**UNITED STATESSECURITIES 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 June 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.**

(Exact Name of Registrant as specified in ItsCharter)

 
| **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 Principal  Executive Offices)  |
|                                                            |       |                       |       |                             |
| **(228) 374-7625**                                              |
| (Registrant’s Telephone Number, Including  Area 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).

YESo  NO ý

 

OnAugust 2, 2005, the registrant had no shares of common stock outstanding.

 

 

----

 

**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 June 30, 2005 (unaudited) and December 31,  2004                                                                                                                                               |   |
|              | Condensed Consolidated  Statements of Operations for the Three Months and Six Months ended June 30,  2005 and 2004 (unaudited) and for the period from commencement of operations  on March 27, 2003 through June 30, 2005 (unaudited) |   |
|              | Condensed Consolidated  Statements of Cash Flows for the Six Months ended June 30, 2005 and 2004  (unaudited) and for the period from commencement of operations on March 27,  2003 through June 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

----

 

**PREMIERENTERTAINMENT BILOXI LLC**

**(ADEVELOPMENT STAGE COMPANY)**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                          | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                          | ** ** | **2005**          | ** **  | **2004**              | ** ** |
| ** **                                          | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| **ASSETS**                                          |       |              |        |                  |       |
| Current  assets:                                    |       |              |        |                  |       |
| Cash                                                |       | $                 | 176,139     |                  | $          | 5,215 |   |
| Government  securities - restricted                 |       | 16,915,433        |        | 25,344,412            |       |
| Prepaid  expenses                                   |       | 289,763           |        | 40,632                |       |
| Other  current assets                               |       | 161,244           |        | 439,263               |       |
| Total  current assets                               |       | 17,542,579        |        | 25,829,522            |       |
|                                                |       |              |        |                  |       |
| Property and  equipment, net                        |       | 153,678,438       |        | 90,490,923            |       |
|                                                |       |              |        |                  |       |
| Other  non-current assets:                          |       |              |        |                  |       |
| Restricted  cash                                    |       | 45,834,956        |        | 100,267,928           |       |
| Other  assets, net                                  |       | 7,303,249         |        | 7,722,795             |       |
|                                                |       |              |        |                  |       |
| Total assets                                        |       | $                 | 224,359,222 |                  | $          | 224,311,168 |   |
|                                                |       |              |        |                  |       |
| **LIABILITIES  AND MEMBERS’ EQUITY (DEFICIT)** |       |              |        |                  |       |
|                                                |       |              |        |                  |       |
| Current  liabilities:                               |       |              |        |                  |       |
| Accounts  payable                                   |       | $                 | 615,962     |                  | $          | 108,467 |   |
| Accounts  payable - construction in progress        |       | 9,844,051         |        | 9,223,737             |       |
| Accrued  interest                                   |       | 9,437,614         |        | 8,580,821             |       |
| Notes  Payable - Current                            |       | 483,615           |        | —                |       |
| Other  accrued liabilities                          |       | 636,653           |        | 168,866               |       |
| Total  current liabilities                          |       | 21,017,895        |        | 18,081,891            |       |
|                                                |       |              |        |                  |       |
| Long-term  debt                                     |       | 170,909,438       |        | 168,065,164           |       |
|                                                |       |              |        |                  |       |
| Members’  contributed capital                  |       | 52,775,215        |        | 52,775,215            |       |
| Deficit  accumulated during development stage       |       | (20,343,326       | )           | (14,611,102           | )          |
| Total  members’ equity                         |       | 32,431,889        |        | 38,164,113            |       |
|                                                |       |              |        |                  |       |
| Total  liabilities and members’ equity         |       | $                 | 224,359,222 |                  | $          | 224,311,168 |   |

 

See the accompanying notes to the unaudited condensed consolidatedfinancial statements

 

3

----

 

**PREMIERENTERTAINMENT BILOXI LLC**

***(A DEVELOPMENT STAGE COMPANY)***

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                    | ** ** | ** **                           | ** ** | ** **                         | ** ** | ** **                       | ** ** | ** **     | ** ** | **Period from commencement of**     | ** ** |
|-------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|----------------------------------|------------|----------------|------------|-------------------------------------|------------|
| ** **                    | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** | **operations on March 27,** | ** ** |
| ** **                    | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005**                         | ** ** | **2004**       | ** ** | **2003 through June 30, 2005** | ** ** |
| ** **                    | ** ** | **(Unaudited)**                      | ** ** | **(Restated)**                     | ** ** | **(Unaudited)**                  | ** ** | **(Restated)** | ** ** | ** **                          | ** ** |
| ** **                    |       |                                 |       |                               |       |                             |       |           |       |                                |       |
| Preopening  expenses          |       | $                                    | 1,245,734  |                               | $          | 485,333                          |       | $              | 2,284,395  |                                | $          | 781,832 |   | $ | 5,126,354 |   |
|                          |       |                                 |       |                               |       |                             |       |           |       |                                |       |
| Loss from  operations         |       | (1,245,734                           | )          | (485,333                           | )          | (2,284,395                       | )          | (781,832       | )          | (5,126,354                          | )          |
|                          |       |                                 |       |                               |       |                             |       |           |       |                                |       |
| Other income  (expense):      |       |                                 |       |                               |       |                             |       |           |       |                                |       |
| Interest  expense             |       | (1,626,366                           | )          | (3,727,128                         | )          | (4,383,664                       | )          | (6,414,441     | )          | (17,958,510                         | )          |
| Interest  income              |       | 417,388                              |       | 446,236                            |       | 935,835                          |       | 666,832        |       | 2,741,538                           |       |
|                          |       |                                 |       |                               |       |                             |       |           |       |                                |       |
| Total other  income (expense) |       | (1,208,978                           | )          | (3,280,892                         | )          | (3,447,829                       | )          | (5,747,609     | )          | (15,216,972                         | )          |
|                          |       |                                 |       |                               |       |                             |       |           |       |                                |       |
| Net loss                      |       | $                                    | (2,454,712 | )                                  | $          | (3,766,225                       | )          | $              | (5,732,224 | )                                   | $          | (6,529,441 | ) | (20,343,326 | ) |
|                               |            |                                      |            |                                    |            |                                  |            |                |            |                                     |            |  |  |  |  |  |

 

See the accompanying notes to the unauditedcondensed consolidated financial statements

 

4

----

 

**PREMIERENTERTAINMENT BILOXI LLC**

**(A DEVELOPMENT STAGE COMPANY)**

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | ** **                         | ** ** | ** **                | ** ** | ** **              | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | ** **                         | ** ** | ** **                | ** ** | **Period from**         | ** ** |
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | ** **                         | ** ** | ** **                | ** ** | **commencement of**     | ** ** |
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | ** **                         | ** ** | ** **                | ** ** | **operations on March** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | **Six months ended June 30,** | ** ** | **27, 2003 through June** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | **2005**                           | ** ** | **2004**                  | ** ** | **30, 2005**            | ** ** |
| ** **                                                                                                                                                                                                                                                                                                           | ** ** | ** **                         | ** ** | **(Restated)**            | ** ** | ** **              | ** ** |
| Operating  Activities                                                                                                                                                                                                                                                                                                |       |                               |       |                      |       |                    |       |
| Net loss                                                                                                                                                                                                                                                                                                             |       | $                                  | (5,732,224 | )                         | $          | (6,529,441              | )          | $ | (20,343,326 | ) |
| Depreciation  and amortization                                                                                                                                                                                                                                                                                       |       | 64,698                             |       | 27,355                    |       | 130,803                 |       |
| Amortization  of deferred financing costs, discount and repayment premium                                                                                                                                                                                                                                            |       | 572,505                            |       | 719,245                   |       | 2,042,078               |       |
| Changes in  prepaid assets                                                                                                                                                                                                                                                                                           |       | (249,131                           | )          | —                    |       | (729,026                | )          |
| Changes in  other operating assets and liabilities                                                                                                                                                                                                                                                                   |       | (3,680,236                         | )          | 2,418,734                 |       | (2,546,529              | )          |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Net cash  used in operating activities                                                                                                                                                                                                                                                                               |       | (9,024,388                         | )          | (3,364,107                | )          | (21,446,000             | )          |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Investing  Activities                                                                                                                                                                                                                                                                                                |       |                               |       |                      |       |                    |       |
| Purchases of  property, plant and equipment                                                                                                                                                                                                                                                                          |       | (56,890,735                        | )          | (11,569,777               | )          | (128,885,277            | )          |
| Purchase of  government securities                                                                                                                                                                                                                                                                                   |       | —                             |       | (32,946,442               | )          | (32,946,442             | )          |
| Sales of  government securities                                                                                                                                                                                                                                                                                      |       | 8,428,979                          |       | —                    |       | 16,503,508              |       |
| Acquisition  of intangibles                                                                                                                                                                                                                                                                                          |       | —                             |       | (494,404                  | )          | (965,672                | )          |
| Decrease  (increase) in restricted cash                                                                                                                                                                                                                                                                              |       | 54,432,972                         |       | (126,620,079              | )          | (45,289,910             | )          |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Net cash  provided by (used in) investing activities                                                                                                                                                                                                                                                                 |       | 5,971,216                          |       | (171,630,702              | )          | (191,583,793            | )          |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Financing  Activities                                                                                                                                                                                                                                                                                                |       |                               |       |                      |       |                    |       |
| Increase in  deferred financing costs                                                                                                                                                                                                                                                                                |       | —                             |       | (7,122,754                | )          | (6,895,020              | )          |
| Increase in  notes payable                                                                                                                                                                                                                                                                                           |       | 3,224,097                          |       | —                    |       | 3,224,097               |       |
| Proceeds  from long-term debt                                                                                                                                                                                                                                                                                        |       | —                             |       | 168,111,046               |       | 202,713,590             |       |
| Capital  contribution                                                                                                                                                                                                                                                                                                |       | —                             |       | 15,180,810                |       | 15,180,810              |       |
| Change in  restricted cash                                                                                                                                                                                                                                                                                           |       | —                             |       | (1,190,305                | )          | (1,017,545              | )          |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Net cash  provided by financing activities                                                                                                                                                                                                                                                                           |       | 3,224,097                          |       | 174,978,797               |       | 213,205,932             |       |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Net change  in cash                                                                                                                                                                                                                                                                                                  |       | 170,925                            |       | (16,012                   | )          | 176,139                 |       |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Cash at  beginning of period                                                                                                                                                                                                                                                                                         |       | 5,215                              |       | 16,908                    |       | —                  |       |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| Cash at end  of period                                                                                                                                                                                                                                                                                               |       | $                                  | 176,139    |                      | $          | 896                     |       | $ | 176,139 |   |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| 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. |       |                               |       |                      |       |                    |       |
|                                                                                                                                                                                                                                                                                                                 |       |                               |       |                      |       |                    |       |
| During the quarter ended June 30,  2005, the Company received gaming devices related to the vendor financing  agreement with IGT at a value of $3.2 million.                                                                                                                                                    |       |                               |       |                      |       |                    |       |

 

See the accompanying notes to the unaudited condensed consolidatedfinancial statements

 

5

----

 

**PREMIER ENTERTAINMENT BILOXI LLC**

**and**

**PREMIER FINANCE BILOXI CORP.**

**(A DEVELOPMENT STAGE COMPANY)**

 

**Notes to Unaudited Condensed Consolidated FinancialStatements**

 

1.                                       Basis ofPresentation

 

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 six months ended June 30,2005 and 2004 and the period from the commencement of operations on March 27,2003 through June 30, 2005 do not necessarily indicate the results thatmay be expected for the full year or for the period from commencement ofoperations through December 31, 2005. The condensed consolidated statements of operations for three months andsix months ended June 30, 2004, and cash flows for the six months ended June 30,2004, have been restated to correct an error in the calculation of capitalizedinterest.

 

PremierFinance Biloxi Corp. (Premier Finance) was incorporated in October 2003 asa 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 June 30, 2005, Premier Finance hadcash of approximately $459,213 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 $20,343,326for the period from the commencement of operations on March 27, 2003through June 30, 2005 and as of June 30, 2005 has not completedconstruction and opened its hotel and casino operation. Although the Companybelieves it has raised sufficient capital to construct its casino project, thefact that the project is not complete and the construction risks inherent insuch a project may make it unable to complete the project on time and withinbudget. Once the casino opens, the Company must generate sufficient revenue tocover operating expenses and debt service costs. These conditions raisesubstantial doubt about the Company’s ability to continue as a going concern.

 

To date, the Company’s operations andpre-development activities relating to the property have been funded by the$160,000,000 in principal amount of 10 3⁄4% First Mortgage Notes (the “Notes),$10,000,000 from Rank America Inc. in the form of a junior subordinated note,and $52,775,215 of members’ equity through conversion of the unpaid principaland accrued interest on the loan and security agreement plus an incrementalcash contribution and $3,224,097 from a financing agreement with a slot machinevendor. The Company has entered into agreements to borrow an additional amountto finance the purchase and installation of furniture and equipment prior toopening the project. The commitments due under the debt agreements may reducethe availability of the Company’s cash-flow to fund working capital, capitalexpenditures, development projects and other general operating requirementswhich could delay the development and construction of the project. The Companybelieves it has raised sufficient capital to open; however, in the event thatthe Company is required to delay the opening of the project, this wouldmaterially and adversely affect the Company’s business, financial condition,results of operations, and cash-flows.

 

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. Actual results could differ from those estimates.

 

6

----

 

Reclassification

 

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

 

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

 

OnJanuary 23, 2004, the Company issued $160,000,000 aggregate principalamount of Notes due February 1, 2012 in a private placement offering.  The debt outstanding at June 30, 2005includes an unamortized discount of $1.9 million, which is being amortized overthe term of the Notes.  The Notes aresenior to all existing and future senior unsecured indebtedness, but are subordinatedup to $30,000,000 of senior secured indebtedness to be incurred to finance theacquisition and installation 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 the proceedsof certain other indebtedness, and cash-on-hand.  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 June 30, 2005, the Company had $6.3 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.

 

Concurrentlywith the issuance of the Notes, the Company borrowed $10,000,000 in the form ofa 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.  Also, at this time, AA Capital (consisting ofAA Capital Equity Fund L.P. and AA Capital Biloxi Co-Investment Fund L.P.)converted to equity the unpaid principal outstanding under the loan agreementof $34,819,190 plus accrued interest of $2,775,215, and made a cashcontribution of $15,180,810 in exchange for 100 Class B common and 100 Class Apreferred membership units, resulting in an additional $52,775,215 of members’equity.

 

Intereston the junior subordinated note accrues at a rate of 15% per annum and will bepaid semiannually once the Company begins operations of the hotel andcasino.  The Company will be required topay a repayment premium of 3% of the principal amount of the junior subordinatednote when it is repaid.  The Company isaccruing the repayment premium over the term of the junior subordinatednote.  In the event of a change ofcontrol or if the Hard Rock license agreement is terminated and the projectbecomes owned, operated or licensed by a Hard Rock competitor, the Company willbe required to repay all amounts due under the junior subordinated noteagreement.  In addition, the Company maybe required to make quarterly mandatory prepayments as calculated under theterms of the junior subordinated note once the Company begins operations of thehotel and casino.

 

OnApril 19, 2005, the Company, entered into a Commitment Letter for a $10million 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 defined as the earlier of sixmonths from the date of the first advance of the initial funding or December 31,2005 and 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 eighteen months from the date of the first advance ofthe initial funding period.  The Companywill have an option to choose at the time of the initial draw the pricing ofone, two, three or six month LIBOR plus a margin of 4.25% or the prime rateplus 1.25%.

 

Thereare no material relationships between the Company or its affiliates and theLead Arranger or the Lender other than in respect of the Credit Facility.  As of June 30, 2005, no funds have beendrawn against this Credit Facility.

 

On January 5, 2005, Premier EntertainmentBiloxi LLC (the “Company”), entered into a Commercial Sales and SecurityAgreement with International Game Technology (“IGT”) for the financing ofapproximately $15 million for certain gaming devices and gaming systems.  Pursuant to the agreement, the Company willbe purchasing approximately 1,110 slot devices from IGT as well as softwarelicenses and related equipment for the gaming system. In partial considerationof this purchase, IGT will finance the slot devices and gaming system at the “highWall Street Journal prime lending rate” based on a 60-month amortizationpayable in thirty-six (36) monthly installments of principal and accruedinterest with a balloon payment on the thirty-seventh (37th) monthof the outstanding remaining principal. The first payment shall be due thirty(30) days from the date of opening or no later than ninety (90) days from dateof delivery.

 

7

----

 

As of June 30, 2005,the Company has received $3.2 million in respect to the gaming devices and hasrecorded a note payable.

 

3.                                       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.  These accountswere pledged to the trustee as security for the Company’s obligations under theNotes.  The funds will be disbursed inaccordance with a disbursement agreement (the “Disbursement Agreement”) underconcurrence with the disbursement agent, the trustee and the independentconstruction consultant.  At June 30,2005, there was $45.8 million in the construction disbursement, the directdisbursement and tidelands lease reserve accounts, which is classified asrestricted cash.

 

4.                                       GovernmentSecurities - Restricted

 

InFebruary 2004, the Company invested $32,946,442 in U.S. Treasury securitiesin accordance with the Disbursement Agreement. The investment is classified asheld to maturity, and is recorded as government securities at its acquisitioncost including accrued interest at June 30, 2005.  The investment plus the interest earned willbe used to pay the first four interest payments on the Notes as required by theDisbursement Agreement. On August 1, 2004, the Company made its firstinterest payment on the Notes, of which $8.1 million of the US Treasurysecurities 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.  As of June 30, 2005, the balance in thisaccount was $16,915,433

 

5.                                       Related PartyTransactions

 

Amember of GAR LLC (“GAR”) is the President and Chief Executive Officer of theCompany’s general contractor.  TheCompany believes that the terms of the agreement with the contractor aresimilar to those that could otherwise be received from a third party.  Total payments on the GMP contract for theperiod from the commencement of operations on March 27, 2003 through June 30,2005, were $72.4 million of which $55.8 was paid directly to a related party.

 

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.

 

6.                                       Subsequent Events

 

OnJuly 1, 2005, an Irrevocable Letter of Credit was issued by The PeoplesBank in the amount of $1 million to comply with the terms and conditions of theLicensing Agreement with Hard Rock Hotel Licensing, Inc. by theCompany.  The Letter of Credit wassecured by a certificate of deposit in the amount of $1 million for a term of90 days and will automatically renew.  TheLetter of Credit will be increased to $3 million within 90 days following theopening of the Hard Rock Hotel & Casino Biloxi.

 

8

----

 

**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 are building the Hard Rock Hotel & Casino Biloxi. Inaddition, we have entered into a 20-year licensing agreement with HardRock Hotel Licensing, Inc. under which we were granted the right to useand develop the Hard Rock brand name for our hotel and casino resort. We beganconstruction in January 2004.  As ofJune 30, 2005, the percentage of construction contract work completed isapproximately 90.5%.  The project iscurrently on budget and on schedule to open in the third quarter of 2005.

 

TheHard Rock Hotel & Casino Biloxi will feature approximately 48,000square-feet 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, a tropical-themed Hard Rockbeach pool, restaurants, a full service fitness spa, a top floor lounge, and aparking garage with approximately 1,600 spaces and off-site employee parking ofapproximately 300 spaces, and various other amenities.

 

Inaddition, we will feature 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 will be 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 Corporation financing.See “—Liquidity and Capital Resources.”

 

Resultsof Operations

 

Weare in the development stage and do not have any historical operating resultsother than costs incurred in designing and developing the Hard Rock Hotel &Casino Biloxi. For the period from commencement of operations on March 27,2003 through June 30, 2005, we incurred a total of $20.3 million of netinterest 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 $18.0 million, interest income was$2.8 million and pre-opening expense was $5.1 million. Other costs primarilyrelate to licensing expenses, transaction fees, legal fees, and organizationalcosts to prepare us for becoming a gaming enterprise. We expect these pre-openinglosses to continue and to increase until operations commence with the plannedopening of the Hard Rock Hotel and Casino Biloxi in the third quarter of 2005.Our historical operating results will not be indicative of future resultsbecause activities previously undertaken have been development stage in natureand planned future activities include the operation of a new gaming facility.

 

Forthe three months ended June 30, 2005, pre-opening expenses were $1.2million compared to the same three months ended June 30, 2004, of $.5million.  This $.7 million increase inpre-opening expense is related to additional payroll, office rental and othergeneral expenses as we progress closer to opening of the project.

 

Forthe six months ended June 30, 2005, pre-opening expenses were $2.3 millioncompared to the same six months ended June 30, 2004, of $.8 million. This$1.5 million increase in pre-opening expenses is related to additional payroll,office rental and other general expenses as we progress closer to opening ofthe project.

 

Liquidityand Capital Resources

 

Weobtained total debt financing of $170 million less bond discount of $2.1million, plus a capital contribution of $52.8 million which includes $2.8million of accrued interest. As of June 30, 2005, the Company has expendedcash of approximately $7.7 million for financing costs, $128.9 million forproperty and equipment, of which $3.2 million is vendor financing, $1.0 millionfor the purchase of intangibles, $17.6 million in cash interest payments, and $5.3million on pre-

 

9

----

 

openingexpenses, offset by interest income received.  Remaining in the restricted cash andgovernment securities at June 30, 2005 was approximately $62.8 million.The Company has $16.6 million remaining to pay under its GMP contract, expectsto incur approximately $3.5 million in additional pre-opening expenses, expectsto fund additional interest payments of $17.2 million, expects to incur $28.1million in FF&E purchases and fund operating bankrolls of $6.8 million.With the additional $13.9 million FF&E financing, the remaining $4.5million will be excess liquidity on hand.

 

Wewill continue to use the gross proceeds we obtained on January 23, 2004from the offering of the Notes together with an equity investment from AACapital of $15.1 million, a junior subordinated note of $10.0 million from RankAmerica, Inc., an affiliate of The Rank Group Plc and $17.1 million infurniture, fixtures and equipment financing to fund the costs associated withthe Hard Rock Hotel & Casino Biloxi. The $17.1 million in furniture,fixtures and equipment financing has been secured in the form of vendorfinancing and the Credit Facility.  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.  (See Note 2 above.)  The Company has received $3.2 million againstthe vendor financing applied to the purchase of slot machine equipment.  The Company has not drawn any funds from theLine of Credit as of June 30, 2005.

 

Thefunds provided by the sources described above are expected to be sufficient todesign, develop, construct, equip and commence operations of the Hard RockHotel & Casino Biloxi; however, there is no assurance that these fundswill be sufficient for this purpose.

 

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

 

MississippiBond Financing. Mississippi law provides that certain expenditures formaterials made in connection with certain economic development projects in theState of Mississippi, including the land-based portion of the Hard Rock Hotel &Casino Biloxi (which includes the hotel tower, the parking garage, the low-risepavilion and the pool area), are exempt from Mississippi’s sales tax if suchexpenditures are paid for with proceeds from approved industrial developmentrevenue bonds issued by the Mississippi Business Finance Corporation, (MBFC).Up to $60.0 million of our expected costs for the Hard Rock Hotel &Casino Biloxi could be eligible for this program. We have submitted anapplication to the MBFC and have received approval of our application.

 

AtJune 30, 2005, Premier Finance Biloxi, Corp. funded consolidated capitalexpenditures of approximately $29.1 million to qualify for the tax-exemptstatus.  We expect to save up to $2.0million in sales tax that we would have otherwise been required to pay inconnection with purchasing materials to be used in the construction of theland-based portion of the Hard Rock Hotel & Casino Biloxi. Any suchsales tax savings that we are able to realize will reduce the constructioncosts for the project and will increase 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.

 

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 and estimates discussed in the Form 10-Kfor the period ended December 31, 2005, have not changed.

 

Seasonality

 

Wehave no operating history. We anticipate that activity at the Hard Rock Hotel &Casino Biloxi may be modestly seasonal, with stronger results expected duringthe second and third quarters due to the relatively higher levels of tourism tothe Mississippi Gulf Coast during this time of the year. Results are expectedto be lower during the fourth quarter. In addition, our operations may be impactedby adverse weather conditions and fluctuations in the tourism business.Accordingly, our results of operations may fluctuate from quarter to quarterand the results for any one quarter may not be indicative of results for futurequarters.

 

10

----

 

**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 million Credit Facility and the $15 millionvendor financing with IGT will fluctuate and any increase in the prime lendingrate or LIBOR will have a negative impact on earnings.  Through June 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-lookingstatements” within the meaning of Section 27 A of the Securities Act of1933, as amended, and Section 2IE of the Securities and Exchange Act of1934, as amended. 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 forward ­looking statements arealso included in the Company’s other periodic reports on Forms l0-K, l0-Qand 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 undertakes no obligation to publicly update any forward-lookingstatements, whether as a result of new information, future events or otherwise.Factors that may cause actual performance of the Company to differ materiallyfrom that contemplated by such forward-looking statements include, amongothers: (1) the gaming industry is very competitive and increasedcompetition from the legalization or expansion of gaming in Mississippi orAlabama and the development or expansion of Native American casinos in or nearthe Company’s markets could adversely affect the Company’s profitability, (2) generalconstruction risks and other factors, some of which are beyond the Company’scontrol, could prevent the Company from completing its construction anddevelopment projects as planned, (3) changes in gaming laws orregulations, (4) changes in federal or state tax laws, (5) changes inthe economy, and (6) the additional furniture, fixture, and equipmentfinancing to complete the project. Additional factors that could cause actualperformance of the Company to differ materially from that contemplated by suchforward-looking statements are detailed in the Company’s Registration Statementon Form S-4 filed effective with the Securities Exchange Commissionin July 2004.

 

ThePrivate Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safeharbor” provisions for forward ­looking statements. All forward-looking statementsmade in this Quarterly Report on Form 10-Q are made pursuant to theAct. 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) and15d-15(e) was carried out under the supervision and with theparticipation of our management, including our chief executive officer and ourprincipal accounting and financial officers. Based upon that evaluation, ourchief executive officer and our chief financial officer have concluded that ourdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed by us in our periodic SEC filings is recorded,processed, summarized and reported within the time periods specified by theSecurities and Exchange Commission.

 

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 June 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

11

----

 

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

 

EffectiveJanuary 24, 2005 our operating agreement was amended to establish 100units of Class C common non-voting membership interest, a new Class ofinterests. On this same date, sixty-six and two-thirds (66 2/3) of the Class Ccommon membership units were granted to Joseph Billhimer, our President andChief 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 Upon SeniorSecurities**

 

None.

 

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

 

None.

 

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

 

None.

 

12

----

 

**Item 6.****          ****Exhibits**

 

EXHIBITINDEX

 
| **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                                                                                                                              |
|        |       |                                                                                                                                                                                           |
| 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. |

 

----

* PreviouslyFiled

 

13

----

 

**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:  August 2, 2005 | /s/    Gregory  J. Bosarge |   |
|                       | Gregory  J Bosarge                             |
|                       | Vice  President and Chief Financial Officer    |
|                            |                                                |  |  |

 

14

----