**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**FORM 10-Q**

 
| **ý**** **** ****QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|---------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                  |
| **For the quarter ended September 30,  2005**                                                                                    |
|                                                                                                                                  |
| **o**** **** ****TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**     |

 

**For the transition period from          to          **

 

**PREMIER ENTERTAINMENT BILOXI LLC****and****PREMIER FINANCE BILOXI CORP.**

 (ExactName of Registrant as specified in Its Charter)

 
| **Delaware**                                                     | ** ** | **Commission file number** | ** ** | **20-0495680/20-0495563**        |
|------------------------------------------------------------------|------------|----------------------------|------------|----------------------------------|
| (State or Other Jurisdiction of   Incorporation or Organization) |       | 333-114339                 |       | (IRS Employer Identification No) |

 

**777 Beach Boulevard**

**Biloxi,MS 39530**

(Address, including zip code, or PrincipalExecutive Offices)

 

**(228)374-7625**

(Registrant’s Telephone Number, IncludingArea Code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. YES ý NO o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

YES o  NO ý

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act.).

YES o  NO ý

 

OnNovember 14, 2005, the registrant had no shares of common stockoutstanding.

 

 

----

 

**PREMIER ENTERTAINMENT BILOXI LLC**

**and**

**PREMIER FINANCE BILOXI CORP.**

**(A Development Stage Company)**

 

**Index**

 
| **PART I.**  | **Financial  Information**                                                                                                                                                                                                                                        |   |
|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                                                                                                                                                                              |   |
| Item  1.          | Financial  Statements                                                                                                                                                                                                                                             |   |
|              | Condensed Consolidated Balance  Sheets as of September 30, 2005 (unaudited) and December 31, 2004                                                                                                                                                       |   |
|              | Condensed Consolidated  Statements of Operations for the Three Months and Nine Months ended  September 30, 2005 and 2004 (unaudited) and for the period from  commencement of operations on March 27, 2003 through September 30,  2005 (unaudited) |   |
|              | Condensed Consolidated  Statements of Cash Flows for the Nine Months ended September 30, 2005  and 2004 (unaudited) and for the period from commencement of operations on  March 27, 2003 through September 30, 2005 (unaudited)                   |   |
|              | Notes to Condensed  Consolidated Financial Statements (unaudited)                                                                                                                                                                                                 |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 2.           | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                                                                                                                                                                       |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 3.           | Quantitative and Qualitative  Disclosures About Market Risk                                                                                                                                                                                                       |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 4.           | Controls and Procedures                                                                                                                                                                                                                                           |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 5.           | Changes in Articles of  Incorporation or Bylaws                                                                                                                                                                                                                   |   |
|              |                                                                                                                                                                                                                                                              |   |
| **Part II.** | **Other Information**                                                                                                                                                                                                                                             |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 1.           | Legal Proceedings                                                                                                                                                                                                                                                 |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 2.           | Unregistered Sales of Equity  Securities and Use of Proceeds                                                                                                                                                                                                      |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 3.           | Defaults Upon Senior  Securities                                                                                                                                                                                                                                  |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 4.           | Submission of Matters to a  Vote of Security Holders                                                                                                                                                                                                              |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 5.           | Other Information                                                                                                                                                                                                                                                 |   |
|              |                                                                                                                                                                                                                                                              |   |
| Item 6.           | Exhibits Index                                                                                                                                                                                                                                                    |   |
|              |                                                                                                                                                                                                                                                              |   |
| Signatures        |                                                                                                                                                                                                                                                              |   |
|              |                                                                                                                                                                                                                                                              |   |
| Exhibits          |                                                                                                                                                                                                                                                              |   |

 

2

----

 

**PREMIER ENTERTAINMENT BILOXI LLC**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                          | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-------------------|-------------|------------------|------------|
| ** **                                          | ** ** | **2005**          | ** **  | **2004**         | ** ** |
| ** **                                          | ** ** | **(Unaudited)**   | ** **  | ** **       | ** ** |
| **ASSETS**                                          |       |              |        |             |       |
| Current  assets:                                    |       |              |        |             |       |
| Cash                                                |       | $                 | 4,982,435   |             | $          | 5,215 |   |
| Government securities - restricted                  |       | 8,366,981         |        | 25,344,412       |       |
| Accounts receivable                                 |       | 151,704           |        | 439,263          |       |
| Prepaid expenses                                    |       | 2,307,427         |        | 40,632           |       |
| Other current assets                                |       | 28,600            |        | —           |       |
| Total current assets                                |       | 15,837,147        |        | 25,829,522       |       |
|                                                |       |              |        |             |       |
| Property and  equipment, net of impairment charge   |       | 94,526,786        |        | 90,490,923       |       |
|                                                |       |              |        |             |       |
| Other non-current  assets:                          |       |              |        |             |       |
| Restricted cash                                     |       | 21,456,373        |        | 100,267,928      |       |
| Accounts receivable - insurance                     |       | 92,947,513        |        | —           |       |
| Other assets, net                                   |       | 6,636,856         |        | 7,722,795        |       |
|                                                |       |              |        |             |       |
| Total assets                                        |       | $                 | 231,404,675 |             | $          | 224,311,168 |   |
|                                                |       |              |        |             |       |
| **LIABILITIES  AND MEMBERS’ EQUITY (DEFICIT)** |       |              |        |             |       |
|                                                |       |              |        |             |       |
| Current  liabilities:                               |       |              |        |             |       |
| Accounts payable                                    |       | $                 | 3,161,005   |             | $          | 108,467 |   |
| Accounts payable - construction in progress         |       | 14,489,415        |        | 9,223,737        |       |
| Accrued interest                                    |       | 5,770,851         |        | 8,580,821        |       |
| Notes payable - current                             |       | 171,023           |        | —           |       |
| Other accrued liabilities                           |       | 1,998,218         |        | 168,866          |       |
| Total current liabilities                           |       | 38,843,226        |        | 18,081,891       |       |
|                                                |       |              |        |             |       |
| Long-term  debt                                     |       | 182,554,810       |        | 168,065,164      |       |
|                                                |       |              |        |             |       |
| Members’  contributed capital                  |       | 52,775,215        |        | 52,775,215       |       |
| Deficit  accumulated during development stage       |       | (29,515,863       | )           | (14,611,102      | )          |
| Total members’ equity                          |       | 23,259,352        |        | 38,164,113       |       |
|                                                |       |              |        |             |       |
| Total  liabilities and members’ equity         |       | $                 | 231,404,675 |             | $          | 224,311,168 |   |

 

See the accompanying notes to the unaudited condensed consolidatedfinancial statements

 

3

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**PREMIER ENTERTAINMENT BILOXI LLC**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(Unaudited)**

 
| ** **                     | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** | **Period from  commencement of  operations on  March 27, 2003** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                     | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005**                                                        | ** ** | **2004** | ** ** | **through Sept. 30, 2005** | ** ** |
| ** **                     | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Preopening  expenses           |       | $                                     | 6,289,820  |                                 | $          | 483,524                                                         |       | $ | 8,574,214 |   | $ | 1,238,001 |   | $ | 11,416,174 |   |
| Writedowns                     |       | 97,977,513                            |       | —                               |       | 97,977,513                                                      |       | — |   | 97,977,513 |   |
| Insurance  recoveries          |       | (97,947,513                           | )          | —                               |       | (97,947,513                                                     | )          | — |   | (97,947,513 | ) |
| Depreciation  and amortization |       | 122,129                               |       | 15,416                               |       | 186,827                                                         |       | 42,771 |   | 252,933 |   |
|                           |       |                                  |       |                                 |       |                                                            |       |   |   |   |   |
| Loss from  operations          |       | (6,441,949                            | )          | (498,940                             | )          | (8,791,041                                                      | )          | (1,280,772 | ) | $ | (11,699,107 | ) |
|                           |       |                                  |       |                                 |       |                                                            |       |   |   |   |   |
| Other income  (expense):       |       |                                  |       |                                 |       |                                                            |       |   |   |   |   |
| Interest  expense              |       | (2,900,760                            | )          | (3,820,296                           | )          | (7,219,727                                                      | )          | (10,234,737 | ) | (20,728,467 | ) |
| Interest  income               |       | 170,174                               |       | 459,847                              |       | 1,106,008                                                       |       | 1,126,679 |   | 2,911,711 |   |
|                           |       |                                  |       |                                 |       |                                                            |       |   |   |   |   |
| Total other  expense           |       | (2,730,587                            | )          | (3,360,449                           | )          | (6,113,719                                                      | )          | (9,108,058 | ) | (17,816,755 | ) |
|                           |       |                                  |       |                                 |       |                                                            |       |   |   |   |   |
| Net loss                       |       | $                                     | (9,172,536 | )                                    | $          | (3,859,389                                                      | )          | $ | (14,904,760 | ) | $ | (10,388,830 | ) | $ | (29,515,863 | ) |

 

See the accompanying notes to the unaudited condensed consolidatedfinancial statements

 

4

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**PREMIER ENTERTAINMENT BILOXI LLC**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Unaudited)**

 
| ** **                                                                | ** ** | **Nine months ended  September 30,** | ** **  | **Period from  commencement of  operations on  March 27, 2003** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------|-------------|-----------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **2005**                             | ** **  | **2004**                                                        | ** ** | **through Sept. 30, 2005** | ** ** |
| ** **                                                                | ** ** | ** **                           | ** **  | ** **                                                      | ** ** | ** ** | ** ** |
| Operating  activities                                                     | ** ** | ** **                           | ** **  | ** **                                                      | ** ** | ** ** | ** ** |
| Net loss                                                                  |       | $                                    | (14,904,760 | )                                                               | $          | (10,388,830 | ) | $ | (29,515,863 | ) |
| Depreciation and amortization                                             |       | 186,827                              |        | 42,771                                                          |       | 252,933 |   |
| Amortization of deferred financing costs,  discount and repayment premium |       | 877,860                              |        | 1,002,375                                                       |       | 2,347,433 |   |
| Writedowns                                                                |       | 97,977,513                           |        | —                                                          |       | 97,977,513 |   |
| Insurance recoveries                                                      |       | (97,947,513                          | )           | —                                                          |       | (97,947,513 | ) |
| Changes in prepaid assets                                                 |       | (3,566,536                           | )           | —                                                          |       | (4,046,431 | ) |
| Changes in other operating assets and  liabilities                        |       | (987,927                             | )           | 775,426                                                         |       | 1,288,303 |   |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Net cash used in operating activities                                     |       | (18,364,536                          | )           | (8,568,258                                                      | )          | (29,643,625 | ) |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Investing  activities                                                     |       |                                 |        |                                                            |       |   |   |
| Purchases of property, plant and equipment                                |       | (73,627,229                          | )           | (29,095,715                                                     | )          | (145,621,770 | ) |
| Purchase of government securities                                         |       | —                               |        | (32,946,442                                                     | )          | (32,946,442 | ) |
| Sales of government securities                                            |       | 16,977,431                           |        | (443,777                                                        | )          | 25,051,960 |   |
| Acquisition of intangibles                                                |       | —                               |        | 8,074,529                                                       |       | (965,672 | ) |
| Decrease (increase) in restricted cash                                    |       | 78,811,555                           |        | (113,170,714                                                    | )          | (20,911,327 | ) |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Net cash provided by (used in) investing  activities                      |       | 22,161,757                           |        | (167,582,119                                                    | )          | (175,393,251 | ) |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Financing  activities                                                     |       |                                 |        |                                                            |       |   |   |
| Increase in deferred financing costs                                      |       | (70,000                              | )           | (6,105,890                                                      | )          | (8,107,543 | ) |
| Increase in line of credit                                                |       | 1,250,000                            |        | —                                                          |       | 1,250,000 |   |
| Proceeds from long-term debt                                              |       | —                               |        | 168,111,046                                                     |       | 202,019,312 |   |
| Capital contribution                                                      |       | —                               |        | 15,180,810                                                      |       | 15,180,810 |   |
| Change in restricted cash                                                 |       | —                               |        | (1,038,175                                                      | )          | (1,017,545 | ) |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Net cash provided by financing activities                                 |       | 1,180,000                            |        | 176,147,791                                                     |       | 210,019,312 |   |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Net change  in cash                                                       |       | 4,977,220                            |        | (2,586                                                          | )          | 4,982,435 |   |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Cash at  beginning of period                                              |       | 5,215                                |        | 16,908                                                          |       | — |   |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Cash at end  of period                                                    |       | $                                    | 4,982,435   |                                                            | $          | 14,322 |   | $ | 4,982,435 |   |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Supplemental  disclosure of cash flow information:                        |       |                                 |        |                                                            |       |   |   |
|                                                                      |       |                                 |        |                                                            |       |   |   |
| Cash paid  during the period for: Interest                                |       | $                                    | 17,200,000  |                                                            | $          | 8,982,222 |   | $ | 26,182,222 |   |

 

5

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**PREMIERENTERTAINMENT BILOXI LLC**

**(ADEVELOPMENT STAGE COMPANY)**

** **

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                                                                                   | ** ** | **Nine months ended  September 30,** | ** ** | **Period from  commencement of  operations on  March 27, 2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                   | ** ** | **2005**                             | ** ** | **2004**                                                        | ** ** | **through Sept. 30, 2005** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                   | ** ** | ** **                           | ** ** | ** **                                                      | ** ** | ** ** | ** ** |
| Supplemental schedule of non-cash investing  and financing activities:                                                                                                                                                                                                                                                       |       |                                 |       |                                                            |       |   |   |
|                                                                                                                                                                                                                                                                                                                         |       |                                 |       |                                                            |       |   |   |
| Construction costs funded through accounts  payable                                                                                                                                                                                                                                                                          |       | $                                    | 14,489,415 |                                                            | $          | 2,954,520 |   | $ | 14,489,415 |   |
|                                                                                                                                                                                                                                                                                                                         |       |                                 |       |                                                            |       |   |   |
| Purchase of property, plant and equipment  funded through notes payable                                                                                                                                                                                                                                                      |       | $                                    | 13,252,714 |                                                            | $          | — |   | $ | 13,252,714 |   |
|                                                                                                                                                                                                                                                                                                                         |       |                                 |       |                                                            |       |   |   |
| During the nine months ended  September 30, 2004, AA Capital converted to equity the unpaid principal  outstanding under the loan and security agreement of $34,819,190 plus accrued  interest of $2,775,216, and made a cash contribution of $15,180,810 resulting  in additional member’s equity of $52,775,216. |       |                                 |       |                                                            |       |   |   |

 

See the accompanying notes to the unaudited condensed consolidatedfinancial statements

 

6

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**PREMIER ENTERTAINMENT BILOXI LLC**

**and**

**PREMIER FINANCE BILOXI CORP.**

**(A DEVELOPMENT STAGE COMPANY)**

 

**Notes to Unaudited Condensed Consolidated FinancialStatements**

 

1.             Basis of Presentation

 

Theaccompanying condensed consolidated financial statements should be read inconjunction with the audited consolidated financial statements for the yearended December 31, 2004 and the period from the commencement of operationson March 27, 2003 through December 31, 2004 filed with the SecuritiesExchange Commission in March 2005. In the opinion of management, alladjustments (consisting of normal recurring accruals) necessary for a fairpresentation have been included.  Theresults of operations for the three months ended and nine months ended September 30,2005 and 2004 and the period from the commencement of operations on March 27,2003 through September 30, 2005 do not necessarily indicate the resultsthat may be expected for the full year through December 31, 2005.  The condensed consolidated statements of operationsfor nine months ended September 30, 2004, and cash flows for the ninemonths ended September 30, 2004, have been restated to correct an error inthe calculation of capitalized interest.

 

PremierFinance Biloxi Corp. (“Premier Finance”) was incorporated in October 2003as a Delaware corporation and is a wholly-owned subsidiary of PremierEntertainment Biloxi LLC (the “Company”). Under Mississippi law, certainexpenditures are exempt from sales tax if purchased with the proceeds fromindustrial development revenue bonds issued by the Mississippi FinanceCorporation.  Premier Finance was formedto fund the capital expenditures that qualify for the tax-exempt status.  At September 30, 2005, Premier Financehad cash of approximately $4,900 and a payable to the parent, PremierEntertainment Biloxi LLC for a similar amount. Premier Finance’s assets and operations are included in the condensedconsolidated balance sheets and statements of operations and all significantinter-company balances and transactions have been eliminated.

 

Going Concern and Management’s Plans

 

The Company has incurred a loss from operations of $29.5million for the period from the commencement of operations on March 27,2003 through September 30, 2005. After receiving all required Mississippi Gaming Commission approvals on August 25,2005 and a Temporary Certificate of Occupancy on August 26, 2005, theMississippi Gaming Commission ordered the Hard Rock Hotel & CasinoBiloxi to temporarily cease operations on August 28, 2005 in anticipationof Hurricane Katrina and in conjunction with the mandatory evacuation orderedby the Harrison County Department of Civil Defense. On August 29, 2005,Hurricane Katrina directly impacted the property, causing the Company toimmediately suspend operations.  TheCompany is working closely with its insurance carriers to settle its claim andhas settled with its primary insurance carrier for the full $25.0 millioninsurance policy (see Note 3). Although the Company believes it has sufficient insuranceproceeds to repair the damage caused by Hurricane Katrina and reconstruct itscasino, the construction risks inherent in such a project may make it unable tocomplete the project on time and within budget. Once the casino reopens, theCompany must generate sufficient revenue to cover operating expenses and debtservice costs. These conditions raise substantial doubt about the Company’sability to continue as a going concern.

 

To date, the Company’s operations andpre-development activities relating to the property have been funded by the $160.0million in principal amount of 10 3⁄4% First Mortgage Notes (the “Notes”), $10.0million from Rank America Inc. in the form of a junior subordinated note, $52.8million of members’ equity through conversion of the unpaid principal andaccrued interest on the loan and security agreement plus an incremental cashcontribution, $13.3 million  from afinancing agreement with a slot machine vendor and $1.3 million drawn on a lineof credit (See Note 7). The commitments due under these debt agreements mayreduce the availability of the Company’s cash-flow to fund working capital,capital expenditures, development projects and other general operatingrequirements which could delay the redevelopment of the project. The Companybelieves it has sufficient insurance proceeds to reconstruct its casino project;however, if the Company suffers delay in its reconstruction efforts, this wouldmaterially and adversely affect the Company’s business, financial condition,results of operations, and cash flows.

 

7

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Use of Estimates 

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the amounts reported in the financial statementsand accompanying notes. The Company has made estimates regarding the actualvalue of property and equipment that was destroyed during Hurricane Katrina aswell as the amount of insurance proceeds it expects to receive.  Actual results could differ from thoseestimates.

 

Reclassification

 

Theconsolidated financial statements for the prior year reflect certainreclassifications to conform to the current year presentation.

 

2.             GovernmentSecurities - Restricted

 

InFebruary 2004, the Company invested $32.9 million in U.S. Treasurysecurities in accordance with the Disbursement Agreement with U.S. Bank asdisbursement agent. The investment is classified as held to maturity, and isrecorded as government securities at its acquisition cost including accruedinterest at September 30, 2005.  Theinvestment plus the interest earned will be used to pay the first four interestpayments on the Notes as required by the Disbursement Agreement. The Company hasmade three interest payments on the Notes as required. As of September 30,2005, the balance in this account was $8.4 million.

 

3.             Hurricane Katrina 

 

On August 29,2005, the Company’s casino wasdestroyed and the casino related facilities, low-rise building, hotel tower andparking garage sustained significant damage as a result of HurricaneKatrina.  The Company believes all damages sustained at Hard Rock Hotel &Casino Biloxi are covered under a “Weather Catastrophe Occurrence,” as definedin the primary coverage policy and that the full $181.5 million limit of thepolicies is available to restore the property to its condition immediatelypreceding Hurricane Katrina. The Company has a 3.0% deductible on its coverage,but purchased three separate additional insurance policies to reduce theCompany’s liability related to this deductible to a de minimus sum.  The Company believes that its total exposurefor its deductible expense is anticipated to be no more than $30,000.

 

As of August 15,2005, the Company possessed a comprehensive blanket policy providing $181.5million in coverage for real and personal property, including businessinterruption coverage.  The insurance iscomprised of a $25.0 million primary layer underwritten by Industrial RiskInsurers, a second $25.0 million layer underwritten by several insurancecarriers, and a third excess layer comprised of $131.5 million underwritten byseveral insurance carriers.  Thesyndicated coverage is spread over twelve different insurance carriers, eachwith an A.M. Best Rating of A (Excellent) or better.

 

8

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It is expectedthat insurance will cover the repair or replacement of the Company’s assetsthat suffered loss or damage and certain operating expenses including a profitmargin.  The Company is currently workingwith its construction experts to determine the cost of replacing the propertyand equipment destroyed by the hurricane. The estimate of the damage is a preliminary estimate subject to changeas clean-up and recovery efforts continue and the Company has a betterunderstanding of the full extent of the damage. At the present time, the Company believes that the full replacement costwill be recovered from its insurance carriers. As such, as of September 30, 2005, the Company recorded areceivable of $92.9 million due from the insurance carriers that is made up ofthe following components:

 

| ** **                  | ** ** | **September 30,** | ** ** |
|-----------------------------|------------|-------------------|------------|
| ** **                  | ** ** | **2005**          | ** ** |
|                        |       |              |       |
| Property and  equipment     |       | $                 | 96,039,300 |   |
| Inventory  and other assets |       | 1,938,213         |       |
|                        |       | $                 | 97,977,513 |   |
| Less: deductible            |       | 30,000            |       |
| Less: proceeds received     |       | 5,000,000         |       |
|                        |       | $                 | 92,947,513 |   |
|                             |            |                   |            |  |  |  |

 

Property and Equipment Loss

 

The Company continues to work closelywith its insurance carriers and their claims adjusters to ascertain the fullamount of insurance proceeds due to the Company as a result of the damages andlosses it suffered.  Based on currentestimates of damaged property of $96.0 million, the insurance proceeds are expectedto equal or exceed the net book value of the impacted assets. There can be no assurance that they will allagree with the Company’s view or that the Company will obtain all of theseinsurance proceeds.  The Company hasreceived $5.0 million in insurance proceeds as of September 30, 2005.

 

Business InterruptionInsurance Recoveries

 

The Company’s insurance policies alsoprovide coverage for interruption to the Company’s business including lostprofits.  The policies reimburse theCompany for other expenses and costs it has incurred relating to the damagesand losses suffered.  Because the Company’sinsurance policies are not segregated between coverage for property loss andcoverage for business interruption and because the insurance carrier’s practiceto date has been to issue insurance proceeds without segregating insuranceproceeds between property loss and business interruption, the recovery ofactual business interruption expenses incurred will be recorded in theaccompanying consolidated statements of operations in the line item “Insurancerecoveries” when the Company believes it is probable that it will recover thefull amount of the insurance policies.  The business interruption insurance proceedsrelate to the closing of the Hard Rock Hotel & Casino Biloxi from August 28,2005 until reconstruction is complete due to Hurricane Katrina.

 

Inventory and OtherIntangible Assets Writedowns

 

In connection with Hurricane Katrina, theCompany recorded a writedown of $1.9 million in inventory and intangible assetsrelated to a leasehold contract, capitalizedlegal fees and other costs incurred to complete a traffic study in order toacquire its gaming license and the installation of the Hard Rock CaféInternational memorabilia.

 

9

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4.             Restricted Cash

 

Thenet proceeds from the issuance of the Notes, a portion of the equity investmentand the proceeds from the junior subordinated note were deposited into aconstruction disbursement account, an interest reserve account and a tidelandslease reserve account pursuant to the Disbursement Agreement.  The insurance proceeds from Hurricane Katrina(see Note 3) were also deposited into a restricted cash account.  These accounts were pledged to the trustee assecurity for the Company’s obligations under the Notes.  The funds will be disbursed in accordancewith a disbursement agreement (the “Disbursement Agreement”).  At September 30, 2005, the following areclassified as restricted cash:

 

| ** **                 | ** ** | **September 30,** | ** ** |
|----------------------------|------------|-------------------|------------|
| ** **                 | ** ** | **2005**          | ** ** |
|                       |       |              |       |
| Construction  disbursement |       | $                 | 14,419,072 |   |
| Direct  disbursement       |       | 4,954             |       |
| Tidelands  lease reserve   |       | 1,032,347         |       |
| Certificate  of deposit    |       | 1,000,000         |       |
| Insurance  proceeds        |       | 5,000,000         |       |
| Restricted cash            |       | $                 | 21,456,373 |   |

 

5.             Notes Payable, Long-TermDebt and Loan and Security Agreement

 

Long-termdebt consisted of the following which are more fully described below:

 

| ** **                                                     | ** ** | **September 30,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------|------------|-------------------|-------------|------------------|------------|
| ** **                                                     | ** ** | **2005**          | ** **  | **2004**         | ** ** |
|                                                           |       |              |        |             |       |
| 10 3/4%  First Mortgage Notes due 2012, net                    |       | $                 | 158,190,449 |             | $          | 158,048,094 |   |
| 15% Junior  Subordinated Note due 2012, net                    |       | 10,032,669        |        | 10,017,070       |       |
| Variable  rate IGT note payable                                |       | 13,252,715        |        | —           |       |
| Variable rate Senior Secured Reducing Line  of Credit Facility |       | 1,250,000         |        | —           |       |
|                                                           |       | $                 | 182,725,833 |             | $          | 168,065,164 |   |
| Less: current portion                                          |       | (171,023          | )           | —           |       |
|                                                           |       | $                 | 182,554,810 |             | $          | 168,065,164 |   |

 

103/4% First Mortgage Notes due 2012

 

OnJanuary 23, 2004, the Company issued $160.0 million of 10 3/4%First Mortgage Notes due February 1, 2012 in a private placement offeringwhich were subsequently exchanged in an exchange offer registered on Form S-4.The debt outstanding at September 30, 2005 includes an unamortizeddiscount of $1.8 million, which is being amortized over the term of the Notes. TheNotes are senior to all existing and future senior unsecured indebtedness, butare subordinated up to $30.0 million of senior secured indebtedness incurred tofinance the acquisition and installation of furniture, fixtures and equipment. TheNotes are secured by a pledge of the Company’s membership interests andsubstantially all of the existing and future assets, other than furniture,fixtures and equipment purchased with the proceeds of certain otherindebtedness, and cash-on-hand.  Intereston the Notes is payable semiannually on each February 1 and August 1through maturity. The Notes may be redeemed, in whole or in part, at any timeon or after February 1, 2008 at a premium. In addition, up to 35% of theNotes may be redeemed at a premium on or prior to February 1, 2007 withthe net cash proceeds of an initial public offering.  As of September 30, 2005, the Company had$6.1 million of costs, net of accumulated amortization incurred, in connectionwith the private placement.  Thesedeferred financing costs are included in other assets and are being amortizedover the term of the related long-term debt.

 

10

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TheNotes contain covenants.  As of September 30,2005, the Company was in compliance with the covenants contained in the Notes.

 

15%Junior Subordinated Note due 2012

 

Concurrentlywith the issuance of the Notes, the Company borrowed $10.0 million in the formof a junior subordinated note due August 1, 2012 from Rank America, Inc.,an affiliate of The Rank Group Plc, which owns Hard Rock Hotel Licensing, Inc.  Interest on the junior subordinated noteaccrues at a rate of 15% per annum and will be paid semiannually.  If the Company had remained open as planned,the first interest payment would have been due on February 1, 2006.  As a result of Hurricane Katrina, the Companywas ordered to shut down operations by the Mississippi Gaming Commission.  Therefore, the Company is currently workingwith the noteholder to clarify the re-opening date in order to determine wheninterest payments will be due.  TheCompany will be required to pay a repayment premium of 3% of the principalamount of the junior subordinated note when it is repaid.  The Company is accruing the repayment premiumover the term of the junior subordinated note. In the event of a change of control or if the Hard Rock licenseagreement is terminated and the project becomes owned, operated or licensed bya Hard Rock competitor, the Company will be required to repay all amounts dueunder the junior subordinated note agreement. In addition, the Company may be required to make quarterly mandatoryprepayments as calculated under the terms of the junior subordinated note once theCompany reopens the hotel and casino after reconstruction from the HurricaneKatrina damage.

 

IGT Note Payable

 

On January 5, 2005, the Company entered into aCommercial Sales and Security Agreement with International Game Technology (“IGT”)for the financing of certain gaming devices and gaming systems. Pursuant to theagreement, the Company purchased approximately 1,100 slot devices from IGT aswell as software licenses and related equipment for the gaming system. Underthe IGT agreement, interest accrues at the “high Wall Street Journal primelending rate” (6.75% at September 30, 2005) and payments are based on a 60-monthamortization payable in thirty-six (36) monthly installments of principal andaccrued interest with a balloon payment on the thirty-seventh (37th)month of the outstanding remaining principal. The first payment shall be duethirty (30) days from the date of opening or no later than ninety (90) daysfrom date of delivery.  As of September 30,2005, the Company has received $13.3 million in respect to the gaming devicesand has recorded a note payable. Since the majority of the assets purchasedunder this financing agreement were destroyed during Hurricane Katrina andalthough not contractually due, the Company intends to pay off the note withthe proceeds from insurance.

 

SeniorSecured Reducing Line of Credit Facility

 

OnApril 19, 2005, the Company, entered into a Commitment Letter for a $10.0million Senior Secured Reducing Line of Credit Facility (“Credit Facility”)with Hibernia National Bank (“Lead Arranger”) and ORIX Financial Services, Inc.(“Lender”). The Credit Facility will be secured by a security interest incertain collateral purchased by the Company. As set forth in the Commitment Letter, the total term is for a period ofsixty-six months with the initial funding period through December 31, 2005and the secondary funding period defined as the earlier of twelve monthsfollowing the opening of the Hard Rock Hotel & Casino Biloxi forbusiness to the public or March 26, 2007. The Company will have an optionto choose at the time of the initial draw the pricing of one, two, three or sixmonth LIBOR plus a margin of 4.25% or the prime rate plus 1.25%.There are nomaterial relationships between the Company or its affiliates and the LeadArranger or the Lender other than in respect of the Credit Facility.

 

Asof September 30, 2005, $1.3 million has been drawn against this CreditFacility. The remaining undrawn $8.7 million may be available for funding ifadequate collateral is available.  Intereston the Credit Facility accrues at the rate of 4.25% at September 30, 2005.During the initial funding period through December 31, 2005, the Companymakes monthly payments of accrued interest based on the outstanding balance ofthe Credit Facility. On December 31, 2005, the outstanding balance of theCredit Facility will be converted into a fully amortizing, five year term loan(“Initial Term Loan”).  The Company willrepay the Initial Term Loan over twenty (20) quarters by remitting fixedprincipal payments plus accrued interest. During the secondary funding period,the Company will make monthly payments of accrued interest based on theoutstanding balance of the Credit Facility. Upon the earlier of the expirationof the secondary funding period or the aggregate funding of the CreditFacility, the outstanding balance will be converted to a term loan that willamortize over sixteen (16) quarters. The Company will remit scheduled fixedquarterly principal payments plus accrued interest.

 

11

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Other

 

OnJuly 1, 2005, an Irrevocable Letter of Credit was issued by The PeoplesBank in the amount of $1.0 million to comply with the terms and conditions ofthe Licensing Agreement with Hard Rock Hotel Licensing, Inc. by theCompany.  The Letter of Credit wassecured by a certificate of deposit in the amount of $1.0 million for a term of90 days and will automatically renew. The Letter of Credit will be increased to $3.0 million within 90 daysfollowing the reopening of the Hard Rock Hotel & Casino Biloxi afterreconstruction from the Hurricane Katrina damage.

 

6.             Related PartyTransactions

 

Amember of GAR LLC (“GAR”) is the President and Chief Executive Officer of RoyAnderson Corp., the Company’s general contractor.  The Company believes that the terms of theagreement with the contractor are similar to those that could otherwise bereceived from a third party.  Totalpayments on the GMP contract for the period from the commencement of operationson March 27, 2003 through September 30, 2005, were $82.5 million ofwhich $62.3 million was paid directly to a related party.

 

OnSeptember 20, 2005, the Company entered into a new agreement with theCompany’s general contractor to provide various services required as a resultof the destruction caused by Hurricane Katrina. The Company has agreed to paythe contractor fees equal to cost of services plus four percent.  As the extent of the damage and amount ofreconstruction work is uncertain at this stage, the Company is unable toestimate the amounts of fees likely to be incurred under the agreement. Therewere no payments made under the new agreement through September 30, 2005.

 

GAR is the beneficial owner of 100 Class Acommon membership interests in Premier Entertainment Biloxi LLC.  This entitles GAR to elect three of the sixmembers of the Board of Managers and the shared power to dispose or direct thedisposition of such membership interest in the Company.

 

7.             Subsequent Events

 

TheCompany has also reached a settlement agreement of $25.0 million withIndustrial Risk Insurers regarding the $25.0 million primary layer of insurancethat is consistent with the Company’s view that damages sustained are coveredunder a “Weather Catastrophe Occurrence” as defined in the policies.  Of the $25.0 million settlement agreement,$5.0 million was received in the third quarter of 2005 and the remaining $20.0million was received during the fourth quarter of 2005.

 

Asof November 14, 2005, the Company remitted to Roy Anderson Corp, a relatedparty, $1.2 million for work performed under the new agreement to remediatedamage caused by Hurricane Katrina.

 

Inthe middle of October 2005, the Company submitted a constructiondisbursement request to U.S. Bank as trustee and disbursement agent, dated August 26,2005, seeking a disbursement for payment of construction expenses incurredprior to Hurricane Katrina in the amount of approximately $11.4 million.  The construction disbursement request, alongwith the appropriate certifications from the general contractor, the architectand the independent construction consultant, was submitted in compliance withthe Disbursement Agreement and in similar form to eighteen other disbursementrequests submitted by the Company dating back to February 2004, all ofwhich were funded by U.S. Bank per the disbursement agreement.  Nevertheless, on or about October 19,2005, U.S. Bank denied this August 2005 construction disbursement request.  This denial was due, in part, to a positiontaken by an ad hoc committee of noteholders. The Company does not understand the basis for the denial.

 

Consequently,due to the unilateral actions of U.S. Bank as trustee and disbursement agent,the Company has been unsuccessful in its attempt to pay various parties,including vendors, the general contractor and subcontractors, for workperformed in good faith prior to Hurricane Katrina to construct the Hard RockHotel & Casino Biloxi.  In orderto protect the Hard Rock Hotel & Casino Biloxi, the Company’s ongoingreconstruction efforts and to prevent liens from being filed against theproperty, the Company was forced on October 27, 2005 to file a Complaintfor Injunctive Relief against U.S. Bank National Association, as trustee anddisbursement agent under the Notes, in the United States District Court for theSouthern District of Mississippi Southern Division in Gulfport,Mississippi.  The Company is asking thecourt to enforce the disbursement agreement and order the trustee anddisbursement agent to disburse funds due under the properly submitteddisbursement request.  A hearing was heldon November 8, 2005, at which time the judge suggested the parties meet toresolve their disagreement.  The Companyis currently in negotiations with the ad hoc committee of noteholders and the disbursementagent to resolve this disagreement.

 

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**Item 2.****   ****Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

Overview

 

Wewere formed on October 18, 2002 and commenced operations on March 27,2003. There were no assets, liabilities or operations from inception throughthe commencement of operations. Since our formation, we have been in thedevelopment stage.  Our activitiesincluded applying for certain necessary permits, licenses and regulatoryapprovals to enable us to construct and manage the operations of the Hard RockHotel & Casino Biloxi (the “Property”), and development activities inconnection with the Hard Rock Hotel & Casino Biloxi. We own approximately8.5 acres of land on the Mississippi Gulf Coast in Biloxi, Mississippi uponwhich we built the Hard Rock Hotel & Casino Biloxi. In addition, wehave entered into a 20-year licensing agreement with Hard Rock Hotel Licensing, Inc.under which we were granted the right to use and develop the Hard Rock brandname for our hotel and casino resort.

 

Webegan construction of the Property in January 2004.  Construction was complete, and we received all required Mississippi GamingCommission approvals on August 25, 2005 and a Temporary Certificate ofOccupancy on August 26, 2005.  On August 26th,our Ruth’s Chris Steak House restaurant began serving meals.  The Mississippi Gaming Commission ordered theProperty to temporarily cease operations on August 28, 2005 inanticipation of Hurricane Katrina and in conjunction with the mandatory evacuationordered by the Harrison County Department of Civil Defense.  On August 29,2005, Hurricane Katrina destroyed thecasino and damaged the casino related facilities, low-rise building, hoteltower and parking garage causing us to immediately suspend operations.

 

Webelieve that the damage sustained at the Property is covered by ourinsurance.  We believe that we areadequately insured and the insurance proceeds will be used to restore theProperty to its condition immediately preceding Hurricane Katrina.  We have started clearing the debris from theProperty and have begun reconstruction.  Weare currently working with our construction experts to determine the cost ofreplacing the property and equipment destroyed by the hurricane.  The estimate of the damage is a preliminaryestimate subject to change as clean-up and recovery efforts continue and wehave a better understanding of the full extent of the damage.  We are evaluating various constructionalternatives, including operatinga temporary facility and also assessing the ability to operate inside thepresent facility in light of the recentdecision from the Mississippi state legislature that now legalized shore basedgaming within eight hundred feet of the mean tide.

 

TheHard Rock Hotel & Casino Biloxi featured approximately 48,000 square-feetcasino (with approximately 1,500 slot machines, 50 table games and six pokertables), a 318-room hotel, a Hard Rock Cafe, a Hard Rock Live! entertainmentvenue, a Hard Rock retail store, a tropical-themed Hard Rock beach pool,restaurants, a full service fitness spa, a top floor lounge, and a parkinggarage with approximately 1,600 spaces and off-site employee parking ofapproximately 300 spaces, and various other amenities.

 

Inthe middle of October 2005, we submitted a construction disbursementrequest to U.S. Bank as trustee and disbursement agent, dated August 26,2005, seeking a disbursement for payment of construction expenses incurredprior to Hurricane Katrina in the amount of approximately $11.4 million.  On or about October 19, 2005, U.S. bankdenied this August 2005 construction disbursement request.  The denial was due, in part, to a positiontaken by an ad hoc committee of noteholders. We do not understand the basis for the denial.  In order to protect the Hard Rock Hotel &Casino Biloxi, our ongoing reconstruction efforts and to prevent liens frombeing filed against the property, we were forced on October 27, 2005 tofile a Complaint for Injunctive Relief against U.S. Bank National Association,as trustee and disbursement agent under the Notes, in the United StatesDistrict Court for the Southern District of Mississippi Southern Division inGulfport, Mississippi.  A hearing washeld on November 8, 2005, at which time the judge suggested the partiesmeet to resolve their disagreement.  Weare currently in negotiations with the ad hoc committee of noteholders and the disbursementagent to resolve this disagreement.

 

Inaddition, we featured a Ruth’s Chris Steakhouse, the legendary upscalesteakhouse group founded in New Orleans over 40 years ago, located near theentrance to the gaming facility.  Ben &Jerry’s Homemade Ice Cream and Starbucks Coffee Company were featured in theretail promenade area.

 

PremierFinance Biloxi Corp. is serving as the co-issuer of the $160.0 million Notesdue February 1, 2012 and will not have any material assets or operations,other than in connection with the Mississippi Business Finance Corporationfinancing. See “—Liquidity and Capital Resources.”

 

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Resultsof Operations

 

Weare in the development stage as defined by accounting principles in the UnitedStates of America and do not have any historical operating results other thancosts incurred in designing and developing the Hard Rock Hotel &Casino Biloxi. For the period from commencement of operations on March 27,2003 through September 30, 2005, we incurred a total of $29.5 million ofnet interest expense and non-capitalized design, development and pre-openingexpenses in connection with the Hard Rock Hotel & Casino Biloxi. Forthe same time period, interest expense was $20.7 million, interest income was $2.9million and pre-opening and other expenses were $11.7 million. Pre-openingcosts primarily relate to licensing expenses, transaction fees, legal fees, andorganizational costs to prepare us for becoming a gaming enterprise. Otherexpenses include the writedowns, insurance recoveries related to Hurricane Katrina thatoccurred in the third quarter of 2005 as well as depreciation andamortization.  We expect that future pre-openingexpenses will be reimbursed from proceeds from our business interruptioninsurance policy related to Hurricane Katrina. These expenses will be reimbursed until we complete reconstruction ofthe Hard Rock Hotel & Casino Biloxi. Our historical operating resultswill not be indicative of future results because activities previouslyundertaken have been development stage in nature and planned future activitiesinclude the operation of a new gaming facility.

 

Forthe three months ended September 30, 2005, pre-opening expenses were $6.3million compared to the same three months ended September 30, 2004, of $0.5million. This $5.8 million increase in pre-opening expense is related toadditional payroll, office rental and other general expenses as we opened the Propertyas well as expenses incurred in the recovery from Hurricane Katrina. Of the $6.3million in pre-opening expenses, $3.9 million were incurred after HurricaneKatrina impacted our Property on August 29, 2005 and we believe will bereimbursed from the business interruption insurance proceeds.  The business interruption insurance proceeds receivedfor actual expenses incurred will be recorded when we believe it is probablethat we will recover the full amount of the insurance policies.  The $98.0 million in writedowns relates tothe property and equipment damaged by Hurricane Katrina as well as inventoryand other intangible assets.  The $97.9million in insurance recoveries is the amount due from insuranceproceeds related to Hurricane Katrina damaged property and equipment.  Depreciation and amortization expense for thethree months ended September 30, 2005 increased $0.1 million over thecomparable prior year period as a result of the increased amortization ofintangibles as well as the increased depreciation based on the value of assetsplaced into service. Totalinterest expense incurred for the three months ended September 30, 2005and 2004 was $2.9 million and $3.8 million, respectively, of which $2.4 millionand $1.5 million, respectively, were capitalized.

 

Forthe nine months ended September 30, 2005, pre-opening expenses were $8.6million compared to the same nine months ended September 30, 2004, of $1.2million. This $7.4 million increase in pre-opening expenses is related toadditional payroll, office rental and other general expenses as we opened the Propertyas well as expenses incurred in the recovery from Hurricane Katrina. Of the $8.6million in pre-opening expenses, $3.9 million were incurred after HurricaneKatrina impacted our Property on August 29, 2005 and we believe will bereimbursed from the business interruption insurance proceeds.  The business interruption insurance proceeds receivedfor actual expenses incurred will be recorded when we believe it is probablethat we will recover the full amount of the insurance policies.  The $98.0 million in writedowns relates tothe property and equipment damaged by Hurricane Katrina as well as inventoryand other intangible assets.  The $97.9million in insurance recoveries is the amount due from insurance proceedsrelated to Hurricane Katrina damaged property and equipment.  Depreciation and amortization expense for thenine months ended September 30, 2005 increased $0.2 million over thecomparable prior year period as a result of the increased amortization ofintangibles as well as the increased depreciation based on the value of assetsplaced into service. Totalinterest incurred for the nine months ended September 30, 2005 and 2004was $7.2 million and $10.2 million, respectively, of which $8.1 millionand $3.9 million, respectively, were capitalized.

 

Liquidityand Capital Resources

 

Weobtained total debt financing of $170.0 million less bond discount of $1.8million, plus a capital contribution of $52.8 million which includes $2.8million of accrued interest. As of September 30, 2005, the Company hasexpended cash of approximately $8.1 million for financing costs, $145.6 millionfor property and equipment, $1.0 million for the purchase of intangibles, $26.2million in cash interest payments, and $11.4 million on pre-opening expenses,offset by $2.9 million interest income received.  Remaining in the restricted cash andgovernment securities at September 30, 2005 was approximately $29.8million. The Company has $11.4 million remaining to pay under its GMP contract.

 

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Weused the gross proceeds we obtained on January 23, 2004 from the offeringof the Notes together with an equity investment from AA Capital of $52.8million, a junior subordinated note of $10.0 million from Rank America, Inc.,an affiliate of The Rank Group Plc and $13.3 million in furniture, fixtures andequipment financing to fund the costs associated with the Hard Rock Hotel &Casino Biloxi. We currently have a $10.0 million Senior Secured Reducing Lineof Credit Facility.  We have drawn $1.3million from the Credit Facility as of September 30, 2005.  The remaining undrawn $8.7 million may beavailable for funding if adequate collateral is available.

 

On August 29,2005, we sustained an estimated $98.0 million in property, equipment, inventoryand other asset losses at Hard Rock Hotel & Casino Biloxi due toHurricane Katrina. We believe these damages are covered under our insurance policiesand that the insurance proceeds will be sufficient to, amongst other things,rebuild the casino and repair, replace and remediate the related casinofacilities with similar quality and features; and clean-up and repair thelow-rise building, hotel tower and parking garage to its condition immediatelypreceding Hurricane Katrina. We are workingclosely with our insurance carriers and their claims adjusters to ascertain thefull amount of insurance proceeds due to us as a result of the damages andlosses we suffered.  Based on currentestimates, the insurance proceeds are expected to equal or exceed the net bookvalue of the impacted assets.  The estimate of the damage is a preliminaryestimate subject to change as clean-up and recovery efforts continue and wehave a better understanding of the full extent of the damage.  Should the replacement cost exceed the$98.0 million book value of lost property, equipment, inventory and otherassets, we believe that we have sufficient insurance proceeds to fund thedifference.  There can be no assurance that the insurance carriers will all agree withour view or that we will obtain all of these insurance proceeds.  We have received $5.0 million in insuranceproceeds as of September 30, 2005.

 

In addition, our insurance policies alsoprovide coverage for interruption to our business including lost profits.  The policies reimburse us for other expensesand costs we have incurred relating to the damages and losses suffered.  We believe these policies will (1) paydebt service requirements under our Notes through the reconstruction period ; (2) paycertain operating costs related to reopening the property, includingcompensation for senior management and the required fees under the licenseagreement with Hard Rock Licensing, Inc.; and (3) approximate ourestimated income through the reconstruction period.

 

Webelieve that the insurance proceeds, along with the funds escrowed in aninterest reserve account with the trustee, are sufficient to pay interestpayments on February 1, 2006, August 1, 2006 and February 1,2007. We are currently evaluating financing plans for our reconstructionefforts.  To the extent that therebuilding program may require the consents of our noteholders, we intend toobtain such approval on a consensual basis.

 

Webelieve that the funds provided by the sources described above are expected tobe sufficient to design, develop, reconstruct, equip and commence operations ofthe Hard Rock Hotel & Casino Biloxi; however, there is no assurancethat these funds will be sufficient for this purpose.

 

Followingthe reconstruction and opening of the Hard Rock Hotel & Casino Biloxi,we expect to fund our business from operating cash flows.

 

MississippiBond Financing.    Mississippi lawprovides that certain expenditures for materials made in connection withcertain economic development projects in the State of Mississippi, includingthe land-based portion of the Hard Rock Hotel & Casino Biloxi (whichincludes the hotel tower, the parking garage, the low-rise pavilion and thepool area), are exempt from Mississippi’s sales tax if such expenditures arepaid for with proceeds from approved industrial development revenue bondsissued by the Mississippi Business Finance Corporation, (“MBFC”). At September 30,2005, Premier Finance Biloxi, Corp. funded consolidated capital expenditures ofapproximately $34.4 million to qualify for the tax-exempt status.  We saved $1.7 million in sales tax that wewould have otherwise been required to pay in connection with the purchase of materialsused in the construction of the land-based portion of the Hard Rock Hotel &Casino Biloxi. The sales tax savings that we realized reduced the constructioncosts for the project and increased our excess liquidity.

 

Thesale and issuance of the industrial development revenue bonds to PremierFinance Biloxi Corp. and the subsequent loan by the MBFC of the proceedsthereof to us did not result in any additional net indebtedness for us.However, there can be no assurances that any purchases of materials made by oron behalf of us with the proceeds of industrial development revenue bonds willbe exempt from Mississippi sales tax.

 

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CriticalAccounting Policies and Estimates

 

Ourconsolidated financial statements are prepared in accordance with U.S.generally accepted accounting principles that require our management to makeestimates and assumptions that affect reported amounts and related disclosures.  Critical accounting policies andestimates discussed in the Form 10-K for the period ended December 31,2004, have not changed except for the Company’s policy of estimates related tothe writedown of property and equipment and the recovery of insurance proceeds.

 

We recorded the writedown of property andequipment that was destroyed during Hurricane Katrina under the provisions of FinancialAccounting Standards Board’s Interpretation 30 (“FIN 30”), *Accountingfor Involuntary Conversions of Nonmonetary Assets to Monetary Assets aninterpretation of APB Opinion No. 29 Accounting for NonmonetaryTransactions. *FIN 30 clarifiesthe accounting for involuntary conversions of nonmonetary assets (such asproperty and equipment) to monetary assets (such as insurance proceeds).  Under FIN 30, we recognize a gain or losswhen a nonmonetary asset is involuntarily converted to monetary assets eventhough we reinvest or are obligated to reinvest the monetary assets inreplacement nonmonetary assets.

 

As of result of Hurricane Katrina, ournonmonetary assets were destroyed or damaged in one accounting period, and theamount of monetary assets to be received is not determinable until a subsequentaccounting period.  In this case, gain orloss shall be recognized in accordance with FASB Statement No. 5, *Accounting for Contingencies*.  Contingencies that might result in gainsusually are not reflected in the accounts since to do so might be to recognizerevenue prior to its realization.

 

Seasonality

 

Wehave very little operating history. We anticipate that activity at the HardRock Hotel & Casino Biloxi may be modestly seasonal, with strongerresults expected during the second and third quarters due to the relativelyhigher levels of tourism to the Mississippi Gulf Coast during this time of theyear. Results are expected to be lower during the fourth quarter. In addition,our operations may be impacted by adverse weather conditions and fluctuationsin the tourism business. Accordingly, our results of operations may fluctuatefrom quarter to quarter and the results for any one quarter may not beindicative of results for future quarters.

 

**Item 3.****   ****Quantitative and QualitativeDisclosures About Market Risk**

 

Marketrisk is the risk of loss arising from adverse changes in market rates andprices, such as interest rates, foreign currency exchange rates and commodityprices. The borrowings in connection with the offering of the Notes and thejunior subordinated note from Rank America, Inc. are fixed-rateindebtedness. However, the $10.0 million Credit Facility and the $13.3 millionvendor financing with IGT will fluctuate and any increase in the prime lendingrate or LIBOR will have a negative impact on earnings.  Through September 30, 2005, we had notinvested in derivative or foreign currency-based financial instruments.

 

**FORWARD-LOOKING STATEMENTS AND RISK FACTORS**

 

Exceptfor the historical information contained herein, the matters addressed in thisQuarterly Report on Form 10-Q may constitute “forward-looking statements”within the meaning of Section 27 A of the Securities Act of 1933, asamended, and Section 2IE of the Securities and Exchange Act of 1934, asamended. Words such as, but not limited to, “believes”, “expects”, “anticipates”,“estimates”, “intends”, “plans”, “could”, “may”, “should” and similarexpressions are intended to identify forward-looking statements. Suchforward-looking statements, which may include, without limitation, statementsregarding expansion plans, cash needs, cash reserves, liquidity, operating andcapital expenses, financing options, expense reductions, operating results andpending regulatory matters, are subject to a variety of risks and uncertaintiesthat could cause actual results to differ materially from those anticipated bythe Company. From time to time, oral or written forward­looking statements arealso included in the Company’s other periodic reports on Forms l0-K, l0-Q and 8-K,press releases and other materials released to the public.

 

Actualresults may differ materially from those that might be anticipated fromforward-looking statements. This can occur as a result of inaccurateassumptions or as a consequence of known or unknown risks and uncertainties.The Company

 

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undertakesno obligation to publicly update any forward-looking statements, whether as aresult of new information, future events or otherwise. Factors that may causeactual performance of the Company to differ materially from that contemplatedby such forward-looking statements include, among others: (1) the resultsof the damage from Hurricane Katrina and insurance proceeds available to theCompany, (2) the results of the lawsuit filed against the trustee anddisbursement agent, (3) the gaming industry is very competitive andincreased competition from the legalization or expansion of gaming inMississippi or Alabama and the development or expansion of Native Americancasinos in or near the Company’s markets could adversely affect the Company’sprofitability, (4) general construction risks and other factors, some ofwhich are beyond the Company’s control, could prevent the Company from completingits construction and development projects as planned, (5) changes ingaming laws or regulations, (6) changes in federal or state tax laws, (7) changesin the economy, and (8) the additional furniture, fixture, and equipmentfinancing to complete the project and (9) changes in the scope of theproject. Additional factors that could cause actual performance of the Companyto differ materially from that contemplated by such forward-looking statementsare detailed in the Company’s Registration Statement on Form S-4 filedeffective with the Securities Exchange Commission in July 2004.

 

ThePrivate Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safeharbor” provisions for forward ­looking statements. All forward-lookingstatements made in this Quarterly Report on Form 10-Q are made pursuant tothe Act. For more information on the potential factors that could affect theCompany’s operating results and financial condition, review the Company’s otherfilings with the Securities and Exchange Commission.

 

**Item 4.****   ****Controls and Procedures**

 

Anevaluation of the effectiveness of our disclosure controls and procedurespursuant to Exchange Act Rule 13a-15(e) and 15d-15(e) wascarried out under the supervision and with the participation of our management,including our chief operating officer and our acting principal accounting andfinancial officers. Our financial records, computer servers and relatedsoftware were recovered intact after Hurricane Katrina.  In addition, we were able to retain our keyaccounting personnel after the hurricane. Based upon the evaluation, our chief operating officer and our acting chieffinancial and accounting officer have concluded that our disclosure controlsand procedures are effective to ensure that information required to bedisclosed by us in our periodic SEC filings is recorded, processed, summarizedand reported within the time periods specified by the Securities and ExchangeCommission.

 

Therehave been no changes in our internal control over financial reporting (asdefined in the Securities Exchange Act of 1934 Rules 13a-15(f) and15d-15(f)) that occurred during the fiscal quarter ended September 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**Item 5.****   ****Changes in Articles ofIncorporation or Bylaws**

 

None.

 

**Part II.****  ****Other Information**

 

**Item 1.****   ****Legal Proceedings**

 

Inthe middle of October 2005, we submitted a construction disbursementrequest to U.S. Bank as trustee and disbursement agent, dated August 26,2005, seeking a disbursement for payment of construction expenses incurredprior to Hurricane Katrina in the amount of approximately $11.4 million.  The construction disbursement request, alongwith the appropriate certifications from the general contractor, the architectand the independent construction consultant, was submitted in compliance withthe disbursement agreement and in similar form to eighteen other disbursementrequests we submitted dating back to February 2004, all of which werefunded by U.S. Bank per the disbursement agreement.  Nevertheless, on or about October 19,2005, U.S. bank denied this August 2005 construction disbursement request.  This denial was due, in part, to a positiontaken by an ad hoc committee of noteholders. We do not understand the basis for the denial.

 

Consequently,due to the unilateral actions of U.S. Bank as trustee and disbursement agent, wehave been unsuccessful in our attempt to pay various parties, includingvendors, the general contractor and subcontractors, for work performed in goodfaith prior to Hurricane Katrina to construct the Hard Rock Hotel &Casino Biloxi.  In order to protect theHard Rock Hotel & Casino Biloxi, our ongoing reconstruction effortsand to prevent liens from being filed against the property, we were forced on October 27,2005 to file a Complaint for Injunctive Relief against U.S. Bank NationalAssociation, as trustee and

 

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disbursementagent under the $160.0 million 10 3⁄4% First Mortgage Notes due 2012, in theUnited States District Court for the Southern District of Mississippi SouthernDivision in Gulfport, Mississippi.  Weare asking the court to enforce the disbursement agreement and order thetrustee and disbursement agent to disburse funds due under the properlysubmitted disbursement request. A hearing was held on November 8, 2005, atwhich time the judge suggested the parties meet to resolve their disagreement.  We are currently in negotiations with the adhoc committee of noteholders and the disbursement agent to resolve thisdisagreement.

 

**Item 2.****   ****Unregistered Sales of EquitySecurities and Use of Proceeds**

 

None.

 

**Item 3.****   ****Defaults Upon SeniorSecurities**

 

None.

 

**Item 4.****   ****Submission of Matters to aVote of Security Holders**

 

None.

 

**Item 5.****   ****Other Information**

 

None.

 

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**Item 6.Exhibits**

 

EXHIBIT INDEX

 
| **Exhibit** | ** ** | ** **                                                                                                                                          |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description of Exhibit**                                                                                                                          |
|        |       |                                                                                                                                                |
| 10.1*       |       | Commitment  Letter by and among Premier Entertainment Biloxi LLC and Hibernia National  Bank and ORIX Financial Services dated April 19, 2005. |
|        |       |                                                                                                                                                |
| 10.2*       |       | Letter  of Credit issued by The Peoples Bank on July 1, 2005.                                                                                  |
|        |       |                                                                                                                                                |
| 10.3*       |       | Agreement  between the Company and Roy Anderson Corporation, dated September 20,  2005.                                                        |
|        |       |                                                                                                                                                |
| 31          |       | Certification  Pursuant to Section 13a-14 of the Securities Exchange Act.                                                                      |
|        |       |                                                                                                                                                |
| 32          |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                 |

 

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*PreviouslyFiled

 

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**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                          | PREMIER  ENTERTAINMENT BILOXI LLC                                                      |
|-------------------------------|----------------------------------------------------------------------------------------|
|                          | (Registrant)                                                                           |
|                          |                                                                                   |
| Date:  November 14, 2005 | /s/   /   Joseph  L. Billhimer                           |   |
|                          | Joseph  L. Billhimer                                                                   |
|                          | Chief  Operating Officer and acting  chief financial officer/chief  accounting officer |

 

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