10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE ------- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ------------- 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 21 240 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 4,132,233 shares ------------- ---------------- Class Outstanding as of August 10, 2001 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. Index to Form 10-Q June 30, 2001 PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Consolidated Financial Statements: Unaudited Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 1 Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2001 and 2000 2-3 Unaudited Consolidated Statement of Stockholders' Equity six months ended June 30, 2001 4 Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-26 Item 3. Quantitative and Qualitative Disclosure About Market Risk 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings 28 Item 2. Changes in Securities 28 Item 3. Defaults Upon Senior Securities 28 Item 4. Submission of Matters to a Vote of Security Holders 28 Item 5. Other Information 28 Item 6. Exhibits and Reports on Form 8-K 28 SIGNATURES 29 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 --------------------------------------------------------------------------------

~~PART~~June I.30, ~~FINANCIAL~~December ~~INFORMATION~~31, ~~PAGE~~2001 ~~NO.~~2000 ------------- ~~Item~~------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 9,557,295 $ 8,518,464 Accounts receivable 239,719 740,804 Inventories 567,357 535,231 Prepaid expenses 1.,306,348 ~~Consolidated~~671,546 ~~Financial~~Deferred ~~Statements:~~income ~~Consolidated~~tax ~~Balance~~618,876 ~~Sheets~~440,470 as------------- of------------- ~~September~~Total 30current assets 12,289,595 ~~2000~~10,906,515 LAND 18,799,427 15,239,426 GAMING FACILITIES: Building and ~~December~~improvements 3163,578,090 ~~1999~~58,283,231 1Equipment ~~Unaudited~~22,029,507 ~~Consolidated~~18,487,936 ~~Statements~~Accumulated depreciation (16,412,965) (14,134,293) ------------- ------------- Total gaming facilities 69,194,632 62,636,874 OTHER ASSETS: Goodwill, net of ~~Income~~accumulated ~~for~~amortization ~~the~~of ~~three~~$2,114,702 and ~~nine~~$1,369,615, ~~months~~respectively ~~ended~~20,443,700 ~~September~~5,374,461 30Other assets 2,574,135 ~~2000~~3,318,973 ------------- ------------- TOTAL $ 123,301,489 $ 97,476,249 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and ~~1999~~accrued expenses $ 3,315,103 $ 5,320,255 Accrued payroll 1,364,409 760,297 Gaming taxes payable 1,415,739 2,673,927 ~~Unaudited~~Property ~~Consolidated~~taxes ~~Statements~~payable 480,003 526,931 Slot club liability 897,604 940,655 Current portion of ~~Cash~~long-term ~~Flows~~debt ~~for~~374,811 ~~the~~783,587 ~~nine~~------------- ~~months~~------------- ~~ended~~Total ~~September~~current 30liabilities 7,847,669 ~~2000~~11,005,652 LONG-TERM DEBT: Reducing and ~~1999~~revolving 3credit ~~Notes~~facility to58,800,000 ~~Unaudited~~29,900,000 ~~Consolidated~~Bonds ~~Financial~~payable ~~Statements~~5,108,355 4-5,298,624 ~~Item~~------------- 2.------------- ~~Management's~~Total ~~Discussion~~long-term ~~and~~debt ~~Analysis~~63,908,355 of35,198,624 ~~Financial~~Interest ~~Condition~~rate ~~and~~swap ~~Results~~liability of594,174 ~~Operations~~Deferred 6tax liability 627,445 469,920 -20------------ ~~Item~~------------- 3.Total ~~Quantitative~~liabilities ~~and~~72,977,643 ~~Qualitative~~46,674,196 ~~Disclosure~~------------- ~~about~~------------- ~~Market~~COMMITMENTS ~~Risk~~AND 20CONTINGENCIES ~~PART~~MINORITY ~~II.~~INTEREST ~~OTHER~~7,008,074 ~~INFORMATION~~8,739,694 ~~Item~~STOCKHOLDERS' 1EQUITY: Preferred stock; $.001 ~~Legal~~par ~~Proceedings~~value; 2110,000,000 ~~Item~~shares 2.authorized; ~~Changes~~none inissued ~~Securities~~and 21outstanding ~~Item~~Common 3stock; $.001 ~~Defaults~~par ~~Upon~~value; ~~Senior~~40,000,000 ~~Securities~~shares 21authorized; ~~Item~~4,132,233 and 4.,126,757 ~~Submission~~shares ofissued ~~Matters~~and tooutstanding, arespectively ~~Vote~~4,133 of4,127 ~~Security~~Additional ~~Holders~~paid-in 21capital ~~Item~~18,611,292 5.18,569,538 ~~Other~~Accumulated ~~Information~~other 21comprehensive ~~Item~~loss 6.(251,176) ~~Exhibits~~Retained ~~and~~earnings ~~Reports~~24,951,523 on23,488,694 ~~Form~~------------- 8-K------------ 21Total ~~SIGNATURES~~stockholders' 22equity 43,315,772 42,062,359 ------------- ------------- TOTAL $ 123,301,489 $ 97,476,249 ============= =============

1 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------------------------------

~~September~~THREE MONTHS ENDED PERCENTAGE JUNE 30, ~~December~~DOLLAR ~~31,~~INCREASE 2001 2000 DIFFERENCE (~~Unaudited~~DECREASE) ~~1999~~ ------------ ------------ ------------ ---------- ~~ASSETS CURRENT ASSETS~~REVENUES: ~~Cash~~Casino ~~and~~revenue ~~cash~~$ ~~equivalents~~24,213,491 $ 820,~~947~~924,~~044~~449 $ 103,~~239~~289,~~735~~042 ~~Accounts~~16 ~~receivable~~% ~~265,815~~Food ~~190,044~~and ~~Inventories~~beverage ~~565~~revenue 2,~~486~~899,221 ~~557~~2,~~182~~286,263 ~~Prepaid~~612,958 ~~expenses~~27 ~~864~~% Hotel revenue 360,~~373~~268 ~~699~~280,~~899~~502 ~~Deferred~~79,766 ~~income~~28 ~~tax~~% ~~417~~Other 169,~~323~~724 ~~417~~186,~~323~~031 (16,307) (9)% ------------- ------------ ------------ Total ~~current~~revenues ~~assets~~27,642,704 1123,~~060~~677,~~041~~245 123,~~104~~965,~~183~~459 ~~LAND~~17 15% Promotional allowances 4,~~239~~138,~~426~~560 153,~~235~~558,~~092~~277 580,283 16 % ------------- ------------ ------------ ~~GAMING~~Net ~~FACILITIES:~~revenues ~~Building and improvements 58~~23,~~283~~504,~~230~~144 5820,~~098~~118,~~219~~968 ~~Equipment 18~~3,~~033~~385,~~086~~176 17~~,342,370~~ ~~Accumulated~~% ~~depreciation (13,252,363) (10,310,295)~~ ------------- ------------ ------------ ~~Total~~COSTS ~~gaming~~AND ~~facilities~~EXPENSES: 63Casino operations 7,~~063~~415,~~953~~576 656,~~130~~467,~~294~~708 ~~OTHER~~947,868 ~~ASSETS:~~15 ~~Goodwill~~% Food and beverage operations 2,606,094 ~~net~~2,053,967 of552,127 ~~accumulated~~27 ~~amortization~~% ofHotel $1operations 239,~~257~~294 176,~~214~~558 62,736 36 % Marketing, general and ~~$931~~administrative 7,~~729~~946,014 ~~respectively 5~~6,~~486~~176,~~862~~042 51,~~812~~769,~~347~~972 ~~Other~~29 ~~assets~~% 3Privatization and other non-recurring costs 1,~~432~~114,~~507~~989 21,~~724~~114,~~609~~989 ~~Deferred~~Depreciation ~~income~~and ~~tax~~amortization 731,~~417~~852,128 731,~~417~~398,046 454,082 32 % ------------- ------------ ------------ ~~TOTAL~~Total $costs ~~98,356,206~~and $expenses ~~101~~21,~~079~~174,~~942~~095 ~~============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 9~~16,~~620~~272,~~399~~321 ~~$ 10~~4,~~547~~901,~~256~~774 ~~Current~~30 ~~portion~~% ~~of long~~-~~term debt 853,092 737,740~~ ----------- -- ---------- ------------ ~~Total~~OPERATING ~~current~~INCOME ~~liabilities~~2,330,049 103,~~473~~846,~~491~~647 11(1,~~284~~516,~~996~~598) ~~LONG-TERM~~(39)% ~~DEBT~~Interest ~~AND~~income ~~OTHER~~39,282 ~~LIABILITIES:~~81,575 ~~Reducing~~(42,293) ~~and~~(52)% ~~revolving~~Interest ~~credit~~expense ~~facility 32~~(1,~~000~~250,~~000~~632) 39(920,~~000,000~~860) ~~Bonds payable 5~~(329,~~470,000~~772) ~~5,645,000~~36 ~~Other~~% ~~notes payable 416,860~~ ------------- ------------ ------------ ~~Total~~INCOME ~~long-term~~BEFORE ~~debt~~MINORITY 37INTEREST AND INCOME TAXES 1,~~470~~118,~~000~~699 453,~~061~~007,~~860~~362 ~~Deferred~~(1,888,663) ~~tax~~(63)% ~~liability~~MINORITY ~~119~~INTEREST 446,~~248~~122 ~~119~~597,~~248~~395 (151,273) (25)% ------------- ------------ ------------ ~~Total~~INCOME ~~liabilities~~BEFORE 48INCOME TAXES 672,~~062~~577 2,~~739~~409,967 56(1,~~466~~737,~~104~~390) (72)% INCOME TAXES 605,822 867,600 (261,778) (30)% ------------- ------------ ------------ ~~COMMITMENTS~~NET ~~AND~~INCOME ~~CONTINGENCIES~~$ ~~MINORITY~~66,755 ~~INTEREST~~$ 81,~~847~~542,~~582~~367 ~~8,115,287 STOCKHOLDERS' EQUITY: Preferred stock;~~ $~~.001~~ ~~par value; 10~~(1,~~000~~475,~~000~~612) ~~shares~~(96)% ~~authorized;~~============ ~~none~~============ ~~issued~~============ ~~and~~BASIC ~~outstanding~~EARNINGS ~~Common~~PER ~~stock;~~SHARE $ 0.~~001~~01 ~~par~~$ ~~value;~~0.37 ~~40,000,000~~$ ~~shares~~(0.36) ~~authorized;~~(97)% ~~4,126,757~~Dilutive ~~and~~effect ~~4,110,209~~of ~~shares issued and~~ outstanding, ~~respectively~~options ~~4,127 4,110 Additional paid~~-~~in capital 18,569,538 18,466,705 Retained earnings 22,872,220 18,027,736~~ ----------- -- ---------- ------------ ~~Total~~DILUTED ~~stockholders'~~EARNINGS ~~equity~~PER 41SHARE $ 0.01 $ 0.37 $ (0.36) (97)% ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 4,~~445~~131,~~885~~538 364,~~498~~111,~~551~~757 Dilutive effect of outstanding options 212,626 53,487 ------------- ------------- ~~TOTAL~~DILUTED ~~$ 98~~4,~~356~~344,~~206~~164 ~~$ 101~~4,~~079~~165,~~942~~244 ============= =============

2 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------------------------------

~~THREE~~SIX MONTHS ENDED PERCENTAGE ~~SEPTEMBER~~JUNE 30, DOLLAR INCREASE 2001 2000 ~~1999~~ DIFFERENCE (DECREASE) ------------ ------------ ------------ ------------ REVENUES: Casino revenue $ 2048,~~984~~449,~~093~~701 $ 2242,~~037~~196,~~488~~252 $ (16,~~053~~253,~~395)~~449 ~~(5)~~15 % Food and beverage revenue 25,~~363~~736,~~538~~831 24,~~368~~659,~~881~~550 (51,~~343)~~077,281 ~~(0)~~23 % Hotel revenue ~~290~~670,~~991~~696 ~~306~~535,~~398~~066 ~~(15~~135,~~407)~~630 ~~(5)~~25 % ~~Interest~~Other ~~and other 263~~935,~~898~~265 ~~221~~300,~~005~~079 42635,~~893~~186 19212 % ------------ ------------ ------------ ~~------------~~ Total revenues 2355,~~902~~792,~~520~~493 2447,~~933~~690,~~772~~947 (18,~~031~~101,~~252)~~546 ~~(4)~~17 % ~~------------ ------------ ------------ ------------~~ Promotional allowances 18,~~646~~201,~~038~~136 17,~~591~~303,~~609~~758 54897,~~429~~378 312 % ------------ ------------ ------------ ~~------------~~ Net revenues 2247,~~256~~591,~~482~~357 2340,~~342~~387,~~163~~189 (17,~~085~~204,~~681)~~168 ~~(5)~~18 % ------------ ------------ ------------ ~~------------~~ COSTS AND EXPENSES: Casino operations 615,~~606~~144,~~350~~325 612,~~328~~853,~~646~~314 ~~277~~2,~~704~~291,011 418 % Food and beverage operations 25,~~123~~129,~~444~~781 24,~~275~~091,~~800~~916 ~~(152~~1,~~356)~~037,865 ~~(7)~~25 % Hotel operations ~~191~~455,~~883~~519 ~~153~~347,~~773~~697 38107,~~110~~822 2531 % Marketing, general and administrative 815,~~362~~539,~~140~~370 812,~~430~~064,~~028~~252 ~~(67~~3,~~888)~~475,118 ~~(1)~~29 % ~~Interest~~Privatization ~~769,891~~and other non-recurring costs 1,~~076~~114,~~471~~989 ~~(306~~1,~~580)~~114,989 ~~(28)%~~ Depreciation and amortization 13,~~265~~760,~~334~~652 12,~~253~~807,~~323~~794 12952,~~011~~858 134 % ------------ ------------ ------------ ~~------------~~ Total costs and expenses 1941,~~319~~144,~~042~~636 1932,~~518~~164,~~041~~973 ~~(198~~8,~~999) (1)% ------------ ------------ ------------ ------------ MINORITY INTEREST 590~~979,~~669~~663 ~~684,176~~28 ~~(93,507) (14)~~% ------------ ------------ ------------ ~~------------~~OPERATING INCOME ~~BEFORE INCOME TAXES 2~~6,~~346~~446,~~771~~721 38,~~139~~222,~~946~~216 (~~793,175) (25)% INCOME TAXES 844,823~~ 1,~~090~~775,~~000 (245,177~~495) (22)% ~~------------~~Interest ~~------------~~income ~~------------ ------------ NET INCOME $ 1~~114,~~501,948~~596 ~~$ 2~~160,~~049,946~~537 $ (~~547~~45,~~998~~941) (2729)% ~~============~~Interest ~~============~~expense ~~============ ============ BASIC EARNINGS PER SHARE $ 0.37 $ 0.50 $~~ (0.13) (26)% Dilutive effect of outstanding options (0.01) (0.01) 0% ------------ ------------ ------------ ------------ DILUTED EARNINGS PER SHARE $ 0.36 $ 0.49 $ (0.13) (27)% ============ ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 4,126,257 4,110,557 Dilutive effect of outstanding options 72,043 54,331 ------------ ------------ DILUTED 4,198,300 4,164,888 ------------ ------------ NINE MONTHS ENDED PERCENTAGE SEPTEMBER 30, DOLLAR INCREASE 2000 1999 DIFFERENCE (DECREASE) ------------ ------------ ------------ ------------ REVENUES: Casino revenue $ 63,180,345 $ 60,906,507 $ 2,~~273~~821,~~838 4% Food and beverage revenue 7,023,088 6,574,715 448,373 7% Hotel revenue 826,057 845,911 (19,854~~966) (~~2)% Interest and other 719~~1,~~335 625~~907,~~229 94,~~106) ~~15% ------------ ------------ ------------ ------------ Total revenues 71~~(914,~~748,825~~860) ~~68,952,362~~48 ~~2,796,463 4~~% ------------ ------------ ------------ ~~------------~~INCOME ~~Promotional~~BEFORE ~~allowances~~MINORITY ~~4,998,263~~INTEREST ~~4,503,176 495,087 11% ------------ ------------ ------------ ------------ Net revenues 66,750,562 64,449,186 2,301,376 4% ------------ ------------ ------------ ------------ COSTS~~ AND ~~EXPENSES:~~INCOME ~~Casino~~TAXES ~~operations 19~~3,~~458~~739,~~361~~351 ~~18,693,175 765,186 4% Food and beverage operations~~ 6,~~215~~475,~~362~~647 ~~6,464,989~~ (~~249~~2,~~627~~736,296) (442)% ~~Hotel~~MINORITY ~~operations~~INTEREST ~~539~~885,~~580~~408 ~~430,829 108,751 25% Marketing, general and administrative 24,824,159 24,584,902 239,257~~ 1~~% Interest 2~~,~~610~~252,~~207~~909 ~~3,253,098~~ (~~642~~367,~~891~~501) (2029)% ~~Depreciation and amortization 3,689,808 3,681,993 7,815 0%~~ ------------ ------------ ------------ ------------ Total costs and expenses 57,337,477 57,108,986 228,491 0% ------------ ------------ ------------ ------------ MINORITY INTEREST 1,843,578 1,243,370 600,208 48% ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 72,~~569~~853,~~507~~943 65,~~096~~222,~~830~~738 1(2,~~472~~368,~~677~~795) 24(45)% INCOME TAXES 21,~~725~~391,~~023~~114 21,~~154~~880,~~500~~200 ~~570~~(489,~~523~~086) (26)% ------------ ------------ ------------ ~~------------~~ NET INCOME $ 41,~~844~~462,~~484~~829 $ 3,~~942~~342,~~330~~538 $ ~~902~~(1,~~154~~879,709) 23(56)% ============ ============ ============ ~~============~~ BASIC EARNINGS PER SHARE $ 10.1835 $ 0.9681 $ (0.2246) 23(57)% Dilutive effect of outstanding options (0.01) (0.~~02) 0.~~01 ~~(50~~)% ------------ ------------ ------------ ~~------------~~ DILUTED EARNINGS PER SHARE $ 10.1734 $ 0.9481 $ (0.2347) 24(58)% ============ ============ ============ ~~============~~ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC 4,~~116~~130,~~407~~229 4,~~097~~111,~~641~~482 38Dilutive effect of outstanding options 177,~~705~~708 7538,~~470~~821 ------------ ------------ ~~Dilutive effect of outstanding options~~ DILUTED 4,~~155~~307,~~112~~937 4,~~173~~150,~~111~~303 ~~------------~~============ ~~------------~~============

3 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2001 --------------------------------------------------------------------------------

~~2000~~Accumulated ~~1999~~Other ~~------------~~Additional ~~------------~~Comprehensive ~~OPERATING~~Common ~~ACTIVITIES:~~Stock Net income $ 4,844,484 $ 3,942,330 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,689,808 3,681,993 Deferred taxes 266,906 Gain on sale of equipment (10,470) Minority interest 1,843,578 1,243,370 Noncash compensation 7,750 2,750 Changes Paid-in ~~operating~~Retained ~~assets~~Income ~~and~~Shares ~~liabilities:~~Amount ~~Other~~Capital ~~55,678~~Earnings ~~Accounts receivable~~ (~~75,771~~Loss) ~~66,858~~Total ~~Inventories (8,304) 17,827 Prepaid expenses and other assets 190,530 (126,752) Accounts payable and accrued expenses (934,605) (36,436)~~ ---------~~---~~ -------~~-----~~ ~~Net cash provided by operating activities 9,547,000 9,114,524~~ ------------ ------------ INVESTING ACTIVITIES: Proceeds from sale of equipment 77,812 68,739 Equipment purchases and additions to gaming facilities (1,390,463) (3,837,841) Proceeds from the City of Black Hawk for public improvements 380,000 Acquisition costs related to Gold Dust West (1,035,600) Other (6,498) (990) ------------- ------------ ~~Net~~BALANCES, ~~cash~~JANUARY ~~used~~1, in2001 ~~investing~~4,126,757 ~~activities~~$ (24,~~354~~127 $ 18,~~749)~~569,538 (3$ 23,~~390~~488,~~092)~~694 ~~------------~~$ ~~------------~~42,062,359 ~~FINANCING~~Stock ~~ACTIVITIES:~~issued ~~Proceeds~~for ~~from~~compensation ~~bond~~3,476 ~~issue~~4 625,~~000~~996 26,000 ~~Proceeds~~Options ~~from~~Exercised ~~GHC~~2,000 ~~revolving~~2 ~~line~~15,758 of15,760 ~~credit~~Comprehensive ~~6,573,122~~income: ~~Payments~~Transition onadjustment ~~GHC~~as ~~revolving~~a ~~line~~result of ~~credit~~the ~~(8,874,275)~~adoption ~~Payments~~of toStatement ~~retire~~of ~~GHC~~Financial ~~revolving~~Accounting ~~line~~Standards ofNo. ~~credit~~133 ~~(12~~367,~~706~~941 367,~~000)~~941 ~~Payments~~Unrealized toloss ~~retire~~on ~~construction~~interest ~~loan~~rate swap (32540,~~317~~272) (540,~~500~~272) ~~Proceeds~~Reclassification ~~from~~adjustment ~~reducing~~for ~~and~~amortization ~~revolving~~of ~~credit~~cumulative ~~facility~~transition 47adjustment,~~940,534~~ ~~Payments~~included onin ~~bonds~~net ~~(175,000)~~income ~~Payments on long term debt and note payable~~ (778,~~301,508~~845) (1078,~~070,578~~845) ~~Payments~~Net toincome ~~refinance debt (2~~1,~~222~~462,~~015)~~829 ~~Distributions to minority interest owner (~~1,~~111~~462,~~284)~~829 ~~(998,952) Other 102,850 139,275~~ --------- ------- ------------ ~~Net cash used in financing activities (8,484,942) (6,536,389)~~ ------------ ------------- ~~NET DECREASE IN CASH AND CASH EQUIVALENTS $ (1,292,691) $ (811,957) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,239,735 10,887,602~~ ------------ Total Comprehensive Income 1,211,653 ------------ ~~CASH~~BALANCES, ~~AND~~JUNE ~~CASH~~30, ~~EQUIVALENTS~~2001 4,132,233 ~~END~~$ OF4,133 ~~PERIOD~~$ 18,611,292 $ 824,~~947~~951,~~044~~523 $ 10(251,~~075~~176) $ 43,~~645~~315,772 ========= ======= ============ ~~SUPPLEMENTAL~~============ ~~CASH~~============= ~~FLOW INFORMATION: Cash paid for interest $ 2,693,364 $ 3,528,230 Cash paid for income taxes $ 2,463,334 $ 1,116,500~~============

4 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------------------------------

~~THREE~~2001 ~~MONTHS ENDED PERCENTAGE SEPTEMBER 30, SEPTEMBER 30, INCREASE~~ 2000 ~~1999 DIFFERENCE (DECREASE)~~ ------------- ------------- ~~------------~~OPERATING ~~------------~~ACTIVITIES: ~~NET~~Net ~~REVENUE~~income ~~Lodge~~ $ 151,~~964~~462,~~493~~829 $ 163,~~550~~342,~~925~~536 $Adjustments ~~(586,432)~~to ~~(4)%~~reconcile ~~GHC~~net ~~6,286,650~~income ~~6,787,213~~to ~~(500,563)~~net ~~(7)%~~cash ~~Corporate~~provided ~~5,339~~by ~~4,025~~operating ~~1,314~~activities: ~~33%~~Depreciation ~~-------------~~and ~~-------------~~amortization ~~------------ ------------ Total net revenue 22~~3,~~256~~760,~~482~~652 232,~~342~~424,~~163~~474 ~~(1,085,681)~~Change ~~(5)%~~in ~~COSTS~~fair ~~AND~~value ~~EXPENSES~~of ~~Lodge~~interest ~~11,772,425~~rate 11swap,~~801,795~~ ~~(29~~net 196,~~370)~~621 ~~(0)%~~Gain ~~GHC~~on ~~4,884,226~~sale 4of equipment 35,~~912,911~~225 (2823,~~685~~813) ~~(1)%~~Minority ~~Corporate~~interest ~~627~~885,~~166~~408 ~~473~~1,~~541 153~~252,~~625~~909 ~~32%~~Noncash ~~-------------~~compensation ~~-------------~~7,750 ~~------------~~Changes ~~------------~~in ~~Total~~operating ~~costs~~assets and ~~expenses 17~~liabilities,~~283,817~~ ~~17,188,247~~net ~~95,570~~of 1%the ~~EBITDA~~effects &of ~~Minority~~acquisition: ~~Interest~~Accounts inreceivable ~~The~~501,086 ~~Lodge~~22,167 ~~Lodge~~Inventories 434,~~192,068~~332 41,~~749,130~~770 ~~(557,062)~~Prepaid ~~(12)%~~expenses ~~GHC~~and ~~1,402,424~~other ~~1,874,302~~assets (~~471~~817,~~878~~977) ~~(25)%~~158,844 ~~Net~~Accounts ~~corporate~~payable ~~overhead~~and ~~(621,827)~~accrued expenses (~~469~~2,~~516~~623,699) (~~152~~2,~~311~~959,307) ~~32%~~ ------------- ------------- ~~------------~~Net ~~------------~~cash ~~Total~~provided ~~EBITDA~~by &operating ~~Minority~~activities ~~Interest in The Lodge 4~~3,~~972~~434,~~665~~477 64,~~153~~227,~~916~~330 ~~(1,181,251) (19)%~~ ------------- ------------- ~~------------~~INVESTING ~~------------~~ACTIVITIES: ~~Interest~~Proceeds ~~expense~~from ~~769,891~~sale ~~1,076,471~~of ~~(306,580)~~equipment ~~(28)% Income taxes 844~~12,~~823~~789 127,~~090,000~~950 ~~(245,177)~~Equipment ~~(22)%~~purchases ~~Depreciation~~ and ~~amortization~~additions ~~1,265,334~~to ~~1,253,323~~gaming ~~12,011~~facilities (1~~% Minority Interest in The Lodge 590~~,~~669 684~~480,~~176 (93,507~~938) (~~14)% ------------- ------------- ------------ ------------ Net income $~~ 1,~~501~~122,~~948 $ 2,049,946 $ (547,998~~901) ~~(27)%~~Acquisition ~~=============~~costs ~~=============~~related ~~============~~to ~~============~~the ~~Basic~~Gold ~~earnings~~Dust ~~per~~West ~~share $ 0.37 $ 0.50 $~~ (~~0.13~~81,937) (26474,143)% ~~=============~~Deposit ~~=============~~related ~~============~~to ~~============~~the ~~Diluted~~Gold ~~earnings~~Dust ~~per~~West ~~share $ 0.36 $ 0.49 $~~ (~~0.13~~500,000) ~~(27)%~~Acquisition ~~=============~~of ~~=============~~the ~~============~~Gold ~~============~~Dust ~~NINE MONTHS ENDED PERCENTAGE SEPTEMBER 30~~West, ~~SEPTEMBER~~net ~~30,~~of ~~INCREASE~~cash ~~2000~~acquired ~~1999 DIFFERENCE~~ (~~DECREASE~~26,000,000) ------------- ------------- ~~------------~~Net ~~------------~~cash ~~NET~~used ~~REVENUE~~in ~~Lodge~~investing $activities ~~47,815,734 $ 44,223,656 $ 3,592,078 8% GHC 18,919,279 20,210,753~~ (127,~~291~~550,~~474~~086) (~~6)% Corporate 15~~2,~~549 14~~069,~~776~~094) ~~773 5%~~ ------------- ------------- ~~------------~~FINANCING ~~------------~~ACTIVITIES: ~~Total~~Proceeds ~~net~~from ~~revenue~~reducing ~~66,750,562~~and ~~64,449,185~~revolving ~~2,301,377~~credit 4%facility ~~COSTS AND EXPENSES Lodge 34~~36,~~791~~500,~~172~~000 ~~33,300,093~~Payments ~~1,491,079~~on 4%bonds ~~GHC 14,615,397 15,286,096~~ (~~670~~178,~~699~~136) (4175,000)% ~~Corporate~~Payments ~~1,630,893~~on ~~1,587,706~~long ~~43,187~~term 3%debt ~~------------- ------------- ------------ ------------ Total costs~~ and ~~expenses~~note 51payable (8,~~037~~020,~~462~~910) 50(3,~~173~~195,~~895~~254) ~~863,567~~Payments 2%to ~~EBITDA~~amend &reducing ~~Minority~~and ~~Interest~~revolving incredit ~~The~~facility ~~Lodge Lodge 13,024,562 10,923,563 2,100,999 19% GHC 4,303,882 4,924,657~~ (~~620~~571,~~775~~247) ~~(13)%~~Distributions ~~Net~~to ~~corporate~~minority ~~overhead~~interest ~~(1,615,344)~~owner (12,~~572~~617,~~930~~028) (42620,~~414~~813) 3%Other ~~-------------~~41,761 ~~-------------~~10,000 ------------ ------------ ~~Total~~Net ~~EBITDA~~cash &provided ~~Minority~~by ~~Interest~~(used in) ~~The~~financing ~~Lodge~~activities 1525,~~713~~154,~~100~~440 14(3,~~275~~981,~~290~~067) ~~1,437,810 10%~~ ------------- ------------- ~~------------~~NET ~~------------~~INCREASE ~~Interest~~/ ~~expense 2,610,207 3,253,098~~ (~~642,891~~DECREASE) ~~(20)%~~IN ~~Income~~CASH ~~taxes~~AND ~~2,725,023~~CASH ~~2,154,500~~EQUIVALENTS ~~570,523~~$ ~~26% Depreciation and amortization 3~~1,~~689~~038,~~808~~831 3$ (1,~~681~~822,~~993~~831) ~~7,815~~CASH 0%AND ~~Minority~~CASH ~~Interest~~EQUIVALENTS, inBEGINNING ~~The~~OF ~~Lodge~~YEAR 18,~~843~~518,~~578~~464 110,~~243~~239,~~370~~735 ~~600,208 48%~~ ------------- ------------- ~~------------~~CASH ~~------------~~AND ~~Net~~CASH ~~income~~EQUIVALENTS, $END ~~4,844,484~~OF PERIOD $ 39,~~942~~557,~~330~~295 $ ~~902~~8,~~154~~416,904 ~~23%~~ ============= ============= ~~============~~SUPPLEMENTAL ~~============~~CASH ~~Basic~~FLOW ~~earnings~~INFORMATION: ~~per~~Cash ~~share~~paid $for ~~1.18~~interest $ ~~0.96~~2,685,094 $ ~~0.22~~1,897,247 ~~23%~~Cash ~~=============~~paid ~~=============~~for ~~============~~income ~~============~~taxes ~~Diluted earnings per share~~ $ 1~~.17~~,168,000 $ ~~0.94 $ 0.23 24% ============= ============= ============ ============~~1,875,750

5 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 1. BUSINESS Black Hawk Gaming & Development Company, Inc. ("BHWK" or the "Company") was incorporated on January 10, 1991. The Company is a holding company, which owns, develops and operates gaming properties. Currently the Company operates the Gilpin Hotel Casino ("GHC") and The Lodge Casino at Black Hawk ("The Lodge"), both located in Black Hawk, Colorado, and The Gold Dust West Casino ("GDW") located in Reno, Nevada. GHC is a 37,000 square foot facility located in the Black Hawk gaming district and was the Company's first casino project. Originally built in the 1860's, the Gilpin Hotel was one of the oldest in Colorado; however, due to space limitations, the casino offers no hotel or lodging facilities. The Gilpin Hotel Casino commenced operations in October 1992, and was expanded through the acquisition of an adjacent casino in late 1994. Prior to April 24, 1998, the Company owned a 50% interest in the Gilpin Hotel Venture, which owned GHC. On April 24, 1998, the Company acquired the other 50% interest in GHC and related land. It now offers customers approximately 460 slot machines, 4 table games, two restaurants, four bars and parking for approximately 200 cars. The Lodge is a $74 million hotel/casino/parking complex and is one of Colorado's largest casinos. The 250,000 square foot facility which opened on June 24, 1998, presently offers customers 877 slot machines, 27 table games, 50 hotel rooms, three restaurants, four bars and parking for approximately 600 cars. The Company and its strategic partner, Jacobs Entertainment Ltd., developed and co-manage The Lodge, through an LLC, in which the Company owns a 75% interest and affiliates of Jacobs Entertainment Ltd. own 25%. On January 4, 2001, the Company purchased the assets and operating business of GDW for $26.5 million. The 24,000 square foot gaming and dining facility is located on 4.6 acres, a few blocks west of Reno's downtown gaming district. The casino has been catering to the "locals" market for the past 23 years and currently offers customers 500 slot machines, 106 motel rooms, one restaurant, four bars and parking for 277 cars. The Lodge, GHC, and GDW are sometimes referred to as the "Casinos." 2. SIGNIFICANT ACCOUNTING POLICIES Unaudited Consolidated Financial Statements --- In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair presentation of the financial position of the Company at June 30, 2001 and the results of its operations for the three and six months then ended. The accompanying unaudited consolidated financial statements include the accounts of BHWK, its wholly owned subsidiaries Gilpin Ventures, Inc. ("GVI") and GDW, and its 75% owned subsidiary, Black Hawk/Jacobs Entertainment, LLC. All significant inter-company 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, 2000. The results of interim periods are not necessarily indicative of results to be expected for the year. Reclassifications - Certain amounts have been reclassified within the 2000 financial statements to conform to the presentation used in 2001. 6 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 (Continued) 3. OTHER MATTERS Recently Issued Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". SFAS No. 141 improves the transparency of the accounting and reporting for business combinations by requiring that all business combinations be accounted for under a single method - the purchase method. This Statement is effective for all business combinations initiated after June 30, 2001. Management is currently evaluating the impact that this statement will have on the Company's financial statements. In July 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". This statement applies to intangibles and goodwill acquired after June 30, 2001, as well as goodwill and intangibles previously acquired. Under this statement, goodwill as well as other intangibles determined to have an indefinite life will no longer be amortized; however, these assets will be reviewed for impairment on a periodic basis. This statement is effective for the Company for the first quarter in the fiscal year ended December 31, 2002. Management is currently evaluating the impact that this statement will have on the Company's financial statements. In January 2001, FASB announced that the Emerging Issues Task Force ("EITF") had reached a final consensus on EITF 00-22 "Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future." EITF 00-22 requires that certain sales incentives provided by vendors that entitle a customer to receive a reduction in the price of a product or service based on a specified cumulative level of transactions be recognized as a reduction in revenue. This issue is scoped broadly to include all industries that utilize point or other loyalty programs, including the hospitality industry. Effective January 1, 2001, the Company adopted this standard resulting in a reclassification of player point and coupon cash redemption expenses from marketing, general and administrative expense to promotional allowances in the amount of $2,177,000 and $1,935,000 for the three months ended June 30, 2001 and 2000, respectively, and $4,240,000 and $3,952,000 for the six months ended June 30, 2001 and 2000, respectively. 4. ACCOUNTING CHANGE Effective January 1, 2001, BHWK adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income ("OCI") net of taxes, and are recognized in the income statement when the hedged item affects earnings. SFAS No. 133 defines requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. The Company uses derivative instruments to manage its exposure to interest rate risk. The Company's objective for holding derivatives is to minimize the risks associated with fluctuating interest rates by using the most effective methods available. Variable-rate debt is subject to interest rate risk. The Company uses Interest Rate Swaps, as cash flow hedging instruments, to manage its exposure to interest rate risk on its variable-rate debt. 7 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND MONTHS ENDED JUNE 30, 2001 (Continued) 4. ACCOUNTING CHANGE (Continued) The adoption of SFAS No. 133 on January 1, 2001, resulted in the Company recording a $368,000 gain (net of $200,000 in taxes) in accumulated other comprehensive income/(loss) as a transition adjustment for its derivative instrument which had been designated as a cash flow hedge prior to adopting SFAS No. 133. On February 16, 2001, the Company terminated this interest rate swap agreement and simultaneously entered into a new interest rate swap agreement and designated the new swap as a cash flow hedge as defined by SFAS No. 133. From January 1, 2001 through February 16, 2001, the Company recorded a $318,000 charge to interest expense due to the devaluation of the original interest rate swap. Although the transition adjustment was reflected in other comprehensive loss, subsequent changes in the value of the original interest rate swap are reflected in the income statement because the swap was not designated as a hedging instrument as defined by SFAS No. 133. In, addition, the Company reclassified $79,000 (net of $43,000 in taxes) of the transition gain from OCI to interest expense representing the amortization of the transition gain due to terminating the interest rate swap during the six months ended June 30, 2001. The amortization of the transition adjustment will continue through April 16, 2003 (the expiration date of the original interest rate swap agreement). Derivative losses included in OCI for the six months ended June 30, 2001 amounted to $540,000 net of $304,000 in taxes reflecting the decline in market value of the interest rate swap entered into on February 16, 2001 through June 30, 2001. No event is expected to result in a reclassification of losses reported in OCI over the next twelve months due to the interest rate swap's effectiveness in off setting the variable rate cash flows of the debt. 5. BUYOUT OF COMMON STOCK On April 27, 2001, BHWK announced the execution of a merger agreement. Pursuant to the merger agreement, Gameco, Inc., an entity owned and controlled by Jeffrey P. Jacobs, Chairman of the Board and Chief Executive Officer of BHWK, has agreed to pay $12.00 per share, in cash, for each share of common stock of BHWK not currently owned by Mr. Jacobs or his affiliates and BHWK will become a wholly-owned subsidiary of Gameco. Consummation of the transaction is subject to various conditions, including, among other things, the approval by BHWK's stockholders and the obtaining of various regulatory approvals. If the transaction fails to close because of Mr. Jacobs' inability to obtain financing, BHWK will be entitled to liquidated damages of $2 million. The transaction is expected to be consummated in the fourth quarter of 2001 and the merger agreement provides that the transaction must be completed by December 31, 2001. 6. SEGMENT DISCLOSURE As of January 4, 2001, BHWK acquired the Gold Dust West Casino in Reno, Nevada. This acquisition expanded BHWK's operations into another gaming jurisdiction other than Black Hawk, Colorado. As defined by SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", the following segment information is presented after the elimination of inter-segment transactions. Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, minority interest in The Lodge, and privatization and other non-recurring costs) has been included as a supplemental disclosure to facilitate a more complete analysis of our casinos' financial performance. We believe this disclosure enhances the understanding of the financial performance of a company, such as ours, with substantial interest, taxes, depreciation and amortization. 7. ACQUISITION OF GOLD DUST WEST Assuming the Gold Dust West acquisition had occurred on January 1, 2000, for the three and six months ended June 30, 2000, net revenues would have been $24,875,000 and $49,899,000 respectively, net income would have been $1,752,000 and $3,760,000 respectively, and earnings per share would have increased $.05 and $.10 to $.42 and $.91 per share respectively. The pro forma financial information is not necessarily indicative of either the results of operations that would have occurred had this agreement been effective on January 1, 2000 or of future operations. 8 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED SEGMENT INFORMATION FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------------------------------

~~No.~~THREE ~~Description~~MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- NET REVENUE Black Hawk, Colorado $ 18,915,119 $ 20,118,968 $ 38,667,574 $ 40,387,189 Reno, Nevada 4,589,025 8,923,783 ------------- ------------- ------------- ------------- Total net revenue 23,504,144 20,118,968 47,591,357 40,387,189 ============= ============= ============= ============= ADJUSTED EBITDA Black Hawk, Colorado 4,681,931 5,787,562 10,015,505 12,033,737 Reno, Nevada 1,235,692 2,472,039 Net corporate overhead (620,457) (542,869) (1,165,182) (1,003,727) ------------- ------------- ------------- ------------- ADJUSTED EBITDA 5,297,166 5,244,693 11,322,362 11,030,010 ============= ============= ============= ============= ADJUSTED EBITDA Black Hawk, Colorado 25% 29% 26% 30% Reno, Nevada 27% ~~Financial~~28% ~~Data~~------------- ~~Schedule~~------------- ------------- ------------- ADJUSTED EBITDA 23% 26% 24% 27% ============= ============= ============= ============= Operating Income Black Hawk, Colorado 3,255,034 4,391,740 7,166,597 9,229,841 Reno, Nevada 813,523 1,566,420 Net corporate overhead, privatization and other non-recurring costs (1,738,508) (545,093) (2,286,296) (1,007,625) ------------- ------------- ------------- ------------- Operating Income $ 2,330,049 $ 3,846,647 $ 6,446,721 $ 8,222,216 ============= ============= ============= ============= JUNE 30, DECEMBER 31, 2001 2000 ------------- ------------- Assets: Black Hawk, Colorado $ 89,602,616 $ 92,159,769 Reno, Nevada 29,572,622 Corporate 4,126,251 5,316,480 ------------- ------------- Total Assets $ 123,301,489 $ 97,476,249 ============= =============

9 Item 2. Management's Discussion and Analysis of Financial Condition and Results ------- ----------------------------------------------------------------------- of Operations ------------- This Report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include our plans and objectives for future operations, including plans and objectives relating to our gaming operations and future economic performance, and our plans with respect to the buyout described in Note 5 above. The forward-looking statements are based on current expectations that involve a number of risks and uncertainties that might adversely affect our operating results in the future in a material way: intensity of competition, particularly the opening of new casinos in our immediate market area in 2000 and those planned to be opened in 2001 and 2002, levels of gaming activity in general and in Black Hawk in particular, our ability to meet debt obligations, regulatory compliance, taxation levels, effects of national and regional economic and market conditions, labor and marketing costs, success of our diversification plans, the proposed buyout and the ultimate outcome of litigation matters. The following discussion is qualified in its entirety by the unaudited financial statements and 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, 2000. Results of Operations --------------------- Introduction ------------ BHWK's results of operations for the three and six months ended June 30, 2001 and 2000 reflect the consolidated operations of our subsidiaries (GHC, GDW and The Lodge) and the net corporate overhead of BHWK. BHWK owns 100% of GHC and GDW and 75% of The Lodge. The remaining 25% ownership in The Lodge is held by affiliates of our chief executive officer, and is reflected as "Minority Interest" in the consolidated financial statements. The net corporate overhead incurred at BHWK is the result of directing the overall operations of our Company including the specific efforts related to being a publicly traded company. Increased Competition in the Black Hawk Market On February 4, 2000 a casino opened in Black Hawk with approximately 950 devices and a 550-car valet/self-parking garage. A second casino opened next door to The Lodge on March 6, 2000 with approximately 750 devices and parking for 500 cars. A third project recommenced construction with a projected opening date sometime in late 2001. A fourth project has begun various predevelopment efforts and submittals to the City of Black Hawk and other agencies. Based upon the level of development activity in the City of Black Hawk, it is apparent that increased competition within this market is a certainty. We believe the new casinos have expanded the City of Black Hawk's gaming market; however, it is extremely difficult, if not impossible, to accurately predict the extent of the future growth of this market. In any event, we expect some of our previous and existing market share has been and will be lost to increased competition. We believe that the competition within this market will continue to increase and intensify. As a result, our marketing costs, our personnel costs and other costs at our properties will more than likely increase while we attempt to maintain our market share. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following is an analysis of the results of our unaudited consolidated operations for the three and six months ended June 30, 2001 and 2000. EBITDA is included in the discussion of the unaudited results of operations. EBITDA should not be considered to be an alternative to operating income or net income as defined by accounting principles generally accepted in the United States of America. It also should not be construed to be an indicator of our operating performance, nor as an alternative to cash flows from operational activities and hence, a measure of our liquidity. We have presented EBITDA as a supplemental disclosure to facilitate a more complete analysis of our casinos' financial performance. We believe this disclosure enhances the understanding of the financial performance of a company, such as ours, with substantial interest, taxes, depreciation and amortization. BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------------------------------

~~EXHIBIT~~THREE ~~NUMBER~~MONTHS ~~DESCRIPTION~~ENDED PERCENTAGE JUNE 30, JUNE 30, INCREASE 2001 2000 DIFFERENCE (DECREASE) ------------ ------------ 27------------ ~~Financial~~------------ ~~Data~~NET ~~Schedule~~REVENUE Lodge $ 14,294,649 $ 14,552,558 $ (257,909) (2)% GHC 4,620,470 5,566,410 (945,940) (17)% GDW 4,589,025 4,589,025 ------------ ------------ ------------ Total net revenue 23,504,144 20,118,968 3,385,176 17 % COSTS AND EXPENSES Lodge 10,468,358 10,177,968 290,390 3 % GHC 3,764,830 4,153,438 (388,608) (9)% GDW 3,353,333 3,353,333 Corporate 620,457 542,869 77,588 14 % ------------ ------------ ------------ Total costs and expenses 18,206,978 14,874,275 3,332,703 22 % ADJUSTED EBITDA Lodge 3,826,291 4,374,590 (548,299) (13)% GHC 855,640 1,412,972 (557,332) (39)% GDW 1,235,692 1,235,692 Net corporate overhead (620,457) (542,869) (77,588) 14 % ------------ ------------ ------------ ADJUSTED EBITDA 5,297,166 5,244,693 52,473 1 % ------------ ------------ ------------ Interest income (39,282) (81,575) 42,293 (52)% Interest expense 1,250,632 920,860 329,772 36 % Income taxes 605,822 867,600 (261,778) (30)% Privatization and other non-recurring costs 1,114,989 1,114,989 Depreciation and amortization 1,852,128 1,398,046 454,082 32 % Minority Interest in The Lodge 446,122 597,395 (151,273) (25)% ------------ ------------ ------------ Net income $ 66,755 $ 1,542,367 $ (1,475,612) (96)% ============ ============ ============ BASIC EARNINGS PER SHARE $ 0.01 $ 0.37 $ (0.36) (97)% Dilutive effect of outstanding options ------------ ------------ ------------ DILUTED EARNINGS PER SHARE $ 0.01 $ 0.37 $ (0.36) (97)% ============ ============ ============

11 BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------------------------------

12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000. Net Revenues We generated net revenues of $23,504,000 during the three months ended June 30, 2001 compared to $20,119,000 for the same period of 2000. The increase in net revenues of $3,385,000 or 17% is the result of net revenues generated from GDW (acquired January 4, 2001) of $4,589,000 offset by decreases in net revenues at The Lodge and Gilpin casinos of $258,000 and $946,000, respectively. Generally we believe the primary reason for the decrease in net revenues at our Colorado properties for the three months ended June 30, 2001 over the same period of 2000 was due to the intensified level of competition and increased marketing efforts within the marketplace. Costs and Expenses Our total costs and expenses were $18,207,000 for the three months ended June 30, 2001 compared to $14,874,000 for the same period of 2000. The overall increase of $3,333,000 or 22% was the result of costs and expenses associated with GDW of $3,354,000 as well as increases in costs and expenses at The Lodge, and BHWK of $291,000 and $77,000 respectively. These expenses were partially offset by a reduction in costs and expenses at GHC of $389,000. EBITDA and Minority Interest When our total costs and expenses are subtracted from our net revenues, the result is EBITDA and Minority Interest of $5,297,000 for the three months ended June 30, 2001 compared to $5,245,000 for the same period of 2000. The increase of $52,000 or 1% is primarily the result of the factors discussed above. Our EBITDA and Minority Interest ratio (EBITDA and Minority Interest divided by our net revenues) is 23% for the three months ended June 30, 2001 compared to 26% for the same period of 2000. Interest Income We had interest income totaling $40,000 during the three months ended June 30, 2001 compared to $82,000 for the same period of 2000. The decrease of $42,000 or 51% is due primarily to the reductions in interest rates and invested cash balances. Interest Expense We had interest expense totaling $1,251,000 during the three months ended June 30, 2001 compared to $921,000 for the same period of 2000. The increase of $330,000 or 36% is primarily the result of interest on borrowings associated with the acquisition of GDW of $437,000 and increases in interest expense at The Lodge of $9,000. The increases were partially offset by reductions in interest expense incurred at GHC of $116,000. Privatization and other non-recurring costs During the current three months ended June 30, 2001, we incurred privatization and other non-recurring costs of approximately $1,115,000. The costs associated with the buyout offer (See Item 1 Note 5 above) through June 30, 2001 were $980,000. These costs include fees paid to financial advisors hired to identify strategic alternatives available to the Company as well as fees paid to legal counsel and financial advisors hired by the Company and the Special Committee of the Board of Directors in its analysis of the buyout offer. In addition, included in these costs is a total of $135,000 in fines ($75,000 on behalf of GHC and $60,000 on behalf of The Lodge) assessed by the Colorado Division of Gaming pursuant to the issuance of a stipulation and agreement for each property alleging certain violations of Internal Control Minimum Procedures. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000 (continued) Depreciation and Amortization We had depreciation and amortization of $1,852,000 for the three months ended June 30, 2001 compared to $1,398,000 for the same period of 2000. The increase of $454,000 or 32% is primarily due to the depreciation and amortization incurred by the GDW of $422,000 and an increase in depreciation and amortization expense at The Lodge and GHC and Corporate of $14,000, $17,000, and $1,000 respectively. Depreciation and amortization primarily relates to buildings, equipment, and intangible assets. Minority Interest Minority interest for the three months ended June 30, 2001 totaled $446,000 compared to $598,000 for the same period of the prior year. Minority interest represents the 25% share of The Lodge's income (before eliminating inter-company transactions), that is owned by affiliates of our chief executive officer. Income Taxes Our effective income tax rate for the three months ended June 30, 2001 and 2000 resulted in income tax expense of $606,000 and $867,000. The unique tax characteristics of the individual components of our income before income taxes are what determine our overall effective tax rate. Due to the significant costs incurred in association with the buyout offer (see privatization and other non-recurring costs above) and the non-deductible nature of a substantial portion of those costs, the Company's effective income tax rate for the three months ended increased to 90% as compared to 36% for the comparable quarter of the prior year. With the exception of costs associated with the buyout offer and assuming continued profitability at our current levels (and no change in the current tax law), we expect our effective income tax rate to return to the 36% range next year. Net Income As a result of the factors discussed above, we reported net income of $67,000 for the three months ended June 30, 2001 compared to $1,543,000 for the same period of 2000, a decrease in net income of $1,476,000 or 96%. Earnings Per Share We reported basic earnings per share for the three months ended June 30, 2001 and 2000 of $.01 and $.37, respectively and diluted earnings per share for the same time periods of $.01 and $.37, respectively. The decrease in basic and diluted earnings per share of $.36 or 97% respectively, are the result of significant privatization costs as well as reduced profitability. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) THE LODGE UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000 Net Revenues The Lodge generated net revenues of $14,295,000 during the three months ended June 30, 2001 compared to $14,553,000 for the same period of 2000. The decrease in our net revenues at The Lodge of $258,000 or 2% is primarily due to a decrease in casino revenue (net of cash redemption) of $167,000 or 1% and a net decrease in other combined net revenue of $91,000. As previously discussed, we believe the primary reason for the decrease in net revenue is due to increased competition and marketing efforts in the City of Black Hawk. Costs and Expenses The Lodge's costs and expenses (after eliminating inter-company transactions) totaled $10,469,000 during the three months ended June 30, 2001 compared to $10,178,000 for the same period of 2000. The overall increase of $291,000 or 3% is due to increases in labor costs of $223,000, marketing and media costs of $113,000, utilities of $31,000, local device fees of $33,000, and other net expenses of $12,000. These increases were offset by a decrease in slot participation costs of $121,000. EBITDA When The Lodge's costs and expenses are subtracted from net revenues, the result is EBITDA and Minority Interest of $3,826,000 for the three months ended June 30, 2001 compared to $4,375,000 for the same period of 2000. The decrease in EBITDA of $548,000 or 13% is primarily the result of a more competitive market and increased marketing efforts in the City of Black Hawk. Interest Expense Interest expense at The Lodge was $714,000 for the three months ended June 30, 2001 compared to $705,000 for the same period of 2000. The increase of $9,000 or 1% is primarily due to increases in interest expense of $58,000 on our increased average debt outstanding. This was partially offset by a $49,000 credit to interest expense in connection with our interest rate swap activity during the three months ended June 30, 2001 (see Item 1 Note 4 above). Depreciation and Amortization Depreciation and amortization of The Lodge totaled $980,000 for the three months ended June 30, 2001 compared to $966,000 for the same period of 2000. The increase of $14,000 or 1% is generally due to an increase in depreciable assets. Income before income taxes As a result of the factors discussed above, The Lodge generated income before income taxes (after eliminating inter-company transactions and before minority interest) of $2,157,000 for the three months ended June 30, 2001 compared to $2,762,000 for the same period of 2000, a decrease of $605,000 or 22%. We continually review the overall operational aspects of The Lodge and attempt to modify our operations, when and if necessary, in an attempt to remain competitive and to maintain our market share. Generally, our market strategy is to focus on our existing customer base at The Lodge while we develop marketing programs that increase new customer visits. Our goal for 2001 is to continue to enhance the overall product we offer at The Lodge in order to be responsive to the new and increased competition within the marketplace. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) THE GILPIN HOTEL CASINO UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000 Net Revenues GHC generated net revenues of $4,620,000 during the three months ended June 30, 2001 compared to $5,566,000 for the same period of 2000. The decrease in our net revenues at GHC of $946,000 or 17% is primarily due to a decrease in casino revenue of $907,000 and a net decrease in other combined net revenue of $39,000. While we attribute approximately $485,000 of the reduction in our casino revenues to abnormally low hold percentages during the quarter, the primary reason for the decrease in our overall casino revenue at GHC is a result of the opening of larger and newer gaming facilities in the City of Black Hawk, including The Lodge. Costs and Expenses GHC's costs and expenses totaled $3,764,000 during the three months ended June 30, 2001 compared to $4,153,000 for the same period of 2000. The overall decrease of $389,000 or 9% is due to decreases in gaming taxes of $197,000, bus program costs of $40,000, labor costs of $65,000, slot participation costs of $64,000 and other net costs and expenses of $59,000. These reductions were offset by an increase in marketing related costs of $36,000. EBITDA When GHC's costs and expenses are subtracted from net revenues, the result is EBITDA of $856,000 for the three months ended June 30, 2001 compared to $1,413,000 for the same period of 2000. The decrease in EBITDA of $557,000 or 39% is primarily the result of increased competition and the opening of larger and newer gaming facilities in the City of Black Hawk, including The Lodge. Interest Expense Interest expense at GHC was $100,000 for the three months ended June 30, 2001 compared to $216,000 for the same period of 2000. The decrease of $116,000 or 54% is primarily due to paying down our debt levels at various times since June 30, 2000 as well as a $12,000 credit to interest expense in connection with our interest rate swap activity during the three months ended June 30, 2001 (see Item 1 Note 4 above). Depreciation and Amortization The depreciation and amortization of GHC totaled $447,000 for the three months ended June 30, 2001 compared to $430,000 for the same period of 2000. The increase of $17,000 or 4% is generally due to an increase in depreciated assets. Income before income taxes As a result of the factors discussed above, GHC generated income before income taxes of $316,000 for the three months ended June 30, 2001 compared to $788,000 for the same period of 2000, a decrease of $472,000 or 60%. GHC's operations have been impacted due to the additional competition in Black Hawk, which also includes The Lodge. As with The Lodge, we continually review the overall operational aspects at GHC and add or eliminate areas and/or amenities in order to enhance GHC's operations. Our market strategy is similar to that at The Lodge, whereby we focus on GHC's existing customer base, and try to develop marketing programs that increase new customer visits. Our goal for 2001 is to continue to build on the product we offer at GHC and to attempt to remain competitive with the new and increased competition in the City. We are currently investigating possible expansion opportunities for the Gilpin in order to provide a more competitive single floor casino environment. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) GOLD DUST WEST UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000 On January 4, 2001, BHWK purchased the assets and operating business of the Gold Dust West Casino with operations beginning January 5, 2001. Therefore, there are no comparisons to the prior periods presented. See BHWK's 8-K filing dated March 19, 2001 for pro-forma results. Net Revenues GDW generated net revenues of $4,589,000 during the three months ended June 30, 2001. The revenues by operating department included casino revenue of $4,122,000 or 90%, food and beverage revenue of $332,000 (net of $318,000 in promotional allowances) or 7%, hotel revenue of $85,000 (net of $9,000 in promotional allowances) or 2% and other revenues of $12,000. Costs and Expenses GDW's costs and expenses totaled $3,353,000 during the three months ended June 30, 2001. The costs and expenses by operating departments included casino operations of $1,209,000 or 36%, food and beverage operations of $576,000 or 17%, hotel operations of $65,000 or 2%, marketing, general, and administrative of $1,503,000 or 45%. EBITDA When GDW's costs and expenses are subtracted from net revenues, the result is EBITDA of $1,236,000 for the three months ended June 30, 2001. Interest Expense Interest expense at GDW was $437,000 for the three months ended June 30, 2001 resulting from borrowings associated with its acquisition by BHWK. Depreciation and Amortization Depreciation and amortization at GDW totaled $422,000 for the three months ended June 30, 2001. Depreciation and amortization primarily relates to buildings, equipment, and intangible assets. Income before income taxes As a result of the factors discussed above, GDW generated income before income taxes of $382,000 for the three months ended June 30, 2001 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) CORPORATE UNAUDITED RESULTS OF OPERATIONS -- FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000 Generally, our corporate operations are not a profit center, but rather a managerial entity, which directs the overall operations of the Company, including the specific efforts related to being a publicly traded company. Net Revenue No net revenue is generated at our corporate level after elimination of inter-company transactions. Costs and Expenses Our costs and expenses totaled $620,000 for the three months ended June 30, 2001 compared to $543,000 for the same period of 2000. The increase of $77,000 or 14% is due to increases in consulting costs of $38,000, travel and entertainment of $21,000, director's fees of $18,000 and legal of $10,000, offset by a reduction in other net general and administrative expenses of $10,000. Net Corporate Overhead As no revenues are generated at the corporate level, net corporate overhead is equal to costs and expenses. The increase in our net corporate overhead of $77,000 or 14% decreases our consolidated EBITDA. Depreciation and Amortization Depreciation and amortization at the corporate level was $3,000 and $2,000 for the three months ended June 30, 2001 and 2000 respectively. Privatization and other non-recurring costs During the current three months ended June 30, 2001, we incurred privatization and other non-recurring costs of approximately $1,115,000. The costs associated with the buyout offer (See Item 1 Note 5 above) through June 30, 2001 were $980,000. These costs include fees paid to financial advisors hired to identify strategic alternatives available to the Company as well as fees paid to legal counsel and financial advisors hired by the Company and the Special Committee of the Board of Directors in its analysis of the buyout offer. In addition, included in these costs is a total of $135,000 in fines assessed by the Colorado Division of Gaming as discussed above. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000. Net Revenues We generated net revenues of $47,591,000 during the six months ended June 30, 2001 compared to $40,387,000 for the same period of 2000. The increase in net revenues of $7,204,000 or 18% is the result of net revenues generated from GDW (acquired January 4, 2001) of $8,924,000 offset by decreases in net revenues at The Lodge and Gilpin casinos of $612,000 and $1,108,000, respectively. Generally, we believe the primary reason for the decrease in net revenues at our Colorado properties for the six months ended June 30, 2001 over the same period of 2000 was due to the intensified level of competition and increased marketing efforts within the marketplace. During February and March of 2000, devices in the City of Black Hawk increased approximately 1,700 units or 24% with the opening of two new casinos. Costs and Expenses Our total costs and expenses were $36,269,000 for the six months ended June 30, 2001 compared to $29,357,000 for the same period of 2000. The overall increase of $6,912,000 or 24% was the result of costs and expenses associated with GDW of $6,452,000 as well as increases in costs and expenses at The Lodge, and BHWK of $596,000 and $161,000 respectively. These expenses were partially offset by a reduction at GHC of $297,000. EBITDA and Minority Interest When our total costs and expenses are subtracted from our net revenues, the result is EBITDA and Minority Interest of $11,322,000 for the six months ended June 30, 2001 compared to $11,030,000 for the same period of 2000. The increase of $292,000 or 3% is primarily the result of the factors discussed above. Our EBITDA and Minority Interest ratio (EBITDA and Minority Interest divided by our net revenues) is 24% for the six months ended June 30, 2001 compared to 27% for the same period of 2000. Interest Income We had interest income totaling $115,000 during the six months ended June 30, 2001 compared to $161,000 for the same period of 2000. The decrease of $46,000 or 29% is due primarily to the reductions in interest rates and invested cash balances. Interest Expense We had interest expense totaling $2,822,000 during the six months ended June 30, 2001 compared to $1,907,000 for the same period of 2000. The increase of $915,000 or 48% is primarily the result of interest on borrowings associated with the acquisition of GDW of $921,000 and increases in interest expense at The Lodge of $177,000. The increases were partially offset by reductions in interest expense incurred at GHC of $183,000. Privatization and other non-recurring costs See the discussion under unaudited consolidated results of operations for the three months ended June 30,2001 compared to the three months ended June 30, 2000 above. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000 (continued) Depreciation and Amortization We had depreciation and amortization of $3,761,000 for the six months ended June 30, 2001 compared to $2,808,000 for the same period of 2000. The increase of $953,000 or 34% is primarily due to the depreciation and amortization incurred by the GDW of $906,000 and an increase in depreciation and amortization expense at The Lodge and GHC and Corporate of $38,000, $7,000, and $2,000 respectively. Depreciation and amortization primarily relates to buildings, equipment, and intangible assets. Minority Interest Minority interest for the six months ended June 30, 2001 totaled $885,000 compared to $1,253,000 for the same period of the prior year. Minority interest represents the 25% share of The Lodge's income (before eliminating inter-company transactions), which is owned by affiliates of our chief executive officer. Income Taxes Our effective income tax rate for the six months ended June 30, 2001 and 2000 resulted in income tax expense of $1,391,000 and $1,880,000. The unique tax characteristics of the individual components of our income before income taxes are what determine our overall effective tax rate. Due to the significant costs incurred in association with the buyout offer (see privatization and other non-recurring costs above) and the non-deductible nature of a substantial portion of those costs, the Company's effective income tax rate for the six months ended increased to 49% as compared to 36% for the comparable period of the prior year. With the exception of costs associated with the buyout offer and assuming continued profitability at our current levels (and no change in current tax law), we expect that our effective income tax rate to return to the 36% range next year. Net Income As a result of the factors discussed above, we reported net income of $1,463,000 for the six months ended June 30, 2001 compared to $3,343,000 for the same period of 2000, a decrease in net income of $1,880,000 or 56%. Earnings Per Share We reported basic earnings per share for the six months ended June 30, 2001 and 2000 of $.35 and $.81, respectively and diluted earnings per share for the same time periods of $.34 and $.81, respectively. The decrease in basic and diluted earnings per share of $.46 or 57% and $.47 or 58% respectively, are the result of significant privatization costs as well as reduced profitability. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) THE LODGE UNAUDITED RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000 Net Revenues The Lodge generated net revenues of $28,635,000 during the six months ended June 30, 2001 compared to $29,247,000 for the same period of 2000. The decrease in our net revenues at The Lodge of $612,000 or 2% is primarily due to decrease in casino revenue (net of cash redemption) of $769,000 or 3% and a net decrease in other combined net revenue of $147,000, offset by sales tax and workers compensation premium refunds of $247,000 and $57,000 respectively. As previously discussed, we believe the primary reason for the decrease in net revenue is due to increased competition and marketing efforts in the City of Black Hawk. Costs and Expenses The Lodge's costs and expenses (after eliminating inter-company transactions) totaled $20,827,000 during the six months ended June 30, 2001 compared to $20,231,000 for the same period of 2000. The overall increase of $596,000 or 3% is due to increases in labor costs of $388,000, marketing and media costs of $296,000 and other net costs and expenses of $55,000. These increases were offset by a reduction in gaming taxes of $143,000. EBITDA When The Lodge's costs and expenses are subtracted from net revenues, the result is EBITDA and Minority Interest of $7,808,000 for the six months ended June 30, 2001 compared to $9,016,000 for the same period of 2000. The decrease in EBITDA of $1,207,000 or 13% is primarily the result of a more competitive market and increased marketing efforts within the City of Black Hawk. Interest Expense Interest expense at The Lodge was $1,631,000 for the six months ended June 30, 2001 compared to $1,454,000 for the same period of 2000. The increase of $177,000 or 12% is primarily due to a $159,000 charge to interest expense in connection with our interest rate swap activity during the six months ended June 30, 2001 (see Item 1 Note 4 above). An additional $18,000 in interest expense was incurred due to a slight increase in average debt levels held during the current year as compared to the prior year. Depreciation and Amortization Depreciation and amortization of The Lodge totaled $1,953,000 for the six months ended June 30, 2001 compared to $1,915,000 for the same period of 2000. The increase of $38,000 or 2% is generally due to an increase in depreciable assets. Income before income taxes As a result of the factors discussed above, The Lodge generated income before income tax (after eliminating inter-company transactions and before minority interest) of $4,282,000 for the six months ended June 30, 2001 compared to $5,762,000 for the same period of 2000, a decrease of $1,480,000 or 26%. We continually review the overall operational aspects of The Lodge and we attempt to modify our operations, when and if necessary, in an attempt to remain competitive and to maintain our market share. Generally, our market strategy is to focus on our existing customer base at The Lodge while we develop marketing programs that increase new customer visits. Our goal for 2001 is to continue to enhance the overall product we offer at The Lodge in order to be responsive to the new and increased competition within the market place. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) THE GILPIN HOTEL CASINO UNAUDITED RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000 Net Revenues GHC generated net revenues of $10,032,000 during the six months ended June 30, 2001 compared to $11,140,000 for the same period of 2000. The decrease in our net revenues at GHC of $1,108,000 or 10% is primarily due to a decrease in casino revenue (net of cash redemption) of $1,374,000 and a net decrease in other combined net revenue of $42,000. Sales tax and workers compensation refunds of $287,000 and $21,000 respectively partially offset the reductions in revenue. While we attribute approximately $485,000 of the reduction in our casino revenue to abnormally low hold percentages during the second quarter, the primary reason for the decrease in our casino revenue at GHC is a result of the opening of larger and newer gaming facilities in the City of Black Hawk, including The Lodge. Costs and Expenses GHC's costs and expenses totaled $7,825,000 during the six months ended June 30, 2001 compared to $8,122,000 for the same period of 2000. The overall decrease of $297,000 or 4% is due to decreases in gaming taxes of $310,000, bus program costs of $98,000, and labor costs of $39,000, and other net costs and expenses of $21,000. These reductions were offset by an increase in marketing costs of $171,000. EBITDA When GHC's costs and expenses are subtracted from net revenues, the result is EBITDA of $2,207,000 for the six months ended June 30, 2001 compared to $3,018,000 for the same period of 2000. The decrease in EBITDA of $811,000 or 27% is primarily the result of increased competition and the opening of larger and newer gaming facilities in the City of Black Hawk, including The Lodge. Interest Expense Interest expense at GHC was $270,000 for the six months ended June 30, 2001 compared to $453,000 for the same period of 2000. The decrease of $183,000 or 40% is primarily due to paying down our debt levels at various times since June 30, 2000 offset by a $38,000 charge to interest expense in connection with interest rate swap activity during the six months ended June 30, 2001 (see Item 1 Note 4 above). Depreciation and Amortization The depreciation and amortization of GHC totaled $896,000 for the six months ended June 30, 2001 compared to $889,000 for the same period of 2000. The increase of $7,000 or 1% is generally due to an increase in depreciated assets. Income before income taxes As a result of the factors discussed above, GHC generated income before income taxes of $1,064,000 for the six months ended June 30, 2001 compared to $1,712,000 for the same period of 2000, a decrease of $648,000 or 38%. GHC's operations have been impacted due to the additional competition in Black Hawk, which also includes The Lodge. As with The Lodge, we continually review the overall operational aspects at GHC and add or eliminate areas and/or amenities in order to enhance GHC's operations. Our market strategy is similar to that at The Lodge, whereby we focus on GHC's existing customer base, and try to develop marketing programs that increase new customer visits. Our goal for 2001 is to continue to build on the product we offer at GHC and to attempt to remain competitive with the new and increased competition in the City. We are currently investigating possible expansion opportunities for the Gilpin in order to provide a more competitive single floor casino environment. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) GOLD DUST WEST UNAUDITED RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000 On January 4, 2001, BHWK purchased the assets and operating business of the Gold Dust West Casino with operations beginning January 5, 2001. Therefore, there are no comparisons to the prior periods presented. See BHWK's 8-K filing dated March 19, 2001 for pro-forma results. Net Revenues GDW generated net revenues of $8,924,000 during the six months ended June 30, 2001. The revenues by operating department included casino revenue of $8,111,000 or 91%, food and beverage revenue of $581,000 (net of $614,000 in promotional allowances) or 7%, hotel revenue of $201,000 (net of $21,000 in promotional allowances) or 2% and other revenues of $31,000. Costs and Expenses GDW's costs and expenses totaled $6,452,000 during the six months ended June 30, 2001. The costs and expenses by operating departments included casino operations of $2,430,000 or 37%, food and beverage operations of $1,081,000 or 17%, hotel operations of $115,000 or 2%, marketing, general, and administrative of $2,825,000 or 44%. EBITDA When GDW's costs and expenses are subtracted from net revenues, the result is EBITDA of $2,472,000 for the six months ended June 30, 2001. Interest Expense Interest expense at GDW was $921,000 for the six months ended June 30, 2001 resulting from borrowings associated with its acquisition by BHWK. Depreciation and Amortization Depreciation and amortization at GDW totaled $906,000 for the six months ended June 30, 2001. Depreciation and amortization primarily relates to buildings, equipment, and intangible assets. Income before income taxes As a result of the factors discussed above, GDW generated income before income taxes of $660,000 for the six months ended June 30, 2001 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) CORPORATE UNAUDITED RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000 Generally, our corporate operations are not a profit center, but rather a managerial entity, which directs the overall operations of the Company, including the specific efforts related to being a publicly traded company. Net Revenue No net revenue is generated at our corporate level after elimination of inter-company transactions. Costs and Expenses Our costs and expenses totaled $1,165,000 for the six months ended June 30, 2001 compared to $1,004,000 for the same period of 2000. The increase of $161,000 or 16% is due to increases in compensation related costs of $57,000, consulting costs of $29,000, travel and entertainment of $37,000, director's fees of $27,000 and other net general and administrative expenses of $11,000. Net Corporate Overhead As no revenues are generated at the corporate level, net corporate overhead is equal to costs and expenses. The increase in our net corporate overhead of $161,000 or 16% decreases our consolidated EBITDA. Depreciation and Amortization Depreciation and amortization at the corporate level was $6,000 and $4,000 for the six months ended June 30, 2001 and 2000 respectively. Privatization and other non-recurring costs See the discussion under corporate unaudited results of operations for the three months ended June, 30, 2001 compared to the three months ended June 30, 2000 above. 24 Liquidity and Capital Resources ------------------------------- The net cash provided by operating activities was $3,406,000 during the first six months ended June 30, 2001 compared to net cash provided by operating activities of $4,227,000 for the same period of 2000. Net cash used in investing activities for the six months ended June 30, 2001 was $27,522,000. The uses of funds included payments for equipment additions to our casinos of $1,481,000 and payments to acquire the Gold Dust West of $26,054,000. These uses of funds were partially offset by the proceeds from the sale of equipment of $13,000. Net cash used in investing activities for the six months ended June 30, 2000 was $2,069,000. The primary uses of funds included payments for equipment purchases and additions to our casinos totaling $1,123,000 and payments related to the acquisition of the Gold Dust West of $974,000 (including a $500,000 earnest money deposit). These uses of funds were partially offset by the proceeds from the sale of equipment totaling $28,000. The net cash provided by financing activities during the six months ended June 30, 2001 totaled $25,154,000. These sources of funds included proceeds from the reducing and revolving line of credit of $36,500,000 and other financing activities of $42,000. These sources were reduced by payments on bonds of $178,000, payments on long-term debt of $8,021,000, payments to amend the reducing and revolving credit facility of $571,000, and distributions to the 25% minority interest owners of The Lodge of $2,617,000 representing the portion of earnings of The Lodge which are applicable to the minority interest owners. The net cash used in financing activities during the six months ended June 30, 2000 totaled $3,981,000. These uses of funds included payments on bonds totaling $175,000, payments on long-term debt of $3,195,000 and distributions to the minority interest owner of The Lodge totaling $621,000. These uses of funds were partially offset by other financing activities of $10,000. As of June 30, 2001 the Company had working capital of approximately $3,848,000 compared to a negative working capital of approximately $99,000 at December 31, 2000. We believe our current working capital position, earnings from our existing operations and the remaining availability from our revolving credit facility are sufficient to meet our short-term cash requirements, which are generally operating expenses and interest payments on indebtedness. However, any significant development of other projects by us may require additional financing, other joint venture partners, or both. Buyout of common stock On April 27, 2001, BHWK executed a merger agreement (see Item 1 Note 5 above). In connection with the merger agreement, BHWK has incurred approximately $1,000,000 in privatization costs consisting principally of investment banking, legal, accounting and other fees. Total privatization costs are expected to be approximately $2,000,000 exclusive of the underwriter's discount. Pursuant to accounting principles generally accepted in the United States of America ("GAAP") these costs as well as future privatization costs will be expensed as incurred. Furthermore, a majority of these costs are not deductible for income tax purposes. The Company anticipates closing of the transaction late in the fourth quarter of 2001. Gold Dust West Acquisition On January 7, 2000 we entered into an agreement to purchase the assets and operating business of a gaming casino and motel located in Reno, Nevada known as the Gold Dust West. On December 22, 2000 we obtained the appropriate Nevada gaming approvals and licensing, and closed on the purchase transaction January 4, 2001 for $27,277,000 including $777,000 in transaction costs. Approximately $26,000,000 of the acquisition cost was funded from the amended reducing and revolving credit facility described below. Reducing and Revolving Credit Facility On December 21, 2000, we entered into the first amendment to our existing reducing and revolving credit facility with an effective date of January 4, 2001 (the acquisition date of the assets and operating business of the Gold Dust West Casino). The first amendment to our credit agreement increased the aggregate reducing and revolving credit facility to $75,000,000 from $65,000,000. Some of the more important terms of the amended credit agreement are: (i) the facility is a four year reducing commitment in 25 Liquidity and Capital Resources (continued) ------------------------------------------- the aggregate amount of $75,000,000; (ii) the available balance of the facility may be used for working capital and/or to finance other possible growth opportunities; (iii) the facility bears interest which is based on either the prime rate as published by Wells Fargo or the London Interbank Offering Rate ("LIBOR") each of which is added to an applicable margin based on our financial ratios. The reduction schedule of the credit facility was amended as follows; two quarterly reductions in availability will commence January 1, 2002 at $1,875,000 each, the next four quarterly reductions in availability are $2,812,500 each, with the following four quarterly reductions in availability of $3,750,000 each until April 16, 2004 when the balance of the facility is due. The credit agreement contains a number of affirmative and negative covenants which, among other things, require us to maintain certain financial ratios and refrain from certain actions without the syndicate group's concurrence; and (vi) substantially all of our assets, and those of the Gilpin Hotel Venture, GVI, The Lodge Casino, and Gold Dust West Casino are pledged as security for repayment of the credit facility. The credit agreement also contains customary events of default provisions. We are a party to an Interest Rate Swap Agreement. This derivative financial instrument is used in the normal course of business to manage exposure to fluctuations in interest rates and involves market risk, as the instrument is subject to interest rate fluctuations and potential credit risk. This derivative transaction is used to partially hedge interest rate risk in our variable rate debt. Prior to February 16, 2001, the interest Rate Swap Agreement provided that, on a quarterly basis, the Company pay a fixed rate of 5.18% on the notional amount of $35,000,000 and receives a payment based on LIBOR applied to the notional amount. Gains or losses on the interest rate exchange are included in interest expense as realized or incurred. On February 16, 2001, we terminated the interest rate swap agreement and concurrently entered into a new interest rate swap agreement, with the same counterparty, with an initial notional amount of $50,000,000 including scheduled reductions of $10,000,000 each at December 31, 2002 and December 31, 2003 until final maturity on April 16, 2004. The new interest rate swap agreement provides that, on a quarterly basis, we pay a fixed rate of 5.46% on the notional amount of $50,000,000 and receives a payment based on LIBOR applied to the notional amount. The fair value of the $35,000,000 interest rate swap upon termination of approximately $250,000 was used to pay down the fixed interest rate on the new $50,000,000 interest rate swap. The new interest rate swap agreement has been designated and documented as a cash-flow hedge, and therefore, the change in the fair value of the hedge is recorded in accumulated other comprehensive income (loss) net of taxes to the extent effectiveness (as defined by SFAS No. 133) has been determined. All income or expense associated with the interest rate swap affecting earnings is recognized in the income statement. In March 1999, The Lodge closed bond financing with the Black Hawk Business Improvement District, which is a quasi-municipal corporation and political subdivision of the State of Colorado, organized for the purpose, among others, of providing financing for public improvements and services primarily benefiting the commercial properties within the District. The Bonds were issued in two series with an aggregate principal amount of $6,000,000. The purpose of the bonds was to finance the Company's costs of various infrastructure improvements made for the benefit of the City of Black Hawk and The Lodge The proceeds from the sale of the bonds were used to pay down existing debt at The Lodge. The bonds carry an interest rate varying between 6.25% and 6.50% and mature at various times up to and including December of 2011. 26 Item 3. Quantitative and Qualitative Disclosure about Market Risk. ------- ---------------------------------------------------------- Our primary exposure to market risks relates to our reducing and revolving credit facility, which is variable rate debt. We are exposed to interest rate risk on this debt, which totaled $59 million and $36 million at June 30, 2001 and 2000 respectively. If market interest rates increase, our cash requirements for interest would also increase. Conversely, if market interest rates decrease, our cash requirements for interest would also decrease. In an effort to minimize our exposure to interest rate risk on our credit facility, at June 30, 2001 and 2000 we had partially hedged our exposure to interest rate risk by participating in interest rate swaps. Under the terms of the swap agreements, we receive a variable rate interest payment and pay a fixed rate interest payment on a notional amount of $50 million and $35 million at June 30, 2001 and 2000 respectively. This has reduced our exposure to interest rate risk to $9 million and $1 million of debt not hedged with the interest rate swaps at June 30, 2001 and 2000 respectively. The annual increase or decrease in cash requirements for interest, after considering the impact of the interest rate swap agreement, should market rates increase or decrease by 10% compared to the interest rate levels at June 30, 2001 would be approximately $56,000. 27 PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings Not Applicable 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: None ( b ) Reports on Form 8-K Date Item No's. Reported ---- ------------------- 4/16/2001 5 4/30/2001 5 5/04/2001 5, 7 6/04/2001 5 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Black Hawk Gaming & Development Company, Inc. Registrant Date: August 10, 2001 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 29

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