURRENT-LIABILITIES> 8,392,419
<BONDS> 43,648,376
0
0
<COMMON> 7,179
<OTHER-SE> 11,056,649
<TOTAL-LIABILITY-AND-EQUITY> 63,097,444
<SALES> 2,301,780
<TOTAL-REVENUES> 19,913,752
<CGS> 1,288,997
<TOTAL-COSTS> 17,094,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,585,234<F1>
<INCOME-PRETAX> (688,466)
<INCOME-TAX> 0
<INCOME-CONTINUING> (688,466)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (688,466)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
<FN>
<F1>Net of interest capitalized of $402,286
</FN>
</TABLE>