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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 September 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 November 12, 2004.
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
FORM 10-Q
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets, September 30, 2004 (unaudited) and December 31, 2003 2
Condensed Statements of Operations for the three months and nine months ended
September 30, 2004 and 2003 (unaudited) 3
Condensed Statements of Cash Flows for the three months and nine months ended
September 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
September 30, 2004
(Unaudited) December 31, 2003
------------------ -----------------
ASSETS
CURRENT ASSETS:
Cash $ 9,789,751 $ 8,283,104
Accounts receivable 168,685 144,400
Inventories 195,385 225,805
Prepaid expenses 1,617,713 1,819,513
Other current assets 32,952 33,043
------------- -------------
Total current assets 11,804,486 10,505,865
PROPERTY AND EQUIPMENT, NET 106,107,595 112,112,265
OTHER ASSETS:
Base stock inventories/uniforms, net of accumulated amortization 95,589 103,335
Funds held in escrow and security deposits 362,193 374,041
Franchise fees 40,000 40,000
Deferred financing costs, net 74,230 253,802
------------- -------------
TOTAL ASSETS $ 118,484,093 $ 123,389,308
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Post-Petition Liabilities
Trade accounts payable and accrued expenses $ 1,830,631 $ 3,430,973
Accrued interest 85,089 49,882
Other current liabilities 966,244 901,754
------------- -------------
Total Post-Petition Liabilities 2,881,964 4,382,609
------------- -------------
Pre-Petition Liabilities Subject to Compromise
Current portion of long-term debt 131,041,709 134,405,896
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 145,223,972 149,988,159
------------- -------------
Total current liabilities 148,105,936 154,370,768
------------- -------------
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 1,961,906 1,903,055
Accrued dividends on preferred stock 2,419,945 2,109,778
------------- -------------
Total redeemable preferred stock 7,281,851 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 (49,154,944) (50,859,263)
------------- -------------
Total stockholders' deficit (36,903,694) (38,608,013)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 118,484,093 $ 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 Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
OPERATING REVENUES:
Casino $ 15,706,786 $ 14,091,863 $ 44,651,779 $ 40,210,224
Food and beverage 1,852,134 1,606,594 4,984,797 4,687,719
Other 232,824 221,337 603,399 697,066
------------ ------------ ------------ ------------
17,791,744 15,919,794 50,239,975 45,595,009
Less: Promotional allowances (1,161,139) (956,691) (3,095,541) (2,922,972)
------------ ------------ ------------ ------------
Net operating revenues 16,630,605 14,963,103 47,144,434 42,672,037
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Casino 8,846,309 7,838,155 24,907,914 23,779,876
Food and beverage 1,430,048 1,439,981 4,021,856 4,181,274
Other operating expenses 195,082 228,960 498,121 808,567
General and administrative 2,544,265 2,454,552 7,481,860 7,418,240
Management fees - - - 679,162
Depreciation and amortization 2,132,991 2,083,055 6,392,811 6,239,703
------------ ------------ ------------ ------------
Total operating expenses 15,148,695 14,044,703 43,302,562 43,106,822
------------ ------------ ------------ ------------
Operating Income (Loss) 1,481,910 918,400 3,841,872 (434,785)
OTHER INCOME (EXPENSE):
Interest income 61 2,026 144 21,281
Interest expense (520,440) (581,033) (1,638,430) (1,813,993)
Loss on disposal of assets - - (18,322) -
Change in valuation of warrants - - 713,720 -
------------ ------------ ------------ ------------
Other expense, net (520,379) (579,007) (942,888) (1,792,712)
------------ ------------ ------------ ------------
Income (loss) before
reorganization items and preferred stock dividends 961,531 339,393 2,898,984 (2,227,497)
Reorganization items 290,319 734,093 884,498 8,086,312
------------ ------------ ------------ ------------
Income (loss) before preferred stock dividends 671,212 (394,700) 2,014,486 (10,313,809)
Preferred stock dividends - 146,261 310,167 433,273
------------ ------------ ------------ ------------
Net income (loss) attributable to
common stock $ 671,212 $ (540,961) $ 1,704,319 $(10,747,082)
============ ============ ============ ============
Income (Loss) per share
Basic $ 0.67 $ (0.54) $ 1.70 $ (10.75)
Diluted $ 0.67 $ (0.54) $ 1.70 $ (10.75)
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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
------------ ----------- ----------- ------------
Cash flows used in operating activities
Net income (loss) before preferred stock dividends $ 671,212 $ (394,700) $ 2,014,486 $(10,313,809)
Adjustments to reconcile net income (loss) before preferred stock
dividends to net cash provided by (used in) operating activities
Depreciation and amortization expense 2,132,991 2,083,055 6,392,811 6,259,020
Amortization of deferred financing costs 60,010 59,401 179,571 177,746
Amortization of preferred stock discount 19,817 19,028 58,851 56,478
Write-off base stock inventory/uniforms - 33,093 - 33,093
Change in valuation of warrants - - (713,720) -
Accrued Hyatt settlement charge - - - 5,000,000
Changes in working capital:
Accounts receivable (26,510) 59,643 (24,285) 289,711
Inventories 26,437 19,570 30,420 85,638
Prepaid expenses 573,224 451,088 201,800 1,237,551
Other current assets (5,585) (2,163) 91 (11,633)
Trade accounts payable and accrued expenses 1,048,178 819,441 (1,600,341) (1,195,811)
Accrued interest 42,545 (2,002,632) 35,207 (1,027,280)
Other current liabilities (94,069) (316,269) 64,490 531,206
----------- ----------- ----------- ------------
Net cash provided by operating activities 4,448,250 828,555 6,639,381 1,121,910
----------- ----------- ----------- ------------
Cash flows from investing activities:
Decrease (increase) in funds held in escrow (2,200) (2,000) 11,848 (67,541)
Increase in base stock inventory/uniforms - (23,292) - (23,292)
Increase in property and equipment (146,451) (219,097) (380,395) (1,025,011)
Increase in cash - restricted, cost - 2,353,939 - 2,350,616
Decrease in construction accounts payable - (2,300,000) (1,400,000) (2,300,000)
----------- ----------- ----------- ------------
Net cash used in investing activities (148,651) (190,450) (1,768,547) (1,065,228)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Payment of notes payable (1,106,684) - (3,364,187) (113,639)
----------- ----------- ----------- ------------
Net cash used in financing activities (1,106,684) - (3,364,187) (113,639)
----------- ----------- ----------- ------------
Net change in cash and cash equivalents 3,192,915 638,105 1,506,647 (56,957)
Cash and cash equivalents, beginning of period 6,596,836 7,325,896 8,283,104 8,020,958
----------- ----------- ----------- ------------
Cash and cash equivalents, end of period $ 9,789,751 $ 7,964,001 $ 9,789,751 $ 7,964,001
=========== =========== =========== ============
Supplemental Schedule of Noncash Financing Activities:
Preferred stock dividends accrued, but not paid $ - $ 146,261 $ 310,167 $ 433,273
Supplemental Cash Flow Information:
Interest Paid $ 393,316 $ 2,500,000 $ 1,346,896 $ 2,597,444
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 September 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).
5
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
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 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 September 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. In the
second quarter of 2004 the liability for the fair value of the warrants was
written down to $0. Non-operating income was recognized for the reduction in
fair market value for the quarter ended June 30, 2004 in the amount of $713,720.
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. See Note 7 - Plan of Reorganization.
ACCOUNTING POLICIES:
The financial information at September 30, 2004, and for the three
and nine months ended September 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
nine months ended September 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 September 30, 2004 and 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 September 30, 2004 and
December 31, 2003:
Principal Balance
September 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
September 30, 2004 and December 31, 2003) 13,770,343 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
------------ ------------
$131,041,709 $134,405,896
Less current maturities 131,041,709 134,405,896
------------ ------------
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
8
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
voluntary 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 $290,319 and $734,093 were incurred
during the three months ended September 30, 2004 and 2003, respectively, and
$884,498 and $8,086,312 during the nine months ended September 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
nine months ended September 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 2004 the
Company received the required gaming license renewals, for the licenses which
expired 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 (plus interest and attorneys' fees, with a total claim estimated to
total approximately $400,000 as of September 3, 2004) for architectural work
performed at the project. 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 was scheduled for December 1-9, 2004. After good faith
negotiations, the Company and Steelman have entered into a settlement agreement
in November 2004. Under the terms of the settlement agreement, subject to the
confirmation of our Plan of Reorganization, as discussed in Note 7 - Plan of
Reorganization, Steelman will be paid $300,000 in full and complete satisfaction
of the Steelman claim.
NOTE 6. ASSET PURCHASE AGREEMENT
The Company entered into an Asset Purchase Agreement with Ameristar
Casinos, Inc. on May 28, 2004, and amended on August 3, 2004, 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 Reorganization, as discussed in Note 7 - Plan of
Reorganization.
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 Casinos,
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, and in response to objections received, we filed our First
Amended Plan of Reorganization dated September 29, 2004. The Disclosure
Statement is filed to provide information of a kind
10
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(DEBTOR-IN-POSSESSION AS OF NOVEMBER 7, 2002)
NOTES TO CONDENSED FINANCIAL STATEMENTS
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 Disclosure Statement contains "adequate information" to make an
informed judgment in voting to accept or reject the Plan.
The Bankruptcy Court held a hearing on the adequacy of the First
Amended Disclosure Statement on October 5, 2004. At the conclusion of the
hearing, the Bankruptcy Court approved the First Amended Disclosure Statement
conditioned on the Company making certain changes to the document requested by
the Bankruptcy Court. On October 12, 2004, we filed our Second Amended Plan of
Reorganization, which incorporated the changes requested by the Bankruptcy
Court. On October 12, 2004, the Bankruptcy Court issued an order approving the
Second Amended Disclosure Statement and authorized the Company to disseminate
the Second Amended Plan and Second Amended Disclosure Statement to creditors and
parties in interest and to solicit votes with respect to the Second Amended
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. The Bankruptcy Court
further ordered that any objections to the confirmation of the Plan shall be
filed on or before November 15, 2004. The Bankruptcy Court further ordered that
a hearing for consideration of confirmation of the Plan and any objections to
the confirmation of the Plan will be held on December 13, 2004.
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 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 September 30,
--------------------------------
2004 2003 Increase (Decrease)
----------- ----------- ------------------------
Net Operating Revenues $16,630,605 $14,963,103 $1,667,502 11.1%
Total Operating Expenses 15,148,695 14,044,703 1,103,992 7.9%
----------- ----------- ----------
Operating Income 1,481,910 918,400 563,510 61.4%
Add: Depreciation and Amortization 2,132,991 2,083,055 49,936 2.4%
----------- ----------- ----------
EBITDA* $ 3,614,901 $ 3,001,455 $ 613,446 20.4%
=========== =========== ==========
EBITDA* Margin 21.7% 20.1% 1.6%
=========== =========== ==========
Nine Months Ended September 30,
-------------------------------
2004 2003 Increase (Decrease)
----------- ----------- --------------------------
Net Operating Revenues $47,144,434 $42,672,037 $4,472,397 10.5%
Total Operating Expenses 43,302,562 43,106,822 195,740 0.5%
----------- ----------- ----------
Operating Income (Loss) 3,841,872 (434,785) 4,276,657 n/a
Add: Depreciation and Amortization 6,392,811 6,239,703 153,108 2.5%
----------- ----------- ----------
EBITDA* $10,234,683 $ 5,804,918 $4,429,765 76.3%
=========== =========== ==========
EBITDA* Margin 21.7% 13.6% 8.1%
=========== =========== ==========
* 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, depreciation and amortization expense, and miscellaneous
other income (expense) items 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 September 30, 2004 Compared to Three Months Ended September
30, 2003:
Total operating revenues for the quarter ended September 30, 2004
was $17,791,744 ($16,630,605 net of promotional allowances). This included
$15,706,786 in casino revenue, $1,852,134 in food and beverage revenue, and
$232,824 of other revenue. This compares to total operating revenues for the
quarter ended September 30, 2003 of $15,919,794 ($14,963,103 net of promotional
allowances) and represented an increase of 11.8% of total revenues (11.1% net of
promotional allowances). This included $14,091,863 in casino revenue, $1,606,594
in food and beverage revenue, and $221,337 of other revenue.
Casino operating expenses for the quarter ended September 30, 2004
totaled $8,846,309, including $3,107,542 in state and local gaming taxes and
device fees. This compares to casino operating expenses for the quarter ended
September 30, 2003 totaling $7,838,155, including $2,782,498 in state and local
gaming taxes and device fees. This represents an increase of 12.9% 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 September 30, 2004
totaled $1,430,048, including $988,844 in cost of goods sold. This compares to
food and beverage expenses for the quarter ended September 30, 2003 totaling
$1,439,981, including $923,435 in cost of goods sold, representing a decrease of
0.7% in food and beverage expenses.
13
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.
Other operating expenses for the quarter ended September 30, 2004
totaled $195,082 versus $228,960 for the quarter ended September 30, 2003, and
consist of salaries, wages and benefits, contract entertainment expense, and
other operating expenses. This represents a decrease of approximately 14.8% 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 September
30, 2004 totaled $2,544,265 versus $2,454,552 for the quarter ended September
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
September 30, 2004 totaled $2,132,991 versus $2,083,055 for the quarter ended
September 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 September 30, 2004 totaled
$520,440, including $60,010 in amortization of debt issuance costs. This
compares to interest expense for the quarter ended September 30, 2003, which
totaled $581,033, including $59,401 in amortization of debt issuance costs. The
net reduction represents a decrease of approximately 10.4% 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 September 30, 2004
totaled $290,319. 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 September 30, 2003, which totaled
$734,093.
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.
Nine months Ended September 30, 2004 Compared to Nine months Ended September 30,
2003:
Total operating revenues for the nine months ended September 30,
2004 was $50,239,975 ($47,144,434 net of promotional allowances). This included
$44,651,779 in casino revenue, $4,984,797 in food and beverage revenue, and
$603,399 of other revenue. This compares to total operating revenues for the
nine months ended September 30, 2003 of $45,595,009 ($42,672,037 net of
promotional allowances) and represented an increase of 10.2% of total revenues
(10.5% net of promotional allowances). This included $40,210,224 in casino
revenue, $4,687,719 in food and beverage revenue, and $697,066 of other revenue.
Casino operating expenses for the nine months ended September 30,
2004 totaled $24,907,914, including $8,840,151 in state and local gaming taxes
and device fees. This compares to casino operating expenses for the nine months
ended September 30, 2003 totaling $23,779,876, including $8,232,929 in state and
local gaming taxes and device fees. This represents an increase of 4.7% 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 nine months ended September 30,
2004 totaled $4,021,856, including $2,686,721 in cost of goods sold. This
compares to food and beverage expenses for the nine months ended September 30,
2003 totaling $4,181,274, including $2,536,961 in cost of goods sold,
representing a decrease of 3.8% 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 nine months ended September 30,
2004 totaled $498,121 versus $808,567 for the nine months ended September 30,
2003, and consist of salaries, wages and benefits, contract entertainment
expense,
14
and other operating expenses. This represents a decrease of approximately 38.4%
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 nine months ended
September 30, 2004 totaled $7,481,860 versus $7,418,240 for the nine months
ended September 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 nine months ended
September 30, 2004 totaled $6,392,811 versus $6,239,703 for the nine months
ended September 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 nine months ended September 30, 2004
totaled $1,638,430, including $179,571 amortization of debt issuance costs. This
compares to interest expense for the nine months ended September 30, 2003, which
totaled $1,813,993, including $177,746 in amortization of debt issuance costs.
The net reduction represents a decrease of approximately 9.7% 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 nine months ended September 30, 2004
totaled $884,498. 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 nine months ended September 30, 2003, which totaled
$8,086,312. The September 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 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
nine months ended September 30, 2004.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
15
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 September
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 September 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 (plus interest and attorneys' fees, with a total claim estimated to
total approximately $400,000 as of September 3, 2004) for architectural work
performed at the project. 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 was scheduled for December 1-9, 2004. After good faith
negotiations, the Company and Steelman have entered into a settlement agreement
in November 2004. Under the terms of the settlement agreement, subject to the
confirmation of our Plan of Reorganization, as discussed in Note 7 - Plan of
Reorganization, Steelman will be paid $300,000 in full and complete satisfaction
of the Steelman claim.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
17
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Plan of Reorganization dated October 12, 2004.
2.2 Disclosure Statement to Accompany Plan of Reorganization dated
October 12, 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
None
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: November 12, 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
18
INDEX TO EXHIBITS
2.1 Plan of Reorganization dated October 12, 2004.
2.2 Disclosure Statement to Accompany Plan of Reorganization dated
October 12, 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.