<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, 1998
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: 0-21736
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.)
17301 West Colfax, Suite 170
Golden, Colorado 80401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 216-0908
--------------
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 3,947,821 shares
- ----------------------------- ----------------
Class Outstanding as of May 12, 1998
<PAGE> 2
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
INDEX TO FORM 10-Q
MARCH 31, 1998
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income
for the three months ended March 31, 1998 and 1997 2
Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Item 3 Quantitative and Qualitative Disclosure
about Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
FOR THE PERIOD ENDED MARCH 31, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,081,775 $ 1,065,274
Accounts receivable:
Gilpin Hotel Venture 143,421 96,076
Other 2,851 15,032
Deferred tax asset 90,661 90,661
----------- -----------
Total current assets 1,318,709 1,267,043
INVESTMENT IN AND ADVANCES TO
GILPIN HOTEL VENTURE 4,739,912 4,384,648
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
Millsite 34 1,080,000 1,080,000
----------- -----------
Total land 11,871,844 11,871,844
PROJECT DEVELOPMENT COSTS 41,000,259 31,534,512
OTHER ASSETS 266,321 187,138
DEFERRED TAX ASSET 58,345 58,345
----------- -----------
$59,255,390 $49,303,530
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,404,593 $ 2,606,333
Income taxes payable 301,020 203,461
Current portion of long-term debt 300,438 300,438
----------- -----------
Total current liabilities 4,006,051 3,110,232
NON CURRENT LIABILITIES
Construction Loan 21,593,752 12,897,174
----------- -----------
Total liabilities 25,599,804 16,007,406
----------- -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 6,658,020 6,704,688
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;
3,947,821 and 3,947,496 shares issued and outstanding, respectively 3,947 3,947
Additional paid-in capital 17,195,347 17,194,575
Retained earnings 9,798,273 9,392,914
----------- -----------
Total equity 26,997,567 26,591,436
----------- -----------
$59,255,390 $49,303,530
=========== ===========
</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
FOR THE PERIOD ENDED MARCH 31, 1998 AND MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUE:
Gilpin Hotel Venture:
Management fees $112,767 $89,523
Rental income 124,665 112,538
Parking lot operation 43,987 75,000
Interest 10,798 58,948
---------- ----------
Total revenue 292,217 336,009
---------- ----------
COSTS AND EXPENSES:
Compensation and related costs 189,655 206,629
General and administrative 199,881 84,986
Preopening Costs 136,673
Interest
---------- ----------
Total costs and expenses 526,209 291,615
EQUITY IN EARNINGS OF JOINT VENTURE 836,683 695,556
MINORITY INTEREST IN THE LODGE 46,668
---------- ----------
INCOME BEFORE INCOME TAXES 649,360 739,950
INCOME TAXES 244,000 280,000
---------- ----------
NET INCOME $ 405,360 $ 459,950
========== ==========
EARNINGS PER COMMON SHARE:
BASIC 0.10 0.17
========== ==========
DILUTED 0.10 0.16
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
BASIC 3,947,695 2,662,034
========== ==========
DILUTED 4,140,604 2,947,748
========== ==========
</TABLE>
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
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $405,360 $459,950
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in earnings of joint venture (555,264) (418,494)
Minority interest share of preopening loss (46,668)
Noncash compensation 2,500 5,000
Other 2,228 2,132
Changes in operating assets and liabilities:
Accounts receivable (35,165) (74,880)
Income taxes receivable 280,000
Other assets (8,746)
Accounts payable and accrued expenses (70,063) (49,637)
Income taxes payable 97,559
----------- -----------
Net cash (used in) provided by operating activities (208,259) 204,071
----------- -----------
INVESTING ACTIVITIES:
Payments of project development costs (8,597,426) (2,751,120)
Distributions from GHV 200,000 509,000
Other (72,665) (7,332)
----------- -----------
Net cash (used in) provided by investing activities (8,470,091) (2,249,452)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from construction loan 8,696,579
Payments on long-term debt and note payable (30,099)
Other (1,727)
Acquisition of treasury stock and payments upon exercise of put option (137,499)
----------- -----------
Net cash provided by (used in) financing activities 8,694,851 (167,598)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 16,501 (2,212,979)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,065,274 4,531,355
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,081,775 $2,318,376
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Items:
Cash paid for interest, net of amounts capitalized of
$357,681 and $47,495, respectively
Cash paid for income taxes $ 156,306
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
1. BUSINESS
Black Hawk Gaming & Development Company, Inc. (The Company), was
incorporated on January 10, 1991 and is an owner, developer and operator of
gaming properties in Black Hawk, Colorado. During the quarter ended March 31,
1998, the Company owned a 50% interest in the Gilpin Hotel Casino, which it
developed and has managed since its inception in 1992. In December 1997, the
Company entered into an agreement to acquire the 50% interest in the Gilpin
Hotel Casino and related land that it does not already own and consummated the
acquisition on April 24, 1998. The Company, along with its strategic partner,
Jacobs Entertainment Ltd., is currently developing The Lodge Casino at Black
Hawk ("The Lodge"), a $72 million hotel/casino/parking project. Through March
31, 1998, the Company has expended approximately $41,000,000 on the Lodge
project, borrowed approximately $21,600,000 on its total construction loan
availability of $40,000,000 with Wells Fargo Bank and has currently projected
completion of the project during the second quarter of 1998.
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, 1998, and the results of its operations for the three months then
ended. 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 consolidated financial statements and
notes thereto contained in the Company's Form 10-K for the year ended December
31, 1997.
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 50% ownership in GHV.
Net Income Per Common Share Basic and Diluted ---All prior periods
presented in the Consolidated Financial Statements have been retroactively
adjusted to reflect the computation of earnings per share pursuant to the terms
of Statement of Financial Accounting Standards No. 128 titled "Earnings Per
Share" which became applicable for all financial reporting periods ending on or
after December 15, 1997. Earnings per common share previously reported was not
materially impacted by the application of SFAS 128.
4
<PAGE> 7
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
3. GILPIN HOTEL VENTURE
Summarized financial information relating to GHV is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets $ 4,390,612 $ 3,554,824
Gaming facility, net 8,389,841 8,463,887
Goodwill 1,244,622 1,270,879
----------- -----------
$14,025,075 $13,289,590
=========== ===========
LIABILITIES AND VENTURERS'
INVESTMENTS AND ADVANCES
Current liabilities $ 3,174,007 $ 2,957,496
Long-term debt 4,092,166 4,283,720
Venturers' investments and advances 6,758,902 6,048,374
----------- -----------
$14,025,075 $13,289,590
=========== ===========
</TABLE>
Quarter Ended
March 31,
--------------------------
1998 1997
----------- -----------
[S] [C] [C]
REVENUES:
Casino $ 7,766,106 $ 7,082,666
Food and Beverage 918,163 731,243
----------- -----------
Total revenues 8,684,269 7,813,909
Less : promotional allowance 667,757 502,214
----------- -----------
Net revenues 8,016,512 7,311,695
----------- -----------
COSTS AND EXPENSES:
Casino operations $ 3,524,533 $ 3,164,695
Cost of food and beverage sales 109,866 110,631
Food and beverage operations 594,700 496,259
Marketing, general and administrative 2,267,021 2,231,162
Depreciation and amortization 292,762 332,572
Interest expense 117,102 139,388
----------- -----------
Total costs and expenses 6,905,984 6,474,707
----------- -----------
NET INCOME $ 1,110,528 $ 836,988
=========== ===========
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.
5
<PAGE> 8
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
4. OTHER MATTERS
Black Hawk / Jacobs Entertainment, LLC (the "LLC") --- During 1994, the
Company signed a joint venture agreement with Jacobs Entertainment, Inc.
(Jacobs) of Cleveland, Ohio to develop a major hotel/casino/parking complex in
Black Hawk, Colorado (hereinafter the "Lodge"). After many changes and
revisions, the current plan for the project is a 50 room hotel/casino, with
approximately 800 slot machines, 20 table games, three restaurants, four bars,
and three floors of underground parking for approximately 450 cars. As a result
of the refinements during the development process, it was decided to incorporate
an overflow parking facility for approximately 200 additional parking spaces on
44,000 square feet of Millsite 30 into the Lodge.
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.
In connection with the formation of the LLC, Diversified provided debt and
equity financing to the Company.
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 based upon the London Interbank rate
("LIBOR") plus 3.5% (9.19% at March 31, 1998). Principal payments are due
quarterly beginning at the end of the first quarter after the Lodge is open. See
"Liquidity and Capital Resources" under Management's Discussion and Analysis of
Financial Condition and Results of Operations.
As of March 31, 1998, the Company has contributed approximately
$20,114,000 (including certain land costs) to the LLC which represents 75% of
the total contributed capital and Diversified has contributed approximately
$6,704,700 (including certain land costs) to the LLC which represents the
remaining 25% of contributed capital. As of March 31, 1998, the LLC has drawn
approximately $21,600,000 from its $40,000,000 construction loan with Wells
Fargo Bank. The Company and Diversified are required to maintain their
respective pro rata share of any additional capital contributions to the LLC.
Diversified's ownership in the LLC is reflected as a minority interest in the
accompanying consolidated balance sheet.
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.
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, 1998 totaled approximately
$1,418,000 of which $513,000 related to the quarter ended March 31, 1998.
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, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
Total revenue of the Company decreased by $44,000 or 13% and total
costs and expenses increased by $235,000 or 80%. These factors when combined
with the increase in equity in earnings of the joint venture of approximately
$141,000 or 20% and the minority interests share of the Lodge Casino of
approximately $47,000 resulted in a decrease in income before income taxes of
approximately $91,000. 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, 1998 as compared to the quarter ended March 31, 1997.
Revenues
The Company's current quarter revenue decreased by $44,000 or 13% when
compared to the comparable quarter of 1997. The net decrease in the Company's
revenue is comprised of reductions in parking lot income of $31,000 or 41% and
interest income of $48,000 or 82% offset by increases in management fees of
$23,000 or 26% and rental income of $12,000 or 11%.
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 increase or decrease accordingly. The
current period costs and expenses of the Casino increased approximately $431,000
or 7% while net revenue generated by the Casino increased by approximately
$705,000 or 10%. 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, increased over the prior quarter by
$23,000 or 26% to the comparable quarter of 1997.
During March 1997, the Company gave formal notice to its joint venture
partner in GHV that effective November 1, 1997, parking would no longer be
available on Millsite 30. The Company anticipated 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
Lodge. During 1998, a portion of Millsite 30 was available for parking and the
Company did receive parking fees from the joint venture. However, due to the
reduction in overall available parking for GHV by the Company, parking revenue
decreased by $31,000 or 41% when compared to the prior period.
During the quarter, the Company and its joint venture partner were the
co-owners of the land underlying the GHV. The Joint Venture agreement requires
GHV to pay a monthly land rental fee equivalent to 7% of the net gaming revenues
of GHV. Rental income attributable to the land underlying the GHV is reported
after elimination of the amount of such fees attributable to the Company's 50%
interest in GHV. The Company's rental income for the current quarter, increased
by $12,127 or 11%, when compared to the comparable quarter of 1997. While net
gaming revenues of GHV were up 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 significant.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The remaining portion of the Company's revenue is the result of
interest it receives on temporary cash investments. As the Company expends funds
on projects, interest income will decrease. During the first quarter of 1997,
the Company was retained by a Colorado casino (whose sole shareholder is an
officer, director and shareholder of the Company) to provide consulting services
on a month to month basis, at a rate of $5,000 per month. This agreement ceased
during the second quarter of 1997, therefore, there was no consulting income
related to this agreement for the quarter ended March 31, 1998, whereas $15,000
in consulting fees was earned in the comparable quarter of the 1997.
Costs and Expenses
The Company's current quarter costs and expenses increased by $235,000
or 80% when compared to the comparable quarter of 1997. The net increase in the
Company's costs and expenses are comprised of reductions in compensation and
related costs of $17,000 or 8% offset by increases in general and administrative
expenses of $115,000 or 135% and pre-opening costs related to the Lodge of
$137,000.
Total compensation and related costs for the current quarter decreased
by approximately $17,000 or 8%, generally due to the decrease in salaries and
costs for an employee of the Company.
The increase in general and administrative expenses of $115,000 or 135%
is principally due to an increase in: consulting fees of $56,000 or 100%; legal
fees of $33,000 or 155%; shareholder relations costs of $10,000 or 60%;
insurance of $13,000 or 100% and other net expenses of $3,000.
During the current quarter the Company incurred $137,000 in pre-opening
costs associated with the Lodge. Pre-opening costs are those costs incurred by
the Lodge which are in connection with the preparation for opening and are not
directly attributable to the design or development of the land and / or the
building. Generally, such costs include, but are not limited to, payroll, office
supplies, janitorial services, costs related to job fairs, and other costs of
hiring employees. The Company anticipates pre-opening costs to increase during
the second quarter of 1998, as the opening of the Lodge approaches.
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 the joint venture accounts for
substantially all of the Company's income before income taxes. Summarized
financial information of the joint venture is provided in Note 3 to the
financial statements included within this report.
During the three months ended March 31, 1998, GHV's total revenues
increased by $870,000 or 11%. However, when reduced by an increase in
promotional allowance of $165,000 or 33%, net revenues increased by $705,000 or
10%. Total costs and expenses of GHV increased by $431,000 or 6%. Accordingly,
the net result is an increase in the net income of GHV of $274,000 or 33% over
the comparable period of the preceding year.
Management attributes the approximate $705,000 increase in net revenues
to an increase in net casino revenue (slot machines, table games and off track
betting) of $683,000 and an increase in net food and beverage revenue (net of
promotional allowance) of $22,000.
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The income statement of GHV (see note 3 above) includes classification
of costs and expenses by operating departments. When the operating departments
are aggregated, the most significant changes that comprise the net increase in
costs and expenses of $431,000 include, increases in food and beverage costs of
$102,000 or 31%; rent of $49,000 or 11%; insurance of $12,000 or 17%; gaming
taxes of $148,000 or 11%; contract labor of $101,000 or over 100%; operating
supplies of $14,000 or 14%; printing expense of $39,000 or over 100%; property
taxes of $15,000 or 38%; progressive jackpots of $64,000 or over 100%; slot
rental expense of $18,000 or 78%; management fees of $50,000 or 26%; loss on
sale of assets of $24,000 or 100%; and other net cost and expenses of $11,000.
These increases were offset by decreases in: postage of $11,000 or 50%; repairs
and maintenance of $17,000 or 36%; parking fees of $62,000 or 39%; depreciation
of $40,000 or 12%; poker food cost of $26,000 or 72%; interest expense of
$22,000 or 16% and marketing related expenses of $38,000 or 4%.
A large part of GHV's success has been attributed to its on site
parking. During 1997 and into 1998, management increased dollars spent on target
marketing in order to compensate for the expected reduction in parking
availability due to the ongoing Lodge construction. Once the Lodge is fully
completed, parking availability for GHV will approximate 200 cars and parking
for the Lodge will approximate 700 cars. Additionally, with the completion of
the Business Improvement District's redesign and upgrade of Main Street in the
City of Black Hawk and the related infrastructure improvements; GHV has gained a
permanent bus stop, which is located directly in front of GHV.
Management will continue to focus on retaining its existing customer
base and increasing repeat business of new customers. Additionally, the Company
will strive to enhance its product by providing customers with a user friendly
gaming environment coupled with the newest in gaming technology. In the opinion
of management the mild weather, the temporary decline in the number of available
gaming devices in the City of Black Hawk as well as the marketing strategies
discussed above have allowed the GHV to remain competitive when compared to the
comparable quarter of 1997. However, until the GHV parking garage is completed,
which is anticipated to be late in the second quarter of 1998, parking for GHV
will continue to be limited.
In the opinion of management, GHV's operations for the three months
ended March 31, 1998, 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 moneys
for slot machines, plus moneys collected from table games and deposited with the
cashier) averages for gaming devices (slot machines and table games) remains in
excess of the overall gaming AGP averages for the state and the city of Black
Hawk.
Net income per common share - basic and diluted
Results of operations for the quarter ended March 31, 1998 yielded net
income per common share basic of $.10, based on weighted average shares
outstanding of 3,947,695. Earnings per common share basic for the comparable
period in 1997, was $.17 based on 2,662,034 weighted average shares outstanding.
In general, under SFAS 128, basic earnings per share gives effect to the
weighted average number of common shares outstanding while diluted earnings per
share gives effect to all potentially dilutive common shares (such as stock
options) that were outstanding during the period.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $208,000 in the first quarter
of 1998 versus net cash provided by operating activities of $204,000 in the
first quarter of 1997. The principal reason for the decrease in cash provided by
operating activities is due to the collection of an income tax refund in 1997
with no comparable collection in 1998. As a result of the completion of the
acquisition of the other half of the GHV, the Company's cash flow from operating
activities will include the operations of the GHV. The Company has previously
reported the cash flow from GHV when it receives distributions as cash from
investing activities, however in the future these amounts will be reported as
cash generated from operating activities.
Net cash used in investing activities for the first quarter of 1998 was
$8,470,000 and was primarily the result of payments for project development
costs associated with the LLC of $8,597,000 and other financing activities of
$73,000, offset by distributions from GHV of $200,000. Net cash used in
investing activities for the first quarter of 1997 was $2,249,000 and was
primarily the result of payments for project development costs associated with
the LLC of $2,751,000, other financing activities of $7,000, offset by
distributions from GHV of $509,000.
The net cash provided by financing activities during the first quarter
of 1998 amounted to $8,695,000 and is primarily the result of draws against the
Wells Fargo Bank construction loan totaling $8,696,000 and other financing
activities of $1,700. 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.
The Company's principal sources of cash flow consist of distributions
from GHV, cash generated from its rental and management operations and minority
interest contributions to the Company's majority owned subsidiary. As of March
31, 1998 the Company has working capital of approximately $648,000 (after
eliminating accrued expenses of the LLC of $3,335,000 to be financed under the
Wells Fargo Bank credit facility) as compared to $509,000 at December 31, 1997.
The Company believes its current working capital position will be
sufficient to meet its short term requirements (taking into effect the purchase
of the other half of GHV- discussed below). However, any significant development
of other projects by the Company will require additional financing, other joint
venture partners, or both.
As discussed previously, in December 1997 the Company entered into a
definitive agreement with Gilpin Ventures, Inc. (GVI), the Company's joint
venture partner in GHV to acquire the other half of the Gilpin Hotel Venture. On
April 24, 1998 the Company closed the transaction under the same terms
conditions previously announced. The financial terms consisted of the
acquisition of all of the outstanding shares of Gilpin Ventures, Inc. for
$5,000,000; a payment of $250,000 to an affiliate of GVI at closing for
termination of a consulting agreement and the purchase of an undivided 50%
interest in the land underlying the GHV Casino and in certain parcels across
Main Street from the Casino for $4,750,000.
In order to complete the acquisitions discussed above, the Company
entered into a Credit Agreement with Wells Fargo Bank, National Association
("Wells Fargo"). Some of the more important terms of the Credit Agreement are:
(i) the facility is a five year reducing revolving line of credit in the amount
of $20 million (approximately $13.5 million was drawn at closing to fund the
acquisitions described above and to pay existing mortgage debt against the
property purchased); (ii) the available balance of the facility will be used to
pay certain equipment debt, to pay for the third story of a parking garage under
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
construction across Main Street from the Gilpin Hotel Casino, and as discussed
above, with the balance (estimated to approximate $1,000,000) for working
capital; (iii) the facility bears interest at the rate of 75 basis points above
the prime rate (approximately 9.5% at March 31, 1998); (iv) beginning January 1,
1999, the maximum credit line available will be reduced by $500,000 per quarter
until April 24, 2001, when the outstanding balance of the facility will be due;
(v) the Credit Agreement contains a number of affirmative and negative covenants
which, among other things, requires the Company to maintain certain financial
ratios and refrain from certain actions without Wells Fargo's concurrence; and
(vi) substantially all of the assets of the Gilpin Hotel Venture, GVI and the
Company (except the Company's 75% interest in The Lodge Casino) are pledged as
security for repayment of the credit facility. The Credit Agreement also
contains customary events of default provisions.
The Company believes its current working capital position coupled with the
increased profits and realization of certain economies of scale, which may
result from the acquisition of the other half of GHV as well as the remaining
balance on the revolving line of credit after payment of additional Lodge
capital contributions and GHV garage construction costs, will be sufficient to
meet the Company's short-term cash requirements which are operating expenses and
interest payments on indebtedness. However, any significant development of other
projects by the Company will require additional financing, other joint venture
partners, or both.
The Company believes the LLC (in which it owns a 75% interest) will have
sufficient funding to complete construction of The Lodge Casino, budgeted at
approximately $72 million. The members of the LLC have contributed approximately
$28 million to the LLC and the LLC's credit facility is $40 million of which
approximately $22 million had been drawn through March 31, 1998. The Company
believes it will cover its remaining share of the total projected cost of The
Lodge Casino and start-up costs with the balance of the LLC's credit facility,
current working capital, funds from operation of the Gilpin Hotel Casino and
with a portion of the new credit facility discussed above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
NONE
11
<PAGE> 14
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:
No. Description
27 Financial Data Schedule
( b ) Reports on Form 8-K
(1) January 6, 1998, reporting under Item 2
The signing of agreements to acquire assets and
land related to GHV
(2) April 24, 1998, reporting under Item 2
The closing of the transactions reported in the
January 6, 1998, Report on Form 8-K.
12
<PAGE> 15
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 12, 1998 By: /s/ JEFFREY P. JACOBS
--------------------------------------------
Jeffrey P. Jacobs, Chairman of the Board
of Directors and Chief Executive Officer
/s/ STEPHEN R. ROARK
--------------------------------------------
Stephen R. Roark, President and Chief
Financial Officer
13
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DECEMBER 31, 1997 FOR 10-K FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,081,775
<SECURITIES> 0
<RECEIVABLES> 146,273
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,318,709
<PP&E> 52,672,103
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,255,390
<CURRENT-LIABILITIES> 4,006,050
<BONDS> 21,693,752
0
0
<COMMON> 3,947
<OTHER-SE> 26,993,620
<TOTAL-LIABILITY-AND-EQUITY> 59,255,390
<SALES> 281,419
<TOTAL-REVENUES> 1,128,901
<CGS> 0
<TOTAL-COSTS> 389,535
<OTHER-EXPENSES> (46,668)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 649,360
<INCOME-TAX> 244,000
<INCOME-CONTINUING> 405,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405,360
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
