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FORM 10-QSB
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 June 30, 1996
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 ______ NO X______
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.
12,556,931 common shares were outstanding as of February 5, 1997.
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This filing consisting of 16 sequentially numbered pages. The exhibit index is
located at sequentially numbered page 15.
Page 1 of 16
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Form 10-QSB
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Form 10-QSB for the Quarter ended June 30, 1996
Table of Contents
Page
----
PART I. FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements
Consolidated Balance Sheets:
As of June 30, 1996 (unaudited) and December 31, 1995 3
Unaudited Consolidated Statement of Operations:
For the six months ended June 30, 1996 and 1995 4
Unaudited Consolidated Statement of Operations:
For the three months ended June 30, 1996 and 1995 5
Unaudited Consolidated Statements of Cash Flows:
For the six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Page 2 of 16
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Form 10-QSB
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Part I. Item 1. Financial Statements
DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1996 1995
------------ -------------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ -0- $ 172,000
Restricted cash 81,000 152,000
Accounts receivable 1,179,000 1,451,000
Inventories and Other 529,000 729,000
------------ ------------
Total current assets 1,789,000 2,504,000
------------ ------------
Land and building 7,095,000 7,073,000
Furniture and equipment 3,832,000 3,361,000
------------ ------------
10,927,000 10,434,000
Less accumulated depreciation 2,751,000 1,996,000
------------ ------------
Net property and equipment 8,176,000 8,438,000
------------ ------------
Other assets:
Due from affiliates 479,000 545,000
Deposits and other 388,000 442,000
------------ ------------
Total assets $ 10,832,000 $ 11,929,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft $ 45,000 $ -0-
Current maturities of long-term debt and capital lease obligations 7,402,000 8,078,000
Accounts payable and accrued liabilities 4,075,000 2,967,000
Accrued legal claims 450,000 450,000
Due to affiliates 1,520,000 916,000
Timeshare deposits 81,000 152,000
------------ ------------
Total current liabilities 13,573,000 12,563,000
Long-term debt and capital lease obligations, net of current maturities 211,000 250,000
------------ ------------
Total liabilities 13,784,000 12,813,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.0001 par value. Authorized 50,000,000 shares,
2,000,000 designated Series AA, 217,844 issued and outstanding -- --
Common stock, $.0001 par value. Authorized 25,000,000 shares, 1,000 1,000
12,522,831 and 11,484,070 shares issued and outstanding,
respectively
Additional paid-in capital 14,984,000 14,141,000
Stock subscribed 300,000 300,000
Deferred compensation (300,000) (300,000)
Accumulated deficit (17,937,000) (15,026,000)
------------ ------------
Total shareholders' equity (deficiency) (2,952,000) (884,000)
------------ ------------
Total liabilities and shareholders' equity $ 10,832,000 $ 11,929,000
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</TABLE>
Page 3 of 16
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Form 10-QSB
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Statements of Operations
Six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
Revenue:
<S> <C> <C>
Timeshare $ 669,000 $ 2,394,000
Rooms 1,346,000 1,305,000
Showroom 916,000 960,000
Museum 248,000 184,000
Food & Beverage 477,000 --
Other 355,000 398,000
------------ ------------
Total revenue 4,011,000 5,241,000
------------ ------------
Operating expenses:
Timeshare 504,000 1,749,000
Rooms 606,000 837,000
Showroom 1,380,000 1,309,000
Museum 172,000 105,000
Food & Beverage 902,000 --
General and administrative, Facilities and Other costs 1,774,000 2,243,000
Depreciation and amortization 755,000 511,000
------------ ------------
Total operating expenses 6,093,000 6,754,000
------------ ------------
Loss from operations (2,082,000) (1,513,000)
------------ ------------
Other income (expense):
Interest expense (829,000) (802,000)
------------ ------------
Total other income (expense) (829,000) (802,000)
------------ ------------
Net loss $ (2,911,000) $ (2,315,000)
============ ============
Loss per weighted-average common and common share
equivalents outstanding:
Net loss per share $ (.24) $ (.28)
============ ============
Weighted-average number of common shares and common
share equivalents outstanding 11,943,114 8,112,063
============ ============
</TABLE>
Page 4 of 16
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Form 10-QSB
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Statements of Operations
Three months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- --------------
Revenue:
<S> <C> <C>
Timeshare $ 343,000 $ 1,295,000
Rooms 595,000 593,000
Showroom 727,000 475,000
Museum 127,000 184,000
Food & Beverage 202,000 --
Other 131,000 196,000
------------ ------------
Total revenue 2,125,000 2,743,000
------------ ------------
Operating expenses:
Timeshare 242,000 737,000
Rooms 297,000 415,000
Showroom 929,000 594,000
Museum 88,000 105,000
Food & Beverage 493,000 --
General and administrative, Facilities and Other costs 682,000 1,065,000
Depreciation and amortization 377,000 292,000
------------ ------------
Total operating expenses 3,108,000 3,208,000
------------ ------------
Loss from operations (983,000) (465,000)
------------ ------------
Other income (expense):
Interest expense (491,000) (427,000)
------------ ------------
Total other income (expense) (491,000) (427,000)
------------ ------------
Net loss $ (1,474,000) $ (892,000)
============ ============
Loss per weighted-average common and common share
equivalents outstanding:
Net loss per share $ (.12) $ (.11)
============ ============
Weighted-average number of common shares and common
share equivalents outstanding 12,227,882 8,130,222
============ ===========
</TABLE>
Page 5 of 16
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Form 10-QSB
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss for the period $(2,911,000) $(2,315,000)
Adjustments to reconcile net income to net cash
provided by (used in) operations 3,054,000 1,668,000
----------- -----------
Net cash used in operating activities 143,000 (647,000)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (471,000) (998,000)
----------- -----------
Net cash used in investing activities (471,000) (998,000)
----------- -----------
Cash flows from financing activities:
Additional investments from shareholder 150,000 --
Net increase In long-term debt (39,000) 1,568,000
----------- -----------
Net cash provided by financing activities 111,000 1,568,000
----------- -----------
Net increase (decrease) in cash (217,000) (77,000)
Cash at beginning of period 172,000 112,000
----------- -----------
Cash at end of period $ (45,000) $ 35,000
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Supplemental disclosures of cash flow information:
Interest paid on borrowings $ 829,000 $ 802,000
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</TABLE>
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
$486,000 through conversion of debt.
Page 6 of 16
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Form 10-QSB
DEBBIE REYNOLDS HOTEL & CASINO, INC.
Notes to Unaudited Financial Statements,
June 30, 1996 and December 31, 1995
(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, 1995 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, 1996.
(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. DRMC leased
the restaurant to Celebrity Restaurants, Inc., a company wholly-owned
by Ms. Reynolds, until August 1, 1996 at which time DRMC was granted a
liquor license from Clark County and commenced operating the bar and
the restaurant. Until the Company received approval for its own liquor
license, Celebrity accommodated the Company by undertaking and
operating the restaurant and bar under its liquor license. 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. 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
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Page 7 of 16
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Form 10-QSB
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Notes to Unaudited Financial Statements, Continued
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 3 - Legal Proceedings]
On October 30, 1996 the Company entered into an Agreement for Purchase
and Sale with ILX Incorporated ("ILX") under which ILX will 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. The
purchase price for the Hotel is $16,800,000, which will consist of
3,750,000 "free-trading" shares of ILX common stock valued for
purposes of the transaction at $2.00 per share, $4,200,000 in cash and
$5,100,000 in assumption of mortgage indebtedness. The market value of
ILX's common stock has recently been substantially less than $2.00 per
share. When the market value of ILX's common stock reduces so does the
negotiated purchase price. Under the ILX agreement, immediately after
the closing, ILX has agreed to lease certain of the hotel facilities
to Debbie Reynolds and /or a designee (the "Hotel Facilities Lease").
The Hotel Facilities Lease is expected to be for a term of 99 years,
with a monthly lease payment to be determined. Although the ILX
Agreement specifies monthly payments of approximately $150,000, it is
unlikely the Lease would be profitable at that rate and there is no
guarantee that ILX will agree to an acceptable lower figure. The Hotel
Facilities Lease is expected to include the showroom, the museum, the
gift shop, the vacant casino space, the back bar and certain joint
areas. In addition, in consideration for use of her name and likeness,
and associated goodwill and other services, Debbie Reynolds will
receive a percentage of the net profit of any timeshare project at the
Hotel pursuant to a Timeshare Profit Agreement. Ms. Reynolds will also
participate in future activities of the Hotel and other ILX business
activities, pursuant to the Debbie Reynolds Participation Agreement.
As a condition precedent to the sale, ILX has requested Debbie
Reynolds to enter into an agreement with Red Rock Collection
Incorporated, a wholly owned subsidiary of ILX. Subsequently, Ms.
Reynolds and Todd Fisher have entered into agreements with Red Rock
Collections Incorporated. The sale of the Hotel to ILX is subject to
the approval of the Company's shareholders, a standard due diligence
investigation by ILX, receipt of any necessary governmental approvals,
and satisfaction of various other conditions. The Company anticipates
that the closing will occur early in the second quarter of 1997;
however, there can be no assurance that the closing will occur.
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
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Page 8 of 16
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Form 10-QSB
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DEBBIE REYNOLDS HOTEL & CASINO, INC.
Notes to Unaudited Financial Statements, Continued
until such time as cash flows from operations are sufficient to
finance the Company's operations, including the Company's proposed
casino operations. If the sale under the ILX Agreement is not
consummated, the Company may need to seek protection under the Federal
bankruptcy laws. In order for the Company to continue to operate until
the sale under the ILX Agreement is consummated, the Company has
obtained a $1,100,000 loan as interim financing which will be used
primarily to fund its operations and to pay off certain defaulted
indebtedness. (See Part I - Item 2 Management Discussion and Analysis
(2) liquidity and Capital resources for a more complete details of the
Galt Capital mortgage).
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. Raymax has agreed to render showroom and other services on
an "at will" basis, terminable 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. 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 for.
As of June 30, 1996 the Company has accrued $450,000 for these claims.
See Part II (Other Information), Item 1 (Legal Proceedings) for lawsuits
filed against the Company.
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Form 10-QSB
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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, 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 is
due and payable March 22, 1997. 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 is due and payable March 22, 1997. 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 Funding
International, LTD., 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. As of January 1997, this loan
is in due to non-payment of interest.
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 the remaining $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
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Form 10-QSB
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Part II. Other Information, Continued
consideration to the Company, the unit holders waived the past due interest
and dividend payments owed.
In August 1996, the Company obtained a $500,000 loan from Gregory Orman, an
independent third party, the proceeds of which were principally used to
reduce past due tax obligations, reduce trade payable debt and also allowed
the Company to engage its auditors. The loan bears interest at 12% and has
$550,000 principal balance due November 1, 1996. This loan is secured with
a forth mortgage 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. In addition,
Debbie Reynolds and Todd Fisher have personally guaranteed this loan.
In February 1997, the Company obtained a $1,100,000 loan from Galt Capital,
an affiliate of Gregory Orman, an independent third party, the proceeds of
which were principally used to payoff the second mortgage that was in
default, reduce past due tax obligations, reduce trade payable debt and
will be used as interim financing to fund the Company's operations until
the sale under the ILX Agreement is consummated. The loan bears interest at
12% and has $1,100,000 principal balance due June 5, 1997. 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 consideration 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 granted Orman three
year warrants to acquire up to two percent (2%) of the Company's fully
diluted common stock, currently the warrants represent approximately
260,000 shares, at an exercise price of $.22 per share. The warrants are
anti-dilutive for a period of eighteen months.
As of January 1997, the Company is currently 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 principal balance of
approximately $2,115,000 plus accrued interest outstanding at June 30,
1996; 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 June 30,
1996; and the Company is in default on its unsecured subordinated
debentures due to non-payment of monthly interest, 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 will 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"). The sale of the Hotel to ILX is subject to the approval of the
Company's shareholders, a standard due diligence investigation by ILX,
receipt of any necessary
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Form 10-QSB
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Part II. Other Information, Continued
governmental approvals, and satisfaction of various other conditions. The
Company anticipates that the closing will occur early in the second quarter
of 1997; however, there can be no assurance that the closing will occur.
(See Part I - Note 1 (b) for a more complete description of the ILX
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. If the sale under the ILX Agreement is not
consummated, the Company may need to seek protection under the Federal
bankruptcy laws.
The Company had a working capital deficiency of $11,784,000 at June 30,
1996, compared with a working capital deficiency of $10,059,000 at December
31, 1995, an increase of $1,725,000. This increase is attributable to the
company continuing to incur substantial operating losses during the six
months ended June 30, 1996.
(3) Revenues
Revenues for the quarter ended June 30, 1996 totaled $2,125,000 as compared
to $2,743,000 for the quarter ended June 30, 1995, representing an 22.5%
decrease for 1996. This decrease is attributable, in large part, to the
decrease of $952,000 in timeshare sales for the quarter ended June 30, 1996
as compared to the quarter ended June 30, 1995. The decrease in timeshare
revenue for the second quarter of 1996 can be attributed to the continued
restructuring of the timeshare sales operation.
The loss from operations for the second quarter ended June 30, 1996 totaled
$983,000 as compared to a $465,000 loss for the second quarter 1995.
Timeshare sales during the second quarter of 1996 continued to be not
sufficient to generate substantial profits due to the continued
restructuring of the sales operation. Additionally, the Company incurred
considerable showroom operating expenses which resulted in the showroom
generating a loss of $202,000 for the quarter ended June 30, 1996. The
restaurant operation continued to incur substantial operating losses.
During the second quarter ended June 30, 1996, the restaurant generated a
loss of $291,000. The Company is currently restructuring the restaurant
operation to reduce the operating loss. The net loss for the quarter ended
June 30, 1996 totaled $1,474,000 as compared to $892,000 for the quarter
ended June 30, 1995. Included in the net loss for the quarter ended June
30, 1996 was approximately $235,000 of expense related to the conversion of
debt into equity.
Revenues for the six months ended June 30, 1996 totaled $4,011,000 as
compared to 5,241,000 for the six months ended June 30, 1995, representing
an 23.5% decrease for 1996. This decrease is attributed, in large part, to
the decrease of $1,725,000 in timeshare sales for the six months ended June
30, 1996 as compared to the six months ended June 30, 1995.
The loss from operations for the six months ended June 30, 1996 totaled
$2,082,000 as compared to $1,513,000 for the six months ended June 30,
1995. The Company incurred substantial showroom operating expenses which
resulted in the showroom generating a loss of $464,000 for the six months
ended June 30, 1996. The restaurant operation generated $425,000 in
operating losses for
================================================================================
Page 12 of 16
<PAGE>
Form 10-QSB
================================================================================
Part II. Other Information, Continued
the period ended June 30, 1996. The net loss for the six months ended June
30, 1996 totaled $2,911,000 as compared to $2,315,000 for the six months
ended June 30, 1995.
(4) Interest Expense
Interest expense increased from $802,000 for the six months ended June 30,
1995 to $829,000 for six months ended June 30, 1996 due to additional debt
which was incurred and the increased interest rates associated the with
loans in default.
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.
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.
================================================================================
Page 13 of 16
<PAGE>
Form 10-QSB
================================================================================
Part II. Other Information, Continued
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. 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.
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, 1996
is approximately $410,000.
As of January 1997, the Company is currently 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
principal balance of approximately $2,115,000 plus accrued interest
outstanding at June 30, 1996; 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 June 30, 1996; the TPM Holding, Inc., ("TPM"),
mortgage was 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 TPM mortgage was
assigned to Galt Capital in February 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
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Page 14 of 16
<PAGE>
Form 10-QSB
================================================================================
Part II. Other Information, Continued
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 June 30, 1996 the Registrant filed the
following reports on Form 8-K:
Current report on Form 8-K dated April 5, 1996, reporting Item 5
- Other Events.
Current report on Form 8-K dated April 22, 1996, reporting Item 5
- Other Events.
================================================================================
Page 15 of 16
<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: February 5, 1997
By:/S/ Todd Fisher
----------------------------------
Todd Fisher, Chief Financial Officer
================================================================================
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> (45,000)
<SECURITIES> 0
<RECEIVABLES> 1,179,000
<ALLOWANCES> 0
<INVENTORY> 529,000
<CURRENT-ASSETS> 1,789,000
<PP&E> 10,927,000
<DEPRECIATION> 2,751,000
<TOTAL-ASSETS> 10,832,000
<CURRENT-LIABILITIES> 13,573,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 14,984,000
<TOTAL-LIABILITY-AND-EQUITY> 10,832,000
<SALES> 0
<TOTAL-REVENUES> 4,011,000
<CGS> 0
<TOTAL-COSTS> 6,093,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 829,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,911,000)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
