<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 September 30, 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.)
P.O. Box S
240 Main Street
Black Hawk, Colorado 80422
--------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 582-1117
--------------
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 4,054,698 shares
- ------------ ----------------
Class Outstanding as of November 12, 1998
<PAGE> 2
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
INDEX TO FORM 10-Q
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 1
Consolidated Statements of Income for the three and
nine months ended September 30, 1998 and 1997 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-15
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,236,981 $ 1,065,274
Accounts receivable:
Gilpin Hotel Venture 96,076
Other 80,659 15,032
Inventories 451,486
Prepaid expenses and other 609,721
Deferred tax asset 90,661 90,661
------------- ------------
Total current assets 12,469,508 1,267,043
------------- ------------
INVESTMENTS:
Gilpin Hotel Venture 4,384,648
St. Croix 521,461
GAMING FACILITIES:
Land 16,085,092 11,292,795
------------- ------------
Building and improvements 56,027,287
Equipment 13,600,406
Accumulated depreciation (5,585,372)
Project development costs 31,534,512
------------- ------------
Total gaming facilities 64,042,321 31,534,512
GOODWILL, NET 2,844,182
OTHER ASSETS 1,950,947 766,187
DEFERRED TAX ASSET 453,345 58,345
------------- ------------
$ 98,366,856 $ 49,303,530
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,877,701 $ 253,898
Income taxes payable 1,304,554 203,461
Current portion of long-term debt 3,012,970 300,438
------------- ------------
Total current liabilities 11,195,225 757,797
------------- ------------
NON CURRENT LIABILITIES
Revolving line of credit 14,118,481
Building costs payable 1,538,310 2,352,435
Construction loan 33,486,841 12,897,174
------------- ------------
Total noncurrent liabilities 49,143,632 15,249,609
------------- ------------
Total liabilities 60,338,857 16,007,406
------------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 7,717,164 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;
4,054,698 and 3,947,496 shares issued and outstanding, respectively 4,055 3,947
Additional paid-in capital 18,033,601 17,194,575
Retained earnings 12,273,179 9,392,914
------------- ------------
Total stockholders' equity 30,310,835 26,591,436
------------- ------------
$ 98,366,856 $ 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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Casino $ 21,296,238 $ $ 27,961,421 $
Food and beverage 2,514,346 3,271,345
Hotel 121,458 121,458
Gilpin Hotel Venture:
Management fees 100,080 138,317 262,156
Rental income 119,879 154,346 339,750
Parking lot operation 75,000 49,722 225,000
Other 197,483 22,942 234,973 121,721
------------ ------------ ------------ ------------
Total revenue 24,129,525 317,901 31,931,582 948,627
Promotional Allowances 1,687,786 2,238,928
------------ ------------ ------------ ------------
Net revenue 22,441,739 317,901 29,692,654 948,627
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Casino operations 7,912,656 10,118,511
Cost of food and beverage operations 2,356,345 2,925,866
Hotel 152,866 157,875
Marketing, general and administrative 5,903,411 304,624 8,478,024 874,247
Depreciation and amortization 995,231 1,310,307
Interest 1,216,390 1,230,457
Pre-opening costs 77,217 1,569,376
------------ ------------ ------------ ------------
Total costs and expenses 18,614,116 304,624 25,790,416 874,247
------------ ------------ ------------ ------------
EQUITY IN EARNINGS OF GILPIN HOTEL VENTURE 775,187 1,017,789 1,993,889
LESS MINORITY INTEREST 595,729 395,083
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES & EXTRAORDINARY ITEM 3,231,894 788,464 4,524,944 2,068,269
INCOME TAXES (1,206,000) (306,250) (1,690,870) (758,975)
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 2,025,894 482,214 2,834,074 1,309,294
EXTRAORDINARY ITEM - EARLY RETIREMENT OF DEBT, NET OF INCOME TAXES 46,192 85,771
------------ ------------ ------------ ------------
NET INCOME $ 2,025,894 $ 482,214 $ 2,880,266 $ 1,395,065
============ ============ ============ ============
EARNINGS PER SHARE:
BASIC:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.50 $ 0.18 $ 0.71 $ 0.49
EXTRAORDINARY ITEM -- -- 0.01 0.03
------------ ------------ ------------ ------------
NET INCOME $ 0.50 $ 0.18 $ 0.72 $ 0.52
============ ============ ============ ============
DILUTED:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.47 $ 0.12 $ 0.67 $ 0.39
EXTRAORDINARY ITEM -- -- 0.01 0.02
------------ ------------ ------------ ------------
NET INCOME $ 0.47 $ 0.12 $ 0.68 $ 0.41
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 4,054,423 2,660,318 4,002,227 2,660,806
Dilutive effect of outstanding:
Convertible debt 1,198,412 716,579
Options 285,915 41,729 248,200
Warrants 10,659
------------ ------------ ------------ ------------
DILUTED 4,340,338 3,900,459 4,261,086 3,377,385
============ ============ ============ ============
</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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 2,880,266 $ 1,395,065
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,310,307 6,403
Deferred taxes (395,000)
Equity in earnings of joint venture (675,405) (1,166,984)
Minority interest 395,083
Noncash compensation 13,000 6,500
Loss on sale of assets 14,260
Gain on early retirement of debt (73,322) (136,796)
Gain on sale of Oklahoma land (14,280)
Other 6,362
Changes in operating assets and liabilities:
Accounts receivable 491,824 (49,823)
Inventories (281,023)
Income taxes receivable 325,100
Other assets (704,290) (105,678)
Accounts payable and accrued expenses 604,648 136,264
------------ ------------
Net cash provided by operating activities 3,572,430 410,051
------------ ------------
INVESTING ACTIVITIES:
Cash acquired in acquisition of Gilpin Ventures, Inc. 1,726,062
Proceeds from sale of Oklahoma land 600,000
Gilpin Ventures, Inc. acquisition (10,000,000)
Construction and equipment costs of gaming facility (20,536,129) (16,124,804)
Distributions from GHV 1,168,407 959,000
St. Croix (521,461)
Other 99,486 (151,762)
------------ ------------
Net cash used in investing activities (27,463,635) (15,317,566)
------------ ------------
FINANCING ACTIVITIES:
Acquisition of treasury stock and payments upon exercise of put option (137,499)
Proceeds from exercise of warrants 846,604
Proceeds from issuance of convertible debt to shareholders 5,250,000
Proceeds from issuance of debt to shareholders 700,000
Minority interest contributions to majority-owned subsidiary 617,393 3,831,188
Proceeds from construction loan 22,957,981
Proceeds from revolving line of credit 17,994,651 4,342,000
Payments on long-term debt and note payable (8,333,247) (2,238,901)
Other (20,470)
------------ ------------
Net cash provided by financing activities 34,062,912 11,746,788
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 10,171,707 (3,160,727)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,065,274 4,531,355
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,236,981 $ 1,370,628
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Items:
Cash paid for interest, net of amounts capitalized $ 543,515
Cash paid for income taxes $ 1,021,772 $ 244,776
Noncash Items:
and contributed to majority-owned subsidiary by minority interest $ 1,080,000
</TABLE>
3
<PAGE> 6
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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. Through April 23, 1998, the Company
owned a 50% interest in the Gilpin Hotel Venture (GHV), which owned the Gilpin
Hotel Casino, which the Company developed and has managed since its inception in
1992. On April 24, 1998, the Company acquired the 50% interest in GHV and
related land that it did not previously own for $10 million. During the second
quarter of 1998, the Company completed the development of the casino portion of
The Lodge Casino at Black Hawk ("The Lodge") and was open for business on June
24,1998. On August 17th, 1998 the hotel portion of the project opened and on
November 6, 1998 the parking garage opened. The total cost of the
hotel/casino/parking project was approximately $74 million.
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
September 30, 1998 and the results of its operations for the three and nine
months then ended. The accompanying unaudited consolidated financial statements
include the accounts of the Company, its wholly owned subsidiaries Gilpin
Ventures, Inc. and 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. Before April
24, 1998, the Company accounted 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 for all periods presented prior to
April 24, 1998.
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. The
results of interim periods are not necessarily indicative of results to be
expected for the year.
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 Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." This
pronouncement became effective for all financial reporting periods ending on or
after December 15, 1997. Earnings per common share previously reported were not
materially impacted by the application of SFAS 128.
RECLASSIFICATIONS - Certain reclassifications have been made in the 1997
financial statements to conform to the classifications used in 1998.
3. GILPIN HOTEL VENTURE
Condensed results of operations of GHV for the periods ended April 24,
1998 and September 30, 1997, during which GHV was accounted for under the equity
method are as follows:
<TABLE>
<CAPTION>
1/01/98 Nine months
through ended
4/23/98 9/30/97
----------- -----------
<S> <C> <C>
Revenues $ 9,948,008 $22,175,471
Costs and expenses 8,597,200 19,841,503
----------- -----------
Net income $ 1,350,808 $ 2,333,968
=========== ===========
</TABLE>
The Company's equity in earnings of GHV reported in the statements of
income does not equal 50% of the above operating results due to the elimination
of the Company's 50% interest in management fees and rents charged to GHV.
4
<PAGE> 7
BLACKHAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(CONTINUED)
On April 24, 1998 the Company acquired the 50% interest in GHV and
related land that it did not previously own for $10 million. The Company
borrowed approximately $13,500,000 under a revolving line of credit with Wells
Fargo Bank to finance the acquisition and retire a portion of the existing GHV
debt. The line of credit provides for maximum borrowings of $20,000,000 and
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. Additionally,
substantially all of the assets of the Gilpin Hotel Venture, Gilpin Ventures,
Inc. (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
revolving line of credit bears interest at the rate of 75 basis points above the
prime rate (approximately 8.5% at September 30, 1998) and 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.
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"). On June 24, 1998, the Company
opened the casino portion of The Lodge, with approximately 800 slot machines, 20
table games, three restaurants, four bars, and three floors of underground
parking for approximately 400 cars. A 50-room hotel facility and an overflow
parking garage for approximately 225 additional parking spaces opened in mid
August and during the first week of November, 1998, respectively.
The Company is a 75% owner and co-manager of the LLC and affiliates of
Jacobs own the remaining 25% interest in the LLC. In connection with the
formation of the LLC, affiliates of Jacobs provided debt and equity financing to
the Company.
In March 1997, the LLC closed financing, 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%
(approximately 9% at September 30, 1998). Principal payments are due quarterly
beginning April 1999.
As of September 30, 1998, the Company has contributed approximately
$21,966,244 (including certain land) to the LLC which represents 75% of the
total contributed capital and the Jacobs affiliates have contributed
approximately $7,322,081 (including certain land costs) to the LLC which
represents the remaining 25% of contributed capital. As of September 30, 1998,
the LLC has drawn approximately $36,000,000 from its $40,000,000 construction
loan with Wells Fargo Bank. The Company and Jacobs are required to maintain
their respective pro rata share of any additional capital contributions to the
LLC. Jacobs' ownership in the LLC is reflected as a minority interest in the
accompanying consolidated financial statements.
Oklahoma property --- 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 high stakes Indian bingo hall, in a
re-development area of downtown Oklahoma City. The Company endeavored to
establish a mutually acceptable business arrangement with the Sac and Fox Nation
Indian Tribe, however, negotiations did not progress as the Company hoped. The
Company sold the Oklahoma City property during the first week of August 1998 for
cash of $600,000, which recovered the Company's investment in the project and
the cost of the land.
5
<PAGE> 8
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(CONTINUED)
5. CAPITALIZED CONSTRUCTION INTEREST
The Company began capitalizing interest expense during 1996, due to the
construction of The Lodge hotel/casino/parking complex. Capitalized interest
through September 30, 1998 totaled approximately $2,280,000. During the third
quarter of 1998, there was no capitalized interest, since the project was
completed, all interest incurred in the third quarter was expensed.
6. PRO FORMA STATEMENTS OF INCOME
On April 24, 1998, the Company acquired the 50% interest in GHV and
related land it did not previously own. The following unaudited pro forma
statements of income of the Company for the nine months ended September 30, 1998
and 1997, assume that the acquisition occurred on January 1, 1997 and January 1,
1998, respectively.
The unaudited pro forma income statements should be read in conjunction
with the historical financial statements of the Company and Gilpin Hotel Venture
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Annual Report on Form 10-K, for the year
ended December 31, 1997. The unaudited pro forma statements of income are not
necessarily indicative of the financial results that would have occurred had the
acquisition been consummated on the indicated dates, nor are they necessarily
indicative of future financial results. The pro forma statement of income for
the nine months ended September 30, 1998, also includes net revenues of
$16,326,000, operating expenses of $13,798,000 and pre-opening costs of
$1,569,000; which amounts are attributable to the Company and its majority owned
subsidiary The Lodge which opened for business on June 24, 1998.
Generally Accepted Accounting Principles (GAAP) require the
capitalization of interest during periods of construction. During the nine
months ended September 30, 1998 and 1997, the Company was required to capitalize
certain interest incurred because of construction activities at The Lodge Casino
at Black Hawk. The accompanying unaudited pro forma income statements assume
that pro forma interest that would have been incurred on the revolving line of
credit used to finance the acquisition of GHV and interest on unretired debt of
GHV would have been capitalized based on a "construction in progress to debt
outstanding" ratio. Such interest assumed to be capitalized for the nine months
ended September 30, 1998 and 1997 totaled $163,810 and $602,706 respectively. If
such pro forma interest had been expensed instead of being capitalized, pro
forma net income (net of related taxes) would have been $3,483,400 or $.87
earnings per basic share and $.81 earnings per diluted share for the nine months
ended September 30, 1998 and $1,944,158 or $.73 earnings per basic share and
$.58 earnings per diluted share for the nine months ended September 30, 1997.
6
<PAGE> 9
BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(CONTINUED)
6. PRO FORMA STATEMENTS OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
----------- -----------
<S> <C> <C>
REVENUE:
GAMING $37,599,814 $21,426,796
FOOD, BEVERAGE AND OTHER 4,633,695 2,478,643
HOTEL 121,458
----------- -----------
TOTAL GROSS REVENUE 42,354,967 23,905,439
LESS PROMOTIONAL ALLOWANCES 3,056,689 1,608,247
----------- -----------
NET REVENUE 39,298,278 22,297,192
----------- -----------
COSTS AND EXPENSES:
CASINO OPERATIONS 14,499,603 9,791,124
FOOD AND BEVERAGE OPERATIONS 3,797,212 1,894,553
HOTEL 157,875
MARKETING, GENERAL AND ADMINISTRATIVE 10,216,270 5,241,060
PREOPENING COSTS 1,569,376
DEPRECIATION AND AMORTIZATION 1,789,259 1,268,587
INTEREST 1,210,257 525,744
----------- -----------
TOTAL COST AND EXPENSES 33,239,852 18,721,068
LESS MINORITY INTEREST 395,083
----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 5,663,343 3,576,124
INCOME TAXES 2,123,753 1,341,047
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 3,539,590 2,235,077
EXTRAORDINARY ITEM - EARLY RETIREMENT OF DEBT,
NET OF RELATED INCOME TAXES 46,192 85,771
----------- -----------
NET INCOME $ 3,585,782 $ 2,320,848
=========== ===========
EARNINGS PER COMMON SHARE:
BASIC:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.89 $ 0.84
EXTRAORDINARY ITEM 0.01 0.03
----------- -----------
TOTAL BASIC EARNINGS PER SHARE $ 0.90 $ 0.87
=========== ===========
DILUTED:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.83 $ 0.66
EXTRAORDINARY ITEM 0.01 0.03
----------- -----------
TOTAL DILUTED EARNINGS PER SHARE $ 0.84 $ 0.69
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
BASIC 4,002,227 2,660,806
=========== ===========
DILUTED 4,261,086 3,377,385
=========== ===========
</TABLE>
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
INTRODUCTION
The Company had two significant events during the nine months ended
September 30, 1998: 1) the acquisition on April 24, 1998 of the other half of
the Gilpin Hotel Casino and related land not previously owned by the Company and
2) the opening of The Lodge Casino on June 24, 1998; both of which significantly
impacted the financial reporting of the Company. As a result of these two
events, the consolidated statements of income for the three and nine months
ended September 30, 1998 are not comparable to the same periods of 1997.
Specifically, the activity of the Gilpin Hotel Casino has been reported under
the equity method of accounting through April 23, 1998 and by consolidation for
all activity after April 23, 1998. Additionally, the accompanying consolidated
statements of income reflect the operational activity of The Lodge Casino
beginning on the opening day of the casino (June 24, 1998) through September 30,
1998. Historically, by virtue of the Company's previous 50% ownership of GHV,
the Company was 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 received management fees and
rental revenue from the joint venture, equity in earnings of the joint venture
accounted for substantially all of the Company's income before income taxes. As
a result of the acquisition of GHV, the Company will no longer receive rental
income from the ground lease or parking fees or management fees from GHV.
However, as a result of the 100% ownership of GHV, the Company will consolidate
all of the operations of GHV and thereby receive all of the revenues and
expenses of GHV and GHV will no longer incur the related expense of rent from
the ground lease, parking or management fees.
Note 6 to the financial statements presents unaudited pro forma income
statements of the Company for the nine month periods ended September 30, 1998
and 1997 which reflect as though the acquisition of the other half of the Gilpin
Hotel Casino occurred on January 1, 1998 and 1997.
Additionally, the financial information for the Gilpin Hotel Casino
shown on page 10 compares the actual quarter and nine months ended September 30,
1998 operations of the Gilpin Hotel Venture with the comparable periods of the
preceding year. The net income for the quarter ended September 30, 1997 and nine
months ended September 30, 1998 and 1997, have been adjusted to eliminate
expenses of contracts that were cancelled upon the acquisition of the other half
of the Gilpin Hotel Venture.
RESULTS OF OPERATIONS--BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
The Company reported net income of $2,880,266 for the nine months ended
September 30, 1998 compared to $1,395,065 for the same period in 1997. Net
income for the quarters ended September 30, 1998 and 1997 was $2,025,894 and
$482,214, respectively. The increase in net income for the nine months and three
months ended September 30, 1998 over the comparable period of 1997 is the result
of the impact of The Lodge operations (net of the related minority interest)
which commenced operations on June 24, 1998, and the additional 50% of operating
results from the Gilpin Hotel Casino beginning April 24, 1998 (net of the
related decrease in equity in earnings of GHV).
The significant increases in revenues and costs and expenses in the
1998 periods compared to the 1997 periods are directly a result of consolidation
of the Gilpin Hotel Casino and the opening of The Lodge.
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS-BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.
(CONTINUED)
Included in the consolidated statements of income for the three and
nine months ended September 30, 1998 is a $46,192 extraordinary gain realized
from the early retirement of debt. This amount reflects the after tax benefit of
the early retirement of debt resulting from the acquisition and consolidation of
debt related to the acquisition of the Gilpin Hotel Venture.
RESULTS OF OPERATIONS--THE LODGE
The Lodge Casino at Black Hawk opened on June 24, 1998 and therefore,
there are no comparisons to the prior periods presented and the current
consolidated statements of income for the nine months ended September 30, 1998
contain operating results of The Lodge from June 24, 1998.
The Company opened the casino portion of The Lodge, with approximately
800 slot machines, 20 table games, 3 restaurants, 4 bars, and three floors of
underground parking for approximately 400 cars. A 50-room hotel facility and an
overflow parking garage for approximately 225 additional parking spaces opened
mid August and the first week of November, 1998, respectively.
During the nine months ended September 30, 1998, The Lodge's total
revenues were $17,426,000. However, when reduced by promotional allowances of
$1,166,000, net revenues were $16,260,000. The Lodge's total costs and expenses
were $14,680,000 which results in net income of $1,580,000, (before elimination
of minority interest and inter-company transactions).
The Lodge Casino's revenues by operating department for the nine months
ended September 30, 1998 were as follows: Casino operations of $15,348,000 or
94% of net revenues, Food and Beverage operations of $621,000 or 4% (net of
promotional allowances of $1,166,000) and Hotel operations of $121,000 or 1%,
and other revenue of $170,000 or 1%.
The Lodge Casino's total costs and expenses were $14,680,000 or 90% of
net revenue for the nine months ended September 30, 1998. Costs and expenses by
operating department before elimination of inter-company transactions were as
follows: Casino operations of $6,210,000 or 42%; food and beverage operations of
$1,844,000 or 13%; hotel operations of $158,000 or 1%; marketing, general and
administrative expenses of $3,409,000 or 23%; depreciation and amortization of
$662,000 or 5%; interest expense of $778,000 or 5%; and pre-opening costs of
$1,619,000 or 11%.
During the three months ended September 30, 1998, The Lodge's total
revenues were $16,067,000. However, when reduced by promotional allowances of
$1,086,000, net revenues were $14,981,000. When the net revenues are reduced by
The Lodge's total costs and expenses of $12,598,000, the result is net income of
$2,383,000, (before elimination of minority interest and inter-company
transactions).
The Lodge Casino's revenues by operating department for the three
months ended September 30, 1998 were follows: Casino operations of $14,105,000
or 94%, Food and Beverage operations of $591,000 or 4% (net of promotional
allowances of $1,086,000) and Hotel operations of $121,000 or 1%, and other
revenue of $164,000 or 1%.
The Lodge Casino's total costs and expenses were $12,598,000 or 84% of
net revenue for the three months ended September 30, 1998. Cost and expenses by
operating department before elimination of inter-company transactions were as
follows: Casino operations of $5,957,000 or 47%; food and beverage operations of
$1,734,000 or 14%; hotel operations of $153,000 or 1%; marketing, general and
administrative expenses of $3,281,000 or 26%; depreciation and amortization of
$618,000 or 5%; interest expense of $778,000 or 6%; and pre-opening costs of
$77,000 or 1%.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--GILPIN HOTEL CASINO
The financial information of the Gilpin Hotel Casino shown below
compares the quarter and nine months ended September 30, 1998 operations of the
Gilpin Hotel Venture with the comparable period of the preceding year and as
adjusted for expenses of contracts cancelled post acquisition. Following the
table is a discussion and analysis of the operations of the Gilpin Hotel Casino
for the periods shown.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Casino $ 7,190,972 $ 7,537,573 $ 22,251,548 $ 21,426,796
Food and Beverage 837,141 875,457 2,611,803 2,356,922
----------- ----------- ------------ ------------
Total revenues 8,028,113 8,413,030 24,863,351 23,783,718
Promotional allowances 601,774 599,065 1,891,116 1,608,247
----------- ----------- ------------ ------------
Net revenues 7,426,339 7,813,965 22,972,235 22,175,471
COSTS AND EXPENSES:
Casino operations 2,417,559 3,409,569 8,751,404 9,791,124
Food and beverage operations 623,089 667,630 1,954,750 1,894,553
Marketing, general and administrative 2,257,361 2,303,776 6,697,385 6,741,630
Depreciation and amortization 376,810 345,551 1,014,720 1,016,083
Interest 431,927 126,982 595,737 398,113
----------- ----------- ------------ ------------
Total costs and expenses 6,106,746 6,853,508 19,013,996 19,841,503
EXTRAORDINARY ITEMS:
Gain on early retirement of debt 73,322
----------- ----------- ------------ ------------
NET INCOME 1,319,593 960,457 4,031,561 2,333,968
----------- ----------- ------------ ------------
PRO FORMA ADJUSTMENTS FOR EXPENSES
OF CONTRACTS CANCELLED POST - ACQUISITION
Management fees (Casino operations) 216,607 244,779 498,076
Management fees (Food & beverage operations) 25,058 31,855 67,741
Parking rent (Marketing general & administrative) 150,000 99,444 450,000
Land rent (Casino operations) 421,048 617,384 1,200,936
Land rent (Food & beverage operations) 58,468 74,329 158,063
----------- ----------- ------------ ------------
PRO FORMA NET INCOME $ 1,319,593 $ 1,831,638 $ 5,099,352 $ 4,708,784
----------- ----------- ------------ ------------
</TABLE>
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--GILPIN HOTEL CASINO (CONTINUED)
During the nine months ended September 30, 1998, GHV's total revenues
increased by $1,080,000 or 5%, when compared to the comparable period in 1997.
However, when reduced by an increase in promotional allowances of $283,000 or
18%, net revenues increased by $797,000 or 4%. Total costs and expenses of GHV
decreased by $828,000 or 4%. The net result is an increase in the net income of
GHV of $1,625,000 or 70% before extraordinary items and an increase of
$1,698,000 or 73% after extraordinary items. However, a more meaningful
comparison can be reached when the statements of income for the nine months
ended September 30, 1998 and 1997 are adjusted for management fees, parking and
rent that would not have been incurred during 1998 and 1997 had the Company
entered into the transaction to acquire the other half of the Gilpin Hotel
Casino on January 1, 1998 and 1997. After giving effect to these adjustments
income before extraordinary items would have been increased by $317,000 or 7%.
Casino revenues increased by $825,000 or 4% and food and beverage
revenues decreased by $28,000 (after eliminating the increase in promotional
allowances of $283,000). Management attributes the increase in casino revenues
to the success of the ongoing plan of target marketing to the slot player club
of the Gilpin Hotel Casino, the continuing breakfast promotion and the overall
increase in customer traffic through the Casino. The Business Improvement
District (BID) was completed and thereby has provided for a full nine months of
increased traffic in 1998 as compared to 1997; when the BID project was still in
process and patrons were inhibited from entering the Casino.
The income statement of GHV includes classification of costs and
expenses by operating departments. The net decrease in costs and expenses of the
operating departments for the three months ended September 30, 1998 totals
$828,000. However, after reducing 1998 and 1997 costs and expenses related to
contracts cancelled post acquisition for management fees, parking and land rent,
the result is a net increase in costs and expenses for the nine months ended
September 30, 1998 of $480,000.
The net increase in costs and expenses, after adjusting for contracts
cancelled upon acquisition was $480,000 or 3%, for the nine months ended
September 1998 as compared to the comparable period of 1997, primarily was the
result of: 1) Increases in food and beverage operations of $180,000 or 11%,
principally as a result of increased labor costs, 2) Increases in marketing,
general and administrative operations of $306,000 or 5%, principally as a result
of increased promotional pay-outs based on customer participation and 3)
Increased interest expense of $198,000 or 50%, due to the Wells Fargo revolving
line of credit, which financed the acquisition. These increases were offset by:
1) Decrease in casino operations of $203,000 or 3% principally due to the
discontinuance of cost associated with operating the poker room and 2) A
decrease in depreciation and amortization of $1,000.
During the three months ended September 30, 1998, GHV's total revenues
decreased by $385,000 or 5%. However, when reduced by an increase in promotional
allowances of $3,000, net revenues realized a decrease of $388,000 or 5%. Total
costs and expenses of GHV decreased by $747,000 or 11%. The net result is an
increase in the net income of GHV of $359,000 or 37%. However, a more meaningful
comparison can be reached when the statements of income for the three months
ended September 30, 1998 and 1997 are adjusted for management fees, parking and
rent that would not have been incurred during 1998 and 1997 had the Company
entered into the transaction to acquire the other half of the Gilpin Hotel
Casino on January 1, 1997. After giving effect to these adjustments net income
would have been decreased by $512,000 or 28%, primarily as a result of cost and
expenses associated with the acquisition of the other half of the Gilpin Hotel
Casino.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--GILPIN HOTEL CASINO (CONTINUED)
Casino revenues decreased by $347,000 or 5% and food and beverage
revenues decreased by $41,000 (after eliminating an increase in promotional
allowances of $3,000). The decrease in casino revenues is attributable to the
following factors: 1) Discontinued poker operations (elimination of 6 poker
tables over the comparable period of the prior year or $161,000), 2) A decreased
in other table games of $150,000 and 3) A decrease in slot revenue of $36,000.
The income statement of GHV includes classification of costs and
expenses by operating departments. The net decrease in costs and expenses for
the three months ended September 30, 1998 is $747,000. However, after reducing
1997 costs and expenses related to contracts cancelled post acquisition for
management fees, parking and land rent, the result is a net increase in costs
and expenses for the nine months ended September 30, 1998 of $124,000.
The net increase in costs and expenses, after adjusting for contracts
cancelled upon acquisition was $124,000 or 2%, primarily was a result of: 1)
Increased interest expense of $305,000 as a result of the Wells Fargo revolving
line of credit, 2) Increases in food and beverage operations of $39,000 or 7%,
principally as a result of increased labor costs, 3) Increases in marketing,
general and administrative operations of $103,000 or 5%, principally as a result
of increased promotional pay-outs based on customer participation and 4)
Increased depreciation and amortization of $31,000 or 9% due to the write-up of
assets acquired. These increases were offset by a decrease in casino operations
of $354,000 or 13% principally due to the discontinuance of cost associated with
operating the poker room.
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 busing
programs in order to compensate for the reduction in parking availability due to
the ongoing Lodge construction as well as the construction of the upstream
parking garage for the benefit of The Lodge and the Gilpin Hotel Casino.
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.
The upstream parking garage for The Lodge received a temporary
certificate of occupancy during the first week of November 1998, and the total
parking availability for GHV now approximates 225 cars and total parking for The
Lodge now approximate 625 cars. However, the total effect of the additional
parking spaces, if any, will not be seen until the fourth quarter of 1998.
It is management's plan to continue focusing on target marketing to the
existing customer base of GHV and to attempt to increase the repeat business of
new customers. Additionally, the Company is working to enhance the product
offered at the Gilpin Hotel Casino in order to continue to provide customers
with a user-friendly gaming environment coupled with the newest in gaming
technology.
In the opinion of management, GHV's operations for the nine months
ended September 30, 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) (which is the difference between amounts wagered by customers and
payments to customers) averages for gaming devices (slot machines and table
games) remains in excess of the overall gaming averages for the state and the
city of Black Hawk.
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was approximately $3,573,000
in the nine months of 1998 versus net cash provided by operating activities of
$410,000 in the first nine months of 1997. The principal reason for the increase
in cash provided by operating activities is due to increased net income and an
increase in depreciation and amortization. As a result of the completion of the
acquisition of the other half of 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 nine months ended
September 30, 1998 was $27,464,000. Uses of funds included payments of: project
development costs associated with The Lodge of $20,536,000; the acquisition of
GVI for $10,000,000 and payments in pursuit of a St. Croix gaming facility of
$521,000. These uses are offset by: cash on GHV books as of the date of
acquisition of the GVI buyout of $1,726,000; distributions from GHV of
$1,168,000; proceeds from the sale of Oklahoma land of $600,000 and other
investing activities of $99,000. Net cash used in investing activities for the
first nine months of 1997 was $15,318,000 and was primarily the result of:
payments for project development costs associated with The Lodge totaling
$16,125,000 and other miscellaneous payments of approximately $152,000. These
expenditures were offset by distributions from GHV of $959,000.
The net cash provided by financing activities during the nine months
ended September 30, 1998 was $34,063,000. Sources of funds included: draws
against The Lodge's construction loan of $22,958,000; draws against GHV's line
of credit of $17,995,000; minority interest contributions of $617,000 and
proceeds from the exercise of warrants of $847,000. Debt payments of $8,333,000
and other net financing activities of $21,000 were used by financing activities
during the nine months ended September 30, 1998. The net cash provided by
financing activities during the first nine months of 1997 amounted to
$11,747,000 and principally was the result of: draws against the LLC's
construction loan of $4,342,000, issuance of convertible debt to officers and
directors totaling $5,250,000, issuance of unsecured notes payable to officers
and directors totaling $700,000 and minority interest contributions totaling
$3,831,000. These increases were offset by the acquisition of common stock "put"
to the Company totaling $137,000 and payments on long-term debt aggregating
$2,239,000.
During 1998 the Company's principal sources of cash flow consisted of
distributions from GHV, cash generated from its rental and management
operations, minority interest contributions to the Company's majority owned
subsidiary, the construction loan and the revolving line of credit with Wells
Fargo Bank. As of September 30, 1998 the Company has working capital of
approximately $1,274,000 as compared to $509,000 at December 31, 1997.
As discussed previously, on April 24, 1998 the Company completed the
acquisition of Gilpin Ventures, Inc. (GVI), the Company's joint venture partner
in GHV and acquired the other half of the Gilpin Hotel Venture. 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 Gilpin Hotel Casino for $4,750,000.
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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:
1) 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); 2) 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
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; 3) the facility bears interest at the rate of 75 basis points above the
prime rate which approximates 9.25% at September 30, 1998; 4) 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; 5) 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 6) 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 paying 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 members of the LLC have contributed approximately $31 million to
the LLC and the LLC's credit facility is $40 million of which approximately $36
million has been drawn through September 30, 1998. The Company believes it will
utilize the remaining portion of this facility to cover the balance of the total
projected cost of The Lodge Casino.
ST. CROIX, U.S.V.I., DEVELOPMENT PROJECT
During the current fiscal year the Company has been exploring the
possibility of operating a hotel / casino in St. Croix in the U.S. Virgin
Islands. During the third quarter the Company began pursuing a license
application in this jurisdiction. In connection, therewith the Company has spent
approximately $525,000 through September 30, 1998 (approximately $600,000
through October 31,1998) in an effort to obtain sufficient property to gain site
control for a hotel / casino development, for pre-development costs of
professionals to ascertain development feasibility and for other miscellaneous
pre-development efforts. The Company believes it will make a determination
during the fourth quarter of 1998 as to whether development of a hotel / casino
project is feasible or not. If the Company decides to not continue to pursue the
project, the majority of these costs will be charged to operations during the
period in which this determination is made. However, if the Company elects to
continue pursuing the project, these costs, as well as additional costs
estimated to be approximately $7 million for the casino and $30 million for the
hotel, will become part of the total St. Croix development project. The Company
intends to actively pursue joint venture partners to participate in these costs.
In addition to the successful completion of the pre-development phase, the
project is subject to obtaining financing on terms acceptable to the Company.
Financing a project of this nature can be difficult and the Company can give no
assurance that any financing will be available, and if available, on terms
acceptable to the Company.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000 ISSUE
The "Year 2000" issue potentially affects virtually all companies and
organizations. Specifically, the year 2000 issue is the result of many existing
computer programs using only two digits to identify a year in the date field.
These programs were designed and developed without considering the impact of the
change in the upcoming century. If not corrected, many computer applications
could fail or create erroneous results at the Year 2000.
During 1997 the Company began assessing the impact of the "Year 2000" issue on
its operations as well as the existing operations of the GHV. The Company has
evaluated the Year 2000 problem at both The Gilpin Hotel Casino and The Lodge
Casino at Black Hawk. This evaluation included both computer-related systems and
non-computer-related systems. An outline of the Year 2000 compliance plan
includes the following phases with their expected completion dates.
o Initial assessment and impact analysis - Completed September 30,
1998
o Inventory and detailed assessment - Competed September 30, 1998
o Solution design and budget determination - Completed October 31,
1998
o Budget approval and conversion - December 31, 1998
o Testing and final assessment - January 31, 1999
The Company has determined that approximately 30% of the various
computer-related systems and non-computer-related systems are non-compliant and
will need to be modified or replaced so they will function properly with respect
to dates in the year 2000 and beyond.
The Company completed a detailed Year 2000 assessment and Year 2000 solution
design on October 28, 1998. The total estimated cost to achieve complete Year
2000 compliance is estimated to be $150,000. This expense would completely
replace all date-related systems within the casinos that are not Year 2000
compliant.
Management believes its Year 2000 solution will address all non-compliance
issues found during its Year 2000 assessment. However, if the solution designs
are not implemented, or if a Year 2000 compliance issue was not revealed during
the Company's assessment, operations could be disrupted which could have a
material adverse effect on its financial condition.
Management believes that the most reasonably-likely worse case scenario is that
the Year 2000 rollover would provide unreliable computer data to many of the
Company's operating departments such as casino operations, food and beverage,
hotel, accounting, finance, facilities, and administration. In the unlikely
event that the Company's efforts to avoid this most reasonably-likely worse case
scenario are not 100% successful, a contingency plan will be implemented. This
contingency plan calls for the Information Systems Department personnel to be on
the property during the time of the Year 2000 rollover to assist and solve any
date issues that may occur. Additionally, in the days following the rollover,
the accounting department would compare all computer-related data with a paper
trail backup. This comparison should give management confidence that the data
was received correctly. A more detailed contingency plan will be developed based
on actual testing results and continued assessments of outside risks.
Additionally, the Company is contacting all key vendors regarding their Year
2000 compliance. The Company cannot assure that our vendors will resolve their
Year 2000 problems but this ongoing communication will alert the Company to any
problems that may arise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NONE
15
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine litigation arising in the ordinary
course of business. These matters are believed by the Company to be
covered by appropriate insurance policies.
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.
(3) June 1, 1998, reporting under Item 7
The reporting of pro-forma financial statements
related to the acquisition of the transaction
reported in the April 24, 1998 Form 8-K.
(4) July 24, 1998, reporting under Item 5
Disclosure of the filing for a gaming
application in St. Croix, USVI.
16
<PAGE> 19
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: November 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
17
<PAGE> 20
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
SEPTEMBER 30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH DECEMBER 31,1997 FORM 10-K FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,236,981
<SECURITIES> 0
<RECEIVABLES> 80,659
<ALLOWANCES> 0
<INVENTORY> 451,486
<CURRENT-ASSETS> 12,469,508
<PP&E> 80,127,413
<DEPRECIATION> 5,585,372
<TOTAL-ASSETS> 98,366,856
<CURRENT-LIABILITIES> 11,195,225
<BONDS> 49,143,632
0
0
<COMMON> 4,055
<OTHER-SE> 30,306,780
<TOTAL-LIABILITY-AND-EQUITY> 98,366,856
<SALES> 1,032,417
<TOTAL-REVENUES> 31,931,582
<CGS> 568,465
<TOTAL-COSTS> 25,790,416
<OTHER-EXPENSES> 395,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,230,457
<INCOME-PRETAX> 4,524,944
<INCOME-TAX> 1,690,870
<INCOME-CONTINUING> 2,834,074
<DISCONTINUED> 0
<EXTRAORDINARY> 46,192
<CHANGES> 0
<NET-INCOME> 2,880,266
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.68
</TABLE>
