<PAGE> 1
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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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.)
12160 N. Abrams Rd., Suite 516, Dallas, Texas 75243
(Address of principal executive offices) (Zip Code)
(214)575-8757
(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
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WINDSOR WOODMONT BLACK HAWK RESORT CORP.
FORM 10-Q
INDEX
<TABLE>
<S> <C>
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 2000 (unaudited) and December 31, 1999 2
Consolidated Statements of Operations for the three months and nine months ended
September 30, 2000 and 1999 and for the period from July 17, 1997
(date of inception) through September 30, 2000 (unaudited) 3
Consolidated Statement of Comprehensive Loss for the three months and nine months
ended September 30, 2000 and 1999 and for the period from July 17, 1997
(date of inception) through September 30, 2000 (unaudited) 4
Consolidated Statements of Redeemable Preferred Stock and Stockholders'
Equity for the nine months ended September 30, 2000 and
for the period from July 17, 1997 (date of inception)
through September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and for the period from July 17,
1997 (date of inception) through September 31, 2000 (unaudited) 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 13
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
1
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WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 78,711 $ 147,091
Cash and cash equivalents, restricted 46,326 --
Short-term investments, restricted 12,953,674 --
------------------ ------------------
Total current assets 13,078,711 147,091
LAND AND CONSTRUCTION IN PROGRESS
Land and site work 16,892,590 13,213,634
Construction in progress 21,860,175 15,965,947
------------------ ------------------
Total land and construction in progress 38,752,765 29,179,581
OTHER ASSETS:
Cash and cash equivalents, restricted 38,884,779 --
Investments, restricted 24,086,623 --
Funds held in escrow 575,820 1,786,990
Deferred financing costs, net of accumulated amortization
of $707,326 and $0, respectively 6,135,207 266,870
------------------ ------------------
TOTAL ASSETS $ 121,513,905 $ 31,380,532
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Construction accounts payable and accrued expenses $ 2,786,861 $ 15,293,234
Accrued interest 1,168,125 4,312,833
Short term notes payable 0 16,754,506
------------------ ------------------
Total current liabilities 3,954,986 36,360,573
NON CURRENT LIABILITIES
Notes Payable 105,879,772 --
Accrued dividends on preferred stock 285,072 --
Warrants issued on common stock 3,556,064 --
------------------ ------------------
Total non current liabilities 109,720,908 --
REDEEMABLE PREFERRED STOCK
Series A - 11% dividend, $100 redemption value, 29,000 shares outstanding 2,900,000 --
Series B - 7% dividend, $100 redemption value, 30,000 shares outstanding 1,667,652 --
------------------ ------------------
Total redeemable preferred stock 4,567,652 --
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 10,000,000 shares authorized,
1,000,000 shares outstanding 10,000 --
Additional paid in capital 12,241,250 1,000
Deficit accumulated during the development stage (9,101,283) (4,981,041)
Other comprehensive income 120,392 --
------------------ ------------------
Total stockholders' equity 3,270,359 (4,980,041)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 121,513,905 $ 31,380,532
================== ==================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 4
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period from
July 17, 1997
For the Three Months Ended For the Nine Months Ended (Date of Inception)
-------------------------------------------------------------------- Through
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999 September 30, 2000
-------------- -------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Interest income $ 1,809,117 $ 2,795,144 $ 2,795,144
-------------- -------------- -------------- -------------- -------------------
Total revenue 1,809,117 2,795,144 2,795,144
EXPENSES:
General and administrative 57 108,975 171 326,925 958,346
Start up costs 63,261 297,208 297,208
Interest expense 2,785,190 68,960 6,332,935 186,652 7,182,756
Write off previously capitalized costs 3,027,589
-------------- -------------- -------------- -------------- -------------------
Total expenses 2,848,508 177,935 6,630,314 513,577 11,465,899
-------------- -------------- -------------- -------------- -------------------
Net loss (1,039,391) (177,935) (3,835,170) (513,577) (8,670,755)
Preferred stock dividends 131,445 285,072 285,072
-------------- -------------- -------------- -------------- -------------------
Net loss attributable to
common stock $ (1,170,836) $ (177,935) $ (4,120,242) $ (513,577) $ (8,955,827)
============== ============== ============== ============== ===================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the period from
July 17, 1997
For the Three Months Ended For the Nine Months Ended (Date of Inception)
-------------------------------- -------------------------------- Through
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999 September 30, 2000
-------------- -------------- -------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Net loss $ (1,039,391) $ (177,935) $ (3,835,170) $ (513,577) $ (8,670,755)
Unrealized gain on securities held
for sale (387,086) 120,392 120,392
-------------- -------------- -------------- -------------- -------------------
Comprehensive loss $ (1,426,477) $ (177,935) $ (3,714,778) $ (513,577) $ (8,550,363)
============== ============== ============== ============== ===================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Redeemable
Preferred Stock Common Stock
------------------------------------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at July 17, 1997
Initial capital contribution 1,000 $ 10
Non-cash distribution to members
Net loss
------------- ------------- ------------- -------------
Balance at December 31, 1997 1,000 10
Net loss
------------- ------------- ------------- -------------
Balance at December 31, 1998 1,000 10
Net loss
------------- ------------- ------------- -------------
Balance at December 31, 1999 1,000 10
Issuance of common stock 999,000 9,990
11% Series A preferred stock 29,000 2,900,000
7% Series B preferred stock 30,000 3,000,000
Warrants for common stock attached to
Series B preferred stock (1,332,348)
Net loss
Unrealized loss on investments available for sale
------------- ------------- ------------- -------------
Balance at September 30, 2000 59,000 $ 4,567,652 1,000,000 $ 10,000
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Other Total
Paid In Development Comprehensive Stockholders'
Capital Stage Income Equity
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at July 17, 1997
Initial capital contribution $ 990 $ 1,000
Non-cash distribution to members (145,456) (145,456)
Net loss (589,413) (589,413)
------------- ------------- ------------- -------------
Balance at December 31, 1997 990 (734,869) (733,869)
Net loss (3,569,772) (3,569,772)
------------- ------------- ------------- -------------
Balance at December 31, 1998 990 (4,304,641) (4,303,641)
Net loss (676,400) (676,400)
------------- ------------- ------------- -------------
Balance at December 31, 1999 990 (4,981,041) (4,980,041)
Issuance of common stock 12,240,260 12,250,250
11% Series A preferred stock --
7% Series B preferred stock --
Warrants for common stock attached to
Series B preferred stock --
Net loss (4,120,242) (4,120,242)
Unrealized loss on investments available for sale 120,392 120,392
------------- ------------- ------------- -------------
Balance at September 30, 2000 $ 12,241,250 $ (9,101,283) $ 120,392 $ 3,270,359
============= ============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 7
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period from
July 17, 1997
For the Nine (Date of Inception)
Months Ended Through
Sept. 30, 2000 Sept. 30, 2000
-------------- -------------------
<S> <C> <C>
Cash flows used in operating activities
Net Loss $ (3,835,170) $ (8,670,755)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Write-off previously capitalized costs 3,027,589
Amortization of debt issuance costs 707,326 1,991,553
Changes in working capital:
Accrued interest (1,494,362) 2,945,878
-------------- -------------------
Net cash used in operating activities (4,622,206) (705,735)
-------------- -------------------
Cash flows from investing activities:
Decrease (increase) in funds held in escrow 1,211,170 (575,820)
Increase in land and construction in progress (13,460,405) (41,333,535)
Increase in cash - restricted, cost (38,931,105) (38,931,105)
Increase in investments, cost (36,919,905) (36,919,905)
Increase (decrease) in construction accounts payable (6,544,498) 7,894,049
-------------- -------------------
Net cash used in investment activities (94,644,743) (109,866,316)
-------------- -------------------
Cash flows from financing activities:
Deferred offering costs incurred (6,192,663) (6,459,533)
Payment of financing costs (1,284,227)
Proceeds from notes payable 105,879,772 124,480,127
Payment of notes payable (9,339,506) (14,937,571)
Proceeds from preferred stock - Series B 1,667,652 1,667,652
Proceeds from common stock issued for cash 4,010,250 4,011,250
Proceeds from warrants issued for cash 3,173,064 3,173,064
-------------- -------------------
Net cash provided by financing activities 99,198,569 110,650,762
-------------- -------------------
Net change in cash and cash equivalents (68,380) 78,711
Cash and cash equivalents, beginning of period 147,091 0
-------------- -------------------
Cash and cash equivalents, end of period $ 78,711 $ 78,711
============== ===================
Non Cash Items:
Land and construction in progress reductions
due to payment settlements and interest forgiven $ 3,887,221 $ 3,887,221
Deferred financing costs settled with warrants $ (383,000) $ (383,000)
Accrued interest forgiven $ (1,650,346) $ (1,650,346)
Accounts payable settled for less than face value $ (2,236,875) $ (2,236,875)
Notes payable converted to common stock $ (7,415,000) $ (7,415,000)
Accounts payable settled with Series A preferred stock $ (2,900,000) $ (2,900,000)
Accounts payable settled with common stock $ (825,000) $ (825,000)
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 8
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Windsor Woodmont Black Hawk Resort Corp., a Colorado corporation ("the
Company" or "the 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"). As
operations of the Project have not begun, the Company and the LLC are reporting
as development stage enterprises.
On March 14, 2000 (the "Closing Date") the Company completed the
private placement financing transactions discussed in Notes 2 and 3 below. Prior
to the Closing Date, all development activities were conducted by the LLC and
the Company was a wholly owned shell company subsidiary of the LLC with no
significant assets, liabilities or operating activity. On the Closing Date the
LLC contributed all of its assets and liabilities 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
the historical cost basis of the LLC. The LLC's ownership in the Company has
been 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. The Company will complete the development of the Project, and
upon completion, will operate the Project, which will be managed by Hyatt Gaming
Management, Inc.
The consolidated financial statements include the accounts of the
Company and the LLC, and for disclosures required of a development stage
enterprise, the financial statements include the accounts of the Company and the
LLC from July 17, 1997 (the date of inception of the LLC).
BASIS OF PRESENTATION
The financial information at September 30, 2000, and for the three
months and nine months ended September 30, 2000 and 1999 and for the period from
July 17, 1997 (date of inception) through September 30, 2000 is unaudited. The
financial statements have been prepared in accordance with generally accepted
accounting principles 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 generally accepted
accounting principles 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 months and nine months ended September 30, 2000 are not
necessarily indicative of the results that will be achieved for the entire year,
nor once the property in operational.
These financial statements should be read in conjunction with the
registration statement on form S-4 dated July 12, 2000.
CASH AND CASH EQUIVALENTS, RESTRICTED
The Company considers all highly liquid investments with a maturity at
the time of purchase of six months or less to be cash equivalents. Amounts are
held in several trust accounts by Norwest Bank (as cash disbursement agent) and
are restricted in use to the development of the Black Hawk Casino by Hyatt in
Black Hawk, Colorado or for the 13% First Mortgage Notes interest payments.
SHORT-TERM INVESTMENTS, RESTRICTED
The Company accounts for investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting requirements in equity securities that have readily
determinable fair values and for all investments in debt securities, and
requires such securities to be classified as either held to maturity, trading,
or available for sale.
7
<PAGE> 9
Management determines the appropriate classification of its investment
securities at the time of purchase and reevaluates such determination at each
balance sheet date. At September 30, 2000, the short-term investments consisted
of publicly traded corporate debt securities with a maturity date of 12 months
or less, and were classified as investments available for sale. As investments
available for sale, they are carried a market value, with unrealized holding
gain or loss reported as a separate component of stockholders' equity.
Amounts are held in several trust accounts by Norwest Bank (as cash
disbursement agent) and are restricted in use to the development of the Black
Hawk Casino by Hyatt in Black Hawk, Colorado or for the 13% First Mortgage Notes
interest payments.
DEBT ISSUANCE COSTS
The costs of issuing long-term debt have been capitalized and are being
amortized using the effective interest rate method over the term of the related
debt.
START UP COSTS
Start up costs are expensed as incurred.
WARRANTS ISSUED ON COMMON STOCK
Warrants issued in connection with the Company's various financing
transactions (see Note 2), contain a "put option" permitting the warrant holder
to redeem the warrant for cash. The value of the warrants were provided by the
Company's Placement Agent, U.S. Bancorp Libra. The warrants issued with the
first mortgage notes and second mortgage notes were valued at $1.64 million and
$160,000, respectively. The warrants issued with the Series B preferred stock
have been valued at $1.37 million. The value of warrants issued to the Placement
Agent was $383,000. Due to the cash based put option features of the warrants,
the total warrant value of $3.55 million has been recorded as a liability in the
accompanying consolidated balance sheet.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities, and related revenue and
expenses. Actual results could differ from those estimates.
2. PRIVATE PLACEMENT
On March 14, 2000, the Resort Corp. successfully completed the issuance
of $100 million in first mortgage notes in a Private Placement (the "Private
Placement Notes") which are senior secured obligations collateralized by
substantially all of Resort Corp.'s assets. The Private Placement Notes bear
interest at 13% per annum, payable semi-annually, mature in 2005 and contain
numerous covenants, including limitations on the payment of dividends on common
stock, the incurrence of additional indebtedness and the issuance of additional
preferred stock. The Private Placement Notes also have warrants attached that
will entitle the holders to purchase, at $0.01 per share, common stock of the
Company that represent, in the aggregate, approximately 20% of the fully diluted
common stock of the Company. The warrants are immediately exercisable and expire
in 10 years. Holders of the warrants have the right to put the warrants to
Resort Corp. for cash at any time after both (1) the date on which the notes
issued in the Private Placement are paid in full, whether at maturity or
pursuant to redemption or repurchase, and (2) the date on which the second
mortgage notes issued to Hyatt Gaming Management, Inc. are paid in full, whether
at maturity or pursuant to redemption or repurchase. The price the Company will
pay per warrant will be based on a fully diluted, per share total enterprise
value for Resort Corp. equal to (1)(a) 6.0 multiplied by earnings before
interest, taxes, depreciation, and amortization in each case of the four fiscal
quarters immediately preceding such purchase for which internal financial
statements are available, minus (b) funded debt minus (c) the liquidation
preference value of any outstanding preferred stock, plus (d) the cash to be
received upon the exercise of any warrants, options or convertible securities
having an exercise price less than the fair value of such common stock, divided
by (2) the number of shares of common stock outstanding on a fully diluted
basis. The holders of the warrants also have certain tag along and drag along
rights, as defined. Net proceeds from the Private Placement, after offering
expenses, was approximately $94.8 million. The net proceeds were used to fund
the development of the project and satisfy notes payable with Kennedy Funding,
Inc., National Westminster, National
8
<PAGE> 10
Westminster Capital Markets, Mohogany Ridge LP, American Equity Exchange,
Midcap, S-O Family Partnership, Miner's Mesa and Dan Robinowitz in addition to
certain accounts payable and accrued expenses that were significantly past due
at December 31, 1999.
Upon consummation of the Private Placement, the following transactions
also occurred:
o Resort Corp. amended its articles of incorporation whereby its
authorized stock now consists of 10,000,000 shares of common stock,
$0.01 par value per share, and 1,000,000 shares of preferred stock,
$0.01 par value per share. The shares of preferred stock may be issued
from time to time in one or more series.
o Resort Corp. issued 29,000 shares of its preferred stock as "Series
A" preferred stock and 30,000 shares of its preferred stock as "Series
B" preferred stock. The holders of both the Series A and Series B
preferred stock have no voting rights. The Series A preferred stock is
non-convertible, accrues cumulative, non-compounding dividends at the
rate of 11% per annum and has a liquidation preference of $100 per
share. Holders of the Series A preferred stock may redeem their shares
at a price per share equal to their liquidation preference plus accrued
and unpaid dividends thereon at any time after the later of (1) one
year after the notes issued in the Private Placement are paid in full,
whether at maturity or upon redemption or repurchase and (2) one year
after the second mortgage notes issued to Hyatt Gaming Management, Inc.
are paid in full, whether at maturity or upon redemption or repurchase.
The Series B preferred stock is non-convertible, accrues dividends on a
cumulative basis, compounding quarterly at a rate of 7% per annum and
has a liquidation preference of $100 per share. Holders of the Series B
preferred stock may redeem their shares at a price equal to their
liquidation preference plus accrued and unpaid dividends thereon at
March 15, 2015;
o The LLC contributed all of its assets and liabilities to Resort Corp.
in exchange the LLC received 368,964 shares of common stock of Resort
Corp. Such shares represent approximately 37% of the then outstanding
common stock of Resort Corp.;
o Notes payable in the amount of $7.4 million were converted to 383,461
shares of common stock of Resort Corp. and accrued interest in the
amount of approximately $1.5 million was forgiven;
o Resort Corp. obtained approximately $4.0 million in proceeds from the
sale of 247,575 shares of its common stock;
o As described above, Resort Corp. issued (a) $2.9 million of its 11%
mandatorily redeemable Series A preferred stock in satisfaction of
certain accrued salaries and other project development costs $(1.7
million) and accounts payable $(1.2 million);
o As described above, Resort Corp. issued $3.0 million of its 7%
mandatorily redeemable Series B preferred stock in exchange for cash.
The Series B preferred stock was issued with warrants that entitle the
warrant holders to purchase, at an exercise price of $0.01 per share,
common stock of Resort Corp. that represented, in the aggregate, 15% of
the fully diluted common stock of Resort Corp. These warrants have
substantially similar rights as the warrants issued in the Private
Placement;
o Resort Corp. obtained approximately $7.5 million in proceeds from the
issuance of second mortgage notes and warrants to Hyatt Gaming
Management, Inc. The warrants attached to the Hyatt Gaming Management,
Inc. second mortgage notes entitled the warrant holders to purchase, at
$0.01 per share, common stock of Resort Corp. that represented, in the
aggregate, 1.977% of the fully diluted common stock of Resort Corp.
These warrants have the same rights as the warrants issued in the
Private Placement;
o U.S. Bancorp Libra, as placement agent, received warrants that
entitle the warrant holders to purchase, at $0.01 per share, common
stock of Resort Corp. that represent, in the aggregate, 4.67% of the
fully diluted common stock of Resort Corp. These warrants have the same
rights as the warrants issued in the Private Placement.
9
<PAGE> 11
3. INCOME TAXES
The Resort Corp. accounts for Income Taxes according to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires the recognition of deferred tax assets, net of
applicable reserves, related to net operating loss carry-forwards and certain
temporary differences. The standard requires recognition of a future tax benefit
to the extent that the realization of such benefits is more likely than not.
Otherwise, a valuation allowance is applied. At September 30, 2000, Resort Corp.
believes that it is not more likely than not that any of its deferred tax assets
are realizable because of the absence of accurate future projected taxable
income. Accordingly, all deferred tax assets are fully reserved as of September
30, 2000.
4. 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 and may be subject to the licensability and
qualifications of the holders of its Series B preferred stock. There is no
guarantee that the Colorado Limited Gaming Control Commission will grant the
Company a gaming license. Additionally, upon receipt of a gaming license, such
licensing and qualifications will be reviewed periodically by the gaming
authorities in Colorado and there are no guarantees such license will be
renewed.
MANAGEMENT AGREEMENT
On February 2, 2000 the Company entered into a management agreement,
which was amended on March 14, 2000 (the "Management Agreement") with Hyatt
Gaming Management, Inc., which, in exchange for a fee, will manage the casino
operations. The management fee will be equal to a basic fee of 3% of the
adjusted gross receipts and an incentive fee equal to 5% of the earnings before
interest, taxes, depreciation and amortization for the appropriate fiscal year.
The incentive fee shall be paid only to the extent earnings before interest,
taxes, depreciation and amortization is positive and will be subordinated in
payment to the notes issued in the Private Placement. The Management Agreement
can be terminated by either party upon delivery of written notice if certain
events transpire.
SUCCESS FEE
The Company has agreed to pay Daniel P. Robinowitz, Chairman of the
Board, President and Chief Executive Officer a "success fee" of up to $800,000.
The success fee will be earned when construction of the Project is complete and
the casino is open, and will only be paid if funds, as defined, are available.
No costs have been accrued under this agreement as of September 30, 2000.
CONSTRUCTION RISKS
Any construction project entails significant construction risks,
including, without limitation, cost overruns, delays in receipt of governmental
approvals, shortages of material or skilled labor, labor disputes, unforeseen
environmental or engineering problems, work stoppages, fire and other natural
disasters, construction scheduling problems and weather interferences, any of
which, if it occurred, could delay construction or result in substantial
increase in costs to the Company.
ENVIRONMENTAL ISSUES
The Project will be located in a 400-square mile area that has been
designated by the United States Environmental Protection Agency (EPA) as the
Clear Creek/Central City National Priorities List Superfund Site under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
as a result of hazardous substance contamination caused by historical mining
activity in Black Hawk. This is a broad national priorities list site, within
which the EPA has identified several priority areas of contamination from
historical mining activities, including draining mines and mine dumps, for
active investigation and/or remediation. To date, the EPA has not identified the
Project site as being within a priority area nor has it identified contamination
on or from the project site to require remediation.
10
<PAGE> 12
We have been informed that the Superfund Division of the Colorado
Department of Public Health and the Environment (CDPHE), working with the EPA,
has sampled surface water in or near North Clear Creek near where a portion of
the Project site called Silver Gulch discharges surface water into North Clear
Creek. We have been informed that based on the results of those samples, the EPA
and the Colorado Superfund Division have expressed preliminary concern that soil
and rock associated with historic mining operations in Silver Gulch may be a
source of contamination to North Clear Creek. Even minor contamination could
form a basis for the EPA or CDPHE to require owners and operators of properties
which have been the source of contamination to investigate and remediate
contamination on or from their property or to reimburse costs incurred by the
government in connection with such remediation. The Project site could be among
the properties suspected of being a source of contamination. If investigation or
remediation of the project site were required, the Project schedule could be
delayed and costs could increase.
CONSTRUCTION AGREEMENT
The LLC has entered into a construction agreement, which was assigned
to the Company upon consummation of the Private Placement, with PCL Construction
Services, Inc. ("PCL") whereby PCL will build the Project. Subject to certain
conditions, PCL has guaranteed that the cost of the Project will not exceed
$42.2 million.
EXCAVATION AGREEMENT
The LLC has entered into an excavation agreement, which was assigned to
the Company upon consummation of the Private Placement, in which all excavation
for the project will be performed by D.H. Blattner & Sons, Inc. for $8.7
million. This is not a maximum price contract.
LEGAL PROCEEDINGS
Due to the LLC's delay in satisfying its outstanding debt obligations,
liens were placed on substantially all of the LLC's assets. The Company used a
portion of the proceeds from the Private Placement to satisfy all such
outstanding obligations.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the consolidated 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
registration statement on form S-4 dated July 12, 2000.
RESULTS OF OPERATIONS
Windsor Woodmont Black Hawk Resort Corp. has been in the development
stage since its inception and has not commenced operations. Prior to March 17,
2000 all costs have been borne by Windsor Woodmont, LLC, and such costs were
reimbursed with proceeds of the first mortgage notes offering and related
transactions. 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, if completed and
opened, 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, including those relating to the notes, we cannot assure you that we
will achieve these results.
Three Months Ended September 30, 2000 and Nine Months Ended September 30, 2000
The company does not have any historical operating results other than
interest expense on the Company's outstanding indebtedness, interest income on
the Company's restricted cash and short-term investments, start up costs, and
the capitalization of certain costs.
General and administrative expenses represent salaries and project
development services which have not been capitalized to our casino project. We
have capitalized salaries which, in management's opinion, are directly
attributable to the development of our casino. Accordingly, the decrease in
general and administrative expenses for the quarter ended September 30, 2000 and
the nine months ended September 30, 2000 compared to the quarter ended September
30, 1999 and the nine months ended September 30, 1999 is a result of
management's determination of the nature of the services being performed.
Start up costs are expensed as incurred. The increase in start up costs
for the quarter ended September 30, 2000 and the nine months ended September 30,
2000 compared to the quarter ended September 30, 1999 and the nine months ended
September 30, 1999 is attributable to start up costs being incurred and funded
with the successful completion of the note offering in March 2000.
Interest charges for the three months ended September 30, 2000 totaled
$3,954,061, including $333,724 in amortization of debt issuance costs. Of this
total, $1,168,871 was capitalized and $2,785,190 was expensed. Interest charges
for the three months ended September 30, 1999 totaled $939,374, including
$70,013 in amortization of debit issuance costs. Of this total, $870,414 was
capitalized and $68,960 was expensed. Interest charges for the three months
ended September 30, 2000 compared to the three months ended September 30, 1999
increased as a result of the issuance of the $100 million first mortgage notes
and the $7.5 million second mortgage notes.
Interest charges for the nine months ended September 30, 2000 totaled
$8,559,828 including $707,326 in amortization of debt issuance costs. Of this
total, $2,226,893 was capitalized and $6,332,935 was expensed. Interest charges
for the nine months ended September 30, 1999 totaled $2,727,252, including
$210,039 in amortization of debit issuance costs. Of this total, $2,540,600 was
capitalized and $186,652 was expensed. Interest charges for the nine months
ended September 30, 2000 compared to the nine months ended September 30, 1999
increased as a result of the issuance of the $100 million first mortgage notes
and the $7.5 million second mortgage notes.
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company completed debt financing totaling $107,500,000, a cash
preferred stock offering totaling $3,000,000, (series B preferred stock) and a
common stock offering totaling $4,010,250 (net of commissions paid). The company
converted $7,415,000 face amount of notes payable to common stock, and had
$1,650,346 in accrued interest forgiven. The Company also reduced accounts
payable and accrued expenses a total of $3,725,000 utilizing $2,900,000 in
preferred stock (series A preferred stock) and $825,000 of common stock issued
to Windsor Woodmont, LLC.
We estimate that we will need to obtain financing in the amount of
approximately $20.8 million to purchase furniture, fixtures and equipment for
our casino. We also intend to obtain $3.0 million from the issuance of special
improvement district bonds by the City of Black Hawk. We have not, however,
entered into any binding agreements for such financings; however, management
believes such financings will be obtained in due course.
We estimate that the proceeds from the financings completed and those
contemplated financings noted above will be sufficient to complete the
development and construction of our casino project. Following the commencement
of operations of our casino, we expect to fund our operating and capital needs
from operating cash flows.
We cannot assure you that any additional financing, if necessary to
meet liquidity requirements, will be available to us in the future, or that, if
available, any such financing will be on favorable terms. We cannot assure you
that our reasonably foreseeable liquidity needs are or will be accurate or that
new business developments or other unforeseen events will not occur, resulting
in the need to raise additional funds. We expect that the adequacy of our
operating cash flow will depend, among other things, upon patron acceptance of
our casino, the continued development of the Black Hawk market as a gaming
destination, the intensity of the competition, the efficiency of operations,
depth of customer demand, the effectiveness of our marketing and promotional
efforts and the performance by Hyatt Gaming of its management responsibilities.
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<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
On April 14, 2000, our board of directors approved the Incentive Stock
Option Plan of Windsor Woodmont Black Hawk Resort Corp., which provides for the
grant of options to purchase an aggregate of not more than 150,000 shares of our
common stock. The purpose of the plan is to promote our long-term growth and
profitability by providing key people with incentives to improve stockholder
value and contribute to our growth and financial success and by enabling us to
attract, retain and reward the best-available persons.
The plan provides for the granting of both incentive stock options
qualifying under Section 422 of the Internal Revenue Code of 1986 and
nonqualified stock options, stock appreciation rights, restricted or
unrestricted stock awards, phantom stock and performance awards. Awards of
incentive stock options under the plan are limited to employees and must have an
exercise price at least equal to the fair market value of our common stock at
the date of grant, but nonqualified stock options may have an exercise price
less than fair market value.
The plan will be administered by the board of directors or by a
committee appointed by the board of directors which determines the persons to be
granted options under the plan, the number of shares subject to each option, the
exercise price of each option and the option period.
The plan was approved by the shareholders in August, 2000.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable
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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: November 14, 2000
WINDSOR WOODMONT BLACK HAWK RESORT CORP.
/s/ Daniel Robinowitz
------------------------------------------
Daniel Robinowitz, Chief Executive Officer
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
