-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MqD4UOo9kVCrMHi+1BGw3zsZY24PlxMIzj5IfAZJDkMPCJK6jeD5t3Dxdql8DVeQ 2Z7qrafAACXRoZJ/iaAWzQ== 0000916608-99-000008.txt : 19991117 0000916608-99-000008.hdr.sgml : 19991117 ACCESSION NUMBER: 0000916608-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TREASURE BAY GAMING & RESORTS INC CENTRAL INDEX KEY: 0000916608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEMBERSHIP SPORTS & RECREATION CLUBS [7997] IRS NUMBER: 640835173 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-73362 FILM NUMBER: 99759168 BUSINESS ADDRESS: STREET 1: 1980 BEACH BLVD CITY: BILOXI STATE: MS ZIP: 39531 BUSINESS PHONE: 2283856026 MAIL ADDRESS: STREET 1: 1983 BEACH BLVD CITY: BILOX STATE: MS ZIP: 39531 10-Q 1 QUARTERLY FILING COMPANY IS NOT A SEC REGISTRANT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number 22-27770 TREASURE BAY GAMING & RESORTS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 64-0835173 (State of Incorporation) (IRS Employer Identification No.) 1983 Beach Blvd., Biloxi, Mississippi 39531 (Address of principal executive office) Shares of Common Stock outstanding at September 30, 1999: 10,000,000.
TREASURE BAY GAMING AND RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Unaudited Audited Sept. 30, 1999 Dec. 31, 1998 ------------------- ------------- CURRENT ASSETS Cash and cash equivalents $2,580 $5,014 Restricted Cash 58 57 Accounts receivable, net of allowance for doubtful accounts 1,173 2,680 Inventories 235 412 Prepaid expenses 827 697 ------------------- ---------------- Total current assets 4,873 8,860 ------------------- ---------------- PROPERTY AND EQUIPMENT, net 49,188 46,489 ------------------- ---------------- OTHER ASSETS 851 1,077 ------------------- ---------------- $54,912 $56,426 =================== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $2,095 $3,586 Accrued Salaries and benefits 1,873 1,539 Accrued Jackpots 799 893 Accrued taxes payable 1,233 1,796 Other accrued expenses 1,057 1,930 Accrued Interest 711 679 Current Portion LTD 2,043 1,627 ------------------- ---------------- Total Current Liabilities 9,811 12,050 ------------------- ---------------- LONG-TERM DEBT 44,257 39,823 Total liabilities 54,068 51,873 ------------------- ---------------- STOCKHOLDERS' EQUITY Common stock, $.01 par value, 20,000,000 shares authorized, 10,000,000 shares issued and outstanding 100 100 Additional paid in capital 47,382 47,382 Accumulated deficit (46,638) (42,929) ------------------- ---------------- Total stockholders' equity $844 $4,553 ------------------- ---------------- Total liabilities and stockholders' equity $54,912 $56,426 =================== ================
TREASURE BAY GAMING & RESORTS, INC & SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE) Three Months Ended Nine Months Ended -------------------------------------- -------------------------------------- September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998 REVENUES: Casino 13,580 16,920 43,967 45,806 Rooms 981 1,035 2,886 2,835 Food and beverages 2,993 3,173 8,787 8,497 Other 362 225 1,114 699 ------------------ ---------------- ----------------- ------------------ Gross Revenues 17,916 21,353 56,754 57,837 Less: Promotional allowances (2,401) (2,633) (6,983) (6,818) ------------------ ---------------- ----------------- ------------------ NET REVENUES 15,515 18,720 49,771 51,019 ------------------ ---------------- ----------------- ------------------ COSTS AND EXPENSES: Casino 7,061 7,942 23,565 22,664 Rooms 510 548 1,593 1,486 Food and beverages 2,707 2,869 8,525 7,608 General and administrative 3,633 3,246 10,415 10,313 Utilities 396 402 1,081 1,048 Depreciation and amortization 411 1,003 2,516 2,929 Other 225 220 668 556 ------------------ ---------------- ----------------- ------------------ Total Operating Expenses 14,943 16,230 48,363 46,604 ------------------ ---------------- ----------------- ------------------ Operating Income before Corporate Expense 572 2,490 1,408 4,415 ------------------ ---------------- ----------------- ------------------ Corporate Expense (420) (430) (1,182) (1,127) ------------------ ---------------- ----------------- ------------------ Operating Income after Corporate 152 2,060 226 3,288 ------------------ ---------------- ----------------- ------------------ Other income/expense: Gain/loss sale off assets (66) (18) (65) 72 Interest expense, (1,352) (1,187) (3,923) (3,578) Other income, principally interest 5 6 53 35 ------------------ ---------------- ----------------- ------------------ Total other income (expense) (1,413) (1,199) (3,935) (3,471) Income/(loss) before provision for income Taxes and Extraordinary Items: (1,261) 861 (3,709) (183) Provision for Income Tax 0 0 0 0 Net Income/(loss) ($1,032) 861 ($3,709) ($183) ================= ================ ================= ================== Average common shares outstanding 10,000 10,000 10,000 10,000 Income (loss) per common share ($0.10) $.01 ($0.37) ($.00)
TREASURE BAY GAMING & RESORTS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998(AUDITED) and the NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) Additional Common Stock Paid-In Accumulated ---------------------- Shares Amount Capital Deficit Total -------------- -------------- --------------- BALANCE, December 31, 1998 10,000,000 100,000 47,382,000 (42,929,000) 4,553,000 Net loss for the Nine months ended Sept. 30, 1999 0 0 0 (3,709,000) (3,709,000) ------------ ---------- -------------- -------------- --------------- BALANCE, September 30, 1999 10,000,000 $100,000 $47,382,000 (46,638,000) $ 844,000 ------------ ---------- -------------- -------------- ---------------
TREASURE BAY GAMING & RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Month Period Ended September 30, 1999 and the Year Ended December 31, 1998 (Unaudited) Nine Months Ended (Audited) September 30, December 31, 1999 1998 -------------------- ------------------- Cash Flows from Operating Activities: Net income (loss) $ (3,709) $ (2,358) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,516 3,968 Accretion of discount on first mortgage notes payable 144 232 (Decrease) Increase in receivables 1,507 (1,657) (Decrease) Increase in inventories 177 (141) (Decrease) Increase in prepaid expense (129) (82) (Increase) Decrease in other Assets 226 (662) (Decrease) in liabilities not subj. to compromise (2,655) 2,183 Net (gain) loss on disposal of assets (65) (64) -------------------- ------------------- Total adjustments (1,988) 1,419 Cash Flows from Investing Activities: Purchases of property and equipment (5,150) (2,879) Proceeds from sale of assets, net of transaction costs 33 200 -------------------- ------------------ Net cash used in investing activities (5,117) (2,679) Cash Flows from Financing Activities: Proceeds from issuance of notes payable 5,756 2,638 Repayments of notes payable (1,084) (2,194) Proceeds from sale of capital stock 0 0 -------------------- ------------------- Net cash provided by financing activities 4,672 444 Net increase in cash and cash equivalents (2,433) (816) Cash and Cash equivalents, at beginning of period 5,071 5,887 ==================== =================== Cash and cash equivalents, at end of period 2,638 5,071 ==================== ===================
The accompanying notes are an integral part of these consolidated condensed financial statements. TREASURE BAY CASINO & RESORTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION: The accompanying unaudited consolidated financial statements include the accounts of Treasure Bay Gaming & Resorts, Inc., a Delaware corporation incorporated in August 1993, and its wholly-owned subsidiaries, Treasure Bay Corp. ("TBC, a Mississippi corporation incorporated in February 1993, and Shoreline Development Inc. a corporation assumed through the reorganization process. The Company was organized to develop, own and operate casinos in the State of Mississippi and other emerging gaming jurisdictions. The Company currently owns and operates a casino in Biloxi, Mississippi and is under agreement to manage Casinos in Aruba and U.S. Virgin Island. The accompanying interim unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10Q and Article 10 of Regulation S-X. They should be read in conjunction with the audited Shareholders report for the years ended December 31, 1998, 1997, and 1996. Therefore, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Management believes that all adjustments, necessary for a fair presentation have been included. Operating results for the nine-months ended September 30, 1999 are not necessarily indicative of the results that can be expected for the fiscal year ended December 31, 1999. August 8, 1997, Treasure Bay Gaming & Resorts, Inc. (the "Company") received confirmation of its reorganization plan that was filed February 6, 1997. The company had been operating as a debtor-in-possession since November 18, 1994. The approved plan provided that all outstanding Securities would be canceled, annulled and extinguished. New Notes and Common Stock shall be issued. Except as provided in the Confirmation Order the plan discharged the Company from all claims or debts that arose before the bankruptcy date. The new equity investor's contribution was be $9,000,000 of new value in the form of cash and real estate. This gave the new investors ninety (90%) of the Company's new stock. First Mortgage Trust surrendered all of the old notes and were issued new notes in the amount of $27,250,000 and ten (10%) of the issued common stock. An additional note for $2,250,000.00 for working capital was issued for a total of $29,250,000. Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments Cash Equivalents, Receivable and Accounts Payable - The carrying amount approximates fair value because of the short maturity of these instruments. Income Taxes The Company has filed consolidated Federal and Mississippi tax returns for the period from inception through December 31, 1993, and for the years ended December 31, 1994, 1995, 1996, 1997, and 1998. The Company has adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 109, "Accounting for Income Taxes", which requires, among other things, that deferred tax assets and liabilities be recorded using the liability method, and that deferred tax assets be recognized, subject to appropriate reserves for realization. The Company expects to have a net operating loss carry-forward for income tax purposes totaling approximately $73 million which will begin expiring in 2008. No net tax benefit for the losses has been recorded. The deferred tax asset resulting from differences in the timing of the deduction of asset valuation provisions and the capitalization and amortization of preopening expenses for income tax purposes account for substantially all of the differences between book and taxable income. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share." This replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share excludes any diluted effects of options, warrants and convertible securities. The Company does not currently have any warrants, options or convertible securities all such items were nullified and void as part of the restructuring plan. For the periods of the Earnings per common share was determined by dividing net earnings for the period. The Earnings Per Share calculation for the nine months ended September 30, 1999, is based on the shares outstanding at that time Litigation and Contingencies The Company adheres to FAS No. 5, "Accounting for Contingencies," concerning the recording of liabilities for pending litigation. Casino Revenues and Complimentaries In accordance with prevailing industry practice, the Company recognizes as casino revenues the net win from gaming activities, which is the difference between gaming wins and losses. Revenues include the retail value of rooms, food, beverage, and other goods and services provided to customers without charge. Such amounts are then deducted as promotional allowances. Corporate Expenses Corporate expenses primarily include legal, audit, professional services, and payroll associated with executive administration. Consolidated Statement of Cash Flows The following supplemental disclosures are provided as part of the consolidated statement of cash flows. Accounting Standard The Financial Accounting Standards Board has issued FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", effective for fiscal years beginning after December 15, 1995. Generally, FAS No. 121 requires that long-lived assets that are expected to be held and used in operations be reported at the lower of cost or fair value. Long-lived assets to be disposed of are to be reported at the lower of carrying amount or fair value less cost to sell. The Company has employed the methodology prescribed by this standard in evaluating the carrying amounts of its long-lived assets. Risk Factors Certain risk factors have been identified by the Company that may impact its ability to achieve ongoing successful operations. Such factors include the following: Ability to Service Debt Obligations - The Company has significant outstanding indebtedness as of September 30, 1999. Incremental future borrowings may be necessary to continue successful operations. Competition - Competition on the Gulf Coast is expected to increase as new and current casino operators expand their facilities. Imperial Palace, Biloxi's first Las Vegas Casino opened in December 1997. Beau Rivage, an even larger competitor, opened in March 1999. Many of the Company's competitors have greater financial resources than the Company. Licensing Risk - The Company is required, in order to operate its casino, to maintain certain gaming licenses from the State of Mississippi. In addition, directors and certain stockholders, officers and other key employees are required to maintain their suitability to own and operate a casino, and in certain cases will be required to maintain their gaming licenses. The failure of the Company or certain of the above referenced individuals to retain the necessary licenses or finding of unsuitability would have a material adverse impact on the Company. The current casino operator's license is valid through April 2000. Proposed Gaming Referendum-Anti-gaming interests have proposed a statewide referendum intended to abolish legalized gaming in the state of Mississippi. The latest version of that referendum has been dropped, however, no assurances can be that future referendums will not be passed. Severe Weather - A hurricane, flood or other severe weather could cause significant physical damage to the Company's casino and on-shore facilities, which could result in service interruption and reduction in the number of potential customers traveling to the Company's casino market, which could have a material adverse impact on the Company's operating results. On September 25, 1998, the Company suspended operations due to Hurricane Georges. The Casino remained closed until October 10, 1998, and had an estimated impact of $2,000,000.00 on the companies operating income for the year ended December 31, 1998. PROPERTY AND EQUIPMENT: Property and equipment consists of the following as of: Sept. 30, December 31, 1999 1998 Land $ 19,044 19,044 Casino barge, buildings and improvements 40,289 37,147 Leasehold acquisition costs 19,548 19,548 Furniture, fixtures and equipment 25,637 23,571 104,518 100,100 Less: Accumulated depreciation and amortization (20,329) (18,621) Valuation reserve (35,000) (35,000) Total property and equipment, net $ 49,189 $ 46,489
In accordance with FAS No. 121 (see Note 3), the Company established reserves during 1994 to reduce the value of its casino facilities to the current estimated fair value. The Treasure Bay Biloxi casino was written down to the lower of cost or market value. This resulted in a $35,000,000 charge to income for Treasure Bay Biloxi for the year ended December 31, 1994. The numbers for the land have been adjusted to reflect the corrected costs. LONG-TERM DEBT: Long-term debt, including capital lease obligations consists of First Mortgage Notes and other notes payable secured by furniture and fixtures. The First Mortgage Notes are balloon notes payable in full on August 1, 2006. The Indenture requires quarterly interest due at 12%, but has imputed interest at 13.5%. The vessel, hotel, and other furniture, fixtures, and equipment secure the Notes. The Indenture requires compliance with many debt covenants, including among other restrictions, the Company must retain a consolidated net worth of at least $3,000,000, and numerous restrictions on borrowings. As of the quarter ended September 30, 1999, the Company has dropped below the $3,000,000 equity threshold. This is the second consecutive quarter that the equity is less than $3,000,000. The Indenture requires that the Company shall, made an irrevocable, unconditional offer to all the Holders of Notes to purchase $3,000,000 of the Notes, at 100% of the Principal amount plus accrued interest. In addition the Company has failed to meet the fixed coverages ratio for the quarter ended as of September 30, 1999. Although the Company is in default with on these two covenants, the majority bondholder has agreed not to exercisethe default provisions of the indenture through January 31, 2000. The Company is current on all payment to the Noteholders. The Company's ability to service its debt will depend on its future performance, which will be affected by many factors including; prevailing economic conditions and business, which are beyond the Company's control. Other Long-Term Debt The Company has accrued deferred rent to normalize the annual lease payments over the initial term of the lease plus the first two renewal periods. OPERATING LEASES: The Company conducts certain operations on leased property and leases certain equipment and machinery. The Company's operating leases, including the Company's property leases, are executor contracts. PLAN OF REORGANIZATION: On May 10, 1995, the Company filed a Plan of Reorganization (the "Reorganization Plan") for consideration by creditors. Subsequently, the Company filed a First and a Second Amended Plan of Reorganization on July 28, 1995, and November 13, 1995, respectively. The original plan was denied confirmation by the bankruptcy court in October 1996. Subsequent to denying the plan the Judge recused himself from the case and the case was transferred to a different Judge. On February 6,1997, the Company filed the Amended Disclosure statement for the "Amended Joint Plan of Reorganization of Treasure Bay and First Trust National Association as Indenture Trustee." This plan represented an agreement between Treasure Bay, the First Mortgage Noteholders, and the Unsecured Creditors Committee of Treasure Bay. The plan anticipated a $9,000,000 equity infusion of cash and property in return for 90% of the new common stock in the reorganized company with the Noteholders obtaining the remaining 10% equity. The reorganization plan was confirmed on August 8, 1997. In accordance with the reorganization plan, all accounting entries have been made. TREASURE BAY CASINO & RESORTS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly report contains forward-looking statements about the business. The actual results could differ materially from those indicated by the by the forward looking statements. The following discussion should be read in conjunction with and is qualified in its entirety by, the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this report. General Overview The Company develops, constructs and manages land-based and dockside casinos and related amenities. The Company is currently operating as a single site facility in Biloxi, Mississippi. On December 2, 1998, the Company received a gaming license in St. Croix, U.S. Virgin Islands. The Company has entered into a management agreement to help in the construction and managing of a St. Croix, casino for Grapetree Shores. The Casino Divi Carina Bay is scheduled to open in December 1999. Grapetree Shores is owned by the managing partner of the primary holder of the Company's First Mortgage Notes (see Note 5). In addition, the Company is managing a Alahambra Casino, in Aruba for Divi Resorts, a company owned by the Grapetree Shores. The Company has a limited operating history that may not be indicative of the Company's future performance. Additionally, comparison of results from year to year may not be meaningful due to changes in the local gaming markets and the sale of the Tunica facility in 1995. Treasure Bay contemplates expanding its existing operation and establishing additional gaming operations. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998. Revenues: The Company generated $15.5 million in net operating revenues during the three months ended September 30, 1999 compared to $18.7 for the three months ended September 30, 1998, an decrease of 17%. Decreases occurred in the casino, food and beverage, and hotel operations. The gross casino revenue dropped to $13.5 million and $4.4 million in gross hotel, food, beverage, retail and other revenue during the three months ended September 30, 1999. Compared to the three months ended September 30, 1998, when the Company generated $ 16.9 million in casino revenue and $ 4.4 million in gross hotel, food, beverage, retail and other revenue. Costs and Expenses: Overall operating costs before corporate expenses were $14.9 million during the three months ended September 30, 1999, compared to $16.2 million in the three months ended September 30, 1998. The decrease in the operating cost is because of the decrease in business levels and an adjustment to depreciation expense. During the three months ended September 30, 1999, the Company made an adjustment for depreciation that had been over-expensed in prior quarters. Total Casino expenses decreased from $7.9 million in 1998, to $7.1 million for the three months ended September 30, 1999. The decrease is attributed to the reduction in overall business levels. The food and beverage expenses were $2.7 million for the three months ended September 30, 1999, compared to $2.9 million for the three months ended September 30, 1998. Although the expenses have decreased in the quarter ended September 30, 1999, the profit margin remains consistent with the prior year. The Company's general and administrative expenses, utilities, depreciation, lease, and other expenses were $4.6 million for the three months ended September 30, 1999 compared to the $4.9 million for the three months ended September 30, 1998. The reduction is primarily due to the adjustment made to correct overstated depreciation expense. Other: Interest expense increased by $165,000 to $1.4 million for the three months ended September 30, 1999. The increase is due to additional indebtedness incurred by the Company during 1998 and 1999. Capital resources, capital spending, and liquidity: As of September 30, 1999, the Company had $2.6 million in non-restricted cash and cash equivalents. The decrease of approximately $2.4 million is primarily attributed to operating results being lower than anticipated and the increased interest cost. As of September 30, 1999, the Company's long-term debt included First Mortgage Notes that are balloon notes payable in full on August 1, 2006. The Indenture requires quarterly interest due at 12%, but has imputed interest at 13.5%. The vessel, hotel, and other furniture, fixtures, and equipment secure the Notes. The Indenture requires compliance with many debt covenants, including among other restrictions, the Company must retain a consolidated net worth of at least $3,000,000, and numerous restrictions on borrowings. The Company is in default on two of the convents. As of the quarter ended September 30, 1999, the Company has dropped below the $3,000,000 equity threshold for the second consecutive quarter. In addition to the default in the equity covenant the Company is not in compliance with its Fixed Coverage's Ratio. The majority bondholder has agreed not to exercise the default provisions of the indenture through January 31, 2000. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998. Revenues: The Company generated $49.8 million in net operating revenues during the nine months ended September 30, 1999 compared to $51.0 for the nine months ended September 30, 1998, an increase of 2%. All of the major revenue producing venues had decreases in revenues during the nine months ended September 30, 1999. The gross casino revenue decreased to $44.0 million and $12.8 million in gross hotel, food, beverage, retail and other revenue during the nine months ended September 30, 1999. During the nine months ended September 30, 1998, the Company generated $ 45.8 million in casino revenue and $ 12.0 million in gross hotel, food, beverage, retail and other revenue. Promotional allowances are the estimated value of the complimentary food, beverages, hotel rooms and other goods and services given to casino customers under various marketing programs. The value of these items are deducted against gross revenue in accordance with generally accepted accounting principals. The cost of promotional allowances increased to $6.9 million for the nine months ended September 30, 1999, compared to $6.8 for the nine months ended September 30, 1998. The increase is primarily a result of the increase in the quarter ended March 31, 1999. Costs and Expenses: Overall operating costs before corporate expenses were $48.3 million during the nine months ended September 30, 1999, compared to $46.6 million in the nine months ended September 30, 1998. The Company had increases in payroll primarily due to the changes in the labor market. The Company has had to pay premium wages and incur the cost of using temporary services to meet the needs of our customers. Total Casino expenses increased from $22.6 million in 1998, to $23.6 million for the nine months ended September 30, 1999. The increase is primarily due to the increase in promotional expenses and the increase payroll costs. In an effort to offset ongoing casino construction and anticipated competition the Company launched several innovative marketing programs. The food and beverage expenses were $ 8.5 million for the nine months ended September 30, 1999, compared to $7.6 million for the nine months ended September 30, 1998. The increase is primarily related to increased costs of goods sold and increased labor costs and to the costs expensed when opening the new brewpub in the Casino. The Company's general and administrative expenses, utilities, depreciation, lease, and other expenses were $14.7 million for the nine months ended September 30, 1999 compared to the $14.8 million for the nine months ended September 30, 1998. The decrease is primarily due to the adjustment in depreciation expense. Other: Interest expense increased by $345,000 to $3.9 million for the nine months ended September 30, 1999. The increase is due to additional indebtedness incurred by the Company during 1998 and 1999. Capital resources, capital spending, and liquidity: The Company expects that future borrowings may be necessary to fund current debt service and working capital. The Company's ability to service its debt will depend on its future performance, which will be affected by many factors including; prevailing economic conditions and business, which are beyond the Company's control. Hurricane Georges: On September 25, 1998, the Mississippi Gaming Commission required all Coast casinos to close gaming operations to prepare for Hurricane Georges. The hurricane caused water and wind damage to the casino and hotel. The Company maintains property, liability, and business interruption insurance to help offset the costs of hurricane damages. The Company estimates that the operating loss resulting from the hurricane was $2 million. Earning Per Common Share and Net Earnings: The Company incurred a net loss of $3.7 million during the nine months period ended September 30, 1999, compared to a net loss of $ 0.1 million during the nine months period ended September 30, 1998. Year 2000 The Company is continually evaluating and resolving any potential problems associated with the Year 2000. The Year 2000 problem exists because computer applications were historically designed to use two digit fields instead of four to designate a year, and date sensitive systems may not properly account for 2000, which could result in miscalculations or system failures. The Company has established a Year 2000 team composed of members of the management in conjunction with the management information department to identify and evaluate Year 2000 issues, with respect to the Company's information systems, suppliers, and facilities. The Company has already updated its financial reporting, cage and table games and slot tracking system, payroll processing systems, and most of its hardware to be Year 2000 compatible. Given the inherent risks for a project such as this and the resources required, the timing and costs involved could differ materially from those anticipated by the Company. There can be no assurances that these assumptions are correct, the projects will be completed on schedule, or within budget and actual results could differ materially. Any failure of third party systems could have a material adverse affect on the Company. Inflation The Company believes the increased competition in the local market will continue to cause increases in operating expenses, particularly labor cost. TREASURE BAY CASINO & RESORTS, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Litigation As a result of the bankruptcy filing, all legal proceedings with respect to prepetition claims against the Company was automatically stayed pursuant to Section 362 of the U. S. Bankruptcy Code. ITEM 2 - CHANGES INS 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 (a) No reports on Form 8-k were filed during the quarter ended September 30, 1999. 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. TREASURE BAY GAMING & RESORTS, INC. By /S/ LEE ANN HUNTER ------------------------- LEE ANN HUNTER Director of Finance Dated: September 30, 1999 EX-27 2 FDS --
5 9-MOS Dec-31-1999 Sep-30-1999 2,580 0 1,173 0 235 4,873 69,518 20,330 54,912 9,811 27,250 0 0 100 844 54,912 0 56,454 0 48,363 1,182 0 3,923 (3,709) 0 0 0 0 0 (3,709) (0.04) (0.04)
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