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, 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 October 30, 1995 15,891,793
ELSINORE CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Consolidated Financial Statements:
Balance Sheets at September 30, 1995 and
December 31, 1994 3
Statements of Operations for the Three-
Month Periods Ended September 30, 1995 and
1994 4
Statements of Operations for the Nine-
Month Periods Ended September 30, 1995 and
1994 5
Statements of Cash Flows for the Nine-
Month Periods Ended September 30, 1995 and
1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(Dollars in Thousands)
September 30, December 31,
1995 1994
(UNAUDITED)
Assets
Current Assets:
Cash and cash equivalents $ 2,266 $ 3,407
Accounts receivable, less allowance for
doubtful accounts of $221 and $214,
respectively 1,028 742
Inventories 206 396
Prepaid expenses 1,286 1,659
Total current assets 4,786 6,204
Cash and cash equivalents - restricted - 3,685
Notes and other loans receivable from Native
American Tribes 19,340 16,952
Casino development costs - 1,250
Investment in Fremont Street Experience 3,450 3,000
Property and equipment, net 26,173 28,341
Leasehold acquisition costs, net of accumulated
amortization of $4,640 and $4,485,
respectively 2,199 2,354
Deferred charges and other assets 4,262 5,529
$ 60,210 $ 67,315
Liabilities and Shareholders' Deficit
Current liabilities:
Current portion of long-term debt 47 2,309
Prior period income taxes and related interest 3,586 5,870
Accounts payable $ 5,504 $ 2,088
Accrued interest 3,899 2,063
Accrued expenses 4,140 4,379
Total current liabilities 17,176 16,709
Long-term debt, net of current portion
and unaccreted discount 56,741 52,081
Deferred income taxes 189 189
Total liabilities 74,106 68,979
Shareholders' deficit:
Common stock, $.001 par value per share.
Authorized 100,000,000 shares. Issued
and outstanding 15,891,793 and 13,135,214
shares, respectively 16 13
Additional paid-in capital 65,309 61,346
Accumulated deficit (79,221) (63,023)
Total shareholders' deficit (13,896) (1,664)
Commitments and contingencies (note 7).
$ 60,210 $ 67,315
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
Three-Month Periods Ended September 30, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1995 1994
Revenues:
Casino $ 9,689 $ 11,374
Hotel 2,183 2,287
Food and beverage 2,709 3,205
Interest and other 627 413
Promotional allowances (1,452) (1,834)
13,756 15,445
Costs and Expenses:
Casino 3,164 3,604
Hotel 2,470 2,578
Food and beverage 2,554 2,976
Taxes and licenses 1,649 1,822
Selling, general and administrative 2,792 2,790
Write-down of loan receivable from
Native American Tribe (note 3) 4,258 -
Casino development costs (note 3) 1,049 -
Rent 1,082 823
Depreciation and amortization 995 995
Interest 2,400 2,292
Interest, prior period income tax
obligation 264 491
22,677 18,371
Loss before income taxes (8,921) (2,926)
Income taxes - -
Net loss $ (8,921) $ (2,926)
Loss per common and equivalent share $ (0.56) $ (0.24)
Weighted average number of common
and equivalent shares outstanding 15,877,849 12,079,164
See accompanying notes to consolidated financial statements.
Elsinore Corporation and Subsidiaries
Consolidated Statements of Operations
Nine-Month Periods Ended September 30, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1995 1994
Revenues:
Casino $ 30,246 $ 34,815
Hotel 6,956 6,863
Food and beverage 8,971 9,508
Interest and other 1,872 1,128
Promotional allowances (4,996) (5,690)
43,049 46,624
Costs and Expenses:
Casino 10,089 11,229
Hotel 7,221 7,496
Food and beverage 8,136 8,318
Taxes and licenses 5,018 5,305
Selling, general and administrative 8,455 8,696
Rent 3,025 2,482
Write-down of loan receivable from
Native American Tribe (note 3) 4,258 -
Casino development costs (note 3) 2,086 -
Depreciation and amortization 3,033 2,852
Interest 7,010 6,630
Interest, prior period income tax
obligation 916 695
59,247 53,703
Loss before income taxes (16,198) (7,079)
Income taxes - -
Net loss $ (16,198) $ (7,079)
Loss per common and equivalent share $ (1.05) $ (0.59)
Weighted average number of common
and equivalent shares outstanding 15,383,988 12,069,387
See accompanying notes to consolidated financial statements.
<PAGE>
Elsinore Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine-Month Periods Ended September 30, 1995 and 1994
(Dollars in Thousands)
(UNAUDITED)
1995 1994
Cash flows from operating activities:
Net loss $(16,198) $ (7,079)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 3,033 2,852
Accretion of discount on long-term debt 1,021 854
Write-off of loans receivable from Native
American Tribes 4,258 -
Write-off of casino development costs 2,086 -
Change in assets and liabilities:
Accounts receivable (286) 42
Inventories 190 (33)
Prepaid expenses 373 (50)
Deferred charges and other assets (207) 97
Accounts payable 3,416 193
Payment of prior period income taxes
and related interest (3,200) -
Accrual of interest on prior period
income taxes 916 695
Accrued interest 1,836 2,168
Accrued expenses (239) 592
Total adjustments 13,197 7,410
Cash provided by (used in)
operating activities (3001 ) 331
Cash flows from investing activities:
Notes and loans receivable from Native
American Tribes (6,646) (7,520)
Investment in Fremont Street Experience (350) (1,122)
Capital expenditures (40) (4,223)
Cash used in investing activities (7,036) (12,865)
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) (152)
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 (140) (585)
Cash provided by (used in)
financing activities 5,211 (729)
Decrease in cash and cash equivalents (4,826) (13,263)
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
$13,726 at September 30, 1995 and 1994,
respectively) $ 2,266 $ 17,567
See accompanying notes to consolidated financial statements.
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995 andn 1994
--UNAUDITED--
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The 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, Olympia Gaming Corporation and Mojave Gaming, Inc.
The consolidated financial statements also include the accounts of
Palm Springs East limited Partnership, in which the Company has a 90%
general partership interest, and Nashville Nevada, LLC, in which the
Company has a 70% membership 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 September 30, 1994 financial statements have
been reclassified for comparability with the September 30, 1995
presentation.
2. ELSINORE CORPORATION BANKRUPTCY FILING:
On October 31, 1995, the Company and certain subsidiaries filed a
voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code with the United States Bankruptcy Court for the
District of Nevada (Las Vegas, Nevada). The file number
in the case is 95-24685 RCJ with Judge Robert C. Jones presiding.
On November 10, 1995, Olympia Gaming Corporation filed the same
Voluntary petition in the same court.
In connection with the filing of the petition, the Company has been
informed by the American Stock Exchange that trading has been halted
indefinitely pending clarification of the outcome of the bankruptcy
proceedings.
3. NATIVE AMERICAN CASINO OPERATIONS:
SPOTLIGHT 29 CASINO. Since March 1995, Elsinore Corporation, its
wholly owned subsidiary, Elsub Management Corporation and Palm
Springs East Limited Partnership, of which Elsub is the general
partner (collectively the "Company"), and the Twenty-Nine Palms Band
of Mission Indians (the"Tribe") have been involved in a dispute
regarding, among other things, the terms of a management contract
(the"Contract") under which the Company had the exclusive right to
manage and operate the Spotlight 29 Casino, owned by the Tribe,
located near Palm Springs, California (the"Casino").
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEME
September 30, 1995 AND 199
--UNAUDITED--
On April 17, 1995, the Company was ousted as manager of the Casino
and on April 19, 1995, the Company issued a demand letter to the
Tribe declaring a breach of the Contract and a related loan agreement
under which the Company had lent approximately $12.5 million to the
Tribe for construction of the Casino and for working capital
contributions. The demand letter claimed damages in the full amount
of the funds which had been advanced to the Tribe.
On May 16, 1995, in response to the Company's demand, 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 by June 16, 1995
to cover working capital shortfalls or the Contract would be
terminated.
On October 31, 1995, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court for the District of Nevada (Las Vegas,
Nevada).
The Company has been involved in protracted negotiations with the
Tribe for a settlement of the respective claims asserted by the
parties since the events described above and believes that a
resolution of the dispute is possible which could recover a
substantial portion of the Company's investment over time. There can
be no assurance that a settlement agreement can be reached with the
Tribe or that the bankruptcy court will approve the final settlement.
However, based upon the progress to date of the aforementioned
negotiations, in September 1995 the Company wrote-down to $9,000,000
the aggregate amount advanced to the Tribe and accrued interest
thereon.
7 CEDARS CASINO. Elsinore Corporation, through its wholly-owned
subsidiary, Olympia Gaming Corporation (collectively the "Company"),
has a Gaming Project Development and Management Agreement (the
"Contract") to operate the 7 Cedars Casino which is located on the
Olympic Peninsula in the state of Washington and is owned by the
Jamestown S'Klallam Tribe. In addition, the Company lent $9 million
to the Tribe for construction of the casino pursuant to the Contract.
Under the terms of the Contract, the Company is obligated to
establish a reserve fund for "working capital", which is not defined,
in the amount of $500,000 for operation of the Casino. 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
Contract and which, in practice, has never been followed. Since its
opening on February 3, 1995, the Casino has incurred a cumulative net
loss and an attendant decrease in working capital which has been
substantial.
On November 1, 1995, the Tribe asserted that the Company had
defaulted on the June, July, August and September 1995 minimum
guaranteed payments to the Tribe as defined by the Contract in the
aggregate amount of $100,000 and requested immediate payment. In
addition, the Tribe demanded that sufficient monies be paid to enable
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEME
September 30, 1995 AND 199
--UNAUDITED--
all current gaming project expenses to be paid and the working
capital reserve to be maintained at the required funding level. The
Tribe demanded that a minimum of $2,540,000 be paid immediately and
also contended that the working capital shortfall could be as high as
approximately $5,390,000 according to their interpretation of the
Contract. On November 13, 1995, the Company received a letter from
the Tribe dated November 9, 1995 asserting that the Contract had been
terminated as a result of the Company's failure to make the payments
which had been demanded.
On November 10, Olympia Gaming filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court for the District of Nevada. (Las
Vegas, Nevada).
Based upon the cumulative net loss incurred for 7 Cedars Casino,
management determined to write-off the remaining unamortized balance
of capitalized casino development costs of approximately $242,000 in
September 1995.
MOJAVE VALLEY RESORT PROJECT. As a condition to its participation in
the Mojave Valley Resort project, a joint venture between Mojave
Gaming, Inc. ("Mojave Gaming"), a wholly owned subsidiary of
Elsinore Corporation and Mojave Valley Resort Casino Company, an
affiliate of Temple Development Company, to develop a master planned
casino resort on land leased from the Fort Mojave Indian Tribe,
Mojave Gaming was required to make a capital contribution to the
venture by September 30, 1995. The contribution was not made and
therefore, the contract terminated. Based upon the foregoing,
management determined to write-off approximately $807,000,
representing all capitalized costs incurred for the project, in
September 1995.
4. PRIOR PERIOD INCOME TAXES AND RELATED INTEREST:
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. The Company has paid
the IRS $3,250,000 as of September 30, 1995.
5. 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 are
convertible into the Company's common stock at $1.125 per share
subject to certain antidilution provisions.
As additional consideration given by the Company to the convertible
noteholders for certain waivers and amendments described below, the
Company obtained on June 30, 1995, from each holder of the
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
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEME
September 30, 1995 AND 199
--UNAUDITED--
proportionately increased. Interest is payable quarterly, commencing
December 31, 1995.
On September 6, 1995, the holders of Convertible Notes with a face
amount of $281,250, effected the conversion of the notes and accrued
interest thereon into 256,575 shares of the Company's common stock.
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 near 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 positive consolidated net
worth and 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 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.
6. 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.
7. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS. Reference is made to the Legal Proceedings
section of the Company's Form 10-K report for the year ended December
31, 1994.
On October 31, 1995, the Company and certain subsidiaries filed a
voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the
District of Nevada (Las Vegas, Nevada). The file number in the case
is 95-24685-RCJ with Judge Robert C. Jones presiding.
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEME
September 30, 1995 AND 199
--UNAUDITED--
Thomas Hyland, a professional card counter and blackjack player,
filed a complaint on August 23, 1995 in Federal District Court in
Camden, New Jersey, No. 95CV2236 (JEI), against the Company and
virtually every other casino company in the United States. The
complaint alleges violations of the antitrust, consumer fraud and
fair credit reporting laws by the defendants in illegally conspiring
to prevent Mr. Hyland and other professional card counters from
playing blackjack in their respective casinos. The complaint alleges
that the defendants share information concerning card counters and
then act in concert to implement an industry wide policy in banning
them at the blackjack tables.
Management believes that the claims are without merit and do
not believe that the lawsuit will have a material adverse effect on
the Company's financial statements.
See note 3 for a discussion regarding the Company's disputes with
the 29 Palms Band of Mission Indians and the Jamestown S'Klallam
Tribe.
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
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
and Conclusions of Law 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 September 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 consolidated financial statements taken as a whole.
8. FINANCIAL CONDITION AND LIQUIDITY:
LOSSES FROM EXISTING OPERATIONS
FOUR QUEENS HOTEL AND CASINO. During the nine-month period ended
September 30, 1994, the results of operations of the Four Queens
Hotel and Casino were adversely effected by, among other things,
ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEME
September 30, 1995 AND 199
--UNAUDITED--
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 nine-month
period ended September 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 after the opening of the Fremont Street Experience
project at the end of November 1995.
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, 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 (See Note 3 for discussion regarding the Company's
settlement negotiations with the Tribe).
7 CEDARS CASINO. During the period from its opening on February 3,
1995 through September 30, 1995, the 7 Cedars Casino incurred a
significant 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 summer months of 1995.
Management believes the decrease is the result of reduced local
population visitation resulting from competing outdoor activities,
the opening of a competing Native American Casino in May 1995,
certain road and bridge improvement projects that have disrupted
visitation patterns to the casino and, finally, substantially lower
than expected visitation by tourists. During the summer 1995, the
Company implemented certain cash containment measures and commencing
November 13, 1995, reduced the days of operation to Wednesday through
Sunday 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
further reduce costs to become profitable (See Note 3 for discussion
regarding the Company's obligation to fund working capital to
7 Cedars Casino).
LIQUIDITY
The Company's liquidity in 1994 and during the nine-month period
ended September 30, 1995 was significantly affected by its
substantial debt service obligations. For the remainder of 1995,
the Company should experience less liquidity pressure because of the
protection afforded by the bankruptcy laws in the payment of
obligations incurred prior to the filings and arising under certain
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
executory contracts entered into prior to the filing of the
bankruptcy petition and the opening of the Fremont Street
Experience. These events may be offset, however, by the normal,
seasonal declines experienced during the latter part of the fourth
quarter.
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 September 30, 1995 increased
to $12,390,000 from $10,505,000 at December 31, 1994. Cash and cash
equivalents, including restricted amounts of $3,685,000 at December
31, 1994 decreased $4,826,000 during the nine months ended September
30, 1995. Major uses of cash during the period included payments of
$3,200,000 applied to prior period income taxes and related interest,
and loans aggregating $6,646,000 advanced to Native American Tribes
in conjunction with completion and opening of the Spotlight 29 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.
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.
LIQUIDITY
Currently, the Company's primary sources of liquidity are cash flows
from the operations of the Four Queens Hotel and Casino. The
substantial decrease in gaming revenues, operating results and cash
flows experienced by the Four Queens in 1994 continued through the
nine-month period ended September 30, 1995, principally resulting
from traffic disruption caused by construction of the Fremont Street
Experience attraction and related downtown infrastructure
improvements.
During the period from its opening on February 3, 1995 through
September 30, 1995, 7 Cedars Casino incurred a significant 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 Summer months of 1995. Management believes the decrease is the
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
result of reduced local population visitation resulting from
competing outdoor activities, the opening of a competing Native
American Casino in May 1995, certain road and bridge improvement
projects that have disrupted visitation patterns to the casino, and
finally, substantially lower than expected visitation by tourists.
During the summer of 1995, the Company implemented certain cash
containment measures and commencing November 13, 1995, reduced the
days of operation to Wednesday through Sunday 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 further reduce costs to
become profitable (See Note 3 to Consolidated financial statements
for discussion regarding the Company's obligation to fund working
capital to the 7 Cedars Casino).
In addition to the impact of impaired results of operations, the
Company's liquidity during the nine-month period ended September 30,
1995 was significantly affected by its substantial debt service
obligations.
For the remainder of 1995, the Company should experience less
liquidity pressure because of the protection afforded by the
bankruptcy laws in the payment of obligations incurred prior
to the filing and arising under certain executory contracts
entered into prior to the filing of the bankruptcy petition and
the opening of the Fremont Street Experience. These events may be
offset, however, by the normal, seasonal declines experienced during
the latter part of the fourth quarter.
RESULTS OF OPERATIONS
THREE-MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
REVENUES
Total revenues, net of promotional allowances, decreased $1,690,000
(10.9%). Casino revenues, decreased $1,685,000 (14.8%),
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 $382,000 (20.8%) for
the same reasons.
The decrease in casino revenues, from the comparable prior period,
consisted of a $917,000 (24.0%) decrease in table game revenues and
a $768,000 (10.2%) decrease in slot revenues. The decrease in table
games revenues is primarily attributable to unfavorable volume
variances and to a lesser extent unfavorable win variances, except
for Craps, while the decrease in slot revenues is entirely due to
decreased volumes of play. Hotel revenues for the 1995 period
decreased $104,000 (4.5%). Food and beverage revenues decreased by
$496,000 (15.5%) reflecting the lower volume of customer traffic in
the casino during the 1995 quarter. Interest and other income
increased $214,000 primarily because of interest earned on notes
receivable and advances arising from the 7 Cedars Casino project.
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COSTS AND EXPENSES
Total costs and expenses, excluding interest, depreciation and write-
down of loans receivable from Native American Tribes and casino
development costs decreased $882,000 (6.0%). Casino costs and
expenses decreased $440,000 (12.2%) 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 108,000 (4.2%) due to reduced payroll and other
operating expenses.
Food and beverage expenses decreased $422,000 (14.2%) in line with
decreased food and beverage revenues.
Taxes and licenses decreased $173,000 (9.5%) primarily due to lower
gaming taxes as a result of lower gaming revenues. Selling, general
and administrative expenses were comparable to the 1994 period.
Rent expenses increased $259,000 (31.5%) primarily because of an
increase in gaming equipment leased under operating leases.
Depreciation and amortization were comparable to the 1994 period.
Interest on prior period income tax obligations decreased $227,000
primarily because of repayments of a portion of the liability during
1995. Interest expense, excluding interest on prior period income
taxes, increased $108,000 primarily because of interest on the
$3,000,000 face amount 20% mortgage notes issued in October 1994 and
the 7.5% Convertible Subordinated Notes issued in March 1995.
During the three-month period ended September 30, 1995, the Company
created a reserve of $4,258,000 for loans receivable from Native
American Tribes and wrote-off $1,049,000 of casino development costs
related to Native American Casino projects (for additional
information, see Note 3 to consolidated financial statements.)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
REVENUES
Total revenues, net of promotional allowances, decreased $3,575,000
(7.7%). Casino revenues, decreased $4,569,000 (13.1%),
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 $694,000 (12.2%) for
the same reasons.
The decrease in casino revenues, from the comparable prior period,
consisted of a $2,950,000 (27.5%) decrease in table game revenues
and a $1,619,000 (7.3%) decrease in slot revenues. The decreases in
table games revenues resulted from decreases in both volumes of play
and win percentages. The decrease in slot revenues resulted
principally from decreases in volumes of play.
Hotel revenues increased slightly due to a small increase in average
room rate which was partially offset by a small decrease in
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
occupancy. Food and Beverage revenues decreased $537,000 (5.6%)
reflecting the lower volume of customer traffic during the period.
Interest and other income increased $744,000 primarily because
of interest earned on notes receivable arising from Native
American Casino and loans projects.
COSTS AND EXPENSES
Total costs and expenses, excluding interest, depreciation and write-
down of loans from Native American Tribes and casino development
costs decreased 1,582,000 (3.6%). Casino costs and expenses decreased
$1,140,000 (10.2%) 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 decreased $275,000 (3.7%) due to cost
Containment programs.
Taxes and licenses decreased 287,000 (5.4%) in 1995 with higher
payroll taxes offset by lower gaming taxes expenses.
Selling, general and administrative expenses decreased $241,000
(2.8%) from 1994 primarily as a result of reduced payroll expenses
resulting from cost containment programs.
Rent expenses increased $543,000 (21.9%) primarily because of an
increase in gaming equipment leased under operating leases.
Depreciation and amortization increased $181,000 (6.3%) 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 income tax obligations increased $221,000
primarily because of accruals at higher effective rates during the
period. Interest expense, excluding interest on prior period income
taxes, increased $380,000 primarily because of interest on the
$3,000,000 face amount 20% mortgage notes, issued in October 1994
and because of interest on the 7.5% Convertible Subordinated Notes
issued in March of 1995.
During the nine-month period ended September 30, 1995, the Company
Created a reserve of $4,258,000 for loans receivable from Native
American Tribes and wrote-off $2,086,000 of casino development costs
related to Native American Casino projects (for additional
information, see Note 3 to consolidated financial statements.)
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
OTHER INFORMATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Disclosed in Note 7 of the Consolidated Financial
Statements in Part 1 and is incorporated by reference
herein.
Item 5. Other Information:
Described in Notes 7 of Consolidated Financial
Statements in Part 1 and is incorporated by reference
herein.
Item 6. Exhibits and Reports of Form 8-K:
(a) Form 8-K dated November 7, 1995
(b) Letter from Jamestown S'Klallam Tribe dated
November 1, 1995
(c) Letter from Jamestown S'Klallam Tribe dated
November 9, 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: November 15, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE SEPTEMBER 30, 1995 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2266
<SECURITIES> 0
<RECEIVABLES> 1249
<ALLOWANCES> 221
<INVENTORY> 206
<CURRENT-ASSETS> 4786
<PP&E> 64682
<DEPRECIATION> 38509
<TOTAL-ASSETS> 60210
<CURRENT-LIABILITIES> 17176
<BONDS> 56741
<COMMON> 16
0
0
<OTHER-SE> (13912)
<TOTAL-LIABILITY-AND-EQUITY> 60210
<SALES> 41998
<TOTAL-REVENUES> 43049
<CGS> 4087
<TOTAL-COSTS> 51321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7926
<INCOME-PRETAX> (16198)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16198)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
JAMESTOWN S'KLALLAM TRIBE
1033 Old Blyn Highway, Sequim, WA 98382 206/683-109 FAX 206/681-4643
November 1, 1995
By Certified Mail Return Receipt Request
By Federal Express, Acknowledgment or
Return Receipt Requested
Olympia Gaming Corporation
202 Fremont Street
Las Vegas, NV 89101
Re: Jamestown S'Klallam Tribe, JKT Gaming, Inc. Agreements
Dear Sirs:
Pursuant to the notice provisions in that certain Gaming Project
Development and Management Agreement, as amended and approved by the National
Indian Gaming Commission ("Agreement") between Olympia Gaming Corporation
("Olympia") on the one hand, and Jamestown S'Klallam Tribe ("Tribe") and JKT
Gaming, Inc., ("JKT") on the other, you are hereby notified that Olympia is in
default under the Agreement as follows:
1. Olympia has defaulted in the payment of Minimum Guaranteed
Payments referenced in Section 9.1 and Section 9.5.3 thereof for
the following months:
June 1995; July 1995; August 1995; and September 1995.
The total outstanding and unpaid amount of Minimum Guaranteed Payments
is:
$100,000.00
Demand is made pursuant to Section 15.2 of the Agreement that the unpaid
Minimum Guaranteed Payments set forth above be paid in full within five
(5) business days after receipt of this notice.
2. Notice is further given hereby pursuant to Section 7.11 of the
Agreement, Olympia has failed to advance sufficient funds required to
pay accounts as due and maintain the operating reserve at $500,000.00.
Demand is made pursuant to Section 15.2 of the Agreement that sufficient
monies be paid from Olympia's own funds to enable all current gaming project
expenses to be paid and the Operating Reserve to be maintained at the required
funding level. It is estimated that the shortfall required at this time is a
minimum of $2,540,000 and although we contend that the shortfall could be as
high as approximately $5,390,000 according to our interpretation of the
Agreement (as to which our rights are reserved), demand is made for payment of
$2,540,000 within five (5) business days after receipt of this notice.
3. All rights and obligations of the Tribe and JKT are hereby
reserved:
Please correct the address for notice for Levine and Associates to:
Levine & Associates
2049 Century Park East, Suite 710
Los Angeles, CA 90067
Sincerely,
W. Ron Allen
Tribal Chairman/Executive Director
cc: Lane, Powell, Spears and Lubersky
Tom Grohman
1420 Fifth Avenue, Suite 4100
Seattle, WA 98108<PAGE>
JAMESTOWN S'KLALLAM TRIBE
1033 Old Blyn Highway, Sequim, WA 98382 206/683-109 FAX 206/681-4643
November 9, 1995
By Certified Mail Return
Receipt Request
By Federal Express, Acknowledgment
or Return Receipt Requested
OLYMPIA GAMING CORPORATION
202 Fremont Street
Las Vegas, NV 89101
RE: Jamestown S'Klallam Tribe, JKT Gaming,
Inc. Agreements
Dear Sirs:
Pursuant to the provisions in that certain Gaming Project Development
and Management Agreement, as amended and approved by the National Indian
Gaming Commission ("Agreement") between Olympia Gaming Corporation ("Olympia")
on the one hand and Jamestown S'Klallam Tribe ("Tribe") and JKT Gaming, Inc.
("JKT") on the other hand, you are hereby notified that the Agreement is
terminated for the following reason:
Failure by Olympia to cure a material breach of the Agreement within the
period specified, as set forth in my letter of November 1, 1995
notifying you of such material breach of the Agreement.
All rights and obligations of the Tribe and JKT are hereby reserved.
Sincerely,
W. Ron Allen
Chairman
Jamestown S'Klallam Tribe
cc: cc:
Lane, Powell, Spears and Lubersky NIGC
Tom Grohman 1441 "L" Street NW
1420 5th Ave. 9th Floor
Suite 4100 Washington, D.C. 20005
Seattle, WA 98108
cc:
Levine & Associates
Jerry Levine
2049 Century Park East,
Suite 710
Los Angeles, CA 90067
