<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: JUNE 30, 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 June 30, 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>
JUNE 30, SEPTEMBER 30,
1997 1996
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(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 1,941,564 $ 4,772,549
Receivables, net of allowance for doubtful
accounts of $3,221 and $17,105........................ 501,537 439,857
Inventory .............................................. 113,308 73,719
Prepaid expenses ....................................... 921,900 573,964
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Total current assets ................................ 3,478,309 5,860,089
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PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $7,975,164 and $5,705,685............... 58,029,040 55,486,285
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OTHER ASSETS:
Deferred costs, net of accumulated amortization
of $520,893 and $239,436.............................. 1,366,541 1,645,090
Other .................................................. 297,597 179,485
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Total other assets .................................. 1,664,138 1,824,575
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Total assets ........................................ $ 63,171,487 $ 63,170,949
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 2,595,430 $ 1,452,940
Accrued expenses ....................................... 4,310,629 2,547,615
Current maturities of contracts and notes payable ...... 3,385,684 3,115,522
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Total current liabilities ........................... 10,291,743 7,116,077
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LONG-TERM DEBT, less current portion ...................... 41,066,695 40,909,523
CONTRACTS AND NOTES PAYABLE, less current portion ......... 2,213,737 3,400,234
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Total liabilities ................................... 53,572,175 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 .................................... (12,842,950) (10,697,147)
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Total shareholders' equity .......................... 9,599,312 11,745,115
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Total liabilities and shareholders' equity .......... $ 63,171,487 $ 63,170,949
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</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED JUNE 30,
THREE MONTHS NINE MONTHS
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES:
Casino .............................. $ 6,180,026 $ 4,818,014 $ 16,768,301 $ 11,235,002
Rooms................................ 2,931,410 2,503,770 9,202,236 4,529,924
Food and beverage.................... 1,863,847 1,190,551 5,102,168 2,860,986
Other................................ 407,606 296,920 1,342,317 515,505
------------- ------------ ------------- -------------
Gross revenue ................... 11,382,889 8,809,255 32,415,022 19,141,417
------------- ------------ ------------- -------------
Less promotional allowances............. (487,569) (395,126) (1,605,950) (908,903)
------------- ------------ ------------- -------------
10,895,320 8,414,129 30,809,072 18,232,514
COSTS AND EXPENSES:
Casino............................... 3,836,840 2,927,170 10,128,534 7,480,104
Rooms................................ 1,407,833 1,114,797 3,843,622 2,228,916
Food and beverage.................... 2,133,139 1,121,911 5,328,668 2,901,228
Other................................ 48,073 73,693 178,713 112,144
Selling, general and administrative.. 2,087,640 1,322,817 5,480,296 3,103,491
Depreciation and amortization........ 902,994 675,196 2,550,936 1,642,965
------------- ------------ ------------- -------------
10,416,519 7,235,584 27,510,769 17,468,848
------------- ------------ ------------- -------------
Income (loss) from operations.......... 478,801 1,178,545 3,298,303 763,666
------------- ------------ ------------- -------------
OTHER (INCOME) EXPENSE:
Interest income...................... (1,254) (34,974) (78,520) (386,338)
Interest expense..................... 2,042,393 1,856,439 6,029,913 6,006,479
Interest capitalized................. (105,000) (186,429) (507,286) (1,256,064)
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1,936,139 1,635,036 5,444,107 4,364,077
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Income (loss) before income taxes (1,457,338) (456,491) (2,145,804) (3,600,411)
Income tax provision.................... - - - -
------------- ------------ ------------- -------------
Net income (loss)....................... $ (1,457,338) $ (456,491) $ (2,145,804) $ (3,600,411)
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EARNINGS (LOSS) PER SHARE .............. $ (.20) $ (.07) $ (.30) $ (.58)
------------- ------------ ------------- -------------
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WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING................... 7,179,429 6,503,820 7,179,429 6,222,142
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</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ (2,145,804) $ (3,600,411)
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Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization ......................... 2,550,936 1,636,037
Amortization of original issue discount ................ 157,102 543,702
Changes in operating assets and liabilities
(Increase) decrease in receivables ................. (61,680) (169,690)
(Increase) decrease in inventory .................... (39,589) (57,032)
(Increase) decrease in prepaid expenses ............. (347,936) (186,321)
Increase (decrease) in payables and accrued expenses. 2,905,505 (1,797,044)
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Net cash provided (used) by operating activities ......... 3,018,534 (3,630,759)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (4,322,939) (19,859,678)
(Increase) decrease in restricted cash equivalents ..... - 17,022,143
(Increase) decrease in deferred costs .................. - (246,710)
(Increase) decrease in other assets .................... (118,112) 51,991
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Net cash provided (used) by investing activities ......... (4,441,051) (3,032,254)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes and contracts payable....... (2,008,468) (2,836,353)
Proceeds from borrowings, net of issuance costs ........ 600,000 5,027,893
Principal payments of long-term debt ................... - (515,320)
Proceeds from issuance of common stock and warrants..... - 3,007,175
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Net cash provided (used) by financing activities ......... (1,408,468) 4,683,395
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Net increase (decrease) in cash .......................... (2,830,985) (1,979,618)
Cash and equivalents, beginning of period ................. 4,772,549 3,650,236
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Cash and equivalents, end of period ....................... $ 1,941,564 $ 1,670,618
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ................................... $ 4,291,376 $ 4,265,912
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquisitions financed by
contracts payable ...................................... $ 492,203 $ 1,208,240
Property and equipment acquisitions financed by
long-term debt ......................................... - 231,822
Discount associated with common stock and
warrants issued with bridge loan financing ............. - 372,900
</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 June 30, 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 nine months ended June 30, 1996
financial statements have been reclassified to conform with the quarter and
nine months ended June 30, 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 $2,375,000 as of June 30,
1997, leaving an unexpended balance of approximately $180,000.
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 was 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 $2,145,804 and $3,600,411 for the nine
months ended June 30, of 1997 and 1996, respectively, and has a working
capital deficiency of approximately $6,813,434 at June 30, 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 semi-annual 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 $2,375,000 as of June 30,
1997, leaving an unexpended balance of approximately $180,000.
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 was 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% annual 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.
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.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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, with the
majority shareholders, 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 $2,534,637 or 332% to $3,298,303 for
the nine months ended June 30, 1997 compared to an operating income of
$763,666 for the nine months ended June 30, 1996. The results of operations
for the third quarter ended June 30, 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
and the meeting rooms in late June 1997. A general contractor had been
engaged for both construction activities. The buffet construction cost
approximately $2,555,000 to complete and the meeting rooms cost approximately
$638,000 to complete. The Company has expended approximately $2,933,000 as of
June 30, 1997, leaving an unexpended balance of approximately $260,000.
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 JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
The Company had income from operations of $478,801 in the third quarter
of 1997 compared to $1,178,545 in the third quarter of the prior year, a
decrease of $699,744 or 59.4%.
The $699,744 decrease in operating income was primarily due to a greater
increase in cost and expenses than the associated increase in revenues. The
third quarter net revenues were $10,895,320 compared to $8,414,129 for the
same period in fiscal 1996, an increase of 29.5% ($2,481,191). Total costs
and expenses increased 44.0% ($3,180,935) to $10,416,519 for the third
quarter in fiscal 1997, from $7,235,584 during the same period in fiscal 1996.
CASINO OPERATIONS
Gaming revenues increased 28.3% ($1,362,012) to $6,180,026 for the third
quarter in fiscal 1997, from $4,818,014 when compared to the same period in
fiscal 1996. The increase was primarily due to: (i) increased slot machine
revenue of $514,528 (24.2%) to $2,638,456 for the current quarter from
$2,123,928 for the third quarter last year, (ii) increased table game play
generated an additional $246,682 (37.2%) to $910,243 in
<PAGE>
revenue for the current quarter from $663,561 for the third quarter last year
and (iii) race and sports revenue increased $600,802.
Casino expenses increased $909,670 (31.1%) to $3,836,840 for third
quarter in fiscal 1997 from $2,927,170 for the same period of 1996. The
increase in casino expenses were primarily due to: (i) additional payroll
expenses of $407,417, (ii) additional gaming taxes of $165,647, (iii)
additional race wire fees of $236,349, (iv) increase in slot participation
expenses of $75,058 and (v) the cost of providing complimentary services
increased $64,894.
ROOM OPERATIONS
Gross room revenues increased $427,640 or 17.1%, to $2,931,410 for the
third quarter 1997 from $2,503,770 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 3,674 (6.6%) to 59,224 room nights
available for the current quarter from 55,550 for the same period of last
year. Room nights occupied increased 6,188 (14.5%) to 48,784 room nights
occupied for the third quarter of fiscal year 1997 from 42,596 for the same
period of 1996. The occupancy percentage increased to 82.4% for the third
quarter of 1997 compared to 76.7% for the same period of fiscal 1996. The
average room rate for the current period was relatively flat with the
comparable period a year ago at approximately $58.00.
Promotional allowance for rooms increased $35,473 (72.4%) to $84,449
for the current period compared to $48,976 for the same period of 1996. The
increase in promotional or complimentary rooms to qualified individuals was
due to additional targeted marketing programs. Net room revenues increased
$392,167 or 16.0% to $2,846,961 for the third quarter of fiscal 1997 from
$2,454,794 for the same period of 1996.
Hotel expenses increased $293,036 or 26.3%, to $1,407,833 for third
quarter 1997 from $1,114,797 for the same period of 1996. The increased
expenses reflect an increase in wages and franchise fees and the expanded
support services necessary to handle the 14.5% increase in occupied room
nights as follows; (i) personnel costs increased $190,898, (ii) Franchise and
Holiday Inn-Registered Trademark- promotional fees increased $51,038, (iii)
additional linen, laundry and room supplies totaled $15,857, (iv) additional
credit card fees of $9,997 and (v) increased travel agent fees of $43,121.
The gross increases were offset by the allocation of promotional allowance
costs. These promotional costs increased by $35,473 and were removed from
hotel expenses and reclassified to other departments or capitalized as part
of construction activities.
<PAGE>
FOOD AND BEVERAGE OPERATIONS
Gross food and beverage revenues increased $673,296 or 56.6%, to
$1,863,847 for the third quarter 1997 from $1,190,551 for the comparable
quarter in fiscal 1996. The increase in gross food and beverage revenues was
attributable to the following: (i) the opening in late March 1997 of the new
second floor buffet with sales of $516,560 an increase of $441,440 in
revenues over the new first floor breakfast buffet, which was closed in late
March 1997, (ii) snack bar and ice cream parlor sales increased $104,938,
(iii) increase in beverage sales of $56,436, (iv) increase in banquet
facility sales of $43,125 and (vi) room service sales increased $17,257.
Promotional allowance for food and beverage increased $56,970 (16.5%) to
$403,120 for the current period compared to $346,150 for the same period of
1996. Net food and beverage revenues increased $616,326 or 73.0% to
$1,460,727 for the third quarter of fiscal 1997 from $844,401 for the same
period of 1996.
Food and beverage expenses increased $1,011,228, or 90.1%, to $2,133,139
for third quarter 1997 from $1,121,911 for the same period of fiscal 1996.
The increase in expenses was attributable to the following: (i) the staffing
requirements, cost of sales and other operating expenses associated with the
new second floor buffet were $700,841, net of complimentary
reclassifications, (ii) coffee shop and room service costs, net of
complimentary reclassifications, increased $133,571, (iii) snack bar and ice
cream parlor costs increased $94,177, (iv) administrative personnel costs and
other operating expenses increased $48,570, (v) and beverage costs increased
$38,098. These were offset by the elimination of the first floor buffet
accounting for a $31,996 decrease.
Food and beverage expenses as a percentage of gross food and beverage
revenues increased to 114.4% for the third quarter of fiscal 1997 from 94.2%
for the same period of 1996. This increase is a direct result of
overstaffing in conjunction with the opening of the new second floor buffet.
Management has made significant reductions in the staffing of the buffet
starting in mid June 1997.
OTHER REVENUES AND EXPENSES
Other revenues increased $110,686, or 37.3%, to $407,606 for the third
quarter 1997 from $296,920 for the same period of fiscal 1996. The increase
of other revenues consists principally of the following: (i) increased rents
from retail space of $99,287, (ii) additional fees of $4,488 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 decreased $25,620, or 34.8%, to $48,073 for the third
quarter 1997 from $73,693 for the same period of fiscal 1996. The decrease of
other expenses is
<PAGE>
principally due to reduced costs associated with revenues from telephone
calls by guests, movies and vending revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $764,823, or
57.8%, to $2,087,640 for third quarter 1997 from $1,322,817 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 $181,500, (ii) executive, administrative, security, count teams and
porters salaries were increased at a cost of $66,568, (iii) advertising and
promotional costs increased $304,208, (iv) utilities expense increased
$42,531, (v) legal and professional fees increased by $93,929 and (vi)
facility repairs and supplies increased by $106,424. Net decreases in
various accounts offset the listed increases.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $902,994 in the third quarter in
fiscal 1997, reflecting a $227,798 (33.7%) increase over the second quarter
in fiscal 1996 amount of $675,196 due to the depreciable costs of the hotel
tower with furnishings, parking garages, 2nd floor buffet area, improvements
to facilities and additional casino equipment.
OTHER INCOME AND EXPENSES
Interest income decreased $33,720 to $1,254 in the third quarter of
fiscal 1997 compared to $34,974 for the third 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.
Net interest expense increased to $1,937,393 in the third quarter of
fiscal 1997 from $1,670,010 in the third quarter of fiscal 1996.
Approximately $105,000 of interest was capitalized in the third quarter of
fiscal year 1997 in connection with the Expansion, compared to $186,429 for
the same period of 1996. The expenditures of the second floor meeting rooms
area gave rise to the capitalized interest in the current quarter while the
construction activities on the 2nd floor of the casino gave rise to the
capitalized interest for the second quarter of fiscal 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.
<PAGE>
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
The Company's income from operations increased 331.9% ($2,534,637) to an
operating income of $3,298,303 for the first nine months of fiscal 1997, from
an operating income of $763,666 when compared to the same period in fiscal
1996. The increase in operating income is primarily due to net revenues
increasing 69.0% ($12,576,558) to $30,809,072 for the first nine months of
fiscal 1997, from $18,232,514 during the same period in fiscal 1996. Costs
and expenses increased by 57.5% ($10,041,921) to $27,510,769 for the first
nine months of fiscal 1997 from $17,468,848 when compared to the same period
in fiscal 1996.
CASINO OPERATIONS
Gaming revenues increased 49.3% ($5,533,299) to $16,768,301 for the first
nine months of fiscal 1997, from $11,235,002 when compared to the same period
in fiscal 1996. The increase in revenue was due to: (i) increased slot
machine revenue of $2,619,251, (ii) increased race and sports book revenue of
$1,763,125 and (iii) increased table game revenue of $1,150,923.
Casino expenses increased 35.4% ($2,648,430) to $10,128,534 for first
nine months 1997 from $7,480,104 for the same period of 1996. The increase in
casino expenses were due to: (i) additional payroll expenses of $717,942,
(ii) additional gaming taxes of $679,073, (iii) additional race wire fees
of $895,218 (iv) the cost of providing complimentary services increased
$207,242, (v) promotional costs increased $130,323 and (vi) participation
expenses increased by $175,558. The increases were primarily offset by a
decrease in incentive programs of $179,232.
ROOM OPERATIONS
Room revenues increased $4,672,312 or 103.1%, to $9,202,236 for the first
nine months of 1997 from $4,529,924 for the comparable period in fiscal 1996.
Room nights available increased 78,547 (78.9%) to 178,070 room nights
available for the first nine months of fiscal year 1997 from 99,523 for the
same period of last year. Room nights occupied increased 69,224 (94.3%) to
142,638 room nights occupied for the first nine months of fiscal year 1997
from 73,414 for the same period of 1996. The occupancy percentage increased
to 80.1% for the first nine months of 1997 compared to 73.8% for the same
period of fiscal 1996. The average room rate increased by $2.49 to $62.65
for the current period.
Promotional allowance for rooms increased $153,077 (135.2%) to $266,289
for the current period compared to $113,212 for the same period of 1996.
The increase in
<PAGE>
promotional or complimentary rooms to qualified individuals was do to the
increase in available rooms from the completed hotel tower. Net room
revenues increased $4,519,235 or 102.3% to $8,935,947 for the first nine
months of fiscal 1997 from $4,416,712 for the same period of 1996.
Room expenses increased $1,614,706 or 72.4%, to $3,843,622 for first nine
months of 1997 from $2,228,916 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 $1,056,724, (ii)
increased franchise fees of $381,203, (iii) additional linen, laundry and
room supplies totaled $138,168, (iv) additional credit card fees of $91,737
and (v) increased travel agent fees of $109,812. The gross increases were
offset by the increase in promotional allowances of $153,077 that were
reclassified to other departments.
FOOD AND BEVERAGE OPERATIONS
Gross food and beverage revenues increased $2,241,182 or 78.3%, to
$5,102,168 for the first nine months of 1997 from $2,860,986 for the
comparable period in fiscal 1996. The increase in gross food and beverage
revenues was attributable to the following: (i) the opening in late March
1997 of the second floor buffet with sales of $596,899, (ii) the coffee shop
and room service increased sales by $447,235, (iii) snack bar and ice cream
parlor sales increased $386,630, (iv) increase in beverage sales of $616,437,
(iv) increase in banquet facility sales of $84,022 and (vi) the first floor
buffet increased sales by $63,360 before closing in late March 1997.
Promotional allowance for food and beverage increased $543,971 (68.4%) to
$1,339,662 for the current period compared to $795,691 for the same period of
1996. Net food and beverage revenues increased $1,697,211 or 82.2% to
$3,762,506 for the nine months ending June 30, 1997 from $2,065,295 for the
same period last year.
Food and beverage expenses increased $2,427,440, or 83.7%, to $5,328,668
for the first three quarters of 1997 from $2,901,228 for the same period of
fiscal 1996. The increase in expenses was attributable to the following: (i)
the staffing requirements, cost of sales and other operating expenses
associated with the new second floor buffet were $799,467, (ii) the coffee
shop and room service costs increased $995,223, (iii) snack bar and ice cream
parlor costs increased $296,847, (iv) administrative personnel costs and
expenses for food and beverage department increased $124,465, and (v)
beverage costs increased $151,534.
Food and beverage expenses as a percentage of gross food and beverage
revenues increased to 104.4% for the first nine months of fiscal 1997 from
101.4% for the same period of 1996.
<PAGE>
OTHER REVENUES
Other revenues increased $826,812 or 160.4%, to $1,342,317 for first nine
months of fiscal 1997 from $515,505 for the same period of fiscal 1996. The
increase of other revenues consist principally of rents on retail space of
$456,271, fees for telephone calls from guest rooms increased $134,414, movie
revenue increased $51,779, commissions increased by $107,680, guest laundry
revenues increased $14,465 and the remaining $62,203 in revenue, from various
vending machines, equipment rentals and other services.
Other expenses increased $66,569, or 59.4%, to $178,713 for first nine
months of fiscal 1997 from $112,144 for the same period of fiscal 1996. The
increase of other expenses is principally due to reduced costs associated
with revenues from telephone calls by guests, movies and vending revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $2,376,805, or
76.6%, to $5,480,296 for first nine months of fiscal 1997 from $3,103,491
for the same period of fiscal 1996. The increase was due primarily to (i)
advertising and promotional costs increased $745,712, (ii) a master lease on
the adjacent building housing the administrative staff increased rent expense
by $554,625, (iii) executive, administrative, security, count teams and
porters salaries were increased at a cost of $481,441 of which $250,482 in
outside security services were reflected in 1996 under casino expenses, (iv)
utilities expense increased $209,136, (v) legal and professional fees
increased by $205,724, and (vi) facility repairs and supplies increased by
$156,213.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $2,550,936 in the first nine months
of fiscal 1997, reflecting a $907,971 (55.3%) increase over the first nine
months of fiscal 1996 amount of $1,642,965. The increase is due to the
completion of the new hotel facility, completion of the second floor buffet
area, the second parking garage, hotel furnishings and fixtures, slot
machines and casino related equipment.
OTHER INCOME AND EXPENSES
Interest income decreased 80.0%, ($309,072) to $77,266 in the first nine
months of fiscal 1997 from $386,338 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
<PAGE>
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 $5,521,373 in the first nine months of
fiscal 1997 from $4,750,415 in the first nine months of fiscal 1996.
Approximately $507,286 of interest was capitalized in the first half of
fiscal year 1997 in connection with the construction of the 2nd floor buffet
and meeting rooms compared to $1,256,064 capitalized in the first half of
fiscal year 1996 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 $1,941,564 (3.1% of total
assets) at June 30, 1997 compared to $4,772,549 (7.6% of total assets) at
September 30, 1996. The ratio of current assets to current liabilities was
.34 to 1 at June 30, 1997 and .82 to 1 at September 30, 1996.
Although operating activities provided cash flow in 1997 of $3,018,534,
of which $1,650,000 is the result of the increase in accrued interest , the
Company had a working capital deficit of $6,813,434 at June 30, 1997. The
deficit is primarily due to obligations due under short-term financing
arrangements.
Investing activities for fiscal 1997 used approximately $4.4 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 $2,008,000 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, completed
in June 1997, 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 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.
<PAGE>
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 $2,375,000 as of June 30,
1997, leaving an unexpended balance of approximately $180,000.
The Company engaged a general contractor for the construction activities
relating to the meeting rooms at a cost of $638,000. The project was
completed in late June of 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% annual interest payable monthly with 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.
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.
<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 - None
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 08/12/97 Forrest Woodward II
------------------------------
President and
Chief Operating Officer
Date 08/12/97 Louis J. Sposato
------------------------------
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,941,564
<SECURITIES> 0
<RECEIVABLES> 504,758
<ALLOWANCES> 3,221
<INVENTORY> 113,308
<CURRENT-ASSETS> 3,478,309
<PP&E> 66,004,204
<DEPRECIATION> 7,975,164
<TOTAL-ASSETS> 63,171,487
<CURRENT-LIABILITIES> 10,291,743
<BONDS> 43,280,432
0
0
<COMMON> 7,179
<OTHER-SE> 9,592,133
<TOTAL-LIABILITY-AND-EQUITY> 63,171,487
<SALES> 3,764,553
<TOTAL-REVENUES> 30,809,072
<CGS> 2,792,632
<TOTAL-COSTS> 27,510,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,522,627<F1>
<INCOME-PRETAX> (2,145,804)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,145,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,145,804)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
<FN>
<F1>Net of interest capitalized of $507,286
</FN>
</TABLE>
