-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAVAnGAaF35DVHtnvN1HBxEQuenmFvMZ7yvifMmqT5Nfmb6E7KhbgpmOZHUeud2c 2dS7q9BsGe+HUTBov4HxqA== 0000790934-97-000008.txt : 19970912 0000790934-97-000008.hdr.sgml : 19970912 ACCESSION NUMBER: 0000790934-97-000008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970909 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REYNOLDS DEBBIE HOTEL & CASINO INC CENTRAL INDEX KEY: 0000790934 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 880335924 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-18864 FILM NUMBER: 97677029 BUSINESS ADDRESS: STREET 1: 305 CONVENTION CENTER DR CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027340711 MAIL ADDRESS: STREET 1: 305 CONVENTION CTR DR CITY: LAS VEGAS STATE: NV ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: HALTER VENTURE CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HALTER RACING STABLES INC DATE OF NAME CHANGE: 19881116 10QSB 1 QUARTERLY REPORT ================================================================================ 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 June 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 August 11, 1997. This filing consisting of 16 sequentially numbered pages. The exhibit index is located at sequentially numbered page 15. Page 1 of 16 Form 10-QSB ================================================================================ DEBBIE REYNOLDS HOTEL & CASINO, INC. Form 10-QSB for the Quarter ended June 30, 1997 Table of Contents Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets: As of June 30,1997 (unaudited) and December 31, 1996 3 Unaudited Consolidated Statement of Operations: For the six months ended June 30, 1997 and 1996 4 Unaudited Consolidated Statement of Operations: For the three months ended June 30, 1997 and 1996 5 Unaudited Consolidated Statements of Cash Flows: For the six months ended June 30, 1997 and 1996 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 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 Page 2 of 16 Part I. Item 1. Financial Statements DEBBIE REYNOLDS HOTEL & CASINO, INC. Consolidated Balance Sheets June 30, 1997 and December 31, 1996 June 30, December 31, Assets 1997 1996 ------------ ------------ Current assets: (Unaudited) Cash and cash equivalents $ -- $ -- Restricted cash 2,000 2,000 Accounts receivable 892,000 985,000 Inventories and Other 847,000 844,000 Total current assets 1,741,000 1,831,000 Land and building 6,576,000 6,576,000 Furniture and equipment 3,824,000 4,010,000 10,400,000 10,586,000 Less accumulated depreciation (3,835,000) (3,219,000) Net property and equipment 6,565,000 7,367,000 Other assets: Deposits and other 105,000 94,000 Total assets $ 8,411,000 $ 9,292,000 Liabilities and Shareholders' Equity Current liabilities: Bank overdraft $ 37,000 $ 103,000 Current maturities of long-term debt and capital lease 9,540,000 8,688,000 Accounts payable and accrued liabilities 5,408,000 5,381,000 Due to affiliates 1,831,000 1,447,000 Timeshare deposits 2,000 2,000 Total current liabilities 16,818,000 15,621,000 Commitments and contingencies Shareholders' equity: Preferred stock, $.0001 par value. Authorized 50,000,000 shares, 2,000,000 designated Series AA, 187,076 issued and outstanding Common stock, $.0001 par value. Authorized 25,000,000 1,000 1,000 13,906,945 and 12,615,417 shares issued and outstanding, respectively Additional paid-in capital 15,347,000 15,160,000 Accumulated deficit (23,755,000) (21,490,000) Total shareholders' equity (deficiency) (8,407,000) (6,329,000) Total liabilities and shareholders' equity $ 8,411,000 $ 9,292,000 Page 3 of 16 DEBBIE REYNOLDS HOTEL & CASINO, INC Consolidated Statements of Operations Six months ended June 30, 1997 and 1996 (Unaudited) 1997 1996 ------------ ------------ Revenue: Timeshare $ 66,000 $ 669,000 Rooms 886,000 1,346,000 Showroom 1,104,000 916,000 Museum 188,000 248,000 Food & Beverage 215,000 477,000 Other 103,000 355,000 Total revenue 2,562,000 4,011,000 Operating expenses: Timeshare 62,000 504,000 Rooms 374,000 606,000 Showroom 876,000 1,380,000 Museum 140,000 172,000 Food & Beverage 322,000 902,000 General and administrative, Facilities and Other cost 1,704,000 1,774,000 Depreciation and amortization 618,000 755,000 Total operating expenses 4,097,000 6,093,000 Loss from operations (1,535,000) (2,082,000) Other income (expense): Interest expense (730,000) (829,000) Total other income (expense) (730,000) (829,000) Net loss $ (2,265,000)$ (2,911,000) Loss per weighted-average common and common share equivalents outstanding: Net loss per share $ (.17)$ (.24) Weighted-average number of common shares and common share equivalents outstanding 13,443,097 11,943,114 Page 4 of 16 DEBBIE REYNOLDS HOTEL & CASINO, INC. Consolidated Statements of Operations Three months ended June 30, 1997 and 1996 (Unaudited) 1997 1996 --------- --------- Revenue: Timeshare $ 66,000 $ 343,000 Rooms 444,000 595,000 Showroom 749,000 727,000 Museum 105,000 127,000 Food & Beverage 125,000 202,000 Other 42,000 131,000 Total revenue 1,531,000 2,125,000 Operating expenses: Timeshare 21,000 242,000 Rooms 188,000 297,000 Showroom 497,000 929,000 Museum 72,000 88,000 Food & Beverage 175,000 493,000 General and administrative, Facilities and Other cos 935,000 682,000 Depreciation and amortization 309,000 377,000 Total operating expenses 2,197,000 3,108,000 Loss from operations (666,000) (983,000) Other income (expense): Interest expense (311,000) (491,000) Total other income (expense) (311,000) (491,000) Net loss $(977,000)$(1,474,000) Loss per weighted-average common and common share equivalents outstanding: Net loss per share $ (.07) $ (.12) Weighted-average number of common shares and common share equivalents outstanding 13,645,417 12,227,882 Page 5 of 16 DEBBIE REYNOLDS HOTEL & CASINO, INC. Consolidated Statements of Cash Flows Six months ended June 30, 1997 and 1996 (Unaudited) 1997 1996 --------- --------- Cash flows from operating activities: Net loss for the period $(2,265,000)$(2,911,000) Adjustments to reconcile net income to net cash provided by (used in)operations 1,227,000 3,054,000 Net cash used in operating activities (1,038,000) 143,000 Cash flows from investing activities: Purchases of property and equipment 186,000 (471,000) Net cash used in investing activities 186,000 (471,000) Cash flows from financing activities: Additional investments from shareholder ---- 150,000 Net increase In long-term debt 852,000 (39,000) Net cash provided by financing activities 852,000 111,000 Net increase (decrease) in cash -0- (217,000) Cash at beginning of period 172,000 -0- Cash at end of period $ (45,000) -0- Supplemental disclosures of cash flow information: Interest paid on borrowings $ 730,000 $ 829,000 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 16 - -------------------------------------------------------------------------------- Form 10-QSB ================================================================================ DEBBIE REYNOLDS HOTEL & CASINO, INC. Notes to Unaudited Financial Statements June 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 3 - Legal Proceedings] Page 7 of 16 DEBBIE REYNOLDS HOTEL & CASINO, INC. Notes to Unaudited Financial Statements, Continued 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 and ILX continue to negotiate an alternative transaction. There is no guarantee that an alternative agreement will be reached. 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 all of its expenses it filed for relief under Chapter 11 of the Bankruptcy Code. 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 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. Page 8 of 16 DEBBIE REYNOLDS HOTEL & CASINO, INC. Notes to Unaudited Financial Statements, Continued (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 June 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 16 ================================================================================ 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 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 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 consideration to the Company, the unit holders waived the past due interest and dividend payments owed. Page 10 of 16 Part II. Other Information, Continued 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, 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, which 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. As of June 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 June 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 June 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 June 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 June 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. Page 11 of 16 Part II. Other Information, Continued 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 and ILX continue to negotiate an alternative transaction. There is no guarantee that an alternative agreement will be reached. 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. The Company had a working capital deficiency of $15,077,000 at June 30, 1997, compared with a working capital deficiency of $10,059,000 at December 31, 1996, an increase of $5,018,000. This increase is attributable to the Company continuing to incur substantial operating losses during the six months ended June 30, 1997 and maturing long-term debt. (3) Revenues Revenues for the quarter ended June 30, 1997 totaled $1,531,000 as compared to $2,125,000 for the quarter ended June 30, 1996, representing an 30% decrease for 1997. This decrease is attributable, in large part, to the decrease in rooms revenue of $151,000 as compared to the quarter ended June 30, 1996 and the decrease in timeshare revenue of $277,000 as compared to the quarter ended June 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 is not selling timeshare units. The timeshare revenue of $66,000 recognized during the quarter ended June 30, 1997 were generated from timeshare contracts entered into during 1996. Page 12 of 16 Part II. Other Information, Continued The loss from operations for the quarter ended June 30, 1997 totaled $666,000 as compared to a $983,000 loss from operations for the second quarter ended 1996. Included in the loss from operations was $50,000 loss from the restaurant operations. The net loss for the quarter ended June 30, 1997 totaled $977,000 as compared to $1,474,000 for the quarter ended June 30, 1996. Revenues for the six months ended June 30, 1997 totaled $2,562,000 as compared to 4,011,000 for the six months ended June 30, 1996, representing an 36% decrease for 1997. This decrease is attributed, in large part, to the decrease of $603,000 in timeshare sales for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996. This decrease in revenue is also attributable to the decrease in rooms revenue of $460,000 as compared to the six months ended June 30, 1996. The decrease in room revenue is attributed to increased competition in the Las Vegas market. The loss from operations for the six months ended June 30, 1997 totaled $1,535,000 as compared to $2,082,000 for the six months ended June 30, 1996. The Company decreased showroom operating expenses by $504,000 as compared to the six months ended June 30, 1996. The restaurant operation generated $107,000 in operating losses for the period ended June 30, 1997 as compared to $425,000 in operating losses for the period ended June 30, 1996. The net loss for the six months ended June 30, 1997 totaled $2,265,000 as compared to $2,911,000 for the six months ended June 30, 1996. (4) Interest Expense Interest expense decreased from $829,000 for the six months ended June 30, 1996 to $730,000 for six months ended June 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. Page 13 of 16 Part II. Other Information, Continued 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. 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 Page 14 of 16 Part II. Other Information, Continued 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 June 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 June 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 June 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 June 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 June 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 June 30, 1997 the Registrant filed the following reports on Form 8-K: None Page 15 of 16 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: August 14, 1997 By: /S/ Todd Fisher Todd Fisher, Chief Financial Officer Page 16 of 16 -----END PRIVACY-ENHANCED MESSAGE-----