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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________________
Commission File Number: 0-31737
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
----------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 75-2740870
-------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
111 Richman St., Black Hawk, Colorado 80422
-------------------------------------------
(Address of principal executive offices) (Zip Code)
(303)582-3600
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date - 1,000,000 shares common stock
outstanding August 13, 2004.
- --------------------------------------------------------------------------------
Windsor Woodmont Black Hawk Resort Corp.
Form 10-Q
Index
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets, June 30, 2004
(unaudited) and December 31, 2003 2
Condensed Statements of Operations for the
three months and six months ended
June 30, 2004 and 2003 (unaudited) 3
Condensed Statements of Cash Flows for
the three months and six months ended
June 30, 2004 and 2003 (unaudited) 4
Notes to Condensed Financial Statements
5 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition
and Results of Operations 12 - 15
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
Item 4. Controls and Procedures 16
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
1
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
CONDENSED BALANCE SHEETS
June 30, 2004
(Unaudited) December 31, 2003
-----------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 6,596,836 $ 8,283,104
Accounts receivable 142,175 144,400
Inventories 221,822 225,805
Prepaid expenses 2,190,937 1,819,513
Other current assets 27,367 33,043
------------- -------------
Total current assets 9,179,137 10,505,865
PROPERTY AND EQUIPMENT, NET 108,094,134 112,112,265
OTHER ASSETS:
Base stock inventories/uniforms, net of accumulated amortization 95,589 103,335
Funds held in escrow and security deposits 359,993 374,041
Franchise Fees 40,000 40,000
Deferred financing costs, net 134,241 253,802
------------- -------------
TOTAL ASSETS $ 117,903,094 $ 123,389,308
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Post-Petition Liabilities
Trade accounts payable and accrued expenses $ 782,454 $ 3,430,973
Accrued interest 42,544 49,882
Other current liabilities 1,060,312 901,754
------------- -------------
Total Post Petition Liabilities 1,885,310 4,382,609
------------- -------------
Pre-Petition Liabilities Subject to Compromise
Current portion of long-term debt 132,148,393 134,405,896
Trade accounts payable and accrued expenses 3,302,429 3,302,429
Construction accounts payable 800,000 2,200,000
Accrued interest 8,437,558 8,437,558
Other current liabilities 1,642,276 1,642,276
------------- -------------
Total Pre-Petition Liabilities 146,330,656 149,988,159
------------- -------------
Total current liabilities 148,215,966 154,370,768
------------- -------------
NON CURRENT LIABILITIES
Long-term debt, less current portion -- --
Warrants issued on common stock -- 713,720
------------- -------------
Total non current liabilities -- 713,720
------------- -------------
REDEEMABLE PREFERRED STOCK
Series A - 11% dividend, $100 redemption value, 29,000 shares outstanding 2,900,000 2,900,000
Series B - 7% dividend, $100 redemption value, 30,000 shares outstanding 1,942,089 1,903,055
Accrued dividends on preferred stock 2,419,945 2,109,778
------------- -------------
Total redeemable preferred stock 7,262,034 6,912,833
------------- -------------
Commitments and contingencies -- --
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 10,000,000 shares authorized,
1,000,000 shares outstanding 10,000 10,000
Additional paid in capital 12,241,250 12,241,250
Accumulated Deficit (49,826,156) (50,859,263)
------------- -------------
Total stockholders' deficit (37,574,906) (38,608,013)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 117,903,094 $ 123,389,308
============= =============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
OPERATING REVENUES:
Casino $ 14,867,091 $ 13,153,527 $ 28,944,993 $ 26,118,361
Food and beverage 1,651,664 1,450,802 3,132,663 3,081,125
Other 193,702 231,982 370,575 475,729
------------ ------------ ------------ ------------
16,712,457 14,836,311 32,448,231 29,675,215
Less: Promotional allowances (1,024,464) (905,083) (1,934,402) (1,966,281)
------------ ------------ ------------ ------------
Net operating revenues 15,687,993 13,931,228 30,513,829 27,708,934
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Casino 8,257,930 7,896,500 16,061,605 15,941,721
Food and beverage 1,338,084 1,400,957 2,591,808 2,741,293
Other operating expenses 154,603 275,072 303,039 579,607
General and administrative 2,446,743 2,528,278 4,937,595 4,963,688
Management fees -- 201,525 -- 679,162
Depreciation and amortization 2,130,068 2,070,207 4,259,820 4,156,648
------------ ------------ ------------ ------------
Total operating expenses 14,327,428 14,372,539 28,153,867 29,062,119
------------ ------------ ------------ ------------
Operating Income (Loss) 1,360,565 (441,311) 2,359,962 (1,353,185)
OTHER INCOME (EXPENSE):
Interest income 55 8,842 83 19,255
Interest expense (546,406) (611,307) (1,117,990) (1,232,960)
Loss on disposal of assets (18,322) -- (18,322) --
Change in valuation of warrants 713,720 -- 713,720 --
------------ ------------ ------------ ------------
Other income (expense), net 149,047 (602,465) (422,509) (1,213,705)
------------ ------------ ------------ ------------
Income (loss) before
reorganization items and preferred stock
dividends 1,509,612 (1,043,776) 1,937,453 (2,566,890)
Reorganization items 243,072 6,441,806 594,179 7,352,219
------------ ------------ ------------ ------------
Income (loss) before preferred stock dividends
1,266,540 (7,485,582) 1,343,274 (9,919,109)
Preferred stock dividends 162,287 144,399 310,167 287,012
------------ ------------ ------------ ------------
Net income (loss) attributable to
common stock $ 1,104,253 $ (7,629,981) $ 1,033,107 $(10,206,121)
============ ============ ============ ============
Earnings (Loss) per share
Basic $ 1.10 $ (7.63) $ 1.03 $ (10.21)
Diluted $ 1.10 $ (7.63) $ 1.03 $ (10.21)
Weighted Average Shares
Basic 1,000,000 1,000,000 1,000,000 1,000,000
Diluted 1,000,000 1,000,000 1,000,000 1,000,000
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- ----------
Cash flows used in operating activities
Net income (loss) before preferred stock dividends $ 1,266,540 $(7,485,582) $ 1,343,274 $(9,919,109)
Adjustments to reconcile net income (loss) before
preferred stock dividends to net cash provided
by (used in) operating activities
Depreciation and amortization expense 2,130,068 2,070,207 4,259,820 4,156,648
Amortization of deferred financing costs 59,855 59,248 119,561 118,345
Amortization of preferred stock discount 19,616 18,805 39,034 37,450
Write-off base stock inventory/uniforms -- 19,319 -- 19,319
Change in valuation of warrants -- -- (713,720) (713,720)
Accrued Hyatt settlement charge -- 5,000,000 -- 5,000,000
Changes in working capital:
Accounts receivable 14,531 20,336 2,225 (19,932)
Inventories (8,535) 26,979 3,983 66,068
Prepaid expenses (779,773) 416,865 (371,424) 786,463
Other current assets 5,036 (10,172) 5,676 (9,471)
Trade accounts payable and accrued expenses (1,260,802) (1,532,576) (2,648,519) (1,834,144)
Accrued interest 33,149 433,673 (7,338) 975,352
Other current liabilities 177,098 830,502 158,559 916,366
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 943,063 (132,396) 2,191,131 293,355
----------- ----------- ----------- -----------
Cash flows from investing activities:
Decrease (increase) in funds held in escrow (12,250) (8,400) 14,048 (65,541)
Increase in property and equipment (96,290) (758,894) (233,944) (805,914)
Increase in cash - restricted, cost -- (1,574) -- (3,323)
Decrease in construction accounts payable -- -- (1,400,000) --
----------- ----------- ----------- -----------
Net cash used in investing activities (108,540) (768,868) (1,619,896) (874,778)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Payment of notes payable (1,073,443) (113,639) (2,257,503) (113,639)
----------- ----------- ----------- -----------
Net cash used in financing activities (1,073,443) (113,639) (2,257,503) (113,639)
----------- ----------- ----------- -----------
Net change in cash and cash equivalents (238,920) (1,014,903) (1,686,268) (695,062)
Cash and cash equivalents, beginning of period 6,835,756 8,340,799 8,283,104 8,020,958
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period $ 6,596,836 $ 7,325,896 $ 6,596,836 $ 7,325,896
=========== =========== =========== ===========
Supplemental Schedule of Noncash Financing Activities:
Preferred stock dividends accrued, but not paid $ 162,287 $ 144,399 $ 310,167 $ 287,012
Supplemental Cash Flow Information:
Interest Paid $ 426,557 $ 97,444 $ 953,580 $ 97,444
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION
Basis of Presentation:
Windsor Woodmont Black Hawk Resort Corp., a Colorado corporation (the
"Company" or "Resort Corp.") was incorporated on January 9, 1998. Windsor
Woodmont, LLC (the "LLC") was formed as a limited liability company, under the
laws of the State of Colorado, on July 17, 1997. These companies were formed for
the purpose of developing an integrated limited stakes gaming casino,
entertainment and parking facility in Black Hawk, Colorado (the "Project"),
which opened December 20, 2001. Prior to December 20, 2001, the Company and the
LLC were development stage enterprises.
The Company was a wholly owned shell company subsidiary of the LLC with no
significant assets, liabilities or operating activity. In connection with a
private placement and other financing transactions, the LLC contributed all of
its assets and liabilities to the Company in exchange for stock of the Company
and the contribution has been accounted for as a recapitalization of entities
under common control whereby the assets and liabilities are recorded at the
historical cost basis of the LLC. The Company completed the development of the
Project, and operated the Project under a management agreement (the "Hyatt
Management Agreement") with Hyatt Gaming Management, Inc. ("Hyatt Gaming") until
assuming management of the Project in May, 2003. The LLC's ownership in the
Company was subsequently reduced through the refinancing of the LLC's debt by
conversion into the Company's common stock and the issuance of additional common
stock for cash.
Bankruptcy Proceedings:
On November 7, 2002 (the "Petition Date"), we filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"), in the United States Bankruptcy Court for the District of
Colorado (the "Bankruptcy Court") as Case No. 02-28089-ABC (the "Chapter 11
Case") in order to facilitate the restructuring of the Company's debt, trade
liabilities and other obligations. The Company is currently operating as a
debtor-in-possession under the supervision of the Bankruptcy Court. The
bankruptcy petition was filed in order to preserve cash and to give the Company
the opportunity to restructure its obligations.
On December 13, 2002, we filed a motion for court approval of the rejection
of the Hyatt Management Agreement. The rejection of the Hyatt Management
Agreement eliminates the payment of the Hyatt Gaming Management fee, thereby
reducing operating costs and increasing net revenue. On April 10, 2003, we
entered into a settlement agreement with Hyatt Gaming where they will not
contest the rejection of the Hyatt Management Agreement (the "Hyatt Settlement
and Release Agreement"). On April 25, 2003, the Bankruptcy Court entered an
order approving the Hyatt Settlement and Release Agreement. On May 14, 2003, we
assumed management of the casino and the casino name was changed to the Mountain
High Casino.
Pursuant to the Hyatt Settlement and Release Agreement, Hyatt Gaming holds
an allowed unsecured claim in the Chapter 11 Case in the aggregate amount of
$18,413,244 (the amount of $18,318,369 set forth in the Hyatt Settlement and
Release Agreement plus an additional $94,875 in incentive management fees from
the Petition Date through May 13, 2003); provided, however, that in the event
that the value of the Company's assets exceed the value of the liens senior to
the Second Mortgage Note (including the liens of the Black Hawk B.I.D., PCL
Construction Services, Inc., the FF&E Lender and the First Mortgage
Noteholders), Hyatt Gaming's claim based on the Second Mortgage Note will be
secured to such extent. The unsecured claim is recorded in the financial
statements as of June 30, 2004 and December 31, 2003, through a $5,000,000
contract rejection claim in current portion of long-term debt, second mortgage
notes of $9,840,233 in current portion of long-term debt, and the balance of the
unpaid claims is included in trade accounts payable and accrued expenses.
On July 23, 2004, we entered into a Hyatt Settlement Agreement, which
provides for the compromise and resolution of all of the disputes between the
Company and Hyatt and the treatment of Hyatt's claims under the Plan of
Reorganization. Pursuant to this agreement, Hyatt will be allowed to retain
certain of the Company funds it holds and be paid $778,530 in cash within 10
days after the effective date of a Plan of Reorganization. The treatment of
Hyatt Gaming's allowed claim is reflected in the Plan of Reorganization (as
defined below).
On or about February 19, 2003, we entered into a stipulation with David R.
Belding, our furniture, fixture and equipment lender (the "FF&E Lender")
pursuant to which all issues between the Company and the FF&E Lender concerning
the amount and priority of the FF&E Lender's claim and the treatment of such
claim under a plan of reorganization were resolved. On February 19, 2003, the
5
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Company filed its Motion to Approve Stipulation Regarding (1) Allowance and
Payment of Secured Claim of David R. Belding; and (2) Mutual Release of Claims
Relating to Disputes Over Funds in Wells Fargo Bank Account (the "FF&E
Stipulation"). Thereafter, objections to the FF&E Stipulation were filed by the
First Mortgage Noteholders and PCL (as defined below), and SunTrust and the
Unsecured Creditors Committee filed joinders to the objection filed by the First
Mortgage Noteholders (PCL later withdrew its objection to the FF&E Stipulation).
The objections asserted, among other things, that the initiation of an adversary
proceeding may be required to obtain the relief sought in the FF&E Stipulation.
The Company, the FF&E Lender, and the objecting parties agreed to proceed
with the issues raised in connection with the FF&E Stipulation and the
objections thereto by way of an adversary proceeding and such matter was
converted to an adversary proceeding. Thereafter, the parties reached an
agreement whereby the adversary proceeding on the FF&E Stipulation was held in
abeyance and the issues relating to the FF&E Stipulation were resolved or
reserved for a later date. On June 24, 2003, the Company filed an Amended
Stipulation Regarding (1) Allowance and Payment of Secured Claim of David R.
Belding; and (2) Mutual Release of Claims Relating to Disputes Over Funds in
Wells Fargo Bank Account (the "FF&E Settlement Agreement"), which was approved
by the Bankruptcy Court by order entered June 30, 2003. The FF&E Settlement
Agreement provides, among other things, that the FF&E Lender will receive
payments of up to $500,000 per month during the Chapter 11 Case and will be paid
certain amounts on the effective date of a plan of reorganization. After the
approval of the FF&E Settlement Agreement, the Company and the FF&E Lender
agreed to more favorable treatment to the Company, including a reduction in the
required effective date payment to the FF&E Lender and a one-year extension on
the repayment of the amounts due to the FF&E Lender, which treatment is
reflected in the Plan of Reorganization (as defined below).
On May 28, 2004, the Company and the FF&E Lender entered into a revised
FF&E Settlement Agreement dated as of May 28, 2004 (the "Revised FF&E Settlement
Agreement"). This agreement provides that the Company will continue to pay the
amount of $500,000 per month to the FF&E Lender until the effective date of a
Plan of Reorganization and on the effective date of the Plan of Reorganization,
the Company will pay the FF&E Lender an amount equal to $11,000,000 less any
monthly payments made to the FF&E Lender during the time the Company was in
bankruptcy that are in excess of the $5,000,000 paid to the FF&E Lender as of
May 1, 2004. The Revised FF&E Settlement Agreement is conditioned on, among
other things, confirmation of the Plan of Reorganization.
On August 11, 2004, we filed a Plan of Reorganization and a related
disclosure statement with the Bankruptcy Court. See Note 7 - Plan of
Reorganization.
Because of the ongoing nature of the reorganization case, the outcome of
which is not presently determinable, the financial statements contained herein
are subject to material uncertainties and may not be indicative of the results
of the Company's future operations or financial position. No assurance can be
given that the Company will be successful in reorganizing its affairs within the
Chapter 11 bankruptcy proceedings.
The financial statements contained herein have been prepared in accordance
with accounting principles generally accepted in the United States of America
applicable to a going concern, and do not purport to reflect or to provide for
all of the possible consequences of the ongoing Chapter 11 reorganization case.
Specifically, the financial statements do not present the amount which will
ultimately be paid to settle liabilities and contingencies which may be required
in the Chapter 11 reorganization case or the effect of any changes which may be
made in connection with the Company's capitalization or operations resulting
from a plan of reorganization.
As a result of the items discussed above, there is substantial doubt about
the Company's ability to continue as a going concern. The ability of the Company
to continue as a going concern is dependent upon, but not limited to,
formulation, approval, and confirmation of a plan of reorganization, adequate
sources of capital, customer and employee retention, the ability to provide a
high quality gaming experience and the ability to sustain positive results of
operations and cash flows sufficient to continue to operate. The financial
statements do not include any adjustments to the recorded amounts or
classification of assets or liabilities or reflect any amounts that may
ultimately be paid to settle liabilities and contingencies which may be required
in the Chapter 11 reorganization or the effect of any changes which may be made
in connection with the Company's capitalization or operations resulting from a
plan of reorganization.
6
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Accounting under Bankruptcy:
The financial statements have been prepared in accordance with AICPA
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" (SOP 90-7). Pursuant to SOP 90-7, an objective of
financial statements issued by an entity in Chapter 11 is to reflect its
financial evolution during the proceeding. For that purpose, the financial
statements for periods including and subsequent to filing the Chapter 11 Case
should distinguish transactions and events that are directly associated with the
reorganization from the ongoing operations of the business. Expenses and other
items not directly related to ongoing operations are reflected separately in the
statement of operations as reorganization items. See Note 4 - Reorganization
Items.
The filing of the Chapter 11 Case (i) automatically stayed actions by
creditors and other parties in interest to recover any claim that arose prior to
the commencement of the Chapter 11 Case, and (ii) served to accelerate, for
purposes of allowance, all pre-petition liabilities of the Company, whether or
not those liabilities were liquidated or contingent as of the Petition Date.
Warrants Issued On Common Stock:
Warrants issued in connection with the Company's various financing
transactions contain a "put option" permitting the warrant holder to redeem the
warrant for cash. Due to the cash based put option features of the warrants, the
total warrant value has been recorded as a liability in the accompanying
condensed balance sheet and recorded at fair value each reporting period. As of
June 30, 2004 the liability for the fair value of the warrants was written down
to $0 in the accompanying condensed balance sheet with the corresponding
non-operating income resulting from the reduction in fair market value at June
30, 2004 in the amount of $713,720 recorded in the accompanying condensed
statement of operations for the three months and six months ended June 30, 2004.
The fair value was written down to $0 based on management's assessment of the
value. Additionally, the warrants are valued at $0 in the Plan of Reorganization
filed on August 11, 2004. See Note 7 - Plan of Reorganization.
Accounting Policies:
The financial information at June 30, 2004, and for the three and six
months ended June 30, 2004 and 2003 is unaudited. The financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation
have been included. The results of operations for the three and six months ended
June 30, 2004 are not necessarily indicative of the results that will be
achieved for the entire year.
These financial statements should be read in conjunction with the Annual
Report on Form 10-K for the fiscal year ended December 31, 2003.
Basic earnings (loss) per share is computed by dividing net income (loss)
applicable to common stock by the weighted average common shares outstanding
during the period. Diluted earnings (loss) per share is based on the weighted
average number of common shares outstanding during the respective periods, plus
the common equivalent shares, if dilutive, that would result from the exercise
of stock options. Stock options and warrants for 768,720 shares of common stock
at June 30, 2004 and December 31, 2003, were excluded from the diluted earnings
(loss) per share calculation because their effects would have been
anti-dilutive.
The Company has reviewed all recently issued accounting pronouncements and
does not believe that any of the pronouncements will have a material impact on
its financial statements.
2. GOING CONCERN CONSIDERATIONS
The Company is currently operating under the jurisdiction of Chapter 11 of
the Bankruptcy Code and the Court, and the continuation of the Company as a
going concern is contingent upon, among other things, its ability to restructure
successfully, including refinancing its debts, and the ability of the Company to
generate sufficient cash to fund future operations. There can be no assurance in
this regard.
7
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The Company intends to utilize the Chapter 11 process to reorganize its
financial and operational affairs with the goal of preserving and enhancing the
assets of the Company for the benefit of creditors and shareholders. The Company
expects the business to operate as usual, our valued employees to be retained,
and for our post-bankruptcy obligations to be satisfied.
The Company's objective is to achieve the highest possible recoveries for
all creditors and shareholders, consistent with the Company's ability to pay and
to continue the operation of the Company's business. However, there can be no
assurance that the Company will be able to attain these objectives or to achieve
a successful reorganization. Further, there can be no assurance that the
liabilities of the Company will not be found to exceed the fair value of its
assets. This could result in claims being paid at less than 100% of their face
value and the equity of the Company's shareholders being diluted or cancelled.
Under the Bankruptcy Code, the rights of, and ultimate payments to
pre-Petition Date creditors and shareholders may be substantially altered from
their contractual terms. At this time, it is not possible to predict the outcome
of the Chapter 11 Case, in general, or the effect of the Chapter 11 Case on the
business of the Company or on the interests of creditors and shareholders.
The Company anticipates that substantially all liabilities of the Company
as of the Petition Date will be resolved under a plan of reorganization in
accordance with the provisions of the Code. On August 11, 2004 we filed a Plan
of Reorganization, however, there can be no assurance that the Plan will be
confirmed by the Bankruptcy Court and consummated. See Note 7 - Plan of
Reorganization.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
However, as a result of the filing of the Chapter 11 Case, such realization of
assets and liquidation of liabilities are subject to a significant number of
uncertainties.
3. LONG -TERM DEBT
Long-term debt consisted of the following at June 30, 2004 and December 31,
2003:
Principal Balance
June 30, December 31,
2004 (unaudited) 2003
---------------- ----
13% First Mortgage Notes, due March 15, 2005 $100,000,000 $100,000,000
15.5% Second Mortgage Notes, due March 15, 2010 9,840,233 9,840,233
HGMI contract rejection claim, unsecured (note 1) 5,000,000 5,000,000
FF&E Note, interest at prime + 6.75% (10.75% and 11% at
June 30, 2004 and Dec. 31, 2003) 14,877,027 17,012,798
Black Hawk Business Improvement District Bonds, original amount
of $975,000 at 6% interest, due December 1, 2005 + original amount
of $2,025,000 at 6.75% interest, due December 1, 2011 2,431,133 2,552,865
------------ ------------
$132,148,393 $134,405,896
Less current maturities 132,148,393 134,405,896
------------ ------------
Long-term debt $ -- $ --
============ ============
All of the Company's long-term debt became immediately due and payable as a
result of the commencement of the Chapter 11 Case, accordingly, long-term debt
balances have been reclassified to current maturities. The Company is only
paying interest on the Black Hawk Business Improvement District Bonds and the
FF&E Note because they are the only fully secured creditors under the Bankruptcy
Plan. The other notes are not fully secured and, in accordance with SOP 90-7, no
interest is paid or accrued on those notes.
Substantially all of the Company's assets are pledged as collateral for
long-term debt. On October 15, 2002, the Company failed to make the interest
payments initially due on September 15, 2002, that it had elected to defer until
October 15, 2002 on the First Mortgage Notes and Second Mortgage Notes. The
Company's failure to pay the interest constituted an "Event of Default" under
the applicable agreements. On November 7, 2002, the Company filed a voluntary
8
petition for relief under Chapter 11 of the Bankruptcy Code. As a result of the
failure to make required interest payments, and the filing of the bankruptcy
petition, the Company was not in compliance with all of its debt covenants.
4. REORGANIZATION ITEMS
Reorganization related items of $243,072 and $6,441,806 were incurred
during the three months ended June 30, 2004 and 2003, respectively, and $594,179
and $7,352,219 during the six months ended June 30, 2004 and 2003, respectively.
These include costs incurred for legal, financial advisor services received in
connection with our debt restructuring efforts, and other costs directly related
to our debt restructuring efforts. The amounts for the three months and six
months ended June 30, 2003 also include the $5 million dollar damage claim
incurred with the rejection of the Hyatt contract, costs incurred to re-brand
the casino to the Mountain High Casino, and the write off of the cost of Hyatt
branded merchandise and operating supplies.
5. COMMITMENTS AND CONTINGENCIES
Gaming Regulation Licensing
The Company's ability to conduct gaming operations in the State of Colorado
is subject to the licensability and qualifications of the Company and its common
stockholders. The Colorado Gaming Commission approved the issuance of the
appropriate and necessary gaming licenses for operation of the Casino to us and
Hyatt Gaming on September 20, 2001. The licenses were physically issued to us
immediately prior to opening of our casino on December 20, 2001. Additionally,
upon receipt of a gaming license, such licensing and qualifications are reviewed
periodically by the gaming authorities in Colorado and there are no guarantees
such licenses will be renewed. In September 2003, the Company received the
required gaming license renewals, which expire September 20, 2004. The Company
has applied for license renewals upon their expiration on September 20, 2004.
Legal Proceedings
The Company is involved in certain legal proceedings, claims and
litigation, including those described below. The results of legal proceedings
cannot be predicted with certainty. Management does not believe that the Company
has potential liability related to any current legal proceedings and claims that
would have a material adverse effect on the Company's financial condition,
liquidity or results of operations.
We are involved in certain legal proceedings, claims and litigation,
including those described below. Further, we may become involved in other such
proceedings in the future. The results of legal proceedings cannot be predicted
with certainty. Except as otherwise indicated below, management does not believe
that we have potential liability related to any current legal proceedings and
claims that would have material adverse effect on our financial condition,
liquidity or results of operations. As of the result of the Chapter 11 Case,
except where noted, legal proceedings are stayed.
First Place LLC filed a lawsuit against the Company generally asserting
that it has an ownership interest in a small sliver of property upon which the
Company has built and is operating the Black Hawk Casino by Hyatt. The property
which First Place contends it has an ownership in consists of approximately
6,000 square feet. The Company timely referred the issue to its title insurance
company, First American Title. The Company has a $33.5 million owner's title
insurance policy with First American. First American has advised the Company
that the claim will be covered by the Company's title insurance and the title
insurance company has been and is vigorously defending the claim. After a trial
in June, 2002, the trial court determined that First Place does have an
ownership interest in a strip of property containing approximately 3,000 square
feet which the Company believed it owned. Certain post trial motions had been
granted and were pending final determination by the Court at the time of the
Chapter 11 filing. On August 7, 2003, the Bankruptcy Court entered an order
lifting the automatic stay, thus allowing this case to proceed to conclusion in
the state courts. On September 12, 2003, the state trial court liquidated the
First Place claim, based upon application of the "relative hardship" doctrine,
in the amount of $73,500 and decreed that upon payment of that amount the
Company would own the 3,000 square feet. First Place has appealed this case to
the Colorado Court of Appeals and it is anticipated the appeal will be concluded
in late 2004 or early 2005. We do not anticipate that there will be any
financial exposure to the Company with respect to this claim, and fully expects
that this claim will be resolved by and at the expense of First American Title.
9
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
PCL Construction Services, Inc. acted as the general contractor for the
Company in the construction of the Black Hawk Casino by Hyatt project. The
Substantial Completion Date for the project was originally to have been October
29, 2001 and was subsequently amended by Change Order to November 15, 2001. In
fact, construction of the casino was not at a point where the casino could open
for business until December 20, 2001 and certain components of the project were
not completed until early 2002. In early 2002, PCL and its subcontractors
claimed to be owed an aggregate of approximately $7,200,000 on the project,
recorded mechanic's liens and filed mechanic's lien foreclosure and breach of
contract litigation against the Company. The Company filed litigation against
PCL for PCL's misrepresentations and contractual breaches concerning completion
of the project. This litigation was not at issue with all parties as of the date
of the Chapter 11 filing and has been stayed. The Company and PCL engaged in
extensive settlement discussions starting in January, 2003 and entered into a
settlement agreement in May 2003. The Bankruptcy Court approved the agreement on
July 7, 2003. Under the agreement, the Company agreed to pay PCL and its
subcontractors a total of $4.5 million, $2.3 million of which was paid July 28,
2003, $1.4 million of which was paid in January 2004, $400,000 to be paid in
October 2004, and $400,000 to be paid in April 2005.
Paul Steelman was the project architect for the Black Hawk Casino by Hyatt
project. Paul Steelman claims that it is owed an additional approximately
$200,000 for architectural work performed at the project. The Company believes
that it does not owe Paul Steelman the $200,000 and further believes that Paul
Steelman owes the Company approximately $2,000,000 for Paul Steelman's failure
to properly prepare and complete architectural plans and specifications for the
project in a timely fashion. Prior to the Chapter 11 filing, the Company and
Steelman had entered into a Dispute Resolution Agreement providing for
mediation, to be followed by binding arbitration, if necessary. The Company and
Steelman filed a stipulated motion lifting the stay from this dispute and
allowing its determination by Dispute Resolution Agreement, and an order
approving the motion was entered in May 2003. Mediation between the Company and
Steelman did not result in a resolution of these claims and a binding
arbitration of the claims is scheduled for December, 2004.
NOTE 6. ASSET PURCHASE AGREEMENT
On May 28, 2004, the Company entered into an Asset Purchase Agreement with
Ameristar Casinos, Inc. to sell certain specified assets and liabilities of the
Company. The specified assets (the "Acquired Assets") include substantially all
of the assets of the Company required to operate the Mountain High Casino.
Excluded assets include the corporate charter, cash (except for all casino
cash), any shares of capital stock in the Company, the Hyatt and various other
claims, and the Company's director and officer insurance policy and all prepaid
premiums associated therewith. The liabilities to be assumed include all Casino
liabilities existing on the closing date, all liabilities of the Company
relating to the Black Hawk Business Improvement District Bonds, certain
liabilities for unused vacation, sick pay, holiday pay and paid time off
obligations as of the closing date for all employees hired by Ameristar, and all
liabilities of the Company under the WARN Act incurred in connection with this
agreement (the "Assumed Liabilities"). The terms of the Asset Purchase Agreement
with Ameristar Casinos, Inc. is incorporated in the Plan of Reorganiztion which
was filed on August 11, 2004.
The consideration for the Acquired Assets is $117,000,000 in cash, subject
to certain adjustments, $2,500,000 worth of common stock of Ameristar Casinos,
Inc., plus the Assumed Liabilities.
NOTE 7. PLAN OF REORGANIZATION
On August 6, 2003, we filed a Plan of Reorganization the "Original Plan"
and a related disclosure statement with the Bankruptcy Court. On November 20,
2003, the Company filed its first amended Plan of Reorganization and its first
amended Disclosure Statement.
Facing opposition to the Original Plan, as amended on November 20, 2003,
the Company, in good faith, negotiated with the various creditors with respect
to potential alternatives to the Original Plan, including a potential sale of
the Company's assets. As a result of extensive negotiations with several
potential buyers, the Company accepted the bid received from Ameristar Casino,
Inc. and executed the Asset Purchase Agreement (as described in Note 6) on May
28, 2004, and amended the agreement on August 3, 2004.
On August 11, 2004, we filed a Plan of Reorganization (the "Plan") and a
related disclosure statement (the "Disclosure Statement") with the Bankruptcy
Court. The Disclosure Statement is filed to provide information of a kind and in
sufficient detail to enable a typical holder of claims or interests in a class
impaired under the Plan to make an informed judgment about the Plan. To approve
the form of disclosure statement, the Bankruptcy Court must determine that the
10
Disclosure Statement contains "adequate information" to make an informed
judgment in voting to accept or reject the Plan. Upon the Bankruptcy Court's
findings that the Disclosure Statement contains "adequate information," we will
be authorized to transmit the Plan and Disclosure Statement to holders of
impaired claims in connection with the solicitation of votes under the Plan.
Bankruptcy Court approval of the Disclosure Statement does not constitute a
determination by the Bankruptcy Court as to the merits of the Plan or an
indication that the Bankruptcy Court will confirm the Plan.
If the Plan is confirmed by the Bankruptcy Court, substantially all
pre-petition liabilities will be subject to restructuring. The Plan is a
liquidating plan and does not contemplate the continuation of the Company's
business. The Plan provides for the sale of substantially all of its assets to
Ameristar Casinos, Inc. Any remaining assets after the Ameristar sale will be
liquidated or otherwise converted to cash for use in settlement of the various
claims by creditors. Any plan of reorganization is voted upon by creditors and
equity holders and is subject to the approval of the Bankruptcy Court. A plan of
reorganization must be confirmed by the Bankruptcy Court upon certain findings
being made by the Bankruptcy Court as required by the Bankruptcy Code. The
Bankruptcy Court may confirm a plan or liquidation notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity security
holders if certain requirements of the Bankruptcy Code are met. There can be no
assurance that the Plan will be confirmed by the Bankruptcy Court, or that any
such plan will be consummated.
Until the Plan is confirmed by the Bankruptcy Court the recoveries of
holders of pre-petition claims are subject to change. The Disclosure Statement
includes detailed information about the Plan, financial estimates regarding our
reorganized business enterprise value including support for the "best interest"
requirements for the Plan under the Bankruptcy Code; and events leading up to
our Chapter 11 Case. The Plan and the transactions contemplated thereunder are
more fully described in the Disclosure Statement, a copy of which is available
to the public at the office of the clerk of the Bankruptcy Court, copies of each
are attached hereto as Exhibits 2.1 and 2.2, respectively.
During the Chapter 11 Case, we continue to operate our business in the
ordinary course without interruption and without material impact on our
employees, customers and suppliers.
At this time it is not possible to predict the effect of the Chapter 11
Case on our business, various creditors and equity security holders or when we
will be able to conclude our Chapter 11 Case. Our future results are dependent
upon, among other things, the confirmation and implementation of a plan of
reorganization or liquidation.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-Q ("Quarterly Report") that are not
historical or current facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. In addition, we may from time to
time make written or oral forward-looking statements. Written forward-looking
statements may appear in documents filed with the Securities and Exchange
Commission (the "Commission"), in press releases and in reports to shareholders.
The forward-looking statements included in this Quarterly Report are based on
current expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on the following assumptions: a plan of
reorganization consistent with the Plan of Reorganization recently filed by us
will be approved by the Bankruptcy Court, competitive and market conditions
affecting the Casino will not change materially or adversely, that we will
retain key management personnel, that our forecasts will accurately anticipate
market demand and that there will be no further material adverse change in our
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although management believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in
forward-looking information will be realized. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
In addition, our business and operations are subject to substantial risks,
which increase the uncertainty inherent in such forward-looking statements. In
light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by us or any other person that our objectives or
plans will be achieved. The Private Securities Litigation Reform Act of 1995
contains a safe harbor for forward-looking statements on which we rely in making
such disclosures. In connection with this safe harbor we are hereby identifying
important factors that could cause actual results to differ materially from
those contained in any forward-looking statements made by or on our behalf. Any
such statement is qualified by reference to the cautionary statements included
in this Quarterly Report.
Overview
On November 7, 2002, we filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code. Under Chapter 11, we are operating our
business as a debtor-in-possession. Under the Bankruptcy Code, actions to
collect pre-petition indebtedness or enforce pre-petition contractual
obligations, as well as most other pending actions against us or property of our
estate, are stayed. On April 10, 2003, we entered into the Hyatt Settlement and
Release Agreement with Hyatt Gaming whereby Hyatt Gaming will hold certain
allowed pre-petition unsecured claims in the Chapter 11 Case and the Hyatt
Management Agreement was deemed rejected. On May 14, 2003, we assumed management
of the casino and the casino's name was changed to the Mountain High Casino.
The Colorado Department of Transportation ("CDOT") has announced that
Highway 119 between Golden and Black Hawk, Colorado will be closed for 30 days
in September, 2004, for bridge and tunnel repairs. CDOT has indicated that
construction will take place 24 hours a day and 7 days a week. This road is one
of the two major access ways for our customers to reach Black Hawk, and
accordingly, this could have a material negative effect on our September 2004
operations.
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the condensed financial statements of Windsor
Woodmont Black Hawk Resort Corp., including the respective notes thereto and
other financial information included elsewhere in this report.
The following discussion should also be read in conjunction with the Annual
Report on Form 10-K for the fiscal year ended December 31, 2003.
Results of Operations
The following table sets forth certain summarized operating data for the
periods indicated.
12
Three Months Ended June 30,
---------------------------------
2004 2003 Increase (Decrease)
------------ ------------ -------------------------------
Net Operating Revenues $ 15,687,993 $ 13,931,228 $ 1,756,765 12.6%
Total Operating Expenses 14,327,428 14,372,539 (45,111) -0.3%
------------ ------------ -----------
Operating Income (Loss) 1,360,565 (441,311) 1,801,876 408.3%
Add: Depreciation and Amortization 2,130,068 2,070,207 59,861 2.9%
------------ ------------ ----------
EBITDA* $ 3,490,633 $ 1,628,896 $ 1,861,737 114.3%
============ ============ ===========
EBITDA* Margin 22.3% 11.7% 10.6%
============ ============ ===========
Six Months Ended June 30,
---------------------------------
2004 2003 Increase (Decrease)
------------ ------------ ------------------------------
Net Operating Revenues $ 30,513,829 $ 27,708,934 $ 2,804,895 10.1%
Total Operating Expenses 28,153,867 29,062,119 (908,252) -3.1%
------------ ------------ ----------
Operating Income (Loss) 2,359,962 (1,353,185) 3,713,147 274.4%
Add: Depreciation and Amortization 4,259,820 4,156,648 103,172 2.5%
------------ ------------ ----------
EBITDA* $ 6,619,782 $ 2,803,463 $ 3,816,319 136.1%
============ ============ ===========
EBITDA* Margin 21.7% 10.1% 11.6%
============ ============ ==========
* Earnings Before Interest, Taxes, Depreciation and Amortization
Earnings before interest, taxes, depreciation and amortization (EBITDA) is not
considered a measure of performance recognized as an accounting principle
generally accepted in the United States of America. Management believes that
EBITDA is a valuable measure of performance of the Casino's operations. The
gaming industry commonly uses EBITDA as a method of arriving at the economic
value of a casino's operations. It is also used by lending institutions to gauge
operating performance. Management uses EBITDA to compare the relative operating
performance of the Casino by eliminating interest income, interest expense,
income tax expense, and depreciation and amortization expense associated with
the varying levels of capital expenditures for infrastructure required to
generate revenue, and the often times high cost of acquiring existing
operations.
Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003:
Total operating revenues for the quarter ended June 30, 2004 was
$16,712,457 ($15,687,993 net of promotional allowances). This included
$14,867,091 in casino revenue, $1,651,664 in food and beverage revenue, and
$193,702 of other revenue. This compares to total operating revenues for the
quarter ended June 30, 2003 of $14,836,311 ($13,931,228 net of promotional
allowances) and represented an increase of 12.6% of total revenues (12.6% net of
promotional allowances). This included $13,153,527 in casino revenue, $1,450,802
in food and beverage revenue, and $231,982 of other revenue.
Casino operating expenses for the quarter ended June 30, 2004 totaled
$8,257,930, including $2,939,721 in state and local gaming taxes and device
fees. This compares to casino operating expenses for the quarter ended June 30,
2003 totaling $7,896,500, including $2,723,974 in state and local gaming taxes
and device fees. This represents an increase of 4.6% in casino operating
expenses. In addition to the increase in state and local gaming taxes and
devices fees, the increase is primarily due to increased marketing costs
(principally in radio and television advertising and increased cost of
promotional prizes, offset by reduced costs in coupon redemptions, newspaper and
outdoor billboard advertising costs). Other casino operating expenses consist
principally of salaries, wages and benefits, marketing costs, rental expense
associated with slot games operated under fee participation agreements, and
other operating expenses of the casino.
Food and beverage expenses for the quarter ended June 30, 2004 totaled
$1,338,084, including $894,416 in cost of goods sold. This compares to food and
beverage expenses for the quarter ended June 30, 2003 totaling $1,400,957,
including $813,520 in cost of goods sold, representing a decrease of 4.5% in
food and beverage expenses. The decrease is primarily due to reduced payroll and
benefit costs. Other food and beverage expenses consist principally of salaries,
wages and benefits, and other operating expenses of the food and beverage
operations.
13
Other operating expenses for the quarter ended June 30, 2004 totaled
$154,603 versus $275,072 for the quarter ended June 30, 2003, and consist of
salaries, wages and benefits, contract entertainment expense, and other
operating expenses. This represents a decrease of approximately 43.8% and is
primarily due to reduced payroll and benefit costs and reduced expenditures
related to gift shop operations and to contract entertainment management.
General and administrative expenses for the quarter ended June 30, 2004
totaled $2,446,743 versus $2,528,278 for the quarter ended June 30, 2003, and
consist of salaries, wages and benefits, utilities, insurance, property taxes,
contract services, maintenance and repairs, cleaning supplies, and other
operating expenses.
Depreciation and amortization expense for the quarter ended June 30, 2004
totaled $2,130,068 versus $2,070,207 for the quarter ended June 30, 2003. These
expenses relate to property and equipment in service and vary with the addition
or replacement of new items of property and equipment.
Interest expense for the quarter ended June 30, 2004 totaled $546,406,
including $59,855 in amortization of debt issuance costs. This compares to
interest expense for the quarter ended June 30, 2003, which totaled $611,307,
including $59,248 in amortization of debt issuance costs. The net reduction
represents a decrease of approximately 10.6% and is a result of principal
payments on the FF&E Note and on the Black Hawk Business Improvement District
Bonds.
Reorganization items for the quarter ended June 30, 2004 totaled $243,072.
This includes costs incurred for legal, financial advisor services received in
connection with our debt restructuring efforts, and other costs directly related
to our debt restructuring efforts. This compares to reorganization items for the
quarter ended June 30, 2003, which totaled $6,441,806. The June 30, 2003 total
included a $5,000,000 damage claim incurred with the rejection of the Hyatt
contract, and it included the write off of Hyatt branded supplies, which can no
longer be used in operations. There were no similar items in the quarter ended
June 30, 2004.
Future operating results will be subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond our control. While we believe that our casino will be able to attract a
sufficient number of patrons and achieve the level of activity and revenues
necessary to permit us to meet our payment obligations, we cannot assure you
that we will achieve these results.
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003:
Total operating revenues for the six months ended June 30, 2004 was
$32,448,231 ($30,513,829 net of promotional allowances). This included
$28,944,993 in casino revenue, $3,132,663 in food and beverage revenue, and
$370,575 of other revenue. This compares to total operating revenues for the six
months ended June 30, 2003 of $29,675,215 ($27,708,934 net of promotional
allowances) and represented an increase of 9.3% of total revenues (10.1% net of
promotional allowances). This included $26,118,361 in casino revenue, $3,081,125
in food and beverage revenue, and $475,729 of other revenue.
Casino operating expenses for the six months ended June 30, 2004 totaled
$16,061,605, including $5,732,609 in state and local gaming taxes and device
fees. This compares to casino operating expenses for the six months ended June
30, 2003 totaling $15,941,721, including $5,450,431 in state and local gaming
taxes and device fees. This represents an increase of 0.8% in casino operating
expenses. The increase is primarily due to increased state and local gaming
taxes and device fees, offset partially by reduced costs of salaries, wages and
benefits. Other casino operating expenses consist principally of salaries, wages
and benefits, marketing costs, rental expense associated with slot games
operated under fee participation agreements, and other operating expenses of the
casino.
Food and beverage expenses for the six months ended June 30, 2004 totaled
$2,591,808, including $1,697,877 in cost of goods sold. This compares to food
and beverage expenses for the six months ended June 30, 2003 totaling
$2,741,293, including $1,613,526 in cost of goods sold, representing a decrease
of 5.5% in food and beverage expenses. The decrease is primarily due to reduced
payroll and benefit costs, partially offset by the increased cost of goods sold.
Other food and beverage expenses consist principally of salaries, wages and
benefits, and other operating expenses of the food and beverage operations.
Other operating expenses for the six months ended June 30, 2004 totaled
$303,039 versus $579,607 for the six months ended June 30, 2003, and consist of
salaries, wages and benefits, contract entertainment expense, and other
operating expenses. This represents a decrease of approximately 47.7% and is
14
primarily due to reduced payroll and benefit costs and reduced expenditures
related to gift shop operations and to contract entertainment management.
General and administrative expenses for the six months ended June 30, 2004
totaled $4,937,595 versus $4,963,688 for the six months ended June 30, 2003, and
consist of salaries, wages and benefits, utilities, insurance, property taxes,
contract services, maintenance and repairs, cleaning supplies, and other
operating expenses.
Depreciation and amortization expense for the six months ended June 30,
2004 totaled $4,259,820 versus $4,156,648 for the six months ended June 30,
2003. These expenses relate to property and equipment in service and vary with
the addition or replacement of new items of property and equipment.
Interest expense for the six months ended June 30, 2004 totaled $1,117,990,
including $119,561 in amortization of debt issuance costs. This compares to
interest expense for the six months ended June 30, 2003, which totaled
$1,232,960, including $118,345 in amortization of debt issuance costs. The net
reduction represents a decrease of approximately 9.3% and is a result of
principal payments on the FF&E Note and on the Black Hawk Business Improvement
District Bonds.
Reorganization items for the six months ended June 30, 2004 totaled
$594,179. This includes costs incurred for legal, financial advisor services
received in connection with our debt restructuring efforts, and other costs
directly related to our debt restructuring efforts. This compares to
reorganization items for the six months ended June 30, 2003, which totaled
$7,352,219. The June 30, 2003 total included a $5,000,000 damage claim incurred
with the rejection of the Hyatt contract, and it included the write off of Hyatt
branded supplies, which can no longer be used in operations.
Future operating results will be subject to significant business, economic,
regulatory and competitive uncertainties and contingencies, many of which are
beyond our control. While we believe that our casino will be able to attract a
sufficient number of patrons and achieve the level of activity and revenues
necessary to permit us to meet our payment obligations, we cannot assure you
that we will achieve these results.
Liquidity and Capital Resources
The Chapter 11 Case may have a material adverse effect on relationships
with suppliers or vendors. While we have not experienced any significant
disruption in our relationships with our suppliers or vendors, we may have
difficulty maintaining existing or creating new relationships with suppliers or
vendors as a result of the Chapter 11 Case. Suppliers and vendors could stop
providing supplies or services or provide such supplies or services only on
"cash on delivery," "cash on order," or other terms that could have an adverse
impact on our short-term cash flows.
The adequacy of our capital resources is limited and we have limited access
to additional financing. In addition to the cash requirements necessary to fund
ongoing operations, we currently are incurring and anticipate that we will incur
significant professional fees and other restructuring costs in connection with
the Chapter 11 Case and the restructuring of our operations. However, as a
result of the uncertainty surrounding our current circumstances, it is difficult
to predict our actual liquidity needs at this time. Although, based on current
and anticipated levels of operations, and efforts to increase the number of
gaming patrons and customers to the Casino, we believe that our cash flow from
operations will be adequate to meet our anticipated cash requirements during the
pendency of the Chapter 11 Case, ultimately such amounts may not be sufficient
to fund operations until such time as a plan of reorganization receives the
requisite acceptance by creditors and equity holders and is confirmed by the
Bankruptcy Court. In the event that cash flows are insufficient to meet future
cash requirements, we may be required to reduce planned capital expenditures or
seek additional financing. We can provide no assurance that reductions in
planned capital expenditures would be sufficient to cover shortfalls or that
additional financing would be available or, if available, offered on acceptable
terms. As a result of the Chapter 11 Case and the circumstances leading to the
filing thereof, our access to additional financing is, and for the foreseeable
future will likely continue to be limited. As the foregoing indicates, our
long-term liquidity requirements and the adequacy of our capital resources are
difficult to predict at this time, and ultimately cannot be determined until a
plan of reorganization has been developed and is confirmed by the Bankruptcy
Court in the Chapter 11 Case.
Significant Accounting Policies
We have not made any changes in our accounting policies during the six
months ended June 30, 2004.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 4. Controls and Procedures
An evaluation was conducted under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and
operation of the Company's disclosure controls and procedures as of June 30,
2004. Based on that evaluation, the CEO and CFO concluded that the Company's
disclosure controls and procedures were effective as of such date to ensure that
information required to be disclosed in the reports that it files or submits
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Such officers also confirm that there was
no change in the Company's internal control over financial reporting during the
quarter ended June 30, 2004 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in certain legal proceedings, claims and litigation,
including those described below. Further, we may become involved in other such
proceedings in the future. The results of legal proceedings cannot be predicted
with certainty. Except as otherwise indicated below, management does not believe
that we have potential liability related to any current legal proceedings and
claims that would have material adverse effect on our financial condition,
liquidity or results of operations. As of the result of the Chapter 11 Case,
except where noted, legal proceedings are stayed.
First Place LLC filed a lawsuit against the Company generally asserting
that it has an ownership interest in a small sliver of property upon which the
Company has built and is operating the Black Hawk Casino by Hyatt. The property
which First Place contends it has an ownership in consists of approximately
6,000 square feet. The Company timely referred the issue to its title insurance
company, First American Title. The Company has a $33.5 million owner's title
insurance policy with First American. First American has advised the Company
that the claim will be covered by the Company's title insurance and the title
insurance company has been and is vigorously defending the claim. After a trial
in June, 2002, the trial court determined that First Place does have an
ownership interest in a strip of property containing approximately 3,000 square
feet which the Company believed it owned. Certain post trial motions had been
granted and were pending final determination by the Court at the time of the
Chapter 11 filing. On August 7, 2003, the Bankruptcy Court entered an order
lifting the automatic stay, thus allowing this case to proceed to conclusion in
the state courts. On September 12, 2003, the state trial court liquidated the
First Place claim, based upon application of the "relative hardship" doctrine,
in the amount of $73,500 and decreed that upon payment of that amount the
Company would own the 3,000 square feet. First Place has appealed this case to
the Colorado Court of Appeals and it is anticipated the appeal will be concluded
in late 2004 or early 2005. We do not anticipate that there will be any
financial exposure to the Company with respect to this claim, and fully expects
that this claim will be resolved by and at the expense of First American Title.
PCL Construction Services, Inc. acted as the general contractor for the
Company in the construction of the Black Hawk Casino by Hyatt project. The
Substantial Completion Date for the project was originally to have been October
29, 2001 and was subsequently amended by Change Order to November 15, 2001. In
fact, construction of the casino was not at a point where the casino could open
for business until December 20, 2001 and certain components of the project were
not completed until early 2002. In early 2002, PCL and its subcontractors
claimed to be owed an aggregate of approximately $7,200,000 on the project,
recorded mechanic's liens and filed mechanic's lien foreclosure and breach of
contract litigation against the Company. The Company filed litigation against
PCL for PCL's misrepresentations and contractual breaches concerning completion
of the project. This litigation was not at issue with all parties as of the date
of the Chapter 11 filing and has been stayed. The Company and PCL engaged in
extensive settlement discussions starting in January, 2003 and entered into a
settlement agreement in May 2003. The Bankruptcy Court approved the agreement on
July 7, 2003. Under the agreement, the Company agreed to pay PCL and its
subcontractors a total of $4.5 million, $2.3 million of which was paid July 28,
2003, $1.4 million of which was paid in January 2004, $400,000 to be paid in
October 2004, and $400,000 to be paid in April 2005.
Paul Steelman was the project architect for the Black Hawk Casino by Hyatt
project. Paul Steelman claims that it is owed an additional approximately
$200,000 for architectural work performed at the project. The Company believes
that it does not owe Paul Steelman the $200,000 and further believes that Paul
Steelman owes the Company approximately $2,000,000 for Paul Steelman's failure
to properly prepare and complete architectural plans and specifications for the
project in a timely fashion. Prior to the Chapter 11 filing, the Company and
Steelman had entered into a Dispute Resolution Agreement providing for
mediation, to be followed by binding arbitration, if necessary. The Company and
Steelman filed a stipulated motion lifting the stay from this dispute and
allowing its determination by Dispute Resolution Agreement, and an order
approving the motion was entered in May 2003. Mediation between the Company and
Steelman did not result in a resolution of these claims and a binding
arbitration of the claims is scheduled for December 1 through December 9, 2004.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
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Item 4. Submission of Matters to a Vote of Security Holders
On May 26, 2004, the annual meeting of shareholders of the Company was held
at the Mountain High Casino. At the annual meeting the shareholders were
submitted two proposals by the Company. The election the following four (4)
persons to serve as directors of the company until the next annual meeting of
shareholders and thereafter until their successors shall have been elected and
qualified: Jerry L. Dauderman, Timothy G. Rose, Irving C. Deal and Garry
Saunders and the ratification of the selection of Grant Thornton LLP as the
independent public accountants of the company for the fiscal year ending
December 31, 2004. Each shareholder share was worth one vote in the election of
the proposals.
The shareholders of the Company voted for the election of Mr. Dauderman,
Mr. Rose, Mr. Deal and Mr. Saunders to serve on the Board of Directors for the
2004 fiscal year, with the following breakdown of votes:
Name For Against
---- --- -------
Jerry L. Dauderman 628,673 29,500
Timothy G. Rose 628,673 29,500
Irving C. Deal 628,673 29,500
Garry Saunders 628,673 29,500
The shareholders of the Company voted 658,173 shares for the ratification
of Grant Thornton LLP as the independent public accountants for the year ended
December 31, 2004.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Plan of Reorganization dated August 11, 2004.
2.2 Disclosure Statement to Accompany Plan of Reorganization dated
August 11, 2004.
31.1 Certification of Chief Executive Officer of Periodic Report
Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2 Certification of Chief Financial Officer of Periodic Report
Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1. Certification Pursuant to 18 U.S.C. 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Form 8-K
May 28, 2004 - Item 5. Other Events. Disclosure of Asset Purchase
Agreement, dated May 28, 2004, between Ameristar Casinos, Inc. and
Windsor Woodmont Black Hawk Resort Corp.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 16, 2004
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
/s/ Jerry L. Dauderman
---------------------------------------
Jerry L. Dauderman
Chairman and Chief Executive Officer
/s/ Michael L. Armstrong
----------------------------------------
Michael L. Armstrong
Executive Vice President
Chief Financial Officer, Treasurer and
Secretary
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