**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**FORM10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarter ended March 31, 2005**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from        to         **

 

**PREMIERENTERTAINMENT BILOXI LLC**

**and**

**PREMIERFINANCE 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) |

 

**111 Lameuse Street, Suite 104**

**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 to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports, and (2) has been subject to such filingrequirements for the past 90 days. YES ý NO o

 

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

YESo  NO ý

 

OnMay 13, 2005, the registrant had no shares of common stock outstanding.

 

 

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**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 March 31, 2005 (unaudited) and December 31,  2004                                                                                                                                 |   |
|         | Condensed Consolidated States  of Operations for the Three Months ended March 31, 2005 and 2004  (unaudited) and for the period from commencement of operations on March 27,  2003 through March 31, 2005 (unaudited)     |   |
|         | Condensed Consolidated  Statements of Cash Flows for the Three Months ended March 31, 2005 and  2004 (unaudited) and for the period from commencement of operations on March 27,  2003 through March 31, 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

----

 

**PREMIERENTERTAINMENT BILOXI LLC**

**(ADEVELOPMENT STAGE COMPANY)**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                          | ** ** | **March 31,  2005** | ** **  | **December 31,  2004** | ** ** |
|-----------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                                          | ** ** | **(Unaudited)**          | ** **  | ** **                  | ** ** |
| **ASSETS**                                          |       |                     |        |                        |       |
| Current  assets:                                    |       |                     |        |                        |       |
| Cash                                                |       | $                        | 189,047     |                        | $          | 5,215 |   |
| Government  securities - restricted                 |       | 16,837,390               |        | 25,344,412                  |       |
| Prepaid  expenses                                   |       | 97,951                   |        | 40,632                      |       |
| Other  current assets                               |       | 130,316                  |        | 439,263                     |       |
| Total  current assets                               |       | 17,254,704               |        | 25,829,522                  |       |
|                                                |       |                     |        |                        |       |
| Property and  equipment, net                        |       | 113,295,938              |        | 90,490,923                  |       |
|                                                |       |                     |        |                        |       |
| Other  non-current assets:                          |       |                     |        |                        |       |
| Restricted  cash                                    |       | 77,544,569               |        | 100,267,928                 |       |
| Other  assets, net                                  |       | 7,483,023                |        | 7,722,795                   |       |
|                                                |       |                     |        |                        |       |
| Total assets                                        |       | $                        | 215,578,234 |                        | $          | 224,311,168 |   |
|                                                |       |                     |        |                        |       |
| **LIABILITIES  AND MEMBERS’ EQUITY (DEFICIT)** |       |                     |        |                        |       |
|                                                |       |                     |        |                        |       |
| Current  liabilities:                               |       |                     |        |                        |       |
| Accounts  payable                                   |       | $                        | 36,030      |                        | 108,467    |   |
| Accounts  payable - construction in progress        |       | 7,748,405                |        | 9,223,737                   |       |
| Accrued  interest                                   |       | 4,701,236                |        | 8,580,821                   |       |
| Other  accrued liabilities                          |       | 89,643                   |        | 168,866                     |       |
| Total  current liabilities                          |       | 12,575,314               |        | 18,081,891                  |       |
|                                                |       |                     |        |                        |       |
| Long-term  debt                                     |       | 168,116,318              |        | 168,065,164                 |       |
|                                                |       |                     |        |                        |       |
| Members’  contributed capital                  |       | 52,775,215               |        | 52,775,215                  |       |
| Deficit  accumulated during development stage       |       | (17,888,613              | )           | (14,611,102                 | )          |
| Total  members’ equity                         |       | 34,886,602               |        | 38,164,113                  |       |
|                                                |       |                     |        |                        |       |
| Total  liabilities and members’ equity         |       | $                        | 215,578,234 |                        | $          | 224,311,168 |   |

 

See the accompanying notes to the unauditedcondensed consolidated financial statements

 

3

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**PREMIERENTERTAINMENT BILOXI LLC**

***(A DEVELOPMENTSTAGE COMPANY)***

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                    | ** ** | ** **                            | ** ** | ** **                       | ** ** | **Period from commencement of**       | ** ** |
|-------------------------------|------------|---------------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|
| ** **                    | ** ** | **Three months ended March 31,** | ** ** | **operations on March 27,** | ** ** |
| ** **                    | ** ** | **2005**                              | ** ** | **2004**                         | ** ** | **2003 through March 31,  2005** | ** ** |
| ** **                    | ** ** | **(Unaudited)**                       | ** ** | **(Restated)**                   | ** ** | ** **                            | ** ** |
| Operating  Expenses:          |       |                                  |       |                             |       |                                  |       |
| Preopening  expenses          |       | $                                     | 1,038,660  |                             | $          | 296,499                               |       | $ | 3,946,724 |   |
|                          |       |                                  |       |                             |       |                                  |       |
| Loss from  operations         |       | (1,038,660                            | )          | (296,499                         | )          | (3,946,724                            | )          |
|                          |       |                                  |       |                             |       |                                  |       |
| Other income  (expense):      |       |                                  |       |                             |       |                                  |       |
| Interest  expense             |       | (2,757,298                            | )          | (2,687,313                       | )          | (16,266,038                           | )          |
| Interest  income              |       | 518,447                               |       | 220,596                          |       | 2,324,149                             |       |
|                          |       |                                  |       |                             |       |                                  |       |
| Total other  income (expense) |       | (2,238,851                            | )          | (2,466,717                       | )          | (13,941,889                           | )          |
|                          |       |                                  |       |                             |       |                                  |       |
| Net loss                      |       | $                                     | (3,277,511 | )                                | $          | (2,763,216                            | )          | $ | (17,888,613 | ) |

 

See the accompanying notes to the unauditedcondensed consolidated financial statements

 

4

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**PREMIERENTERTAINMENT BILOXI LLC**

**(ADEVELOPMENT STAGE COMPANY)**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                                                                            | ** ** | ** **                            | ** ** | ** **         | ** ** | **Period from**         | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                            | ** ** | ** **                            | ** ** | ** **         | ** ** | **commencement of**     | ** ** |
| ** **                                                                                                                                                                                                                                                                                                            | ** ** | ** **                            | ** ** | ** **         | ** ** | **operations on March** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                            | ** ** | ** **                            | ** ** | ** **         | ** ** | **27, 2003 through**    | ** ** |
| ** **                                                                                                                                                                                                                                                                                                            | ** ** | **Three months ended March 31,** | ** ** | **March 31,** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                            | ** ** | **2005**                              | ** ** | **2004**           | ** ** | **2005**                | ** ** |
| ** **                                                                                                                                                                                                                                                                                                            | ** ** | ** **                            | ** ** | **(Restated)**     | ** ** | ** **              | ** ** |
| Operating  Activities                                                                                                                                                                                                                                                                                                 |       |                                  |       |               |       |                    |       |
| Net loss                                                                                                                                                                                                                                                                                                              |       | $                                     | (3,277,511 | )                  | $          | (2,763,216              | )          | $ | (17,888,613 | ) |
| Depreciation  and amortization                                                                                                                                                                                                                                                                                        |       | 30,324                                |       | —             |       | 96,429                  |       |
| Amortization  of deferred financing costs, discount and repayment premium                                                                                                                                                                                                                                             |       | 285,511                               |       | 447,818            |       | 1,755,084               |       |
| Changes in  prepaid assets                                                                                                                                                                                                                                                                                            |       | (57,319                               | )          | —             |       | (537,214                | )          |
| Changes in  other operating assets and liabilities                                                                                                                                                                                                                                                                    |       | (6,020,276                            | )          | (143,566           | )          | (4,886,569              | )          |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Net cash  used in operating activities                                                                                                                                                                                                                                                                                |       | (9,039,271                            | )          | (2,458,964         | )          | (21,460,883             | )          |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Investing  Activities                                                                                                                                                                                                                                                                                                 |       |                                  |       |               |       |                    |       |
| Purchases of  property, plant and equipment                                                                                                                                                                                                                                                                           |       | (22,007,277                           | )          | (3,359,089         | )          | (94,001,818             | )          |
| Purchase of  government securities                                                                                                                                                                                                                                                                                    |       | —                                |       | (32,946,442        | )          | (32,946,442             | )          |
| Sales of  government securities                                                                                                                                                                                                                                                                                       |       | 8,507,022                             |       | —             |       | 16,581,551              |       |
| Acquisition  of intangibles                                                                                                                                                                                                                                                                                           |       | —                                |       | (494,404           | )          | (965,672                | )          |
| Decrease  (Increase) in restricted cash                                                                                                                                                                                                                                                                               |       | 22,723,358                            |       | (135,750,006       | )          | (76,999,524             | )          |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Net cash  provided by (used in) investing activities                                                                                                                                                                                                                                                                  |       | 9,223,103                             |       | (172,549,941       | )          | (188,331,905            | )          |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Financing  Activities                                                                                                                                                                                                                                                                                                 |       |                                  |       |               |       |                    |       |
| Increase in  deferred financing costs                                                                                                                                                                                                                                                                                 |       | —                                |       | (7,094,044         | )          | (6,895,020              | )          |
| Proceeds  from long-term debt                                                                                                                                                                                                                                                                                         |       | —                                |       | 168,111,046        |       | 202,713,590             |       |
| Capital  contribution                                                                                                                                                                                                                                                                                                 |       | —                                |       | 15,180,810         |       | 15,180,810              |       |
| Change in  restricted cash                                                                                                                                                                                                                                                                                            |       | —                                |       | (1,187,281         | )          | (1,017,545              | )          |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Net cash  provided by (used in) financing activities                                                                                                                                                                                                                                                                  |       | —                                |       | 175,010,531        |       | 209,981,835             |       |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Net change  in cash                                                                                                                                                                                                                                                                                                   |       | 183,832                               |       | 1,626              |       | 189,047                 |       |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Cash at  beginning of period                                                                                                                                                                                                                                                                                          |       | 5,215                                 |       | 16,908             |       | —                  |       |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Cash at end  of period                                                                                                                                                                                                                                                                                                |       | $                                     | 189,047    |               | $          | 18,534                  |       | $ | 189,047 |   |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Supplemental  disclosure of cash flow information:                                                                                                                                                                                                                                                                    |       |                                  |       |               |       |                    |       |
|                                                                                                                                                                                                                                                                                                                  |       |                                  |       |               |       |                    |       |
| Cash paid during  the period for:                                                                                                                                                                                                                                                                                     |       |                                  |       |               |       |                    |       |
| Interest                                                                                                                                                                                                                                                                                                              |       | $                                     | 8,600,000  |               | $          | —                  |       | $ | 17,582,222 |   |
| Supplemental  schedule of non-cash investing and financing activities:                                                                                                                                                                                                                                           |       |                                  |       |               |       |                    |       |
| During the  quarter ended March 31, 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 tothe unaudited condensed consolidated financial statements

 

5

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**PREMIERENTERTAINMENT BILOXI LLC**

**and**

**PREMIER FINANCE BILOXI CORP.**

**(A DEVELOPMENT STAGE COMPANY)**

 

**Notes to Unaudited Condensed Consolidated FinancialStatements**

 

1.                                       Basis ofPresentation

 

The accompanying condensed consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements for the year ended December 31, 2004 and the periodfrom the commencement of operations on March 27, 2003 through December 31,2004 filed with the Securities Exchange Commission in March 2005. In theopinion of management, all adjustments (consisting of normal recurringaccruals) necessary for a fair presentation have been included.  The results of operations for the three monthsended March 31, 2005 and 2004 and the period from the commencement ofoperations on March 27, 2003 through March 31, 2005 do notnecessarily indicate the results that may be expected for the full year or forthe period from commencement of operations through December 31, 2005.  The condensed consolidated statements ofoperations and cash flows for the three months ended March 31, 2004, havebeen restated to correct an error in the calculation of capitalized interest.

 

Premier Finance Biloxi Corp. (Premier Finance) wasincorporated in October 2003 as a Delaware corporation and is awholly-owned subsidiary of Premier Entertainment Biloxi LLC (the “Company”).Under Mississippi law, certain expenditures are exempt from sales tax ifpurchased with the proceeds from industrial development revenue bonds issued bythe Mississippi Finance Corporation. Premier Finance was formed to fund the capital expenditures that qualifyfor the tax-exempt status.  At March 31,2005, Premier Finance had cash of approximately $300,000 including interestincome and a payable to the parent, Premier Entertainment Biloxi LLC for asimilar amount.  Premier Finance’s assetsand operations are included in the condensed consolidated balance sheet and statementsof operations and all significant inter-company balances and transactions havebeen eliminated.

 

Going Concern andManagement’s Plans

 

The Company has incurred aloss from operations of $17,888,613 for the period from the commencement ofoperations on March 27, 2003 through March 31, 2005 and as of March 31,2005 has not completed construction and opened its hotel and casino operation.Although the Company believes it has raised sufficient capital to construct itscasino project, the fact that the project is not complete and the constructionrisks inherent in such a project may make it unable to complete the project ontime and within budget. Once the casino opens, the Company must generatesufficient revenue to cover operating expenses and debt service costs. Theseconditions raise substantial doubt about the Company’s ability to continue as agoing concern.

 

To date, the Company’soperations and pre-development activities relating to the property have beenfunded by the Company’s privately placed $160,000,000 in principal amount of 103⁄4% First Mortgage Notes (the “Notes), borrowed $10,000,000 from Rank AmericaInc. in the form of a junior subordinated note and raised $52,775,215 ofmembers’ equity through conversion of the unpaid principal and accrued intereston the loan and security agreement plus an incremental cash contribution. TheCompany has entered into agreements to borrow an additional amount to financethe purchase and installation of furniture and equipment prior to opening the project.The commitments due under the debt agreements may reduce the availability ofthe Company’s cash-flow to fund working capital, capital expenditures,development projects and other general operating requirements which could delaythe development and construction of the project. The Company believes it hasraised sufficient capital to open; however, in the event that the Company isrequired to delay the opening of the project, this would materially andadversely affect the Company’s business, financial condition, results ofoperations, and cash-flows.

 

Use of Estimates 

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Actual resultscould differ from those estimates.

 

6

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Reclassification

 

The consolidated financial statements for the prioryear reflect certain reclassifications to conform to the current yearpresentation.

 

2.                                       Long-Term Debt andLoan and Security Agreement

 

On January 23, 2004, the Company issued$160,000,000 aggregate principal amount of Notes due February 1, 2012 in aprivate placement offering.  The debtoutstanding at March 31, 2005 includes an unamortized discount of $1.9million, which is being amortized over the term of the Notes.  The Notes are senior to all existing andfuture senior unsecured indebtedness and subordinated up to $30,000,000 ofsenior secured indebtedness to be incurred to finance the acquisition andinstallation of furniture, fixtures and equipment.  The Notes are secured by a pledge of theCompany’s membership interests and substantially all of the existing and futureassets, other than furniture, fixtures and equipment purchased with theproceeds of certain other indebtedness, cash-on-hand and the casino vesselsuntil they have been delivered and the ship mortgages are recorded.  The Notes may be redeemed, in whole or inpart, at any time on or after February 1, 2008 at a premium.  In addition, up to 35% of the Notes may beredeemed at a premium on or prior to February 1, 2007 with the net cashproceeds of an initial public offering.  Asof March 31, 2005, the Company had $6.5 million of costs, net ofaccumulated amortization incurred, in connection with the privateplacement.  These deferred financingcosts are included in other assets and are being amortized over the term of therelated long-term debt.

 

Concurrently with the issuance of the Notes, theCompany borrowed $10,000,000 in the form of a junior subordinated note due August 1,2012 from Rank America, Inc., an affiliate of The Rank Group Plc, which ownsHard Rock Hotel Licensing, Inc.  Also, atthis time, AA Capital (consisting of AA Capital Equity Fund L.P. and AA CapitalBiloxi Co-Investment Fund L.P.) converted to equity the unpaid principaloutstanding under the loan agreement of $34,819,190 plus accrued interest of$2,775,215, and made a cash contribution of $15,180,810 in exchange for 100Class B common and 100 Class A preferred membership units, resulting in anadditional $52,775,215 of members’ equity.

 

Interest on the junior subordinated note accrues ata rate of 15% per annum and will be paid semiannually once the Company beginsoperations of the hotel and casino.  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 begins operations of the hotel and casino.

 

3.                                       Restricted Cash

 

The net proceeds from the issuance of the Notes, aportion of the equity investment and the proceeds from the junior subordinatednote were deposited into a construction disbursement account, an interestreserve account and a tidelands lease reserve 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”) under concurrencewith the disbursement agent, the trustee and the independent constructionconsultant.  At March 31, 2005,there was $77.5 million in the construction disbursement, the directdisbursement and tidelands lease reserve accounts, which is classified asrestricted cash.

 

4.                                       GovernmentSecurities - Restricted

 

In February 2004, the Company invested$32,946,442 in U.S. Treasury securities in accordance with the DisbursementAgreement. The investment is classified as held to maturity, and is recorded asgovernment securities at its acquisition cost including accrued interest at March 31,2005.  The investment plus the interestearned will be used to pay the first four interest payments on the Notes asrequired by the Disbursement Agreement. On August 1, 2004, the Company madeits first interest payment on the Notes, of which $8.1 million of the USTreasury securities were used.  On February 1,2005, the Company made its second interest payment on the Notes, of which $8.6million of the US Treasury securities were used.

 

7

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5.                                       Related PartyTransactions

 

A member of GAR LLC (“GAR”) is the President andChief Executive Officer of 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 March 31, 2005, were $53.2 million of which$40.8 was paid directly to a related party.

 

GAR is the beneficialowner of 100 Class A common membership interests in Premier EntertainmentBiloxi LLC.  This entitles GAR to electthree of the six members of the Board of Managers and the shared power todispose or direct the disposition of such membership interest in the Company.

 

In March 2005, the Company entered into changeorders with the general contractor totaling approximately $4.2 million. TheCompany believes that the terms of these change orders with the contractor aresimilar to terms that could otherwise be received from a third party and willbe funded out of contingency funds with no increase to the total projectbudget.

 

6.                                       Commitments andContingencies

 

On January 5, 2005, the Company entered into a commercialsales and security agreement with International Game Technology (“IGT”) for thefinancing of up to $15 million for certain gaming devices and gaming systems.

 

The Company will be purchasing approximately 1,110slot devices from IGT as well as software licenses and related equipment forthe gaming system. In partial consideration of this purchase, IGT will financethe slot devices and gaming system at the “high Wall Street Journal primelending rate” based on a 60-month amortization payable in thirty-six (36)monthly installments of principal and accrued interest with a balloon paymenton the thirty-seventh (37th) month of the outstanding remaining principal. Thefirst payment shall be due thirty (30) days from the date of opening of thecasino or no later than ninety (90) days from date of delivery.

 

On March 30, 2005, the Company entered intochange order number 002 and change order number 003 amending the guaranteedmaximum price (the “GMP”) with the general contractor totaling $4.2million.  Change order number 002 isdirectly related to additional costs associated with change order number001.  Change order number 003 is relatedthe build out of space that will be leased to Ruth’s Chris Steakhouse.

 

7.                                       Subsequent Events

 

On April 19, 2005, the Company, entered into aCommitment Letter for a $10 million Senior Secured Reducing Line of CreditFacility (“Credit Facility”) with Hibernia National Bank (“Lead Arranger”) andORIX Financial Services, Inc. (“Lender”). The Credit Facility will be securedby a security interest in certain collateral purchased with the CreditFacility.

 

As set forth in the Commitment Letter, the totalterm is for a period of sixty-six months with the initial funding perioddefined as the earlier of six months from the date of the first advance of theinitial funding or December 31, 2005 and the secondary funding perioddefined as the earlier of twelve months following the opening of the Hard RockHotel & Casino Biloxi for business to the public or eighteen months fromthe date of the first advance of the initial funding period.

 

The Company will have an option to choose at thetime of the initial draw the pricing of one, two, three or six month LIBOR plusa margin of 4.25% or the prime rate plus 1.25%.

 

There are no material relationships between theCompany or its affiliates and the Lead Arranger or the Lender other than inrespect of the Credit Facility.

 

8

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

 

Overview

 

We were formed on October 18, 2002 andcommenced operations on March 27, 2003. There were no assets, liabilitiesor operations from inception through the commencement of operations. Since ourformation, we have been in the development stage. Our activities includedapplying for certain necessary permits, licenses and regulatory approvals toenable us to construct and manage the operations of the Hard Rock Hotel &Casino Biloxi (the Property), and development activities in connection with theHard Rock Hotel & Casino Biloxi. We own approximately 8.5 acres of land onthe Mississippi Gulf Coast in Biloxi, Mississippi upon which we are buildingthe Hard Rock Hotel & Casino Biloxi. In addition, we have entered into a20-year licensing agreement with Hard Rock Hotel Licensing, Inc. under which wewere granted the right to use and develop the Hard Rock brand name for ourhotel and casino resort. We began construction in January 2004.  As of March 31, 2005, the percentage ofconstruction contract work completed is approximately 72%.  The project is currently on budget and on schedule toopen in the third quarter of 2005.

 

We anticipate the Hard Rock Hotel & CasinoBiloxi will be approximately 388,000 square-foot,featuring a casino (with approximately 1,500 slot machines, 50 table games and sixpoker tables), a 318-room hotel, a Hard Rock Cafe, a Hard Rock Live! entertainment venue, a Hard Rock retail store, atropical-themed Hard Rock beach pool, restaurants, a full service fitness spa,a top floor lounge, and a parking garage with approximately 1,600 spaces, andvarious other amenities. We expect to open the Hard Rock Hotel & CasinoBiloxi in the third quarter of 2005.

 

We will feature a Ruth’s Chris Steakhouse, thelegendary upscale steakhouse group founded in New Orleans over 40 years ago,located near the entrance to the gaming facility.  Ben & Jerry’s Homemade Ice Cream andStarbucks Coffee Company will be featured in the retail promenade area.

 

Premier Finance Biloxi Corp. is serving as the co-issuerof the $160.0 million Notes due February 1, 2012 and will not have anymaterial assets or operations, other than in connection with the MississippiBusiness Finance Corporation financing. See “—Liquidity and Capital Resources.”

 

Results of Operations

 

We are in the development stage and do not have anyhistorical operating results other than costs incurred in designing anddeveloping the Hard Rock Hotel & Casino Biloxi. For the period fromcommencement of operations on March 27, 2003 through March 31, 2005,we incurred a total of $17.9 million of net interest expense andnon-capitalized design, development and pre-opening expenses in connection withthe Hard Rock Hotel & Casino Biloxi. For the same time period, interestexpense was $16.3 million. These costs primarily relate to licensing expenses,transaction fees, legal fees, interest expense and organizational costs toprepare us for becoming a gaming enterprise, which the majority representsinterest expense. We expect these pre-opening losses to continue and toincrease until operations commence with the planned opening of the Hard RockHotel and Casino Biloxi in the third quarter of 2005. Our historical operatingresults will 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.

 

For the three months ended March 31, 2005,pre-opening expenses were $1.0 million compared to the same three months ended March 31,2004, of $.3 million.  This $.7 millionincrease in pre-opening expense is related to additional payroll, office rentaland other general expenses as we progress closer to opening of the project.

 

In March 2005, we entered into change ordernumber 002 and change order number 003 amending the GMP. Change order number002 is directly related to additional costs associated with change order number001.  Change order number 003 is relatedthe build out of space that will be leased from Ruth’s Chris Steakhouse.

 

Highlights of change order No. 002 are as follows:

 

•                  Additional steelfor increased structural bracing for durability during storm surges based uponincreased new wave load analyses from our Structural Engineer.

•                  Additional steeland finishes associated with the redesign of the Porte Cochere to increasefunctionality and traffic flow.

 

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•                  Increased laborcosts associated with the installation of EIFS.

•                  Additionalpainting, flooring, and finishes due to increased square footage and additionalrooms associated with Change Order Number 001.

 

Highlights of change order No. 003 are as follows:

 

•                  The constructioncosts to prepare approximately 7,500 square feet of space for Ruth’s Chris Steakhouse and is capped at $1 million in costto the Company.

 

Aftertaking these change orders into effect, the contingency line item remaining isapproximately $4.2 million. We believe these funds plus excess liquidity ofapproximately $4.6 million is sufficient to complete the Hard Rock Hotel &Casino Biloxi on time and within budget.

 

Liquidity and Capital Resources

 

We obtained total debt financing of $170 millionless bond discount of $2.1 million, plus a capital contribution of $52.8million which includes $2.8 million of accrued interest. As of March 31,2005, the Company has expended approximately $7.6 million for financing costs,$94.0 million for property and equipment, $1.1 million for the purchase ofintangibles, $17.6 million in cash interest payments, and $3.9 million onpre-opening expenses. Remaining in the restricted cash and governmentsecurities at March 31, 2005 was approximately $94.0 million. The Companyhas $36.5 million remaining to pay under its GMP contract, $1.5 million inarchitectural design and permit fees, expects to incur approximately $5.0million in pre-opening expenses, expects to fund additional interest paymentsof $17.2 million, expects to incur $41.8 million in FF&E payments and fundoperating bankrolls of $3.8 million. With the anticipated $17.1 millionFF&E financing, the remaining $5.7 million is expected to be used to fundcash on hand at the time of the casino opening.

 

We will continue to use the gross proceeds weobtained on January 23, 2004 from the offering of the Notes together withan equity investment from AA Capital of $15.1 million, a junior subordinatednote of $10.0 million from Rank America, Inc., an affiliate of The Rank GroupPlc and $17.1 million in furniture, fixtures and equipment financing to fundthe costs associated with the Hard Rock Hotel & Casino Biloxi. The $17.1million in furniture, fixtures and equipment financing has been secured. TheCompany currently has approximately $15 million in vendor financing and hasentered into a Commitment Letter for a $10 million Senior Secured Reducing Lineof Credit Facility.  (SeeNote 6 and Note 7 above.)  TheCompany has not drawn any funds from the Line of Credit as of March 31,2005.

 

The funds provided by the sources described abovewith the additional $17.1 million in FF&E financing are expected to besufficient to design, develop, construct, equip and commence operations of theHard Rock Hotel & Casino Biloxi; however, there is no assurance that thesefunds will be sufficient for this purpose.

 

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

 

Mississippi Bond Financing.    Mississippi law provides that certainexpenditures for materials made in connection with certain economic developmentprojects in the State of Mississippi, including the land-based portion of theHard Rock Hotel & Casino Biloxi (which includes the hotel tower, theparking garage, the low-rise pavilion and the pool area), are exempt fromMississippi’s sales tax if such expenditures are paid for with proceeds fromapproved industrial development revenue bonds issued by the MississippiBusiness Finance Corporation, (MBFC). Up to $60.0 million of our expected costsfor the Hard Rock Hotel & Casino Biloxi could be eligible for this program.We have submitted an application to the MBFC and have received approval of ourapplication.

 

At March 31, 2005, Premier Finance Biloxi,Corp. funded consolidated capital expenditures of approximately $17.5 millionto qualify for the tax-exempt status.  Weexpect to save up to $2.0 million in sales tax that we would have otherwisebeen required to pay in connection with purchasing materials to be used in theconstruction of the land-based portion of the Hard Rock Hotel & CasinoBiloxi. Any such sales tax savings that we are able to realize will reduce theconstruction costs for the project and will increase our excess liquidity.

 

The sale and issuance of the industrial developmentrevenue bonds to Premier Finance Biloxi Corp. and the subsequent loan by theMBFC of the proceeds thereof to us did not result in any additional netindebtedness for us. However, there can be no 

 

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assurances that any purchasesof materials made by or on behalf of us with the proceeds of industrialdevelopment revenue bonds will be exempt from Mississippi sales tax.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements are preparedin accordance with U.S. generally accepted accounting principles that require ourmanagement to make estimates and assumptions that affect reported amounts andrelated disclosures.   Criticalaccounting policies and estimates discussed in the Form 10-K for the periodended December 31, 2005, have not changed.

 

Seasonality

 

We have no operating history. We anticipate thatactivity at the Hard Rock Hotel & Casino Biloxi may be modestly seasonal,with stronger results expected during the second and third quarters due to therelatively higher levels of tourism to the Mississippi Gulf Coast during thistime of the year. Results are expected to be lower during the fourth quarter.In addition, our operations may be impacted by adverse weather conditions andfluctuations in the tourism business. Accordingly, our results of operationsmay fluctuate from quarter to quarter and the results for any one quarter maynot be indicative of results for future quarters.

 

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

 

Market risk is the risk of loss arising from adversechanges in market rates and prices, such as interest rates, foreign currencyexchange rates and commodity prices. The borrowings in connection with theoffering of the Notes and the junior subordinated note from Rank America, Inc.are fixed-rate indebtedness. However, the $10 million Credit Facility and the$15 million vendor financing with IGT will fluctuate and any increase in theprime lending rate or LIBOR will have a negative impact on earnings.  Through March 31, 2005, we had notinvested in derivative or foreign currency-based financial instruments.

 

**FORWARD-LOOKING STATEMENTS AND RISKFACTORS**

 

Except for the historical information containedherein, the matters addressed in this Quarterly Report on Form 10-Q mayconstitute “forward-looking statements” within the meaning of Section 27 Aof the Securities Act of 1933, as amended, and Section 2IE of theSecurities and Exchange Act of 1934, as amended. Words such as, but not limitedto, “believes”, “expects”, “anticipates”, “estimates”, “intends”, “plans”, “could”,“may”, “should” and similar expressions are intended to identifyforward-looking statements. Such forward-looking statements, which may include,without limitation, statements regarding expansion plans, cash needs, cashreserves, liquidity, operating and capital expenses, financing options, expensereductions, operating results and pending regulatory matters, are subject to avariety of risks and uncertainties that could cause actual results to differmaterially from those anticipated by the Company. From time to time, oral orwritten forward ­looking statements are also included in the Company’s otherperiodic reports on Forms l0-K, l0-Q and 8-K, press releases and othermaterials released to the public.

 

Actual results may differ materially from those thatmight be anticipated from forward-looking statements. This can occur as aresult of inaccurate assumptions or as a consequence of known or unknown risksand uncertainties. The Company undertakes no obligation to publicly update anyforward-looking statements, whether as a result of new information, futureevents or otherwise. Factors that may cause actual performance of the Companyto differ materially from that contemplated by such forward-looking statementsinclude, among others: (1) 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, (2) general construction risks and other factors, some of whichare beyond the Company’s control, could prevent the Company from completing itsconstruction and development projects as planned, (3) changes in gaming laws orregulations, (4) changes in federal or state tax laws, (5) changes in theeconomy, and (6) the additional furniture, fixture, and equipment financing tocomplete the project. Additional factors that could cause actual performance ofthe Company to differ materially from that contemplated by such forward-lookingstatements are detailed in the Company’s Registration Statement on Form S-4filed effective with the Securities Exchange Commission in July 2004.

 

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The Private Securities Litigation Reform Act of 1995(the “Act”) provides certain “safe harbor” provisions for forward ­lookingstatements. All forward-looking statements made in this Quarterly Report onForm 10-Q are made pursuant to the Act. For moreinformation on the potential factors that could affect the Company’s operatingresults and financial condition, review the Company’s other filings with theSecurities and Exchange Commission.

 

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

 

An evaluation of the effectiveness of our disclosurecontrols and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e)was carried out under the supervision and with the participation of ourmanagement, including our chief executive officer and our principal accountingand financial officers. Based upon that evaluation, our chief executive officerand our chief financial officer have concluded that our disclosure controls andprocedures are effective to ensure that information required to be disclosed byus in our periodic SEC filings is recorded, processed, summarized and reportedwithin the time periods specified by the Securities and Exchange Commission.

 

There have been no changes in our internal controlover financial reporting (as defined in the Securities Exchange Act of 1934Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended March 31,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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

 

Effective January 24, 2005 our operating agreementwas amended to establish 100 units of Class C common non-voting membershipinterest, a new Class of interests. On this same date, sixty-six and two-thirds(66 2/3) of the Class C common membership units were granted to JosephBillhimer, our President and Chief Operating Officer.

 

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

 

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

 

None.

 

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

 

None.

 

**Item 3.****          ****Defaults UponSenior Securities**

 

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*               |       | Commercial  Sales and Security Agreement by and among Premier Entertainment Biloxi LLC  and International Game Technology dated January 5, 2005.                                           |
|                |       |                                                                                                                                                                                            |
| 10.2*               |       | Change  Order Agreement Number 002 effective March 30, 2005 between Premier  Entertainment Biloxi LLC and Roy Anderson Corp.                                                               |
|                |       |                                                                                                                                                                                            |
| 10.3*               |       | Change  Order Agreement Number 003 effective March 30, 2005 between Premier  Entertainment Biloxi LLC and Roy Anderson Corp.                                                               |
|                |       |                                                                                                                                                                                            |
| 10.4*               |       | Commitment  Letter by and among Premier Entertainment Biloxi LLC and Hibernia National  Bank and ORIX Financial Services dated April 19, 2005                                              |
|                |       |                                                                                                                                                                                            |
| 31.1                |       | Chief  Operating Officer Certification Pursuant to Section 13a-14 of the  Securities Exchange Act.                                                                                         |
|                |       |                                                                                                                                                                                            |
| 31.2                |       | Chief  Financial Officer 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 — Chief Operating Officer and Chief  Financial Officer. |

 

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*Previously Filed

 

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**SIGNATURE**

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|                | PREMIER  ENTERTAINMENT BILOXI LLC           |
|---------------------|---------------------------------------------|
|                | (Registrant)                                |
|                |                                        |
| Date:  May 13, 2005 | /s/                                         | Gregory  J. Bosarge |   |
|                | Gregory  J Bosarge                          |
|                | Vice  President and Chief Financial Officer |

 

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