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 March 31, 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 May 5, 1995 15,635,218
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ELSINORE CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Consolidated Financial Statements:
Balance Sheets at March 31, 1995 and
December 31, 1994 3
Statements of Operations for the Three
Months Ended March 31, 1995 and 1994 4
Statements of Cash Flows for the Three
Months Ended March 31, 1995 and 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 5. Other Information 13
Item 6. Exhibits and Reports of Form 8-K 13
SIGNATURES 14
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PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Elsinore Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(Dollars in Thousands)
ASSETS
March 31, December 31,
1995 1994
Current Assets: (UNAUDITED)
Cash and cash equivalents $ 6,893 $ 3,407
Accounts receivables, less allowance for
doubtful accounts of $187 and $214,
respectively 466 742
Notes receivable and advances from Native
American Tribes, current portion 2,250 -
Inventories 262 396
Prepaid expenses 1,709 1,659
Total current assets 11,580 6,204
Cash and cash equivalents - restricted - 3,685
Notes and other loans receivable from Native
American Tribes, excluding current portion 20,431 16,952
Casino development costs 241 1,250
Investment in Fremont Street Experience 3,000 3,000
Property and equipment, net 27,622 28,341
Leasehold acquisition costs, net of accumulated
amortization of $4,536 and $4,485,
respectively 2,302 2,354
Deferred charges and other assets 6,103 5,529
$ 71,279 $ 67,315
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 1,993 $ 2,088
Prior period income taxes and related interest 5,053 5,870
Accrued expenses 9,716 6,442
Current portion of long-term debt 3,473 2,309
Total current liabilities 20,235 16,709
Long-term debt, excluding current portion
and unaccreted discount 52,909 52,081
Deferred income taxes 189 189
Total liabilities 73,333 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 (67,155) (63,023)
Total shareholders' deficit ( 2,054) (1,664)
Commitments and contingencies (note 4)
$ 71,279 $ 67,315
See notes to consolidated financial statements.
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ELSINORE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Month Periods Ended March 31, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
(UNAUDITED)
1995 1994
Revenues:
Casino $ 10,758 $ 11,622
Hotel 2,442 2,258
Food and beverage 3,259 3,184
Interest and other 694 394
Promotional allowances (1,892) (2,061)
15,261 15,397
Costs and Expenses:
Casino 3,632 4,093
Hotel 2,363 2,378
Food and beverage 2,916 2,542
Taxes and licenses 1,820 1,792
Selling, general and administrative 2,889 2,632
Rent 966 820
Casino development costs 1,037 -
Depreciation and amortization 1,019 922
Interest, prior period tax obligation 458 90
Interest 2,293 2,168
19,393 17,437
Loss before income taxes (4,132) (2,040)
Income taxes - -
Net loss $ (4,132) $ (2,040)
Loss per common and equivalent share $ (0.28) $ (0.17)
Weighted average number of common
and equivalent shares outstanding 14,801,884 12,062,164
See notes consolidated financial statements.
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ELSINORE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Month Periods Ended March 31, 1995 and 1994
(Dollars in Thousands)
(UNAUDITED)
1995 1994
Cash flows from operating activities:
Net loss $ (4,132) $ (2,040)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,019 922
Accretion of discount on long-term debt 308 259
Casino development costs 1,037 -
Change in assets and liabilities:
Accounts receivable 276 140
Inventories 134 (17)
Prepaid expenses (50) 54
Deferred charges and other assets (734) 83
Accounts payable (95) (635)
Prior period taxes and related interest (817) 90
Accrued expenses 3,274 (1,137)
Total adjustments 4,354 (241)
Cash provided by (used in)
operating activities 220 (2,281)
Cash flows from investing activities:
Notes and loans receivable from Native
American Tribes (5,729) (697)
Investment in Fremont Street Experience - (1,122)
Capital expenditures (54) (2,313)
Cash used in investing activities (5,783) (4,132)
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 (22) (50)
Proceeds from issuance of common stock,
net of underwriting discounts and
commissions 4,020 -
Other direct costs of common stock issuance (278) -
Cash provided by (used in)
financing activities 5,364 (50)
Decrease in cash and cash equivalents (199) (6,463)
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
$20,542 at March 31, 1995 and 1994,
respectively) $ 6,893 $ 24,367
See notes to consolidated financial statements.
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ELSINORE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 an
approximate 85% interest in a limited partnership, Palm Springs East
Limited Partnership. In the opinion of management, the accompanying
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
Report on Form 10-K for the fiscal year ended December 31, 1994.
Certain items in the March 31, 1994 financial statements have been
reclassified for comparability with the March 31, 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 equal
quarterly installments commencing March 31, 1996. Interest is also
payable quarterly, commencing December 31, 1995.
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
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. 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.
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 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 and no decision has
yet been rendered by the court.
At March 31, 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. In 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
three month period ended March 31, 1995, the results of operations
have continued to be negatively effected, principally 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 contruction
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 March 31, 1995 of approximately $1.1 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.
7 Cedars Casino. During the period from its opening on February 3,
1995 through March 31, 1995, the 7 Cedars Casino anticipated and
incurred a cumulative net loss. Although the Company anticipates
gaming revenues at the casino will increase in the second and third
quarters of 1995 as a result of a greater influx of tourists to the
Olympic Peninsula during the late spring and summer months, there is
no assurance 7 Cedars Casino will generate increased gaming revenues
or will become profitable.
Liquidity
The Company's liquidity in 1994 and during the three months ended
March 31, 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: The Company is obligated to pay the IRS
$550,000 per month through December 1995, at which time the IRS
Assessment will be fully discharged. The Company has paid the IRS
$2,100,000 as of May 2, 1995.
7 Cedars Casino Operating Shortfalls: The Company is required under
the 7 Cedars management contract to fund any working capital
shortfalls. While the Company expects gaming revenues to increase in
the late spring and summer of 1995, there can be no assurances such
working capital funding will not be required.
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 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. Although no decision has yet been
rendered, a decision may be issued at any time.
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 and/or delay capital expenditure
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; (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; or (iv) the Company is unable to obtain from
its noteholders the requisite waivers or consent in connection with
the Company's termination of the Spotlight 29 Casino management
contract or its other anticipated debt covenant noncompliance.
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 reduce or delay planned capital
expenditures, curtail or eliminate investment and expansion plans,
sell assets or seek protection under bankruptcy laws.
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 March 31, 1995 decreased to
$8,655,000 from $10,505,000 at December 31, 1994. Cash and cash
equivalents, including restricted amounts of $3,685,000 at December
31, 1994 decreased $199,000 during the three months ended March 31,
1995. Major uses of cash during the period included capital costs
incurred and/or loans made to the respective tribes aggregating
$5,729,000 in conjunction with completion and opening of the Spotlight
29 Casino and 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 three month period ended March 31, 1995
principally resulting from traffic disruption caused by construction
of the Fremont Street Experience attraction and related downtown
infrustructure improvements.
Now while during the period from its opening on February 3, 1995
through March 31, 1995, 7 Cedars Casino incurred a cumulative net
loss, the operation was marginally profitable in the month of March
1995. Although the Company anticipates gaming revenues will increase
in the late spring and summer of 1995 as the greater influx of
tourists to the Olympia Peninsula adds to its local population
customer base, there is no assurance that 7 Cedars Casino will
generate increased gaming revenues or will become profitable.
Now, in addition to the impact of impaired results of operations, the
Company's liquidity in 1994 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 has a remaining obligation to
pay the IRS $550,000 per month through December 1995, at which time
the IRS Assessment will be fully discharged. The Company has paid the
IRS $2,100,000 as of May 2, 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. Although no decision has yet been
rendered, a decision may be issued at any time.
Other Projects Expense: The Company continues to explore potential
expansion opportunities both inside and outside Nevada. However, the
Company would need to seek additional debt or equity financing in the
event it decides to pursue any such opportunities.
For the remainder of 1995, unless the Company's available cash and
funds generated from operations significantly increases or the Company
is able to extend its debt service and/or delay capital expenditure
requirements or a significant 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; (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; or (iv) the Company is unable to obtain from
its noteholders the requisite waivers of default in connection with
the Company's anticipated termination of the Spotlight 29 Casino
Management Contract or its anticipated noncompliance with other debt
covenants in 1995 (see below). Without additional financing, the
Company believes that it is unlikely it will be able to maintain a
level or operating cash flow necessary to satisfy all of its financial
obligations in 1995. To met 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, Mortgage Notes and Convertible 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 under the Company's debt facilities
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 would be required to
sell assets or seek protection under bankruptcy laws.
Probable Failure to Comply With Debt Covenants
Coverage Ratio. The indenture governing the First Mortgage Notes and
the purchase agreement governing the Mortgage Notes each requires the
Company, commencing June 30, 1995, and as of the last day of each
subsequent fiscal quarter, to maintain a Consolidated Fixed Charges
Coverage Ratio ("Coverage Ratio") of at least 1.5 to 1, and to furnish
the noteholders with an officer's certificate within fifty days after
the end of each such quarter setting forth the calculations of this
ratio and stating that the Company is in compliance with the covenant.
As of the date hereof, the Coverage Ratio of the Company is
approximately .55 to 1. Based on the Company's results of operations
and its projections for the second quarter of 1995, the Company will
not achieve a Coverage Ratio of 1.5 to 1 by June 30, 1995. The
Company's failure to cure such debt covenant noncompliance (following
thirty days notice to cure from the noteholders), if not waived by
such noteholders, would result in a default under the applicable note
facility entitling the noteholders to accelerate the debt. While the
Company intends to seek appropriate waivers or consents in the event
of such noncompliance or default, there is not assurance such waivers
or consents would be obtained.
Net Worth. In addition, the Indenture governing the First Mortgage
Notes requires the Company, commencing with the second quarter of
1995, to furnish the noteholders within fifty (50) days after the end
of each fiscal quarter a certificate setting forth the Consolidated
Net Worth ("Net Worth") of the Company at the end of such quarter. If
the Net Worth at the end of each of any two consecutive fiscal
quarters is negative, then the Company will be required to make an
irrevocable, unconditional offer to all of the First Mortgage
Noteholders to purchase up to $6 million aggregate principal amount of
First Mortgage Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued interest. Such purchase offer
must remain open for a period of twenty business days and be completed
within five business days thereafter. In addition, the commencement
of such purchase offer would constitute an event of default under the
purchase agreement governing the Mortgage Notes.
As of the date hereof, the Company's Net Worth is negative. Based on
the recent results of operations and the Company's expectation as to
its operating results for the remainder of 1995, the Company believes
it is unlikely it will achieve a positive Net Worth by the end of
either the second or the third quarter of 1995. In the event the
Company's Net Worth remains negative through the third quarter of
1995, and such covenant noncompliance is not waived by the
Noteholders, the Company would not be able to complete the requisite
repurchase of First Mortgage Notes without obtaining additional
financing and a waiver of default under the Mortgage Note facility.
There is no assurance such financing could be obtained on satisfactory
terms or at all. While the Company intends to seek appropriate
waivers or consents in the event of such noncompliance or default,
there is no assurance such waivers or consents would be obtained.
Termination of Spotlight 29 Casino Management Contract. Under the
Indenture governing the First Mortgage Notes and the purchase
agreement governing the Mortgage Notes, the loss by the Company of the
legal right to operate Spotlight 29 Casino, and such loss continuing
for more than 90 consecutive days, would constitute an Event of
Default, entitling the noteholders to immediately accelerate the
applicable debt. Under both debt facilities, the holders of a
majority of outstanding notes may consent to the waiver of an Event of
Default. In connection with the Company's efforts to terminate the
Spotlight 29 Casino Management Contract and sever its relationship
with the 29 Palms Band of Mission Indians, the Company intends to
solicit consents from the requisite number of noteholders to the
waiver of any event of default that would occur as a result of the
contract termination. There can be no assurance such waivers would be
obtained.
<PAGE>
ELSINORE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1995 and 1994
Revenues
Total revenues, net of promotional allowances, decreased $136,000
(0.9%). However, Casino revenues, decreased $864,000 (7.4%), primarily
due to the combined effects of visits by downtown guests and patrons
to recently opened properties on the Las Vegas Strip and disruption of
traffic flow to downtown Las Vegas caused by construction of the
Fremont Street Experience attraction and related infrastructure
improvements. Promotional allowances, which are subtracted from gross
revenues, decreased $169,000 (8.2%) for the same reasons.
The decrease in Casino revenues, from the comparable prior period,
consisted of a $618,000 (13.3%) decrease in table game revenue and a
$246,000 (3.5%) decrease in slot revenue. Both the decreases in table
games and slot revenue resulted from decreases in volumes of play. Win
percentages improved slightly for both slots and table games during
the 1995 quarter.
In contrast to the decrease in Casino revenues, Hotel revenue
increased $184,000 (8.1%) in 1995 primarily because of increased room
occupancy. (The Four Queens refurbishment program reduced available
room nights by about 7,800 during the 1994 quarter).
Food and beverage revenues increased by $75,000 (2.4%) primarily due
to an increase in hotel guests and related number of meals served that
was offset to some degree by the value pricing of meals. Interest and
other income increased $300,000 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 $329,000 (2.3%). Casino costs and expenses
decreased $461,000 (11.3%) primarily as a result of the combined
effects of management's decision to eliminate in April 1994, a fee-based
player program, run by a third party, that was no longer deemed
profitable and reduced casino payroll expenses ($278,000) that was
offset to some extent by increased expenses of the Reel Winners Club.
Hotel expenses were comparable with the 1994 quarter.
Food and beverage expenses increased $374,000 (14.7%). Food cost of
goods sold increased $215,000 (24.8%) and food payroll costs increased
$129,000 (13.8%), primarily because of service to increased food
patrons related to the combined effects of the use of two loss leaders
(prime rib and shrimp cocktail) in an effort to attract additional
casino customers and operations of the two new specialty restaurants
in 1995, which did not open until the second quarter of 1994. Other
food expenses were up slightly, while beverage expenses were slightly
less during 1995.
Taxes and licenses were slightly higher in 1995 with higher payroll
taxes partially offset by lower gaming taxes. Selling, general and
administrative expenses increased $257,000 (9.8%) from 1994 primarily
due to payroll costs of added corporate administrative and development
company level staff.
Casino development costs of $1,037,000, which were to be amortized
over the initial 60 months of the management contract, have been
charged to expense during the quarter ending March 31, 1995, because
of the Company's efforts to disengage from the Spotlight 29 Casino
Management Contract, primarily because of the tribe's operation of
Class III devices at Spotlight 29 Casino.
Rent expenses increased $146,000 (17.8%) primarily because of an
increase in gaming equipment leased under operating leases.
Depreciation and amortization increased $97,000 (10.5%) 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 $368,000 primarily
because of accruals at higher effective rates during the quarter.
Interest expense, excluding interest on prior period income taxes,
increased $178,000 primarily because of interest on the $3,000,000
face amount of 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:
(b) Form 8-K dated February 28, 1995.
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<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: May 12, 1995
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