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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
  
 FORM 10-Q (Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 OR o
    
    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 000-50689   BH/RE, L.L.C.  NEVADA
    
    84-1622334(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification Number)885 Third Avenue34th FloorNew York, New York
    
    10022(Address of Principal Executive Offices)
    
    (Zip Code)
 (212) 371-2211
(Registrants Telephone Number, Including Area Code)   Indicate by check mark whether the Registrant (1) has filed all reports
required 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 o No x Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x As
of August 13, 2004, 50% of the Registrants voting membership interests
were held by each of Robert Earl and Douglas P. Teitelbaum, and 50% of the
Registrants equity membership interests were held by each of BH Casino and
Hospitality, L.L.C. and OCS Consultants, Inc.




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BH/RE, L.L.C. AND SUBSIDIARIES
Table of Contents PART IFINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3BH/RE, L.L.C. and Subsidiaries (a Development Stage Company)
    
    
    3Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Aladdin Gaming, LLC and Subsidiaries
    
    
    10Condensed Consolidated Balance Sheets
    
    
    10Condensed Consolidated Statements of Operations (Unaudited)
    
    
    11Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    12Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    13ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    27ITEM 4. CONTROLS AND PROCEDURES
    
    
    27FORWARD LOOKING STATEMENTS
    
    
    27PART II OTHER INFORMATION
    
    
    28ITEM 5. OTHER INFORMATION
    
    
    28BH/RE, L.L.C. and Subsidiaries (a Development Stage Company)
    
    
    28Unaudited Pro Forma Condensed Consolidated Balance Sheet
    
    
    29Unaudited Pro Forma Condensed Consolidated Statement of Operations
    
    
    30Unaudited Pro Forma Condensed Consolidated Statement of Operations
    
    
    31Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
    
    
    32ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    34SIGNATURES
    
    
    35Amended/Restated Operating AgreementAgreementSecurities Purchase AgreementSenior Subordinated Secured Promissory NoteWarrant to Purchase Membership InterestsInvestor Rights AgreementLetter AgreementCertifications of Robert Earl Pursuant to Section 302Certifications of Douglas P. Teitelbaum Pursuant to Section 302Certifications of Thomas Avallone Pursuant to Section 302Certification Pursuant to Section 906
 2




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PART I FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS 
 BH/RE, L.L.C. AND SUBSIDIARIES (A Development Stage Company)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS June 30,
    
    December 31,2004
    
    2003(unaudited)(In thousands)ASSETSOTHER ASSETS  NON CURRENTRestricted cash  long term
    
    $
    10,111
    
    
    $
    10,061Deferred acquisition costs
    
    
    6,674
    
    
    
    3,225TOTAL ASSETS
    
    $
    16,785
    
    
    $
    13,286LIABILITIES AND MEMBERS DEFICITCURRENT LIABILITIESDue to affiliates
    
    $
    17,410
    
    
    $
    13,008TOTAL LIABILITIES
    
    
    17,410
    
    
    
    13,008COMMITMENTS AND CONTINGENCIESMINORITY INTERESTS
    
    
    1,517
    
    
    
    1,509MEMBERS ACCUMULATED DEFICIT
DURING THE DEVELOPMENT STAGE
    
    
    (2,142
    )
    
    
    (1,231
    )TOTAL LIABILITIES AND MEMBERS DEFICIT
    
    $
    16,785
    
    
    $
    13,286
 See accompanying notes to unaudited condensed consolidated financial statements. 3




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BH/RE, L.L.C. AND SUBSIDIARIES (A Development Stage Company)
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the PeriodfromMarch 31, 2003(date ofThree months
    
    Three months
    
    Six months
    
    formation)ended
    
    ended
    
    ended
    
    throughJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2004(In thousands)EXPENSESPre-opening
    
    $
    (667
    )
    
    $
    (506
    )
    
    $
    (954
    )
    
    $
    (2,236
    )OTHER INCOME (EXPENSE)Interest income
    
    
    25
    
    
    
    10
    
    
    
    50
    
    
    
    111Minority interest
    
    
    (4
    )
    
    
    (2
    )
    
    
    (7
    )
    
    
    (17
    )NET LOSS
    
    $
    (646
    )
    
    $
    (498
    )
    
    $
    (911
    )
    
    $
    (2,142
    )
 See accompanying notes to unaudited condensed consolidated financial statements. 4




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BH/RE, L.L.C. AND SUBSIDIARIES (A Development Stage Company)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the PeriodfromMarch 31, 2003(date ofSix months
    
    formation)ended
    
    throughJune 30, 2004
    
    June 30, 2004(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (911
    )
    
    $
    (2,142
    )CASH FLOWS FROM INVESTING ACTIVITIESChanges in restricted cash
    
    
    (50
    )
    
    
    (10,111
    )Minority interest
    
    
    8
    
    
    
    1,517Net cash used in investing activities
    
    
    (42
    )
    
    
    (8,594
    )CASH FLOWS FROM INVESTING ACTIVITIESAdvances from affiliates
    
    
    4,402
    
    
    
    17,410Deferred acquisition costs
    
    
    (3,449
    )
    
    
    (6,674
    )Net cash provided from financing activities
    
    
    953
    
    
    
    10,736NET INCREASE (DECREASE) IN CASH
    
    
    
    
    
    
    CASH, BEGINNING OF THE PERIOD
    
    
    
    
    
    
    CASH, END OF THE PERIOD
    
    $
    
    
    
    $
    
 See accompanying notes to unaudited condensed consolidated financial statements. 5




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BH/RE, L.L.C. AND SUBSIDIARIES (A Development Stage Company)
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION Organization BH/RE, L.L.C. and its subsidiaries (BH/RE) were formed to acquire,
operate and renovate the Aladdin Resort and Casino located in Las Vegas,
Nevada, which we refer to in this report as the Aladdin. BH/RE is a Nevada
limited liability company and was organized on March 31, 2003. Since formation,
neither BH/RE nor any of its subsidiaries has conducted any operations other
than in connection with the proposed Aladdin acquisition. BH/RE is a holding
company and we do not expect BH/RE to have any material operations. BH/RE was formed by BH Casino and Hospitality, Inc. (BHCH I) and OCS
Consultants, Inc. (OCS). BHCH I is controlled by Douglas P. Teitelbaum, a managing
principal of Bay Harbour Management, L.C. (Bay Harbour
Management). Bay Harbour Management is an
SEC-registered investment management firm. BHCH I was formed by Mr. Teitelbaum
for the purpose of holding investments in BH/RE by funds managed by Bay Harbour
Management. OCS is wholly owned and controlled by Robert Earl and holds Mr.
Earls investment in BH/RE. Mr. Earl is the founder, chairman and chief
executive officer of Planet Hollywood International, Inc.
(Planet Hollywood) and Mr. Teitelbaum is
a director of Planet Hollywood. Together, Mr. Earl, a trust for the benefit of
Mr. Earls children and affiliates of Bay Harbour Management own substantially
all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership
of any equity of Planet Hollywood owned by the trust. BH/RE is a holding
company that owns 85% of EquityCo, L.L.C. (EquityCo). The remaining 15% of EquityCo is
owned by a subsidiary of Starwood Hotels and Resorts Worldwide, Inc.
(Starwood). MezzCo,
L.L.C. (MezzCo) is a wholly owned subsidiary of EquityCo,
and OpBiz L.L.C. (OpBiz) is a wholly
owned subsidiary of MezzCo. Planned Acquisition of the Aladdin The
Aladdin is currently owned and operated by Aladdin Gaming, LLC
(Aladdin Gaming), which
is a debtor-in-possession under Chapter 11 of the United States Bankruptcy
Code. Aladdin Gaming commenced its bankruptcy case in the United States
Bankruptcy Court for the District of Nevada, Southern Division on September 28,
2001. On April 23, 2003, OpBiz and Aladdin Gaming entered into a purchase
agreement pursuant to which OpBiz agreed to acquire the Aladdin. Under the
purchase agreement and pursuant to an order of the Bankruptcy Court, Aladdin
Gaming conducted an auction to sell the Aladdin. On June 20, 2003, the
Bankruptcy Court declared OpBiz the winner of that auction and, on August 29,
2003, the Bankruptcy Court entered an order confirming Aladdin Gamings plan of
reorganization and authorizing Aladdin Gaming to complete the sale of the
Aladdin to OpBiz under the purchase agreement. The purchase agreement provides that, subject to certain conditions, OpBiz
will acquire substantially all of the real and personal property owned or used
by Aladdin Gaming to operate the Aladdin, and will receive $15 million of
working capital from Aladdin Gaming, including at least $10 million of cash.
OpBiz will pay the purchase price for the Aladdin by issuing new secured notes
to Aladdin Gamings secured creditors and will assume various contracts and
leases entered into by Aladdin Gaming in connection with its operation of the
Aladdin and certain of Aladdin Gamings liabilities, including Aladdin Gamings
energy service obligation to the third party owner of the central utility plant
that supplies hot and cold water and emergency power to the Aladdin. At June
30, 2004, the energy service obligation was $34.1 million. Upon the completion
of the Aladdin acquisition, OpBiz will issue $510 million of new secured notes
to Aladdin Gamings secured creditors under an Amended and Restated Loan and
Facilities Agreement with a group of lenders and The Bank of New York, Asset
Solutions Division, as administrative and collateral agent, which we refer to
in this report as the Credit Agreement. OpBiz has also agreed to simultaneously
make a $14 million cash payment to those secured creditors to reduce the
principal amount of the notes to $496 million and obtain a release of the lien
on a four-acre parcel of undeveloped property that OpBiz will acquire from Aladdin
Gaming. It is presently intended that this property will be developed into a vacation resort
ownership or similar project. The Credit Agreement also requires that OpBiz
provide cash or a letter of credit in the aggregate amount of $90 million to
fund the costs of the planned renovations to the Aladdin. As
discussed in Note 6, 6




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in August 2004 MezzCo issued $87 million of senior
secured subordinated notes to a group of purchasers. The net proceeds of this
financing will be used to make the $14 million payment described above, to pay certain costs and expenses of BH/RE and its subsidiaries and affiliates related to the acquisition of the Aladdin, and to
provide OpBiz with a portion of the funds necessary to meet its obligations regarding the planned
renovations to the Aladdin. Before OpBiz can complete the Aladdin acquisition, certain
approvals must be obtained from various Nevada gaming authorities. As a result, the completion
of the Aladdin acquisition may be delayed or may not occur. BH/RE and each of
its subsidiaries are required to be registered with and licensed or found
suitable by the Nevada gaming authorities in connection with the Aladdin
acquisition. Officers and managers of BH/RE and its subsidiaries, including Mr. Earl, Mr. Teitelbaum and
Michael V. Mecca, the president and chief executive officer of OpBiz, as well
as Barry Sternlicht (the chairman and chief executive officer of Starwood) and
Theodore Darnall (the executive vice president of hotel operations of Starwood
and a manager of EquityCo), must also be licensed or found suitable by the
Nevada gaming authorities in connection with the Aladdin acquisition. As of
the date of this report, gaming applications had been filed by each of these
persons or entities. The Nevada gaming authorities held the first of these
hearings on these applications on August 11, 2004. As of the
date of this report, the required
approvals have not been obtained. In addition, certain other senior executives
of Starwood have filed applications with the Nevada gaming authorities, but are
not required to be found suitable in order for the approvals
required in connection with the Aladdin acquisition to be issued. However, the Nevada
gaming authorities may determine to investigate the suitability of these other
senior executives of Starwood at a later time. Aladdin Gaming may terminate
the purchase agreement if any required gaming application is withdrawn or
denied, if all necessary approvals of the Nevada gaming authorities have not
been obtained by August 29, 2004, or if Aladdin Gamings conditions to closing
in the purchase agreement have not been satisfied by that date.
Although it is expected that the Nevada gaming authorities will hold all required hearings
before August 29, 2004, there can be no assurances that all
of the approvals of the Nevada gaming authorities will be obtained by that date.
Additionally, the order of the Nevada Gaming Commission granting such licenses
may contain restrictions on the operations of BH/RE and its
subsidiaries, including OpBiz, and on the ability of BH/RE and its
subsidiaries, including OpBiz, to engage in certain
transactions, including paying dividends and making distributions. If
all of our gaming approvals have not been obtained by August 29, 2004, OpBiz may extend the
termination date of the purchase agreement by up to 90 days by increasing its
existing cash deposit by up to $2.5 million. Applications for approval under
the Hart-Scott-Rodino Act were filed in July 2004 and early termination of the HSR waiting period was granted in August 2004. The purchase agreement provides that OpBiz will assume substantially all
of Aladdin Gamings pre-petition contracts and leases and any post-petition
contracts or leases to which OpBiz does not object. The purchase agreement
provides that OpBiz will offer employment to all of Aladdin Gamings employees,
other than executive management, on terms and conditions substantially similar
to their current employment terms and conditions. Plan of Operations It
is presently expected that OpBiz will complete the
acquisition of the Aladdin in the third quarter of 2004. Following completion
of the Aladdin acquisition, OpBiz will begin a renovation project which, when
complete, will transform the Aladdin into the Planet Hollywood Resort and
Casino, which is referred to herein as the PH Resort. In connection with the proposed
renovation of the Aladdin, OpBiz has entered into an agreement with Planet
Hollywood International, Inc. and certain of its subsidiaries to, among other
things, license Planet Hollywoods trademarks, memorabilia and other
intellectual property. OpBiz has also entered into an agreement with Sheraton
Operating Corporation, a subsidiary of Starwood, pursuant to which Sheraton
will provide hotel management, marketing and reservation services for the hotel
that will comprise a portion of the PH Resort. Development Stage Risk Factors As a development stage company, BH/RE has risks that could impact its
ability to successfully complete the acquisition. In addition, prior to the
completion of the acquisition, BH/RE has to secure several state and local
government regulatory agency approvals, including, but not limited to, securing
a state gaming license for the ownership and operation of the PH Resort. For a
further discussion of applicable risk factors, see Item 1.
Business  Risk Factors in the Registration Statement on Form 10 (File Number
000-50689), filed by BH/RE with the Securities and Exchange Commission on April 16, 2004
(the Form 10). 7




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Interim Financial Statements The accompanying condensed consolidated financial statements included
herein have been prepared by the management of BH/RE, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
Untied States have been condensed or omitted pursuant to such rules and
regulations. BH/RE believes that the disclosures are adequate to make the
information presented in the accompanying financial statements not misleading.
In the opinion of management, all adjustments (which include normal recurring
adjustments) necessary for a fair presentation of the results for the interim
periods have been made. The results for the three and six-month periods ended
June 30, 2004 are not indicative of results to be expected for the full fiscal
year nor the results subsequent to the acquisition. These unaudited financial
statements should be read in conjunction with the audited financial statements
and notes thereto for the period from March 31, 2003 (date of formation)
through December 31, 2003 included in the Form
10. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Restricted Cash Restricted cash consists of an escrow deposit of approximately $10.1
million. Deferred Acquisition Costs BH/RE
capitalized approximately $6.7 million in direct external costs
related to the Aladdin acquisition as of June 30, 2004. These costs will be
included as part of the purchase price after the Aladdin acquisition is
complete. 3. MEMBERSHIP INTERESTS As of June 30, 2004, BH/REs membership interests had not been unitized
and BH/REs members do not presently intend to unitize these membership
interests. Accordingly, management of BH/RE has excluded earnings per share
data required pursuant to Statement of Financial Accounting Standard No. 128
Earnings Per Share because management believes that such disclosures would
not be meaningful to the financial statement presentation. 4. RELATED PARTY TRANSACTIONS Due to Affiliates Since our formation, certain members or affiliates of BH/RE have paid
expenses related to the Aladdin acquisition and funded deposits under the
purchase agreement on behalf of BH/RE and its subsidiaries. Such advances
consist of the following: 8




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June 30,
    
    December 31,2004
    
    2003(In thousands)BHCH I
    
    $
    11,221
    
    
    $
    7,633Planet Hollywood
    
    
    1,939
    
    
    
    1,125OCS
    
    
    4,250
    
    
    
    4,250$
    17,410
    
    
    $
    13,008
 Upon completion of the Aladdin acquisition, $4.25 million of advances from
each of BHCH I and OCS, which were used to fund the deposit required of OpBiz
under the purchase agreement, will be contributed to BH/RE as capital.
Additionally, upon completion of the Aladdin acquisition, the advances made by
BHCH I and Planet Hollywood to pay transaction fees will be repaid. 5. COMMITMENTS AND CONTINGENCIES Litigation BH/RE is not currently a party to any legal proceedings. 6. SUBSEQUENT EVENTS BH/RE BH/RE intends to admit BH Casino and Hospitality II, L.L.C., as a
non-voting equity member in connection with the closing of the Aladdin
acquisition. BHCH II was formed in July 2004 to provide additional equity
capital to BH/RE. BHCH II is controlled by Douglas P.
Teitelbaum. At the closing of the acquisition of the Aladdin, BHCH II will
make a $13 million capital contribution to BH/RE. After the contribution is
made, the non-voting equity interests in BH/RE will be owned 40.75% by BHCH I,
18.5% by BHCH II and 40.75% by OCS. There has been no change in the ownership
of voting interests in BH/RE. Mezzanine Financing In August 2004, MezzCo entered into a mezzanine financing transaction,
which is referred to as the Mezzanine Financing, with a group of
purchasers. Pursuant to the Mezzanine Financing, MezzCo issued $87 million of
16% Senior Secured Subordinated Notes and warrants to purchase 17,500 of its
units representing membership interests, equal to 17.5% of the fully diluted
equity of MezzCo. The gross offering proceeds of the
Mezzanine Financing were deposited into an escrow account and, in connection
with the closing of the Aladdin acquisition, will be used to
(i) pay up to $13 million of fees and expenses related to the Mezzanine Financing
and the
acquisition of the Aladdin, (ii) fund the $14 million lien release payment
required under the Credit Agreement, and (iii) fund a portion of
the planned
renovations to the Aladdin. The notes mature in August 2011 and accrue
interest at 16% per annum. Interest on the notes is payable in kind or, at the
option of MezzCo, in cash. The warrants are exercisable at any time, subject
to the prior approval of the Nevada gaming authorities, at a purchase price of
$.01 per unit. Subject to the approval of the Nevada gaming
authorities, the warrants may be exercised to purchase either voting
or non-voting membership interests of MezzCo or a combination
thereof. Currently all of MezzCos voting membership interests are
represented by units owned by EquityCo. In addition to customary anti-dilution protections, the number
of units representing MezzCo membership interests issuable upon exercise of the
warrants may be increased from time to time upon the occurrence of certain
events as described in the warrants. The maximum aggregate increase is 28%,
following which the warrants would represent rights to purchase 45.5% of the
units representing membership interests of MezzCo, on a fully-diluted basis.
Holders of the warrants and any securities issued upon
exercise of the warrants may require MezzCo to redeem such securities commencing in August 2011 at a redemption price based upon a formula set forth in the
warrants. The holders of warrants, and securities issued upon exercise
thereof, have the right, starting in August 2008, to assume control of
MezzCo and OpBiz and conduct a sale of the equity of, or all or substantially all
of the assets of, either MezzCo or OpBiz. These rights are
subject to (i) repayment in full of all indebtedness that is senior to the
notes (including all indebtedness of OpBiz under the Credit Agreement), (ii) the failure of OpBiz to achieve certain targeted levels of earnings
before interest, taxes, depreciation and amortization and (iii) the prior
approval of the Nevada gaming authorities. These rights expire upon completion of a
public offering by MezzCo or OpBiz. In connection with the Mezzanine
Financing, OpBiz's obligation to make expenditures on renovations to
the Aladdin was increased from $90 million
to $100 million, including the $90 million required under the Credit
Agreement. 9




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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS June 30,
    
    December 31,2004
    
    2003(unaudited)(In thousands)CURRENT ASSETS:Cash and cash equivalents
    
    $
    46,332
    
    
    $
    38,240Restricted cash and cash equivalents
    
    
    4,377
    
    
    
    4,189Receivables from related parties
    
    
    38
    
    
    
    38Accounts receivable, net
    
    
    11,191
    
    
    
    13,369Inventories
    
    
    1,502
    
    
    
    1,920Prepaid expenses
    
    
    4,340
    
    
    
    5,596Deposits
    
    
    2,683
    
    
    
    2,885Total current assets
    
    
    70,463
    
    
    
    66,237PROPERTY AND EQUIPMENT, net
    
    
    496,973
    
    
    
    496,370OTHER ASSETS
    
    
    812
    
    
    
    923Note Receivable
    
    
    333
    
    
    
    668Total assets
    
    $
    568,581
    
    
    $
    564,198Liabilities and Members DeficitCURRENT LIABILITIES:Current portion of energy service obligation
    
    $
    1,198
    
    
    $
    1,132Accounts payable
    
    
    2,095
    
    
    
    3,910Accrued payroll and related expenses
    
    
    12,982
    
    
    
    12,946Accrued interest
    
    
    319
    
    
    
    332Other accrued expenses
    
    
    15,526
    
    
    
    16,179Total current liabilities
    
    
    32,120
    
    
    
    34,499OTHER LIABILITIES:Energy Service Obligation- net of current portion
    
    
    32,947
    
    
    
    33,558Liabilities subject to compromise
    
    
    526,097
    
    
    
    549,513Total liabilities
    
    
    591,164
    
    
    
    617,570COMMITMENTS AND CONTINGENCIESMEMBERS DEFICIT:Preferred membership interest
    
    
    221,500
    
    
    
    221,500Common membership interest
    
    
    173,870
    
    
    
    173,870Accumulated deficit
    
    
    (417,953
    )
    
    
    (448,742
    )Total Members Deficit
    
    
    (22,583
    )
    
    
    (53,372
    )Total liabilities and Members Deficit
    
    $
    568,581
    
    
    $
    564,198
 See accompanying notes to unaudited condensed consolidated financial statements. 10




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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(In thousands)
    
    (In thousands)REVENUESCasino
    
    $
    29,303
    
    
    $
    27,199
    
    
    $
    58,692
    
    
    $
    54,684Hotel
    
    
    26,929
    
    
    
    23,712
    
    
    
    55,441
    
    
    
    49,115Food and beverage
    
    
    17,998
    
    
    
    16,670
    
    
    
    36,901
    
    
    
    33,922Other revenue
    
    
    3,929
    
    
    
    4,621
    
    
    
    8,053
    
    
    
    8,524GROSS REVENUE
    
    
    78,159
    
    
    
    72,202
    
    
    
    159,087
    
    
    
    146,245Less: promotional allowances
    
    
    6,897
    
    
    
    6,272
    
    
    
    14,468
    
    
    
    13,022NET REVENUES
    
    
    71,262
    
    
    
    65,930
    
    
    
    144,619
    
    
    
    133,223COSTS AND EXPENSESCasino
    
    
    16,983
    
    
    
    15,798
    
    
    
    35,131
    
    
    
    32,450Hotel
    
    
    7,749
    
    
    
    7,378
    
    
    
    15,272
    
    
    
    14,146Food and beverage
    
    
    10,553
    
    
    
    9,915
    
    
    
    20,709
    
    
    
    19,080Other operating expense
    
    
    3,400
    
    
    
    3,854
    
    
    
    6,836
    
    
    
    6,748Selling, general and administrative
    
    
    14,606
    
    
    
    15,315
    
    
    
    29,797
    
    
    
    30,101Depreciation and amortization
    
    
    
    
    
    
    20,444
    
    
    
    
    
    
    
    32,451Total costs and expenses
    
    
    53,291
    
    
    
    72,704
    
    
    
    107,745
    
    
    
    134,976INCOME FROM OPERATIONS
    
    
    17,971
    
    
    
    (6,774
    )
    
    
    36,874
    
    
    
    (1,753
    )OTHER INCOMEInterest income
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )
    
    
    Interest expense
    
    
    958
    
    
    
    990
    
    
    
    1,925
    
    
    
    2,009Total other expenses
    
    
    945
    
    
    
    990
    
    
    
    1,912
    
    
    
    2,009REORGANIZATION ITEMS
    
    
    2,624
    
    
    
    4,443
    
    
    
    4,173
    
    
    
    7,247NET INCOME
    
    $
    14,402
    
    
    $
    (12,207
    )
    
    $
    30,789
    
    
    $
    (11,009
    )
 See accompanying notes to unaudited condensed consolidated financial statements. 11




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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six months endedJune 30,2004
    
    2003(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    34,941
    
    
    $
    33,291CASH PAYMENTS FOR REORGANIZATION ITEMS
    
    
    (1,424
    )
    
    
    (5,689
    )CASH FLOWS (USED IN) INVESTING ACTIVITIES
    
    
    (790
    )
    
    
    (841
    )CASH FLOWS USED IN FINANCING ACTIVITIESRepayment of long term debt
    
    
    (544
    )
    
    
    (459
    )Adequate protection payments  GECC
    
    
    (3,750
    )
    
    
    (5,250
    )Adequate protection payments  Secured Lenders
    
    
    (20,341
    )
    
    
    Net cash used in financing activities
    
    
    (24,635
    )
    
    
    (5,709
    )NET INCREASE IN CASH
    
    
    8,092
    
    
    
    21,052CASH, BEGINNING OF PERIOD
    
    
    38,240
    
    
    
    22,431CASH, END OF PERIOD
    
    $
    46,332
    
    
    $
    43,483
 See accompanying notes to unaudited condensed consolidated financial statements. 12




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ALADDIN GAMING, LLC AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BUSINESS The condensed consolidated financial statements include the accounts of
Aladdin Gaming, LLC and its wholly owned inactive subsidiaries, which include
Aladdin Music Holdings, LLC and Aladdin Music, LLC. Significant intercompany
accounts are eliminated in consolidation. Aladdin Gaming, LLC, a Nevada limited liability company (Gaming or the
Company), was formed on January 24, 1997. The Company is wholly owned by
Aladdin Gaming Holdings, LLC, a Nevada limited liability company (Gaming
Holdings). Gaming Holdings is owned by Aladdin Gaming Enterprises, Inc.
(Gaming Enterprises), a Nevada corporation (25%), Sommer Enterprises, LLC
(Sommer Enterprises), a Nevada limited liability company (31%), London Clubs
International, plc (London Clubs), through its subsidiary London Clubs
Nevada, Inc. (LCNI) (40%), GAI, LLC, a Nevada limited liability company (3%),
and Jose Rueda (0.2%). Aladdin Holdings, LLC, a Delaware limited liability
company (Holdings), indirectly holds a majority interest in Gaming Holdings.
The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer
(the Sommer Trust), which holds a 95% interest in Holdings, and GW Vegas,
LLC, a Nevada limited liability company (GW) and a wholly owned subsidiary of
Trust Company of the West (TCW), which holds a 5% interest in Holdings. The Company term is 100 years. The Company owns the Aladdin Resort and Casino (Aladdin) located in Las
Vegas, Nevada. The Aladdin includes a 2,567-room hotel, offering deluxe
guestrooms, resort guestrooms, suites, luxury rooms and mega suites. In
addition, the hotel has an outdoor pool area and an approximately 32,000-square
foot spa that is leased to a third party. Aladdins 116,000-square foot casino
contains approximately 1,900 slot machines, 50 table games, keno and a
sports-book facility on its main floor and includes a 15,000-square foot luxury
gaming section on its mezzanine level with approximately 20 high denomination
table games and 75 high denomination slot machines. In addition, Gaming has
approximately 950 unused slot machines. The Aladdin has seven restaurants, including a Chinese restaurant leased
to P.F. Changs, a buffet, a sushi bar, a 24-hour casual dining facility, an
Italian restaurant, a steak and seafood restaurant and a poolside snack bar, as
well as a nightclub and several lounges. In addition, Gaming operates a
Starbucks Coffee franchise. The Aladdin also has gift and merchandise shops
operated by a third party. The Aladdin also has over 75,000 square feet of
convention, trade show and meeting facilities, including a 37,000-square foot
main ballroom, 10,000 square feet of pre-function space and 16,000 square feet
of breakout space in 18 separate rooms. The Aladdin includes an approximately 7,000-seat Theater for the
Performing Arts (TPA). The TPA is used for award shows, live music events and
theatrical performances. The Aladdin also has unfinished space for an
approximately 1,300-seat theater on a mezzanine level above the casino.
Currently, the Company operates an approximately 400-seat showroom in the
theater space. 2. BASIS OF PRESENTATION The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. On September 28, 2001 (the Petition
Date), Gaming filed a voluntary petition for Chapter 11 reorganization
(Chapter 11) pursuant to the United States Bankruptcy Code (Bankruptcy
Code) with the United States Bankruptcy Court for the District of Nevada,
Southern Division (the Bankruptcy Court). As of June 30, 2004, the Companys
members deficit of $22.6 million, and its status as a debtor-in-possession
operating under Chapter 11 Bankruptcy Court protection give rise to substantial
doubt about the Companys ability to continue as a going concern. Management of
the Company believes that the conditions included in the Purchase Agreement
with OpBiz (discussed below) will be met and the sale will close in 2004. The
accompanying financial statements do not 13




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include any adjustments that may be necessary if the Company is not able
to emerge from Chapter 11 and continue as a going concern. The American Institute of Certified Public Accountants Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code(SOP 90-7) provides guidance for financial reporting by
entities that have filed petitions under the Bankruptcy Code and expect to
reorganize under Chapter 11. Under SOP 90-7, the financial statements of an
entity in a Chapter 11 reorganization proceeding should distinguish
transactions and events that are directly associated with the reorganization
from those subject to compromise (see Note 5). Additional liabilities may arise
as a result of rejection of executory contracts and unexpired leases, or the
Bankruptcy Courts resolution of claims for contingencies and other disputed
amounts. The accompanying condensed consolidated financial statements are unaudited
and have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although management of Gaming
believes that the disclosures are adequate to make the information presented in
the accompanying financial statements not misleading. In the opinion of
management of Gaming, all adjustments (which include normal recurring
adjustments) necessary for a fair presentation of results for the interim
periods covered by the accompanying condensed consolidated financial statements
have been made. Gamings results of operations for the three and six-month
periods ended June 30, 2004 are not necessarily indicative of results to be
expected for the full fiscal year. These unaudited condensed consolidated
financial statements should be read in conjunction with Gamings financial
statements and notes thereto for the year ended December 31, 2003, as included
in the Form 10 Registration (File No. 000-50689) of BH/RE, L.L.C. (BH/RE),
filed with the Securities and Exchange Commission on April 16, 2004 (the Form
10). 3. PENDING SALE OF THE ALADDIN TO OPBIZ On April 23, 2003, OpBiz, L.L.C., a Nevada limited liability company
(OpBiz), and Gaming entered into a Purchase and Sale Agreement (Purchase
Agreement) pursuant to which OpBiz agreed to acquire substantially all of the
assets of the Aladdin. Under the Purchase Agreement and pursuant to an order of
the Bankruptcy Court, Gaming conducted an auction to sell the Aladdin. On June
20, 2003, the Bankruptcy Court declared OpBiz the winner of that auction and,
on August 29, 2003, the Bankruptcy Court entered an order confirming Gamings
plan of reorganization and authorized Gaming to complete the sale of the assets
to OpBiz under the Purchase Agreement. Upon consummation of the plan of
reorganization, all remaining assets of Gaming will be transferred to a new
entity that will be controlled by Gamings pre-petition secured lenders. The Purchase Agreement provides that, subject to certain conditions, OpBiz
will acquire substantially all of the real and personal property owned or used
by Gaming to operate the Aladdin, and will receive $15 million of working
capital from Gaming, including at least $10 million of cash. OpBiz will pay the
purchase price for the Aladdin by issuing $510 million of secured notes to
Gamings secured creditors and will assume various contracts and leases entered
into by Gaming in connection with its operation of the Aladdin and certain of
Gamings liabilities, including Gamings energy service obligation to Northwind
Aladdin, LLC (Northwind), the third party owner of the central utility plant
that supplies hot and cold water and emergency power to the Aladdin. OpBiz has
also agreed to simultaneously make a $14 million cash payment to Gamings
secured creditors to reduce the principal amount of the secured notes to $496
million and obtain a release of the lien on certain real property to be
acquired from Gaming. OpBiz will also provide cash or a letter of credit in the
amount of $90 million to fund the costs of the planned renovations to the
Aladdin. In August 2004, MezzCo, L.L.C., the parent of OpBiz, issued $87
million of senior secured subordinated notes to a group of purchasers. The net
proceeds of this financing will be used to make the $14 million payment
described above and to provide OpBiz with funding to meet its obligations
regarding the planned renovations to the Aladdin. Gaming may terminate the Purchase Agreement if any of the gaming
applications required to be filed by OpBiz and various related entities in
connection with the acquisition of the Aladdin are withdrawn or denied, if
OpBiz and such related parties have not obtained all necessary approvals of the
Nevada gaming authorities required to complete the acquisition of the Aladdin
by August 29, 2004, or if Aladdins conditions to closing in the Purchase 14




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Agreement have not been satisfied by that date. OpBiz may extend this
termination date by up to 90 days by increasing its existing cash deposit under
the Purchase Agreement by up to $2.5 million. The Purchase Agreement provides that OpBiz will assume substantially all
of Gamings pre-petition contracts and leases and any post-petition contracts
or leases to which OpBiz does not object. 4. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. The objective of FIN 46 is to
improve financial reporting by companies involved with variable interest
entities. FIN 46 changes certain consolidation requirements by requiring a
variable interest entity to be consolidated by a company that is subject to a
majority of the risk of loss from the variable interest entitys activities or
receive a majority of the entitys residual returns or both. The adoption of
FIN 46 did not have a material impact on the consolidated financial statements
of the Company. 5. LIABILITIES SUBJECT TO COMPROMISE Liabilities subject to compromise under reorganization proceedings
consisted of the following: June 30,
    
    December 31,2004
    
    2003(In thousands)Accounts payable trade
    
    $
    1,475
    
    
    $
    1,319Accrued interest
    
    
    6,647
    
    
    
    6,647Accrued interest  interest rate collars
    
    
    2,794
    
    
    
    2,794Other accrued expenses
    
    
    7,980
    
    
    
    7,461Bank credit facility
    
    
    434,736
    
    
    
    434,736FF&E facility
    
    
    15,822
    
    
    
    15,822FF&E lease
    
    
    37,422
    
    
    
    41,172Related party payable
    
    
    14,420
    
    
    
    14,420Interest rate collars payable
    
    
    4,801
    
    
    
    25,142$
    526,097
    
    
    $
    549,513
 6. REORGANIZATION ITEMS Reorganization items consisted of the following: Three months ended June 30,
    
    Six months ended June 30,2004
    
    2003
    
    2004
    
    2003(In thousands)
    
    (In thousands)Professional fees
    
    $
    680
    
    
    $
    4,317
    
    
    $
    1,272
    
    
    $
    7,173Interest earned on accumulated
cash during Chapter 11 proceedings
    
    
    (37
    )
    
    
    (767
    )
    
    
    (85
    )
    
    
    (799
    )Extinguishment of pre-petition debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Management retention expense
    
    
    935
    
    
    
    381
    
    
    
    1,892
    
    
    
    381Claim valuation
    
    
    1,046
    
    
    
    512
    
    
    
    1,094
    
    
    
    492$
    2,624
    
    
    $
    4,443
    
    
    $
    4,173
    
    
    $
    7,247
 Professional fees related to the reorganization are subject to Bankruptcy
Court approval and are expensed as incurred. 15




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7. COMMITMENT AND CONTINGENCIES Litigation The Company is involved in various legal proceedings relating to its
business. While any proceeding or litigation has an element of uncertainty, the
Companys management believes that the final outcome of these matters is not
likely to have a material adverse effect upon its results of operations or
financial position. 16




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS Introduction and Corporate Organization BH/RE and its subsidiaries were formed to acquire, operate and renovate
the Aladdin Resort and Casino located in Las Vegas, Nevada, which we refer to
in this report as the Aladdin. We expect that OpBiz, L.L.C., an indirect
subsidiary of BH/RE, will complete the acquisition of the Aladdin in the third
quarter of 2004. Following completion of the Aladdin acquisition, OpBiz will
begin a renovation project which, when complete, will transform the Aladdin
into the Planet Hollywood Resort and Casino, which we refer to in this report
as the PH Resort. In connection with the proposed renovation of the Aladdin,
OpBiz has entered into an agreement with Planet Hollywood International, Inc.
and certain of its subsidiaries to, among other things, license Planet
Hollywoods trademarks, memorabilia and other intellectual property. OpBiz has
also entered into an agreement with Sheraton Operating Corporation, a
subsidiary of Starwood Hotels and Resorts Worldwide, Inc., pursuant to which
Sheraton will provide hotel management, marketing and reservation services for
the hotel that will comprise a portion of the PH Resort. BH/RE was formed by BH Casino and Hospitality, Inc., which we refer to in
this report as BHCH I, and OCS Consultants, Inc. BHCH I is controlled by
Douglas P. Teitelbaum, a managing principal of Bay Harbour Management, L.C.
Bay Harbour Management is an SEC-registered investment management firm. BHCH I
was formed by Mr. Teitelbaum for the purpose of holding investments in BH/RE by
funds managed by Bay Harbour Management. OCS is wholly owned and controlled by
Robert Earl and holds Mr. Earls investment in BH/RE. Mr. Earl is the founder,
chairman and chief executive officer of Planet Hollywood and Mr. Teitelbaum is
a director of Planet Hollywood. Together, Mr. Earl, a trust for the benefit of
Mr. Earls children and affiliates of Bay Harbour Management own substantially
all of the equity of Planet Hollywood. Mr. Earl disclaims beneficial ownership
of any equity of Planet Hollywood owned by the trust. BH/RE is a holding company that owns 85% of EquityCo, L.L.C. The
remaining 15% of EquityCo is owned by a subsidiary of Starwood. MezzCo, L.L.C.
is a wholly owned subsidiary of EquityCo, and OpBiz is a wholly owned
subsidiary of MezzCo. In this report, the terms we and our refer to BH/RE
and its subsidiaries. Planned Acquisition of the Aladdin The Aladdin is currently owned and operated by Aladdin Gaming, LLC, which
is a debtor-in-possession under Chapter 11 of the United States Bankruptcy
Code. Aladdin Gaming commenced its bankruptcy case in the United States
Bankruptcy Court for the District of Nevada, Southern Division on September 28,
2001. On April 23, 2003, OpBiz and Aladdin Gaming entered into a purchase
agreement pursuant to which OpBiz agreed to acquire the Aladdin. Under the
purchase agreement and pursuant to an order of the Bankruptcy Court, Aladdin
Gaming conducted an auction to sell the Aladdin. On June 20, 2003, the
Bankruptcy Court declared OpBiz the winner of that auction and, on August 29,
2003, the Bankruptcy Court entered an order confirming Aladdin Gamings plan of
reorganization and authorizing Aladdin Gaming to complete the sale of the
Aladdin to OpBiz under the purchase agreement. The purchase agreement provides that, subject to certain conditions, OpBiz
will acquire substantially all of the real and personal property owned or used
by Aladdin Gaming to operate the Aladdin, and will receive $15 million of
working capital from Aladdin Gaming, including at least $10 million of cash.
OpBiz will pay the purchase price for the Aladdin by issuing new secured notes
to Aladdin Gamings secured creditors and will assume various contracts and
leases entered into by Aladdin Gaming in connection with its operation of the
Aladdin and certain of Aladdin Gamings liabilities, including Aladdin Gamings
energy service obligation to the third party owner of the central utility plant
that supplies hot and cold water and emergency power to the Aladdin. At June
30, 2004, the energy service obligation was $34.1 million. Upon the completion
of the Aladdin acquisition, OpBiz will issue $510 million of new secured notes
to Aladdin Gamings secured creditors under an Amended and Restated Loan and
Facilities Agreement with a group of lenders and The Bank of New York, Asset
Solutions Division, as administrative and collateral agent, which we refer to
in this report as the Credit Agreement. OpBiz has also agreed to
simultaneously make a $14 million cash payment to those secured creditors to
reduce the principal amount of the notes to $496 million and obtain a release
of the lien on a four-acre parcel of undeveloped property that we will 17




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acquire from Aladdin Gaming. We presently intend to develop this property
into a vacation resort or similar project. The Credit Agreement also requires
that OpBiz provide cash or a letter of credit in the aggregate amount of $90
million to fund the costs of the planned renovations to the Aladdin. As
discussed below under Liquidity and Capital Resources, in August 2004 MezzCo
issued $87 million of senior secured subordinated notes to a group of
purchasers. The net proceeds of this financing will be used to make the $14
million payment described above, to pay certain of our costs and
expenses related to the acquisition of the Aladdin, and to provide OpBiz with a portion
of the funds necessary to meet its
obligations regarding the planned renovations to the Aladdin. Before
OpBiz can complete the Aladdin acquisition, we must receive certain
approvals from various Nevada gaming authorities. As a result, the completion of the Aladdin acquisition
may be delayed or may not occur. BH/RE and each of its subsidiaries are
required to be registered with and licensed or found suitable by the Nevada
gaming authorities in connection with the Aladdin acquisition. Our officers
and managers, including Mr. Earl, Mr. Teitelbaum and Michael V. Mecca, the
president and chief executive officer of OpBiz, as well as Barry Sternlicht
(the chairman and chief executive officer of Starwood) and Theodore Darnall
(the executive vice president of hotel operations of Starwood and a manager of
EquityCo), must also be licensed or found suitable by the Nevada gaming
authorities in connection with the Aladdin acquisition. As of the date of this
report, gaming applications had been filed by each of these persons or
entities. The Nevada gaming authorities held the first of these hearings on
these applications on August 11, 2004. As of the date of this
report, the required approvals have not
been obtained. In addition, certain other senior executives of Starwood have
filed applications with the Nevada gaming authorities, but are not required to
be found suitable in order for us to receive the approvals required in
connection with the Aladdin acquisition. However, the Nevada gaming
authorities may determine to investigate the suitability of these other senior
executives of Starwood at a later time. Aladdin Gaming may terminate the
purchase agreement if any required gaming application is withdrawn or denied,
if all necessary approvals of the Nevada gaming authorities have not been
obtained by August 29, 2004, or if Aladdin Gamings conditions to closing in
the purchase agreement have not been satisfied on that date. Although we expect
that the Nevada gaming authorities will hold all required hearings before
August 29, 2004, we cannot assure you that we will be able to obtain all of the
approvals from the Nevada gaming authorities by that date. Additionally, the
order of the Nevada Gaming Commission granting such licenses may contain
restrictions on our operations and our ability to engage in certain
transactions, including paying dividends and making distributions. If we do
not have all of our gaming approvals by August 29, 2004, OpBiz may extend the
termination date of the purchase agreement by up to 90 days by increasing its
existing cash deposit by up to $2.5 million. Applications for approval under
the Hart-Scott-Rodino Act were filed in July 2004 and we received notification
of early termination of the HSR waiting period in August 2004. The purchase agreement provides that OpBiz will assume substantially all
of Aladdin Gamings pre-petition contracts and leases and any post-petition
contracts or leases to which OpBiz does not object. The purchase agreement
provides that OpBiz will offer employment to all of Aladdin Gamings employees,
other than executive management, on terms and conditions substantially similar
to their current employment terms and conditions. Overview of Managements Discussion and Analysis of Financial
Condition and Results of Operations Set forth below is a discussion of the financial condition and results of
operations of BH/RE and our subsidiaries for the periods covered in the report
and since our formation in March 2003, and the historical financial condition
and results of operations of Aladdin Gaming and its wholly owned inactive
subsidiaries for the periods covered in the consolidated financial statements
of Aladdin Gaming contained in this report. The historical financial
statements of Aladdin Gaming, the related managements discussion of financial
condition and results of operations, and the unaudited pro forma condensed
consolidated financial statements and related notes, are included in this
report because of the planned acquisition of the Aladdin by OpBiz. The
historical financial results of Aladdin Gaming are not indicative of its
current financial condition or of the financial condition and results of
operations of BH/RE and its subsidiaries following the completion of the
Aladdin acquisition. Upon completion of the Aladdin acquisition:  
    
    OpBiz will incur indebtedness under the Credit Agreement;
    
    MezzCo will incur indebtedness under the Mezzanine Financing described below; 18




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
    
    We will install new senior management to oversee the operations of the Aladdin;
    
    The Hotel will be managed under the Sheraton brand name
pursuant to the hotel management contract between OpBiz and
Sheraton;
    
    We will commence renovations to convert the Aladdin into the
PH Resort;
    
    We will operate the PH Resort and incur fees under the
licensing agreement with Planet Hollywood; and
    
    We will implement our business strategy. Our results of operations will be subject to these events and other
significant business, economic, regulatory and competitive uncertainties and
contingencies, some of which are beyond our control. The following managements discussion and analysis of financial condition
and results of operations should be read in conjunction with the consolidated
financial statements and the related notes to consolidated financial statements
of BH/RE and Aladdin Gaming, respectively and Managements Discussion and
Analysis of Financial Condition and Results of Operations included in BH/REs
Registration Statement on Form 10 (File No. 000-50689) filed with the Securities
and Exchange Commission on April 16, 2004 and the unaudited condensed financial
statements and notes thereto included in Part I, Item 1 of this report. BH/RE BH/RE and its subsidiaries were formed in March 2003 solely to acquire,
renovate and operate the Aladdin. Since our formation, our activities have
been limited to negotiating various agreements related to our planned
acquisition and operation of, and renovations to, the Aladdin. Results of Operations Since our formation, we have had no operations other than negotiating the
Aladdin acquisition and related financing and developing our plans to renovate
the Aladdin and transform it into the PH Resort. BH/RE and its subsidiaries are
development stage companies and our consolidated financial statements reflect
historical results that are not indicative of our operations following the
Aladdin acquisition. Since our formation, we have incurred costs related
primarily to legal and consulting fees and other expenses incurred in
connection with negotiating various agreements related to the purchase of the
Aladdin and related operating and financing transactions, and costs related to
our planned renovation and re-themeing of the Aladdin. BH/RE and each of its subsidiaries is a limited liability company. Each
of BH/RE, EquityCo and OpBiz will be treated as a partnership for federal
income tax purposes. MezzCo has elected to be treated as a corporation for
federal income tax purposes beginning in the third quarter of 2004.
Accordingly, we have not recorded any provision for federal income taxes in our
historical consolidated financial statements because the taxable income or loss
for BH/RE and each of its subsidiaries will be included in the income tax
returns of the relevant members for all periods prior to June 30, 2004. We
will record provisions for federal income tax on our consolidated financial
statements beginning in our third quarter of 2004. Liquidity and Capital Resources Since our formation, we have funded our liquidity needs through advances
from the members of BH/RE and certain of their affiliates and capital
contributions from Starwood. Our liquidity needs have been limited to funding
the ongoing fees and expenses related to our planned acquisition of the Aladdin
and related financing transactions and the deposit required under the purchase
agreement. Our expenses have been funded by advances from BHCH I and Planet
Hollywood. Advances made by BHCH I and by Planet Hollywood will be repaid at
the closing of the Aladdin acquisition from proceeds of the mezzanine financing
incurred by MezzCo (described below) and capital contributions from the holders
of our equity membership interests, including BHCH II. 19




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In August 2004, MezzCo entered into a mezzanine financing transaction,
which we refer to in this report as the Mezzanine Financing, with a group of
purchasers. Pursuant to the Mezzanine Financing, MezzCo issued $87 million of
16% Senior Secured Subordinated Notes and warrants to purchase 17,500 of its
units representing membership interests, equal to 17.5% of the fully diluted
equity of MezzCo. The gross offering proceeds of the
Mezzanine Financing were deposited into an escrow account and, in connection
with the closing of the Aladdin acquisition, will be used to (i) pay up to $13
million of our fees and expenses related to the Mezzanine Financing and our
acquisition of the Aladdin, (ii) fund the $14 million lien release payment
required under the Credit Agreement, and (iii) fund a portion of our planned
renovations to the Aladdin. The notes mature in August 2011 and accrue
interest at 16% per annum. Interest on the notes is payable in kind or, at the
option of MezzCo, in cash. The warrants are exercisable at any time, subject
to the prior approval of the Nevada gaming authorities, at a purchase price of
$.01 per unit. Subject to the approval of the Nevada gaming
authorities, the warrants may be exercised to purchase either voting
or non voting membership interests of MezzCo or a combination
thereof. Currently all of MezzCos voting membership interests are
represented by units owned by EquityCo. In addition to customary anti-dilution protections, the number
of units representing MezzCo membership interests issuable upon exercise of the
warrants may be increased from time to time upon the occurrence of certain
events as described in the warrants. The maximum aggregate increase is 28%,
following which the warrants would represent rights to purchase 45.5% of the
units representing membership interests of MezzCo, on a fully-diluted basis.
Holders of the warrants and any securities issued upon
exercise of the warrants may require MezzCo to redeem such securities commencing in
August 2011 at a redemption price based upon a formula set forth in the
warrants. The holders of warrants, and securities issued upon exercise
thereof, have the right, starting in August of 2008, to assume control of
MezzCo and OpBiz and conduct a sale of the equity of, or all or substantially all
of the assets of, either MezzCo or OpBiz. These negative control rights are
subject to (i) repayment in full of all indebtedness that is senior to the
notes (including all indebtedness of OpBiz under the Credit Agreement), (ii) the failure of OpBiz to achieve certain targeted levels of earnings
before interest, taxes, depreciation and amortization, or EBITDA and (iii) the prior
approval of the Nevada gaming authorities. These rights expire upon completion of a
public offering by MezzCo or OpBiz. In connection with the Mezzanine
Financing, we agreed to increase our expenditures on renovations to the Aladdin
to $100 million, inclusive of the $90 million required under the Credit
Agreement. We
will require approximately $637.0 million to complete the Aladdin
acquisition, including $100 million to fund renovation costs,
additional funding to pay related financing costs, transaction fees and expenses, which we
expect will be approximately $13.0 million, and $14 million
to make the lien release payment required under the Credit Agreement. These funds will be provided
through (i) borrowings of $510 million under the Credit Agreement and (ii)
$40.0 million in cash, including the $10 million represented by the deposit
under the purchase agreement, and (iii) $87 million in proceeds from the
Mezzanine Financing. Under the purchase agreement, when we acquire the Aladdin we will also
acquire $15 million of working capital, including at least $10 million of cash,
and assume Aladdin Gamings energy service obligations and various other
obligations of Aladdin Gaming under assumed contracts. The $510 million of
borrowings under the Credit Agreement will be evidenced by $500 million of Term
Loan A notes and $10 million of Term Loan B notes. At the closing of the
Aladdin acquisition, we have agreed to make a $14 million cash payment to the
holders of Term Loan A notes to reduce the principal amount of the Term Loan A
notes to $486 million and obtain a release of the lien on the four acre parcel
of vacant property that we will acquire from Aladdin Gaming. BH/RE
and Starwood have each committed to invest $20.0 million to complete the Aladdin acquisition and, together with a portion
of the net proceeds from the Mezzanine Financing, fund OpBizs plans to renovate
the Aladdin. BH/REs capital contributions will be funded by the holders of
BH/REs equity membership interests. In addition, BH/RE plans to fund transaction
costs, which we estimate will be approximately $13.0 million including fees and
expenses related to the Mezzanine Financing, through a portion of the
capital contributions of its members and a portion of the proceeds of
the Mezzanine Financing. Aladdin Gaming is currently meeting its liquidity needs with cash
generated from operations. Following the Aladdin acquisition, we will have
greater liquidity requirements than Aladdin Gaming. For example, we will be
required to pay interest under the Credit Agreement and we plan to commence our
renovations to transform the Aladdin into the PH Resort. We believe that,
following the Aladdin acquisition, cash generated from operations,
the equity investments in OpBiz, a portion of the proceeds of the
Mezzanine Financing and the working capital, including the
cash, we will acquire from Aladdin Gaming under the purchase agreement will be
adequate to meet the anticipated working capital, capital expenditure,
renovation and debt service obligations of OpBiz for the first 12 months after
the Aladdin acquisition. We may have unforeseen liquidity needs, and
the 20




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##### Table of Contents



Credit
Agreement contains restrictions on our ability to access cash
balances of OpBiz to make cash distributions to MezzCo (other than
for taxes, to pay a limited amount of operating expenses and, subject
to certain conditions, distributions to MezzCo which can be used to
make payments on the Mezzanine Financing). The Mezzanine Financing
contains restrictions on MezzCos ability to make cash distributions
to EquityCo. If we have additional liquidity needs, and cannot access
OpBizs cash balances, we would
have to seek additional funds from the holders of our equity membership
interests, or Starwood, or seek funding from outside sources. None of our voting or non-voting members, or Starwood, is obligated to
provide us with such funding and we cannot assure you that outside funding will
be available to us at all or on acceptable terms. We
cannot assure you that we have accurately estimated our liquidity
needs, or that we will not experience unforeseen events that may materially
increase our need for liquidity to fund our operations or capital expenditure
programs or decrease the amount of cash generated from our operations. We
expect to experience a reduction in cash generated by our operations during our
planned renovations to the Aladdin and have negotiated the terms of the Credit
Agreement to address those anticipated reductions. For example, the covenant in
the Credit Agreement requiring OpBiz to achieve specified levels of EBITDA during the
first two years of the Credit Agreement is significantly below the Aladdins
current EBITDA levels. Also, the interest rate during the first three years of
the Credit Agreement is lower than the interest rate in the last three years. Aladdin Gaming Results of Operations In the following discussion, the term management refers solely to the
management of Aladdin Gaming. Although we have had discussions with management
of Aladdin Gaming regarding the business, assets, condition and prospects of
the Aladdin and the discussion below, we did not prepare the following
discussion nor have we made any independent verification of the matters
described below. The historical financial results of Aladdin Gaming are not
indicative of our current financial condition or our financial condition and
results of operations following the completion of the Aladdin acquisition. Aladdin Gaming was formed in 1997 to construct and operate the Aladdin.
Until August 2000, Aladdin Gaming was in the development stage and did not have
any historical operating income. The Aladdin opened in August 2000. For the
balance of 2000, Aladdin Gaming incurred significant expenses and reported a
net operating loss of $42.3 million. In response to these net operating losses,
management refocused its marketing and advertising efforts, made significant
management changes and reconfigured the Casino floor in an effort to enhance
profitability. Aladdin Gaming also implemented labor reduction initiatives and
cost management strategies. As a result of these changes, Aladdin Gamings
financial results improved in the first quarter of 2001. However, Aladdin
Gaming was unable to meet its debt service requirements, and its financial
condition further deteriorated after the dramatic decline in Las Vegas tourism
following the terrorist attacks on September 11, 2001. Aladdin Gaming filed its
bankruptcy case in late September 2001. Since filing for bankruptcy, management
has continued to focus on effective marketing and cost management strategies,
which, combined with the rebound in overall tourism in Las Vegas, has resulted
in steady improvements to revenues and operating income. Aladdin Gaming has agreed to sell substantially all of its assets to OpBiz
pursuant to the purchase agreement and Aladdin Gamings plan of reorganization.
As a result of the approval of the sale to OpBiz, Aladdin Gaming reviewed its
assets for impairment and has recognized an impairment loss because the sale
price for the assets under the purchase agreement is less than the carrying
value of its net assets. See Property and Equipment. Key Metrics Aladdin Gamings financial results are highly dependent upon the number of
customers that visit the Casino and the price of Hotel rooms and amenities.
Although business on the Las Vegas Strip is generally not seasonal, certain
holidays and events attract large numbers of visitors to Las Vegas and can
significantly impact revenues and profitability of properties like the Aladdin.
The majority of Aladdin Gamings business is derived from tourists and
conventions. Approximately one-third of Aladdin Gamings revenues come from
gaming, one-third from Hotel business and one-third from sales of food and
beverage and other amenities. 21




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##### Table of Contents



Management uses several key metrics to evaluate Aladdin Gamings financial
results. These metrics include win, which represents the amount of gaming
revenues that are retained, and hold, which represents the amount of the win
as a percentage of amounts wagered. Measures for non-gaming revenues include
hotel occupancy, which is the number of rooms rented, including rooms that
are provided on a complimentary basis, during a given period expressed as a
percentage of the number of available rooms, and average daily room rate,
which is the average amount of revenue per rented room per day. The following discussion presents an analysis of Aladdin Gamings results
of operations for the three and six month periods ended June 30, 2004 and 2003,
respectively. Three months ended June 30, 2004 compared to three months ended
June 30, 2003 Net Revenues Three months Ended June 30,2004
    
    2003
    
    Variance
    
    Percentage(In thousands, except percentages)Casino
    
    $
    29,303
    
    
    $
    27,199
    
    
    $
    2,104
    
    
    
    7.7
    %Hotel
    
    
    26,929
    
    
    
    23,712
    
    
    
    3,217
    
    
    
    13.6
    %Food and Beverage
    
    
    17,998
    
    
    
    16,670
    
    
    
    1,328
    
    
    
    8.0
    %Entertainment and Other
Income
    
    
    3,929
    
    
    
    4,621
    
    
    
    (692
    )
    
    
    (15.0
    )%Gross Revenues
    
    
    78,159
    
    
    
    72,202
    
    
    
    5,957
    
    
    
    8.3
    %Promotional Allowances
    
    
    (6,897
    )
    
    
    (6,272
    )
    
    
    (625
    )
    
    
    (10.0
    )%Net Revenues
    
    $
    71,262
    
    
    $
    65,930
    
    
    $
    5,332
    
    
    
    8.1
    %
 Net revenues increased $5.3 million, or 8.1%, quarter-over-quarter as a
result of increases in both gaming and non-gaming revenues. The increase in
gaming revenues was driven by the expansion and more effective use of the
Casino marketing database and promotional activities and higher pedestrian
traffic resulting from the closure of the monorail station connecting the MGM
Grand Hotel and Casino and Ballys Casino and Hotel. The monorail station
closed temporarily in January 2003 and diverted additional pedestrian traffic
through the Aladdins south entrance. Management believes that the additional
pedestrian traffic had a positive impact on Aladdin Gamings revenues. The
monorail station resumed operations on July 15, 2004. Aladdin Gamings
management expects the reopening of the monorail station may negatively impact
Casino operations. The improvement in non-gaming revenues was attributable to
a higher hotel occupancy and average daily room rates during the second quarter
of 2004 as compared to the same period in 2003, mostly due to higher demand for
hotel rooms resulting from higher levels of tourist and convention business at
the Aladdin and in Las Vegas generally. Casino
revenues increased $2.1 million in the second quarter of 2004 versus
the same period in 2003, led by improvements in slot machine revenues of $2.1
million. In 2004, management continued to focus on maximizing the profitability
of slot machines by implementing ticket-in/ticket-out technology and installing
more popular slot machines. As of June 30, 2004, approximately 50% of the
Aladdins slot machines were equipped with ticket-in/ticket-out technology.
Slot machine revenues also benefited from the expansion of the casino marketing
database, which resulted in more revenues from special events and promotions.
As a result, the gross win per slot machine per day increased to $129 during
the second quarter of 2004 from $117 in the second quarter of 2003. Hotel occupancy and average daily room rates for the second quarter of
2004 were 98% and $118, compared to 88% and $115 during the comparable period
of 2003. The increases in occupancy and average daily rate are attributed to
higher demand for Las Vegas hotel rooms in general as well as increased
marketing efforts by Aladdin Gamings management. The improvements in occupancy
and average daily room rate were the dominant factors for the increase in Hotel
revenues of $3.2 million, or 13.6%, quarter-over-quarter. Food and beverage revenues increased $1.3 million in the second quarter of
2004 as compared to the same period in 2003. The increase was due to price and
volume increases at the Spice Market Buffet and Zanzibar Cafe in 2004, which
were driven by increased marketing and promotional efforts. Income from Operations Three Months Ended June 30,2004
    
    2003
    
    Variance
    
    Percentage(In thousands, except percentages)Net Revenues
    
    $
    71,262
    
    
    $
    65,930
    
    
    $
    5,332
    
    
    
    8.1
    %Costs & Expenses:Casino
    
    
    16,983
    
    
    
    15,798
    
    
    
    1,185
    
    
    
    7.5
    %Hotel
    
    
    7,749
    
    
    
    7,378
    
    
    
    371
    
    
    
    5.0
    %Food and Beverage
    
    
    10,553
    
    
    
    9,915
    
    
    
    638
    
    
    
    6.4
    %Other
Operating Expenses
    
    
    3,400
    
    
    
    3,854
    
    
    
    (454
    )
    
    
    (11.8
    )%Selling, General and
Administrative
    
    
    14,606
    
    
    
    15,315
    
    
    
    (709
    )
    
    
    (4.6
    )%Depreciation and
Amortization
    
    
    
    
    
    
    20,444
    
    
    
    (20,444
    )
    
    
    (100.0
    )%Total Costs
and Expense
    
    
    53,291
    
    
    
    72,704
    
    
    
    (19,413
    )
    
    
    (26.7
    )%Income (Loss) from
Operations
    
    $
    17,971
    
    
    $
    (6,774
    )
    
    $
    24,745
    
    
    
    365.3
    %
 Income from operations increased to $18.0 million for the second quarter
of 2004 from a loss of $6.8 million for the first quarter of 2003. On August
29, 2003, the Bankruptcy Court confirmed Aladdin Gamings plan of
reorganization and approved the Purchase Agreement with OpBiz. As a result,
the Company classified substantially all of its assets as assets held for
sale and ceased recording depreciation expense which contributed significantly
to the improvement in income from operations. Overall, operating costs and expenses decreased $19.4 million, or 26.7%.
The decrease resulted primarily from the absence of depreciation expense for
the first quarter of 2004. Aladdin Gamings continuing operating costs and
expenses increased $1.0 million, primarily due to promotional expenses for the
casino and increased personnel expenses. Interest Expense Interest expense of $1.0 million related to the energy service obligation
was recorded for the second quarters of both 2004 and 2003. As a result of the
Chapter 11 filing, Aladdin Gaming has ceased accruing interest on the bank
credit facility and the FF&E facility. Reorganization Items In accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code, Aladdin
Gaming has separately reported reorganization items. Reorganization items
in the first quarter of each of 2004 and 2003 consisted primarily of
professional fees and management retention costs. 22




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##### Table of Contents



Six months ended June 30, 2004 compared to
six months ended June 30, 2003 Net Revenues Six months Ended June 30,2004
    
    2003
    
    Variance
    
    Percentage(In thousands, except percentages)Casino
    
    $
    58,692
    
    
    $
    54,684
    
    
    $
    4,008
    
    
    
    7.3
    %Hotel
    
    
    55,441
    
    
    
    49,115
    
    
    
    6,326
    
    
    
    12.9
    %Food and Beverage
    
    
    36,901
    
    
    
    33,922
    
    
    
    2,979
    
    
    
    8.8
    %Entertainment and Other
Income
    
    
    8,053
    
    
    
    8,524
    
    
    
    (471
    )
    
    
    (5.5
    )%Gross Revenues
    
    
    159,087
    
    
    
    146,245
    
    
    
    12,842
    
    
    
    8.8
    %Promotional Allowances
    
    
    (14,468
    )
    
    
    (13,022
    )
    
    
    (1,446
    )
    
    
    (11.1
    )%Net Revenues
    
    $
    144,619
    
    
    $
    133,223
    
    
    $
    11,396
    
    
    
    8.6
    %
 Net revenues increased $11.4 million, or 8.6%, when compared to the same
six month period in 2003 as a result of increases in both gaming and non-gaming
revenues. The increase in gaming revenues was driven by the expansion and more
effective use of the Casino marketing database and promotional activities and
higher pedestrian traffic resulting from the closure of the monorail station
connecting the MGM Grand Hotel and Casino and Ballys Casino and Hotel. The
monorail station closed temporarily in January 2003 and diverted additional
pedestrian traffic through the Aladdins south entrance. Management believes
that the additional pedestrian traffic had a positive impact on Aladdin
Gamings revenues. The monorail station resumed operations on July 15, 2004.
Aladdin Gamings management expects the reopening of the monorail station may
negatively impact Casino operations. The improvement in non-gaming revenues
was attributable to a higher hotel occupancy and average daily room rates
during the first quarter of 2004 as compared to the same period in 2003, mostly
due to higher demand for hotel rooms resulting from higher levels of tourist
and convention business at the Aladdin and in Las Vegas generally. Casino revenues were up $4.0 million in the first six months of 2004
versus the same period in 2003, led by improvements in slot machine revenues of
$3.8 million. In 2004, management continued to focus on maximizing the
profitability of slot machines by implementing ticket-in/ticket-out technology
and installing more popular slot machines. As of June 30, 2004, approximately
50% of the Aladdins slot machines were equipped with ticket-in/ticket-out
technology. Slot machine revenues also benefited from the expansion of the
casino marketing database, which resulted in more revenues from special events
and promotions. As a result, the gross win per slot machine per day increased
to $125 during the first six months of 2004 from $89 in the first six months of
2003. Hotel occupancy and average daily room rates for the first six months of
2004 were 98% and $122 compared to 93% and $106 during the comparable period of
2003. Higher demand for Las Vegas hotel rooms in general and increased
marketing has allowed Aladdin Gamings management to increase the average daily
rate. The improvements in average daily room rate was the dominant factor for
the increase in Hotel revenues of $6.3 million, or 12.9%, six month
period-over-six month period. Food and beverage revenues increased $3.0 million in the first six months
of 2004 as compared to the same period in 2003. The increase was due to price
and volume increases at the Spice Market Buffet and Zanzibar Cafe in 2004,
which were driven by increased marketing and promotional efforts. 23




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##### Table of Contents



Income from Operations Six months Ended June 30,2004
    
    2003
    
    Variance
    
    Percentage(In thousands, except percentages)Net Revenues
    
    $
    144,619
    
    
    $
    133,223
    
    
    $
    11,396
    
    
    
    8.6
    %Costs & Expenses:Casino
    
    
    35,131
    
    
    
    32,450
    
    
    
    2,681
    
    
    
    8.3
    %Hotel
    
    
    15,272
    
    
    
    14,146
    
    
    
    1,126
    
    
    
    8.0
    %Food and Beverage
    
    
    20,709
    
    
    
    19,080
    
    
    
    1,629
    
    
    
    8.5
    %Other Operating Expenses
    
    
    6,836
    
    
    
    6,748
    
    
    
    88
    
    
    
    1.3
    %Selling, General and Administrative
    
    
    29,797
    
    
    
    30,101
    
    
    
    (302
    )
    
    
    (1.0
    )%Depreciation and Amortization
    
    
    
    
    
    
    32,451
    
    
    
    (32,451
    )
    
    
    (100.0
    )%Total Costs
and Expenses
    
    
    107,745
    
    
    
    134,976
    
    
    
    (27,229
    )
    
    
    (20.2
    )%Income from Operations
    
    $
    36,874
    
    
    $
    (1,753
    )
    
    $
    38,625
    
    
    
    
    %
 24




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##### Table of Contents



Income from operations increased to $36.9 million for the first six months
of 2004 from a loss of $1.8 million for the first six months of 2003. On
August 29, 2003, the Bankruptcy Court confirmed Aladdin Gamings plan of
reorganization and approved the Purchase Agreement with OpBiz. As a result,
the Company classified substantially all of its assets as assets held for
sale and ceased recording depreciation expense which contributed significantly
to the improvement in income from operations. Overall, operating costs and expenses decreased $27.2 million, or 25.3%.
The decrease resulted primarily from the absence of depreciation expense for
the first two quarters of 2004. Aladdin Gamings continuing operating costs
and expenses increased $5.2 million, primarily due to promotional expenses for
the casino and increased personnel expenses. Interest Expense Interest expense of $1.9 million and $2.0 million related to the energy
service obligation was recorded for the first six months of 2004 and 2003,
respectively. As a result of the Chapter 11 filing, Aladdin Gaming has ceased
accruing interest on the bank credit facility and the FF&E facility. Reorganization Items In accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code, Aladdin Gaming has separately
reported reorganization items. Reorganization items in the first quarter of
each of 2004 and 2003 consisted primarily of professional fees and management
retention costs. Liquidity and Capital Resources 2004
    
    2003(In thousands)Cash flows from operating activities before reorganization items
    
    $
    34,941
    
    
    $
    33,291Cash flows used in reorganization items
    
    
    (1,424
    )
    
    
    (5,689
    )Cash flows (used in) from investing activities
    
    
    (790
    )
    
    
    (841
    )Cash flows (used in) from financing activities
    
    
    (24,635
    )
    
    
    (5,709
    )
 Since commencing its bankruptcy case, Aladdin Gaming has relied on cash
flow from operations to fund its liquidity needs. Management expects cash flows
from operations will be sufficient to fund liquidity and capital maintenance
requirements until the anticipated completion of the Aladdin acquisition by
OpBiz. Cash flows from operating activities have steadily improved since 2001
as a result of the factors described above. Aladdin Gamings investing
activities have been limited during its bankruptcy case. Cash flows used in
investing activities includes payments for construction and fixed assets of
$790,000 and $2.0 million respectively, in the first six months of 2004 and
2003. In the first six months of each of 2004 and 2003, cash flows from
financing activities consisted of adequate protection payments and payments in
respect of the energy service obligation to Northwind Aladdin of $24.6 million
and $5.7 million, respectively. Since filing for bankruptcy, Aladdin Gaming has
not made any principal or interest payments on pre-petition debt, except for
the energy service obligation and adequate protection payments. As a result of Aladdin Gaming filing for bankruptcy, substantially all of
its pre-petition debt was classified as liabilities subject to compromise.
Aladdin Gamings pre-petition debt consists of a bank credit facility with
various financial institutions, an interest rate collar payable related to
interest rate collar agreements entered into in connection with the bank credit
facility that were terminated on the bankruptcy petition date, the gaming
equipment term loan, the capital lease facility and the energy service
obligation. Amounts payable under the energy service agreement include operational
charges and debt service and equity return payments. During Aladdin Gamings
bankruptcy case several controversies arose regarding the nature of the energy
service agreement and related agreements. These disputes were settled in
December 2002. Under the 25




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##### Table of Contents



settlement and in accordance with an order of the Bankruptcy Court,
Aladdin Gaming has assumed the energy service agreement and related agreements
and is paying the obligations under the terms reached in the settlement. Critical Accounting Policies and Estimates Aladdin Gaming prepares its consolidated financial statements in
conformity with accounting principles generally accepted in the United States.
Certain of its accounting policies require that management apply significant
judgment in defining the appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree
of uncertainty. Judgments made by management are based on their historical
experience, terms of existing contracts, observance of trends in the industry,
information provided by customers and information available from other outside
sources, as appropriate. There can be no assurance that actual results will
conform to these estimates. Management believes the policies and estimates
described below have a significant impact on issues that are inherently
uncertain. Bad Debt Reserves Management reserves an estimated amount for receivables that may not be
collected. These bad debt reserves are estimated using a combination of
specific reserves and various percentages applied to aged receivables based
upon the judgment of management. Management considers historical collection
rates along with customer relationships in determining specific reserves. To
the extent world events such as economic downturns, war or further terrorist
attacks impact the ability of Aladdin Gamings customers to pay the
receivables, the reserves of Aladdin Gaming could be inadequate. However, the
majority of Aladdin Gamings Casino receivables relate to domestic play.
Consequently, management believes its Casino receivables are less exposed to
the impact of some of these events. Notwithstanding, management believes its
current reserve is appropriate and reasonable based upon its experience. Property and Equipment Aladdin Gaming has significant capital invested in its property and
equipment, which represented approximately 87% of total assets as of June 30,
2004. Management makes judgements to determine the estimated useful lives of
assets, salvage values to be assigned to assets and if or when an asset has
been impaired. The accuracy of these estimates affects the amount of
depreciation expense recognized in Aladdin Gamings financial results and
whether Aladdin Gaming has a gain or loss on the disposal of the asset. Management assigns useful lives to its assets based on its standard
policy, which management believes is representative of the useful life of each
category of assets. Management reviews the carrying value of its property and
equipment whenever events and circumstances indicate that the carrying value of
an asset may not be recoverable from the estimated future cash flows expected
to result from its use and eventual disposition. The factors considered by
management in performing this assessment include current operating results,
trends and prospects, as well as the effect of obsolescence, demand,
competition and other economic factors. As described above, due to the
transactions contemplated by the purchase agreement, Aladdin Gaming recorded an
impairment loss of $29.5 million in the third quarter of 2003 and ceased
recording depreciation expense as of August 2003. Self-Funded Employee Health Care Insurance Program Aladdin Gamings employee health care benefits program is self-funded up
to a maximum amount per claim. Management bases accruals for the cost of its
program on claims filed and estimates of claims incurred but not reported.
Management considers historical loss experience and certain unusual claims in
estimating these liabilities. Management believes the use of this method to
account for these liabilities provides a consistent and effective way to
measure these highly judgmental accruals; however, changes in health care
costs, accident or illness frequency and severity and other factors can
materially affect the estimate for these liabilities. Management continually
monitors the potential for changes in estimates, evaluates its insurance
accruals and adjusts its recorded provisions. 26




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##### Table of Contents



Recently Issued Accounting Standards In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. The objective of FIN 46 is to
improve financial reporting by companies involved with variable interest
entities. FIN 46 changes certain consolidation requirements by requiring a
variable interest entity to be consolidated by a company that is subject to a
majority of the risk of loss from the variable interest entitys activities or
receive a majority of the entitys residual returns or both. The adoption of
FIN 46 did not have a material impact on the consolidated financial statements
of the Company. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. As of the date of this report we were not subject to
market risk. Following completion of the Aladdin acquisition we will
incur floating rate debt under the Credit Agreement and will be
subject to fluctuations in interest rates. You can find a discussion
of the interest rates applicable to indebtedness under the Credit
Agreement under Item 1. Business in the Form 10. 
 ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, we were a development
stage company and as such, our management, under the supervision and with the
participation of its managers and its acting Chief Financial Officer are
developing a system of disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) and
will perform an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures after they have been implemented. There have been no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. Because we have not yet
completed our acquisition of the Aladdin, our internal control over financial
reporting did not extend to the financial reporting of Aladdin Gaming. 
 FORWARD LOOKING STATEMENTS This report contains forward-looking statements that do not relate to
historical or current facts or situations. You can identify forward-looking
statements by terminology such as may, will, should, would, could,
believe, expect, anticipate, estimate, intend, plan, continues,
the negative of these terms or other similar terms. Forward-looking statements
include statements relating to the Aladdin acquisition, the renovation of the
Aladdin into the PH Resort, our business strategy and operating plans, our
expectations concerning future operations, profitability, liquidity and capital
resources and our other current and future plans. Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. If one or more of the assumptions
underlying our forward-looking statements proves incorrect, our actual results,
levels of activity, performance or achievements could differ significantly from
those expressed in, or implied by, the forward-looking statements contained in
this report. Therefore, you should not place undue reliance on our
forward-looking statements. Except as required by law, we do not intend to
update or revise any of our forward-looking statements after the date of this
report. Our acquisition of the Aladdin and planned operations are subject to a
number of risks. Please refer to the discussion of Risk Factors in Item 1.
Business of the Form 10. 27




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##### Table of Contents



PART II  OTHER INFORMATION 
 ITEM 5. OTHER INFORMATION 
 BH/RE, L.L.C. AND SUBSIDIARIES (A Development Stage Company)
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated balance sheet of
BH/RE and its subsidiaries as of June 30, 2004 and unaudited pro forma
statement of operations for the year ended December 31, 2003 and six months
ended June 30, 2004, give effect to the Aladdin acquisition and the financing
of the Aladdin acquisition as if they occurred, for balance sheet purposes, on
June 30, 2004 and, for statement of operations purposes, on January 1, 2003.
The unaudited pro forma financial statements are not necessarily indicative of
the results that would have been reported had such transactions actually
occurred on the dates specified, nor are they indicative of our future results
of operations or financial condition. The unaudited pro forma financial
statements are based on and should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of BH/RE, and the historical financial statements and notes thereto of
Aladdin Gaming (including Managements Discussion and Analysis of Financial
Condition and Results of Operations), included in this report, and the
Registration Statement on Form 10 (File No. 000-50689) filed by BH/RE with the
SEC on April 16, 2004. 28




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##### Table of Contents



BH/RE, L.L.C. AND SUBSIDIARIES 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (As of June 30, 2004)
 Pro Forma
    
    BH/REAladdin
    
    
    
    
    
    Adjustments
    
    Pro FormaGaming
    
    BH/RE
    
    (See Note 2)
    
    As Adjusted(In thousands)ASSETSCash and cash equivalents
    
    $
    46,332
    
    
    $
    
    
    
    $
    (23,580
    )(a)
    
    $
    32,10218,260
    (j)(8,910
    )(b)Restricted cash and cash equivalents
    
    
    4,377
    
    
    
    
    
    
    
    (4,377
    )(c)(1)Receivables from related parties
    
    
    38
    
    
    
    
    
    
    
    (38
    )(d)
    
    
    Accounts
receivable, net
    
    
    11,191
    
    
    
    
    
    
    
    
    
    
    
    11,191Inventories
    
    
    1,502
    
    
    
    
    
    
    
    
    
    
    
    1,502Prepaid expenses
    
    
    4,340
    
    
    
    
    
    
    
    (3,151
    )(c)(2)
    
    
    1,189Deposits
    
    
    2,683
    
    
    
    
    
    
    
    (175
    )(c)(3)
    
    
    2,508Total current assets
    
    
    70,463
    
    
    
    
    
    
    
    (21,971
    )
    
    
    48,492Restricted cashlong term
    
    
    
    
    
    
    10,111
    
    
    
    79,914
    (e)
    
    
    90,025Property and equipmentnet
    
    
    496,973
    
    
    
    
    
    
    
    10,928
    (f)
    
    
    507,901Other
assets, net
    
    
    1,145
    
    
    
    6,674
    
    
    
    (6,674
    )(g)
    
    
    1,145Total assets
    
    $
    568,581
    
    
    $
    16,785
    
    
    $
    62,197
    
    
    $
    647,563LIABILITIES AND MEMBERS EQUITYCurrent portion of energy service obligation
    
    $
    1,198
    
    
    $
    
    
    
    $
    
    
    
    $
    1,198Accounts payable  trade
    
    
    2,095
    
    
    
    
    
    
    
    
    
    
    
    2,095Accrued expenses and other current liabilities
    
    
    28,827
    
    
    
    
    
    
    
    (6,780
    )(c)(4)
    
    
    22,047Total current liabilities
    
    
    32,120
    
    
    
    
    
    
    
    (6,780
    )
    
    
    25,340Energy
service obligation, net of current portion
    
    
    32,947
    
    
    
    
    
    
    
    
    
    
    
    32,947Due to affiliates
    
    
    
    
    
    
    17,410
    
    
    
    (17,410
    )(d)
    
    
    Liabilities subject to compromise
    
    
    526,097
    
    
    
    
    
    
    
    (526,097
    )(h)
    
    
    Credit facility
    
    
    
    
    
    
    
    
    
    
    476,901
    (i)
    
    
    462,901(14,000
    )(i)Subordinated
notes
    
    
    
    
    
    
    
    
    
    
    82,650
    (j)
    
    
    82,650Redeemable
warrants
    
    
    
    
    
    
    
    
    
    
    4,350
    (j)
    
    
    4,350Total liabilities
    
    
    591,164
    
    
    
    17,410
    
    
    
    (386
    )
    
    
    608,188Commitments and contingenciesMinority interest
    
    
    
    
    
    
    1,517
    
    
    
    18,500
    (e)
    
    
    20,017Members equity (deficit):
    
    
    395,370
    
    
    
    
    
    
    
    (395,370
    )(k)
    
    
    21,500
    
    
    
    21,500
    (e)
    
    
    Accumulated deficit
    
    
    (417,953
    )
    
    
    (2,142
    )
    
    
    417,953
    (k)
    
    
    (2,142
    )Total members equity (deficit)
    
    
    (22,583
    )
    
    
    (2,142
    )
    
    
    44,083
    
    
    
    19,358Total liabilities and members equity (deficit).
    
    $
    568,581
    
    
    $
    16,785
    
    
    $
    62,197
    
    
    $
    647,563
 See accompanying notes to unaudited pro forma condensed consolidated financial statements. 29




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BH/RE, L.L.C. AND SUBSIDIARIES 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 (For the Year Ended December 31, 2003)
 Pro Forma
    
    BH/REAladdin
    
    
    
    
    
    Adjustments
    
    Pro FormaGaming
    
    BH/RE
    
    (See Note 3)
    
    As Adjusted(In thousands)RevenuesCasino
    
    $
    110,642
    
    
    $
    
    
    
    $
    
    
    
    $
    110,642Hotel
    
    
    95,836
    
    
    
    
    
    
    
    
    
    
    
    95,836Food and beverage
    
    
    68,084
    
    
    
    
    
    
    
    
    
    
    
    68,084Other
    
    
    18,378
    
    
    
    
    
    
    
    
    
    
    
    18,378Gross revenues
    
    
    292,940
    
    
    
    
    
    
    
    
    
    
    
    292,940Less: promotional allowances
    
    
    26,400
    
    
    
    
    
    
    
    
    
    
    
    26,400Net revenues
    
    
    266,540
    
    
    
    
    
    
    
    
    
    
    
    266,540ExpensesCasino
    
    
    62,626
    
    
    
    
    
    
    
    
    
    
    
    62,626Hotel
    
    
    28,913
    
    
    
    
    
    
    
    4,246
    (a)
    
    
    33,159Food and beverage
    
    
    44,032
    
    
    
    
    
    
    
    
    
    
    
    44,032Other
    
    
    14,344
    
    
    
    
    
    
    
    
    
    
    
    14,344Selling, general and administrative
    
    
    61,701
    
    
    
    1,283
    
    
    
    (443
    )(b)
    
    
    65,8193,278
    (c)Impairment of long-lived assets
    
    
    29,478
    
    
    
    
    
    
    
    
    
    
    
    29,478Depreciation and amortization
    
    
    43,495
    
    
    
    
    
    
    
    17,500
    (d)
    
    
    60,995Total costs and expenses
    
    
    284,589
    
    
    
    1,283
    
    
    
    24,581
    
    
    
    310,453Loss from operations
    
    
    (18,049
    )
    
    
    (1,283
    )
    
    
    (24,581
    )
    
    
    (43,913
    )Interest income (expense)
    
    
    (9,953
    )
    
    
    52
    
    
    
    (31,388
    )(e)
    
    
    (49,136
    )(13,845
    )(f)5,998
    (g)Loss before reorganization items
    
    
    (28,002
    )
    
    
    (1,231
    )
    
    
    (63,816
    )
    
    
    (93,049
    )Reorganization items
    
    
    (12,103
    )
    
    
    
    
    
    
    12,103
    (h)
    
    
    Net loss
    
    $
    (40,105
    )
    
    $
    (1,231
    )
    
    $
    (51,713
    )
    
    $
    (93,049
    )
 See accompanying notes to unaudited pro forma condensed consolidated financial statements. 30




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BH/RE, L.L.C. AND SUBSIDIARIES 
 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 (For the Six Months Ended June 30, 2004)
 Pro Forma
    
    BH/REAladdin
    
    
    
    
    
    Adjustments
    
    Pro FormaGaming
    
    BH/RE
    
    (See Note 3)
    
    As Adjusted(In thousands)RevenuesCasino
    
    $
    58,692
    
    
    $
    
    
    
    $
    
    
    
    $
    58,692Hotel
    
    
    55,441
    
    
    
    
    
    
    
    
    
    
    
    55,441Food and beverage
    
    
    36,901
    
    
    
    
    
    
    
    
    
    
    
    36,901Other
    
    
    8,053
    
    
    
    
    
    
    
    
    
    
    
    8,053Gross revenues
    
    
    159,087
    
    
    
    
    
    
    
    
    
    
    
    159,087Less: promotional allowances
    
    
    14,468
    
    
    
    
    
    
    
    
    
    
    
    14,468Net revenues
    
    
    144,619
    
    
    
    
    
    
    
    
    
    
    
    144,619ExpensesCasino
    
    
    35,131
    
    
    
    
    
    
    
    
    
    
    
    35,131Hotel
    
    
    15,272
    
    
    
    
    
    
    
    2,313
    (a)
    
    
    17,585Food and beverage
    
    
    20,709
    
    
    
    
    
    
    
    
    
    
    
    20,709Other
    
    
    6,836
    
    
    
    
    
    
    
    
    
    
    
    6,836Selling, general and administrative
    
    
    29,797
    
    
    
    954
    
    
    
    (222
    )(b)
    
    
    65,1311,986
    (c)Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    32,616
    (d)Total costs and expenses
    
    
    107,745
    
    
    
    954
    
    
    
    36,693
    
    
    
    145,392Income (loss) from operations
    
    
    36,874
    
    
    
    (954
    )
    
    
    (36,693
    )
    
    
    (773
    )Interest income (expense), net
    
    
    (1,912
    )
    
    
    50
    
    
    
    (15,694
    )(e)
    
    
    (21,517
    )(6,960
    )(f)2,999
    (g)Minority interest
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Loss before reorganization items
    
    
    34,962
    
    
    
    (911
    )
    
    
    (56,348
    )
    
    
    (22,297
    )Reorganization items
    
    
    4,173
    
    
    
    
    
    
    
    4,173
    (h)
    
    
    Net income (loss)
    
    $
    30,789
    
    
    $
    (911
    )
    
    $
    (52,175
    )
    
    $
    (22,297
    )
 See accompanying notes to unaudited pro forma condensed consolidated financial statements. 31




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BH/RE, L.L.C. AND SUBSIDIARIES 
 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 The following notes to unaudited pro forma condensed consolidated
financial statements give effect to the Aladdin acquisition financing
(including the Credit Agreement and the Mezzanine Financing) and the
Aladdin acquisition as if they had occurred, for balance sheet purposes, on
June 30, 2004 and, for statement of operations purposes, on January 1, 2003 and
2004.  1.
    
    The pro forma purchase price is calculated as
follows: Amount(In thousands)Fair value of acquisition (i)
    
    $
    511,046Estimated transaction fees and expenses
    
    
    13,000Total
    
    $
    524,046
 The preliminary allocation of the pro forma purchase price is as follows: Amount(In thousands)Net working capital (ii)
    
    $
    15,000Land
    
    
    47,314Buildings, furniture, fixtures and equipment
    
    
    460,587Other assets
    
    
    1,145Total
    
    $
    524,046
 The final purchase price and its allocation will be based on appraisals
and estimates by our management and is expected to be completed within one year of
the completion of the Aladdin acquisition. (i) Represents the estimated fair
value of the assets to be acquired
from Aladdin Gaming and the
assumption of the energy service
obligation. (ii) Represents net working capital
(including cash) to be transferred
by Aladdin Gaming to OpBiz as part of the
Aladdin acquisition.  2.
    
    The following is a brief description of the
adjustments to the pro forma balance sheet to reflect the
Aladdin acquisition as if it had occurred June 30, 2004. (a) Represents cash to be
retained by Aladdin Gaming. (b) Represents cash paid for
reimbursements for transaction
fees and expenses paid by
affiliates on behalf of BH/RE. (c) Represents the portions of
the following assets and
liabilities that will be
retained by Aladdin Gaming:  (1)
    
    restricted cash 32




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##### Table of Contents



(2)
    
    prepaid expenses(3)
    
    deposits(4)
    
    accrued liabilities (d) Represents the elimination
of BH/RE related party payables and
receivables that will be
retained by Aladdin Gaming. (e) Represents capital
contributions by holders of
the equity membership
interests of BH/RE and
Starwood for the planned
renovation of the Aladdin into
the PH Resort and transaction
fees and expenses. (f) Represents an adjustment
to property and equipment
based on the purchase price
allocation. Depreciation has
been computed using the
straight-line method over the
following useful lives:
building and leasehold
improvements  39 years;
furniture and equipment  five
years; and energy service
asset  17 to 20 years. (g) Represents the transaction
fees and expenses that will be
capitalized in connection with
the funding of the acquisition
of the Aladdin. (h) Represents elimination of
liabilities subject to
compromise. (i) Represents the financing
incurred under the Credit
Agreement consisting of $496
million senior secured notes
that bear interest at
three-month LIBOR plus a
margin (as defined in the
Credit Agreement) and mature
six years from the issue date.
The senior secured notes have
been discounted by $33 million
to reflect their estimated
fair value, which is based on
the fair value of the assets
acquired and the assumption of
the energy service obligation. Upon closing of the Aladdin
Acquisition, OpBiz will be required to make a $14 million cash
payment to the holders of the senior secured notes to reduce the
principal amount of the notes to $496 million and to obtain a
release of the lien on a four acre parcel of vacant land to be acquired from Aladdin Gaming, LLC. (j) Represents the Mezzanine
Financing consisting of $87
million of 16% Senior Secured
Subordinated Notes bearing
interest of 16% per annum and redeemable warrants to purchase 17,500
units representing 17.5% of the membership interests in MezzCo, on a
fully diluted basis. The warrants are exercisable at any time,
subject to the prior approval of the Nevada gaming authorities, at a purchase price of $.01 per unit.
Holders of the warrants and any securities issued upon exercise of
the warrants may require MezzCo to redeem such securities commencing
in August 2011 at a redemption price based upon a formula set forth in the warrants. The warrants are valued at $4,350,000.
The notes mature in August 2011. (k) Represents the elimination
of members equity and
accumulated deficit of Aladdin
Gaming. 33




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##### Table of Contents



3.
    
    The following is a brief description of the
adjustments to the pro forma statement of operations to
reflect the Aladdin acquisition as if it had occurred January
1, 2003 and 2004. (a) Represents an adjustment
for the Sheraton hotel
management fee. OpBiz has
entered into a management
contract with Sheraton to
assist in the management,
operation and promotion of the
Hotel and to permit the use of
the Sheraton brand and
trademarks in the promotion of
the Hotel for a fee of 4% of
gross Hotel and Hotel related
operating revenues and 2% of
gross rental revenues from
third party leases in the
Hotel, plus certain
centralized service fees that
have not been included in the
adjustment. (b) Represents an adjustment
for an employment contract
that will be eliminated
pursuant to the purchase
agreement. (c) Represents an adjustment
for fees related to the
licensing agreement between
OpBiz and Planet Hollywood.
The agreement grants OpBiz a
license to use the Planet
Hollywood marks, Internet
domain names that incorporate
the Planet Hollywood marks and
Planet Hollywoods collection
of memorabilia for a fee of
1.75% of non-Casino revenues.
In general, the license fees
become payable after OpBiz
begins operating as the PH
Resort. The licensing
agreement expires in 2028 with
options to extend the term for
three successive 10-year
terms. (d) Represents an adjustment
to reflect the estimated
annual depreciation expense
related to the acquired
assets. (e) Represents the estimated
interest expense and debt
discount amortization related
to the senior
secured notes to be issued under the Credit Agreement. The interest
rate is based on a variable
LIBOR index. An increase of
1/8 of a percentage point in
the average LIBOR rate would
increase BH/REs annual
interest cost by approximately
$625,000. (f) Represents the estimated
interest expense related to
the $87 million senior secured
subordinated notes at an
interest rate of 16% per
annum and the related discount amortization. 34




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##### Table of Contents



(g) Represents historical
interest costs that will be
eliminated as a result of the
Aladdin acquisition. (h) Represents an adjustment
to eliminate the
reorganization items.  4.
    
    Other explanatory notes: MezzCo, a wholly-owned subsidiary of BH/RE, has elected to be treated as a corporation for federal income tax purposes beginning in the third quarter of 2004. The estimated benefit for federal income taxes and the related deferred tax asset for MezzCo
have not been recognized in the accompanying pro forma financial
statements because management currently believes such amounts are not likely to
be realized. Since BH/RE will not unitize its membership interests, loss per membership
unit data has not been presented because management of BH/RE believes this
information would not be meaningful to the pro forma financial statement
presentation. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:  3.1
    
    Amended and Restated Operating Agreement of
BH/RE, L.L.C., dated as of March 26, 2004; Amendment to
Amended and Restated Operating Agreement of BH/RE, L.L.C.,
dated August 9, 200410.1
    
    Agreement by and between Starwood Nevada Holding
LLC, Sheraton Operating Corporation, BH/RE, L.L.C., EquityCo,
L.L.C. and OpBiz, L.L.C., dated August 9, 200410.2
    
    Securities Purchase Agreement among MezzCo,
L.L.C. and the Purchasers named therein, dated as of August 9,
200410.3
    
    Form of Senior Subordinated Secured Promissory
Note10.4
    
    Form of Warrant to Purchase Membership Interests
of MezzCo, L.L.C.10.5
    
    Investor Rights Agreement by and among MezzCo,
L.L.C., The Mezzanine Investors named therein and the other
signatories thereto, dated as of August 9, 200410.6
    
    Letter Agreement, dated July 13, 2004, among
MezzCo, OpBiz and Michael V. Mecca31.1
    
    Certifications of Robert Earl pursuant to §302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certifications of Douglas P. Teitelbaum pursuant
to §302 of the Sarbanes-Oxley Act of 200231.3
    
    Certifications of Thomas Avallone pursuant to
§302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to 18 U.S.C. §1350, as
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: None. 35




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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. BH/RE, L.L.C.August 16, 2004
    By:
    /s/ THOMAS AVALLONEThomas AvalloneActing Chief Financial Officer 36