SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1995
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 1-7831
ELSINORE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 88 0117544
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
202 FREMONT STREET, LAS VEGAS, NEVADA 89101
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (Including Area Code): 702/385-4011
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
ninety (90) days.
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.
TITLE OF STOCK NUMBER OF SHARES
CLASS DATE OUTSTANDING
Common August 10, 1995 15,635,218
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Consolidated Financial Statements:
Balance Sheets at June 30, 1995 and
December 31, 1994 3
Statements of Operations for the Three
Months Ended June 30, 1995 and 1994 4
Statements of Operations for the Six
Months Ended June 30, 1995 and 1994 5
Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 5. Other Information 18
Item 6. Exhibits and Reports of Form 8-K 18
SIGNATURES 19
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
(Dollars in Thousands)
June 30, December 31,
1995 1994
Assets
Current Assets: (UNAUDITED)
Cash and cash equivalents $ 1,550 $ 3,407
Accounts receivable, less allowance for
doubtful accounts of $204 and $214,
respectively 672 742
Notes and other loans receivable from Native
American Tribes, current portion 2,250 -
Inventories 242 396
Prepaid expenses 1,813 1,659
Total current assets 6,527 6,204
Cash and cash equivalents - restricted - 3,685
Notes and other loans receivable from Native
American Tribes, net of current portion 20,894 16,952
Casino development costs 241 1,250
Investment in Fremont Street Experience 3,117 3,000
Property and equipment, net 26,836 28,341
Leasehold acquisition costs, net of accumulated
amortization of $4,588 and $4,485,
respectively 2,251 2,354
Deferred charges and other assets 5,962 5,529
$ 65,828 $ 67,315
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 4,732 $ 2,088
Prior period income taxes and related interest 3,871 5,870
Accrued expenses 5,525 6,442
Current portion of long-term debt 47 2,309
Total current liabilities 14,175 16,709
Long-term debt, net of current portion
and unaccreted discount 56,663 52,081
Deferred income taxes 189 189
Total liabilities 71,027 68,979
Shareholders' deficit:
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 15,635,218 and 13,135,214
shares, respectively 16 13
Additional paid in capital 65,085 61,346
Accumulated deficit (70,300) (63,023)
Total shareholders' deficit ( 5,199) (1,664)
Commitments and contingencies (note 4).
$ 65,828 $ 67,315
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
Three Month Periods Ended June 30, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1995 1994
Revenues:
Casino $ 9,799 $ 11,819
Hotel 2,331 2,318
Food and beverage 3,003 3,119
Interest and other 551 321
Promotional allowances (1,652) (1,795)
14,032 15,782
Costs and Expenses:
Casino 3,293 3,532
Hotel 2,388 2,540
Food and beverage 2,666 2,800
Taxes and licenses 1,549 1,691
Selling, general and administrative 2,774 3,274
Rent 977 839
Depreciation and amortization 1,019 935
Interest, prior period tax obligation 194 114
Interest 2,317 2,170
17,177 17,895
Loss before income taxes (3,145) (2,113)
Income taxes - -
Net loss $ (3,145) $ (2,113)
Loss per common and equivalent share $ (0.20) $ (0.18)
Weighted average number of common
and equivalent shares outstanding 15,635,218 12,066,648
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
Six Month Periods Ended June 30, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1995 1994
Revenues:
Casino $ 20,557 $ 23,441
Hotel 4,773 4,576
Food and beverage 6,262 6,303
Interest and other 1,245 715
Promotional allowances (3,544) (3,856)
29,293 31,179
Costs and Expenses:
Casino 6,925 7,625
Hotel 4,751 4,918
Food and beverage 5,582 5,342
Taxes and licenses 3,369 3,483
Selling, general and administrative 5,663 5,906
Rent 1,943 1,659
Casino development costs 1,037 -
Depreciation and amortization 2,038 1,857
Interest, prior period tax obligation 652 204
Interest 4,610 4,338
36,570 35,332
Loss before income taxes (7,277) (4,153)
Income taxes - -
Net loss $ (7,277) $ (4,153)
Loss per common and equivalent share $ (0.48) $ (0.34)
Weighted average number of common
and equivalent shares outstanding 15,220,853 12,064,418
See accompanying notes to consolidated financial statements.
<PAGE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six Month Periods Ended June 30, 1995 and 1994
(Dollars in Thousands)
(UNAUDITED)
1995 1994
Cash flows from operating activities:
Net loss $ (7,277) $ (4,153)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,038 1,857
Accretion of discount on long-term debt 649 552
Write-off of casino development costs 1,037 -
Change in assets and liabilities:
Accounts receivable 70 167
Inventories 154 (30)
Prepaid expenses (154) (169)
Deferred charges and other assets (789) 149
Accounts payable 2,644 (314)
Prior period taxes and related interest (1,999) 217
Accrued expenses (917) 668
Total adjustments 2,733 3,097
Cash provided by (used in)
operating activities (4,544) (1,056)
Cash flows from investing activities:
Notes and loans receivable from Native
American Tribes (6,192) (2,725)
Investment in Fremont Street Experience (117) (1,122)
Capital expenditures (40) (3,427)
Cash used in investing activities (6,349) (7,274)
Cash flows from financing activities:
Issuance of 7.5% convertible notes, due 1996 1,706 -
Direct costs of convertible notes issuance (62) -
Principal repayments of long-term debt (35) (102)
Proceeds from issuance of common stock,
net of underwriting discounts and
commissions 4,020 8
Other direct costs of common stock issuance (278) -
Debt issuance costs - (503)
Cash provided by (used in)
financing activities 5,351 (597)
Decrease in cash and cash equivalents (5,542) (8,927)
Cash and cash equivalents at beginning of
period (including restricted amounts of
$3,685 and $25,716 at December 31, 1994
and 1993, respectively) 7,092 30,830
Cash and cash equivalents at end of period
(Including restricted amounts of $0 and
$17,321 at June 30, 1995 and 1994,
respectively) $ 1,550 $ 21,903
See accompanying notes to consolidated financial statements.
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 AND 1994
--UNAUDITED--
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The condensed consolidated financial statements include the accounts
of Elsinore Corporation (the "Company") and its wholly owned
subsidiaries, namely Four Queens, Inc. ("Four Queens"), Four Queens
Experience Corporation, Elsub Management Corporation, Pinnacle Gaming
Corporation and Olympia Gaming Corporation. The consolidated
condensed financial statements also include the accounts of Palm
Springs East limited Partnership, in which the Company has a 90%
ownership interest. In the opinion of management, the accompanying
condensed consolidated financial statements include all adjustments
(of a normal recurring nature) which are necessary for a fair
presentation of the results for the interim periods presented.
Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted pursuant to such
rules and regulations of the Securities and Exchange Commission.
Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that
these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
Certain items in the June 30, 1994 financial statements have been
reclassified for comparability with the June 30, 1995 presentation.
2. LONG-TERM DEBT:
On March 31, 1995, the Company completed the private placement of
$1,706,250 of the Company's 7.5% Convertible Subordinated Notes due
December 31, 1996 (convertible notes). The convertible notes,
convertible into the Company's common stock at $1.125 per share
subject to certain antidilution provisions, are payable in two equal
quarterly installments commencing September 30, 1996. Interest is
also payable quarterly, commencing December 31, 1995.
On June 30, 1995, the Company obtained from its noteholders waivers of
certain noncompliance with the Company's covenants under the debt
facilities governing its 12.5% First Mortgage Notes due 2000 ("First
Notes") and its 20% Mortgage Notes due 1996 ("Mortgage Notes"). The
debt covenant noncompliance would have arisen from the Company's
inability to achieve by June 30, 1995, and thereafter maintain a
positive Consolidated Net Worth and a Consolidated Fixed Charges
Coverage Ratio of 1.5 to 1, and from the Company's dispute regarding
management of the Spotlight 29 Casino in Palm Springs, California.
Effective June 30, 1995, the Company amended certain terms and
provisions of the Indenture governing the First Notes and the Note and
Stock Purchase Agreement governing the Mortgage Notes. The amendments
(I) eliminated through the fiscal year 1997 the requirement that the
Company maintain a Consolidated Fixed Charges Coverage Ratio and
reduced the size of such ratio the Company will be required to
maintain from fiscal year 1998 through the maturity date of each
series of notes, (ii) imposed a new debt covenant requiring the
Company to have Consolidated EBITDA of at least $5 million for the six
month period ending June 30, 1996 and at least $7.5 million for the
nine month period ending September 30, 1996, and (iii) deleted from
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 AND 1994
--UNAUDITED--
the default provisions any references to the Palm Springs Casino. In
addition, the amendment to the Mortgage Notes eliminated the mandatory
quarterly redemptions of principal commencing on June 30, 1995, and
extended the Mortgage Notes maturity date from March 31, 1996 until
March 31, 2000. Pursuant to the Mortgage Note amendment, the mortgage
notes may be put by the holders thereof on a semi-annual basis
commencing March 31, 1996, but may not be called by the Company prior
to maturity.
As additional consideration given by the Company to the noteholders
for the waivers and amendments described above, the Company obtained
on June 30, 1995, from each holder of its 7.5% Convertible
Subordinated Notes due December 31, 1996 ("Convertible Notes") a
Waiver of Compliance and Agreement to Amend Promissory Note
("Convertible Notes Waiver"). Pursuant to the Convertible Notes
Waiver, the Company's mandatory redemptions of principal due on each
of March 31, 1996 and June 30, 1996 were eliminated and the amount of
its mandatory redemptions of principal due on each of September 30,
1996 and December 31, 1996 was proportionately increased.
3. COMMON STOCK OFFERING:
On January 25, 1995, the Company completed a public offering of
2,500,000 shares of the Company's common stock for $1.75 per share.
Net proceeds to the Company after payment of underwriting discounts
and commissions and other direct costs of the offering was
approximately $3,742,000.
4. COMMITMENTS AND CONTINGENCIES:
PALM SPRINGS, CALIFORNIA CASINO PROJECT. On March 16, 1995, Elsinore
Corporation, its wholly owned subsidiary, Elsub Management
Corporation, and Palm Springs East Limited Partnership, of which Elsub
Management is the General Partner, (collectively the "Company") filed
a complaint against the 29 Palms Band of Mission Indians (the "Tribe")
in the United States District Court for the Central District of
California. The complaint sought injunctive and declaratory relief
based upon the Tribe's breach of the Spotlight 29 management contract.
Plaintiffs alleged that the Tribe breached the contract when it
installed "pull-tab" video gaming machines at the casino managed by
the Company without the Company's consent and without any involvement
whatsoever by the Company in the operation of the machines. The
complaint alleged that these actions violated the terms of the
contract which gives the Company the exclusive right to manage and
operate the casino and violated the contract's non-compete provisions.
The complaint stated that the Company did not, and could not, consent
to the installation and operation of the machines at the casino
because the State of California has expressed a legal position that,
because such machines are Class III gaming devices under the IGRA,
their operation on Native American reservations in California was
illegal. Moreover, because the Company is subject to regulation by
Nevada gaming authorities which require that the Company's conduct
conform to the laws of the State of California and the IGRA, the
Company's consent to the installation or involvement in the operation
of the gaming devices at the Spotlight 29 Casino could subject it to
disciplinary action by the Nevada gaming authorities. Consequently,
the Company filed the complaint to obtain a judicial declaration as to
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 AND 1994
--UNAUDITED--
whether "pull-tab" video gaming devices are legal on tribal lands in
California and, unless they are declared legal, to enjoin the
operation of such devices at the Spotlight 29 Casino.
On April 2, 1995, the Company was requested by the Tribe to provide
additional working capital advances to the Spotlight 29 Casino. The
Company demanded that as a condition of satisfying the Tribe's request
for additional operating capital, the Tribe execute promissory notes
for all working capital advances and loans to date and also for the
additional sums requested, waive its sovereign immunity relative to
enforcement of such promissory notes and resume negotiation of the
terms of an agreement terminating the relationship between the Company
and the Tribe. On April 13, 1995, the Tribe refused to comply with
these demands. On April 14, 1995, the Company ceased the funding of
working capital to the Spotlight 29 Casino in view of the alleged
breach of the management contract and loan agreement by the Tribe.
On April 17, 1995, the Company's employees, assigned to the Spotlight
29 Casino, were ordered from and physically escorted off the premises
of the Spotlight 29 Casino. The Company does not have any employees
or representatives at the Spotlight 29 Casino and the Tribe has de
facto discharged the Company as manager of the Spotlight 29 Casino.
On April 19, 1995, the Company issued a demand letter to the Tribe
declaring a complete breach of the management contract and loan
agreement as well as claiming damages exceeding $12.5 million. On
April 20, 1995, the Company withdrew as moot the motion for a
preliminary injunction scheduled for hearing on April 24, 1995, and
dismissed without prejudice the Federal Court action. By letter dated
May 16, 1995, the Tribe delivered to the Company a "Notice to
Terminate Management Agreement". The notice asserted material breaches
of the contract and requested payment of approximately $1.5 million to
cover working capital shortfalls by June 16, 1995 or the Tribe would
terminate the management agreement. In the opinion of management, the
contract had previously been breached by the Tribe which excused all
performance by the Company.
If the Company is unable to obtain a negotiated resolution of the
dispute with the Tribe, the Company intends to pursue civil litigation
for the referenced damages in the appropriate judicial forum.
In light of the Company's disassociation with the operations of the
Spotlight 29 Casino, management determined to write off, during the
three month period ended March 31, 1995, the unamortized balance of
casino development costs incurred for the project of $1,037,000 and
ceased the accrual of interest on all loans and working capital
advances. Because of the uncertainty regarding both the future
operational success of the Spotlight 29 Casino and the Tribe's ability
to respond to monetary damages, management is unable to predict, at
this time, the ultimate outcome of the dispute.
LEGAL PROCEEDINGS. See above for a discussion regarding the Company's
dispute with the 29 Palms Band of Mission Indians.
The Company is a defendant in two consolidated lawsuits pending in the
Federal Court for the District of New Jersey, alleging violation by
the Company and certain of its subsidiaries and affiliates of the
Worker Adjustment and Retraining Notification Act ("WARN Act") and
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 AND 1994
--UNAUDITED--
breach of contract. The Company has vigorously defended the action
on, among other grounds, the basis that the Company is not responsible
for claims against affiliates and even if the WARN Act does apply as a
matter of law to a regulatory-forced closing, such closing, as a
matter of fact, was due to unforeseeable business circumstances and
accordingly, the notice given was as timely as practicable. The trial
concluded August 11, 1993.
On June 30, 1995, the Court issued an Order For Verdict Upon Liability
Issues ("Order") which concluded that the Company had no liability
under the WARN Act claim but was liable in the consolidated case
involving breach of contract. The Order is stayed until the Findings
of Fact and Conclusions of Law are entered by the Court which could be
forthcoming at any time. Until such Findings of Fact are entered the
Company is not able to make a determination concerning the extent of
its ultimate exposure or whether an appeal of the decision is
appropriate.
At June 30, 1995, the Company and its subsidiaries were parties to
various other claims and lawsuits arising in the normal course of
business. While the amounts claimed in some instances are substantial
and ultimate liability with respect to such claims cannot be
determined, management is of the opinion that the resolution of all
pending matters will not have a material adverse effect upon the
Company's financial statements taken as a whole.
5. FINANCIAL CONDITION, LIQUIDITY AND GOING CONCERN:
LOSSES FROM EXISTING OPERATIONS
FOUR QUEENS HOTEL AND CASINO. During the six month period ended June
30, 1994, the results of operations of the Four Queens Hotel and
Casino were adversely effected by, among other things, increased
competition due to the opening of three large casino/hotels on the Las
Vegas Strip in late 1993 and, to a lesser extent, the refurbishment
program at the Four Queens. During the six
month period ended June 30, 1995, the results of operations have
continued to be negatively effected, primarily due to the traffic
disruption caused by the construction of the Fremont Street Experience
attraction and related infrastructure improvements.
The Company anticipates the Four Queens operating results will not
improve until the fourth quarter of 1995, when the major construction
activities related to the Fremont Street Experience are complete.
SPOTLIGHT 29 CASINO. During the period from the January 14, 1995
opening of Spotlight 29 Casino through the cessation of the Company's
involvement with those operations on April 17, 1995 (see note 4), the
casino incurred substantial operating losses. These losses,
principally resulting from the negative impact of two competing tribal
casinos' significant expansion of their illegal Class III gaming
operations, necessitated the Company to provide working capital
advances through April 14, 1995 of approximately $1.2 million. As
previously discussed in note 4, the Company intends to pursue a
negotiated settlement to recover the aggregate $12.5 million loaned to
the Tribe plus accrued interest thereon, or failing that settlement,
to pursue legal action to effect recovery of such amounts.
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
--UNAUDITED--
7 CEDARS CASINO. During the period from its opening on February 3,
1995 through June 30, 1995, the 7 Cedars Casino anticipated and
incurred a cumulative net loss and an attendant decrease in working
capital. Although the Company anticipated that gaming revenues at the
casino would increase in the late spring and summer of 1995 as a
result of increased tourist visitation to the Olympic Peninsula,
gaming revenues, in fact, decreased during the months of May and June
1995 versus April 1995. Management believes the decreases are the
result of reduced local population visitation resulting from competing
outdoor activities, the opening of a competing Native American Casino
in May 1995 and certain road and bridge improvement projects that have
disrupted visitation patterns to the casino and lower than expected
visitation by tourists. In June 1995, the Company implemented certain
cash containment measures to bring the casino's cost structure more in
line with customer volume. There is no assurance that 7 Cedars Casino
will generate increased gaming revenues or have the capacity to reduce
costs to become profitable.
Pursuant to its management agreement regarding the 7 Cedars Casino,
the Company is obligated to fund a reserve for "working capital" in
the amount of $500,000 for the 7 Cedars Casino. If the present
negative operating trend continues, the Company will be called upon to
provide additional working capital to the casino during the remainder
of 1995. The term "Working Capital" is not defined in the management
agreement. The Company believes the parties did not intend to apply a
working capital definition based on generally accepted accounting
principles which, in the Company's view, would be impracticable in the
context of the management agreement and which, in practice, has never
been followed. If such a definition were applied, the Company would be
required to significantly, increase its working capital advances to
the 7 Cedars Casino. The Company is seeking to clairfy this matter
with the Tribe.
LIQUIDITY
The Company's liquidity in 1994 and during the six month period ended
June 30, 1995 was significantly affected by its substantial debt
service obligations and will be further affected during the remainder
of 1995 by such obligations and by some or all of the following items:
IRS INSTALLMENT AGREEMENT: Pursuant to an installment payment
agreement dated May 31, 1995, the Company is obligated to pay the IRS
$275,000 per month through December 1995 and then $550,000 per month
from January 1996 until the IRS Assessment is fully discharged, in
April 1996. The Company has paid the IRS $2,700,000 as of July 28,
1995, of which $2,650,000 was paid during 1995.
7 CEDARS CASINO OPERATING SHORTFALLS: See discussion above under Losses
From Existing Operations: 7 Cedars Casino.
OBLIGATIONS ASSUMED FROM TEMPLE: In consideration for certain
amendments to the Nashville Nevada LLC operating contract beneficial
to Elsinore, the Company has agreed to advance up to approximately
$169,000 of Temple's payment obligations relating to its development
of the Mojave Valley Resort. In addition, the Company has agreed to
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
--UNAUDITED--
loan Temple up to $150,000 to fund Temple's share of certain pre-
construction costs at Nashville Nevada, which loans will be repaid in
the event the requisite financing for the project is obtained.
NASHVILLE NEVADA PROJECT EXPENSE: As a condition to its participation
in the Nashville Nevada project, Mojave Gaming will be required to
make a capital contribution of $10,000,000 to the venture developing
Nashville Nevada on or before September 30, 1995. There is no
assurance the Company will be able to obtain the necessary financing
for such contribution on commercially acceptable terms, or at all.
WARN ACT LITIGATION: The trial in the liability phase in this matter
concluded August 11, 1993. On June 30, 1995, the Court issued an Order
For Verdict Upon Liability Issues ("Order") which concluded that the
Company had no liability under the WARN Act claim but was liable in
the consolidated case involving breach of contract. The Order is
stayed until the Findings of Fact and Conclusions of Law are entered
by the Court which could be forthcoming at any time. Until such
Findings of Fact are entered the Company is not able to make a
determination concerning the extent of its exposure or whether an
appeal of the decision is appropriate.
For the remainder of 1995, unless the Company's available cash and
funds generated from operations significantly increases, the Company
is able to extend its debt service requirements, or a sufficient
portion of the outstanding loans to the 29 Palms Band of Mission
Indians is received, the Company will need to
obtain additional working capital in order to satisfy its payment
obligations during the year. Moreover, the need for additional
capital may be further increased in the event that (I) a material
adverse judgment is rendered against the Company in the pending WARN
Act litigation (See preceding discussion of Warn Act Litigation); or
(ii) there is any significant decline in the Company's results of
operations; (iii) the development and opening of the Fremont Street
Experience is materially delayed or is subject to material cost
overruns. Without additional financing, the Company believes that it
is unlikely it will be able to maintain a level of operating cash flow
necessary to satisfy all of its financial obligations for the
remainder of 1995. To meet these obligations, the Company anticipates
it will have to raise additional working capital, refinance or extend
repayment of its outstanding debt, obtain from the noteholders
additional waivers of default or covenant noncompliance under the
First Mortgage Notes and the Mortgage Notes, or a combination of the
foregoing. There is no assurance that any of these alternatives could
be effected on satisfactory terms. In particular, certain covenants
of the indenture relating to the First Mortgage Notes and of the
purchase agreement relating to the Mortgage Notes restrict the ability
of the Company and its subsidiaries to incur additional indebtedness
or to secure such indebtedness and may impair the Company's ability to
obtain additional debt financing. If these alternatives prove to be
unavailable, Elsinore may be required to sell assets or seek
protection under bankruptcy laws.
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AMERICAN STOCK EXCHANGE FINANCIAL GUIDELINES:
The Company does not currently fully satisfy the financial condition
and operating results guidelines for continued listing on the the
American Stock Exchange and there can be no assurance that the listing
will be continued.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
This discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
The Company's working capital deficit at June 30, 1995 decreased to
$7,648,000 from $10,505,000 at December 31, 1994. Cash and cash
equivalents, including restricted amounts of $3,685,000 at December
31, 1994 decreased $5,542,000 during the six months ended June 30,
1995. Major uses of cash during the period included payments of
$2,650,000 applied to prior period income taxes and related interest
and loans aggregating $6,192,000 advanced to tribes in conjunction
with completion and opening of the Spotlight 29 Casino and the 7
Cedars Casino projects.
On January 25, 1995, the Company raised approximately $4,020,000 net
of underwriting discounts and commissions, but before deducting other
direct offering costs in consideration for the issuance of 2,500,000
shares of Common Stock. The net proceeds have been used for debt
service and other working capital purposes as of the date of this
report.
On March 31, 1995, the Company sold, through a private placement to
six purchasers, an aggregate of $1,706,250 principal amount of its
7.5% Convertible Subordinated Notes. The net proceeds have been used
for debt service and other working capital purposes as of the date of
this report.
LIQUIDITY
Currently, the Company's primary sources of liquidity are cash flows
from the operations of the Four Queens Hotel and Casino and management
fees and loan principal and interest payments from the 7 Cedars Casino
in Washington State. The substantial decrease in gaming revenues,
operating results and cash flows experienced by the Four Queens in
1994 continued through the six month period ended June 30, 1995
principally resulting from traffic disruption caused by construction
of the Fremont Street Experience attraction and related downtown
infrastructure improvements.
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the period from its opening on February 3, 1995 through June
30, 1995, 7 Cedars Casino incurred a cumulative net loss and an
attendant decrease in working capital. Although the Company
anticipated that gaming revenues would increase in the late spring and
summer of 1995 as a result of increased tourist visitation to the
Olympia Peninsula, gaming revenues, in fact, decreased during the
months of May and June 1995 versus April 1995. Management believes the
decreases are the result of reduced local population visitation
resulting from competing outdoor activities, the opening of a
competing Native American Casino in May 1995 and certain road and
bridge improvement projects that have disrupted visitation patterns to
the casino and lower than expected visitation by tourists. In June
1995, the Company implemented certain cash containment measures to
bring the casino's cost structure more in line with customer volume.
There is no assurance that 7 Cedars Casino will generate increased
gaming revenues or have the capacity to reduce costs to become
profitable.
In addition to the impact of impaired results of operations, the
Company's liquidity during the six month period ended June 30, 1995
was sufficiently affected by its substantial debt service obligations
and for the remainder of 1995 will be further affected by such
obligations and by some or all of the following items:
IRS INSTALLMENT AGREEMENT: The Company is obligated to pay the IRS
$275,000 per month through December 1995 and then $550,000 per month
from January 1996 until the IRS Assessment is fully discharged, during
April 1996. The Company has paid the IRS $2,700,000 through July 28,
1995, of which $2,650,000 was paid during 1995.
NATIVE AMERICAN CASINO OPERATING SHORTFALLS: See notes to Consolidated
Financial Statements.
OBLIGATIONS ASSUMED FROM TEMPLE: In consideration for certain
amendments to the Nashville Nevada LLC operating contract beneficial
to Elsinore, the Company has agreed to advance up to approximately
$169,000 of Temple's payment obligations relating to its development
of the Mojave Valley Resort. In addition, the Company has agreed to
loan Temple up to $150,000 to fund Temple's share of certain pre-
construction costs for Nashville Nevada, which loans will be repaid
in the event the requisite financing for the project is obtained.
NASHVILLE NEVADA PROJECT EXPENSE: As a condition to its participation
in the Nashville Nevada project, Mojave Gaming will be required to
make a capital contribution of $10,000,000 to the venture developing
Nashville Nevada on or before September 30, 1995. There is no
assurance that the Company will be able to obtain the necessary
financing for such contribution on commercially acceptable terms, or
at all.
WARN ACT LITIGATION: The trial in the liability phase in this matter
concluded August 11, 1993. On June 30, 1995, the Court issued an Order
For Verdict Upon Liability Issues ("Order") which concluded that the
Company had no liability under the WARN Act claim but was liable in
the consolidated case involving breach of contract. The Order is
stayed until the Findings of Fact and Conclusions of Law are entered
by the Court which could be forthcoming at any time.
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Until such Findings of Fact are entered the Company is not able to
make a determination concerning the extent of its exposure or whether
an appeal of the decision is appropriate.
For the remainder of 1995, unless the Company's available cash and
funds generated from operations significantly increases, the Company
is able to extend its debt service requirements, or a sufficient
portion of the outstanding loans to the 29 Palms Band of Mission
Indians is received, the Company will need to
obtain additional working capital in order to satisfy its payment
obligations during the year. Moreover, the need for additional
capital may be further increased in the event that (I) a material
adverse judgment is rendered against the Company in the pending WARN
Act litigation (See preceding discussion of Warn Act Litigation); or
(ii) there is any significant decline in the Company's results of
operations; (iii) the development and opening of the Fremont Street
Experience is materially delayed or is subject to material cost
overruns. Without additional financing, the Company believes that it
is unlikely it will be able to maintain a level of operating cash flow
necessary to satisfy all of its financial obligations for the
remainder of 1995. To meet these obligations, the Company anticipates
it will have to raise additional working capital, refinance or extend
repayment of its outstanding debt, obtain from the noteholders
additional waivers of default or covenant noncompliance under the
First Mortgage Notes and the Mortgage Notes, or a combination of the
foregoing. There is no assurance that any of these alternatives could
be effected on satisfactory terms. In particular, certain covenants
of the indenture relating to the First Mortgage Notes and of the
purchase agreement relating to the Mortgage Notes restrict the ability
of the Company and its subsidiaries to incur additional indebtedness
or to secure such indebtedness and may impair the Company's ability to
obtain additional debt financing. If these alternatives prove to be
unavailable, Elsinore may be required to, sell assets or seek
protection under bankruptcy laws.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
REVENUES
Total revenues, net of promotional allowances, decreased $1,750,000
(11.1%). However, casino revenues, decreased $2,020,000 (17.1),
primarily due to disruption of traffic flow to downtown Las Vegas
caused by construction of the Fremont Street Experience attraction and
related infrastructure improvements and lower than expected hold
percentages in table games. Promotional allowances, which
are subtracted from gross revenues, decreased $143.000 (8.0%) for the
same reasons.
The decrease in casino revenues, from the comparable prior period,
consisted of a $1,415,000 (34.4%) decrease in table game revenues and
a $605,000 (7.8%) decrease in slot revenues. The decrease in table
games revenues is about equally attributable to unfavorable volume and
win variances, especially Craps, while the decrease in slot revenues
is almost entirely due to decreased volumes of play.
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Hotel revenues for the 1995 period were slightly higher than 1994.
Food and beverage revenues decreased by $116,000 (3.7%) reflecting the
lower volume of customer traffic in the casino during the 1995
quarter. Interest and other income increased $230,000 primarily
because of interest earned on notes receivable and advances arising
from the 7 Cedars Casino project.
COSTS AND EXPENSES
Total costs and expenses, excluding interest, depreciation and casino
development costs decreased $1,029,000 (7.0%). Casino costs and
expenses decreased $239,000 (6.8%) primarily as a result of the
combined effects of reduced casino payroll expenses resulting from
cost containment programs and the decrease in casino volume. Hotel
expenses decreased 152,000 (6.0%) due to reduced payroll and other
operating expenses.
Food and beverage expenses decreased $134,000 (4.8%) in line with
decreased food and beverage revenues.
Taxes and licenses decreased $142,000 (8.4%) primarily due to lower
gaming taxes as a result of lower gaming revenues. Selling, general
and administrative expenses decreased $500,000 (15.3%) from 1994
primarily due to reductions of payroll costs, outside services and
other expenses of the administrative and development departments.
Rent expenses increased $138,000 (16.4%) primarily because of an
increase in gaming equipment leased under operating leases.
Depreciation and amortization increased $84,000 (9.0%) primarily
because of amortization of debt issue costs related to long-term debt
and to a lesser extent because of increased depreciation as a result
of capital expenditures.
Interest on prior period tax obligations increased $80,000 primarily
because of accruals at higher effective rates during the quarter.
Interest expense, excluding interest on prior period income taxes,
increased $147,000 primarily because of interest on the $3,000,000
face amount 20% mortgage notes issued in October 1994.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
REVENUES
Total revenues, net of promotional allowances, decreased $1,886,000
(6.0%). However, casino revenues, decreased $2,884,000 (12.3%),
primarily due to the disruption of traffic flow to downtown Las Vegas
caused by construction of the Fremont Street Experience attraction and
related infrastructure improvements and lower than expected hold
percentages in table games. Promotional allowances, which
are subtracted from gross revenues, decreased $312,000 (8.1%) for the
same reasons.
The decrease in casino revenues, from the comparable prior period,
consisted of a $2,033,000 (23.2%) decrease in table game revenues
and a $851,000 (5.8%) decrease in slot revenues. The decreases in
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
table games revenues resulted from decreases in both volumes of play
and win percentages. The decrease in slot revenues resulted primarily
from decreases in volumes of play.
In contrast to the decrease in casino revenues, hotel revenues
increased $197,000 (4.3%) in 1995 primarily because of increased room
occupancy. (The Four Queens refurbishment program reduced available
room nights by about 7,800 during the 1994 March quarter).
Food and beverage revenues decreased by $41,000 (0.7%) primarily due
to a decrease in beverage revenues which was mostly offset by
increased food revenues. Interest and other income increased $530,000
primarily because of interest earned on notes receivable and advances
arising from Native American casino development.
COSTS AND EXPENSES
Total costs and expenses, excluding interest, depreciation and casino
development costs decreased $700, 000 (2.4%). Casino costs and
expenses decreased $700,000 (9.2%) primarily as a result of reduced
casino payroll expenses resulting from cost containment programs and
the decrease in casino volume. Hotel expenses decreased 167,000
(3.4%).
Food and beverage expenses increased $240,000 (4.5%). Food cost of
goods sold increased $131,000 (6.8%) and food payroll costs increased
$167,000 (8.9%), primarily because of the combined effects of the use
of two loss leaders (prime rib and shrimp cocktail) in an effort to
attract additional casino customers and the operations of the two new
specialty restaurants, which did not open until the second quarter of
1994. Beverage expenses were slightly less during 1995.
Taxes and licenses increased 114,000 (3.3%) in 1995 with higher
payroll taxes partially offset by lower gaming taxes expenses.
Selling, general and administrative expenses decreased $243,000 (4.1%)
from 1994 primarily as a result of reduced payroll expenses resulting
from cost containment programs.
Casino development costs of $1,037,000 (which were to be amortized
over the initial 60 months of the management contract), were charged
to expense during the quarter ending March 31, 1995, because of the
Company's disengagement from management of the Spotlight 29 Casino
operation, described more fully elsewhere herein.
Rent expenses increased $284,000 (17.1%) primarily because of an
increase in gaming equipment leased under operating leases.
Depreciation and amortization increased $181,000 (9.7%) primarily
because of amortization of debt issue costs related to long-term debt
and to a lesser extent because of increased depreciation as a result
of capital expenditures.
Interest on prior period tax obligations increased $448,000 primarily
because of accruals at higher effective rates during the quarter.
Interest expense, excluding interest on prior period income taxes,
increased $272,000 primarily because of interest on the $3,000,000
face amount, 20% mortgage notes, issued in October 1994.
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Disclosed in Note 4 of the Condensed Consolidated
Financial Statements in Part 1 and is incorporated by
reference herein.
Item 5. Other Information:
Described in Notes 4 and 5 of the Condensed
Consolidated Financial Statements in Part 1 and is
incorporated by reference herein.
Item 6. Exhibits and Reports of Form 8-K:
(a) Letter From Court and "Order For Verdict
Upon Liability Issues" relating to
WARN Act litigation.
(b) Form 8-K dated July 7, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto authorized.
ELSINORE CORPORATION
(Registrant)
By: /s/ Thomas E. Martin
THOMAS E. MARTIN, President
and Chief Executive Officer
By: /s/ Gary R. Acord
GARY R. ACORD, Sr. Vice
President and Chief Financial
Officer
Dated: August 14, 1995
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
CHAMBERS OF UNITED STATES COURTHOUSE
JEROME B. SIMANDLE ONE JOHN F. GERRY PLAZA
DISTRICT JUDGE P.O. BOX 885
CAMDEN, NJ 08101
(609) 757-6187
June 30, 1995
Theodore M. Lieverman, Esquire
Tomar, Simonoff, Adourian, O'Brien,
Kaplan, Jacoby & Graziano
41 South Haddon Avenue
Haddonfield, NJ 08033
William F. Maderer, Esquire
Saiber, Schlesinger, Satz & Goldstein
One Gateway Center
Newark, NJ 07102-5311
Phil C. Neil, Esquire
Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
Re: Hotel Employees Restaurant Employers International
Union Local 54 v. Elsinore Shore Associates, etc.,
Civil No. 89-2143 (JBS)
Finkler, et al. v. Elsinore Shore Associates, etc.,
Civil No. 89-2330 (JBS)
Dear Counsel:
The enclosed Order for Verdict Upon Liability Issues was
filed with the Clerk today, and a confirmed copy is enclosed.
The court's Findings of Fact and Conclusions of Law will be
filed shortly. I had expected to have the Findings in final form
today, but regrettably a short additional period will be
required. Because I did not wish to further delay your knowledge
of the decisions upon these aspects, I decided to enter the
accompanying Order for Verdict Upon Liability Issues, which
specifically is stayed until the Findings of Fact and Conclusions
of Law are entered. Likewise, entry of Judgement is stayed until
the Findings are entered. This means that the time for any
motion for reconsideration of appeal or other proceeding shall
not begin to run until the findings are entered.
I will arrange to send the Findings by overnight mail when
entered, which I expect in the next 14 days. At that time we can
have a status conference to discuss the next proceedings to be
undertaken.
Very truly yours,
JEROME B. SIMANDLE
U.S. District Judge
JBS:bg
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
HOTEL EMPLOYEES RESTAURANT :
EMPLOYERS INTERNATIONAL UNION
LOCAL 54, :
Plaintiff, : Civil No. 89-2143 (JBS)
v. : and
ELSINORE SHORE ASSOCIATES : ORIGINAL FILED
d/b/a ATLANTIS HOTEL AND June 5, 1995
CASINO, et al., : WILLIAM M. WALSH, CLERK
Defendants. :
---------------------------------
DANIEL L. FINKLER, et al., on :
behalf of themselves and all
others similarly situated, :
Plaintiffs, :
v. : Civil No. 89-2330 (JBS)
ELSINORE SHORE ASSOCIATES :
d/b/a ATLANTIS HOTEL AND
CASINO, et al., :
Defendants. :
ORDER FOR
VERDICT UPON LIABILITY ISSUES
These consolidated cases came before the court for
trial without a jury upon liability issues; and
The court having reviewed all evidence presented,
including testimony, documents and stipulations, together with
the post-trial proposed findings of fact and conclusions of law;
and
Having also considered the trial briefs and oral
arguments of cause; and
For reasons to be set forth in Findings of Fact and
Conclusions of Law to be filed shortly consistent with Rule
52(a), Fed. R. Civ. P.;
IT IS this 30th day of June, 1995, hereby
ORDERED that plaintiffs have failed to demonstrate
defendants' liability with respect to plaintiffs' claims under
the Worker Adjustment and Retraining Notification Act ("WARN
Act"), 29 U.S.C. SS 2101-2109 and applicable regulations
thereunder; and
IT IS FURTHER ORDERED that the eligible sub-class of
plaintiffs in the Finkler case, Civil No. 89-2330 (JBS), have
demonstrated that defendant Elsinore Shore Associates ("ESA") is
liable for breach of the retroactive pay agreements with such
eligible employees under the terms of the "Benefit Installment or
Lump Sum Payment Agreement" in the full amount of consideration
less any payments received, together with prejudgment interest
under New Jersey law; and
IT IS FURTHER ORDERED that the eligible sub-class of
plaintiffs in the Finkler case have demonstrated that defendants
Elsinore of Atlantic City ("EAC") and Elsub Corporation ("Elsub")
are jointly liable as general partners of ESA for ESA's
contractual liability supra, under the retroactive pay
agreements, and further that defendant Elsinore Corporation
("Elsinore") is jointly liable with Elsub for this indebtedness
by operation of New Jersey law; and
IT IS FURTHER ORDERED that operation of this order for
Verdict Upon Liability Issues by stayed, and that no Judgment
hereon be entered, until the forthcoming Findings of Fact and
Conclusions of Law have been entered.
___________________________
JEROME B. SIMANDLE
U.S. DISTRICT JUDGE
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