**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

**ý**** QUARTERLY REPORT UNDERSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended: June 30, 2004**

 

**OR**

 

**o**** TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition periodfrom           to           **

 

**Commissionfile number 333-53211**

 

**Hard Rock Hotel, Inc.**

(Exact name of registrantas specified in its charter)

 
| **Nevada**                                                      | ** ** | **88-0306263**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **4455  Paradise Road, Las Vegas NV**                           | ** ** | **89109**                             |
| (Address of principal  executive offices)                       |       | (Zip Code)                            |
|                                                            |       |                                  |

Registrant’s telephonenumber, including area code:  **(702) 693-5000**

 

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Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

Common Stock outstandingby class as of August 16, 2004

 

| **Class of Common Stock** | ** ** | **Shares** |
|---------------------------|------------|------------|
| Class A Common Stock      |       | 12,000     |
| Class B Common Stock      |       | 64,023     |

 

 

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HARD ROCK HOTEL, INC.

 

INDEX

 
| Part I  | FINANCIAL INFORMATION |                                                                                                            |
|---------|-----------------------|-----------------------------------------------------------------------------------------------------------------|
|    |                  |                                                                                                            |
| Item 1. |                  | Financial Statements (unaudited)                                                                                |   |
|    |                  |                                                                                                            |   |
|    |                  | Condensed Balance Sheets as of  June 30, 2004 and December 31, 2003                                   |   |
|    |                  |                                                                                                            |   |
|    |                  | Condensed Statements of Operations for the  three-month and six-month periods ended June 30, 2004 and 2003 |   |
|    |                  |                                                                                                            |   |
|    |                  | Condensed Statements of Cash Flows for the  six-month periods ended June 30, 2004 and 2003                 |   |
|    |                  |                                                                                                            |   |
|    |                  | Notes to Condensed Financial Statements                                                                         |   |
|    |                  |                                                                                                            |   |
| Item 2. |                  | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                     |   |
|    |                  |                                                                                                            |   |
| Item 3. |                  | Quantitative and Qualitative Disclosures  about Market Risk                                                     |   |
|    |                  |                                                                                                            |   |
| Item 4. |                  | Controls and Procedures                                                                                         |   |
|    |                  |                                                                                                            |   |
| PART II | OTHER INFORMATION     |                                                                                                            |
|    |                  |                                                                                                            |   |
| Item 6. |                  | Exhibits and Reports on Form 8-K                                                                                |   |
|    |                  |                                                                                                            |   |
|    |                  | (a)  Exhibits                                                                                              |   |
|    |                  |                                                                                                            |   |
|    |                  | (b)   Reports on Form 8-K                                                                                  |   |

 

2

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Part I                    FINANCIAL INFORMATION

 

Item 1.                                                     FinancialStatements

 

HARD ROCK HOTEL, INC.

CONDENSED BALANCE SHEETS (unaudited)

(in thousands, exceptshare amounts)

 
| ** **                                                                                                                                           | ** ** | **June 30,****2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|-----------------------------|------------|
| ASSETS                                                                                                                                               |       |                      |       |                        |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| Current assets:                                                                                                                                      |       |                      |       |                        |       |
| Cash and cash equivalents                                                                                                                            |       | $                         | 12,055     |                        | $          | 10,882 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $1,393 and $1,237 as of June 30, 2004 and  December 31, 2003, respectively |       | 6,072                     |       | 6,554                       |       |
| Inventories                                                                                                                                          |       | 2,069                     |       | 1,743                       |       |
| Prepaid expenses and other current assets                                                                                                            |       | 2,006                     |       | 2,678                       |       |
| Related party receivable                                                                                                                             |       | —                    |       | —                      |       |
| Total current assets                                                                                                                                 |       | 22,202                    |       | 21,857                      |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| Property and equipment, (net)                                                                                                                        |       | 168,851                   |       | 166,782                     |       |
| Deferred income taxes                                                                                                                                |       | 1,086                     |       | 1,086                       |       |
| Other assets, (net)                                                                                                                                  |       | 4,282                     |       | 4,352                       |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| TOTAL ASSETS                                                                                                                                         |       | $                         | 196,421    |                        | $          | 194,077 |   |
|                                                                                                                                                 |       |                      |       |                        |       |
| LIABILITIES AND SHAREHOLDERS’ DEFICIENCY                                                                                                        |       |                      |       |                        |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| Current liabilities:                                                                                                                                 |       |                      |       |                        |       |
| Accounts payable                                                                                                                                     |       | $                         | 2,672      |                        | $          | 3,070 |   |
| Construction related payable                                                                                                                         |       | 2,081                     |       | 982                         |       |
| Related party payable                                                                                                                                |       | 300                       |       | 224                         |       |
| Accrued expenses                                                                                                                                     |       | 14,291                    |       | 13,217                      |       |
| Interest payable                                                                                                                                     |       | 5,370                     |       | 4,184                       |       |
| Current portion of long-term debt                                                                                                                    |       | 5,173                     |       | 2,673                       |       |
| Total current liabilities                                                                                                                            |       | 29,887                    |       | 24,350                      |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| Deferred income taxes                                                                                                                                |       | 860                       |       | 860                         |       |
| Long-term debt                                                                                                                                       |       | 205,152                   |       | 207,739                     |       |
| Total long-term liabilities                                                                                                                          |       | 206,012                   |       | 208,599                     |       |
| Total liabilities                                                                                                                                    |       | 235,899                   |       | 232,949                     |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| Commitments and contingencies:                                                                                                                       |       |                      |       |                        |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| Shareholders’ deficiency:                                                                                                                       |       |                      |       |                        |       |
|                                                                                                                                                 |       |                      |       |                        |       |
| Common stock, Class A voting, no par value,  40,000 shares authorized, 12,000 shares issued and outstanding                                          |       | —                    |       | —                      |       |
| Common stock, Class B non-voting, no par  value, 160,000 shares authorized, 64,023 shares issued and outstanding                                     |       | —                    |       | —                      |       |
| Paid-in capital                                                                                                                                      |       | 7,508                     |       | 7,508                       |       |
| Accumulated deficit                                                                                                                                  |       | (46,986                   | )          | (46,380                     | )          |
| Total shareholders’ deficiency                                                                                                                  |       | (39,478                   | )          | (38,872                     | )          |
|                                                                                                                                                 |       |                      |       |                        |       |
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY                                                                                                  |       | $                         | 196,421    |                        | $          | 194,077 |   |

 

*Theaccompanying notes are an integral part of these unaudited condensed financialstatements*

 

3

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HARD ROCK HOTEL, INC.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per shareamounts)

(unaudited)

 
| ** **                                            | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                            | ** ** | **2004**                              | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue:                                              |       |                                  |       |                                |       |   |   |   |   |
| Casino                                                |       | $                                     | 16,478     |                                | $          | 13,798 |   | $ | 30,085 |   | $ | 28,047 |   |
| Hotel                                                 |       | 9,399                                 |       | 7,737                               |       | 18,025 |   | 15,096 |   |
| Food and beverage                                     |       | 13,718                                |       | 12,161                              |       | 25,013 |   | 23,398 |   |
| Retail store                                          |       | 2,159                                 |       | 2,211                               |       | 4,111 |   | 4,236 |   |
| Other                                                 |       | 2,449                                 |       | 1,985                               |       | 4,284 |   | 3,687 |   |
| Gross revenues                                        |       | 44,203                                |       | 37,892                              |       | 81,518 |   | 74,464 |   |
| Less:   promotional allowances                   |       | (3,021                                | )          | (2,915                              | )          | (5,843 | ) | (5,605 | ) |
| Net revenues                                          |       | 41,182                                |       | 34,977                              |       | 75,675 |   | 68,859 |   |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Costs and expenses:                                   |       |                                  |       |                                |       |   |   |   |   |
| Casino                                                |       | 8,108                                 |       | 8,011                               |       | 17,472 |   | 16,749 |   |
| Hotel                                                 |       | 2,181                                 |       | 1,846                               |       | 4,380 |   | 3,784 |   |
| Food and beverage                                     |       | 7,002                                 |       | 6,272                               |       | 13,059 |   | 12,102 |   |
| Retail store                                          |       | 959                                   |       | 946                                 |       | 1,844 |   | 1,861 |   |
| Other                                                 |       | 1,193                                 |       | 1,003                               |       | 2,158 |   | 1,881 |   |
| Marketing, advertising and entertainment              |       | 3,266                                 |       | 2,156                               |       | 5,557 |   | 3,237 |   |
| General and administrative                            |       | 5,808                                 |       | 4,682                               |       | 10,701 |   | 9,398 |   |
| Related party payments                                |       | 1,255                                 |       | 1,126                               |       | 2,442 |   | 2,205 |   |
| Depreciation and amortization                         |       | 2,923                                 |       | 2,887                               |       | 5,933 |   | 5,776 |   |
| Pre-opening expenses                                  |       | 321                                   |       | 11                                  |       | 521 |   | 23 |   |
| Total costs and expenses                              |       | 33,016                                |       | 28,940                              |       | 64,067 |   | 57,016 |   |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Income from operations                                |       | 8,166                                 |       | 6,037                               |       | 11,608 |   | 11,843 |   |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Other income (expense):                               |       |                                  |       |                                |       |   |   |   |   |
| Other expense, net                                    |       | 60                                    |       | (3                                  | )          | 60 |   | 33 |   |
| Loss on early extinguishment of debt                  |       | —                                |       | 4,258                               |       | — |   | 4,258 |   |
| Loss on disposal of assets                            |       | 2,608                                 |       | —                              |       | 2,608 |   | — |   |
| Interest income                                       |       | 13                                    |       | 9                                   |       | 20 |   | 15 |   |
| Interest expense                                      |       | 4,861                                 |       | 3,769                               |       | 9,566 |   | 7,034 |   |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Income (loss) before benefit for income  taxes        |       | 650                                   |       | (1,978                              | )          | (606 | ) | 533 |   |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Income tax benefit                                    |       | —                                |       | —                              |       | — |   | 100 |   |
| NET INCOME (loss)                                     |       | 650                                   |       | (1,978                              | )          | (606 | ) | 633 |   |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Preferred stock dividends                             |       | —                                |       | (946                                | )          | — |   | (2,346 | ) |
| Income (loss) applicable to common  shareholders      |       | $                                     | 650        |                                | $          | (2,924 | ) | $ | (606 | ) | $ | (1,713 | ) |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| BASIC AND DILUTED NET INCOME (LOSS) PER  SHARE:       |       |                                  |       |                                |       |   |   |   |   |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Applicable to common shareholders                     |       | $                                     | 8.55       |                                | $          | (38.46 | ) | $ | (7.97 | ) | $ | (22.53 | ) |
|                                                  |       |                                  |       |                                |       |   |   |   |   |
| Weighted average number of common shares  outstanding |       | 76,023                                |       | 76,023                              |       | 76,023 |   | 76,023 |   |

 

*Theaccompanying notes are an integral part of these unaudited condensed financialstatements.*

 

4

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HARD ROCK HOTEL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands, exceptsupplemental schedule)

(unaudited)

 
| ** **                                                                                                            | ** ** | **Six Months  Ended June 30,  2004** | ** ** | **Six Months  Ended June 30,  2003** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| Cash flows from operating activities:                                                                                 |       |                                      |       |                                      |       |
| Net income (loss)                                                                                                     |       | $                                         | (606       | )                                         | $          | 633 |   |
| Adjustments to reconcile net (loss) income  to net cash provided by operating activities:                             |       |                                      |       |                                      |       |
| Depreciation and amortization                                                                                         |       | 5,933                                     |       | 5,776                                     |       |
| Provision for losses on accounts receivable                                                                           |       | 318                                       |       | 45                                        |       |
| Amortization of bond offering fees and  costs                                                                         |       | 263                                       |       | 342                                       |       |
| Loss on sales of property and equipment                                                                               |       | —                                    |       | 33                                        |       |
| Loss on early extinguishment of debt                                                                                  |       | —                                    |       | 4,258                                     |       |
| Loss on disposal of assets                                                                                            |       | 2,608                                     |       | —                                    |       |
| Changes in operating assets and liabilities                                                                           |       |                                      |       |                                      |       |
| Accounts receivable                                                                                                   |       | 164                                       |       | 3,071                                     |       |
| Inventories                                                                                                           |       | (326                                      | )          | 174                                       |       |
| Prepaid expenses and other current assets                                                                             |       | 672                                       |       | (220                                      | )          |
| Related party receivable                                                                                              |       | —                                    |       | (29                                       | )          |
| Increase in deferred income taxes                                                                                     |       | —                                    |       | (150                                      | )          |
| Accounts payable                                                                                                      |       | (398                                      | )          | 253                                       |       |
| Related party payable                                                                                                 |       | 76                                        |       | 99                                        |       |
| Accrued expenses                                                                                                      |       | 1,074                                     |       | (1,356                                    | )          |
| Interest payable                                                                                                      |       | 1,186                                     |       | (1,408                                    | )          |
| Net cash provided by operating activities                                                                             |       | 10,964                                    |       | 11,521                                    |       |
|                                                                                                                  |       |                                      |       |                                      |       |
| Cash flows (used in) investing activities:                                                                            |       |                                      |       |                                      |       |
| Purchases of property and equipment                                                                                   |       | (10,633                                   | )          | (3,845                                    | )          |
| Construction related payables                                                                                         |       | 1,099                                     |       | 1,056                                     |       |
| Proceeds from sale of operating assets                                                                                |       | 23                                        |       | ——                              |       |
| Decrease in other assets                                                                                              |       | (44                                       | )     | (1                                        | )          |
| Net cash (used in) investing activities                                                                               |       | (9,555                                    | )          | (2,790                                    | )          |
|                                                                                                                  |       |                                      |       |                                      |       |
| Cash flows (used in) financing activities:                                                                            |       |                                      |       |                                      |       |
| Net proceeds from borrowings                                                                                          |       | —                                    |       | 156,983                                   |       |
| Other debt issuance expenses                                                                                          |       | (149                                      | )          | (437                                      | )          |
| Payment of accrued dividends on preferred  stock                                                                      |       | —                                    |       | (15,000                                   | )          |
| Principal payments on long-term debt                                                                                  |       | (87                                       | )          | (144,373                                  | )          |
| Premium on early retirement of long-term  debt                                                                        |       | —                                    |       | (3,040                                    | )          |
| Net cash (used in) financing activities                                                                               |       | (236                                      | )          | (5,867                                    | )          |
|                                                                                                                  |       |                                      |       |                                      |       |
| Net increase in cash and cash equivalents                                                                             |       | 1,173                                     |       | 2,864                                     |       |
| Cash and cash equivalents, beginning of  period                                                                       |       | 10,882                                    |       | 9,139                                     |       |
|                                                                                                                  |       |                                      |       |                                      |       |
| Cash and cash equivalents, end of period                                                                              |       | $                                         | 12,055     |                                      | $          | 12,003 |   |
|                                                                                                                  |       |                                      |       |                                      |       |
| Supplemental disclosures of cash flow  information:                                                                   |       |                                      |       |                                      |       |
| Cash paid during the period for interest,  (net of amount capitalized of $119 in the period ended June 30, 2004) |       | $                                         | 8,117      |                                      | $          | 8,100 |   |
| Cash paid during the period for income  taxes, net                                                                    |       | $                                         | —     |                                      | $          | 75 |   |

 

5

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Supplemental Schedule of Non-Cash Investing and FinancingActivities:

 

In conjunction with theissuance of $140,000,000 of Second Lien Notes and a $40,000,000 Senior SecuredCredit Facility (of which the $20,000,000 Revolving Credit Facility portion wasnot drawn upon as of June 30, 2004) during May 2003, issuance costsof $2,450,000 and $567,000, respectively, were withheld from the proceeds,therefrom.

 

During May 2003, theCompany issued $50,037,000 of Qualified Subordinated Notes to related partiesand redeemed and retired the 9 1/4% Series A Cumulative Preferred Stock and the9 1/4% Series B Cumulative Preferred Stock.

 

 

*The accompanying notes are an integral partof these unaudited condensed financial statements*

 

6

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HARD ROCK HOTEL, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

1.                                       BASIS OFPRESENTATION

 

Hard Rock Hotel, Inc. (the “Company”), a Nevada corporationincorporated on August 30, 1993, operates a hotel-casino in Las Vegas,Nevada (the “Resort”).  Lily PondInvestments, Inc. (“Lily Pond”), a Nevada corporation controlled and majority ownedby Peter Morton, owns all of the voting shares and 93% of the non-voting sharesof the Company.  Mr. Morton has granted asublicense to the Company, pursuant to which the Company holds the exclusiveright to use the “Hard Rock Hotel” trademark for the Company’s operations inLas Vegas.  These financial statementshave been prepared in accordance with generally accepted accounting principlesfor interim financial information and with instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, certain notes and other information have been condensed oromitted from the interim financial statements presented in this QuarterlyReport on Form 10-Q and they do not include all information required byaccounting principles generally accepted in the United States of America forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have beenincluded.  The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe amounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.  Operating results for thesix-month period ended June 30, 2004 are not necessarily indicative offuture financial results or the results that may be expected for the yearending December 31, 2004.  Theunaudited interim financial statements contained herein should be read inconjunction with the audited financial statements and footnotes for the yearended December 31, 2003.

 

2.                                       AGREEMENTS WITH RELATED PARTIES

 

TheCompany entered into a twenty-five year Amended and Restated SupervisoryAgreement with Peter Morton, Chairman and Chief Executive Officer, whichprovides for the supervision of the development, improvement, operation, andmaintenance of the Company through 2022. Mr. Morton has the option to renew the agreement for two successivefifteen year terms.  Pursuant to theterms of the Supervisory Agreement, Mr. Morton is to provide consulting andsupervisory services to the Company.  Inthe event either we are or Mr. Morton is in Default (as defined in theagreement), the non-defaulting party may terminate the agreement after theother party has received the opportunity to cure such default.  As part of this agreement, the Company paysto Mr. Morton a supervisory fee equal to two percent of annual gross revenues(as defined), net of complimentaries for each year.  Total supervisory fee expenses for theseservices for the six months ended June 30, 2004 and 2003 amounted to$1,495,000 and $1,457,000, respectively. These expenses are included in related party expenses in theaccompanying statements of operations. The unpaid amounts at June 30, 2004 and December 31, 2003 are$237,000 and $176,000, respectively, and are included in related party payablein the accompanying balance sheets.

 

Entitiescontrolled by Mr. Morton have provided additional technical support servicesfor the development, ongoing improvement and operation of the Company.  The Company reimburses these entities for allcosts and expenses incurred in connection with these services, including,without limitation, employee salary and benefits and allocated overhead.  These expenses aggregated approximately$947,000 and $748,000 for the six months ended June 30, 2004 and 2003,respectively, and are included in the accompanying statements ofoperations.  The unpaid amounts atJune 30, 2004 and December 31, 2003 are $63,000 and $48,000,respectively, and are included in related party payable in the accompanyingbalance sheets.

 

Ourpreferred stock was, and the junior subordinated notes are, held byMr. Morton or affiliates of Mr. Morton (see Note 3 below).

 

3.                                       LONG-TERM DEBT

 

As of June 30, 2004, theCompany had $140.0 million outstanding of its 8.875% Second Lien Notes due 2013(the “2013 Notes”).  The Company also hasa $40 million Senior Secured Credit Facility (the “Facility”) through a groupof banks.  The Facility consists of a $20 million, five-year seniorsecured term loan (the “Term Loan”) and a $20 million senior secured revolvingcredit facility (the “Revolving Credit Facility”).  As of June 30, 2004, the Company had$20.0 million outstanding on its Term Loan and had no balance outstanding onits Revolving Credit Facility.  As ofJune 30, 2004, the Company also has approximately $50.0 millionoutstanding of junior subordinated notes (the “Junior Notes”).

 

2013 Notes

Interest on the 2013 Notes is payable on eachJune 1 and December 1 beginning December 1, 2003.  The 2013 Notes

 

7

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are secured by a security interest in substantially all of theCompany’s existing and future assets, other than licenses which may not bepledged under applicable law.  The 2013 Notes are contractually subordinatedin right of payment to all indebtedness incurred pursuant to the Facility.  The liens and security interests securing theobligations of the Company under the 2013 Notes are contractually subordinatedto the liens securing the obligations of the Company under the Facilityand except for permitted secured purchase money indebtedness.  The 2013 Notes are subject to redemption atthe option of the Company, in whole or in part, at any time on or afterJune 1, 2008, at a premium to the face amount ($140 million) thatdecreases on each subsequent anniversary date, plus accrued interest to thedate of redemption.  The 2013 Notescontain covenants restricting or limiting the ability of the Company to, amongother things, pay dividends, create liens or other encumbrances, incuradditional indebtedness, issue certain preferred stock, sell or otherwisedispose of a portion of its assets, make acquisitions or merge or consolidatewith another entity and enter into transactions with affiliates.  TheCompany was in compliance with these covenants as of June 30, 2004.

 

# Facility

Interest on the Facility accrues on all individual borrowings at aninterest rate determined at the option of the Company, at either the LIBORIndex plus an applicable margin (not to exceed 3.5% (applicable margin was3.00% at June 30, 2004) and aggregating 4.4% at June 30, 2004), orthe Base Rate, defined as the higher of the Federal Funds Rate plus 0.5%, orthe reference rate, as defined, plus an applicable margin (not to exceed2.25%).  The Company chose the LIBORIndex for all of its borrowings outstanding at June 30, 2004.  These margins are dependent upon theCompany’s total debt to EBITDA ratio, as defined.  Interest accrued on the Base Rate borrowingsis due monthly, up to the maturity date, while interest on LIBOR borrowings isdue quarterly up to the maturity date. The Facility is secured by substantially all of the Company’s propertyat the Las Vegas site.  The Facilitycontains certain covenants including, among other things, financial covenants,limitations on the Company from disposing of capital stock, entering intomergers and certain acquisitions, incurring liens or indebtedness, issuingdividends on stock, and entering into transactions with affiliates.  The Company is in compliance with thesecovenants as of June 30, 2004.

 

JuniorSubordinated Notes

Interest on the Junior Subordinated Notes is payable on eachJanuary 15 and July 15, commencing on January 15, 2004, and maybe paid in cash or in kind at the Company’s option, provided that interest willbe paid in kind if a payment of such interest in cash would cause a defaultunder the 2013 Notes or the Facility. The Junior Notes require that any semi-annual interest payment in cashbe equal to the lesser of (x) 50% of the amount of interest accrued on theJunior Notes since the most recent interest payment date and (y) the amount ofinterest that the Company is permitted to pay in cash without causing a defaultunder the 2013 Notes or the Facility. For interest payments payable in cash, interest accrues at a rate per annumequal to 9.875%, and for interest payments payable in kind, interest accrues ata rate per annum equal to 10.50%.  OnJanuary 15, 2004, the Company paid in cash $1.5 million of interest on theJunior Subordinated Notes.  Thisrepresents 50% of the accrued interest at 9.875% due as of December 31,2003.  The remaining accrued interest waspaid in kind at a rate of 10.50%.  TheJunior Notes are contractually subordinated to the 2013 Notes and the Facilityand any other senior debt of the Company.

 

The Junior Notes mature on January 15, 2014 butare subject to redemption at the option of the Company, in whole or in part, atany time on or after January 15, 2009, at a premium to the principalamount thereof that decreases on each subsequent anniversary date, plus accruedinterest to the date of redemption.  TheJunior Notes contain covenants restricting the Company’s ability to, amongother things, sell or otherwise dispose of its assets, pay dividends, incuradditional indebtedness, make acquisitions or merge or consolidate with anotherentity and enter into transactions with affiliates.  The Company is in compliance with thesecovenants as of June 30, 2004.

 

4.                                       LEGAL AND REGULATORY PROCEEDINGS

 

The Company is a defendant in various lawsuits relating to routinematters incidental to its business.

 

Management provides an accrual for estimated losses that may occur anddoes not believe that the outcome of any pending claims or litigation, in theaggregate, will have a material adverse effect on the Company’s financialposition, results of operations or liquidity beyond the amounts recorded in theaccompanying balance sheet as of June 30, 2004.

 

DuringJanuary 2004, the Nevada Gaming Commission served us with a complaint fordisciplinary action pursuant to NRS 463.310(2) and NRS 463.312charging violations of the Nevada Gaming Control Act and State Gaming ControlBoard and Nevada Gaming Commission Regulations. The complaint contains three counts each carrying a penalty of up to$100,000.  The Company is in the processof trying to negotiate a settlement; however, if a settlement cannot bereached, the matter is scheduled to be presented to the Nevada GamingCommission during September 2004.

 

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5.                                       CONSTRUCTIONCOMMITMENT

 

During January 2004, the Company entered into various agreementsto remodel and expand its nightclub formerly called Baby’s.  Total costs of the remodel and expansion areestimated to be between $6.5 million and $7.1 million, of which approximately $5.2million has been paid in cash as of June 30, 2004.

 

During March 2004, the Company entered into various agreements toremodel its Race and Sports Book.  Totalcosts of the remodel are estimated to be approximately $0.7 million of whichapproximately $0.5 million has been paid in cash as of June 30, 2004.

 

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Item 2.                                                     Management’s Discussion and Analysis of Financial Condition and Results ofOperations

 

The following discussion should be read in conjunction with, and isqualified in its entirety by, the Company’s financial statements, including thenotes thereto, and the other financial information appearing elsewhere hereinand by the Annual Report to Shareholders on Form 10-K for the year endedDecember 31, 2003, which may be obtained upon request from the Company.

 

SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS

 

This document includes various “forward-looking statements” within themeaning of Section 27A of the Securities Act of 1933, as amended, and Sections21E of the Securities Exchange Act of 1934, as amended, which represent theCompany’s expectations or beliefs concerning future events.  Statements containing expressions such as“believes,” “anticipates” or “expects” used in our press releases and periodicreports on Forms 10-K and 10-Q filed with the Securities and ExchangeCommission are intended to identify forward-looking statements.  All forward-looking statements involve risksand uncertainties. Although we believe our expectations are based uponreasonable assumptions within the bounds of our knowledge of our business andoperations, there can be no assurances that actual results will not materiallydiffer from expected results. We caution that these and similar statementsincluded in this report and in previously filed periodic reports, includingreports filed on Forms 10-K and 10-Q, are further qualified by importantfactors that could cause actual results to differ materially from those in theforward-looking statements.  Such factorsinclude, without limitation, the following: increased competition in existing markets or the opening of new gamingjurisdictions; a decline in the public acceptance of gaming; the limitation,conditioning or suspension of any of our gaming licenses; increases in or newtaxes imposed on gaming revenues or gaming devices; a finding of unsuitabilityby regulatory authorities with respect to our officers, directors or keyemployees; loss or retirement of key executives; significant increases in fuelor transportation prices; adverse economic conditions in our key markets;severe and unusual weather in our key markets; and adverse results ofsignificant litigation matters.  Readers are cautioned not to placeundue reliance on forward-looking statements, which speak only as of the datethereof.  We expressly disclaimany obligation or undertaking to disseminate any updates or revisions to anyforward-looking statement contained in this report, including to reflect anychange in our expectations with regard to that forward-looking statement or anychange in events, conditions or circumstances on which that forward-lookingstatement is based.  For more informationregarding risks inherent in an investment in the Company, see the section ”Business— Risk Factors” in our Annual Report to Shareholders on Form 10-K filed withthe SEC on March 30, 2004.

 

OVERVIEW

 

Our sole business is the operation of the Hard Rock Hotel and Casino inLas Vegas, NV.

 

RESULTSOF OPERATIONS

QUARTERENDED JUNE 30, 2004 COMPARED TO QUARTER ENDED JUNE 30, 2003

 

NETREVENUES.  Net revenues increased 18% for the quarter endedJune 30, 2004 to $41.2 million compared to $35.0 million for thequarter ended June 30, 2003.  The$6.2 million increase in net revenues is primarily attributable to a$2.7 million or 19% increase in casino revenue, a $1.7 million or 21%increase in hotel revenue, a $1.6 million or a 13% increase in food andbeverage revenue and a $0.5 million or 23% increase in other revenues.  These increases in revenue were partiallyoffset by a $0.1 million or 2% decrease in retail revenue and a $0.1million or 4% increase in promotional allowances related to items furnished tocustomers on a complimentary basis.

 

CASINOREVENUES.  The $2.7 million increase in casino revenues wasprimarily due to a $2.5 million or 27% increase in table games revenuesand a $0.2 million or 4% increase in slot machine revenues.  The increase in table games revenues was dueto an increase in table games hold percentage and an increase in table gamesdrop.  Table games hold percentageincreased 3.0 percentage points to 15.6% from 12.6%.  Table games drop increased $1.6 millionor 2% to $75.0 million from $73.4 million. The average number of table games in operations increased to 93 from 91,an increase of 2 tables or 2%.  The netresult of these changes in drop, hold percentage and average number of tablegames in operation was an increase in win per table game per day to $1,387 from$1,112, an increase of $275 or 25%.  Wehave historically reported table games hold percentage using the gross method,while casinos on the Strip report hold percentage using the net method (whichreduces the table game drop by marker repayments made in the gaming pitarea).  For the purpose of comparison toproperties on the Strip, our net hold percentage for the quarter endedJune 30, 2004 was 18.0% compared to 14.6% for the quarter endedJune 30, 2003.  The increase in slotmachine revenues was due to an increase in slot machine hold percentagepartially offset by a decrease in slot machine handle.  Slot machine hold percentage increased 0.7percentage points to 5.2% from 4.5%. Slot machine handle decreased $10.4 million or 11% to$84.6 million from $95.0 million. The average number

 

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ofslot machines in operation decreased to 546 from 564, a decrease of 18 machinesor 3%.  The net result of these changesin handle, hold percentage and average number of slot machines in operation wasan increase in win per slot machine per day to $89 from $83, an increase of $6or 7%.

 

HOTELREVENUES.  The $1.7 million increase in hotel revenues to$9.4 million was primarily due to an increase in average daily rate(“ADR”) to $157 from $129.  Hoteloccupancy increased slightly to 97.4% from 97.1% between periods.

 

FOODAND BEVERAGE REVENUES.  The $1.6 million increase in food andbeverage revenues was due to food revenues increasing by approximately $1.0million and beverage revenues increasing by approximately $0.6 million.  Food revenues increased due primarily to a$0.4 million increase in Banquet food revenue, a $0.2 millionincrease in Simon Kitchen and Bar, a $0.2 million increase in Pink Tacoand a $0.1 increase in AJ’s.  Every foodoutlet had an increase in revenue year over year.  Beverage revenues increased due primarily toa $0.3 million increase in Beach Club Bar, a $0.3 million increase inCasino Bars and a $0.1 million increase in each of Simon Kitchen and Bar,the Joint, Sports Deluxe bar and Pink Taco. These increases in beverage revenues were partially offset by a decreaseof $0.3 million in Body English nightclub, due to being closed forremodeling and expansion from February 1, 2004 to May 28, 2004.

 

RETAILREVENUES.  We believe the $0.1 million decrease in retailrevenues was due in part to continued general market decline in the themedmerchandise segment and the addition of other retail operations in Las Vegas.

 

OTHERINCOME.  Other income increased $0.4 million primarily due to a$0.1 million increase in each of Rock Spa, Love Jones, Sundry Store andthe Beach Club.

 

PROMOTIONALALLOWANCES.  Promotional allowances decreased as a percentage ofcasino revenues to 18% from 21%.  Theincrease in promotional expense of $0.1 million was due to increased casinorevenue.

 

CASINOEXPENSES.  Casino expenses increased $0.1 million or 1% to$8.1 million.  The increase wasprimarily due to a $0.3 million increase in gaming taxes, a $0.1 millionincrease in payroll and related expenses and a $0.1 million increase in baddebt expenses related to potentially uncollectible credit extended to casinocustomers.  These increases were offsetpartially by a $0.2 million decrease in discounts, a $0.1 million decreasein customer reimbursed travel and a $0.1 million decrease in junketrepresentative fees.  The Company’sprovision and allowance for doubtful accounts are based on estimates bymanagement of the collectability of the receivable balances at each periodend.  Management’s estimates consider,among other factors, the age of the receivables, the type or source of thereceivables and the results of collection efforts to date, especially withregard to significant accounts.  Casinoexpenses as a percentage of casino revenues decreased to 49% from 58%, adecrease of 9 percentage points between comparative periods due to the tablegames hold percentage increasing which does not have a direct impact on costs.

 

HOTELEXPENSES.  Hotel expenses in relation to hotel revenues, prior toreclassifying the cost of complimentaries to casino expense or departmentcomplimentaries to promotional allowances, decreased to 28% from 30% in theprior year due primarily to a higher ADR while total operating expenses priorto reclassifying complimentaries to casino expense increased approximately$0.4 million primarily related to a $0.1 million increase in laborand related expenses and a $0.2 million increase in laundry and amenitiesexpenses due to upgrading their quality.

 

FOODAND BEVERAGE COSTS AND EXPENSES.  Food and beverage costs andexpenses in relation to food and beverage revenues, prior to reclassifying thecost of complimentaries to casino expense or department complimentaries topromotional allowances decreased to 59% from 60% in the prior year period dueto fixed banquet department costs in relation to a $0.4 million increase inbanquet revenue offset by an increase in professional fees with the opening ofBody English Nightclub.

 

RETAILCOSTS AND EXPENSES.  Retail costs and expenses in relation to retailrevenues, prior to reclassifying the cost of complimentaries to casino expenseor department complimentaries to promotional allowances increased to 49% from47% due to a shift in merchandise being sold from logo tee shirts to brand namemerchandise.

 

OTHERCOSTS AND EXPENSES.  Other costs and expenses in relation to otherincome decreased to 49% from 51% in the prior year period due to an increase insponsorship in our outlets.

 

MARKETING,GENERAL AND ADMINISTRATIVE.  Marketing, general and administrativeexpenses in relation to gross revenues increased to 21% from 18%.  The $2.2 million increase in theseexpenses was primarily due to a $0.7 million increase in customer promotions primarilydue to an increase in the cost of producing the three day broadcast of theHoward Stern Show in the current year period, a $0.3 million increase inentertainment costs associated with the Joint primarily due to a $0.2 millionincrease in artists’ fees and a $0.1 million increase in concert promoter fees,a $0.4

 

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millionincrease in payroll and related expenses, including management incentives and1999 Performance Awards Plan expenses, a $0.2 million increase in miscellaneousexpense due to a reserve for a potential IRS fine, a $0.2 million increase inguest claims expense, a $0.1 million increase in contract services, a $0.1million increase in legal costs and a $0.1 million increase in insurance costs.

 

DEPRECIATIONAND AMORTIZATION.  Depreciation and amortization remained constant at$2.9 million between comparative periods.

 

INTERESTEXPENSE.  Interest expense increased to $4.9 million from$3.8 million, an increase of $1.1 million or 29%.  The increase is primarily due to the increasein outstanding borrowings, including debt issued to pay $15.0 million ofaccrued dividends on the Company’s preferred stock and interest on the$50.0 million of qualified subordinated debt issued in exchange for theCompany’s outstanding preferred stock and remaining accrued dividends duringMay 2003.

 

LOSS ON EARLY EXTINGUISHMENT OF DEBT.  Loss on earlyextinguishments of debt is related to the $3.0 million premium paid to theholders of the Company’s 91/4% Notes due 2005 (the “Notes”) whichwere tendered or called during the three-month period ended June 30, 2003and due to a $1.3 million write-off of unamortized deferred debt issuancecosts related to the tendered and called Notes.

 

LOSS ON DISPOSAL OF ASSETS. During May 2004, the Company opened a new nightclub called BodyEnglish.  This club replaced Baby’sNightclub.  The loss includedapproximately $2.6 million of building improvement and equipment costs.

 

INCOME TAXES.  The Company didnot have income tax expense during the quarter ended June 30, 2004 due to beingable to offset 100% of its income with net operating loss carryforwards (“NOL”)from previous periods against which a valuation allowance has been placed.  The Company did not record a tax benefit forthe quarter ended June 30, 2003 as a result of placing a valuation allowanceagainst its net operating loss carryforward generated.

 

NETINCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS.  Net Incomeapplicable to common shareholders was $0.7 million compared to a loss of$2.9 million during the prior year period. The increase in net results for common shareholders was due to thefactors described above in addition to a $0.9 million decrease in preferredstock dividends.  Preferred dividendsdecreased due to the replacement of the preferred stock and remaining accrueddividends with qualified subordinated debt during May 2003.

 

SIX-MONTHSENDED JUNE 30, 2004 COMPARED TO SIX-MONTHS ENDED JUNE 30, 2003

 

NETREVENUES.  Net revenues increased 10% for the six-month period endedJune 30, 2004 to $75.7 million compared to $68.9 million for thesix months ended June 30, 2003.  The$6.8 million increase in net revenues is primarily attributable to a$2.0 million or 7% increase in casino revenue, a $2.9 million or 19%increase in hotel revenue, a $1.6 million or a 7% increase in food and beveragerevenue and a $0.6 million or 16% increase in other revenues.  These increases in revenue were partiallyoffset by a $0.1 million or 3% decrease in retail revenue and a $0.2million or 4% increase in promotional allowances related to items furnished tocustomers on a complimentary basis.

 

CASINOREVENUES.  The $2.0 million increase in casino revenues wasprimarily due to a $1.8 million or 10% increase in table games revenuesand a $0.2 million or 3% increase in slot machine revenues.  The increase in table games revenues was dueto an increase in table games hold percentage and an increase in table gamesdrop.  Table games hold percentageincreased 0.6 percentage points to 13.2% from 12.6%.  Table games drop increased $7.5 million or5% to $155.9 million from $148.4 million. The average number of table games in operations increased to 93 from 91,an increase of 2 tables or 2%.  The netresult of these changes in drop, hold percentage and average number of tablegames in operation was an increase in win per table game per day to $1,216 from$1,138, an increase of $78 or 7%.  Wehave historically reported table games hold percentage using the gross method,while casinos on the Strip report hold percentage using the net method (whichreduces the table game drop by marker repayments made in the gaming pitarea).  For the purpose of comparison toproperties on the Strip, our net hold percentage for the six-month period endedJune 30, 2004 was 15.4% compared to 14.3% for the six-month period endedJune 30, 2003.  The increase in slotmachine revenues was due to an increase in slot machine hold percentagepartially offset by a decrease in slot machine handle.  Slot machine hold percentage increased 0.4percentage points to 5.0% from 4.6%. Slot machine handle decreased $9.4 million or 5% to$173.3 million from $182.7 million. The average number of slot machines in operation decreased to 551 from562, a decrease of 11 machines or 2%. The net result of these changes in handle, hold percentage and averagenumber of slot machines in operation was an increase in win per slot machineper day to $87 from $83, an increase of $4 or 4%.

 

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HOTELREVENUES.  The $2.9 million increase in hotel revenues to$18.0 million was primarily due to an increase in average daily rate(“ADR”) to $155 from $129.  Hoteloccupancy decreased slightly to 94.5% from 95.1% between periods.

 

FOODAND BEVERAGE REVENUES.  The $1.6 million increase in food andbeverage revenues was due to food revenues increasing by approximately $1.1million and beverage revenues increasing by approximately$0.5 million.  Food revenuesincreased due primarily to a $0.4 million increase in Simon Kitchen andBar, a $0.2 million increase in Pink Taco, a $0.1 million increase ineach of Mr. Lucky’s, AJ’s, Starbucks and Banquet food revenue.  Every food outlet had an increase in revenueyear over year.  Beverage revenuesincreased due primarily to a $0.3 million increase in Beach Club Bar, a$0.6 million increase in Casino Bars, a $0.2 million increase inSimon Kitchen and Bar, a $0.2 million increase in Pink Taco and a$0.1 million increase in Room Service. These increases in beverage revenues were partially offset by a decreaseof $0.9 million in Body English nightclub, due to being closed forremodeling and expansion from February 1, 2004 to May 28, 2004 and a $0.1million decrease in Banquet revenue.

 

RETAILREVENUES.  We believe the $0.1 million decrease in retailrevenues was due in part to continued general market decline in the themedmerchandise segment and the addition of other retail operations in Las Vegas.

 

OTHERINCOME.  Other income increased $0.6 million primarily due to a$0.3 million increase in Love Jones and a $0.1 million increase ineach of Rock Spa, Sundry Store and the Beach Club.

 

PROMOTIONALALLOWANCES.  Promotional allowances decreased as a percentage ofcasino revenues to 19% from 20%.  Theincrease in promotional of $0.2 million was due to increased casino revenue.

 

CASINOEXPENSES.  Casino expenses increased $0.7 million or 4% to$17.5 million.  The increase wasprimarily due to a $0.3 million increase in payroll and related expenses,a $0.2 million increase in bad debt expenses related to potentiallyuncollectible credit extended to casino customers, a $0.1 million increasein tickets given to customers for the Joint, a $0.1 million increase incustomer gifts, a $0.1 million increase in food and beverage comps redeemed inoutlets that are not owed by the Company, a $0.1 million increase in customerreimbursed travel and a $0.1 million increase in gaming taxes.  These increases were offset partially by a$0.2 million decrease in discounts and a $0.1 million decrease in junketrepresentative fees.  The Company’sprovision and allowance for doubtful accounts are based on estimates bymanagement of the collectability of the receivable balances at each periodend.  Management’s estimates consider,among other factors, the age of the receivables, the type or source of thereceivables and the results of collection efforts to date, especially withregard to significant accounts.  Casinoexpenses as a percentage of casino revenues decreased to 58% from 60%, adecrease of 2 percentage points between comparative periods due to the tablegames hold percentage increasing which does not have a direct impact on costs.

 

HOTELEXPENSES.  Hotel expenses in relation to hotel revenues, prior toreclassifying the cost of complimentaries to casino expense or departmentcomplimentaries to promotional allowances, decreased to 30% from 31% in theprior year due primarily to a higher ADR while total operating expenses priorto reclassifying complimentaries to casino expense increased approximately$0.7 million primarily related to a $0.2 million increase in laborand related expenses, a $0.4 million increase in laundry and amenities expensesdue to upgrading their quality and a $0.1 million increase in professionalservices.

 

FOODAND BEVERAGE COSTS AND EXPENSES.  Food and beverage costs andexpenses in relation to food and beverage revenues, prior to reclassifying thecost of complimentaries to casino expense or department complimentaries topromotional allowances remained constant at 60%.

 

RETAILCOSTS AND EXPENSES.  Retail costs and expenses in relation to retailrevenues, prior to reclassifying the cost of complimentaries to casino expenseor department complimentaries to promotional allowances increased to 49% from48% in the prior year due to a shift in merchandise being sold from logo teeshirts to brand name merchandise.

 

OTHERCOSTS AND EXPENSES.  Other costs and expenses in relation to otherincome decreased to 50% from 51% in the prior year period due to an increase insponsorship in our outlets.

 

MARKETING,GENERAL AND ADMINISTRATIVE.  Marketing, general and administrativeexpenses in relation to gross revenues increased to 20% from 17%.  The $3.6 million increase in theseexpenses was primarily due to a $1.1 million increase in customer promotions, a$0.9 million increase in entertainment costs associated with the Joint, a $0.9

 

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millionincrease in payroll and related expenses, including management incentives and1999 Performance Awards Plan expenses, a $0.2 million increase in guest claimsexpense, a $0.2 million increase in insurance costs, a $0.1 million increase incontract services, a $0.1 million increase in legal costs, a $0.1 millionincrease in donations and a $0.1 million increase in taxes.  These costs were slightly offset by adecrease of $0.2 in miscellaneous expense due to severance that was accrued forin the prior year.

 

DEPRECIATIONAND AMORTIZATION.  Depreciation and amortization expense increased to$5.9 million from $5.8 million between comparative periods due to theaddition of various assets since March 31, 2003 including, among otherassets, four full color live video LED sign systems for $1.4 million, a“mega-suite” of approximately 4,500 square feet with 3 bedrooms, 4 bathrooms, adining room, a kitchen, a spa room, a billiard room and a professional stylebowling alley for approximately $2.6 million and an addition to theparking garage of approximately $4.7 million.

 

INTERESTEXPENSE.  Interest expense increased to $9.6 million from$7.0 million, an increase of $2.5 million or 36%.  The increase is primarily due to the increasein outstanding borrowings, including debt issued to pay $15.0 million ofaccrued dividends on the Company’s preferred stock and interest on the$50.0 million of qualified subordinated debt issued in exchange for theCompany’s outstanding preferred stock and remaining accrued dividends duringMay 2003.

 

LOSS ON EARLY EXTINGUISHMENT OF DEBT.  Loss on earlyextinguishments of debt is related to the $3.0 million premium paid to theholders of the Company’s 9 1⁄4% Notes due 2005 (the “Notes”) which were tenderedor called during the three-month period ended June 30, 2003 and due to a$1.3 million write-off of unamortized deferred debt issuance costs relatedto the tendered and called Notes.

 

LOSS ON DISPOSAL OF ASSETS. During May 2004, the Company opened a new nightclub called BodyEnglish.  This club replaced Baby’sNightclub.  The loss includedapproximately $2.6 million of building improvement and equipment costs.

 

INCOME TAXES.  The Company hasrecorded a tax benefit of $0.1 million in the six months ended June 30, 2003due to an adjustment of its deferred tax assets.  The Company did not have an adjustment duringthe six months ended June 30, 2004 and has not recorded a tax benefit as aresult of placing a valuation allowance against net operating losses generatedduring the period.

 

LOSSAPPLICABLE TO COMMON SHAREHOLDERS.  Loss applicable to commonshareholders was $0.6 million compared to a loss of $1.7 millionduring the prior year period.  Thedecrease in net results for common shareholders was due to the factorsdescribed above in addition to a $2.3 million decrease in preferred stockdividends.  Preferred dividends decreaseddue to the replacement of the preferred stock and remaining accrued dividendswith qualified subordinated debt during May 2003.

 

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LIQUIDITYAND CAPITAL RESOURCES

 

For the six-month periodended June 30, 2004 our principal sources of funds were cash on-hand atDecember 31, 2003, and cash provided by operating activities of $11.0million.  The amount of cash provided byoperating activities primarily includes net loss of $0.6 million, depreciationand amortization of $5.9 million, provision for losses on accounts receivableof $0.3 million, amortization of loan fees of $0.3 million, loss on disposal ofassets of $2.6 million and net changes in operating assets and liabilities of$2.5 million.  Other sources and uses offunds were capital expenditures of $10.6 million, a decrease in constructionpayables of $1.1 million and combined debt issuance costs and payments on debtof $0.2 million.  As a result, as ofJune 30, 2004, we had cash and cash equivalents of $12.1 million.

 

During January 2004, the Company entered into various agreementsto remodel and expand its nightclub formerly called Baby’s.  Total costs of the remodel and expansion areestimated to be between $6.5 million and $7.1 million, of which approximately$5.2 million has been paid in cash as of June 30, 2004.

 

During March 2004, the Company entered into various agreements toremodel its Race and Sports Book.  Totalcosts of the remodel are estimated to be approximately $0.7 million of whichapproximately $0.5 million has been paid in cash as of June 30, 2004.

 

Webelieve that our current cash balances and cash flow from operations and othersources of cash including the available borrowings under our $20.0 millionRevolving Credit Facility ($20.0 million as of June 30, 2004) will besufficient to provide operating and investing liquidity during the next 12months.  We may, however, need to raiseadditional funds prior to July 1, 2005. Our ability to raise additional funds is limited by restrictions on ourfinancing activities under our Facility and the 2013 Notes.  We cannot be certain that additionalfinancing will be available to us on favorable terms when required, if at all.

 

Interest on the 2013 Notes is payable on eachJune 1 and December 1 beginning December 1, 2003.  The 2013 Notes are secured by a securityinterest in substantially all of the Company’s existing and future assets,other than licenses which may not be pledged under applicable law.  The 2013 Notes are contractually subordinated in right of payment to allindebtedness incurred pursuant to the Facility. The liens and security interests securing the obligations of the Companyunder the 2013 Notes are contractually subordinated to the liens securing theobligations of the Company under the Facility and except for permittedsecured purchase money indebtedness.  The2013 Notes are subject to redemption at the option of the Company, in whole orin part, at any time on or after June 1, 2008, at a premium to the faceamount ($140 million) that decreases on each subsequent anniversary date, plusaccrued interest to the date of redemption. The 2013 Notes contain covenants restricting or limiting the ability ofthe Company to, among other things, pay dividends, create liens or otherencumbrances, incur additional indebtedness, issue certain preferred stock,sell or otherwise dispose of a portion of its assets, make acquisitions ormerge or consolidate with another entity and enter into transactions withaffiliates.  The Company was in compliance withthese covenants as of June 30, 2004.

 

Interest on the Facility accrues on all individual borrowings at aninterest rate determined at the option of the Company, at either the LIBORIndex plus an applicable margin (not to exceed 3.5% (applicable margin was3.00% at June 30, 2004) and aggregating 4.4% at June 30, 2004), orthe Base Rate, defined as the higher of the Federal Funds Rate plus 0.5%, or thereference rate, as defined, plus an applicable margin (not to exceed2.25%).  The Company chose the LIBORIndex for all of its borrowings outstanding at June 30, 2004.  These margins are dependent upon theCompany’s total debt to EBITDA ratio, as defined.  Interest accrued on the Base Rate borrowingsis due monthly, up to the maturity date, while interest on LIBOR borrowings isdue quarterly up to the maturity date. The Facility is secured by substantially all of the Company’s propertyat the Las Vegas site.  The Facilitycontains certain covenants including, among other things, financial covenants,limitations on the Company from disposing of capital stock, entering intomergers and certain acquisitions, incurring liens or indebtedness, issuingdividends on stock, and entering into transactions with affiliates.  The Company is in compliance with thesecovenants as of June 30, 2004.

 

Interest on the Junior Notes is payable on each January 15 andJuly 15, commencing on January 15, 2004, and may be paid in cash orin kind at the Company’s option, provided that interest will be paid in kind ifa payment of such interest in cash would cause a default under the 2013 Notesor the Facility.  The Junior Notesrequire that any semi-annual interest payment in cash be equal to the lesser of(x) 50% of the amount of interest accrued on the Junior Notes since the mostrecent interest payment date and (y) the amount of interest that the Company ispermitted to pay in cash without causing a default under the 2013 Notes or theFacility.  For interest payments payablein cash, interest accrues at a rate per annum equal to 9.875%, and for interestpayments payable in kind, interest accrues at a rate per annum equal to 10.50%.  On January 15, 2004, the Company paid incash $1.5 million of interest on the Junior Subordinated Notes.  This represents 50% of the

 

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accrued interest at 9.875% due as of December 31, 2003.  The remaining accrued interest was paid inkind at a rate of 10.50%.  The JuniorNotes are contractually subordinated to the 2013 Notes and the Facility and anyother senior debt of the Company.  TheJunior Notes mature on January 15, 2014 but are subject to redemption atthe option of the Company, in whole or in part, at any time on or afterJanuary 15, 2009, at a premium to the principal amount thereof thatdecreases on each subsequent anniversary date, plus accrued interest to thedate of redemption.  The Junior Notescontain covenants restricting the Company’s ability to, among other things,sell or otherwise dispose of its assets, pay dividends, incur additionalindebtedness, make acquisitions or merge or consolidate with another entity andenter into transactions with affiliates. The Company is in compliance with these covenants as of June 30,2004.

 

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DuringJanuary 2004, the Nevada Gaming Commission served us with a complaint fordisciplinary action pursuant to NRS 463.310(2) and NRS 463.312charging violations of the Nevada Gaming Control Act and State Gaming ControlBoard and Nevada Gaming Commission Regulations. The complaint contains three counts each carrying a penalty of up to$100,000.  The Company is in the processof trying to negotiate a settlement; however, if a settlement cannot bereached, the matter is scheduled to be presented to the Nevada GamingCommission during September 2004.

 

**Off-Balance Sheet Arrangements**

 

Wedo not have any off-balance sheet arrangements that have, or are reasonablylikely to have, a current or future effect on our financial condition, changesin financial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources that are material.  Currently, we have no guarantees, such asperformance guarantees, keep-well agreements or indemnity.  We are not engaged in derivatives.

 

**Contractual Obligations and Commitments**

 

Wehave various contractual obligations which we record as liabilities in ourconsolidated financial statements.  Wealso enter into other purchase commitments and other executory contracts thatare not recognized as liabilities until services are performed or goods arereceived.  Additionally, we enter intocontracts for goods and services such as food, inventory and entertainment.  Such liabilities are recorded as liabilitieswhen so incurred and we expect that such contracts will generate revenue inexcess of such liabilities.  As ofJune 30, 2004, there have been no material changes to the table ofcontractual obligations and commitments in our most recently filed Form 10-Kexcept as described above related to remodeling and expanding Baby’s andremodeling the Race and Sports Book.

 

Wemade cash interest payments on long-term debt, including capitalized interest,of $8.1 million in each of the six month periods ended June 30, 2004 and2003, respectively.  We anticipate ourcash interest payments for the remainder of 2004 to be in excess of theselevels due to the timing of payments and higher average outstanding borrowingsprojected for the full year.  We have notmade significant cash tax payments during the six month periods endedJune 30, 2004 and 2003 and, due to available net operating loss and AMTtax credit carryforwards, we do not anticipate making significant cash taxpayments in the remainder of 2004.  Totalsupervisory fee expenses for these services for the six month periods endedJune 30, 2004 and 2003 amounted to $1.5 million and $1.5 million,respectively, under the Company’s 25 year Amended and Restated Supervisory Agreementwith Peter Morton.  The supervisory feeis equal to two percent of annual gross revenues (as defined), net ofcomplimentaries for each year.

 

Ourability to service our contractual obligations and commitments will bedependent on our future performance, which will be affected by, among otherthings, prevailing economic conditions and financial, business and otherfactors, certain of which are beyond our control.

 

TheCompany is a defendant in various lawsuits relating to routine mattersincidental to its business.  Managementprovides an accrual for estimated losses that may occur and does not believethat the outcome of any pending claims or litigation, in the aggregate, willhave a material adverse effect on the Company’s financial position, results ofoperations or liquidity.

 

CRITICALACCOUNTING POLICIES

 

Therehave been no changes in the Company’s critical accounting policies from thosedescribed in the Company’s most recently filed Form 10-K.

 

17

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Item 3.                                                     Quantitative and Qualitative Disclosures AboutMarket Risk

 

Marketrisks relating to our operations result primarily from changes in short-termLIBOR interest rates.  We do not have anyforeign exchange or other significant market risk.  We did not have any derivative financialinstruments at June 30, 2004.

 

Ourexposure to market risk for changes in interest rates relates primarily to ourcurrent Facility.  In accordance with theFacility, we enter into variable rate debt obligations to support generalcorporate purposes, including capital expenditures and working capitalneeds.  We continuously evaluate ourlevel of variable rate debt with respect to total debt and other factors,including assessment of the current and future economic environment.

 

We had $20.0 million in variable rate debtoutstanding at June 30, 2004 and December 31, 2003.  Based upon these variable rate debt levels, ahypothetical 10% adverse change in the effective interest rate (approximately a44 basis point increase) would increase interest expense by approximately $0.1million on an annual basis, and likewise decrease our earnings and cashflows.  We cannot predict marketfluctuations in interest rates and their impact on our variable rate debt, norcan there be any assurance that fixed rate long-term debt will be available tous at favorable rates, if at all. Consequently, future results may differ materially from the estimatedadverse changes discussed above.

 

Thefair value of the Company’s $140 million of 8.875% Second Lien Notes, which aredue in 2013 and are publicly traded, approximated $144.2 million atJune 30, 2004 based on published bid prices.  The fair value of the Company’s $50.0 millionof Junior Notes cannot be estimated as they are held by Mr. Morton or affiliatesof Mr. Morton and there is no established market nor published bid prices.

 

Item 4.  Controls and Procedures

 

 (a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s ChiefExecutive Officer and Chief Financial Officer, has evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, asamended (the “Exchange Act”)) as of the end of the period covered by thisreport.  Based on such evaluation, theCompany’s Chief Executive Officer and Chief Financial Officer have concludedthat, as of the end of such period, the Company’s disclosure controls andprocedures are effective in recording, processing, summarizing and reporting,on a timely basis, information required to be disclosed by the Company in thereports that it files or submits under the Exchange Act.

 

(b)  Internal Control Over FinancialReporting.  There have not been anychanges in the Company’s internal control over financial reporting (as suchterm is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) duringthe fiscal quarter to which this report relates that have materially affected,or are reasonably likely to materially affect, the Company’s internal controlover financial reporting.

 

18

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PART II OTHERINFORMATION

 

Item 1.                                                   LegalProceedings

 

During January 2004, the Nevada Gaming Commission served us with acomplaint for disciplinary action pursuant to NRS 463.310(2) and NRS 463.312charging violations of the Nevada Gaming Control Act and State Gaming ControlBoard and Nevada Gaming Commission Regulations. The complaint contains three counts each carrying a penalty of up to$100,000.  The Company is in the process of trying tonegotiate a settlement; however, if a settlement cannot be reached, the matteris scheduled to be presented to the Nevada Gaming Commission duringSeptember 2004.

 

Item 6.                                                   Exhibits and Reports on Form 8-K

 

(a)                                  Exhibits

 
| **EXHIBIT  NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                 |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                            |
| 3.                  |       | CERTIFICATE OF INCORPORATION AND BY-LAWS                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                            |
| (1)3.1              |       | Second Amended and Restated Certificate  of Incorporation of the Company.                                                                                                                                       |
|                |       |                                                                                                                                                                                                            |
| (2)3.2              |       | Certificate of Amendment of Second  Amended and Restated Articles of Incorporation.                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| (1)3.3              |       | Second Amended and Restated By-Laws of  the Company                                                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| 4.                  |       | INSTRUMENTS DEFINING THE RIGHT OF  SECURITY HOLDERS, INCLUDING INDENTURES.                                                                                                                                      |
|                |       |                                                                                                                                                                                                            |
| (5)4.1              |       | Indenture dated as of May 30, 2003, by  and between the Company and U.S. Bank National Association, as trustee,  relating to the 8 7/8% Second Lien Notes due 2013.                                             |
|                |       |                                                                                                                                                                                                            |
| (5)4.2              |       | Form  of Global 8 7/8% Second Lien Notes due 2013 (included in Exhibit 4.1)                                                                                                                                     |
|                |       |                                                                                                                                                                                                            |
| (5)4.3              |       | Registration  Rights Agreement, dated as of May 30, 2003, by and between the Company  and Banc of America Securities LLC, as representative of the Initial  Purchasers.                                    |
|                |       |                                                                                                                                                                                                            |
| (5)4.4              |       | Intercreditor  Agreement, dated as of May 30, 2003, among the Company, U.S. Bank, N.A.  and Bank of America, N.A.                                                                                          |
|                |       |                                                                                                                                                                                                            |
| (5)4.5              |       | Form  of Junior Subordinated Notes.                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| (7)4.6              |       | First  Supplemental Indenture to Indenture, dated as of November 20, 2003, by  and between the Company and U.S. Bank National Association, as trustee,  relating to the 87/8% Second Lien Notes due 2013.  |
|                |       |                                                                                                                                                                                                            |
| (7)4.7              |       | Second  Supplemental Indenture to Indenture, dated as of November 24, 2003, by  and between the Company and U.S. Bank National Association, as trustee,  relating to the 87/8% Second Lien Notes due 2013. |
|                |       |                                                                                                                                                                                                            |
| 9.                  |       | VOTING TRUST AGREEMENTS.                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                            |
| (1)9.1              |       | Amendment, dated as of July 1, 1997  to Stockholder Agreement, dated August 30, 1993, among the Company and  certain stockholders listed therein.                                                     |
|                |       |                                                                                                                                                                                                            |
| (1)9.2              |       | Stockholder Agreement, dated as of  August 30, 1993, among the Company and certain stockholders listed  therein.                                                                                           |
|                |       |                                                                                                                                                                                                            |
| 10.                 |       | MATERIAL CONTRACTS.                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| (5)10.1             |       | Credit  Agreement, dated as of May 30, 2003, between the Company, Bank of  America, N.A. and the lenders referred to therein.                                                                              |

 

19

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| (5)10.2 |   | Second  Lien Notes Security Agreement, dated as of May 30, 2003, between the  Company and U.S. Bank, N.A.                     |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                               |
| (5)10.3 |   | Second  Lien Notes Trademark Security Interest Assignment, dated as of May 30,  2003, between the Company and U.S. Bank, N.A. |
|    |   |                                                                                                                               |
| (5)10.4 |   | Second  Lien Notes Copyright Security Interest Assignment, dated as of May 30,  2003, between the Company and U.S. Bank, N.A. |
|    |   |                                                                                                                               |
| (5)10.5 |   | Exchange  Agreement, dated as of May 30, 2003, between the Company, Peter A.  Morton and Desert Rock, Inc.                    |
|    |   |                                                                                                                               |
| (1)10.6 |   | Amended  and Restated Supervisory Agreement, dated as of October 21, 1997,  between the Company and Peter A. Morton.          |
|    |   |                                                                                                                               |
| (3)10.7 |   | Employment  Agreement, dated November 8, 2000, between the Company and James D.  Bowen.                                       |
|    |   |                                                                                                                               |
| (4)10.8 |   | Amendment  to Employment Agreement, dated September 7, 2001, between the Company  and James D. Bowen.                         |

 

20

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| (1)10.9  |   | Trademark  Sublicense Agreement, dated October 24, 1997, between the Company and  Peter A. Morton.                                                                                   |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                      |
| (1)10.10 |   | Amendment  No. 1 to Trademark Sublicense Agreement, dated as of March 23, 1998,  between the Company and Peter A. Morton.                                                            |
|     |   |                                                                                                                                                                                      |
| (5)10.11 |   | Amendment  No. 2 to Trademark Sublicense Agreement, dated as of May 30, 2003,  between the Company and Peter A. Morton.                                                              |
|     |   |                                                                                                                                                                                      |
| (5)10.12 |   | Security  Agreement, dated as of May 30, 2003, between the Company, Bank of  America, N.A. and the lenders referred to therein.                                                      |
|     |   |                                                                                                                                                                                      |
| (5)10.13 |   | Trademark  Security Interest Assignment, dated as of May 30, 2003, between the  Company and Bank of America, N.A.                                                                    |
|     |   |                                                                                                                                                                                      |
| (5)10.14 |   | Copyright  Security Interest Assignment, dated as of May 30, 2003, between the  Company and Bank of America, N.A.                                                                    |
|     |   |                                                                                                                                                                                      |
| (5)10.15 |   | Form  of Hard Rock Hotel, Inc. 1999 Performance Awards Plan                                                                                                                               |
|     |   |                                                                                                                                                                                      |
| (6)10.16 |   | Employment  Agreement, dated June 19, 2003, between the Company and Kevin Kelley                                                                                                     |
|     |   |                                                                                                                                                                                      |
| 31.      |   | CERTIFICATIONS.                                                                                                                                                                           |
|     |   |                                                                                                                                                                                      |
| 31.1     |   | Certification of Chief Executive Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                  |
|     |   |                                                                                                                                                                                      |
| 31.2     |   | Certification of Chief Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                  |
|     |   |                                                                                                                                                                                      |
| 32.1     |   | Certification of Chief Executive Officer  and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

----

(1)                                  Incorporated by reference to designatedexhibit to our Registration Statement on Form S-4, filed with the Securitiesand Exchange Commission on May 21, 1998 (File No. 333- 53211).

(2)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended August 31, 1999 (File No. 333-53211).

(3)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended September 30, 2000 (File No. 333-53211).

(4)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended September 30, 2001 (File No. 333-53211).

(5)                                  Incorporated by reference to designatedexhibit to our Registration Statement on Form S-4, filed with the Securitiesand Exchange Commission on July 8, 2003 (File No. 333- 106863).

(6)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended June 30, 2003 (File No. 333-53211).

(7)                                  Incorporated by reference to designatedexhibit to our Registration Statement on Amendment No. 1 to Form S-4, filedwith the Securities and Exchange Commission on November 26, 2003 (File No.333- 106863).

(b)                                 Reportson Form 8-K

(1)                                  Current Report on Form 8-K, dated May 5, 2004(date of earliest event reported), filed on May 6, 2004, for the purpose ofreporting under Item 12, Hard Rock Hotel’s results of operations for the threemonth period ended March 31, 2004.

 

21

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                             | HARD ROCK HOTEL, INC.                                      |
|----------------------------------|------------------------------------------------------------|
|                             |                                                       |
| Date:  August 16, 2004 | /s/ JAMES D. BOWEN                                         |   |
|                             | James D. Bowen                                             |
|                             | CHIEF FINANCIAL OFFICER                                    |
|                             | (PRINCIPAL FINANCIAL OFFICER AND DULY  AUTHORIZED OFFICER) |

 

22

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Exhibit Index

 
| **EXHIBIT  NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                 |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                            |
| 3.                  |       | CERTIFICATE OF INCORPORATION AND BY-LAWS                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                            |
| (1)3.1              |       | Second Amended and Restated Certificate  of Incorporation of the Company.                                                                                                                                       |
|                |       |                                                                                                                                                                                                            |
| (2)3.2              |       | Certificate of Amendment of Second  Amended and Restated Articles of Incorporation.                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| (1)3.3              |       | Second Amended and Restated By-Laws of  the Company                                                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| 4.                  |       | INSTRUMENTS DEFINING THE RIGHT OF  SECURITY HOLDERS, INCLUDING INDENTURES.                                                                                                                                      |
|                |       |                                                                                                                                                                                                            |
| (5)4.1              |       | Indenture dated as of May 30, 2003, by  and between the Company and U.S. Bank National Association, as trustee,  relating to the 8 7/8% Second Lien Notes due 2013.                                             |
|                |       |                                                                                                                                                                                                            |
| (5)4.2              |       | Form  of Global 8 7/8% Second Lien Notes due 2013 (included in Exhibit 4.1)                                                                                                                                     |
|                |       |                                                                                                                                                                                                            |
| (5)4.3              |       | Registration  Rights Agreement, dated as of May 30, 2003, by and between the Company  and Banc of America Securities LLC, as representative of the Initial  Purchasers.                                    |
|                |       |                                                                                                                                                                                                            |
| (5)4.4              |       | Intercreditor  Agreement, dated as of May 30, 2003, among the Company, U.S. Bank, N.A.  and Bank of America, N.A.                                                                                          |
|                |       |                                                                                                                                                                                                            |
| (5)4.5              |       | Form  of Junior Subordinated Notes.                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| (7)4.6              |       | First  Supplemental Indenture to Indenture, dated as of November 20, 2003, by  and between the Company and U.S. Bank National Association, as trustee,  relating to the 87/8% Second Lien Notes due 2013.  |
|                |       |                                                                                                                                                                                                            |
| (7)4.7              |       | Second  Supplemental Indenture to Indenture, dated as of November 24, 2003, by  and between the Company and U.S. Bank National Association, as trustee,  relating to the 87/8% Second Lien Notes due 2013. |
|                |       |                                                                                                                                                                                                            |
| 9.                  |       | VOTING TRUST AGREEMENTS.                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                            |
| (1)9.1              |       | Amendment, dated as of July 1, 1997 to  Stockholder Agreement, dated August 30, 1993, among the Company and  certain stockholders listed therein.                                                     |
|                |       |                                                                                                                                                                                                            |
| (1)9.2              |       | Stockholder Agreement, dated as of  August 30, 1993, among the Company and certain stockholders listed  therein.                                                                                           |
|                |       |                                                                                                                                                                                                            |
| 10.                 |       | MATERIAL CONTRACTS.                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                            |
| (5)10.1             |       | Credit  Agreement, dated as of May 30, 2003, between the Company, Bank of  America, N.A. and the lenders referred to therein.                                                                              |
|                |       |                                                                                                                                                                                                            |
| (5)10.2             |       | Second  Lien Notes Security Agreement, dated as of May 30, 2003, between the  Company and U.S. Bank, N.A.                                                                                                  |
|                |       |                                                                                                                                                                                                            |
| (5)10.3             |       | Second  Lien Notes Trademark Security Interest Assignment, dated as of May 30,  2003, between the Company and U.S. Bank, N.A.                                                                              |
|                |       |                                                                                                                                                                                                            |
| (5)10.4             |       | Second  Lien Notes Copyright Security Interest Assignment, dated as of May 30,  2003, between the Company and U.S. Bank, N.A.                                                                              |
|                |       |                                                                                                                                                                                                            |
| (5)10.5             |       | Exchange  Agreement, dated as of May 30, 2003, between the Company, Peter A.  Morton and Desert Rock, Inc.                                                                                                 |
|                |       |                                                                                                                                                                                                            |
| (1)10.6             |       | Amended  and Restated Supervisory Agreement, dated as of October 21, 1997,  between the Company and Peter A. Morton.                                                                                       |
|                |       |                                                                                                                                                                                                            |
| (3)10.7             |       | Employment  Agreement, dated November 8, 2000, between the Company and James D.  Bowen.                                                                                                                    |
|                |       |                                                                                                                                                                                                            |
| (4)10.8             |       | Amendment  to Employment Agreement, dated September 7, 2001, between the Company  and James D. Bowen.                                                                                                      |

 

23

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| (1)10.9  |   | Trademark  Sublicense Agreement, dated October 24, 1997, between the Company and  Peter A. Morton.                                                                                   |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                      |
| (1)10.10 |   | Amendment  No. 1 to Trademark Sublicense Agreement, dated as of March 23, 1998,  between the Company and Peter A. Morton.                                                            |
|     |   |                                                                                                                                                                                      |
| (5)10.11 |   | Amendment  No. 2 to Trademark Sublicense Agreement, dated as of May 30, 2003,  between the Company and Peter A. Morton.                                                              |
|     |   |                                                                                                                                                                                      |
| (5)10.12 |   | Security  Agreement, dated as of May 30, 2003, between the Company, Bank of  America, N.A. and the lenders referred to therein.                                                      |
|     |   |                                                                                                                                                                                      |
| (5)10.13 |   | Trademark  Security Interest Assignment, dated as of May 30, 2003, between the  Company and Bank of America, N.A.                                                                    |
|     |   |                                                                                                                                                                                      |
| (5)10.14 |   | Copyright  Security Interest Assignment, dated as of May 30, 2003, between the Company  and Bank of America, N.A.                                                                    |
|     |   |                                                                                                                                                                                      |
| (5)10.15 |   | Form  of Hard Rock Hotel, Inc. 1999 Performance Awards Plan                                                                                                                               |
|     |   |                                                                                                                                                                                      |
| (6)10.16 |   | Employment  Agreement, dated June 19, 2003, between the Company and Kevin Kelley                                                                                                     |
|     |   |                                                                                                                                                                                      |
| 31.      |   | CERTIFICATIONS.                                                                                                                                                                           |
|     |   |                                                                                                                                                                                      |
| 31.1     |   | Certification of Chief Executive Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                  |
|     |   |                                                                                                                                                                                      |
| 31.2     |   | Certification of Chief Financial Officer  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                  |
|     |   |                                                                                                                                                                                      |
| 32.1     |   | Certification of Chief Executive Officer  and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

----

(1)                                  Incorporated by reference to designatedexhibit to our Registration Statement on Form S-4, filed with the Securitiesand Exchange Commission on May 21, 1998 (File No. 333- 53211).

 

(2)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended August 31, 1999 (File No. 333-53211).

 

(3)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended September 30, 2000 (File No. 333-53211).

 

(4)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended September 30, 2001 (File No. 333-53211).

 

(5)                                  Incorporated by reference to designatedexhibit to our Registration Statement on Form S-4, filed with the Securitiesand Exchange Commission on July 8, 2003 (File No. 333- 106863).

 

(6)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended June 30, 2003 (File No. 333-53211).

 

(7)                                  Incorporated by reference to designatedexhibit to our Registration Statement on Amendment No. 1 to Form S-4, filedwith the Securities and Exchange Commission on November 26, 2003 (File No.333- 106863).

 

24

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