FORM 10-QSB
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
__X__ Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarter ended September 30, 1997
or
______ Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition period from ____________ to _________
Commission File Number 0-18864
DEBBIE REYNOLDS HOTEL & CASINO,INC.
(Exact Name of Registrant as specified in its charter)
Nevada 88-0335924
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
305 Convention Center Drive, Las Vegas, Nevada 89109
(Address of principal executive offices - Zip Code)
(702) 734-0711
(Registrant's telephone number, including area code)
(Former name, Former address, or former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
1. YES _X_____ NO
2. YES X_____ NO ______
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the Number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
13,906,945 common shares were outstanding as of November 11, 1997.
This filing consisting of 17 sequentially numbered pages. The exhibit index is
located at sequentially numbered page 16.
Page 1 of 17
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Form 10-QSB
DEBBIE REYNOLDS HOTEL & CASINO, INC.
Form 10-QSB for the Quarter ended September 30, 1997
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets:
September 30, 1997 (unaudited) and December 31, 1996 3
Unaudited Consolidated Statement of Operations:
For the nine months ended September 30, 1997 and 1996 4
Unaudited Consolidated Statement of Operations:
For the three months ended September 30, 1997 and 1996 5
Unaudited Consolidated Statements of Cash Flows:
For the nine months ended September 30, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements
September 30, 1997 and December 31, 1996 7
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
Page 2 of 17
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Part I. Item 1. Financial Statements
DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
September 30, December 31,
1997 1996
Assets
Current assets: ................................ (Unaudited)
Cash and cash equivalents .................. $ 11,000 $ --
Restricted cash ............................ 2,000 2,000
Accounts receivable ........................ 904,000 985,000
Inventories and Other ...................... 856,000 844,000
Total current assets ................ 1,773,000 1,831,000
Land and building .............................. 6,576,000 6,576,000
Furniture and equipment ........................ 3,826,000 4,010,000
10,402,000 10,586,000
Less accumulated depreciation .................. (4,144,000) (3,219,000)
Net property and equipment .......... 6,258,000 7,367,000
Other assets:
Deposits and other ......................... 91,000 94,000
Total assets ........................ $ 8,122,000 $ 9,292,000
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Bank overdraft ............................. $ -- $ 103,000
Current maturities of long-term debt and
Capital Lease obligations 9,848,000 8,688,000
Accounts payable and accrued liabilities ... 5,538,000 5,381,000
Due to affiliates ......................... 1,931,000 1,447,000
Timeshare deposits ........................ 2,000 2,000
Total current liabilities ........... 17,319,000 15,621,000
Commitments and contingencies
Shareholders' equity (deficiency):
Preferred stock, $.0001 par value. Authorized 50,000,000 shares,
2,000,000 designated Series AA, 187,076 issued and outstanding
($748,000 liquidation preference) ............ -- --
Common stock, $.0001 par value. Authorized
25,000,000 shares, 13,906,945 and 12,615,417
shares issued and outstanding, respectively 1,000 1,000
Additional paid-in capital ............... 15,347,000 15,160,000
Accumulated deficit ........................ (24,545,000) (21,490,000)
Total shareholders' equity (deficiency) ( 9,197,000) (6,329,000)
Total liabilities and shareholders' equity $8,122,000 $ 9,292,000
Page 3 of 17
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Statements of Operations
Nine months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
------------ ------------
Revenue:
Timeshare Sales ............................ $ 66,000 $ 1,501,000
Rooms ...................................... 1,132,000 1,780,000
Showroom ................................... 1,391,000 1,211,000
Museum ..................................... 251,000 335,000
Food & Beverage ............................ 269,000 602,000
Other ...................................... 153,000 437,000
Total revenue ....................... 3,262,000 5,866,000
Operating costs & expenses:
Timeshare .................................. 62,000 815,000
Rooms ...................................... 496,000 843,000
Showroom ................................... 1,073,000 1,667,000
Museum ..................................... 184,000 238,000
Food & Beverage ............................ 401,000 1,121,000
General and administrative, Facilities and
Other costs 2,150,000 2,946,000
Depreciation and amortization .............. 927,000 1,133,000
Total operating expenses ............ 5,293,000 8,763,000
Loss from operations ................ (2,031,000) (2,897,000)
Other income (expense):
Interest expense ........................... (1,024,000) (1,162,000)
Total other income (expense) ........ (1,024,000) (1,162,000)
Net loss ...................................... $ (3,055,000) $ (4,059,000)
Loss per weighted-average common and common share equivalents
outstanding:
Net loss per share ....................... $ (.23) $ (.33)
Weighted-average number of common shares and common share
equivalents outstanding ................ 13,511,278 12,147,682
Page 4 of 17
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Statements of Operations
Three months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
------------------ ------------------
Revenue:
Timeshare Sales ............................ $ -- $ 832,000
Rooms ...................................... 246,000 434,000
Showroom ................................... 287,000 295,000
Museum ..................................... 63,000 87,000
Food & Beverage ............................ 54,000 125,000
Other ...................................... 50,000 82,000
Total revenue ....................... 700,000 1,855,000
Operating costs & expenses:
Timeshare .................................. -- 311,000
Rooms ...................................... 122,000 237,000
Showroom ................................... 197,000 287,000
Museum ..................................... 44,000 66,000
Food & Beverage ............................ 79,000 219,000
General and administrative, Facilities and
Other costs 445,000 1,172,000
Depreciation and amortization .............. 309,000 378,000
Total operating expenses ............ 1,196,000 2,670,000
Loss from operations ................ (496,000) (815,000)
Other income (expense):
Interest expense ........................... (294,000) (333,000)
Total other income (expense) ........ (294,000) (333,000)
Net loss ....................................... $ (790,000) $ (1,148,000)
Loss per weighted-average common and common share equivalents
outstanding:
Net loss per share ....................... $ (.06) $ (.09)
Weighted-average number of common shares and common share
equivalents outstanding ................ 13,906,945 12,550,147
Page 5 of 17
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
------------------ ------------------
Cash flows from operating activities:
Net loss for the period .................... $(3,055,000) $(4,059,000)
Adjustments to reconcile net income to net cash
provided by (used in) operations ......... 1,722,000 4,345,000
Net cash used in operating activities (1,333,000) 286,000
Cash flows from investing activities:
Purchases of property and equipment ........ 184,000 (445,000)
Net cash used in investing activities 184,000 (445,000)
Cash flows from financing activities:
Additional investments from shareholder .... -- 150,000
Net increase In long-term debt ............. 1,160,000 (52,000)
Net cash provided by financing activities 1,160,000 98,000
Net increase (decrease) in cash ................ 11,000 (61,000)
Cash at beginning of period .................... -0- 172,000
Cash at end of period .......................... $ 11,000 $ 111,000
Supplemental disclosures of cash flow information:
Interest paid on borrowings ................ $ 1,024,000 $ 1,091,000
Supplemental disclosures of noncash investing and financing activities:
During 1995, the Company issued 814,806 shares of common stock with a fair
market value of approximately $1,233,000 for consulting and other services
rendered.
During 1995, the Company completed the construction of its timeshare units
and transferred all unsold units with a cost of $557,000 into inventory.
During 1995, the Company issued 696,120 shares of common stock through
conversion of 348,060 shares of preferred stock.
During 1995, the Company issued 696,120 shares of common stock valued at
$1,566,000 through conversion of debt.
In May 1996, the Company issued 378,182 shares of common stock through
conversion of 104,000 shares of preferred stock.
In May 1996, the Company issued 425,455 shares of common stock valued at
$628,000 through conversion of debt.
In April 1997, the Company issued 123,072 shares of common stock through
conversion of 30,768 shares of preferred stock.
In April 1997, the Company issued 138,456 shares of common stock valued at
$138,456 through conversion of debt.
Page 6 of 17
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Notes to Unaudited Financial Statements
September 30, 1997 and December 31, 1996
(1) Basis of Presentation
(a) Corporate Organization
The accompanying consolidated financial statements include the accounts of
Debbie Reynolds Hotel & Casino, Inc., formerly Halter Venture Corporation
(Halter) and its wholly-owned subsidiaries Debbie Reynolds Management Company,
Inc., formerly Debbie Reynolds Hotel & Casino, Inc. (DRMC) and Debbie Reynolds
Resorts, Inc. (DRRI) (collectively the Companies). The December 31, 1996 balance
sheet data was derived from audited financial statements of Debbie Reynolds
Hotel & Casino, Inc., but does not include all disclosures required by generally
accepted accounting principles. Users of financial information provided for
interim periods should refer to the annual financial information and footnotes
contained in the Annual Report on Form 10-KSB when reviewing the interim
financial results presented herein. All intercompany accounts and transactions
have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited interim financial
statements are prepared in accordance with the instructions on Form 10-QSB and
contain all material adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full year
ending December 31, 1997.
(b) Description of Business
The Company's operations consist primarily of the hotel operations of DRMC and
the timeshare operations of Debbie Reynolds Resorts, Inc. ("DRRI"), a
wholly-owned subsidiary of DRMC. DRMC owns and operates the Debbie Reynolds
Hotel & Casino (the "Hotel"), a gift shop, the Hollywood Motion Picture Museum,
a restaurant and bar and a showroom located on Convention Center Drive in Las
Vegas, Nevada. The Company's operations, through DRRI, also consist of the sale
of timeshare units in the Debbie Reynolds Hotel. DRRI obtained a permanent
timeshare license on June 28, 1994. The Company is in the process of
restructuring its timeshare division and currently is not actively selling
timeshare units. In addition, DRMC and its management have pending applications
filed for a gaming license from the Nevada gaming authorities; however, there
can be no assurance that such license will be granted. Due to the Company's poor
capital structure and acting on the advice of counsel, the Company requested the
Nevada Gaming Authorities to place a hold on processing its pending gaming
applications until its capital structure substantially improves. Prior to March
31, 1996, the Company leased space to a third party for the operation of a
casino. The Company served the operator with a termination notice in February
1996 pursuant to the terms of the lease agreement, because the Company was
losing money on a monthly basis. The Company requested Jackpot to cease
operations as of June 30, 1996. On March 31, 1996 the operator discontinued its
gaming operations on the property, removed all of its gaming equipment and
subsequently filed a lawsuit against DRHC. [See Item 1 - Legal Proceedings]
Page 7 of 17
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On October 30, 1996 the Company entered into an Agreement for Purchase and Sale
with ILX Incorporated ("ILX") under which ILX would purchase the Debbie Reynolds
Hotel & Casino (the "Hotel"), including all of the Hotel's real and personal
property and the Hotel's timeshare operations (the "ILX Agreement"). ILX is a
publicly-held corporation based in Phoenix, Arizona which principally owns,
operates and markets resort properties in Arizona, Florida, Indiana and Mexico.
On May 15, 1997 ILX elected to cancel and terminate this Agreement.
The Company's recurring losses from operations, its working capital deficiency,
its shareholders equity deficiency, its significant debt service obligations and
its default with respect to various agreements raise substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on its ability to obtain additional
financing to finance its working capital deficit until such time as cash flows
from operations are sufficient to finance the Company's operations, including
the Company's proposed casino operations.
Due to the inability of the Company to generate sufficient funds to cover all of
its expenses it filed for relief under Chapter 11 of the Bankruptcy Code on July
3, 1997. The Company will seek reorganization of its debts. Also filing were
subsidiary companies Debbie Reynolds Management Company and Debbie Reynolds
Resorts, Inc. In addition, Miss Debbie Reynolds has resigned as Chairman of the
Board, Director and an Officer of Debbie Reynolds Hotel & Casino, Inc., Debbie
Reynolds Management Company and Debbie Reynolds Resorts, Inc. In addition,
Debbie Reynolds filed for relief under Chapter 11 of the Bankruptcy Code.
On September 30, 1997 the Company entered into a Deal Point Memorandum with
David A. Siegel, ("Siegel"), individually, Owner and President of Westgate
Resorts, one of the largest timeshare developers in the world and T.D.
Entertainment, ("TD"), TD shall acquire the rights to utilize the name and
likeness of Debbie Reynolds and also shall acquire the rights from the Hollywood
Motion Picture and Television Museum of California to operate the Hollywood
Museum as it currently operates at the property. Todd Fisher and Debbie Reynolds
are the majority owners of TD. Pursuant to the Deal Point Memorandum Siegel will
arrange a loan of $15,650,000 to be secured by a first mortgage on the Company's
property and invest $3,000,000 of equity into the Company. The $18,650,000 will
be used, through a plan of reorganization, to satisfy debt, renovate the
existing property, provide working capital and recapitalize the Company. As a
condition precedent to arranging the mortgage and investing the equity into the
Company, Siegel is requesting and TD has agreed to enter into a lease agreement
with the Company which provides that Debbie Reynolds name and likeness continue
to be utilized, that Debbie Reynolds provides showroom services and that the
Hollywood Museum remain on property for the duration of the lease. The TD lease
will include the casino, showroom, museum, giftshop and bar. The obligations of
the Company, Siegel and TD to consummate this transaction was expressly
conditioned upon the execution of a binding letter of intent. The Binding letter
of intent was entered into on November 13, 1997. The Company plans to formulate
a plan of reorganization and submit the plan to the federal bankruptcy court for
approval.
Page 8 of 17
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On November 13, 1997 the Company entered into a Binding Letter of Intent with
Central Florida Investment, Inc., ("CFI"), an affiliate of David A. Siegel, and
T.D. Entertainment, ("TD"), an affiliate of Todd Fisher and Debbie Reynolds
under which CFI will cause to be made a loan of $15,650,000 to be secured by a
first deed of trust on the Company's property and invest $3,000,000 of equity
into the Company. In consideration for the loan and the equity investment the
Company has agreed to issue CFI 85% of the Company's common stock and a warrant
to purchase 8,000,000 shares of common stock with an excercise price ranging
from $.75 to $1.00 per share. The shares will be newly issued shares of the
Company's common stock. TD has agreed to lease from the Company certain areas to
include the space where the casino, showroom, museum, giftshop, bar and
executive offices are located. The term of the lease will be for a period of 10
years and have a monthly payment of $50,000. This transaction is subject to
Bankruptcy Court approval. The Company anticipates that the closing will occur
late in the first quarter of 1998.
Debbie Reynolds and Raymax Productions, LTD, ("Raymax"), a corporation
wholly-owned by Ms. Reynolds, terminated their services agreement with the
Company in November 1996 due to the Company's default under the agreement. Ms.
Reynolds has agreed to render showroom and other services on an "at will" basis,
terminable at anytime. In addition, in November 1996 Ms. Reynolds terminated her
License Agreement with the Company with respect to her Hollywood memorabilia
collection and her name and likeness due to the Company's defaults under the
agreements. Also, Hollywood Motion Picture and Television Museum, a non-profit
organization, has terminated its License Agreement with the Company with respect
to its Hollywood memorabilia collection due to the Company's defaults, effective
January 1997.
The Company's principal executive offices are located at 305 Convention Center
Drive, Las Vegas, Nevada 89109 and its telephone number is (702) 734-0711.
(2) Capital Stock Transactions
See (Item 2) Management's Discussion and Analysis, (2) Liquidity and Capital
Resources, for additional discussions of the Company's capital stock
transactions.
(3) Contingencies
The Company is involved in various claims and legal actions. In the opinion of
management, the ultimate disposition of these matters has been evaluated and
those claims considered probable and estimable have been accrued. As of
September 30, 1997 the Company has accrued $890,000 for these claims.
See Part II (Other Information), Item 1 (Legal Proceedings) for lawsuits filed
against the Company.
Page 9 of 17
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Form 10-QSB
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
(1) Overview
The accompanying consolidated financial statements include the accounts of
Debbie Reynolds Hotel & Casino, Inc. (the Company), formerly Halter Venture
Corporation (Halter) and its present wholly-owned subsidiaries, Debbie Reynolds
Management Company, Inc., formerly Debbie Reynolds Hotel & Casino, Inc. (DRMC)
and its wholly-owned subsidiary, Debbie Reynolds Resorts, Inc. (DRRI). The
accompanying consolidated financial statements reflect the historical operations
of DRMC and DRRI.
(2) Liquidity and Capital Resources
In February 1995, the Company obtained a $525,000 loan from Bennett Funding
International, LTD., ("Bennett"), the proceeds of which were principally used in
the construction of the museum and for general corporate purposes. The loan
bears interest at 13% and was due March 22, 1997 and is in default. The loan is
secured by the Company's real and personal property.
In May 1995, the Company obtained a $340,000 loan from Bennett, the proceeds of
which were principally used for general corporate purposes. The loan bears
interest at 13% and was due March 22, 1997 and is in default. The loan is
secured by the Company's real and personal property.
In August 1995, the Company obtained a $2,865,000 loan from Bennett, the
proceeds of which were principally used to pay off existing debt and for general
corporate purposes, which includes the $340,000 advanced to the Company in May
of 1995 and $525,000 advanced in February of 1995. The loan bears interest at
14% and is due August 23, 1999. The loan is secured by the Company's real and
personal property. Ms. Reynolds has personally guaranteed this loan. This loan
is in default.
Commencing in December 1995, the Company obtained additional financing through a
Regulation D offering under the Securities Act of 1933 (the "Act"). The Company
sold 200,000 units, consisting of 200,000 shares of the Company's common stock
and 200,000 warrants to purchase one share of common stock at $1.00, totalling
net proceeds of approximately $182,000. The offering of shares was directed
solely to persons who met the definition of "Accredited Investor" set forth in
rule 501(A) of Regulation D promulgated under the Act. The Company offered a
maximum of 3,000,000 Units, (the "Unit"), each unit consisting of one share of
Common Stock and one warrant to purchase one share of common stock at $1.00 per
share. As of December 31, 1995 the Company sold $50,000 pursuant to the offering
and in the first quarter 1996 $150,000 was sold.
In May 1996, the Company offered all holders of the Company's units issued
pursuant to the Company's private placement memorandum dated March 25, 1994 the
opportunity to convert the Series AA Preferred Stock and Debentures constituting
part of the units into restricted shares of the Company's common stock. Each
Series AA Preferred Stock and Debenture converted into one share of the
Company's common stock at the reduced conversion prices of $1.10. The total
dollar amount converted from Series AA Preferred Stock and Debentures was
$884,000 which converted into 803,636 shares of the Company's common stock. As
additional consideration, the Company reduced the conversion price for each
Series AA Preferred Stock and Debenture issued pursuant to the Private Placement
Memorandum dated November 17, 1994 to $2.25. As additional consideration to the
Company, the unit holders waived the past due interest and dividend payments
owed.
Page 10 of 17
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In August 1996, the Company obtained a $500,000 loan from Gregory Orman, a
non-affiliated party, the proceeds of which were principally used to reduce past
due tax obligations, and reduce accounts payable and enabled the Company to
engage its auditors. The loan bears interest at 12% and has $550,000 principal
balance which was due November 1, 1996 and is in default. This loan is secured
with a fourth mortgage on the Company's property and with certain of the
Company's receivables. In connection with the financing the Company granted
Orman warrants to acquire 260,000 shares of the Company's common stock at an
exercise price of $.70 per share. On October 18, 1996, Orman agreed to extend
the maturity date to February 1, 1997. In consideration for the extension the
Company reduced Orman's exercise price on the warrants to acquire 260,000 shares
of the Company's common stock from $.70 per share to $.22 per share. This loan
is personally guaranteed by Ms. Reynolds and Todd Fisher. This loan is in
default.
In February 1997, the Company obtained a $1,100,000 loan from Galt Capital, an
affiliate of Gregory Orman, a non-affiliated party, the proceeds of which were
principally used to pay-off the TPM/Source second mortgage that was in default,
reduce past due tax obligations, reduce accounts payable. The balance was used
to fund the Company's operations. The loan bears interest at 12% and had
$1,100,000 principal balance due June 5, 1997 and is in default. This loan is
secured pursuant to an assignment of TPM Holding, Inc. second Deed of Trust,
Loan Agreement and Promissory Note dated December 1994 and is secured by a
$573,000 first deed of trust placed against real property owned by Selden
Enterprises, ("Selden"), an affiliate of Ms. Reynolds and Todd Fisher. In
addition, Debbie Reynolds and Todd Fisher have personally guaranteed this loan.
The Company will issue Selden 500,000 shares of its common stock as
consideration for allowing the deed of trust to be placed on its real property.
The Company will also issue Ms. Reynolds 500,000 shares of its common stock in
consideration of her personal guarantee and in recognition of numerous past
uncompensated guarantees provided by Ms. Reynolds as well as Ms. Reynolds'
continued efforts on behalf of the Company. In connection with the financing the
Company has issued a warrant to Galt Capital to purchase approximately 2% of the
Company's outstanding common stock, as calculated pursuant to the agreement, at
an exercise price of $.22 per share, the estimated fair market value at the
time, the warrant expires February 5, 2000. This loan is in default.
In April 1997, the Company offered all remaining holders of the Company's units
issued pursuant to the Company's private placement memorandum dated November 17,
1994 the opportunity to convert the Series AA Preferred Stock and Debentures
constituting part of the units into restricted shares of the Company's common
stock. Each Series AA Preferred Stock and Debenture converted into one share of
the Company's common stock at the reduced conversion prices of $1.00. The total
dollar amount converted from Series AA Preferred Stock and Debentures was
$261,528 which converted into 261,528 shares of the Company's common stock. As
additional consideration to the Company, the unit holders waived the past due
interest and dividend payments owed.
Page 11 of 17
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As of September 1997, the Company is in default under the following obligations:
the Bennett Management & Development ("BMD") mortgage is in default due to
non-payment of interest and the holder has the right to accelerate the mortgage
immediately and make demand on the entire outstanding principal balance; the BMD
mortgage had a balance of approximately $2,115,000 plus accrued interest
outstanding at September 30, 1997; the Bennett Funding International, Ltd.
("BFI") mortgage is in default due to non-payment of interest and the holder has
the right to accelerate the mortgage immediately and make demand on the entire
outstanding principal balance; the BFI mortgage had a principal balance of
approximately $2,865,000 plus accrued interest outstanding at September 30,
1997; the Gregory Orman ("Orman") mortgage is in default due to non-payment of
interest and the note has matured and the holder has the right to accelerate the
mortgage immediately and make demand on the entire outstanding principal
balance; the Orman mortgage had a principal balance of approximately $550,000
plus accrued interest outstanding at September 30, 1997; the Galt Capital
("Galt") mortgage is in default due to non-payment of interest and the note has
matured and the holder has the right to accelerate the mortgage immediately and
make demand on the entire outstanding principal balance; the Galt mortgage had a
principal balance of approximately $1,100,000 plus accrued interest outstanding
at September 30, 1997; and the Company is in default on its unsecured
subordinated debentures due to non-payment of monthly interest, and the
debentures have matured, the holders have the right to accelerate immediately
and make demand on the entire outstanding principal balance.
On October 30, 1996 the Company entered into an Agreement for Purchase and Sale
with ILX Incorporated ("ILX") under which ILX would purchase the Debbie Reynolds
Hotel & Casino (the "Hotel"), including all of the Hotel's real and personal
property and the Hotel's timeshare operations (the "ILX Agreement"). ILX is a
publicly-held corporation based in Phoenix, Arizona which principally owns,
operates and markets resort properties in Arizona, Florida, Indiana and Mexico.
On May 15, 1997 ILX elected to cancel and terminate this Agreement.
The Company's recurring losses from operations, its working capital deficiency,
its shareholders equity deficiency, its significant debt service obligations and
its default with respect to various agreements raise substantial doubt about the
Company's ability to continue as a going concern. The ability of the Company to
continue as a going concern is dependent on its ability to obtain additional
financing to finance its working capital deficit until such time as cash flows
from operations are sufficient to finance the Company's operations, including
the Company's proposed casino operations.
On July 3, 1997 the Company filed for relief under Chapter 11 of the Bankruptcy
Code, due to the inability of the Company to generate sufficient funds to cover
its expenses and obliagations. The Company will seek reorganization of its
debts. Also filing were subsidiary companies Debbie Reynolds Management Company
and Debbie Reynolds Resorts, Inc. In addition, Miss Debbie Reynolds has resigned
as Chairman of the Board, Director and an Officer of Debbie Reynolds Hotel &
Casino, Inc., Debbie Reynolds Management Company and Debbie Reynolds Resorts,
Inc. Debbie Reynolds also filed for relief under Cahpter 11 of the Bankruptcy
Code.
On September 30, 1997 the Company entered into a Deal Point Memorandum with
David A. Siegel, ("Siegel"), individually, Owner and President of Westgate
Resorts, one of the largest timeshare developers in the world and T.D.
Entertainment, ("TD"), TD shall acquire the rights to utilize the name and
likeness of Debbie Reynolds and also shall acquire the rights from the Hollywood
Motion Picture and Television Museum of California to operate the Hollywood
Museum as it currently operates at the property. Todd Fisher and Debbie Reynolds
are the majority owners of TD. Pursuant to the Deal Point Memorandum Siegel will
arrange a loan of $15,650,000 to be secured by a first mortgage on the Company's
property and invest $3,000,000 of equity into the Company. The $18,650,000 will
be used, through a plan of reorganization, to satisfy debt, renovate the
existing property, provide working capital and recapitalize the Company. As a
condition precedent to arranging the mortgage and investing the equity into the
Company, Siegel is requesting and TD has agreed to enter into a lease agreement
with the Company which provides that Debbie Reynolds name and likeness continue
to be utilized, that Debbie Reynolds provides showroom services and that the
Hollywood Museum remain on property for the duration of the lease. The TD lease
will include the casino, showroom, museum, giftshop and bar. The obligations of
the Company, Siegel and TD to consummate this transaction is expressly
conditioned upon the execution of a binding letter of intent. The Binding letter
of intent was entered into on November 13, 1997. The Company plans to formulate
a plan of reorganization and submit the plan to the federal bankruptcy court for
approval.
Page 12 of 17
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On November 13, 1997 the Company entered into a Binding Letter of Intent with
Central Florida Investment, Inc., ("CFI"), an affiliate of David A. Siegel, and
T.D. Entertainment, ("TD"), an affiliate of Todd Fisher and Debbie Reynolds
under which CFI will cause to be made a loan of $15,650,000 to be secured by a
first deed of trust on the Company's property and invest $3,000,000 of equity
into the Company. In consideration for the loan and the equity investment the
Company has agreed to issue CFI 85% of the Company's common stock and a warrant
to purchase 8,000,000 shares of common stock with an excercise price ranging
from $.75 to $1.00 per share. The shares will be newly issued shares of the
Company's common stock. TD has agreed to lease from the Company certain areas to
include the space where the casino, showroom, museum, giftshop, bar and
executive offices are located. The term of the lease will be for a period of 10
years and have a monthly payment of $50,000. This transaction is subject to
Bankruptcy Court approval. The Company anticipates that the closing will occur
late in the first quarter of 1998.
The Company had a working capital deficiency of $15,546,000 at September 30,
1997, compared with a working capital deficiency of $10,059,000 at December 31,
1996, an increase of $5,487,000. This increase is attributable to the Company
continuing to incur substantial operating losses during the nine months ended
September 30, 1997 and maturing long-term debt.
(3) Revenues
Revenues for the quarter ended September 30, 1997 totaled $700,000 as compared
to $1,855,000 for the quarter ended September 30, 1996, representing a 62%
decrease for 1997. This decrease is attributable, in large part, to the decrease
in rooms revenue of $188,000 as compared to the quarter ended September 30, 1996
and the decrease in timeshare revenue of $832,000 as compared to the quarter
ended September 30, 1996. The decrease in rooms revenue is attributed to
increased competition in the Las Vegas market. The decrease in timeshare revenue
is attributed to the Company restructuring its timeshare division and currently
not selling timeshare units.
The loss from operations for the quarter ended September 30, 1997 totaled
$496,000 as compared to a $815,000 loss from operations for the second quarter
ended 1996. Included in the loss from operations was $25,000 loss from the
restaurant operations. The net loss for the quarter ended September 30, 1997
totaled $790,000 as compared to $1,148,000 for the quarter ended September 30,
1996.
Revenues for the nine months ended September 30, 1997 totaled $3,262,000 as
compared to $5,866,000 for the nine months ended September 30, 1996,
representing a 44% decrease for 1997. This decrease is attributed, in large
part, to the decrease of $1,435,000 in timeshare sales for the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996. This
decrease in revenue is also attributable to the decrease in rooms revenue of
$648,000 as compared to the nine months ended September 30, 1996. The decrease
in room revenue is attributed to increased competition in the Las Vegas market.
Page 13 of 17
<PAGE>
PART I. MANAGEMENT DISCUSSION AND ANALYSIS, CONTINUED
The loss from operations for the nine months ended September 30, 1997 totaled
$2,031,000 as compared to $2,897,000 for the nine months ended September 30,
1996. The Company decreased showroom operating expenses by $594,000 as compared
to the nine months ended September 30, 1996. The restaurant operation generated
$132,000 in operating losses for the nine months ended September 30, 1997 as
compared to $519,000 in operating losses for the nine months ended September 30,
1996. General administrative, facility and other costs were $2,150,000 for the
nine months ended September 30, 1997 as compared to $2,946,000 for the nine
months ended September 30, 1996. The $796,000 decrease in General
administrative, facility and other costs can be attributed to managements
restructuring of staffing and operations. The net loss for the nine months ended
September 30, 1997 totaled $3,055,000 as compared to $4,059,000 for the nine
months ended September 30, 1996.
(4) Interest Expense
Interest expense decreased from $1,162,000 for the nine months ended September
30, 1996 to $1,024,000 for nine months ended September 30, 1997.
Part II. Other Information
Item 1. Legal Proceedings
In January 1994, Edward Stambro, an unaffiliated individual, filed a lawsuit
against one of the Company's subsidiaries and others in the District Court of
Clark County, Nevada, alleging breach of brokers agreement. The Company's
subsidiary filed an answer to the allegations on February 28, 1994. Management
and legal counsel for the Company are of the opinion that the plaintiff's claim
is without merit and the Company will prevail in defending the suit.
On April 28, 1995, Ronald D. Nitzberg and Ron Nitzberg Associates, Inc., an
unaffiliated corporation, filed a lawsuit against the Company and others in the
District Court of Clark County, Nevada, alleging breach of contract, slander and
other claims, relating to his employment with the Company. The plaintiffs seek
damages in the amount of approximately $245,000 and an unspecified amount of
money damages. The Company has filed a counterclaim against the plaintiff
alleging breach of fiduciary duty and breach of contract asking for declaratory
relief from consulting and stock agreements.
On April 14, 1995, Edward S. Coleman filed a lawsuit against the Company and
others in the District Court of Clark County, Nevada, alleging breach of
covenant of good faith and fair dealing based on certain services. The plaintiff
seeks unspecified money damages in excess of $10,000.
On January 26, 1995, American Interval Marketing, Inc., filed a lawsuit in the
District Court of Clark County, Nevada, against the Company and others, alleging
breach of contract and reasonable value of services. The plaintiff seeks damages
of approximately $45,000.
Page 14 of 17
Form 10-QSB
PART II. Other Information, Continued
On July 14, 1995, Grand Nevada Hotel Corp., filed a lawsuit in the District
Court of Clark County, Nevada, against the Company, alleging breach of contract
and breach of implied duty of good faith. The plaintiff seeks damages in excess
of $10,000.
On July 27, 1995, Norman Eugene Watson, filed a lawsuit against the Company and
others in the District Court of Clark County, Nevada, alleging breach of
contract, fraud and misrepresentation and other claims. The plaintiff seeks
damages in excess of $10,000.
On August 10, 1995, Fiduciary Trust Company International, as Trustee of the
Taylor-Made Ltd. Defined Benefit Pension Plan, filed a lawsuit in the District
Court of Clark County, Nevada, against the Company and others, alleging breach
of contract and unjust enrichment. The plaintiff seeks damages in excess of
$10,000. The Company is negotiating a settlement with respect to this lawsuit.
On September 1, 1995, Young Electric Sign Company, filed a lawsuit in the
District Court of Clark County, Nevada, against the Company and others, alleging
breach of contract. The plaintiff is seeking damages in excess of $10,000.
On April 11, 1996 Jackpot Enterprises, Inc., filed a lawsuit in the District
Court of Clark County, Nevada, against the Company and others, alleging breach
of contract, specific judgment, unjust enrichment and breach of the implied
covenant of good faith and fair dealing. The plaintiff is seeking damages in
excess of $10,000.
On April 21, 1997 Maxim Financial Profit Sharing Plan, filed a lawsuit in the
United States District Court, District of Colorado, against the Company and
others, alleging breach of contract, intentional fraud, Securities Violations
and Recission. The plaintiff is seeking damages in excess of $75,000.
In addition to the above mentioned lawsuits, their are numerous other lawsuits
filed against the Company by certain of its vendors and other creditors. The
Company believes that these lawsuits may be satisfied through payment of the
indebtedness to the extent the Company's cash flow permits.
Except as otherwise set forth above, the Company is unable to predict, at this
time, the likelihood of the Company prevailing in the above lawsuits. However,
the Company has recorded a provision for estimated losses from litigation of
$890,000.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
The Company is in default in respect to the payment of interest on its 8-3/4%
senior subordinated convertible debentures due in October 1996 and November
1998. The total amount of the default as of June 30, 1997 is approximately
$472,000.
As of September 1997, the Company is in default under the following obligations:
the Bennett Management & Development ("BMD") mortgage is in default due to
non-payment of interest and the holder has the right to accelerate the mortgage
immediately and make demand on the entire
Page 15 of 17
<PAGE>
Form 10-QSB
outstanding principal balance; the BMD mortgage had a balance of approximately
$2,115,000 plus accrued interest outstanding at September 30, 1997; the Bennett
Funding International, Ltd. ("BFI") mortgage is in default due to non-payment of
interest and the holder has the right to accelerate the mortgage immediately and
make demand on the entire outstanding principal balance; the BFI mortgage had a
principal balance of approximately $2,865,000 plus accrued interest outstanding
at September 30, 1997; the Gregory Orman ("Orman") mortgage is in default due to
non-payment of interest and the note has matured and the holder has the right to
accelerate the mortgage immediately and make demand on the entire outstanding
principal balance; the Orman mortgage had a principal balance of approximately
$550,000 plus accrued interest outstanding at September 30, 1997; the Galt
Capital ("Galt") mortgage is in default due to non-payment of interest and the
note has matured and the holder has the right to accelerate the mortgage
immediately and make demand on the entire outstanding principal balance; the
Galt mortgage had a principal balance of approximately $1,100,000 plus accrued
interest outstanding at September 30, 1997. (See Part I - Item 2 Management
Discussion and Analysis (2) liquidity and Capital resources for a more complete
details of the Galt Capital mortgage).
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter ended September 30, 1997 the Registrant filed the following
reports on Form 8-K:
Current report on Form 8-K dated July 7, 1997, reporting Item 5 - Other Events.
Current report on Form 8-K dated September 30, 1997, reporting Item 5 - Other
Events.
Page 16 of 17
<PAGE>
Form 10-QSB
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DEBBIE REYNOLDS HOTEL & CASINO, INC.
By: /S/ Todd Fisher
Todd Fisher, Chief Executive Officer
Date: November 14, 1997
By: /S/ Todd Fisher
Todd Fisher, Chief Financial Officer
Page 17 of 17
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