<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q\A
Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For Quarter Ended: DECEMBER 31, 1997 Commission file number 1-12780
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BOARDWALK CASINO, INC.
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(Exact name of registrant 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 December 31, 1997
- ----------------------------- --------------------------------
Common Stock, $.001 par value 7,179,429
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
BOARDWALK CASINO, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
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(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 1,972,100 $ 2,236,018
Receivables, net of allowance for doubtful
accounts of $13,276 and $8,276. . . . . . . . . . . . . . . . . . . . . 1,306,443 1,258,170
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,945 130,436
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,900 746,965
--------------- ---------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 4,121,388 4,371,589
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PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $9,750,112 and $8,885,392 . . . . . . . . . . . . . . . . 56,532,818 57,305,457
--------------- ---------------
OTHER ASSETS:
Deferred costs, net of accumulated amortization
of $721,589 and $583,158. . . . . . . . . . . . . . . . . . . . . . . . 1,278,330 1,416,761
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,385 173,385
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,968 100,969
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Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,552,683 1,691,115
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Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,206,889 $ 63,368,161
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--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,378,595 $ 1,520,268
Construction accounts payable. . . . . . . . . . . . . . . . . . . . . . 39,390 461,126
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,177,770 3,224,525
Accrued interest expense . . . . . . . . . . . . . . . . . . . . . . . . 1,723,493 3,426,870
Related party payables . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 400,000
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 600,000
Current portion of obligations under capital leases. . . . . . . . . . . 2,073,304 2,517,920
Term debt classified as current, net of original issue
discount of $3,815,476 and $3,875,773. . . . . . . . . . . . . . . . . 41,184,524 41,124,227
--------------- ---------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 50,077,076 53,274,936
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Obligations under capital leases, less current portion . . . . . . . . . 1,457,403 1,833,477
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Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 51,534,479 55,108,413
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COMMITMENTS AND CONTINGENCIES
Series A Redeemable Preferred stock, par value $.001, authorized
18,250 shares; 3,250 shares issued and outstanding. . . . . . . . . . . . 3,250,000 -
--------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 14,981,750 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 . . . . . . . . . . . . . . . . . . . . . . . 22,405,083 22,435,083
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . (14,989,852) (14,182,514)
--------------- ---------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 7,422,410 8,259,748
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Total liabilities and shareholders' equity . . . . . . . . . . . . . . $ 62,206,889 $ 63,368,161
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--------------- ---------------
</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
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<S> <C> <C>
REVENUES:
Casino . . . . . . . . . . . . . . . . . . . . $ 6,395,768 $ 5,219,626
Rooms. . . . . . . . . . . . . . . . . . . . . 3,145,440 3,278,229
Food and beverage. . . . . . . . . . . . . . . 1,657,166 1,484,656
Other. . . . . . . . . . . . . . . . . . . . . 433,338 476,186
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Gross revenue. . . . . . . . . . . . . . . . 11,631,712 10,458,697
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Less promotional allowances. . . . . . . . . . . (467,732) (513,845)
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11,163,980 9,944,852
COSTS AND EXPENSES:
Casino . . . . . . . . . . . . . . . . . . . . 4,151,173 3,145,333
Rooms. . . . . . . . . . . . . . . . . . . . . 1,254,340 1,205,274
Food and beverage. . . . . . . . . . . . . . . 1,661,358 1,519,699
Other. . . . . . . . . . . . . . . . . . . . . 67,464 76,416
Selling, general and administrative. . . . . . 1,796,198 1,668,680
Depreciation and amortization. . . . . . . . . 1,003,150 823,204
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9,933,683 8,438,606
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Income (loss) from operations. . . . . . . . . . 1,230,297 1,506,246
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OTHER (INCOME) EXPENSE:
Interest income. . . . . . . . . . . . . . . . (326) (41,101)
Interest expense . . . . . . . . . . . . . . . 2,004,303 1,964,157
Interest capitalized . . . . . . . . . . . . . - (192,286)
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2,003,977 1,730,770
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Income (loss) before income taxes. . . . . . . . (773,680) (224,524)
Income tax provision . . . . . . . . . . . . . . - -
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Net income (loss). . . . . . . . . . . . . . . . (773,680) (224,524)
Preferred stock dividends. . . . . . . . . . . . (33,658) -
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Net income (loss) applicable to common stock . . $ (807,338) $ (224,524)
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BASIC EARNINGS PER COMMON SHARE:
Net income (loss). . . . . . . . . . . . . . . $ ( .11) $ ( .11)
Net income (loss) applicable to common stock . ( .11) ( .11)
DILUTED EARNINGS PER COMMON SHARE:
Net income (loss). . . . . . . . . . . . . . . ( .11) ( .11)
Net income (loss) applicable to common stock . ( .11) ( .11)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . 7,179,429 7,179,429
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</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (773,680) $ (224,524)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 1,003,150 823,204
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . 5,000 --
Amortization of original issue discount . . . . . . . . . . . . . . . 60,297 49,194
Changes in operating assets and liabilities
(Increase) decrease in receivables. . . . . . . . . . . . . . . . (53,273) (357,968)
(Increase) decrease in inventory . . . . . . . . . . . . . . . . . (61,509) (15,897)
(Increase) decrease in prepaid expenses. . . . . . . . . . . . . . 96,065 (145,072)
Increase (decrease) in payables and accrued expenses . . . . . . . (2,347,197) 1,616,847
----------- -----------
Net cash provided (used) by operating activities . . . . . . . . . . . . (2,071,147) 1,745,784
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . (92,081) (1,091,843)
(Increase) decrease in deferred costs . . . . . . . . . . . . . . . . -- (2,788)
----------- -----------
Net cash provided (used) by investing activities . . . . . . . . . . . . (92,081) (1,094,631)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of notes and contracts payable . . . . . . . . . . (600,000) (421,540)
Related party payables. . . . . . . . . . . . . . . . . . . . . . . . 100,000 --
Principal payments of capital lease obligations . . . . . . . . . . . (820,690) (207,797)
Issuance of preferred stock, net of issuance costs. . . . . . . . . . 3,220,000 --
----------- -----------
Net cash provided (used) by financing activities . . . . . . . . . . . . 1,899,310 (629,337)
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Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . (263,918) 21,816
Cash and equivalents, beginning of period. . . . . . . . . . . . . . . . . 2,236,018 4,772,549
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Cash and equivalents, end of period. . . . . . . . . . . . . . . . . . . . $ 1,972,100 $ 4,794,365
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,647,382 $ 155,874
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquisitions financed by
contracts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 92,832
</TABLE>
See notes to financial statements.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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, 1997. 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 December 31, 1997, are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 1998.
<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 ended December 31, 1996 financial
statements have been reclassified to conform with the quarter ended December
31, 1997.
2. ACQUISITION AGREEMENT, GOING CONCERN AND MEMORANDUM OF UNDERSTANDING:
On December 22, 1997, the Company entered into a merger and acquisition
agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated
("Mirage") where the Company agreed to be acquired by Mirage Resorts. In
connection with the Acquisition Agreement, Mirage has entered into separate
purchase agreements (the "Stock Agreements") with certain selling
shareholders of the Company to purchase their respective shares of common and
preferred stock. The Stock Agreements, which are subject to regulatory
approval, provide Mirage with an approximate 53% interest in the Company.
The Acquisition Agreement also authorizes Mirage to purchase all of the
remaining outstanding shares (the remaining 47% interest) of the Company's
common stock for $5.00 per share (the closing price of the Company's common
stock on the day prior to the execution of the Acquisition Agreement was
$4.16). Completion of the Acquisition Agreement is subject to regulatory
approval and approval of a majority of the Company's shareholders and is to
be completed by no later than June 30, 1998 or the Acquisition Agreement is
subject to termination and the Company will become liable to Mirage for
$1,000,000. Under the terms of the Stock Agreements, the selling
shareholders have agreed with Mirage to vote in favor of the Acquisition
Agreement, should such vote take place prior to the closing of Stock
Agreements.
Under the terms of the Acquisition Agreement, all issued and outstanding
warrants and stock options (other than options issued under the Company's 1994
Stock Compensation Plan or Outside Director's Plan) will terminate or constitute
only the right to receive the excess, if any, of the per share Merger
consideration ($5.00) over the per share exercise price of such warrant or
option.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. ACQUISITION AGREEMENT, GOING CONCERN AND MEMORANDUM OF UNDERSTANDING,
CONTINUED:
As part of the Stock Agreements, Mirage (i) purchased from one of the
selling shareholders the $5,000,000 note payable by the Company and due on
September 30, 1998 and (ii) acquired a land parcel from one of the selling
stockholders which is adjacent to the Company's hotel-casino and currently
under lease to the Company. One of the selling shareholders has agreed to
terminate rights granted under the Memorandum of Understanding executed in
October 1997, for consideration of approximately $3,700,000 from Mirage.
During fiscal 1997, and prior to the execution of the Acquisition
Agreement and the Stock Agreements, Mirage acquired the $40,000,000 First
Mortgage Notes (the "BCI Notes") from the previous noteholder in a private
placement transaction. In connection with the Acquisition Agreement, Mirage
has agreed to defer the March 31, 1998 interest payment on the BCI Notes
until September 30, 1998, at the Company's option (the "Deferral Option").
Interest will accrue on the deferred interest at the same rate as the BCI
Notes (16.5%) and will also be due and payable on September 30, 1998. On
March 26, 1998, the Company exercised its Deferral Option in the amount of
$2,000,000. Mirage also waived its redemption rights under the BCI Notes
which become effective upon a change in control.
Notwithstanding the Deferral Option, management of the Company believes
that the combination of existing cash and cash flows from operations will not be
sufficient to meet the Company's obligations as they become due during fiscal
1998. These obligations include scheduled interest payments on the BCI Notes
(approximately $6,600,000 for the year) and the scheduled interest and
principal repayment on the $5,000,000 note payable due September 30, 1998.
Management expects that the need for cash will be significantly relieved upon
completion of the Acquisition Agreement and merger with Mirage. However, as
more fully described above, the Acquisition Agreement is subject to certain
conditions, including regulatory and shareholder approvals. Should the
Acquisition Agreement not be approved, or should the closing be delayed, the
Company would not have sufficient resources to pay interest and scheduled
principal of the indebtedness acquired by Mirage, without modification of the
terms of such indebtedness.
There is no assurance that the Acquisition Agreement will be approved,
that such approval would be received on a timely basis, nor that
modifications to the terms of the indebtedness would be obtained, if
necessary. Accordingly, these matters raise substantial doubt about the
ability of the Company to continue as a going concern. The final outcome of
these matters is not presently determinable and the December 31, 1997
financial statements of the Company do not include any adjustment that might
result from the outcome of this uncertainty.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
2. ACQUISITION AGREEMENT, MEMORANDUM OF UNDERSTANDING AND GOING CONCERN,
CONTINUED:
MEMORANDUM OF UNDERSTANDING AND SALE OF REDEEMABLE PREFERRED STOCK
On October 27, 1997, the Company entered into a Memorandum of
Understanding (the "Memorandum"). A major shareholder had previously lent
the Company $5,000,000 under a note payable due September 23, 1998. Under
the terms of the Memorandum, the shareholder purchased preferred stock of the
Company and acquired a right to purchase additional shares of preferred
stock. The Memorandum called for the Company to issue 3,250 shares of $.001
par value, 6% non-voting, cumulative redeemable preferred stock, series A
("Preferred Stock") at a price of $1,000 per share to certain related
parties. The offering generated proceeds of $3,250,000, before deducting
offering costs of $30,000 paid by the Company, from the preferred stock
issuance which were used to make the Company's September 30, 1997
interest payment in relation to the BCI Notes and retire a $600,000
uncollateralized note payable.
The Preferred Stock has a liquidation preference over the Company's
common stock in the event of liquidation and the Company shall be permitted
to redeem the Preferred Stock upon the written request of any holder thereof
on or after April 1, 2005 at a price of $1,000 per share, plus all accrued
and unpaid dividends.
The Memorandum includes an option issued to one of the above related
parties to purchase up to an additional 15,000 shares of Preferred Stock at a
purchase price of $1,000 per share. The option expires on September 29, 1999.
The Memorandum also restricts the Company from modifying, extending or changing
the strike price of the terms of any of the warrants to purchase common stock
outstanding as of the date of the Memorandum.
The shareholder also agreed to undertake a feasibility study of a $20
million development on the land (the "Project"), with a termination fee of $2
million payable by the Company to the shareholder upon the occurrence of
certain events which interfere with or negatively impact the Project.
On December 22, 1997, the shareholder agreed to terminate all rights
granted under the Memorandum for consideration of approximately $3,700,000
from Mirage.
<PAGE>
BOARDWALK CASINO, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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. 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 or will not have a material adverse effect on the
Company's financial position or results of operation or cash flows.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q 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).
RESULTS OF OPERATIONS
Income from operations has decreased $275,949 or 18.3% to $1,230,297 for
the three months ended December 31, 1997 compared to income from operations
of $1,506,246 for the three months ended December 31, 1996. The results of
operations for the first quarter ended December 31, 1997 reflects the
increased competition with hotel room rates and the effects of an increase in
the minimum wage rate, non reoccurring legal fees of $139,000 and
depreciation expense increased approximately $180,000.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996
The Company had income from operations of $1,230,297 in the first
quarter of 1998 compared to income from operations of $1,506,246 in the first
quarter of prior year, a decrease of $275,949.
The $275,949 decrease in operating income was primarily due to a greater
increase in expenses than the associated increase in revenues. The first
quarter net revenues were $11,163,980 compared to $9,844,852 for the same
period in fiscal 1997, an increase of 12.3% ($1,219,128). Total costs and
expenses increased 17.7% ($1,495,077) to $9,933,683 for the first quarter in
fiscal 1998, from $8,438,606 during the same period in fiscal 1997.
CASINO OPERATIONS
Gaming revenues increased 22.5% ($1,176,142) to $6,395,768 for the first
quarter in fiscal 1998, from $5,219,626 when compared to the same period in
fiscal 1997. The increase was due to: (i) increased race and sports book
activity that generated an additional $940,504 (47.8%) to $2,906,548 in
revenue for the current quarter from $1,966,044 for the first quarter last
year, (ii) increased slot machine revenue of $282,978 (11.9%) to $2,665,999
for the current quarter from $2,383,021 for the first quarter last year and
(iii) table game revenues decreased $47,340 (5.4%).
Casino expenses increased $1,005,840 (32.0%) to $4,151,173 for first
quarter in fiscal 1998 from $3,145,333 for the same period of 1997. The
increase in casino expenses were due to: (i) additional race wire fees of
$527,484 (ii) additional labor costs of $155,320, (iii) additional slot
participation fees of $138,205, (iv) costs of providing promotional expenses
increased by $117,234 and (v) an increase in supplies of $41,827.
<PAGE>
ROOM OPERATIONS
Gross room revenues decreased $132,789 or 4.1%, to $3,145,440 for the
first quarter 1998 from $3,278,229 for the comparable quarter in fiscal 1997.
Room nights available were 58,437 for the current quarter and the same
period of last year. Room nights occupied increased 3.58% to 46,642 room
nights occupied for the first quarter of fiscal year 1998 from 45,747 for the
same period of 1997. The occupancy percentage increased to 79.8% for the
first quarter of 1998 compared to 76.4% for the same period of fiscal 1997.
The average room rate decreased $4.22 to $67.44 for the current period.
Promotional allowance for rooms increased $25,717 (33.6%) to $102,263
for the current period compared to $76,546 for the same period of 1997. Net
room revenues decreased $158,506 or 5.0% to $3,043,177 for the first quarter
of fiscal 1998 from $3,201,683 for the same period of 1997.
Hotel expenses increased $49,066 or 4.1%, to $1,254,340 for first
quarter 1998 from $1,205,274 for the same period of 1997. The sales
department and promotional programs account for the increase in expenses.
FOOD AND BEVERAGE OPERATIONS
Gross food and beverage revenues increased $172,510 or 11.6%, to
$1,657,166 for the first quarter 1998 from $1,484,656 for the comparable
quarter in fiscal 1997. The increase in gross food and beverage revenues was
primarily attributable to the opening of the second floor buffet in the later
part of the second quarter 1997.
Promotional allowance for food and beverage decreased $71,831 (16.4%)
to $365,468 for the current period compared to $437,299 for the same period
of 1997. Net food and beverage revenues increased $244,341 or 23.3% to
$1,291,698 for the first quarter of fiscal 1998 from $1,047,357 for the same
period of 1997.
Food and beverage expenses increased $141,659, or 9.3%, to $1,661,358
for first quarter 1998 from $1,519,699 for the same period of fiscal 1997.
This is the direct result of increased cost of sales and additional wages and
benefits resulting from the opening of the second floor buffet.
OTHER REVENUES AND EXPENSES
Other revenues decreased $42,848, or 9.0%, to $433,338 for the first
quarter 1998 from $476,186 for the same period of fiscal 1997. The decrease
of other revenues consists principally from the conversion of previous rental
space to gaming space.
Other expenses decreased $8,952, or 11.7%, to $67,464 for the first
quarter 1998 from $76,416 for the same period of fiscal 1997.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $127,518, or
7.6%, to $1,796,198 for first quarter 1998 from $1,668,680 for the same
period of fiscal 1997. Advertising expense increased $139,639 in conjunction
with the opening of the second floor buffet.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization totaled $1,003,150 in the first quarter in
fiscal 1998, reflecting a $179,946 (21.9%) increase over the first quarter in
fiscal 1997 amount of $823,204 due to the depreciable costs associated with
the completed second floor buffet and meeting rooms.
OTHER INCOME AND EXPENSES
Interest income decreased $40,775 to $326 in the first quarter of fiscal
1998 compared to $41,101 for the first quarter of 1997. Interest income
relates to the Company's investments in marketable securities, principally
U.S. treasury securities and short-term corporate commercial paper.
Interest expense increased to $2,004,303 in the first quarter of fiscal
1998 from $1,964,157 in the first quarter of fiscal 1997. Approximately
$192,286 of interest was capitalized in the first quarter of fiscal year 1997
in connection with the Expansion, compared to none for the same period of
1998. The expenditures of the second floor buffet and meeting rooms gave
rise to the interest capitalized in the first quarter fiscal 1997.
INCOME TAX PROVISION
No income tax benefit was recorded. The Company has incurred losses and
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 unrestricted cash assets of $1,972,100 (3.2% of total
assets) at December 31, 1997 compared to $2,236,018 (3.5% of total assets) at
September 30, 1997. The ratio of current assets to current liabilities was
.082 to 1 at December 31, 1997 and .082 to 1 September 30, 1997.
The Company's operations generated a negative cash flow of approximately
$2,071,141, due primarily to the October 29, 1997 payment of $3,300,000 in
interest payable September 30, 1997.
<PAGE>
Investing activities for fiscal 1997 used approximately $92,081 for various
equipment and improvements to the physical buildings.
Financing activities provided approximately $1,899,310 from the issuance
of preferred stock which raised $3,220,000 and $100,000 from a related party.
Such proceeds were offset by $1,420,690 of principal payments on long-term
debt notes payable and capital leases during fiscal 1997.
On December 22, 1997, the Company entered into a merger and acquisition
agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated
("Mirage") where the Company agreed to be acquired by and merge into Mirage.
In connection with the Acquisition Agreement, Mirage has entered into
separate purchase agreements (the "Stockholder Agreements") with certain
selling shareholders of the Company to purchase their respective shares of
common and preferred stock. The Stockholder Agreements, which are subject to
regulatory approval, provide Mirage with an approximate 53% interest in the
Company. The Acquisition Agreement also authorizes Mirage to purchase all of
the remaining outstanding shares (the remaining 47% interest) of the
Company's common stock for $5.00 per share (the closing price of the
Company's common stock on the day prior to the execution of the Acquisition
Agreement was $4.16). Completion of the Acquisition Agreement is subject to
regulatory approval and approval of a majority of the Company's shareholders
and is to be completed by no later than June 30, 1998 or the Acquisition
Agreement is subject to termination and the Company will become liable to
Mirage for $1,000,000. Under the terms of the Stockholder Agreements, the
selling shareholders have agreed with Mirage to vote in favor of the
Acquisition Agreement, should such vote take place prior to the closing of
Stock Agreements.
As part of the Stockholders Agreements, Mirage (i) on January 5, 1998
purchased from one of the selling shareholders the $5,000,000 note payable by
the Company which is due on September 30, 1998, and (ii) did acquire a land
parcel from one of the selling stockholders which is adjacent to the
Company's hotel-casino and currently under lease to the Company. One of the
selling shareholders has agreed to terminate rights granted under the
Memorandum of Understanding executed in October 1997, for consideration of
approximately $3,700,000 from the Mirage.
During fiscal 1997, and prior to the execution of the Acquisition
Agreement and the Stock Agreements, Mirage acquired the $40,000,000 First
Mortgage Notes (the "BCI Notes") from the previous noteholder in a private
placement transaction. In connection with the Acquisition Agreement, Mirage
has agreed to defer the March 31, 1998 interest payment on the BCI Notes
until September 30, 1998, at the Company's option (the "Deferral Option").
Interest will accrue on the deferred interest at the same rate as the BCI
Notes (16.5%) and will also be due and payable on September 30, 1998. On
March 26, 1998, the Company exercised its Deferred Option in the amount of
$2,000,000. Mirage also waived its redemption rights under the BCI Notes
which becomes effective upon a change in control.
<PAGE>
Notwithstanding the Deferral Option, management of the Company believes
that the combination of existing cash and cash flows from operations will not
be sufficient to meet the Company's obligations as they become due during
fiscal 1998. These obligations include scheduled interest payments on the
BCI Notes (approximately $6,600,000 for the year) and the scheduled interest
and principal repayment on the $5,000,000 note payable due September 30, 1998
amounting to approximately $5,400,000 and current maturities of short term
notes and lease obligations amounting to $2,073,000. Management expects that
the need for cash will be significantly relieved upon completion of the
Acquisition Agreement and merger with Mirage. However, as more fully
described above, the Acquisition Agreement is subject to certain conditions,
including regulatory and shareholder approvals. Should the Acquisition
Agreement not be approved, or should the closing be delayed, the Company
would not have sufficient resources to pay interest and scheduled principal
of the indebtedness acquired by Mirage, without modification of the terms of
such indebtedness.
There is no assurance that the Acquisition Agreement will be approved,
that such approval would be received on a timely basis, nor that
modifications to the terms of the indebtedness would be obtained, if
necessary. Accordingly, these matters raise substantial doubt about the
ability of the Company to continue as a going concern. The final outcome of
these matters is not presently determinable and the December 31, 1997
financial statements of the Company do not include any adjustments that might
result from the outcome of this uncertainty.
CERTAIN ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. SFAS 130 requires a separate
statement to report components of comprehensive income for each period
presented. The provisions of SFAS 130 are effective for fiscal years beginning
after December 15, 1997. Management believes that they currently do not have
items that would require presentation in a separate statement of
comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
SFAS 131 is effective for fiscal years beginning after December 15, 1997 and
requires restatement of earlier periods presented. SFAS 131 will not have a
material effect on the Company's financial statements as the required
information is either currently being presented by the Company or it is not
applicable to the Company.
<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 - On December 22, 1997, the
Registrant filed a report on Form 8-K reporting in Item 5 that
the Registrant and Mirage Resorts, Incorporated issued a press
release, a copy of which was attached thereto as Exhibit (c)(20).
<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.
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Registrant
Date 04/09/98 /s/ Forrest Woodward, II
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President and
Chief Operating Officer
Date 04/09/98 /s/ Louis J. Sposato
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Chief Financial Officer
