SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1996 Commission File Number 0-20648
BLUE DIAMOND HOTEL & CASINO, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0253124
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Boomtown, Inc.
P.O. Box 399, Verdi, Nevada 89439-0399
(Addressed of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 345-8643
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) (A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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 (of 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. Yes X No
---- ----
On August 14, 1996 the registrant had outstanding 100 shares of its Common
Stock, no par value.
BLUE DIAMOND HOTEL & CASINO, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets, September 30, 1995 and June 30, 1996................3
Statements of Operations For the Three and Nine Months
Ended June 30, 1995 and 1996........................................4
Condensed Statements of Cash Flows For the Nine Months
Ended June 30, 1995 and 1996........................................5
Notes to Financial Statements.......................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................15
Item 5. Other Information.................................................15
Item 6. Exhibits and Reports on Form 8-K..................................15
SIGNATURES...................................................................16
SCHEDULE OF EXHIBITS.........................................................17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BLUE DIAMOND HOTEL & CASINO, INC.
BALANCE SHEETS
(in thousands)
September 30, June 30,
1995 1996
------------- -----------
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 2,630 $ 3,096
Accounts receivable, net 208 243
Income taxes receivable 3,608 6,572
Inventories 873 310
Prepaid expenses 1,350 1,316
Other current assets 214 --
-------- --------
Total current assets 8,883 11,537
Property and equipment, net 5,761 1,047
Investment in lease, net 13,077 --
Other assets 1,186 243
-------- --------
Total assets $ 28,907 $ 12,827
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 1,119 $ 994
Accrued compensation 545 1,098
Other accrued liabilities 2,042 1,680
Note payable - Boomtown, Inc. 32,775 39,115
Accrued interest payable - Boomtown, Inc. 3,754 6,390
Long-term debt due within one year (Note 2) 587 700
-------- --------
Total current liabilities 40,822 49,977
Commitment and contingencies (Note 3)
Long-term debt due after one year (Note 2) 894 233
Stockholders' deficit:
Common stock, no par value, 2,500 shares
authorized, 100 shares issued and outstanding 1 1
Accumulated deficit (12,810) (37,384)
-------- --------
Total stockholders' deficit (12,809) (37,383)
-------- --------
Total liabilities and stockholders' deficit $ 28,907 $ 12,827
-------- --------
-------- --------
See accompanying notes.
3
BLUE DIAMOND HOTEL & CASINO, INC.
STATEMENT OF OPERATIONS
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1996 1995 1996
--------- --------- -------- ---------
Revenues:
Gaming $ 8,151 $ 7,421 $ 25,043 $ 23,735
Food and beverage 1,952 1,860 5,648 5,701
Hotel and recreational vehicle park 1,197 1,411 3,700 4,287
Family entertainment center 75 80 234 197
Mini-mart 40 39 111 115
Showroom 23 -- 76 --
Other income 193 162 616 445
-------- -------- -------- --------
11,631 10,973 35,428 34,480
Costs and expenses:
Gaming 2,890 2,849 9,189 8,808
Gaming equipment leases 666 666 1,998 1,998
Food and beverage 2,425 2,571 6,882 7,537
Hotel and recreational vehicle park 636 601 1,821 1,734
Family entertainment center 57 39 155 88
Mini-mart 27 21 72 63
Showroom 19 -- 74 --
Marketing 984 1,281 3,316 4,087
General and administrative 5,052 4,863 14,631 14,960
Loss on sale of Blue Diamond -- 17,734 -- 17,734
Depreciation and amortization 302 327 1,013 992
-------- -------- -------- --------
13,058 30,952 39,151 58,001
Loss from operations (1,427) (19,979) (3,723) (23,521)
Interest and other expense, net (733) (1,112) (2,239) (2,883)
-------- -------- -------- --------
Loss before income tax benefit (2,160) (21,091) (5,962) (26,404)
Income tax benefit (795) (88) (2,194) (1,830)
-------- -------- -------- --------
Net loss ($1,365) ($21,003) ($3,768) ($24,574)
-------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes.
4
BLUE DIAMOND HOTEL & CASINO, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
(unaudited)
Nine Months Ended
June 30,
1995 1996
-------- ---------
Cash flows from operating activities:
Net loss ($3,768) ($24,574)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on sale of Blue Diamond -- 17,734
Depreciation and amortization 1,013 992
Inventories (64) 275
Prepaid expenses 136 35
Other assets (1,420) 169
Income taxes receivable (233) (2,964)
Deferred income taxes 818 987
Accounts payable 276 (125)
Accrued compensation 499 553
Other accrued liabilities (796) (363)
Accrued interest payable - Boomtown, Inc. 2,065 2,635
Other adjustments, net 259 52
-------- ---------
Net cash used in operating activities (1,215) (4,594)
-------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 1,017 --
Payments for purchases of property and
equipment (602) (512)
-------- ---------
Net cash (used in) provided by investing
activities 415 (512)
-------- ---------
Cash flows from financing activities:
Note payable - Boomtown, Inc., net 927 6,119
Proceeds from long-term debt 758 163
Principal payments on long-term debt (483) (710)
-------- ---------
Net cash provided by financing activities 1,202 5,572
-------- ---------
Net increase in cash and cash equivalents 402 466
Cash and cash equivalents:
Beginning of period 1,815 2,630
-------- ---------
End of period $ 2,217 $ 3,096
-------- ---------
-------- ---------
See accompanying notes.
5
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
BASIS OF PRESENTATION AND NATURE OF BUSINESS - Blue Diamond Hotel & Casino,
Inc. (the "Company" or "Blue Diamond"), a Nevada Corporation incorporated on
November 1, 1989, is a wholly-owned subsidiary of Boomtown, Inc. ("Boomtown").
Previously, Boomtown owned 50% of the Company and Edward P. Roski, Jr.
("Roski"), owned the remaining 50% of the Company. Roski is a member of the
Board of Directors of Boomtown and an affiliate of IVAC, a California general
partnership, which owns the land and building leased by the Company for the
Resort. Boomtown has loaned IVAC $27.3 million (the "IVAC Loans") which was
used to help construct the resort. The IVAC Loans are secured by separate deeds
of trust on the Resort, which deeds of trusts are subordinate to separate deeds
of trust securing Blue Diamond and Boomtown's obligations in connection with
Boomtown's Indenture (as defined under "Management Discussion and Analysis of
Financial Condition and Results of Operations" in the Boomtown, Inc., Form 10-K
for the period ending September 30, 1995). Boomtown receives interest income of
$2.7 million annually from IVAC as a result of these loans. In turn, Blue
Diamond pays rent to IVAC in the amount of $5.4 million annually to lease the
facility. After commencement of operations, Boomtown exercised its option to
purchase all of Roski's ownership interest in the Company for 714,286 shares of
Boomtown's Common Stock. This along with capitalized interest of $1.2 million,
is shown as an investment in lease on the September 30, 1995 and June 30, 1996
balance sheets.
BOOMTOWN'S PROPOSED MERGER WITH HOLLYWOOD PARK, INC. ("HOLLYWOOD PARK") -
On April 23, 1996, the Boomtown entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Hollywood Park relating to the strategic
combination of Hollywood Park and Boomtown. Pursuant to the Merger Agreement
and subject to the terms and conditions set forth therein, the Company would
become a wholly-owned subsidiary of Hollywood Park (the "Merger"). Pursuant to
the Merger Agreement, at the effective date of the Merger (the "Effective
Date"), each issued and outstanding share of Boomtown Common Stock will be
converted into the right to receive 0.625 (the "Exchange Ratio"), of a share of
Hollywood Park Common Stock. The Merger is intended to be structured as a tax-
free reorganization.
6
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Certain additional matters relating to the signing of the Merger
Agreement and a complete description of the Merger Agreement are more fully
described in Boomtown's Form 8-K dated April 23, 1996, including the
Agreement and Plan of Merger file as exhibit 2.1 thereto, and filed with the
Securities and Exchange Commission on May 3, 1996.
TERMINATION OF LAS VEGAS PROPERTY LEASE - On August 12, 1996, Boomtown,
Blue Diamond, Hollywood Park, Roski, IVAC and Majestic Realty entered into
the Blue Diamond Swap Agreement (the "Swap Agreement") pursuant to which the
parties agreed that, upon consummation of the Merger, and contingent upon the
closing of the Merger, Boomtown and Blue Diamond (or any transferee thereof
as set forth in the Swap Agreement) would exchange their entire interest in
the Blue Diamond Resort (the "Resort") (including the IVAC Loans), and
effectively transfer all interest in the Resort to Roski, in exchange for a
$5.0 million unsecured promissory note (the "First Note") and an unsecured
promissory note (the "Second Note") valued at approximately $3.5 million and
assumption by Roski, IVAC or an affiliate of certain liabilities (the
"Swap"). The First Note has an interest rate equal to the prime rate plus
one and one half percent (1.5%) per annum and provides for annual principal
payments of one million dollars ($1,000,000) plus accrued interest and
maturing on the date that is five years after the Exchange Date (as such term
is defined in the Swap Agreement). The Second Note has an interest rate
equal to the prime rate
7
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
plus one-half percent (5%) per annum and provides for a payment of all
principal plus accrued interest on the date that is three (3) years after the
Exchange Date. Consummation of the Swap is subject to obtaining all necessary
Governmental approvals, including gaming approval.
In exchange for its interest in the Resort, Boomtown will receive notes
payable to Boomtown with an approximate value totaling $8.5 million, an
estimated cash payment of $2.1 million, release from lease obligations under the
Resort lease, Roski's assumption of certain liabilities and note obligations
totaling approximately $3.8 million and the ongoing expenses of the Resort.
Additionally, Roski will assume all operating leases including any residual
balances due under such leases. The Swap Agreement requires approvals from
applicable gaming authorities and Boomtown intends to seek the consent of the
holders of a majority of the outstanding principal amount on the Notes (see Note
3). The Swap would be effected immediately following the Boomtown's Merger with
Hollywood Park which is expected to be completed by the end of the 1996 calendar
year or during the first quarter of calendar 1997.
In accordance with the terms of the Swap Agreement, with certain exceptions
set forth in the Swap Agreement, the Company will continue to operate the
property until consummation of the Merger. Boomtown and Blue Diamond will be
responsible for the liabilities of the Resort prior to the Swap and Roski will
be responsible for the liabilities of the Resort subsequent to the Swap. In
addition, Roski will resign from Boomtown's Board of Directors, effective as of
the Exchange Date. Subject to certain conditions set forth in the Swap
Agreement, the Swap may be effectuated through any structure agreed upon by
Boomtown and Hollywood Park. If the Swap were not consummated for any reason,
Boomtown would continue to operate the property through the expiration of the
lease term in July 1999, and the IVAC Notes would be required to be repaid to
Boomtown at such time.
On August 12, 1996, Hollywood Park and Roski further entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") pursuant to which Hollywood
Park will, concurrently with the Swap, purchase the stock in Boomtown held by
Roski ("Roski Stock") for a purchase price of approximately $3.5 million paid
for by an unsecured promissory note having an interest rate equal to the prime
rate plus one percent (1%) per annum and providing for four equal annual
principal payments plus accrued interest and maturing on the date that is four
years after the Exchange Date. The Stock Purchase Agreement may also be
terminated by Hollywood Park in the event that Boomtown and Hollywood Park, in
accordance with the provisions set forth in the Swap Agreement, elect to utilize
a structure to effect the Swap which would require Roski to retain the Roski
Stock.
INTERIM FINANCIAL INFORMATION - The balance sheet at September 30, 1995 has
been taken from the audited financial statements at that date. The interim
financial information is unaudited.
8
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of its financial position at June 30, 1996, the results of
operations for the three and nine months ended June 30, 1996 and 1995,
respectively and cash flows for the nine months ended June 30, 1996 and 1995
have been included. The Company's operations are seasonal and thus operating
results for the three and nine months ended June 30, 1996 should not be
considered indicative of the results that may be expected for the fiscal year
ending September 30, 1996. The unaudited financial statements should be read
in conjunction with the financial statements and footnotes thereto included
in the Company's Form 10-K for the year ended September 30, 1995.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1995
financial statements to conform to the 1996 presentation.
2. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
September 30, 1995 June 30, 1996
------------------ -------------
11.5% note payable $ 808 $ 511
Capital lease obligations 673 422
------ ------
1,481 933
Less amounts due within one year 587 700
------ ------
$ 894 $ 233
------ ------
------ ------
The 11.5% note payable is secured by furniture, fixtures and equipment.
The note matures in September 1997.
The capital lease obligations are for equipment that require monthly
payments of approximately $30,000 and mature July 1997.
3. COMMITMENTS AND CONTINGENCIES
On November 24, 1993, Boomtown completed the private placement of $103.5
million of 11.5% First Mortgage Notes due November 2003 (the "Notes"). The
Notes are secured by, among other things, a limited guarantee by the Company.
As defined in the Indenture to the Notes, the Company's guarantee is limited to
loans made by Boomtown to IVAC ($27.3 million at June 30, 1996) and any
outstanding liability related to advances received by the Company from Boomtown
($39.1 million at June 30, 1996). However, under the terms of the Swap
Agreement, (see Note 1) the Company would not be required to repay the loans
made by Boomtown upon transferring the interest in the Company.
The Indenture governing the Notes places certain business, financial and
operating restrictions on Boomtown and its subsidiaries including, among other
things, the incurrence of
9
BLUE DIAMOND HOTEL & CASINO, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
additional indebtedness, issuance of preferred equity interests and entering
into operating leases; limitations on dividends, repurchases of capital
stock of Boomtown and redemption's of subordinated debt; limitations on
transactions with affiliates; limitations on mergers, consolidations and
sales of assets; limitations on amending existing partnership and facility
construction agreements; and limitations on the use of proceeds from the
issuance of the Notes. Boomtown will solicit consent of the Noteholders in
connection with the proposed merger with Hollywood Park and intends to
solicit consent of the Noteholders in connection with the termination of the
Las Vegas lease (see Note 1).
In addition, the Company is a guarantor for a ship mortgage with an
outstanding balance of $3.5 million at June 30, 1996, of Louisiana - I Gaming,
L.P., a majority owned and controlled partnership of Boomtown.
The Company is also a guarantor of a note payable with an outstanding
balance of $394,000 at June 30, 1996, of Mississippi - I Gaming, L.P., a
majority owned and controlled Partnership of Boomtown.
4. MANAGEMENT FEE
Boomtown is responsible for managing the operations of the Company and all
of Boomtown's other subsidiaries (collectively the "Subsidiaries"). During the
third fiscal quarter and nine months ended June 30, 1996, Boomtown charged its
Subsidiaries for their pro-rata share of the costs it incurred relative to this
management function (the "Management Fee"). During the quarter and nine months
ended June 30, 1996, the Company recorded Management Fees in the amount of
$177,000 and $585,000, respectively.
5. COMMON STOCK OUTSTANDING AND NET LOSS PER SHARE
The Company is a wholly-owned and consolidated subsidiary of Boomtown, Inc.
There are 100 shares of Company stock issued and there are no Common Stock
equivalents outstanding. Therefore, the net loss per share of the unconsolidated
subsidiary has little or no meaning and are not presented herein.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's statements
of operations as a percentage of total revenues for the quarters and nine months
ended June 30, 1995 and 1996 (in thousands, unaudited):
Quarter Ended Nine Months Ended
June 30, June 30,
1995 1996 1995 1996
------------------ -------------------- ------------------- --------------------
Revenues:
Gaming $ 8,151 70.1% $ 7,421 67.6% $25,043 70.7% $23,735 68.8%
Non-gaming 3,480 29.9% 3,552 32.4% 10,385 29.3% 10,745 31.2%
------- ------- ------- ------- ------- ------- ------- -------
11,631 100.0% 10,973 100.0% 35,428 100.0% 34,480 100.0%
Operating costs and expenses:
Gaming 3,556 30.6% 3,515 32.0% 11,187 31.6% 10,806 31.3%
Non-gaming 3,164 27.2% 3,232 29.5% 9,004 25.4% 9,422 27.3%
Marketing, general and
administrative 6,036 51.9% 6,144 56.0% 17,947 50.7% 19,047 55.3%
Loss on sale of
Blue Diamond -- -- 17,734 161.6% -- -- 17,734 51.4%
Depreciation and
amortization 302 2.6% 327 3.0% 1,013 2.8% 992 2.9%
------- ------- ------- ------- ------- ------- ------- -------
13,058 112.3% 30,952 282.1% 39,151 110.5% 58,001 168.2%
Loss from operations (1,427) (12.3%) (19,979) (182.1%) (3,723) (10.5%) (23,521) (68.2%)
Interest and other expense,
net (733) (6.3%) (1,112) (10.1%) (2,239) (6.3%) (2,883) (8.4%)
------- ------- ------- ------- ------- ------- ------- -------
Loss before income
tax benefit (2,160) (18.6%) (21,091) (192.2%) (5,962) (16.8%) (26,404) (76.6%)
Income tax benefit (795) (6.9%) (88) (.8%) (2,194) (6.2%) (1,830) (5.3%)
------- ------- ------- ------- ------- ------- ------- -------
Net loss ($1,365) (11.7%) ($21,003) (191.4%) ($3,768) (10.6%) ($24,574) (71.3%)
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Total revenues for the quarter ended June 30, 1996 were $11.0 million, a
decrease of 5.7% compared to the same prior year period. Gaming revenues are
derived from slot machines and video gaming machines, various table games, and
keno. Additionally, a 3,600 square foot bingo room which seats 228 was added to
gaming operations during the quarter ended June 30, 1996. During the first nine
months of fiscal 1996 the Company recorded gaming revenues of $23.7 million,
5.2% lower than the prior year. The decline in gaming revenues during the
current year periods resulted primarily from intense competition in the local
customer market causing lower hold percentages on gaming machines.
Additionally, the revenue decline was due to disruption to the gaming floor
during the second fiscal quarter ending March 31, 1996 from remodeling the
casino layout.
Non-gaming revenues consist of revenues from food and beverage sales, a 300
room hotel, a 460-space full service recreational vehicle park, and other
entertainment amenities. Non-gaming revenues for the quarter and nine months
ended June 30, 1996 were $3.6 million and
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
$10.7 million, respectively, compared to $3.5 million and $10.4 million for
the same prior year periods. The increase in non-gaming revenues resulted
from higher food and beverage sales as the Company has expanded its efforts
on improving the quality of its food product as well as improved occupancy at
the hotel and RV park as Boomtown becomes more established in the market.
The gaming margin was 52.6% or $3.9 million for the third quarter of fiscal
1996. This compares to 56.4% and $4.6 million in the same prior year quarter
primarily due to lower revenues. During the first nine months of fiscal 1996,
the gaming margin fell to $12.9 million from $13.9 million in the prior year,
and as a percentage of gaming revenue, the margin remained at approximately 55%
of gaming revenues.
Marketing expenses were $1.3 million and $4.1 million for the current
quarter and nine month period, as compared with $984,000 and $3.3 million for
the same prior year periods. Marketing expenses consist primarily of costs
associated with printed advertising, outdoor signs, media advertising,
promotional events, direct mailings, and bus programs. The increases are a
result of additional promotional events designed to stimulate gaming play.
General and administrative ("G&A") expenses were $4.9 million and $15.0
million for the quarter and nine months ended June 30, 1996. This represents a
decrease of 3.7% and an increase of 2.2%, respectively, compared to the same
prior year periods. The increase in G&A expenses for the nine months ending
June 30, 1996 primarily resulted from management fees charged to the Company by
Boomtown. Boomtown is responsible for managing the operations of the Company
and charges a pro-rata share of the costs incurred relative to this management
function. During the quarter and nine months ended June 30, 1996, the Company
recorded management fees in the amount of $177,000 and $585,000, respectively.
During the prior year periods, management fees were not charged. The Company
continues to expand its efforts on reducing overhead and implementing cost
reduction measures.
During the quarter ended June 30, 1996, the Company took a non-cash charge
of $17.7 million related to the Swap Agreement which would effectively provide
for an early termination of the existing property lease between Boomtown and
IVAC. The agreement calls for upon consummation of the Boomtown's proposed
merger with Hollywood Park Boomtown would transfer its entire interest in the
Resort to Roski in exchange of certain assets and assumption of certain
liabilities. The charge included the write-off of the Company's investment in
lease of $12.7 million, and the write-off of the remaining net assets less the
liabilities assumed by Roski of $5.0 million (approximate value at June 30,
1996). Consummation of the Swap is subject to obtaining all necessary
Governmental approvals, including gaming approval.
Depreciation expense for the quarter and nine months ended June 30, 1996
was $190,000 and $583,000, respectively and amortization expense, related to the
investment in lease, was $137,000 and $409,000, respectively.
The recorded benefit for income taxes for the three and nine months
ended June 30, 1996, respectively does not necessarily reflect the
anticipated benefit in both periods from the write-off associated with the
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Swap Agreement . The $12.7 million write off of the investment in lease is
not tax deductible for income tax purposes, however the remaining income tax
benefit arising from the Swap Agreement has been offset by a valuation
allowance because of the uncertainty regarding future realization of the
related deferred tax asset.
The Company incurred interest expense of $1.0 million, and a loss on the
sale of assets of $84,000 during the third fiscal quarter of 1996. For the nine
months of fiscal 1996, interest expense was $2.8 million, interest income was
$5,000 and the Company incurred a loss on the sale of assets of $86,000. The
majority of interest expense is charged from Boomtown on the outstanding note
payable to Boomtown.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of liquidity at June 30, 1996 was cash and
cash equivalents of approximately $3.1 million, an increase of $466,000 from
September 30, 1995. Operating Cash flow has continued to be negative and has
been so over the past five quarters. Cash deficiencies have been funded by
Boomtown. Net cash used in operating activities for the nine months ended June
30, 1996 was $4.6 million compared to net cash used of $1.2 million in the prior
year commensurate period. The decrease in operating cash flow resulted primarily
from a $948,000 reduction in revenues combined with higher operating costs of
approximately $1.1 million.
Net uses of cash in investing activities for the nine months ended June 30,
1996 totaled $512,000 toward the purchase of property and equipment. Net cash
provided from financing activities for the first nine months of fiscal 1996 were
$5.6 million, primarily related to the advanced from Boomtown as the Company
has continued to experience cash flow deficiencies.
At June 30, 1996 the Company's debt was primarily comprised of $39.1
million note payable to Boomtown, Inc. and other notes and leases payable of
$933,000 on furniture, fixtures and equipment.
In November 1993, Boomtown closed the issuance and sale of an aggregate of
$103.5 million principal amount of 11.5% First Mortgage Notes due November 1,
2003 (the "Notes") and warrants to purchase 472,500 shares of Boomtown's Common
Stock. Payment of the principal, interest and any other amounts owing under the
Notes has been unconditionally guaranteed by certain subsidiaries of Boomtown.
The Company has provided a guarantee of the Notes which is limited as follows:
until the Company has exercised the Resort Purchase Option, (A) the Company's
liability under its guarantee will be limited to an amount equal to the sum of
outstanding principal balance from time to time of (x) loans, investments and
other transfers of assets made to the Company by Boomtown, Inc., any other
guarantor subsidiary of Boomtown, Inc. and certain other material subsidiaries
which may be in existence and (y) loans made by Boomtown to IVAC, a California
general partnership, the entity which constructed the Resort, and (B) the
Company's guarantee is triggered by Specific Events of Default rather than all
events of default set forth in the Indenture.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Currently, the Company's available cash and cash equivalents and
anticipated cash flow from operations, are not sufficient to fund the
Company's working capital and normal recurring capital expenditures. Boomtown
has agreed to continue to fund the Company's negative cash flows and add such
advances to the note due Boomtown. The executed note agreement with Boomtown
states that principal and interest is to be paid from all available funds as
soon as such payment becomes practical, and in no event later than November
1998. Management of Boomtown will not require payments except to the extent
of the Company's available cash flows which have not yet been realized.
Interest is calculated on the note at 11.5% and is based on the average
monthly outstanding balance. Payments will be applied first to accrued
interest and then to principal. Under the terms of the Swap Agreement, the
notes payable to Boomtown would effectively be canceled upon consummation of
the Swap Agreement.
Future operating results of the Company as well as the Company's cash
position may be affected by a number of factors, including without limitation,
seasonality, weather conditions, the general level of demand for casino gaming
and entertainment facilities, competition in the gaming industry, and
uncertainties in general economic, regulatory and political conditions affecting
the gaming industry. For example, the Company is highly dependent on the Las
Vegas local market. The Company believes it has been adversely affected to date
by the intense competition in this local market and although the Company is
implementing marketing efforts to increase attendance at its Las Vegas casino,
there can be no assurance that the Company will be able to compete effectively.
The statements set forth above regarding the Company's estimates of its
liquidity and capital expenditure requirements, the sufficiency of its resources
and any expectations that the Swap would be consummated are "forward looking
statements" within the Exchange Act of 1934, as amended, and are subject to the
safe harbors created thereby. Future operating results could be adversely
affected by a number of factors, including without limitation, seasonality,
weather conditions, the general level of demand for casino gaming and
entertainment facilities, competition in the gaming industry and uncertainties
in general economic, regulatory and political conditions affecting the gaming
industry, difficulties in integrating the businesses of Boomtown and Hollywood
Park following the proposed merger, lack of financing following the proposed
merger with Hollywood Park and failing to satisfy any condition to closing the
Swap. Any of the above factors, among others, could cause the Company's
operating results to be weaker than expected, and could cause the Company's cash
requirements to differ materially from the Company's estimates.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
NONE
ITEM 5. OTHER INFORMATION.
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits enclosed herein are detailed on the Schedule of Exhibits on
page 15.
15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
Blue Diamond Hotel & Casino, Inc.
Registrant
Date: August 14, 1996 /s/ Phil Bryan
----------------------------------------------
Phil Bryan, President; Chief Operating Officer
Date: August 14, 1996 /s/ Jon Whipple
----------------------------------------------
Jon Whipple, Corporate Controller, Principal
Accounting and Financial Officer
16
SCHEDULE OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
10.1(1) Memorandum of Understanding dated March 15, 1993 among Boomtown,
Inc., Industry Hills Visitor Accommodations Center, Blue Diamond Hotel
& Casino, Inc. ("Blue Diamond"), Majestic Realty Co.
("Majestic"), and Edward P. Roski, Jr. ("Roski").
10.2(2) Stockholders and Affiliates Agreement dated as of June 30, 1993
by and among Blue Diamond, Edward P. Roski, Sr., Roski, Boomtown,
Inc., IVAC, a California general partnership formerly known as
Industry Hills Visitor Accommodations Center, a California
general partnership ("IVAC") and Majestic.
10.3(5) First Amendment to and Clarification of Stockholders and
Affiliates Agreement dated as of November 10, 1993 between Blue
Diamond, Edward P. Roski, Sr., Roski, Roski, the Roski Community
Property Trust, the Roski Senior Revocable Trust, Boomtown,
Inc., IVAC and Majestic.
10.4(2) Lease dated as of June 30, 1993 between IVAC and Blue Diamond.
10.5(5) First Amendment to lease dated as of November 10, 1993 between
IVAC and Blue Diamond.
10.6(2) Purchase Option Agreement dated as of June 30, 1993 by and among
IVAC, Boomtown, Inc. and Blue Diamond.
10.7(5) Amendment to Purchase Option Agreement; Consent to Assignment
dated as of November 10, 1993 between IVAC, Boomtown, Inc. and
Blue Diamond.
10.8(2) Development and Pre-Opening Services Agreement dated as of June
30, 1993 between Boomtown, Inc., Blue Diamond and IVAC.
10.9(2) Management Agreement dated as of June 30, 1993 between Boomtown,
Inc., Blue Diamond.
10.10(2) Affiliate Loan Agreement dated as of June 30, 1993 by and among
IVAC, Majestic and Boomtown, Inc.
10.11(2) Bridge Loan Agreement dated as of June 30, 1993 by and among
IVAC and Boomtown, Inc.
10.12(5) Amendment No. 1 to Bridge Loan Agreement dated as of November
10, 1993 between IVAC and Boomtown, Inc.
17
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
10.13(2) Trademark License Agreement dated as of June 30, 1993 by and
between Boomtown, Inc. and Blue Diamond.
10.14(2) Boomtown Stockholders Agreement dated as of June 30, 1993 by
and among Boomtown, IVAC and Roski.
10.15(2) Standard Form Agreement Between Owner and Designer/Builder,
Part I Agreement - Preliminary Design and Budgeting, dated
as of May 10, 1993 between IVAC and Commerce Construction
Co., Inc., and the Standard Form of Agreement Between
Owner and Designer/Builder, Part 2 Agreement - Final
Design and Construction dated as of May 17, 1993 between
Commerce Construction Co., Inc. and related documents.
10.16(5) Subordination Agreement dated as of November 10, 1993 between
Majestic, IVAC and Boomtown, Inc.
10.17(5) Omnibus Consent Agreement dated as of November 10, 1993
between Blue Diamond, Edward P. Roski, Sr., Roski, Roski,
the Roski Community Property Trust, the Roski Senior
Revocable Trust, Boomtown, Inc., IVAC and Majestic.
10.18(3) Purchase Agreement dated as of November 3, 1993 among Boomtown,
Inc., Boomtown Hotel & Casino, Inc., Blue Diamond, Louisiana-I
Gaming, L.P., Louisiana Gaming Enterprises, Inc., Mississippi-I
Gaming, L.P., Bayview Yacht Club, Inc., Oppenheimer & Co., Inc.
and Sutro & Co. Incorporated.
10.19(4) Stock Acquisition Agreement and Plan of Reorganization dated
June 30, 1994 by and between Boomtown, Inc. and Roski.
10.20(6) Agreement between Boomtown, Hollywood Park and Edward P.
Roski, Jr. ("Swap Agreement") effectively terminating
the lease of the Blue Diamond Property and selling virtually
all assets and liabilities effective with the close of Boomtown's
merger with Hollywood Park.
- ---------------------
(1) Incorporated by reference to the exhibit filed with Boomtown Inc.'s Current
Report on Form 8-K filed with the SEC on March 18, 1993.
(2) Incorporated by reference to the exhibit filed with Boomtown Inc.'s
Current Report on Form 8-K filed with the SEC on July 28, 1993.
(3) Incorporated by reference to the exhibit filed with Boomtown Inc.'s Form
10-K for the fiscal year ended September 30, 1993.
18
SCHEDULE OF EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
(4) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
for the quarter ended June 30, 1994.
Incorporated by reference to the exhibit filed with Boomtown Inc.'s Form 10-K
for the fiscal year ended September 30, 1994.
(6) Incorporated by reference to the exhibit filed with Boomtown Inc.'s Form
10-Q for the quarter ended June 30, 1996.
19