<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- -------- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 33-57342
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84 -1158484
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2060 Broadway, Suite 400
Boulder, Colorado 80302
--------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 444-0240
--------------
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
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value 2,494,067 shares
- ----------------------------- ---------------------------------
Class Outstanding as of July 31, 1996
<PAGE> 2
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
INDEX TO FORM 10-Q
JUNE 30, 1996
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 1
Consolidated Statements of Income
for the three and six months ended
June 30, 1996 and 1995 2
Consolidated Statements of Cash Flows
for the six months ended
June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE> 3
PART 1 - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial statements
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1996 1995
-------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,580,226 $2,189,648
Accounts receivable:
Gilpin Hotel Venture 93,847 104,235
Other 31,111
Income taxes receivable 45,367
Note receivable - Gilpin Gold, Inc. 1,335,971
Deferred tax asset 109,867 109,867
-------------------------------
Total current assets 3,783,940 3,816,199
INVESTMENT IN AND ADVANCES TO:
Gilpin Hotel Venture 3,771,318 4,858,270
Black Hawk Gaming/Jacobs Joint Venture 1,069,361 594,361
LAND:
Leased to Gilpin Hotel Venture 1,967,689 1,967,689
Held for development:
Millsite 29 791,801 791,801
Millsite 30 and other 1,466,317 1,466,317
Millsite 31 2,418,754 2,418,754
Millsite 32 3,568,234 3,568,234
Oklahoma 589,808 551,698
-------------------------------
Total land 10,802,603 10,764,493
OTHER ASSETS 553,463 234,998
-------------------------------
TOTAL $19,980,685 $20,268,321
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $50,012 $47,520
Current portion of long-term debt 119,677 802,980
-------------------------------
Total current liabilities 169,689 850,500
LONG-TERM DEBT 2,314,898 2,376,655
-------------------------------
Total liabilities 2,484,587 3,227,155
-------------------------------
COMMITMENT AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT OPTIONS 406,901 666,667
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value; 10,000,000 shares authorized;
none issued and outstanding
Common stock; $.001 par value; 40,000,000 shares authorized;
2,506,067 and 2,534,567 shares issued and outstanding, respectively 2,505 2,534
Additional paid-in capital 9,702,023 9,728,751
Retained earnings 7,384,669 6,643,214
-------------------------------
17,089,197 16,374,499
-------------------------------
TOTAL $19,980,685 $20,268,321
===============================
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE> 4
PART I - FINANCIAL INFORMATION (UNAUDITED) - (continued)
Item 1. Financial Statements (continued)
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Six months ended
June 30, June 30,
1996 1995 1996 1995
----------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Gilpin Hotel Venture:
Management fees $82,718 $100,435 $164,702 $182,378
Rental income 105,057 108,670 214,470 223,035
Parking lot operation 93,804 88,804 192,608 169,939
Interest 50,438 88,634 102,898 155,555
----------------------------------------------
Total revenue 332,017 386,543 674,678 730,907
----------------------------------------------
COSTS AND EXPENSES:
Compensation and related costs 180,742 169,873 351,271 306,376
Other general and administrative 106,368 87,601 249,898 210,315
Interest 54,736 68,149 119,882 134,687
----------------------------------------------
Total costs and expenses 341,846 325,623 721,051 651,378
----------------------------------------------
EQUITY IN EARNINGS OF JOINT VENTURE 615,294 715,845 1,231,390 1,284,393
----------------------------------------------
INCOME BEFORE INCOME TAXES 605,465 776,765 1,185,017 1,363,922
INCOME TAXES (225,000) (275,000) (440,000) (495,000)
----------------------------------------------
NET INCOME 380,465 501,765 745,017 868,922
Costs related to common stock subject to put options (6,192) (24,479) (15,234) (63,208)
----------------------------------------------
NET INCOME ATTRIBUTABLE TO COMMON SHARES $374,273 $477,286 $729,783 $805,714
==============================================
NET INCOME PER COMMON SHARE $0.15 $0.18 $0.29 $0.31
==============================================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,508,078 2,581,167 2,513,572 2,581,167
==============================================
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 5
PART I - FINANCIAL INFORMATION (UNAUDITED) (continued)
Item 1. Financial statements (continued)
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $745,017 $868,922
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of joint venture (659,610) (709,041)
Changes in operating assets and liabilities:
Accounts and note receivable 41,499 120,071
Accounts payable and accrued expenses 2,493 (25,456)
Income taxes receivable/payable 45,367 (45,000)
------------------------------
Net cash provided by operating activities 174,766 209,496
------------------------------
INVESTING ACTIVITIES:
Land and land improvements (38,110) (16,971)
Distributions from GHV 1,746,563 400,000
Collection on note receivable from Gilpin Gold, Inc. 1,335,971 78,195
Payments received from Gilpin Ventures, Inc. on return of investment 28,792
Contributions to capital--Gilpin Hotel Venture (123,318)
Contributions to Black Hawk Gaming/Jacobs Joint Venture (475,000) (110,000)
Other (318,465) (33,067)
------------------------------
Net cash provided by investing activities 2,250,959 223,631
------------------------------
FINANCING ACTIVITIES:
Acquisition of treasury stock and payments upon exercise of put option (290,085) (137,500)
Payments on Oklahoma note (450,000)
Payments on long-term debt (745,062) (42,656)
------------------------------
Net cash used in financing activities (1,035,147) (630,156)
------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,390,578 (197,029)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,189,648 2,363,416
------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,580,226 $2,166,387
==============================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $119,881 $134,688
==============================
Cash paid for income taxes $591,000 $440,000
==============================
Acquisition of treasury stock $275,000 $137,500
==============================
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 6
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. and subsidiary (the
Company) was incorporated on January 10, 1991 in Colorado, to acquire gaming
properties for development, joint venture and operation. The Company completed
the construction of the Gilpin Hotel Casino (the Casino) in Black Hawk,
Colorado, in September 1992 and the Casino opened October 1, 1992. The Casino
is owned by the Gilpin Hotel Venture (GHV), in which the Company owns a 50%
interest. In November 1994, GHV acquired an adjacent casino facility, which was
put into operation in January 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
Unaudited Consolidated Financial Statements --- In the opinion of
management, the accompanying unaudited consolidated financial statements
reflect all adjustments, consisting only of normal recurring accruals, which
are necessary for a fair presentation of the financial position of the Company
at June 30, 1996, and the results of its operations for the three and six
months ended June 30, 1996. The accompanying unaudited consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary
Native American Management Corp. (NAMC). All significant intercompany
transactions and balances have been eliminated in consolidation. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the notes to the consolidated financial statements contained
in the Company's Form 10-K for the year ended December 31, 1995.
Joint Venture --- The Company accounts for its investment in GHV under
the equity method of accounting. All inter-company transactions have been
eliminated to the extent of the Company's ownership in GHV.
-4-
<PAGE> 7
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(CONTINUED)
3. GILPIN HOTEL VENTURE
Summarized financial information relating to GHV is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------------- ------------
<S> <C> <C>
ASSETS
Current assets $ 2,046,494 $ 2,431,052
Gaming facility, net 8,950,726 9,211,930
Goodwill 1,426,657 1,481,178
-------------- ------------
$ 12,423,877 $ 13,124,160
-------------- ------------
LIABILITIES AND VENTURERS'
INVESTMENTS AND ADVANCES
Current Liabilities $ 2,184,244 $ 2,267,980
Long-term debt 5,417,920 3,860,561
Venturers' investments and advances 4,821,713 6,995,619
-------------- ------------
$ 12,423,877 $ 13,124,160
-------------- ------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues $ 7,233,755 $ 7,854,560 $ 14,750,945 $ 15,327,741
Expenses (6,566,325) (7,018,688) (13,431,726) (13,909,659)
---------------------------- -----------------------------
NET INCOME $ 667,430 $ 835,872 $ 1,319,219 $ 1,418,082
---------------------------- -----------------------------
</TABLE>
The Company's equity in earnings of GHV as reflected in the consolidated
statements of income has been adjusted for the Company's share of fees and
rentals it receives from GHV. Certain items in the June 30, 1995 financial
information have been reclassified to conform to the June 30, 1996
presentation.
-5-
<PAGE> 8
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(CONTINUED)
4. OTHER MATTERS
Oklahoma property acquisition --- During 1994 the Company acquired a
27,000 square foot parcel of land in downtown Oklahoma City with the intent of
placing the land into tribal trust for the benefit of the Sac and Fox Nation
Indian Tribe. Assuming the Company is successful in placing the land into trust
for the Tribe, the Company intends to open a 53,000 square foot, high stakes
Indian bingo hall, in a re-development area of downtown Oklahoma City known as
"Bricktown". The Company continues to negotiate with the Sac and Fox Nation
Indian Tribe, however, during the second quarter of 1996, negotiations were not
progressing as the Company had hoped. The exceedingly difficult inter-
relationships between the Tribe, the Bureau of Indian Affairs, the National
Indian Gaming Commission have caused the Company to reconsider the overall
economics of this transaction and the Company is considering other alternative
uses of the property. Therefore, the Company is unable to determine if the
property will be in trust before the end of 1996 if at all. The Company is
presently considering alternative uses for the property or its sale in which
event it believes it can recoup all of its cash cost.
Casino acquisition and refinancing --- During 1994, GHV acquired an
adjacent casino for $7,600,000, which was substantially financed by seller debt
of $4,500,000. The Company loaned $1,495,000 to Gilpin Gold, Inc. (GGI), an
affiliate of Gilpin Ventures, Inc., the Company's joint venture partner in GHV.
The loan was made to finance Gilpin Gold Inc.'s share of costs to acquire the
land underlying the adjacent casino. The note required monthly interest
payments beginning in December 1994 through February 1995 and beginning in
March 1995, payments increased to include principal payments. Interest on the
note accrues at 10% per annum. During the first quarter of 1996 GHV was
successful in obtaining a third party equipment financing loan totaling
$2,125,000. The terms of the loan require payments of principal and interest of
11% payable approximately $41,000 monthly with the final payment due in 2001.
The Company was repaid the majority of its loan from GGI from the proceeds of
the third party equipment financing loan during the first quarter of 1996 and
received the remaining balance of the loan during the second quarter.
Jacobs Entertainment, Inc. Joint Venture --- During 1994, the Company
signed a joint venture agreement with Jacob's Entertainment, Inc. (Jacob's) of
Cleveland, Ohio to develop a major hotel/casino/parking complex in Black Hawk,
Colorado on Millsites owned by the Company and Jacobs. After several
modifications of the original plan, occasioned largely by the various
regulatory agencies involved, the project has now evolved into a single phased
50 room hotel/casino, with approximately 850 slot machines, 22 table games, 3
restaurants, 4 bars, three floors of underground parking and an attendant
two-story parking structure on adjacent Millsite 30. Construction is
anticipated to commence late summer or early fall 1996, completion of financing
is anticipated in early fall of 1996 and completion of the project is projected
for late 1997.
5. COMMON STOCK SUBJECT TO PUT OPTIONS
On December 30, 1994, the Company purchased Millsite 32 in Black Hawk,
Colorado. Millsite 32 is an approximate 35,000 square-foot parcel of land
adjacent to the Company's Millsite 31. The land was
-6-
<PAGE> 9
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(CONTINUED)
purchased under a bankruptcy court order for $3.5 million in the form of
$1,000,000 in cash, a $1,400,000 10-year note convertible into the Company's
common stock at $20 per share and 100,000 shares of the Company's $.001 par
value common stock. The stock can be sold back to the Company by the holder, if
not sold in the market, for $11 per share at the rate of 12,500 shares per
quarter over 2 years. During the quarters ended June 30, 1996 and 1995, a
portion of the Company's cost related to common stock subject to put options,
$6,192 and $24,479, respectively, is attributable to that period's accretion of
the discount of the fair market value of the common stock issued on the date of
the transaction and the exercise price of the put. Accordingly, the current
quarter computation of net income per common share reflects this amount as a
deduction from net income only when computing net income per common share. The
effect of the accretion of the discounts of $6,192 and $24,479 was immaterial
for the respective quarters. Moreover, the accretion of discounts of $15,234
and $63,208 reduced net income per common share by approximately $.01 and $.02,
respectively, for the six months ended June 30, 1996 and 1995.
-7-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by the financial statements and the notes thereto
included elsewhere in this Report.
RESULTS OF OPERATIONS
ESTIMATED IMPACT ON OPERATIONS OF THE COMPANY DUE TO PLANNED
CONSTRUCTION EFFORTS ON MILLSITES 31, 32, 34 AND POSSIBLY MILLSITE 30
As a result of the complex site development issues related to the
Black Hawk Gaming/Jacobs Joint Venture (Jacobs project), there has been a
revision in the original three-phase project. The Jacobs project may commence
development of a two story parking structure on a significant portion of
Millsite 30 during the third or fourth quarter of 1996, however this may be
delayed until the third quarter of 1997. The Venturers intend to determine
the ultimate timing and phasing of this portion of the project during the
third quarter of 1996. Should development commence on a parking structure on
Millsite 30, the Company's operations at the Casino will more than likely be
significantly impacted. The Company may realize reduced management fees,
parking fees and rental income as these elements of the Company's revenues
are derived from the Casino. Additionally, the Company's share in the equity
in earnings of the joint venture would more than likely decline. The Company
intends to stage the construction of the parking structure in such a manner
as to minimize the impact on the operations of the Casino, however, it can
give no assurance in this regard.
The following discussion surrounding the comparison of the Company's
operations for the six months ended June 30, 1996 compared to the six months
ended June 30, 1995 as well as the quarterly comparisons between June 30,
1996 and 1995 should be read with the recognition that should the Company
commence construction on the planned parking structure on Millsite 30 and the
hotel/casino complex on Millsites 32 and 34, operations of the Casino will
more than likely be significantly and adversely affected.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1995
Income before income taxes for the six months ended June 30, 1996 is
less than the comparable period of 1995 by approximately $179,000. Total
revenue of the Company has declined by approximately $56,000 or 8%; total
costs and expenses have increased by approximately $70,000 or 10% and the
Company's share of the equity in earnings of Joint Venture has declined by
approximately $53,000, or 4%. The combination of these three elements of the
Company's consolidated statements of income comprise the approximate $179,000
decline in the Company's income before income taxes. The following is a
discussion of the various changes in the components of the Company's
consolidated statements of income for the six months ended June 30, 1996
compared to the six months ended June 30, 1995.
REVENUES
The Company's current period total revenue has declined by 8% or
$56,000 as compared to the comparable period of 1995. The decline in the
Company's management fees of approximately
-8-
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
$17,000 and rental income of $8,000 is generally offset with the increase in
the parking lot operation of $22,000. Therefore, the main reason for the
decline in the Company's revenues for the current period is a decline in
interest income of approximately $53,000. During the six months ended June
30, 1995 the Company had an outstanding note receivable from an affiliate of
its joint venture partner totaling approximately $1,500,000 on which the
Company was earning 10%. The major portion of this note was paid during the
first quarter of 1996 with the remaining balance paid during the second
quarter.
The other components of revenue of the Company, which remained
relatively constant as compared to the comparable period of 1995, were
management fees and rental income. Management fee income is computed based
upon 11% of the defined volume of the various departments of the Casino's
operations reduced by defined expenses. Usually, as the volume of business of
GHV increases or decreases, the management fee earned by the Company will
move accordingly. However, as costs and expenses of the Casino for the six
months ended June 30, 1996 declined by approximately $478,000 and the total
revenue generated by the Casino decreased by $577,000, the management fee
earned by the Company for the current period, after elimination of the amount
of such fee attributable to the Company's 50% interest in the Joint Venture,
declined by $17,000.
The Company and its joint venture partner are the co-owners of the
land underlying the Casino. The Joint Venture agreement provides for GHV to
pay a monthly land rental fee equivalent to 7% of the net gaming revenues of
the Casino. Rental income attributable to the land underlying the Casino is
reported after elimination of the amount of such fees attributable to the
Company's 50% interest in the Joint Venture. The Company's rental income for
the current period was approximately equivalent to the comparable period of
1995. While net gaming revenues of the Casino for the current period have
declined by approximately $577,000 as compared to the same period last year
(as discussed in more detail below), the overall impact on the Company's
rental income was not material.
The other principal revenue account of the Company is the parking
fees it receives from the Joint Venture for the use of Millsites 30, 31, and
on an as needed basis, Millsite 32, as parking for the patrons of the Casino.
In November 1995, the Company agreed to allow the use of Millsite 32 for
parking, on a trial basis, for a monthly charge of $10,000 to determine if
the additional parking for the use of Millsite 32 was warranted. The Joint
Venture utilized Millsite 32 for January and February, however, as the
Company was conducting pre-development work on Millsite 32 during March,
parking was not available on Millsite 32. The Company is unable to commit to
any long term parking arrangements for the use of Millsites 30, 31 and 32
with the Casino due to the development efforts currently underway with the
Jacobs Joint Venture (see below discussion).
The remaining portion of the Company's revenue is the result of
interest it receives on temporary cash investments. During the fourth quarter
of 1994 the Company advanced $1,495,000 to an affiliate of its joint venture
partner in order to effectuate the closing for the purchase of the
Pick-A-Dilly casino. The Company earned 10% on this note, plus a fee for
having made the loan to its joint venture partner, which amounts are
reflected in the first six months of 1995. In February
-9-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
1996 a significant portion of the principal balance of this note was repaid,
and accordingly interest income for the current period is less than the
comparable period of the prior year. As the Company expends funds on other
projects, which it will do commencing in the fall of 1996, interest income
will continue to decrease.
COSTS AND EXPENSES
Total compensation and related costs increased for the six months
ended June 30, 1996 by approximately $45,000 due principally to a negotiated
severance package with the Company's former General Manager of the Casino of
$30,000 and other increases of $15,000; other general and administrative
costs increased by $39,600; and interest costs declined by $14,900 for an
overall increase in costs and expenses of approximately $39,600 for the six
months ended June 30, 1996 as compared to the comparable period of 1995.
EQUITY IN EARNINGS OF JOINT VENTURE
By virtue of the Company's 50% ownership of GHV, generally accepted
accounting principles require the Company to record its share of the net
earnings of GHV, after elimination of intercompany transactions and other
adjustments, as "equity in earnings of Joint Venture." Although the Company
receives other revenue from the joint venture, as discussed above, equity in
earnings of Joint Venture accounts for substantially all of the Company's
income before income taxes. Summarized financial information on the Joint
Venture is provided in Note 3 to the financial statements included within
this report.
During the six month period ended June 30, 1996 the Casino's total
revenues decreased by approximately $577,000 (4%) while the total expenses of
the Casino decreased by approximately $478,000 (4%) resulting in a net
decrease in the net income of the Casino of approximately $99,000, or 7% over
the comparable period of 1995.
The Company attributes the approximate $577,000 decrease in revenues
to a decrease in slot operation revenues of $654,000, which was partially
offset by an increase in games revenue of $145,000. Additionally, decreases
of $6,000, $3,000, and $59,000, in the off track betting, food and bar
operations, respectively served to decrease the overall revenue for the
current period.
The approximate $478,000 decrease in Casino expenses is due
principally to a decline in net progressive jackpot activity of $112,000, the
reduction in food and beverage complimentary costs of $24,000 and $27,000,
respectively. Additional cost reductions were realized in food and beverage
cost of sales of $103,000, parking reimbursements of $38,000, property tax of
$52,000, gaming
-10-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
taxes (due to a decline in gaming revenues) of $108,000, bad checks of
$83,000, management fees and rents of $94,000, repairs and maintenance of
$33,000 and other costs and expenses of $113,000, principally in the area of
restructuring the marketing programs of the Casino. These reductions in costs
were offset by increases in city device fees of $20,000, parking fees of
$74,000, legal fees of $74,000, insurance costs of $35,000, and interest
expense of $106,000.
The competitive environment in the Black Hawk/Central City gaming
districts increased significantly during 1995 and continues into 1996. The
Joint Venture implemented many new programs and continues to revise its
marketing packages in an effort to maintain a level of competitiveness and
its market share.
Many of these programs have not proven to be beneficial to GHV's
overall operations. In late 1995 and early 1996, GHV reduced and/or
discontinued several programs, began to rearrange the Casino layout and
instituted what it believes to be significantly improved operational
procedures. The Company also implemented several cost cutting programs in an
effort to reduce waste and unnecessary overhead. The Company believes these
efforts are being realized in the first six months of 1996 which is
represented by the overall decline in Casino expenses of $478,000 discussed
above.
The ongoing success of GHV may be due to parking availability
provided by Millsites 29, 30 and 31 (however, see above discussion),
implementation of a newly revised marketing plan, constantly analyzing and
monitoring costs, controls and procedures while maintaining a continuing
philosophy of providing a congenial, relaxed and exciting environment for
gaming customers. Black Hawk has been the leading city in Colorado gaming,
however, increased competition in the area continues to be a significant
factor in the ongoing success of GHV.
In the opinion of management, GHV's operations for the first six
months of 1996 are competitive relative to other casinos in Black Hawk as
well as the other two Colorado gaming districts. GHV's adjusted gross
proceeds (AGP) (total gambling receipts less jackpots/winnings, less
restocking monies for slot machines, plus monies collected from table games
and deposited with the cashier) averages for slot machines and table games
remains in excess of the overall gaming AGP averages for the state and the
city of Black Hawk.
INCOME TAXES
The current six month income tax expense is based upon a combined
federal and state tax rate approximating 37%. During the third quarter of
1994, the Internal Revenue Service commenced an audit of the income tax
returns of GHV for 1992, 1993 and 1994. GHV and the IRS have reached a
settlement for findings, excluding the issue of complimentary sales, in GHV's
1992 income tax return totaling approximately $158,000 of additional taxable
income, which findings carried forward into 1993 and 1994 are approximately
$144,000 and $137,000, respectively. The additional taxable income
principally represents temporary differences that will reverse in future
years. No determination of the outcome of the complimentary sales issue or
the examination of
-11-
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GHV's 1993 or 1994 income tax return can be made at this time. The issue
involving the deductibility of complimentary sales is being disputed
nationally by the gaming industry and is not expected to be resolved in the
near term nor without political involvement. GHV is unable to determine when
the examination will conclude and can give no assurance that any proposed
adjustments and/or tax liabilities will not be material.
NET INCOME PER SHARE OF COMMON STOCK
Results of operations for the first six months of 1996 yielded net
income per common share of approximately $.29 based on weighted average
shares outstanding of 2,513,000, while earnings per share for the first six
months of 1995 were approximately $.31 based on weighted average shares
outstanding of approximately 2,581,000. In connection with the purchase of
Millsite 32, the Company issued 100,000 shares of its $.001 par value common
stock. During the six months ended June 30, 1996 and 1995, a portion of the
Company's cost related to common stock subject to put options, $15,234 and
$63,208, respectively, represents the period's accretion of the discount of
the fair market value of the common stock issued on the date of the
transaction and the exercise price of the put. Accordingly, the computation
of the quarterly net income per common share reflects this amount as a
deduction from net income only when computing net income per common share.
The respective effect of the accretion of the discount of $15,234 and $63,208
for the first six months of 1996 and 1995 was $.01 and $.02.
QUARTER ENDED JUNE 30, 1996 COMPARED TO THE QUARTER ENDED JUNE 30,
1995
Generally, no activity occurred during the quarter ended June 30,
1996 that has not otherwise been discussed above in the comparison between
the six-month period of 1996 to the six month period of 1995 with respect to
the Company's overall operations, however the following is a discussion
surrounding significant factors affecting the Casino's operations for the
second quarter of 1996 as compared to the second quarter of 1995.
EQUITY IN EARNINGS OF JOINT VENTURE
The net income of the Casino for the three months ended June 30,
1996 as compared to the three months ended June 30, 1995 shows a decrease in
the overall revenues of the Casino approximating $621,000, offset by a
corresponding decrease in the costs and expenses of the Casino of $452,000,
resulting in a net decrease in the net income of the Casino of $169,000 for
the quarter ended June 30, 1996.
Generally, the total decline in the revenues for the current quarter
is due to a decrease in the slot revenue of approximately $617,000. As
discussed above many of the marketing programs implemented by the Casino have
not proven to be beneficial to GHV's overall operations. In late 1995 and
early 1996 GHV reduced and/or discontinued several programs, began to
rearrange the Casino layout and instituted new operational procedures. The
Company continues to pursue new and creative marketing packages in an effort
to find the right mix to generate new Casino patrons as
-12-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
well as to gain back previous patrons of the Casino who have been lost to
competitive forces within the Black Hawk market place.
In addition to implementing new marketing programs and revising old
ones, GHV embarked on a program to significantly reduce overhead of the
Casino's operations. These efforts are proving to be worthwhile as GHV
reduced its overall overhead during the current quarter by approximately
$452,000. The most notable areas of reductions have occurred in the cost of
food and beverage sales of $66,000; management fees and rents of $73,000;
property taxes of $61,000 and gaming taxes (due to a decline in gaming
revenues) of $112,000; marketing expense and promotions of $122,000;
progressive jackpot expense of $34,000; and a decline in bad check expense of
$73,000. The reduction of these expenses was offset by an increase in legal
and licensing costs of $34,000; interest expense of $47,000 and other
miscellaneous costs and expenses of approximately $8,000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $175,000 in the first
six months of 1996 and $209,500 in the first six months of 1995.
Cash flows provided by investing activities for the first six months
of 1996 were $2,251,000 and were primarily the result of distributions from
GHV of $1,746,500, the collection of the balance of the note receivable from
Gilpin Gold, Inc. of $1,336,000. These increases were offset principally by
contributions to the Black Hawk Gaming/Jacobs Joint Venture of $475,000 and
the pursuit of other projects totaling $318,500 and improvements to land
totaling $38,000. During the first six months of 1995 the Company provided
cash of $145,000 in its investing activities, principally due to
distributions from GHV of $400,000 offset by expenditures of $110,000 for
contributions to the Black Hawk Gaming/Jacobs Joint Venture; contributions to
capital of GHV totaling $123,000 and other expenditures on projects and land
improvements totaling approximately $50,000.
The net cash used in financing activities during the first six
months of 1996 amounted to $1,035,000 and is principally the result of the
acquisition of treasury stock and common stock "put" to the Company totaling
$275,000, the purchase of treasury stock on the open market totaling $15,085
and payments on long- term debt of $745,000. Financing activities used
$630,000 of cash in the first six months of 1995, principally for the
repayment of the Oklahoma City land note totaling $450,000; acquisition of
treasury stock and common stock put to the Company totaling $137,500 and
other payments on long-term debt totaling $42,000.
The Company's principal sources of capital consist of cash flow
distributions from GHV and cash generated from its rental and management
operations. As of June 30, 1996 the Company has working capital of $3,614,000
as compared to $2,965,700 at December 31, 1995. In the first six months of
1996 the Company received $1,246,500 of distributions from GHV which is the
result of the distribution of loan proceeds received at the GHV level.
Additionally, during the first six months of 1996 the Company has received
$500,000 of profit distributions from the Joint Venture. During the first
quarter of 1996 the Joint Venture borrowed $2,125,000, secured by the
majority of the
-13-
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
equipment at the Casino. The Company believes its current working capital
position and distributions from GHV will be sufficient to meet its short term
requirements, which are operating expenses, principal and interest payments
on indebtedness and various project development costs, as well as additional
expenditures to identify and pursue new gaming opportunities. However, it is
anticipated that any significant development of Millsites 30, 31, and 32 or
the Company's Oklahoma City property will require additional financing, other
joint venture partners, or both.
The recoupement provision of the GHV agreement provides the Company
with a small amount of working capital in addition to the distributions it
receives from GHV. The Company's joint venture partner is obligated to repay
a remaining balance of approximately $1,244,000 for its proportionate share
of the development account, but only based upon 40% of the after tax profits
of the Casino, if any. There were no repayments against the development
account during the first six months of 1996. The Company's joint venture
partner (GVI) is withholding payment as they are disputing previous
distributions made to the Company. The Company has requested GVI to prepare a
detailed listing of the dates and amounts of the disputed distributions, and
will endeavor to resolve these differences either through restitution to GHV
or through arbitration. Presently, the Company is unable to determine the
amount of disputed distributions claimed by GVI.
In December 1994, the Company entered into a joint venture agreement
with Jacobs Entertainment, Inc. ("Jacobs") of Cleveland, Ohio to develop a
major hotel/casino/parking complex in Black Hawk. The joint venture developed
a preliminary master plan, and on March 7, 1995 approved Phase 1 of the
master plan and agreed to continue to study the development of a three-phase
project to be built on Millsites 30, 31, 32, and 34. Jacobs purchased the
approximate 10,000 square foot parcel known as Millsite 34, which adjoins
Millsite 32, in March 1995 for $1,000,000. The Jacobs Joint Venture agreed to
conduct further studies of the Master Plan by June 1, 1995, with the
intention of: (i) conducting additional market analyses; (ii) undertaking a
thorough legal analysis of the complex real estate, zoning, permitting and
environmental issues presented by the project; and (iii) preparing
preliminary drawings and specifications for the Phase 1 development designed
to lead to a detailed construction budget, schedule and approach to the
project. The second phase of the project was changed to accommodate certain
infrastructure requirements of the city of Black Hawk and other state and
federal agencies. These changes have resulted in a redefinition of the
original project. Presently, the Company and Jacobs intend to move forward to
a revised version of the project which will take into account the changes
required by the various agencies discussed above. Various changes to Phase 1
occurred during the third quarter of 1995 which were essentially a combining
of Phase 1 and 2 of the original project. Revised Phase 1 of the project is
now projected to encompass Millsites 31, 32, and 34. The presently
contemplated plan for revised Phase 1 is to construct a 50 room hotel/casino,
with three floors of underground parking for approximately 500 cars. As a
result of the refinements occurring on Phase 1, the Company has decided to
incorporate a two story overflow parking facility on approximately 40,000
square feet of Millsite 30 into the Jacobs project.
-14-
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
There are many infrastructure and financing considerations to be
resolved before the Company begins construction on Millsites 31, 32 and 34
and before the successful completion of the project contemplated with Jacobs
can be realized. Over the past several months, the Company has funded its
share of the Jacobs Joint Venture costs, totaling $772,500 through June 30,
1996 as well as an additional $297,000 in costs which were incurred prior to
the Jacobs Joint Venture project, out of current working capital and/or funds
generated by operations. Presently, the total project costs are projected to
be approximately $62,000,000.
The Joint Venture hopes to bring to fruition the resolution of
several interrelated local, state and federal issues surrounding the project
during the third quarter of 1996. During the first and second quarters of
1996 the Jacobs Joint Venture successfully completed a land trade with the
Colorado Department of Transportation (CDOT) which enhanced the developable
ground of the project and widened CDOT's right-of-way along state highway
119, the main highway leading into the Black Hawk/Central City gaming area.
Additionally, the Joint Venture received approval from the Black Hawk City
Council for its Planned Unit Development (PUD) for the project and completed
the City's platting and re-zoning requirements late in the first quarter of
1996. The Joint Venture is now pursuing financing plans for the project.
Assuming the successful resolution of the remaining development issues,
completion of the development of Millsites 31, 32 and 34, as well as the
construction of the two story garage facility on 44,000 square feet of
Millsite 30 is projected to be in late 1997.
Prior to commencing construction and as pre-development efforts
continue, the Company and Jacobs are jointly pursuing financing of the
project through public and/or private sources. In the Company's opinion the
current market for financing potential gaming projects such as this are very
difficult. The cash requirements of a project of this magnitude are presently
beyond the Company's existing cash flow capabilities. Assuming sources of
financing can be found, the Company would more than likely incur significant
additional debt and/or may realize dilution of its current equity position
depending upon the final structure of the financing.
INVESTMENT OF CAPITAL INTO THE COMPANY BY JACOBS ENTERTAINMENT, INC.
On May 30, 1996 the Company announced that it had executed a letter
of intent under which Jacobs Entertainment, Inc. (Jacobs) would invest a
minimum of $7 million and up to $14 million in the Company's common stock.
The transaction is subject to execution of a definitive agreement. The
original closing date was scheduled to be July 19, 1996, and was extended to
August 9, 1996. Under the terms of the proposed equity and debt investment
Jacobs will initially purchase 762,000 shares of the Company's common stock
for $5.25 per share -- a total investment of $4 million. Of this
consideration, $2 million will be paid at closing and the balance of $2
million will be paid on or before March 15, 1997. Additionally, Jacobs
intends to invest a minimum of an additional $3 million and perhaps as much
as $10 million in ratable stages between September 30, 1996 and February 1,
1998. All such investments will be made at $5.25 per share and will be
subject to an irrevocable stock purchase agreement which will be guaranteed
personally by Jeffrey P. Jacobs, Chairman and CEO of Jacobs. In addition,
these purchases are subject to satisfactory resolution, in
-15-
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Jacobs' sole but reasonable discretion, of an investigation which is being
conducted with respect to certain activities of the Casino. The Casino has
been made aware that the Colorado Division of Gaming ("Division") is
conducting an investigation into certain check cashing and bad check
collection practices of the Casino or certain of its personnel and agents
since the date of its opening. No proceedings have been initiated against the
Casino in any judicial or administrative forum as of the date of this Form
10-Q, although financial penalties and/or license suspension or revocation
could result if material charges, such as extending credit by the Casino, are
established. The Casino would vigorously contest any remedial actions brought
by the Division but the outcome of this matter is not presently determinable.
In addition, the Letter of Intent provides for existing officers and
directors of the Company, at their option, to purchase up to $1.25 million of
common stock under terms similar to those offered to Jacobs. Additionally,
Jacobs has also agreed to contribute one-half of its interest in the joint
venture to the Company, thereby increasing the Company's ownership of the
project to 75%.
Under terms of the Letter of Intent, the Board of Directors of the
Company will be expanded to nine members from the current seven. The Company
and Jacobs will each nominate four members until such time that Jacobs owns
33% of the Company at which time he will have the right to appoint another
member to the Board. Adequate vacancies will be created by an action of the
present Company's Board to accomplish this change. At closing, Jacobs will be
appointed Chief Executive Officer, replacing Robert D. Greenlee, who will
serve as Co-Chairman of the Board with Jacobs.
-16-
<PAGE> 19
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
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
(1) April 8, 1996
(2) June 10, 1996
-17-
<PAGE> 20
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.
Black Hawk Gaming & Development Company, Inc.
-----------------------------------------------
Registrant
Date: August 5, 1996 By:/s/ ROBERT D. GREENLEE
--------------- --------------------------------------------
Robert D. Greenlee, Chairman of the Board
of Directors and Chief Executive Officer
/s/ STEPHEN R. ROARK
--------------------------------------------
Stephen R. Roark, President and Chief
Financial Officer
-18-
<PAGE> 21
EXHIBIT INDEX
-------------
Exhibit
No. Exhibit Description
- ------- -------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE JUNE 30, 1996 FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH JUNE
30, 1996 FORM 10-Q FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,580,226
<SECURITIES> 0
<RECEIVABLES> 203,714
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,783,940
<PP&E> 10,802,603
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,980,685
<CURRENT-LIABILITIES> 169,689
<BONDS> 2,891,488
<COMMON> 2,505
0
0
<OTHER-SE> 17,086,692
<TOTAL-LIABILITY-AND-EQUITY> 19,980,685
<SALES> 571,780
<TOTAL-REVENUES> 1,906,068
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 601,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,882
<INCOME-PRETAX> 1,185,017
<INCOME-TAX> 440,000
<INCOME-CONTINUING> 745,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 745,017
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
