** **

**UNITED STATES SECURITIES &EXCHANGECOMMISSION****Washington, D.C. 20549**

**FORM 10-Q**

 

** **
| (Mark One)                                                                                                                                                                                                                                                                            | ** ** | ** **                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                                                                                                                      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **                                                                                                                                                                                                                                                                                 | ** ** | ** **                                                                                    |
| **For the quarterly period ended June 30,  2006**                                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                                                                 | ** ** | ** **                                                                                    |
| **OR**                                                                                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                                                                 | ** ** | ** **                                                                                    |
| **o**                                                                                                                                                                                                                                                                                      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                                 | ** ** | ** **                                                                                    |
| **For the transition period from                          to                    ** |

** **

**Commission File No. 333-53211**

**HardRock Hotel, Inc.**(Exact name of registrant as specified in its charter)

| **Nevada**                       |   | **88-0306263**                        |
|----------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |   |                                  |

 

**4455 Paradise Road, Las Vegas NV  89109**(Address of principal executive offices — Zip Code)

**(702) 693-5000**(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,if changed since last report)

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. xYes o No

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.    (Checkone):

| Large Accelerated Filer o |   | Accelerated  Filer o |   | Non-Accelerated  Filer x |
|---------------------------|--------|----------------------|--------|--------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). o Yesx No

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

Common Stockoutstanding by class as of August 14,2006

| 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, 2006 and  December 31, 2005                             |   |   |
|         |   |                                                                                                      |   |   |
|         |   | Condensed Statements of Operations for the three and  six month periods ended June 30, 2006 and 2005 |   |   |
|         |   |                                                                                                      |   |   |
|         |   | Condensed Statements of Cash Flows for the six month  periods ended June 30, 2006 and 2005           |   |   |
|         |   |                                                                                                      |   |   |
|         |   | 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  1.     |   | Legal  Proceedings                                                                                        |   |   |
|         |   |                                                                                                      |   |   |
| Item  5.     |   | Other  Information                                                                                        |   |   |
|         |   |                                                                                                      |   |   |
| Item 6.      |   | Exhibits                                                                                                  |   |   |

 

 

2

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**Part I FINANCIAL INFORMATION**

**Item 1. Financial Statements**

**HARD ROCK HOTEL, INC.****CONDENSED BALANCE SHEETS (unaudited)****(in thousands, except share amounts)**
| ** **                                                                                                                                           | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ASSETS                                                                                                                                               |       |                    |       |                        |       |
|                                                                                                                                                 |       |                    |       |                        |       |
| Current assets:                                                                                                                                      |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                            |       | $                       | 8,771      |                        | $          | 8,895 |   |
| Accounts receivable, net of allowance for doubtful  accounts of $1,063 and $1,002 as of June 30, 2006 and December 31,  2005, respectively |       | 7,201                   |       | 6,986                       |       |
| Inventories                                                                                                                                          |       | 2,539                   |       | 2,205                       |       |
| Prepaid expenses and other current assets                                                                                                            |       | 3,716                   |       | 2,590                       |       |
| Deferred income taxes, net                                                                                                                           |       | 4,332                   |       | 5,832                       |       |
| Related party receivables                                                                                                                            |       | 1,249                   |       | 589                         |       |
| Total current assets                                                                                                                                 |       | 27,808                  |       | 27,097                      |       |
|                                                                                                                                                 |       |                    |       |                        |       |
| Property and  equipment, net of accumulated depreciation and amortization                                                                            |       | 166,558                 |       | 165,662                     |       |
| Deferred income  taxes, net                                                                                                                          |       | 2,034                   |       | 2,034                       |       |
| Other assets,  net                                                                                                                                   |       | 3,390                   |       | 4,164                       |       |
| TOTAL ASSETS                                                                                                                                         |       | $                       | 199,790    |                        | $          | 198,957 |   |
|                                                                                                                                                 |       |                    |       |                        |       |
| LIABILITIES AND  SHAREHOLDERS’ DEFICIENCY                                                                                                       |       |                    |       |                        |       |
| Current liabilities:                                                                                                                                 |       |                    |       |                        |       |
| Accounts payable                                                                                                                                     |       | $                       | 3,265      |                        | $          | 3,968 |   |
| Related party payable                                                                                                                                |       | 291                     |       | 784                         |       |
| Accrued expenses and other liabilities                                                                                                               |       | 7,557                   |       | 8,021                       |       |
| Advanced reservations deposits                                                                                                                       |       | 2,822                   |       | 2,447                       |       |
| Gaming chip and token float                                                                                                                          |       | 2,373                   |       | 2,673                       |       |
| Deferred compensation, current portion                                                                                                               |       | 3,424                   |       | —                      |       |
| Interest payable                                                                                                                                     |       | 3,018                   |       | 3,024                       |       |
| Current portion of long-term debt                                                                                                                    |       | —                  |       | 58                          |       |
| Total current liabilities                                                                                                                            |       | 22,750                  |       | 20,975                      |       |
|                                                                                                                                                 |       |                    |       |                        |       |
| Deferred  compensation, less current portion                                                                                                         |       | —                  |       | 2,478                       |       |
| Junior  subordinated notes                                                                                                                           |       | 41,929                  |       | 40,857                      |       |
| Long-term debt,  less current portion                                                                                                                |       | 155,000                 |       | 157,000                     |       |
| Total long-term liabilities                                                                                                                          |       | 196,929                 |       | 200,335                     |       |
| Total liabilities                                                                                                                                    |       | 219,679                 |       | 221,310                     |       |
|                                                                                                                                                 |       |                    |       |                        |       |
| Commitments and  contingencies (Note 4)                                                                                                              |       |                    |       |                        |       |
|                                                                                                                                                 |       |                    |       |                        |       |
| 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                                                                                                                                  |       | (27,397                 | )          | (29,861                     | )          |
| Total shareholders’ deficiency                                                                                                                  |       | (19,889                 | )          | (22,353                     | )          |
|                                                                                                                                                 |       |                    |       |                        |       |
| TOTAL LIABILITIES AND  SHAREHOLDERS’ DEFICIENCY                                                                                                 |       | $                       | 199,790    |                        | $          | 198,957 |   |

 

*The accompanying notes are anintegral part of these financial statements.*

3

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**HARD ROCK HOTEL, INC.CONDENSED STATEMENTS OF OPERATIONS(in thousands, except share and per share amounts)(unaudited)**

|                                                       | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenue:                                              |       |                                            |       |                                          |       |   |   |   |   |
| Casino                                                |       | $                                               | 15,591     |                                          | $          | 16,200 |   | $ | 30,437 |   | $ | 32,809 |   |
| Lodging                                               |       | 11,166                                          |       | 10,392                                        |       | 21,012 |   | 19,678 |   |
| Food and beverage                                     |       | 18,699                                          |       | 18,636                                        |       | 35,645 |   | 34,462 |   |
| Retail store                                          |       | 1,880                                           |       | 2,100                                         |       | 3,620 |   | 3,843 |   |
| Other                                                 |       | 4,542                                           |       | 4,657                                         |       | 7,580 |   | 8,442 |   |
| Gross revenues                                        |       | 51,878                                          |       | 51,985                                        |       | 98,294 |   | 99,234 |   |
| Less: promotional allowances                          |       | (3,261                                          | )          | (3,837                                        | )          | (6,382 | ) | (7,083 | ) |
| Net revenues                                          |       | 48,617                                          |       | 48,148                                        |       | 91,912 |   | 92,151 |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Costs and expenses:                                   |       |                                            |       |                                          |       |   |   |   |   |
| Casino                                                |       | 8,597                                           |       | 9,271                                         |       | 17,774 |   | 18,020 |   |
| Lodging                                               |       | 2,778                                           |       | 2,575                                         |       | 5,505 |   | 5,019 |   |
| Food and beverage                                     |       | 10,033                                          |       | 9,397                                         |       | 19,493 |   | 17,521 |   |
| Retail store                                          |       | 971                                             |       | 825                                           |       | 1,984 |   | 1,588 |   |
| Other                                                 |       | 4,036                                           |       | 5,324                                         |       | 7,211 |   | 9,180 |   |
| Marketing, advertising and entertainment              |       | 1,837                                           |       | 1,880                                         |       | 3,126 |   | 3,162 |   |
| General and administrative                            |       | 7,692                                           |       | 6,480                                         |       | 14,949 |   | 12,994 |   |
| Merger costs                                          |       | 923                                             |       | —                                        |       | 2,023 |   | — |   |
| Depreciation and amortization                         |       | 3,244                                           |       | 2,947                                         |       | 6,293 |   | 5,899 |   |
| Loss on disposal of assets                            |       | 10                                              |       | 551                                           |       | 372 |   | 551 |   |
| Pre-opening expenses                                  |       | —                                          |       | 124                                           |       | — |   | 196 |   |
| Total costs and expenses                              |       | 40,121                                          |       | 39,374                                        |       | 78,730 |   | 74,130 |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Income from  operations                               |       | 8,496                                           |       | 8,774                                         |       | 13,182 |   | 18,021 |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Other income (expense):                               |       |                                            |       |                                          |       |   |   |   |   |
| Interest income                                       |       | 84                                              |       | 90                                            |       | 137 |   | 130 |   |
| Interest expense                                      |       | (4,678                                          | )          | (4,878                                        | )          | (9,355 | ) | (9,748 | ) |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Income before  provision for income taxes             |       | 3,902                                           |       | 3,986                                         |       | 3,964 |   | 8,403 |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Income tax  expense                                   |       | 1,473                                           |       | —                                        |       | 1,500 |   | — |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Net income                                            |       | $                                               | 2,429      |                                          | $          | 3,986 |   | $ | 2,464 |   | $ | 8,403 |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| BASIC AND DILUTED NET  INCOME PER SHARE:              |       |                                            |       |                                          |       |   |   |   |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Net income                                            |       | $                                               | 31.95      |                                          | $          | 52.43 |   | $ | 32.41 |   | $ | 110.53 |   |
|                                                  |       |                                            |       |                                          |       |   |   |   |   |
| 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, except supplemental schedule)(unaudited)**
| ** **                                                                         | ** ** | **Six Months  Ended June 30,  2006** | ** ** | **Six Months  Ended June 30,   2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Cash flows from  operating activities:                                             |       |                                                |       |                                                      |       |
| Net income                                                                         |       | $                                                   | 2,464      |                                                      | $          | 8,403 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                                |       |                                                      |       |
| Depreciation and amortization                                                      |       | 6,293                                               |       | 5,899                                                     |       |
| Provision for losses on accounts receivable                                        |       | 170                                                 |       | 152                                                       |       |
| Amortization of bond offering fees and costs                                       |       | 256                                                 |       | 256                                                       |       |
| Loss on disposal of assets                                                         |       | 372                                                 |       | 551                                                       |       |
| Changes in  operating assets and liabilities:                                      |       |                                                |       |                                                      |       |
| Accounts receivable                                                                |       | (385                                                | )          | (1,505                                                    | )          |
| Inventories                                                                        |       | (334                                                | )          | 66                                                        |       |
| Prepaid expenses and other current assets                                          |       | (446                                                | )          | (143                                                      | )          |
| Related party receivable                                                           |       | (660                                                | )          | (495                                                      | )          |
| Accounts payable                                                                   |       | (703                                                | )          | 1,653                                                     |       |
| Related party payable                                                              |       | (493                                                | )          | (13                                                       | )          |
| Deferred compensation                                                              |       | 946                                                 |       | 530                                                       |       |
| Accrued expenses                                                                   |       | (389                                                | )          | (454                                                      | )          |
| Deferred income taxes                                                              |       | 1,500                                               |       | —                                                    |       |
| Interest payable                                                                   |       | 1,066                                               |       | 1,436                                                     |       |
| Net cash  provided by operating activities                                         |       | 9,657                                               |       | 16,336                                                    |       |
|                                                                               |       |                                                |       |                                                      |       |
| Cash flows used in  investing activities:                                          |       |                                                |       |                                                      |       |
| Purchases of property and equipment                                                |       | (7,565                                              | )          | (5,017                                                    | )          |
| Proceeds from sale of operating assets                                             |       | 4                                                   |       | 11                                                        |       |
| Other long lived assets                                                            |       | (162                                                | )          | (14                                                       | )          |
| Net cash used in  investing activities                                             |       | (7,723                                              | )          | (5,020                                                    | )          |
|                                                                               |       |                                                |       |                                                      |       |
| Cash flows used in  financing activities:                                          |       |                                                |       |                                                      |       |
| Principal payments on long-term debt                                               |       | (2,058                                              | )          | (8,587                                                    | )          |
| Net cash used in  financing activities                                             |       | (2,058                                              | )          | (8,587                                                    | )          |
|                                                                               |       |                                                |       |                                                      |       |
| Net (decrease)  increase in cash and cash equivalents                              |       | (124                                                | )          | 2,729                                                     |       |
| Cash and cash  equivalents, beginning of period                                    |       | 8,895                                               |       | 10,655                                                    |       |
|                                                                               |       |                                                |       |                                                      |       |
| Cash and cash  equivalents, end of period                                          |       | $                                                   | 8,771      |                                                      | $          | 13,384 |   |
|                                                                               |       |                                                |       |                                                      |       |
| Supplemental  disclosures of cash flow information:                                |       |                                                |       |                                                      |       |
| Cash paid during the  period for interest                                          |       | $                                                   | 8,033      |                                                      | $          | 8,057 |   |

 

SupplementalSchedule of Non-Cash Investing and Financing Activities:

In accordance with the terms of the Junior Notes, theCompany recorded interest in kind of $1.1 million during the six monthperiod ended June 30, 2006 and increased the principal amount of theJunior Notes.

In accordance with the terms of the Junior Notes, theCompany recorded interest in kind of $1.4 million during the six monthperiod ended June 30, 2005 and increased the principal amount of theJunior Notes.

*The accompanying notes are anintegral part of these unaudited condensed financial statements*

5

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**HARD ROCK HOTEL, INC.NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**

1.             BASISOF PRESENTATION

Hard Rock Hotel, Inc. (the “Company”), a Nevadacorporation incorporated on August 30, 1993, operates a hotel-casino inLas Vegas, Nevada (the “Resort”). Lily Pond Investments, Inc. (“Lily Pond”),a Nevada corporation controlled and majority owned by Peter Morton, owns all ofthe voting shares and 93% of the non-voting shares of the Company.Mr. Morton has granted a sublicense to the Company, pursuant to which theCompany holds the exclusive right to use the “Hard Rock Hotel” trademark forthe Company’s operations in Las Vegas.

These condensed financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, certain notes and otherinformation have been condensed or omitted from the interim financialstatements presented in this Quarterly Report on Form 10-Q and they do notinclude all information required by accounting principles generally accepted inthe United States of America for complete financial statements. In the opinionof management, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included. Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the amounts of revenues and expenses during thereporting period. Actual results could differ from these estimates.

Certain reclassifications have been made to the prioryear financial statements to conform to the current year presentation. Thereclassifications relate primarily to recording revenue and related expenses oncertain transactions on a gross basis versus net basis. During the three andsix month periods ended June 30, 2005, the Company recorded certaintransactions for entertainment ticket sales and catering production on a netbasis and included the net expense in marketing expense. The Company hasreclassified $1.9 million of revenue that had previously been netted withmarketing expense to other income, $2.0 million from marketing expense to otherexpense and $0.2 million of revenue that had previously been netted with foodand beverage expense to food and beverage revenue for the three month periodended June 30, 2005. The Company has reclassified $3.4 million of revenue thathad previously been netted with marketing expense to other income, $3.1 millionfrom marketing expense to other expense and $0.5 million of revenue that hadpreviously been netted with food and beverage expense to food and beveragerevenue for the six month period ended June 30, 2005.  The Company reclassed $0.6 million, on thestatement of operations, to general and administrative expenses for technicalsupport services for the development, ongoing improvement and operation of theCompany from related party expense for the three months ended June 30,2005.  The Company reclassed $1.3million, on the statement of operations, to general and administrative expensesfor technical support services for the development, ongoing improvement andoperation of the Company from related party expense for the six months endedJune 30, 2005.  The Company reclassed$0.9 million to operating expenses, on the statement of operations, for theAmended and Restated Supervisory Agreement from related party expenses for thethree months ended June 30, 2005.  TheCompany reclassed $1.8 million to operating expenses, on the statement ofoperations, for the Amended and Restated Supervisory Agreement from relatedparty expenses for the six months ended June 30, 2005.  The Company reclassified $4.2 million indeferred income tax liability to deferred income tax asset long term on thebalance sheet as of December 31, 2005. The Company reclassified $2.4 million inaccrued expenses and other liabilities to advanced reservations deposits on thebalance sheet as of December 31, 2005. The Company reclassified $2.7 million inaccrued expenses and other liabilities to gaming chip and token float on thebalance sheet as of December 31, 2005. These reclassification did not have aneffect on net income in the statements of operations.

Operating results for the six month period endedJune 30, 2006 are not necessarily indicative of future financial resultsor the results that may be expected for the year ending December 31, 2006.The unaudited interim financial statements contained herein should be read inconjunction with the audited financial statements and notes in our Annual Reporton Form 10-K for the year ended December 31, 2005.

Recently Issued Accounting Standards

In February 2006, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 155,*“Accountingfor Certain Hybrid Financial Instruments—an amendment of FASB Statements No.133 and 140”*. SFAS No. 155 allows financial instruments that haveembedded derivatives to be accounted for as a whole (eliminating the need tobifurcate the derivative from its host) if the holder elects to irrevocablyaccount for the whole instrument on a fair value basis. SFAS No. 155 iseffective for all financial instruments acquired or issued after December 31,2006. We do not expect the adoption of SFAS No. 155 to have a material effecton our financial statements, as we do not currently have any financialinstruments that meet the criteria specified under SFAS No. 155.

6

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In July2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”),*“Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109”.* FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with SFAS No. 109,*Accounting for Income Taxes.* FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. FIN 48 also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition. FIN 48 is effective for fiscal years beginning after December 15,2006, and applies to all tax positions accounted for in accordance with SFASNo. 109. We are currently evaluating the impact that the adoption of FIN 48will have on our financial statements.

2.             AGREEMENTSWITH RELATED PARTIES

The Company has a twenty-five year Amended andRestated Supervisory Agreement with Peter Morton, which provides for thesupervision of the development, improvement, operation, and maintenance of theCompany through 2022. Mr. Morton has the option to renew the agreement for twosuccessive fifteen year terms. Pursuant to the terms of the SupervisoryAgreement, Mr. Morton is to provide consulting and supervisory services to theCompany. In the event either the Company or Mr. Morton is in Default (asdefined in the agreement), the non-defaulting party may terminate the agreementafter the other party has received the opportunity to cure such default. Aspart of this agreement, the Company pays to Mr. Morton a supervisory fee equalto two percent of annual gross revenues (as defined), net of complimentariesfor each year. Total supervisory fee expenses for these services for the sixmonths ended June 30, 2006 and 2005 amounted to $1,817,000 and $1,763,000,respectively. These expenses are included in the operating departments in theaccompanying statements of operations. The unpaid amounts at June 30, 2006and December 31, 2005 are $291,000 and $784,000, respectively, and are includedin related party payable in the accompanying balance sheets.

Entities controlled by Mr. Morton have providedadditional technical support services for the development, ongoing improvementand 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. OnAugust 15, 2005, the Company entered a Commercial Sublease (“CommercialSublease”) with 510 Development, whereby the Company pays $20,000 a month forthis lease which expires December 31, 2009. The expense associated with thislease is included as part of the allocated overhead which is reimbursed by theCompany. These expenses aggregated approximately $1,316,000 and $1,287,000 forthe six months ended June 30, 2006 and 2005, respectively, and areincluded in general and administrative in the accompanying statements ofoperations. The unpaid amounts at June 30, 2006 and December 31, 2005 are$1,201,000 and $157,000, respectively, was due from these entities for expensespaid in advance and is included in related party receivable in the accompanyingbalance sheets.

The Company has provided technical support servicesand paid certain overhead expenses for the development and operation of HRCondominium Investors (Vegas), LLC (“HRCI”), an affiliate of our ChiefExecutive Officer Mr. Morton. HR Condominium Investors (Vegas), LLCreimburses the Company for all of these costs and expenses. The unpaid amountsat June 30, 2006 and December 31, 2005 are $13,000 and $251,000,respectively, and are included in related party receivable in the accompanyingbalance sheets.

During the six months ended June 30, 2006 and 2005,the Company paid compensation to Harry Morton, son of Peter Morton, of $100,000and $87,000, respectively, for his position as Special Projects Director whichhe started in the year ended December 31, 2004. The Company also providedhousing and other services to Harry Morton at the resort with a total estimatedvalue during the six months ended June 30, 2006 and 2005, of $35,000 and$16,000, respectively. These costs are included in food and beverage expense onthe statements of operations for the six months ended June 30, 2006 and 2005.

The Company provides technical support services andpays certain overhead expenses for the development and operation of Pink TacoScottsdale, LLC, an entity managed by Harry Morton, son of the Company’s ChiefExecutive Officer Mr. Morton. Pink Taco Scottsdale, LLC reimburses the Companyfor all of these costs and expenses. The unpaid amounts at June 30, 2006 andDecember 31, 2005 are $35,000 and $181,000, respectively, and are included inrelated party receivable in the accompanying balance sheets.

On December 24, 2004, PM Realty LLC (a developmententity involved in the condominium project and owned by Mr. Morton) and theCompany entered into a lease for a ten year initial term with Mr. Chow of LasVegas, LLC (“Mr. Chow”) for commercial space anticipated to be developed onland contiguous to the resort. The lease provides that if ground-breaking workon such development has not been received, in each case on or before June 1,2006, Mr. Chow may elect to terminate such lease and receive a leasetermination fee of $250,000.  The Companyhas not broken ground on the development. Mr. Chow has informed the Company that they have not elected toterminate the lease and they are reserving their right to terminate the leasepending the result of ongoing conversations among representatives of theCompany, Morgans Hotel Group and Mr. Chow.

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3.                                       LONG-TERMDEBT

As of June 30, 2006, the Company had $140.0million outstanding of its 8.875% Second Lien Notes due 2013 (the “2013 Notes”).The Company also has a $40 million Senior Secured Credit Facility (the “Facility”)through a group of banks.  The Facility consists of a $20 million,five-year senior secured term loan (the “Term Loan”) and a $20 million seniorsecured revolving credit facility (the “Revolving Credit Facility”). As ofJune 30, 2006, the Company had $15.0 million outstanding on its RevolvingCredit Facility and had no balance outstanding on the Term Loan. As ofJune 30, 2006, the Company also had approximately $41.9 millionoutstanding of junior subordinated notes (the “Junior Notes”), including$1.1 million of interest paid in kind during the six month period endedJune 30, 2006.

2013 Notes

Interest on the 2013 Notes is payable on eachJune 1 and December 1 beginning December 1, 2003.  The 2013Notes are secured by a security interest in substantially all of the Company’sexisting and future assets, other than licenses which may not be pledged underapplicable law.  The security interest is junior to the security interestin the assets securing our obligation under our Facility and except forpermitted secured purchase money indebtedness.  The 2013 Notes are subjectto redemption at the option of the Company, in whole or in part, at any time onor after June 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 redemption rates are as follows: after June 1,2008, 104.438%, after June 1, 2009, 102.958%, after June 2010, 101.479% andafter June 1, 2011, 100%. The 2013 Notes contain covenants restricting orlimiting the ability of the Company to, among other things, pay dividends,create liens or other encumbrances, incur additional indebtedness, issuecertain preferred stock, sell or otherwise dispose of a portion of its assets,make acquisitions or merge or consolidate with another entity and enter intotransactions with affiliates. The Company was in compliance with thesecovenants as of June 30, 2006.

Facility

Interest on the Facility accrues on all individualborrowings at an interest rate determined at the option of the Company, ateither the LIBOR Index plus an applicable LIBOR margin (not to exceed 3.5%(applicable margin was 2.50% at June 30, 2006) and aggregating 7.7% atJune 30, 2006), or the Base Rate, defined as the higher of the FederalFunds Rate plus 0.5%, or the reference rate, as defined, plus an applicablemargin (not to exceed 2.25%). The Company chose the LIBOR Index for all of itsborrowings outstanding at June 30, 2006. These margins are dependent uponthe Company’s total debt to EBITDA ratio, as defined. Interest accrued on theBase Rate borrowings is due monthly, up to the maturity date, while interest onLIBOR borrowings is due six months up to the maturity date. The Facility issecured by substantially all of the Company’s property at the Las Vegas site.The Facility contains certain covenants including, among other things,financial covenants, limitations on the Company from disposing of capitalstock, entering into mergers and certain acquisitions, incurring liens orindebtedness, issuing dividends on stock, and entering into transactions withaffiliates.  The Company was incompliance with these covenants as of June 30, 2006.

The Company has a $0.3 million irrevocable standbyletter of credit for the benefit of the State of Nevada related to the selfinsured portion of the Company’s workers compensation insurance.

Junior Notes

Interest on the Junior 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 anysemi-annual interest payment in cash be equal to the lesser of (x) 50% of theamount of interest accrued on the Junior Notes since the most recent interestpayment date and (y) the amount of interest that the Company is permitted topay in cash without causing a default under the 2013 Notes or theFacility.  For interest payments payable in cash, interest accrues at arate per annum equal to 9.875%, and for interest payments payable in kind,interest accrues at a rate per annum equal to 10.50%.  The Junior Notesare contractually subordinated to the 2013 Notes and the Facility and any othersenior debt of the Company.  The Junior Notes mature on January 15,2014 but are subject to redemption at the option of the Company, in whole or inpart, at any time on or after January 15, 2009, at a premium to theprincipal amount thereof that decreases on each subsequent anniversary date,plus accrued interest to the date of redemption.  The Junior Notes containcovenants restricting the Company’s ability to, among other things, sell orotherwise dispose of its assets, pay dividends, incur additional indebtedness,make acquisitions or merge or consolidate with another entity and enter intotransactions with affiliates. In December of 2005, the Company received consentfrom lenders under the Facility and repurchased $15.0 million of theoutstanding Junior Subordinated Notes. This transaction had a purchase premiumof $1.2 million. For the six months ended June 30, 2006 and 2005 theCompany paid interest in kind of $1.1 million and $1.4 million, respectively.The Company was in compliance with these covenants as of June 30, 2006.

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4.             COMMITMENTS ANDCONTINGINCIES

Legal

The Company is a defendant in various lawsuitsrelating to routine matters incidental to its business.

In May of 2006, the Company settled a lawsuit filed byACM, Inc. ACM, Inc. alleged the company failed to pay fees due under atelephone consulting contract.  Theamount of the settlement was $750,000 which $500,000 was expensed in the sixmonths ended June 30, 2006.  The remaining$250,000 had been accrued in prior periods.

Management provides an accrual for estimated lossesthat may occur and does not believe that the outcome of any pending claims orlitigation, in the aggregate, will have a material adverse effect on theCompany’s financial position, results of operations or liquidity beyond the amountsrecorded in the accompanying balance sheet as of June 30, 2006.

Self-Insurance

The Company is self-insured for workers’ compensationclaims, up to an annual stop loss of $350,000 per claim. Management hasestablished reserves it considers adequate to cover estimated future paymentson claims incurred by the Company through June 30, 2006.

5.             MERGER

On May 11, 2006, the Company entered into an Agreementand Plan of Merger (the “Merger Agreement”) with Morgans Hotel Group Co. (“Morgans”)and MHG HR Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary ofMorgans. Under the terms of the Merger Agreement, Merger Sub will be mergedwith and into the Company, with the Company continuing as the survivingcorporation and becoming a wholly owned subsidiary of Morgans. Each share ofcommon stock of the Company issued and outstanding immediately prior to theeffective time of the merger will be automatically converted into the right toreceive cash based on the total transaction consideration of approximately$421.0 million, which is subject to a number of adjustments, including, amongothers, outstanding indebtedness and related party payables, working capital,cage cash, retention bonuses, transaction costs and expenses, and certaincapital expenditures by the Company. Peter Morton, our Chief Executive Officer,will receive $40.0 million of the total transaction consideration asconsideration for the early termination of his Supervisory Agreement. Of thetotal transaction consideration, $2.5 million will be held in an escrow tocover post-closing adjustments for working capital and cage cash, and $15.0million will be held in an escrow to cover post-closing indemnificationobligations of the Company’s stockholders.

Concurrently with the execution of the MergerAgreement and pursuant to the terms therein, Morgans has deposited into escrow$30.0 million, a portion of which, upon the closing of the merger, will becredited towards the total transaction consideration, and a portion of which,upon the closing of the merger, will be held in escrow as described above.

If the Merger Agreement is terminated under certaincircumstances, the Company may retain the $30 million deposit, with 25% of thedeposit to be paid to the Company’s financial advisors.  In the event of a default by the Company orits affiliates under the Merger Agreement, Morgans may seek specificperformance of the Merger Agreement.

The Merger Agreement provides that the closing of themerger must occur on or prior to the earlier of (1) seven business days afterMorgans’ receipt of all necessary gaming approvals to consummate thetransaction and (2) February 10, 2007, unless further extended by the parties.

The completion of the merger is subject to a number ofconditions, including, among other things, Morgans’ or related parties’ receiptof all necessary antitrust, gaming and other approvals, the repayment of alloutstanding indebtedness of the Company, the closing of certain othertransactions, and the satisfaction or waiver of all other conditions precedent.The merger is not subject to a financing condition.

In addition, completion of the Merger is conditionedon the concurrent closing of other transactions contemplated by the MergerAgreement, which transactions are governed by certain agreements betweenMorgans (or an affiliate thereof) and Mr. Morton, the Company’s Chief ExecutiveOfficer, pursuant to the Merger Agreement, as well as the termination ofcertain existing agreements between the Company and Mr. Morton.

The Company has agreed to stay bonuses ofapproximately $2.3 million in total, which will be paid to select employees whoare critical to the continued operations of the Company through the completionof the merger. The stay bonuses will become payable at the completion of themerger provided that the selected employee has remained in our employment tothe applicable date. The stay bonuses were communicated to select employees inApril 2006 and are being accrued over the expected service period. The Companybegan expensing this liability in April 2006 and has expensed $0.5 million inthe six months ended June 30, 2006.

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James D. Bowen, the Company’s acting Chief OperatingOfficer, General Manager, Executive Vice President, Chief Financial Officer andTreasurer has an employment agreement, dated November 8, 2000, and amendedas of September 7, 2001 and December 16, 2004 (the “Bowen EmploymentAgreement”).  Mr. Bowen’s employmentagreement provides that in the event of a Change in Control (as defined in theBowen Employment Agreement) of the Company and if within thirty (30) days afterthe Change in Control Mr. Bowen tenders his resignation in accordance with theterms of the Bowen Employment Agreement, Mr. Bowen is entitled to be paid alump sum termination fee in an amount equal to the greater of (i) Six-Hundredand Fifty Thousand Dollars ($650,000.00) or (ii) twenty-four (24) months of Mr.Bowen’s base salary rate immediately prior to such termination, plus, an amountequal to two (2) times the average of the immediately preceding three (3) year’sannual bonuses paid to Mr. Bowen.  Theestimated amount of this payment is $0.8 million.  In addition, Mr. Bowen is entitled to be paidany amounts deferred or owed under any deferred compensation plan and to bepaid at a minimum a pro-rata share of any amounts that would have otherwisebeen due to Mr. Bowen under any deferred bonus plan.

The Company has expensed $2.0 million in costsassociated with the Merger Agreement in the six months ended June 30, 2006.

**Item 2.****    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

The following discussion should be read in conjunctionwith, and is qualified in its entirety by the Company’s financial statements,including the notes thereto, and the other financial information appearingelsewhere herein and the Annual Report to Shareholders on Form 10-K forthe year ended December 31, 2005, which may be obtained upon request fromthe Company.

SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS

This document includes various “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Sections 21E of the Securities Exchange Act of 1934, asamended, which represent the Company’s expectations or beliefs concerningfuture events. Statements containing expressions such as “believes,” “anticipates”or “expects” used in our press releases and periodic reports on Forms 10-K and10-Q filed with the Securities and Exchange Commission are intended to identifyforward-looking statements. All forward-looking statements involve risks anduncertainties. Although we believe our expectations are based upon reasonableassumptions within the bounds of our knowledge of our business and operations,there can be no assurances that actual results will not materially differ fromexpected results. We caution that these and similar statements included in thisreport and in previously filed periodic reports, including reports filed onForms 10-K and 10-Q, are further qualified by important factors that couldcause actual results to differ materially from those in the forward-lookingstatements. Such factors include, without limitation, the following:  increased competition in existing markets orthe opening of new gaming jurisdictions; a decline in the public acceptance ofgaming; the limitation, conditioning or suspension of any of our gaminglicenses; increases in or new taxes imposed on gaming revenues or gamingdevices; a finding of unsuitability by regulatory authorities with respect toour officers, directors or key employees; loss or retirement of key executives;significant increases in fuel or transportation prices; adverse economicconditions in our key markets; severe and unusual weather in our key markets;and adverse results of significant litigation matters. Readers are cautionednot to place undue reliance on forward-looking statements, which speak only asof the date thereof. We expressly disclaim any obligation or undertaking todisseminate any updates or revisions to any forward-looking statement containedin this report, including to reflect any change in our expectations with regardto that forward-looking statement or any change in events, conditions orcircumstances on which that forward-looking statement is based. For moreinformation regarding risks inherent in an investment in the Company, see thesection ”Business — Risk Factors” in our Annual Report to Shareholders onForm 10-K for the year ended December 31, 2005 filed with the SEC onApril 17, 2006 and in our Quarterly Report on Form 10-Q for the quarterended March 31, 2006 filed with the SEC on May 15, 2006.

OVERVIEW

Our sole business is the operation of the Hard RockHotel and Casino in Las Vegas, NV.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TOTHREE MONTHS ENDED JUNE 30, 2005

NET REVENUES.  Netrevenues increased 1% for the three months ended June 30, 2006 to$48.6 million compared to $48.1 million for the three months endedJune 30, 2005. The $0.5 million increase in net revenues was primarilyattributable to a $0.8 million or 7% increase in lodging revenues, a $0.6million decrease in promotional allowances related to items furnished tocustomers on a complimentary basis and a $0.1 million increase in food andbeverage revenues.  These increases wereoffset partially by a $0.6 million or a 4% decrease in casino revenues, a$0.2 million or 10% decrease in retail

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 revenues and a$0.1 million or 2% decrease in other revenues.

CASINOREVENUES.  The $0.6 million decrease in casino revenues was primarilydue to a $0.9 million or 17% decrease in slot machine revenues and a $0.1million or 21% decrease in race and sports book revenues. These decreases inrevenue were partially offset by a $0.3 million or 3% increase in tablegames revenues. The increase in table games revenues was due to an increase inhold percentage and a decrease in table games drop. Table games hold percentageincreased 2.7 percentage points to 15.7% from 13.0%. Table games dropdecreased $12.4 million or 15% to $70.7 million from $83.1 million.The average number of table games in operation decreased by 1 to 92 from 93.The net result of these changes in drop, hold percentage and change in numberof tables in operation was an increase in win per table game per day to $1,329from $1,268, an increase of $61 or 5%. We have historically reported tablegames hold percentage using the gross method, while casinos on the Strip reporthold percentage using the net method (which reduces the table game drop bymarker repayments made in the gaming pit area). For the purpose of comparisonto properties on the Strip, our net hold percentage for the three months endedJune 30, 2006 was 17.2% compared to 14.8% for the three months ended June 30,2005. The decrease in slot machine revenues was due to a decrease in slotmachine hold percentage and a decrease in slot machine handle. Slot machinehandle decreased $14.2 million or 16% to $73.0 million from$87.2 million. Slot machine hold percentage decreased 0.1 percentagepoints to 5.8% from 5.9%. The average number of slot machines in operationincreased to 557 from 551, an increase of 6 machines or 1%. The net result ofthese changes in handle, hold percentage and average number of slot machines inoperation was a decrease in win per slot machine per day to $84 from $102, adecrease of $18 or 18%. The decrease in race and sports revenues was due to adecrease in race and sports hold percentage and handle. Race and sports holdpercentage decreased 0.8 percentage points to 8.3% from 9.1%. Race and sportshandle decreased to $3.0 million from $3.9 million.

LODGINGREVENUES.  The $0.8 million increase in lodging revenues to$11.2 million was primarily due to an increase in average daily rate (“ADR”)to $192 from $176. Hotel occupancy decreased to 96.8% from 97.2% betweenperiods.

FOOD AND BEVERAGE REVENUES.  The$0.1 million increase in food and beverage revenues was due to foodrevenues decreasing by approximately $0.3 million and beverage revenuesincreasing by approximately $0.4 million. Food revenues decreased dueprimarily to a $0.2 million decrease in Simon Kitchen and Bar and a $0.1million decrease in Mr. Lucky’s. Beverage revenues increased due primarily to a $0.7 millionincrease in the Beach Club Bar, a $0.2 million increase in Body English and a$0.1 million increase banquet bar. These increases were partially offset by a decrease of $0.4 million inthe casino bars, a $0.1 million decrease in Simon Kitchen and Bar and a $0.1million decrease in Joint Bar revenues.

RETAILREVENUES.  Retail revenue decreased $0.2 million to $1.9 million from$2.1 million.  The Retail Store revenuesdecreased due to changing the product mix which has decreased sales in theshort term for potentially greater sales in the future.

OTHERREVENUE.  Other revenue decreased $0.1 million primarily due toa $0.1 million decrease in chip and token float taken to income.

PROMOTIONALALLOWANCES.  Promotional allowances decreased as a percentage ofcasino revenues to 21% from 24%. This decrease is due to greater scrutiny oncomplimentaries given to customers.

CASINOEXPENSES.  Casino expenses decreased $0.7 million or 7% to$8.6 million. The decrease was primarily due to a $0.2 million decrease ingaming taxes, a $0.2 million decrease in supervisory fees paid to Mr. Morton, a$0.2 million decrease in customer promotions and a $0.1 million decrease indiscounts given to casino customers. The Company’s provision and allowance fordoubtful accounts are based on estimates by management of the collectability ofthe receivable balances at each period end. 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. Casino expenses as a percentage of casinorevenues decreased to 55% from 57%, a decrease of 2 percentage points betweencomparative periods.

LODGINGEXPENSES.  Lodging expenses in relation to hotel revenues, prior toreclassifying the cost of complimentaries to casino expense or departmentcomplimentaries to promotional allowances, decreased to 29% from 30%, adecrease of 1 percentage point between comparative periods. This decrease isdue to better collection efforts which have decreased bad debt expense.

FOOD AND BEVERAGE COSTS ANDEXPENSES.  Food and beverage costs and expenses in relation to foodand beverage revenues, prior to reclassifying the cost of complimentaries tocasino expense or department complimentaries to promotional allowancesincreased to 60% from 58% in the prior year period. This increase is due tosalary and wage increases that have affected the Las Vegas market.

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RETAIL COSTS ANDEXPENSES.  Retail costs and expenses in relation to retail revenues,prior to reclassifying the cost of complimentaries to casino expense ordepartment complimentaries to promotional allowances, increased to 60% from51%. This decrease in efficiency is due to changing our product mix in theretail store. We have decreased the retail prices of certain products to makeroom for the new product line.

OTHER COSTS ANDEXPENSES.  Other costs and expenses decreased $1.3 million due toless concerts being held in 2006 as compared to 2005.

MARKETING, GENERAL ANDADMINISTRATIVE. Marketing, general and administrative expenses in relation togross revenues increased to 18% from 16% in the prior year period. Thisincrease is due to a $0.6 million increase in payroll and related costs, a $0.4million increase in claims, primarily due to the settling of the ACM lawsuit,and a $0.2 million increase in legal expenses.

DEPRECIATION AND AMORTIZATION.  Depreciationand amortization expense increased $0.3 million to $3.2 million.

INTEREST EXPENSE.  Interest expensedecreased to $4.7 million from $4.9 million, a decrease of$0.2 million or 4%. In December of 2005, the Company received consent fromlenders under the facility and repurchased $15.0 million of the outstandingJunior Subordinated Notes.

LOSS ON DISPOSAL OF ASSETS. During 2005, the Companyrecorded a $0.6 million loss on the disposal of assets, which was related toour hotel remodel. During 2006, the Company had less than $0.1 million of losson the disposal of assets.

PRE-OPENING. During 2005, the Company recorded a $0.1million in pre-opening expense for a possible casino in California. During 2006,the Company did not have pre-opening expenses.

INCOME TAXES. During the three months ended June 30,2006 the Company recognized an income tax expense of $1.5 million. The Companydid not have income tax expense during the three months ended June 30, 2005due to being able to offset 100% of its income with Net Operating Loss (“NOL”)is from previous periods against which a valuation allowance had been recorded.

NET INCOME. Net income was $2.4 million compared to$4.0 million during the prior period. The decrease in net results forcommon shareholders was due to the factors described above.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIXMONTHS ENDED JUNE 30, 2005

NET REVENUES.  Netrevenues decreased less than 1% for the six months ended June 30, 2006 to $91.9 millioncompared to $92.2 million for the six months ended June 30, 2005. The$0.2 million decrease in net revenues was primarily attributable to a $2.4million or 7% decrease in casino revenues, a $0.2 million decrease in retailrevenues and a $0.9 million decrease in other revenues offset partially by a$1.3 million or 7% increase in lodging revenue, a $1.2 million or a 3%increase in food and beverage revenue and a $0.7 million or 10% decrease inpromotional allowances related to items furnished to customers on acomplimentary basis.

CASINOREVENUES.  The $2.4 million decrease in casino revenues wasprimarily due to a $1.5 million or 7% decrease in table games revenues, a$0.6 million or 7% decrease in slot machine revenues and a $0.2 million or 21%decrease in race and sports book revenues. The decrease in table games revenueswas due to a decrease in table games drop. Table games drop decreased$20.8 million or 13% to $143.6 million from $164.4 million. Thedecrease in table games drop was partially offset by an increase in table gameshold percentage.  Table games holdpercentage increased 0.9 percentage points to 14.4% from 13.5%. Theaverage number of table games in operation remained constant at 92. The netresult of these changes in drop and hold percentage was a decrease in win pertable game per day to $1,239 from $1,331, a decrease of $92 or 7%. We havehistorically reported table games hold percentage using the gross method, whilecasinos on the Strip report hold percentage using the net method (which reducesthe table game drop by marker repayments made in the gaming pit area). For thepurpose of comparison to properties on the Strip, our net hold percentage forthe six months ended June 30, 2006 was 16.0% compared to 15.5% for the six monthsended June 30, 2005. The decrease in slot machine revenues was due to adecrease in slot machine handle partially offset by an increase in slot machinehold percentage. Slot machine handle decreased $22.8 million or 13% to$154.4 million from $177.2 million. Slot machine hold percentageincreased 0.4 percentage points to 5.9% from 5.5%. The average number of slotmachines in operation increased to 557 from 552, an increase of 5 machines or1%. The net result of these changes in handle, hold percentage and averagenumber of slot machines in operation was a decrease in win per slot machine perday to $90 from $97, a decrease of $7 or 7%. The decrease

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in race and sports revenues was due to a decrease inrace and sports hold percentage and handle. Race and sports hold percentagedecreased 1.4 percentage points to 9.4% from 10.8%. Race and sports handledecreased to $8.8 million from $9.9 million.

LODGINGREVENUES.  The $1.3 million increase in lodging revenues to$21.0 million was primarily due to an increase in average daily rate (“ADR”)to $186 from $170. Hotel occupancy decreased to 95.0% from 95.3% betweenperiods.

FOOD AND BEVERAGE REVENUES.  The$1.2 million increase in food and beverage revenues was due to foodrevenues increasing by approximately $0.2 million and beverage revenuesincreasing by approximately $1.0 million. Food revenues increased dueprimarily to a $0.6 million increase in banquet food revenue. Thisincrease was partially offset by a $0.2 million decrease in both Mr. Lucky’sand Simon Kitchen and Bar. Beverage revenues increased due primarily to a$0.8 million increase in Body English, a $0.6 million increase in BeachClub Bar, a $0.3 million increase banquet bar and a $0.1 million increasein Pink Taco Bar. These increases were partially offset by a decrease of $0.5million in casino bars, a decrease of $0.2 million in Simon Kitchen and Bar anda decrease of $0.1 million in the Joint Bar.

RETAILREVENUES.  Retail revenue decreased $0.2 million to $3.6 million from$3.8 million.  The Retail Store revenuesdecreased due to changing the product mix which has decreased sales in theshort term for potentially greater sales in the future.

OTHERREVENUE.  Other revenue decreased $0.9 million primarily due toa $0.8 million decrease in ticket revenue and $0.1 million less chip andtoken float taken to income. We decreased the number of concerts to 17 from 22in during the six month periods ended June 30, 2006 and 2005, respectively.

PROMOTIONALALLOWANCES.  Promotional allowances decreased as a percentage ofcasino revenues to 21% from 22%. This decrease is due to greater scrutiny oncomplimentaries given to customers.

CASINOEXPENSES.  Casino expenses decreased $0.2 million or 1% to$17.8 million. The decrease was primarily due to a $0.2 million decreasein operating supplies, a $0.2 million decrease in supervisory fees paid to Mr.Morton, a $0.2 million decrease in customer promotions and a $0.2 milliondecrease in discounts given to casino customers.  These decreases were partially offset by a$0.3 million increase in bad debt and a $0.3 million increase in payroll andrelated costs.  The Company’s provisionand allowance for doubtful accounts are based on estimates by management of thecollectability of the receivable balances at each period end. Management’sestimates consider, among other factors, the age of the receivables, the typeor source of the receivables and the results of collection efforts to date,especially with regard to significant accounts. Casino expenses as a percentageof casino revenues increased to 58% from 55%, an increase of 3 percentagepoints between comparative periods.

LODGINGEXPENSES.  Lodging expenses in relation to hotel revenues, prior toreclassifying the cost of complimentaries to casino expense or departmentcomplimentaries to promotional allowances, increased to 31% from 30%, anincrease of 1 percentage point between comparative periods. This increase isdue to increasing the quality of the product that is offered.

FOOD AND BEVERAGE COSTS ANDEXPENSES.  Food and beverage costs and expenses in relation to foodand beverage revenues, prior to reclassifying the cost of complimentaries tocasino expense or department complimentaries to promotional allowancesincreased to 61% from 58% in the prior year period. This increase is due tosalary and wage increases that have affected the Las Vegas market.

RETAIL COSTS ANDEXPENSES.  Retail costs and expenses in relation to retail revenues,prior to reclassifying the cost of complimentaries to casino expense ordepartment complimentaries to promotional allowances, increased to 61% from51%. This decrease in efficiency is due to changing our product mix in theretail store. We have decreased the retail prices of certain products to makeroom for the new product line.

OTHER COSTS ANDEXPENSES.  Other costs and expenses decreased $2.0 million due toless concerts being held in 2006 as compared to 2005.

MARKETING, GENERAL ANDADMINISTRATIVE. Marketing, general and administrative expenses in relation togross revenues increased to 18% from 16% in the prior year period. Thisincrease is due to a $1.1 million increase in payroll and related costs, a $0.5million increase in claims, due primarily to the settlement of the ACM lawsuit,and $0.3 million in additional legal expense.

DEPRECIATION AND AMORTIZATION.  Depreciationand amortization expense increased $0.4 million to $6.3 million.

 

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INTEREST EXPENSE.  Interest expensedecreased to $9.4 million from $9.7 million, a decrease of$0.3 million or 4%. In December of 2005, the Company received consent fromlenders under the facility and repurchased $15.0 million of the outstandingJunior Subordinated Notes.

LOSS ON DISPOSAL OF ASSETS. During the first quarterof 2006, the Company recorded a $0.4 million loss on the disposal of assets,which was related to our pool remodel. During 2005, the Company recorded a $0.6million loss on the disposal of assets, which was related to our hotel remodel.

PRE-OPENING. During 2005, the Company recorded $0.2million in pre-opening expense for a possible casino in California. During2006, the Company did not have pre-opening expense.

INCOME TAXES. During the six months ended June 30,2006 the Company recognized an income tax expense of $1.5 million. The Companydid not have income tax expense during the six months ended June 30, 2005due to being able to offset 100% of its income with NOL from previous periods againstwhich a valuation allowance had been recorded.

NET INCOME. Net income was $2.5 million compared to$8.4 million during the prior period. The decrease in net results forcommon shareholders was due to the factors described above.

LIQUIDITYAND CAPITAL RESOURCES

For the six month periodended June 30, 2006 our principal sources of funds were cash on-hand atDecember 31, 2005, and cash provided by operating activities of $9.7million. The amount of cash provided by operating activities primarily includednet income of $2.5 million, depreciation and amortization of $6.3 million,provision for losses on accounts receivable of $0.2 million, amortization ofloan fees of $0.3 million and a loss on disposal of asset of $0.4 million.  Other uses of funds were capital expendituresof $7.6 million, payments on debt of $2.1 million and an increase in other longlived assets of $0.2 million.  As aresult, as of June 30, 2006, we had cash and cash equivalents of $8.8 million.

On May 11, 2006, the Company entered into an Agreementand Plan of Merger (the “Merger Agreement”) with Morgans Hotel Group Co. (“Morgans”)and MHG HR Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary ofMorgans. Under the terms of the Merger Agreement, Merger Sub will be mergedwith and into the Company, with the Company continuing as the survivingcorporation and becoming a wholly owned subsidiary of Morgans. Each share ofcommon stock of the Company issued and outstanding immediately prior to theeffective time of the merger will be automatically converted into the right toreceive cash based on the total transaction consideration of approximately$421.0 million, which is subject to a number of adjustments, including, amongothers, outstanding indebtedness and related party payables, working capital,cage cash, retention bonuses, transaction costs and expenses, and certaincapital expenditures by the Company. Peter Morton, our Chief Executive Officer,will receive $40.0 million of the total transaction consideration asconsideration for the early termination of his Supervisory Agreement. Of thetotal transaction consideration, $2.5 million will be held in an escrow tocover post-closing adjustments for working capital and cage cash, and $15.0million will be held in an escrow to cover post-closing indemnificationobligations of the Company’s stockholders.

Concurrently with the execution of the MergerAgreement and pursuant to the terms therein, Morgans has deposited into escrow$30.0 million, a portion of which, upon the closing of the merger, will becredited towards the total transaction consideration, and a portion of which,upon the closing of the merger, will be held in escrow as described above.

If the Merger Agreement is terminated under certaincircumstances, the Company may retain the $30 million deposit, with 25% of thedeposit to be paid to the Company’s financial advisors.  In the event of a default by the Company orits affiliates under the Merger Agreement, Morgans may seek specificperformance of the Merger Agreement.

The Merger Agreement provides that the closing of themerger must occur on or prior to the earlier of (1) seven business days afterMorgans’ receipt of all necessary gaming approvals to consummate thetransaction and (2) February 10, 2007, unless further extended by the parties.

The completion of the merger is subject to a number ofconditions, including, among other things, Morgans’ or related parties’ receiptof all necessary antitrust, gaming and other approvals, the repayment of alloutstanding indebtedness of the Company, the closing of certain othertransactions, and the satisfaction or waiver of all other conditions precedent.The merger is not subject to a financing condition.

In addition, completion of the Merger is conditionedon the concurrent closing of other transactions contemplated by the MergerAgreement, which transactions are governed by certain agreements betweenMorgans (or an affiliate thereof) and Mr. Morton, the Company’s Chief ExecutiveOfficer, pursuant to the Merger Agreement, as well as the termination ofcertain existing agreements between the Company and Mr. Morton.

The Company has agreed to stay bonuses ofapproximately $2.3 million in total, which will be paid to select 

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employeeswho are critical to the continued operations of the Company through thecompletion of the merger. The stay bonuses will become payable at thecompletion of the merger provided that the selected employee has remained inour employment to the applicable date. The stay bonuses were communicated toselect employees in April 2006 and are being accrued over the expected serviceperiod. The Company began expensing this liability in April 2006 and hasexpensed $0.5 million in the six months ended June 30, 2006.

We believe that our current cash balances and cashflow from operations and other sources of cash including the availableborrowings under our $20.0 million Revolving Credit Facility($2.7 million as of June 30, 2006) will be sufficient to provide operatingand investing liquidity during the next 12 months. We may, however, needto raise additional funds prior to July 1, 2007.

The Company has a $0.3 million irrevocable standbyletter of credit for the benefit of the State of Nevada related to the selfinsured portion of the Company’s workers compensation insurance.

Interest on the 2013 Notes is payable on eachJune 1 and December 1 beginning December 1, 2003.  The 2013Notes are secured by a security interest in substantially all of the Company’sexisting and future assets, other than licenses which may not be pledged underapplicable law.  The security interest is junior to the security interestin the assets securing our obligation under our Facility and except forpermitted secured purchase money indebtedness.  The 2013 Notes are subjectto redemption at the option of the Company, in whole or in part, at any time onor after June 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 redemption rates are as follows: after June 1,2008, 104.438%, after June 1, 2009, 102.958%, after June 2010, 101.479% andafter June 1, 2011, 100%. The 2013 Notes contain covenants restricting orlimiting the ability of the Company to, among other things, pay dividends,create liens or other encumbrances, incur additional indebtedness, issuecertain preferred stock, sell or otherwise dispose of a portion of its assets,make acquisitions or merge or consolidate with another entity and enter intotransactions with affiliates.  The Companywas in compliance with these covenants as of June 30, 2006.

Interest on the Facility accrues on all individualborrowings at an interest rate determined at the option of the Company, ateither the LIBOR Index plus an applicable LIBOR margin (not to exceed 3.5%(applicable margin was 2.50% at June 30, 2006) and aggregating 7.7% atJune 30, 2006), or the Base Rate, defined as the higher of the FederalFunds Rate plus 0.5%, or the reference rate, as defined, plus an applicablemargin (not to exceed 2.25%). The Company chose the LIBOR Index for all of itsborrowings outstanding at June 30, 2006. These margins are dependent uponthe Company’s total debt to EBITDA ratio, as defined. Interest accrued on theBase Rate borrowings is due monthly, up to the maturity date, while interest onLIBOR borrowings is due six months up to the maturity date. The Facility issecured by substantially all of the Company’s property at the Las Vegas site.The Facility contains certain covenants including, among other things, financialcovenants, limitations on the Company from disposing of capital stock, enteringinto mergers and certain acquisitions, incurring liens or indebtedness, issuingdividends on stock, and entering into transactions with affiliates.  The Company was in compliance with thesecovenants as of June 30, 2006.

Interest on the Junior 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 anysemi-annual interest payment in cash be equal to the lesser of (x) 50% of theamount of interest accrued on the Junior Notes since the most recent interestpayment date and (y) the amount of interest that the Company is permitted topay in cash without causing a default under the 2013 Notes or theFacility.  For interest payments payable in cash, interest accrues at a rateper annum equal to 9.875%, and for interest payments payable in kind, interestaccrues at a rate per annum equal to 10.50%.  The Junior Notes arecontractually subordinated to the 2013 Notes and the Facility and any othersenior debt of the Company.  The Junior Notes mature on January 15,2014 but are subject to redemption at the option of the Company, in whole or inpart, at any time on or after January 15, 2009, at a premium to theprincipal amount thereof that decreases on each subsequent anniversary date,plus accrued interest to the date of redemption.  The Junior Notes containcovenants restricting the Company’s ability to, among other things, sell orotherwise dispose of its assets, pay dividends, incur additional indebtedness,make acquisitions or merge or consolidate with another entity and enter intotransactions with affiliates. In December of 2005, the Company received consentfrom lenders under the Facility and repurchased $15.0 million of theoutstanding Junior Subordinated Notes. This transaction had a purchase premiumof $1.2 million. For the six months ended June 30, 2006 and 2005 theCompany paid interest in kind of $1.1 million and $1.4 million, respectively.The Company was in compliance with these covenants as of June 30, 2006.

**Off-BalanceSheet Arrangements**

We do not have any off-balance sheet arrangements thathave, or are reasonably likely to have, a current or future effect on ourfinancial condition, changes in financial condition, revenues or expenses,results of operations, liquidity, capital expenditures or capital resourcesthat are material. Currently, we have no guarantees, such as performanceguarantees, keep-

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wellagreements or indemnity.  We are notengaged in derivatives activities.

**ContractualObligations and Commitments**

We have various contractual obligations that we recordas liabilities in our financial statements. We also enter into other purchasecommitments and other executory contracts that are not recognized asliabilities until services are performed or goods are received. Additionally,we enter into contracts for goods and services such as food, inventory andentertainment. Such liabilities are recorded as liabilities when so incurredand we expect that such contracts will generate revenue in excess of such liabilities.As of June 30, 2006, there have been no material changes to the table ofcontractual obligations and commitments in our most recently filedForm 10-K.

We made cash interest payments on long-term debt of$8.0 million and $8.1 million in the six month periods ended June 30, 2006and 2005, respectively. We anticipate our cash interest payments for theremainder of 2006 to be similar to payments made in the first six months of theyear.  We have not made significant cashtax payments during the six month periods ended June 30, 2006 and 2005and, due to available net operating loss and AMT tax credit carryforwards, wedo not anticipate making significant cash tax payments in the remainder of2006. Total supervisory fee expense for the six month periods endedJune 30, 2006 and 2005 amounted to $1.8 million and $1.8 million,respectively, under the Company’s Amended and Restated Supervisory Agreementwith Peter Morton. The supervisory fee is equal to two percent of annual grossrevenues (as defined in the Supervisory Agreement), net of complimentaries foreach year.

Our ability to service our contractual obligations andcommitments will be dependent on our future performance, which will be affectedby, among other things, prevailing economic conditions and financial, businessand other factors, certain of which are beyond our control.

The Company is a defendant in various lawsuitsrelating to routine matters incidental to its business. Management provides anaccrual for estimated losses that may occur and does not believe that theoutcome of any pending claims or litigation, in the aggregate, will have amaterial adverse effect on the Company’s financial position, results ofoperations or liquidity.

In May 2006, the Company settled a lawsuit filed byACM, Inc. ACM, Inc. alleged the company failed to pay fees due under atelephone consulting contract.  Theamount of the settlement was $750,000 which $500,000 was expensed in the sixmonths ended June 30, 2006.  Theremaining $250,000 had been accrued in prior periods.

CRITICALACCOUNTING POLICIES

There have been no changes in the Company’s criticalaccounting policies from those described in the Company’s most recently filedForm 10-K.

**Item 3.****    Quantitativeand Qualitative Disclosures About Market Risk**

Market risks relating to our operations resultprimarily from changes in short-term LIBOR interest rates. We do not have anyforeign exchange or other significant market risk. We did not have anyderivative financial instruments at June 30, 2006.

Our exposure to market risk for changes in interestrates relates primarily to our current Revolving Credit Facility. In accordancewith the Revolving Credit Facility, we enter into variable rate debtobligations to support general corporate purposes, including capital expendituresand working capital needs. We continuously evaluate our level of variable ratedebt with respect to total debt and other factors, including assessment of thecurrent and future economic environment.

We had $15.0 million in variable rate debt outstandingat June 30, 2006. Based upon these variable rate debt levels, ahypothetical 10% adverse change in the effective interest rate (approximately a77 basis point increase) would increase interest expense less than $0.1 millionon an annual basis, and likewise decrease our earnings and cash flows. Wecannot predict market fluctuations in interest rates and their impact on ourvariable rate debt, nor can there be any assurance that fixed rate long-termdebt will be available to us at favorable rates, if at all. Consequently,future results may differ materially from the estimated adverse changesdiscussed above.

The fair value of the Company’s $140 million of 8.875%Second Lien Notes, which are due in 2013 and are publicly traded, approximated$149.8 million at June 30, 2006 based on published bid prices. The fairvalue of the Company’s $41.9 million of Junior Notes cannot be estimated asthere was no established market nor published bid prices.

**Item 4.****    Controlsand Procedures**

(a)  Disclosure Controls and Procedures. TheCompany’s management, with the participation of the 

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Company’sChief Executive Officer and Chief Financial Officer, has evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of the end of theperiod covered by this report. Based on such evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that, as of theend of such period, the Company’s disclosure controls and procedures areeffective in recording, processing, summarizing and reporting, on a timelybasis, information required to be disclosed by the Company in the reports thatit files or submits under the Exchange Act.

(b)  Internal Control Over Financial Reporting.There have not been any changes in the Company’s internal control overfinancial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the period covered this reportthat have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.

**PART II OTHER INFORMATION**

**Item 1.****    LegalProceedings**

The Company is a defendant in various lawsuitsrelating to routine matters incidental to its business.

In May 2006, the Company settled a lawsuit filed byACM, Inc. ACM, Inc. alleged the company failed to pay fees due under atelephone consulting contract.  Theamount of the settlement was $750,000, of which $500,000 was expensed in thesix months ended June 30, 2006.  Theremaining $250,000 had been accrued in prior periods.

Management provides an accrual for estimated lossesthat may occur and does not believe that the outcome of any pending claims orlitigation, in the aggregate, will have a material adverse effect on theCompany’s financial position, results of operations or liquidity beyond theamounts recorded in the accompanying balance sheet as of June 30, 2006.

**Item 5.****    OtherInformation**

**ProposedMerger**

On May 11, 2006, the Company entered into an Agreementand Plan of Merger (the “Merger Agreement”) with Morgans Hotel Group Co. (“Morgans”)and MHG HR Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary ofMorgans. Under the terms of the Merger Agreement, Merger Sub will be mergedwith and into the Company, with the Company continuing as the survivingcorporation and becoming a wholly owned subsidiary of Morgans. Each share ofcommon stock of the Company issued and outstanding immediately prior to theeffective time of the merger will be automatically converted into the right toreceive cash based on the total transaction consideration of approximately$421.0 million, which is subject to a number of adjustments, including, amongothers, outstanding indebtedness and related party payables, working capital,cage cash, retention bonuses, transaction costs and expenses, and certaincapital expenditures by the Company. Peter Morton, our Chief Executive Officer,will receive $40.0 million of the total transaction consideration asconsideration for the early termination of his Supervisory Agreement. Of thetotal transaction consideration, $2.5 million will be held in an escrow tocover post-closing adjustments for working capital and cage cash, and $15.0million will be held in an escrow to cover post-closing indemnificationobligations of the Company’s stockholders.

Concurrently with the execution of the MergerAgreement and pursuant to the terms therein, Morgans has deposited into escrow$30.0 million, a portion of which, upon the closing of the merger, will becredited towards the total transaction consideration, and a portion of which,upon the closing of the merger, will be held in escrow as described above.

If the Merger Agreement is terminated under certaincircumstances, the Company may retain the $30 million deposit, with 25% of thedeposit to be paid to the Company’s financial advisors.  In the event of a default by the Company orits affiliates under the Merger Agreement, Morgans may seek specificperformance of the Merger Agreement.

The Merger Agreement provides that the closing of themerger must occur on or prior to the earlier of (1) seven business days afterMorgans’ receipt of all necessary gaming approvals to consummate the transactionand (2) February 10, 2007, unless further extended by the parties.

The completion of the merger is subject to a number ofconditions, including, among other things, Morgans’ or related parties’ receiptof all necessary antitrust, gaming and other approvals, the repayment of alloutstanding indebtedness of the Company, the closing of certain othertransactions, and the satisfaction or waiver of all other conditions precedent.The merger is not subject to a financing condition.

In addition, completion of the Merger is conditionedon the concurrent closing of other transactions contemplated by the MergerAgreement, which transactions are governed by certain agreements betweenMorgans (or an affiliate thereof) and Mr. Morton, the Company’s Chief ExecutiveOfficer, pursuant to the Merger Agreement, as well as the termination ofcertain

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existingagreements between the Company and Mr. Morton.

The Company has agreed to stay bonuses ofapproximately $2.3 million in total, which will be paid to select employees whoare critical to the continued operations of the Company through the completionof the merger. The stay bonuses will become payable at the completion of themerger provided that the selected employee has remained in our employment tothe applicable date. The stay bonuses were communicated to select employees inApril 2006 and are being accrued over the expected service period. The Companybegan expensing this liability in April 2006 and has expensed $0.5 million inthe six months ended June 30, 2006.

**ManagementChanges**

During May 2006,Kevin Kelley resigned as President and Chief Operating Officer of the Company.

During May 2006, James D. Bowen, the Company’s Executive VicePresident, Chief Financial Officer and Treasurer was appointed to theadditional positions of acting Chief Operating Officer and General Manager ofthe Company.  There is no employmentagreement with respect to Mr. Bowen’s appointment as acting Chief OperatingOfficer and General Manager.

Item 6.    Exhibits

 
| EXHIBIT NUMBER | ** ** | **DESCRIPTION**                                                                                                                                                                                                 |
|----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|           |       |                                                                                                                                                                                                            |
| (6) 2.1        |       | Agreement and Plan of Merger, dated as of May 11,  2006, by and among Hard Rock Hotel, Inc., Morgans Hotel Group Co. and MHG HR  Acquisition Corp.*                                                             |
|           |       |                                                                                                                                                                                                            |
| 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.                                                                                                                                      |
|           |       |                                                                                                                                                                                                            |
| (3) 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.                                        |
|           |       |                                                                                                                                                                                                            |
| (3) 4.2        |       | Form of Global 8 7/8% Second Lien Notes due  2013 (included in Exhibit 4.1)                                                                                                                           |
|           |       |                                                                                                                                                                                                            |
| (3) 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.                                     |
|           |       |                                                                                                                                                                                                            |
| (3) 4.4        |       | Intercreditor Agreement, dated as of May 30,  2003, among the Company, U.S. Bank, N.A. and Bank of America, N.A.                                                                                           |
|           |       |                                                                                                                                                                                                            |
| (3) 4.5        |       | Form of Junior Subordinated Notes.                                                                                                                                                                         |
|           |       |                                                                                                                                                                                                            |
| (4) 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 8 7/8% Second Lien Notes due 2013.  |
|           |       |                                                                                                                                                                                                            |
| (4) 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 8 7/8% Second Lien Notes due 2013. |
|           |       |                                                                                                                                                                                                            |
| 10.            |       | MATERIAL CONTRACTS.                                                                                                                                                                                             |
|           |       |                                                                                                                                                                                                            |
| (5) 10.1       |       | Lease by and between the Company, PM Realty, LLC and  Mr. Chow of Las Vegas, LLC dated December 24, 2004.                                                                                             |

 

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| (6) 10.2 |   | Performance Awards Plan/Award Agreement between the  Company and Kevin Kelley dated March 20, 2003.                                                                                  |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                      |
| 10.3     |   | Second Amendment to Employment Agreement, dated  December 16, 2004, between the Company and James D. Bowen.                                                                               |
|     |   |                                                                                                                                                                                      |
| 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 |

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*                    Hard RockHotel agrees to furnish copies of the Schedules and Exhibits referenced in thisagreement to the Securities and Exchange Commission upon request.

 
| (1)    |   | Incorporated by reference to designated exhibit to  our Registration Statement on Form S-4, filed with the Securities and  Exchange Commission on May 21, 1998 (File No. 333-53211).                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                               |
| (2)    |   | Incorporated by reference to designated exhibit to  our Report on Form 10-Q, filed with the Securities and Exchange  Commission for the quarter ended August 31, 1999 (File  No. 333-53211).                        |
|   |   |                                                                                                                                                                                                                               |
| (3)    |   | Incorporated by reference to designated exhibit to  our Registration Statement on Form S-4, filed with the Securities and  Exchange Commission on July 8, 2003 (File No. 333-106863).                               |
|   |   |                                                                                                                                                                                                                               |
| (4)    |   | Incorporated by reference to designated exhibit to  our Registration Statement on Amendment No. 1 to Form S-4, filed  with the Securities and Exchange Commission on November 26, 2003 (File  No. 333-106863). |
|   |   |                                                                                                                                                                                                                               |
| (5)    |   | Incorporated by reference to designated exhibit to  our Report on Form 10-Q, filed with the Securities and Exchange  Commission for the quarter ended March 31, 2005 (File  No. 333-53211).                         |
|   |   |                                                                                                                                                                                                                               |
| (6)    |   | Incorporated by reference to designated exhibit to  our Report on Form 10-Q, filed with the Securities and Exchange Commission  for the quarter ended March 31, 2006 (File No. 333-53211).                                         |

 

**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 14, 2006 | By: /s/ JAMES D. BOWEN                                     |
|                        | Name: James D. Bowen                                       |
|                        | Title: CHIEF FINANCIAL OFFICER                             |
|                        | (PRINCIPAL FINANCIAL OFFICER AND DULY AUTHORIZED  OFFICER) |

 

 

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