<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 March 31, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ------ SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number: 33-57342
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84 -1158484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2060 Broadway, Suite 400
Boulder, Colorado 80302
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(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 2,659,543 shares
- ----------------------------- -------------------------------
Class Outstanding as of May 5, 1997
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
INDEX TO FORM 10-Q
MARCH 31, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 1
Consolidated Statements of Income
for the quarters ended March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows
for the quarters ended March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,318,375 $ 4,531,355
Accounts receivable:
Gilpin Hotel Venture 140,534 78,865
Other 15,283 2,071
Income taxes receivable 45,100 325,100
Deferred tax asset 79,267 79,267
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Total current assets 2,598,559 5,016,658
INVESTMENT IN AND ADVANCES TO
GILPIN HOTEL VENTURE 3,876,143 3,966,645
LAND
Leased to Gilpin Hotel Venture
Casino Ground 1,967,689 1,967,689
Millsite 29 791,801 791,801
Held for development:
Oklahoma 579,049 579,049
Under development:
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
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Total land 10,791,844 10,791,844
PROJECT DEVELOPMENT COSTS 9,080,993 4,699,513
OTHER ASSETS 48,193 49,335
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TOTAL $26,395,732 $24,523,995
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,076,509 $ 495,786
Current portion of long-term debt 126,978 124,496
----------- -----------
Total current liabilities 2,203,488 620,282
NON CURRENT LIABILITIES
Convertible note payable to shareholder 1,500,000 1,500,000
Long term debt 2,219,058 2,251,639
Deferred tax liability 61,506 61,506
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Total liabilities 5,984,051 4,433,427
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COMMITMENT AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT OPTIONS 137,499
MINORITY INTEREST 1,793,500 1,793,500
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;
2,659,543 and 2,672,043 shares issued and outstanding, respectively 2,660 2,670
Additional paid-in capital 10,468,978 10,470,306
Retained earnings 8,146,543 7,686,593
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18,618,181 18,159,569
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TOTAL $26,395,732 $24,523,995
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</TABLE>
See notes to consolidated financial statements.
1
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PART I - FINANCIAL INFORMATION (UNAUDITED) - (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
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<TABLE>
<CAPTION>
Quarter Ended
March 31, March 31,
1997 1996
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<S> <C> <C>
REVENUE:
Gilpin Hotel Venture:
Management fees $ 89,523 $ 81,984
Rental income 112,538 109,413
Parking lot operation 75,000 98,804
Interest 43,948 52,460
Other 15,000
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Total revenue 336,009 342,661
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COSTS AND EXPENSES:
Compensation and related costs 206,629 170,529
Other general and administrative 84,986 143,530
Interest 65,146
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Total costs and expenses 291,615 379,205
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EQUITY IN EARNINGS OF JOINT VENTURE 695,556 616,096
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INCOME BEFORE INCOME TAXES 739,950 579,551
INCOME TAXES (280,000) (215,000)
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NET INCOME 459,950 364,551
Costs related to common stock subject to put options (9,042)
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NET INCOME ATTRIBUTABLE TO COMMON SHARES $ 459,950 $ 355,509
=========== ===========
NET INCOME PER COMMON SHARE $ 0.17 $ 0.14
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 2,661,190 2,521,844
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
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PART I - FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
Quarter Ended
March 31,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 459,950 $ 364,551
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 2,132
Equity in earnings of joint venture (418,494) (325,895)
Noncash compensation 5,000
Changes in operating assets and liabilities:
Accounts receivable (74,880) (1,436)
Accounts payable and accrued expenses 1,580,723 19,813
Income taxes receivable/payable 280,000 165,000
Other assets
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Net cash provided by operating activities 1,834,431 222,033
----------- -----------
INVESTING ACTIVITIES:
Land and land improvements (24,310)
Distributions from GHV 509,000 1,246,563
Note receivable Gilpin Gold, Inc. 1,199,535
Payments of project development costs (4,381,480)
Other (7,332) (314,255)
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Net cash provided by (used in) investing activities (3,879,812) 2,107,533
----------- -----------
FINANCING ACTIVITIES:
Acquisition of treasury stock and payments upon exercise of put option (137,499) (152,585)
Payments on long-term debt (30,099) (49,114)
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Net cash (used in) financing activities (167,598) (201,699)
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,212,979) 2,127,867
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,531,355 2,189,648
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,318,375 $ 4,317,515
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 47,495 $ 65,145
=========== ===========
Cash paid for income taxes $ 50,000
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</TABLE>
See notes to consolidated financial statements.
3
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. (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 on 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, which was put into operation in
January 1995. In November 1996, the Company entered into an Amended and
Restated Purchase Agreement and an Operating Agreement to form Black Hawk /
Jacobs Entertainment, LLC (the LLC)for the purpose of developing and managing a
hotel/casino project in Black Hawk, Colorado.
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 the fair presentation of the financial position of the
Company at March 31, 1997. The accompanying unaudited consolidated financial
statements include the accounts of the Company, its wholly owned subsidiary
Native American Management Corp. and its 75% owned subsidiary Black Hawk /
Jacobs Entertainment, LLC. 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, 1996.
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.
New Accounting Pronouncement --- The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to all entities with publicly held
common stock or potential common stock. This Statement replaces the
presentation of primary EPS with a presentation of basic EPS. Basic EPS
excludes dilution and is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding for
the period. This Statement is not expected to have a material effect on the
Company's reported EPS amounts. This Statement is effective for the Company's
financial statements for the year ended December 31, 1997.
4
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(CONTINUED)
3. GILPIN HOTEL VENTURE
Summarized financial information relating to GHV is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
ASSETS
Current assets $ 2,960,273 $ 2,712,283
Gaming facility, net 8,639,887 8,966,878
Goodwill 1,349,875 1,376,136
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$12,950,035 $13,055,297
=========== ===========
LIABILITIES AND VENTURERS'
INVESTMENTS AND ADVANCES
Current liabilities $ 2,998,731 $ 2,681,137
Long-term debt 4,919,947 5,161,792
Venturers' investments and advances 5,031,357 5,212,368
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$12,950,035 $13,055,297
=========== ===========
<CAPTION>
Quarter Ended March 31
-------------------------
1997 1996
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<S> <C> <C>
REVENUES:
Casino $ 7,082,666 $ 6,918,101
Food and Beverage 731,243 625,901
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Total revenues 7,813,909 7,544,002
Less : promotional allowance 502,214 293,083
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Net revenues 7,311,695 7,250,919
=========== ===========
COSTS AND EXPENSES:
Casino operations $ 3,164,695 $ 3,198,779
Cost of food and beverage sales 110,631 150,941
Food and beverage operations 496,259 505,668
Marketing, general and administrative 2,231,162 2,323,170
Depreciation and amortization 332,572 296,457
Interest expense 139,388 124,115
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Total costs and expenses 6,474,707 6,599,130
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NET INCOME $ 836,988 $ 651,789
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</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 March 31, 1996
financial information have been reclassified to conform to the March 31, 1997
presentation.
5
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BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(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 for the purpose of operating a 53,000 square foot, high stakes
Indian bingo hall, in a re-development area of downtown Oklahoma City known as
"Bricktown". The Company endeavored to negotiate with the Sac and Fox Nation
Indian Tribe, however, during 1996, negotiations did not progress as the
Company hoped. The exceedingly difficult inter-relationships between the Tribe,
the Bureau of Indian Affairs, and the National Indian Gaming Commission have
caused the Company to reconsider the overall economics of this transaction.
Presently, the Company is pursuing alternative uses of the property or its sale
in which event the Company believes it can recoup its cash cost, however, can
give no assurance in this regard.
Black Hawk / Jacobs Entertainment, LLC (the "LLC") --- 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. After many changes and revisions, the current plan for
the project is a 50-60 room hotel/casino, with approximately 800 slot machines,
20 table games, three restaurants, three bars, and three floors of underground
parking for approximately 500 cars. As a result of the refinements during the
development process, it was decided to incorporate a two-story overflow parking
facility for approximately 220 additional parking spaces on 44,000 square feet
on Millsite 30 into the Jacobs Project.
On March 27, 1997 the LLC closed financing, effective March 7, 1997, with Wells
Fargo Bank for a $40,000,000 construction loan. The loan has a five year term,
with a variable interest rate of LIBOR plus 3.5% (9% at March 31, 1997).
Principal payments are due quarterly beginning at the end of the first quarter
after the project is open, which is presently estimated to be May 15, 1998. See
"Liquidity and Capital Resources" under Management's Discussion and Analysis of
Financial Condition and Results of Operations.
On November 12,1996, the Company entered into an agreement with
Diversified Opportunities Group, Inc. (Diversified) and BH Entertainment Ltd.
(BH) (both affiliates of Jacobs) whereby Diversified, BH, and the Company
created the LLC in which the Company is a 75% owner and the manager of the LLC.
The Company's interest in the LLC is based upon required total capital
contributions of $15,000,000. In connection with the formation of the LLC,
Diversified provided debt and equity financing to the Company.
As of March 31, 1997, the Company has contributed $4,792,500 to the
LLC which represents 72% of the contributed capital, as defined, of the LLC as
of the end of the first quarter of 1997. The Company is required to continue to
contribute to the LLC until such time as its capital contributions are equal to
its 75% ownership interest, at which time Diversified will resume its pro rata
contributions to the LLC as necessary. Diversified's interest in the LLC is
reflected as minority interest in the accompanying consolidated balance sheet.
5. CAPITALIZED CONSTRUCTION INTEREST
As a result of construction of the hotel/casino/parking complex in
Black Hawk, Colorado, the Company began capitalizing interest expense during
1996. Capitalized interest through March 31, 1997 totaled approximately $200,000
of which $75,000 related to the quarter ended March 31, 1997.
6
<PAGE> 9
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
QUARTER ENDED MARCH 31, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
Income before income taxes for the quarter ended March 31, 1997
increased compared to the comparable quarter of 1996 by $160,399 or 28%. While
total revenue of the Company is generally equivalent to the prior quarter,
increased profitability is due to a decrease in total costs and expenses of
approximately $87,590 or 23% and an increase in equity in earnings of the Joint
Venture of approximately $79,460 or 13%. The following is a discussion of the
various changes in the components of the Company's consolidated statements of
operations for the quarter ended March 31, 1997 as compared to the quarter
ended March 31, 1996.
Revenues
The Company's current quarter total revenue is equivalent to the
comparable quarter, showing only a slight decline of approximately $6,652 or
2%. 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. The current period
costs and expenses of the Casino decreased by approximately $124,000 or 2%
while net revenue generated by the Casino increased by approximately $61,000 or
1%. Accordingly, the management fee earned by the Company for the current
quarter, after elimination of the amount of such fee attributable to the
Company's 50% interest in the Joint Venture, resulted in an increase over the
prior quarter of $7,539 or 9%.
The Company and its joint venture partner are the co-owners of the
land underlying the Casino. The Joint Venture agreement requires 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 quarter increased by approximately $3,125 or 3%. While net gaming
revenues of the Casino for the current quarter were up as compared to the same
quarter 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. Due to
the reduction in available parking for the Gilpin Hotel Casino by the Company,
parking revenue decreased by $23,804 or 24% when compared to the prior period.
In February 1995, the Company began charging an additional monthly fee to the
Joint Venture for the use of Millsite 31 at a rate of $9,202 per month which is
the same per car per day rate used on Millsite 30. In November 1995, the
Company agreed to allow the use of
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Millsite 32 for parking, on a trial basis, for a monthly charge of $10,000. The
Joint Venture utilized Millsite 32 in January and February of 1996, however, as
the Company commenced predevelopment work on Millsite 32 during March of 1996,
the parking on Millsite 32 has not been available since that time.
Additionally, the Company eliminated parking on Millsite 31 and has reduced the
parking availability on Millsite 30 due to the LLC's current construction
efforts. The Company may continue to rent a portion of Millsite 30 to the
Gilpin Hotel Casino however, only on a month-to-month basis and as construction
scheduling will allow. The agreement for the use of Millsite 30 for the benefit
of the Gilpin Hotel Casino, ended on January 1, 1996. Presently, the Company is
charging the Gilpin Hotel Casino the same $50,000 monthly fee established in
1995. During March 1997 the Company gave formal notice to its Joint Venture
partner in the GHV that effective November 1, 1997 parking will no longer be
available on Millsite 30. The Company would anticipate a decline in its parking
lot operation revenue as a result of the termination of this agreement and
while construction commences on Millsite 30 for the overflow parking facility
for the LLC project.
The remaining portion of the Company's revenue is the result of
interest it receives on temporary cash investments and consulting services.
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. The loan was
repaid in the second quarter of 1996, therefore there was no interest income
related to this note the quarter ended March 31, 1997 whereas $15,916 in
interest was earned on this note in the comparable quarter of the prior year.
As the Company expends funds on other projects, interest income will decrease.
During the current quarter, the Company was retained by a Colorado casino to
provide consulting services on a month to month basis, at the rate of $5,000.
Costs and Expenses
Total compensation and related costs for the current quarter increased
by approximately $36,100 or 21% generally due to the increased salaries and
costs for employees of the Company; other general and administrative costs
decreased by $58,544 or 41% as the Company's increased level of activity
pursuing other markets decreased. Interest incurred during construction
totaling approximately $75,000 was capitalized during the current quarter
resulting in a decrease in interest expense of approximately $65,146 when
compared to the comparable quarter of the previous year.
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Equity in Earnings of Joint Venture
By virtue of the Company's 50% ownership of GHV, the Company is
required 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 quarter ended March 31, 1997 GHV's revenues increased by
approximately $270,000. However, when reduced by an increase in complimentary
sales of $209,000, net revenues increased by approximately $61,000. The total
costs and expenses of GHV decreased by approximately $124,000. Accordingly, the
net result is an increase in the net income of GHV of approximately $185,000,
or 28% over the comparable quarter of the preceding year.
The competitive environment in the City of Black Hawk has changed the
dynamics of the gaming industry significantly from the end of the comparable
quarter of the prior year to the end of the current quarter. The principal
changes include: an increase in parking availability in the city of
approximately 550 parking spaces as well as an increase in the total number of
gaming devices of approximately 400 units or 8% by competing casinos. While
these changes took place, GHV's parking availability was reduced by 105 parking
spaces due to construction efforts of the LLC.
The change in the Casino management of GHV that occurred during the
first quarter of the preceding year has had a positive impact on GHV's
operations. The new management has: streamlined the existing operations of the
GHV; increased marketing dollars spent on the busing program to offset the
reduction in parking; realigned marketing programs to provide more benefit to
players; enhanced the food and beverage product and remained focused on
providing an enjoyable gaming experience for the GHV customers. With these
changes GHV remained competitive, and improved its operational efficiency when
compared to the first quarter of 1996.
GHV attributes the approximate $61,000 increase in net revenues
principally to an increases in net Casino revenue (slot machines, table games
and OTB) of $165,000 offset by a decrease in net food and beverage revenue (net
of promotional allowance) of $104,000.
Although net revenues did not increase significantly, management is
encouraged by the first quarter results. The slot revenue reported for the
quarter ended March 31, 1997 was the highest first quarter in the history of
GHV, even though traffic flow was reduced due to the construction efforts
resumed by the Business Improvement District (BID) on Main Street in Black
Hawk. BID efforts were located directly in front of the Casino during the third
week of March and will continue through the second quarter of 1997. Management
believes that the BID will have a negative impact on revenues of GHV.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The income statement of GHV, (see note 3 of the accompanying notes to
consolidated financial statements), includes classification of costs and
expenses by operating departments. The net decrease in costs and expenses of
the individual departments has not been significant when compared to the first
quarter of 1996, however, when aggregated, the most significant changes that
comprise the net decrease in costs and expense of $124,000 include, decreases
in: labor costs of $402,000 or 18%; legal fees of $49,000 or 78%; parking fees
of $153,500 or 49%; bad debts of $75,000 or 54% and other net expenses of
$20,500. These decreases are offset by increases in: marketing and related
costs of $400,000 or 78%; gaming taxes of $96,000 or 8%; rent of $12,500 or 3%;
management fees of $16,000 or 9%; depreciation of $36,000 or 12% and interest
expense of $15,000 or 12%.
Essentially, the current quarter decrease in total expenses of
$124,000 or 2%, when compared to the first quarter of 1996; reflects the
operational savings that have been converted to marketing expenses. The Company
believes that many of the expenses in the current quarter, when compared to the
prior quarter, indicate that the additional dollars spent on marketing programs
are beginning to have a positive impact.
In the opinion of management, GHV's operations for the first quarter
of 1997 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 quarter income tax expense is based upon a combined
federal and state tax rate approximating 37%. The Internal Revenue Service
(IRS) has examined GHV's 1992, 1993, 1994 and 1995 income tax returns. GHV and
the IRS have reached a settlement for findings, in GHV's 1992, 1993 and 1994
income tax returns which will increase the amount of taxable income allocated
to the venturers by approximately $128,000, $158,000 and $200,000,
respectively. GHV and the IRS have also reached a settlement of findings of
GHV's 1995 income tax return which will decrease the amount of taxable income
allocated to the venturers by approximately $57,000. The findings represent
principally temporary differences, which will reverse in future years.
Net income per share of common stock
Results of operations for the first quarter of 1997 yielded net income
per common share of approximately $.17 based on weighted average shares
outstanding of 2,661,000, while earnings per share for the first quarter of
1996 were $.14 based on weighted average shares outstanding of 2,521,000.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,834,400 in the first
quarter of 1997 and $222,033 in the first quarter of 1996. The principal reason
for the increase in cash provided by operating activities is due principally to
increase in accounts payable and accrued expenses associated with the LLC.
Net cash used in investing activities for the first quarter of 1997
was $3,880,000 and was primarily the result of payments for project development
costs associated with the LLC of $4,381,000, offset by distributions from GHV
of $509,000. During the first quarter of 1996 the net cash provided by
investing activities totaled $2,107,533 and was primarily the result of
distributions from GHV of $1,246,500 and loan repayments of $1,199,500 offset
principally by the pursuit of other projects totaling $314,000 and improvements
to land totaling $24,000.
The net cash used in financing activities during the first quarter of
1997 amounted to $167,600 and is the result of the acquisition of common stock
"put" to the Company totaling $137,500 and payments on long-term debt of
$30,000. Financing activities used $202,000 in the first quarter of 1996,
principally the result of the acquisition of treasury stock and common stock
"put" to the Company totaling $153,000 and payments on long-term debt of
$49,000.
The Company's principal sources of capital consist of cash flow
distributions from GHV and cash generated from its rental and management
operations and minority interest contributions to its majority owned
subsidiary. As of March 31, 1997 the Company has working capital of $395,000 as
compared to $4,396,000 at December 31, 1996. In the first quarter of 1997 the
Company received $509,000 of distributions from GHV. The project development
costs associated with the LLC has temporarily decreased working capital. The
Company believes its current working capital position and distributions from
GHV, as well as the additional proceeds from the sale of convertible notes
and/or stock pursuant to the Jacobs transaction, discussed below, and totaling
an additional $4,500,000 at March 31,1997, will be sufficient to meet its short
term requirements, which are operating expenses, principal and interest
payments on indebtedness and capital contributions required by the LLC prior to
drawing upon project financing. However, any significant development of other
projects by the Company 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 to
the Company its proportion of development costs of the Gilpin Hotel Casino out
of its share of the after-tax distributions of 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 based upon 40% of the
after tax profits of the Casino, if any.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
There were no repayments against the development account during the
quarters presented. The Company's joint venture partner (GVI) is withholding
payment against this recoupment account and is disputing certain expenses paid
by, and distributions made to the Company. The Company has made numerous
requests of GVI to prepare a detailed listing of the dates, description and
amounts of the disputed items, however the Company has not received any such
explanation. The Company intends to institute arbitration proceedings to pursue
collection of the amounts due pursuant to the recoupment account which is
estimated at $200,000 through March 31, 1997.
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. After many changes, to
accommodate certain infrastructure requirements of the city of Black Hawk and
other state and federal agencies, the current plan for the project has now
evolved into a single phased 50 room hotel/casino, with approximately 800 slot
machines, 20 table games, three restaurants, three bars, three floors of
underground parking and an attendant two-story parking structure on adjacent
Millsite 30. Total parking will accommodate approximately 700 vehicles. The
project is owned by the LLC in which the Company owns a 75% interest and Jacobs
a 25% interest.
In connection with the LLC agreement, the Company issued 190,476
shares of its $.001 par value common stock to Diversified Opportunities Group,
Inc. (Diversified) for $1,000,000 and convertible debt amounting to $1,500,000.
The debt is convertible at $5.25 per share and is secured by a first priority
lien on 100% of the Company's interest in the LLC. Interest on the note is at a
variable rate per annum, computed based upon the London Interbank rate (LIBOR)
plus 2% and is payable quarterly. Additionally, the LLC agreement further
provides for Diversified to invest an additional $4,500,000 in convertible
notes under the same terms and conditions as the $1,500,000 of convertible
notes.
In December 1996 the LLC gave the contractor "notice to proceed" with
limited construction pending securing of permanent financing. On February 27,
1997 the LLC obtained its excavation / foundation permit from the City of Black
Hawk and on March 27, 1997, effective March 7, 1997, closed its financing with
Wells Fargo Bank for a $40,000,000 construction loan. Since the commencement of
the project, the Company has funded its share of the LLC costs, totaling
$4,792,500, excluding certain land costs through March 31,1997, as well as an
additional $297,000 in costs which were incurred prior to formation of the LLC,
out of current working capital and/or funds generated by operations. Presently
the total project costs, including land costs, are estimated to be
approximately $67,000,000.
Under the terms of the credit facility agreement the Company must
contribute $15 million in equity to the LLC project for its 75% interest before
disbursements under the credit facility will be made by the lender. It is
anticipated that the majority of this commitment will be met from the
contribution of certain land ($3,600,000), credit for development costs already
paid ($6,600,000), unfunded commitments of Jacobs ($4,500,000) and other
officers and directors ($750,000). As the result of using most of its current
working capital, the Company may find it necessary to seek additional sources of
either debt or equity financing.
12
<PAGE> 15
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
A special meeting of shareholders of the Company was held on January
13, 1997, for the following purposes:
1. To amend the Company's Articles of Incorporation to increase the size
of its Board of Directors from not more than seven to not more than
nine members;
2. To amend the Company's Articles of Incorporation to provide for
staggered terms for the Company's Board of Directors; and
3. To approve, in accordance with the bylaws of the National Association
of Securities Dealers, Inc. ("NASD"), the conversion feature of
certain notes issued by the Company pursuant to which shares of the
Company' Common Stock may be issued.
The Board of Directors fixed the close of business on December 13,
1996, as the record date for the determination of shareholders entitled to vote
at the meeting. Reference is made to a definitive proxy statement filed by the
Company pursuant to Regulation 14A adopted under the Securities Exchange Act of
1934 which is incorporated herein for further details.
Results of voting on the three proposals were as follows:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
1. Increase in Size of Board 2,389,008 25,286 1,925
2. Staggered Board (Not approved by requisite number of shares.) 1,243,254 38,540 1,700
3. Approval per Nasdaq Listing Agreement 1,044,962 23,711 6,051
</TABLE>
13
<PAGE> 16
PART II - OTHER INFORMATION (CONTINUED)
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) March 27, 1997 Re: Closing of Construction
financing with Wells Fargo Bank, N.A.
14
<PAGE> 17
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: May 2, 1997 By:
----------- ---------------------------------------------
Jeffrey P. Jacobs, Co-Chairman of the Board
of Directors and Chief Executive Officer
---------------------------------------------
Stephen R. Roark, President and Chief
Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH THE
MARCH 31, 1997 FORM 10-Q FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,318,375
<SECURITIES> 0
<RECEIVABLES> 280,184
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,598,559
<PP&E> 10,791,844
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,395,732
<CURRENT-LIABILITIES> 2,203,488
<BONDS> 5,574,064
0
0
<COMMON> 2,660
<OTHER-SE> 18,615,522
<TOTAL-LIABILITY-AND-EQUITY> 26,395,732
<SALES> 292,061
<TOTAL-REVENUES> 1,031,565
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 291,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 739,950
<INCOME-TAX> 280,000
<INCOME-CONTINUING> 459,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459,950
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
