** **

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**For thequarterly period ended: June 30, 2005**

 

**OR**

 

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

 

**For thetransition periodfrom           to**

 

**Commissionfile number 333-53211**

 

**HardRock Hotel, Inc.**

(Exact name of registrantas specified in its charter)

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

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

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ý No o

 

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

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

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

 

Common Stock outstandingby class as of August 15, 2005

 
| **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, 2005 and December 31, 2004                                    |   |
|         |                                                                                                             |   |
|         | Condensed  Statements of Operations for the three-month and six-month periods ended  June 30, 2005 and 2004 |   |
|         |                                                                                                             |   |
|         | Condensed  Statements of Cash Flows for the six-month periods ended June 30, 2005  and 2004                 |   |
|         |                                                                                                             |   |
|         | 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  6.     | Exhibits and Reports on  Form 8-K                                                                           |   |
|         |                                                                                                             |   |
|         | (a)   Exhibits                                                                                              |   |
|         |                                                                                                             |   |
|         | (b)   Reports on Form 8-K                                                                              |   |

 

 

2

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** **

**Part IFINANCIAL INFORMATION**

**Item 1. Financial Statements**

**HARD ROCK HOTEL, INC.**

**CONDENSED BALANCE SHEETS(unaudited)**

**(in thousands, except shareamounts)**

 
| ** **                                                                                                                                      | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ASSETS                                                                                                                                          |       |                    |       |                        |       |
|                                                                                                                                            |       |                    |       |                        |       |
| Current assets:                                                                                                                                 |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                       |       | $13,384                 |       | $10,655                     |       |
| Accounts receivable, net of allowance for doubtful accounts of $682  and $656 as of June 30, 2005 and December 31, 2004, respectively |       | 7,274                   |       | 5,921                       |       |
| Inventories                                                                                                                                     |       | 2,168                   |       | 2,234                       |       |
| Prepaid expenses and other current assets                                                                                                       |       | 2,572                   |       | 2,429                       |       |
| Related party receivable                                                                                                                        |       | 617                     |       | 122                         |       |
| Total current assets                                                                                                                            |       | 26,015                  |       | 21,361                      |       |
|                                                                                                                                            |       |                    |       |                        |       |
| Property and equipment,  (net)                                                                                                                  |       | 167,131                 |       | 168,694                     |       |
| Deferred income taxes                                                                                                                           |       | 1,408                   |       | 1,408                       |       |
| Other assets, (net)                                                                                                                             |       | 4,377                   |       | 4,619                       |       |
|                                                                                                                                            |       |                    |       |                        |       |
| TOTAL ASSETS                                                                                                                                    |       | $198,931                |       | $196,082                    |       |
|                                                                                                                                            |       |                    |       |                        |       |
| LIABILITIES AND  SHAREHOLDERS’ DEFICIENCY                                                                                                  |       |                    |       |                        |       |
|                                                                                                                                            |       |                    |       |                        |       |
| Current liabilities:                                                                                                                            |       |                    |       |                        |       |
| Accounts payable                                                                                                                                |       | $3,758                  |       | $2,105                      |       |
| Construction payable                                                                                                                            |       | —                  |       | 119                         |       |
| Related party payable                                                                                                                           |       | 285                     |       | 298                         |       |
| Accrued expenses                                                                                                                                |       | 12,828                  |       | 13,282                      |       |
| Interest payable                                                                                                                                |       | 3,663                   |       | 3,620                       |       |
| Current portion of long-term debt                                                                                                               |       | 115                     |       | 5,173                       |       |
| Total current liabilities                                                                                                                       |       | 20,649                  |       | 24,597                      |       |
|                                                                                                                                            |       |                    |       |                        |       |
| Deferred income taxes                                                                                                                           |       | 1,155                   |       | 1,155                       |       |
| Deferred Compensation                                                                                                                           |       | 1,691                   |       | 1,161                       |       |
| Junior notes                                                                                                                                    |       | 54,428                  |       | 53,036                      |       |
| Long-term debt                                                                                                                                  |       | 149,000                 |       | 152,528                     |       |
| Total long-term liabilities                                                                                                                     |       | 206,274                 |       | 207,880                     |       |
| Total liabilities                                                                                                                               |       | 226,923                 |       | 232,477                     |       |
|                                                                                                                                            |       |                    |       |                        |       |
| Commitments and  contingencies:                                                                                                                 |       |                    |       |                        |       |
|                                                                                                                                            |       |                    |       |                        |       |
| Shareholders’ deficiency:                                                                                                                  |       |                    |       |                        |       |
|                                                                                                                                            |       |                    |       |                        |       |
| Common stock, Class A voting, no par value, 40,000 shares  authorized, 12,000 shares issued and outstanding                                |       | —                  |       | —                      |       |
| Common stock, Class B non-voting, no par value, 160,000 shares  authorized, 64,023 shares issued and outstanding                           |       | —                  |       | —                      |       |
| Paid-in capital                                                                                                                                 |       | 7,508                   |       | 7,508                       |       |
| Accumulated deficit                                                                                                                             |       | (35,500                 | )          | (43,903                     | )          |
| Total shareholders’ deficiency                                                                                                             |       | (27,992                 | )          | (36,395                     | )          |
|                                                                                                                                            |       |                    |       |                        |       |
| TOTAL LIABILITIES AND  SHAREHOLDERS’ DEFICIENCY                                                                                            |       | $198,931                |       | $196,082                    |       |

 

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

 

3

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**HARD ROCK HOTEL, INC.**

**CONDENSED STATEMENTS OF OPERATIONS**

**(in thousands, except share and per share amounts)**

**(unaudited)**

 
| ** **                                            | ** ** | **Three months ended**

**June 30,** | ** ** | **Six months ended**

**June 30,** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                            | ** ** | **2005**                                  | ** ** | **2004**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue:                                              |       |                                      |       |                                    |       |   |   |   |   |
| Casino                                                |       | $                                         | 16,141     |                                    | $          | 16,478 |   | $ | 32,750 |   | $ | 30,085 |   |
| Lodging                                               |       | 10,392                                    |       | 9,399                                   |       | 19,678 |   | 18,025 |   |
| Food and beverage                                     |       | 18,389                                    |       | 13,718                                  |       | 33,941 |   | 25,013 |   |
| Retail store                                          |       | 2,100                                     |       | 2,159                                   |       | 3,843 |   | 4,111 |   |
| Other                                                 |       | 2,780                                     |       | 2,449                                   |       | 5,020 |   | 4,284 |   |
| Gross revenues                                        |       | 49,802                                    |       | 44,203                                  |       | 95,232 |   | 81,518 |   |
| Less:   promotional allowances                   |       | (3,546                                    | )          | (3,021                                  | )          | (6,720 | ) | (5,843 | ) |
| Net revenues                                          |       | 46,256                                    |       | 41,182                                  |       | 88,512 |   | 75,675 |   |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| Costs and expenses:                                   |       |                                      |       |                                    |       |   |   |   |   |
| Casino                                                |       | 8,921                                     |       | 8,108                                   |       | 17,283 |   | 17,472 |   |
| Lodging                                               |       | 2,393                                     |       | 2,181                                   |       | 4,674 |   | 4,380 |   |
| Food and beverage                                     |       | 8,906                                     |       | 7,002                                   |       | 16,549 |   | 13,059 |   |
| Retail store                                          |       | 965                                       |       | 959                                     |       | 1,762 |   | 1,844 |   |
| Other                                                 |       | 1,405                                     |       | 1,193                                   |       | 2,588 |   | 2,158 |   |
| Marketing, advertising and entertainment              |       | 3,871                                     |       | 3,266                                   |       | 6,232 |   | 5,557 |   |
| General and administrative                            |       | 5,926                                     |       | 5,808                                   |       | 11,707 |   | 10,701 |   |
| Related party expenses                                |       | 1,473                                     |       | 1,255                                   |       | 3,050 |   | 2,442 |   |
| Depreciation and amortization                         |       | 2,947                                     |       | 2,923                                   |       | 5,899 |   | 5,933 |   |
| Pre-opening expenses                                  |       | 124                                       |       | 321                                     |       | 196 |   | 521 |   |
| Total costs and expenses                              |       | 36,931                                    |       | 33,016                                  |       | 69,940 |   | 64,067 |   |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| Income from operations                                |       | 9,325                                     |       | 8,166                                   |       | 18,572 |   | 11,608 |   |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| Other income (expense):                               |       |                                      |       |                                    |       |   |   |   |   |
| Loss  on disposal of assets                           |       | (551                                      | )          | (2,668                                  | )          | (551 | )  | (2,668 | ) |
| Interest income                                       |       | 90                                        |       | 13                                      |       | 130 |   | 20 |   |
| Interest expense                                      |       | (4,878                                    | )          | (4,861                                  | )          | (9,748 | ) | (9,566 | ) |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| Income (loss) before benefit for income taxes         |       | 3,986                                     |       | 650                                     |       | 8,403 |   | (606 | ) |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| Income tax benefit                                    |       | —                                    |       | —                                  |       | — |   | — |   |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| Net income (loss)                                     |       | $                                         | 3,986      |                                    | $          | 650 |   | $ | 8,403 |   | $ | (606 | ) |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:        |       |                                      |       |                                    |       |   |   |   |   |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| Net income (loss)                                     |       | $                                         | 52.43      |                                    | $          | 8.55 |   | $ | 110.53 |   | $ | (7.97 | ) |
|                                                  |       |                                      |       |                                    |       |   |   |   |   |
| 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 CASHFLOWS**

**(in thousands, exceptsupplemental schedule)**

**(unaudited)**

 
| ** **                                                                                                            | ** ** | **Six Months**

**Ended June 30,**

**2005** | ** **   | **Six Months**

**Ended June 30,**

**2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|--------------|---------------------------------------------------|------------|
| Cash flows from operating activities:                                                                                 |       |                                              |         |                                              |       |
| Net income (loss)                                                                                                     |       | $                                                 | 8,403        |                                              | $          | (606 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities:                             |       |                                              |         |                                              |       |
| Depreciation and amortization                                                                                         |       | 5,899                                             |         | 5,933                                             |       |
| Provision for losses on accounts receivable                                                                           |       | 152                                               |         | 318                                               |       |
| Amortization of bond offering fees and costs                                                                          |       | 256                                               |         | 263                                               |       |
| Loss  on disposal of assets                                                                                           |       | 551                                               |         | 2,668                                             |       |
| Changes in operating assets and liabilities                                                                           |       |                                              |         |                                              |       |
| Accounts receivable                                                                                                   |       | (1,505                                            | )            | 164                                               |       |
| Inventories                                                                                                           |       | 66                                                |         | (326                                              | )          |
| Prepaid expenses and other current assets                                                                             |       | (143                                              | )       | 672                                               |       |
| Related party receivable                                                                                              |       | (495                                              | )            | —                                            |       |
| Accounts payable                                                                                                      |       | 1,653                                             |         | (398                                              | )          |
| Related party payable                                                                                                 |       | (13                                               | )       | 76                                                |       |
| Long term deferred compensation                                                                                       |       | 530                                               |         | —                                            |       |
| Accrued expenses                                                                                                      |       | (454                                              | )            | 1,074                                             |       |
| Interest payable                                                                                                      |       | 1,436                                             |         | 1,186                                             |       |
| Net cash provided by operating activities                                                                             |       | 16,336                                            |         | 11,024                                            |       |
|                                                                                                                  |       |                                              |         |                                              |       |
| Cash flows from investing activities:                                                                                 |       |                                              |         |                                              |       |
| Purchases of property and equipment                                                                                   |       | (4,898                                            | )            | (10,693                                           | )          |
| Construction related payables                                                                                         |       | (119                                              | )            | 1,099                                             |       |
| Proceeds from sale of operating assets                                                                                |       | 11                                                |         | 23                                                |       |
| Decrease in other assets                                                                                              |       | (14                                               | )       | (44                                               | )          |
| Net cash used in investing activities                                                                                 |       | (5,020                                            | )            | (9,615                                            | )          |
|                                                                                                                  |       |                                              |         |                                              |       |
| Cash flows from financing activities:                                                                                 |       |                                              |         |                                              |       |
| Other debt issuance expenses                                                                                          |       | —                                            |         | (149                                              | )          |
| Principal payments on long-term debt                                                                                  |       | (8,587                                            | )            | (87                                               | )          |
| Net cash used in financing activities                                                                                 |       | (8,587                                            | )            | (236                                              | )          |
|                                                                                                                  |       |                                              |         |                                              |       |
| Net increase in cash and cash equivalents                                                                             |       | 2,729                                             |         | 1,173                                             |       |
| Cash and cash equivalents, beginning of period                                                                        |       | 10,655                                            |         | 10,882                                            |       |
|                                                                                                                  |       |                                              |         |                                              |       |
| Cash and cash equivalents, end of period                                                                              |       | $                                                 |  13,384 |                                              | $          |  12,055 |   |
|                                                                                                                  |       |                                              |         |                                              |       |
| Supplemental disclosures of cash flow information:                                                                    |       |                                              |         |                                              |       |
| Cash paid during the period for interest, (net of  amount capitalized of $119 in the period ended June 30, 2004) |       | $                                                 |  8,057  |                                              | $          |  8,117 |   |
| Cash paid during the period for income taxes, net                                                                     |       | $                                                 |  140    |                                              | $          |  — |   |
|                                                                                                                       |            |                                                   |              |                                                   |            |  |  |  |  |

 

5

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SupplementalSchedule of Non-Cash Investing and Financing Activities:

 

Inaccordance with the terms of the Junior Notes, the Company paid interest inkind of $1.4 million during the six month period ended June 30, 2005 andincreased the principal amount of the Junior Notes.

 

Inaccordance with the terms of the Junior Notes, the Company paid interest in kindof $1.6 million during the six month period ended June 30, 2004 andincreased the principal amount of the Junior Notes.

 

*The accompanying notes are an integral part of theseunaudited condensed financial statements*

 

 

6

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**HARDROCK HOTEL, INC.**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

 

1.                                       BASIS OF PRESENTATION

 

Hard RockHotel, Inc. (the “Company”), a Nevada corporation incorporated onAugust 30, 1993, operates a hotel-casino in Las 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 tothe Company, pursuant to which the Company holds the exclusive right to use the“Hard Rock Hotel” trademark for the Company’s operations in Las Vegas.  These condensed financial statements havebeen prepared 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 other information have been condensed oromitted from the interim financial statements presented in this quarterlyReport on Form 10-Q and they do not include all information required byaccounting principles generally accepted in the United States of America forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have beenincluded.  The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe amounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.  Operating results for thesix-month period ended June 30, 2005 are not necessarily indicative offuture financial results or the results that may be expected for the yearending December 31, 2005.  Theunaudited interim financial statements contained herein should be read inconjunction with the audited financial statements and notes in our annualreport on Form 10-K for the year ended December 31, 2004.

 

2.                                       AGREEMENTS WITH RELATED PARTIES

 

The Company entered intoa twenty-five year Amended and Restated Supervisory Agreement with PeterMorton, Chairman and Chief Executive Officer, which provides for thesupervision of the development, improvement, operation, and maintenance of theCompany through 2022.  Mr. Morton hasthe option to renew the agreement for two successive fifteen year terms.  Pursuant to the terms of the SupervisoryAgreement, Mr. Morton is to provide consulting and supervisory services tothe Company.  In the event either we areor Mr. Morton is in Default (as defined in the Supervisory Agreement), thenon-defaulting party may terminate the agreement after the other party hasreceived the opportunity to cure such default. As part of this agreement, the Company pays to Mr. Morton asupervisory fee equal to two percent of annual gross revenues (as defined inthe Supervisory Agreement), net of complimentaries for each year.  Total supervisory fee expenses for theseservices for the six months ended June 30, 2005 and 2004 amounted to$1,763,000 and $1,496,000, respectively. These expenses are included in related party expenses in theaccompanying statements of operations.  The unpaidamounts at June 30, 2005 and December 31, 2004 are $285,000 and$224,000, respectively, and are included in related party payable in theaccompanying balance sheets.

 

Entities controlled byMr. Morton have provided additional technical support services for thedevelopment, ongoing improvement and operation of the Company.  The Company reimburses these entities for allcosts and expenses incurred in connection with these services, including,without limitation, employee salary and benefits and allocated overhead.  These expenses aggregated approximately$1,287,000 and $946,000 for the six months ended June 30, 2005 and 2004,respectively, and are included in the accompanying statements ofoperations.  At June 30, 2005,$329,000 was due from these entities for expenses paid in advance and isincluded in related party receivable in the accompanying balance sheet.  At December 31, 2004, $74,000 was due tothese entities for expenses and is included in related party payable in theaccompanying balance sheet.

 

The Company providestechnical support services and pays certain overhead expenses for thedevelopment and operation of HR Condominium Investors (Vegas), LLC, anaffiliate of our Chief Executive Officer Mr. Morton.  HR Condominium Investors (Vegas), LLCreimburses the Company for all of these costs and expenses, which aggregatedapproximately $433,000 for the six months ended June 30, 2005.  The unpaid amounts at June 30, 2005 andDecember 31, 2004 are $288,000 and $122,000, respectively, and areincluded in related party receivable in the accompanying balance sheets.

 

On December 24,2004, PM Realty LLC, a development entity owned by our Chief Executive OfficerMr. Morton, and the Company entered into a lease for a ten year initial termwith Mr. Chow of Las Vegas, LLC, a Nevada limited liability company, forcommercial space anticipated to be developed on land contiguous to the Resort.

 

Our preferred stock was,and a substantial portion of the junior subordinated notes are, held byMr. Morton or affiliates of Mr. Morton (see Note 3 below).

 

3.                                       LONG-TERM DEBT

 

Asof June 30, 2005, the Company had $140.0 million 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 of June 30, 2005, the Company had$9.0 million outstanding on its Term Loan and had no balance outstanding on itsRevolving Credit Facility.  As ofJune 30, 2005, the Company also has approximately $54.4 millionoutstanding of junior subordinated notes (the “Junior Notes”), including$1.4 million of interest paid in kind during the six month period endedJune 30, 2005.

 

 

7

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2013Notes

 

Interest on the 2013 Notes is payable on eachJune 1 and December 1 beginning December 1, 2003.  The 2013 Notes are secured by a securityinterest in substantially all of the Company’s existing and future assets,other than licenses which may not be pledged under applicable law.  The 2013 Notes arecontractually subordinated in right of payment to all indebtedness incurredpursuant to the Revolving CreditFacility. The 2013 Notesare subject to redemption at the option of the Company, in whole or in part, atany time on or after June 1, 2008, at a premium to the face amount ($140million) that decreases on each subsequent anniversary date, plus accruedinterest to the date of redemption.  The2013 Notes contain covenants restricting or limiting the ability of the Companyto, among other things, pay dividends, create liens or other encumbrances,incur additional indebtedness, issue certain preferred stock, sell or otherwisedispose of a portion of its assets, make acquisitions or merge or consolidatewith another entity and enter into transactions with affiliates.  The Company was in compliance with these covenants asof June 30, 2005.

 

Facility

 

Intereston the Facility accrues on all individual borrowings at an interest ratedetermined at the option of the Company, at either the LIBOR Index plus anapplicable LIBOR margin (not to exceed 3.5% (applicable margin was 2.50% atJune 30, 2005) and aggregating 5.7% at June 30, 2005), or the BaseRate, defined as the higher of the Federal Funds Rate plus 0.5%, or the referencerate, as defined, plus an applicable margin (not to exceed 2.25%).  The Company chose the LIBOR Index for all ofits borrowings outstanding at June 30, 2005.  These margins are dependent upon the Company’stotal debt to EBITDA ratio, as defined. Interest accrued on the Base Rate borrowings is due monthly, up to thematurity date, while interest on LIBOR borrowings is due three-months up to thematurity date.  The Facility is securedby substantially all of the Company’s property at the Las Vegas site.  The Facility contains certain covenantsincluding, among other things, financial covenants, limitations on the Companyfrom disposing of capital stock, entering into mergers and certainacquisitions, incurring liens or indebtedness, issuing dividends on stock, andentering into transactions with affiliates. The Company was in compliance with these covenants as of June 30,2005.

 

JuniorNotes

 

Intereston the Junior Notes is payable on each January 15 and July 15,commencing on January 15, 2004, and may be paid in cash or in kind at theCompany’s option, provided that interest will be paid in kind if a payment ofsuch interest in cash would cause a default under the 2013 Notes or theFacility.  The Junior Notes require thatany semi-annual interest payment in cash be equal to the lesser of (x) 50% ofthe amount of interest accrued on the Junior Notes since the most recentinterest payment date and (y) the amount of interest that the Company ispermitted to pay in cash without causing a default under the 2013 Notes or theFacility.  For interest payments payablein cash, interest accrues at a rate per annum equal to 9.875%, and for interestpayments payable in kind, interest accrues at a rate per annum equal to 10.50%and increases the principal amount of the Junior Notes.  On January 15, 2005, the Company paid incash $1.3 million of interest on the Junior Notes.  The remaining $1.4 million of accruedinterest was paid in kind at a rate of 10.50%. The Junior Notes are contractually subordinated to the 2013 Notes andthe Facility and any other senior debt of the Company.

 

The Junior Notes mature on January 15, 2014 butare subject to redemption at the option of the Company, in whole or in part, atany time on or after January 15, 2009, at a premium to the principalamount thereof that decreases on each subsequent anniversary date, plus accruedinterest to the date of redemption.  TheJunior Notes contain covenants restricting the Company’s ability to, amongother things, sell or otherwise dispose of its assets, pay dividends, incuradditional indebtedness, make acquisitions or merge or consolidate with anotherentity and enter into transactions with affiliates.  The Company was in compliance with thesecovenants as of June 30, 2005.

 

4.             LEGAL AND REGULATORY PROCEEDINGS

 

TheCompany is a defendant in various lawsuits relating to routine mattersincidental to its business.

 

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, 2005.

 

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5.             COMMITMENT

 

DuringJanuary 2005, the Company entered into an agreement to install a new hotelreservation system.  Total costs of theproject are estimated to be $0.8 million of which $0.5 million has been paid incash as of June 30, 2005.

 

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

 

Thefollowing discussion should be read in conjunction with, and is qualified inits entirety by the Company’s financial statements, including the notesthereto, and the other financial information appearing elsewhere herein and theAnnual Report to Shareholders on Form 10-K for the year endedDecember 31, 2004, which may be obtained upon request from the Company.

 

SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Thisdocument includes various “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Sections 21E ofthe Securities Exchange Act of 1934, as amended, which represent the Company’sexpectations or beliefs concerning future events.  Statements containing expressions such as “believes,”“anticipates” or “expects” used in our press releases and periodic reports onForms 10-K and 10-Q filed with the Securities and Exchange Commission areintended to identify forward-looking statements.  All forward-looking statements involve risksand uncertainties. Although we believe our expectations are based uponreasonable assumptions within the bounds of our knowledge of our business andoperations, there can be no assurances that actual results will not materiallydiffer from expected results. We caution that these and similar statementsincluded in this report and in previously filed periodic reports, includingreports filed on Forms 10-K and 10-Q, are further qualified by important factorsthat could cause actual results to differ materially from those in theforward-looking statements.  Such factorsinclude, without limitation, the following: increased competition in existing markets or the opening of new gamingjurisdictions; a decline in the public acceptance of gaming; the limitation,conditioning or suspension of any of our gaming licenses; increases in or newtaxes imposed on gaming revenues or gaming devices; a finding of unsuitabilityby regulatory authorities with respect to our officers, directors or keyemployees; loss or retirement of key executives; significant increases in fuelor transportation prices; adverse economic conditions in our key markets;severe and unusual weather in our key markets; and adverse results of significantlitigation matters.  Readers arecautioned not to place undue reliance on forward-looking statements, whichspeak only as of the date thereof.  Weexpressly disclaim any obligation or undertaking to disseminate any updates orrevisions to any forward-looking statement contained in this report, includingto reflect any change in our expectations with regard to that forward-lookingstatement or any change in events, conditions or circumstances on which thatforward-looking statement is based.  Formore information regarding risks inherent in an investment in the Company, seethe section ”Business — Risk Factors” in our Annual Report to Shareholderson Form 10-K for the year ended December 31, 2004 filed with the SECon March 31, 2005.

 

OVERVIEW

 

Oursole business is the operation of the Hard Rock Hotel and Casino in Las Vegas,NV.

 

RESULTSOF OPERATIONS

 

THREE-MONTHSENDED JUNE 30, 2005 COMPARED TO THREE-MONTHS ENDED JUNE 30, 2004

 

NETREVENUES.  Net revenues increased 12% for the three-months ended June30, 2005 to $46.3 million compared to $41.2 million for thethree-months ended June 30, 2004.  The$5.1 million increase in net revenues was primarily attributable to a $4.7million or a 34% increase in food and beverage revenue, a $1.0 million or11% increase in lodging revenue and a $0.3 million or 14% increase in otherrevenues.  These increases in revenuewere partially offset by a $0.3 million or 2% decrease in casino revenues,$0.1 million or 3% decrease in retail revenue and a $0.5 million or 17% increasein promotional allowances related to items furnished to customers on acomplimentary basis.

 

CASINOREVENUES.  The $0.3 million decrease in casino revenues wasprimarily due to a $1.0 million or 8% decrease in table games revenues anda $0.1 million or 23% decrease in race and sports book revenue partially offsetby a $0.7 million or 16% increase in slot machine revenues.  The decrease in table games revenues was dueto a decrease in hold percentage of 2.6 percentage points to 13.0% from15.6%.  Table games drop had an increaseof $7.9 million or 11% to $82.8 million from $75.0 million.  The average number of table games inoperations remained constant at 93.  Thenet result of these changes in drop and hold percentage was a decrease in winper table game per day to $1,268 from $1,387, a decrease of $119 or 9%.  We have historically reported table gameshold percentage using the gross method, while casinos on the Strip report holdpercentage using the net method (which reduces the table game drop by markerrepayments made in the gaming pit area). For the purpose of comparison to

 

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propertieson the Strip, our net hold percentage for the three-months ended June 30, 2005was 14.8% compared to 18.0% for the three-months ended June 30, 2004.  The increase in slot machine revenues was dueto an increase in slot machine hold percentage and an increase in slot machinehandle.  Slot machine hold percentageincreased 0.7 percentage points to 5.9% from 5.2%.  Slot machine handle increased$2.6 million or 3% to $87.2 million from $84.6 million.  The average number of slot machines inoperation increased to 551 from 546, an increase of 5 machines or 1%.  The net result of these changes in handle,hold percentage and average number of slot machines in operation was anincrease in win per slot machine per day to $102 from $89, an increase of $13or 15%.  The decrease in race and sportsrevenues was due to a decrease in race and sports hold percentage and anincrease in race and sports handle.  Raceand sports hold percentage decreased 1.8 percentage points to 9.1% from10.9%.  Race and sports handle increased$0.4 million or 12% to $3.9 million from $3.5 million.

 

LODGINGREVENUES.  The $1.0 million increase in lodging revenues to$10.4 million was primarily due to an increase in average daily rate (“ADR”)to $176 from $157.  Hotel occupancydecreased to 97.2% from 97.4% between periods.

 

FOODAND BEVERAGE REVENUES.  The $4.7 million increase in food andbeverage revenues was due to food revenues increasing by approximately $1.2million and beverage revenues increasing by approximately$3.5 million.  Food revenuesincreased due primarily to a $0.6 million increase in banquet foodrevenue, a $0.3 million increase in room service revenue due to theinstallation of new in room mini bars, a $0.1 million increase in each ofMr. Lucky’s, Pink Taco, Beach Club and AJ’s Steakhouse.  Every food outlet except for Simon Kitchenand Bar had an increase in revenue year over year.  Simon Kitchen and Bar had several competitorsopen in the surrounding Las Vegas area in the last 12 months.  Beverage revenues increased due primarily toa $2.7 million increase in Body English, which is our new club replacingBaby’s, a $0.3 million increase in Beach Club bar, a $0.2 millionincrease in banquet bar and a $0.1 million increase in the Joint bar.

 

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

 

OTHERINCOME.  Other income increased $0.3 million primarily due to a$0.1 million increase in each of Rock Spa, chip and token float taken toincome and sponsorship.

 

PROMOTIONALALLOWANCES.  Promotional allowances increased as a percentage ofcasino revenues to 22% from 18%.  Thisincrease is due to the 2.6 percentage point decrease in table holdpercentage.  The decrease in table gameshold percentage decreases table games revenue without a decrease in promotionalallowances.

 

CASINOEXPENSES.  Casino expenses increased $0.8 million or 10% to$8.9 million.  The increase wasprimarily due to a $0.2 million increase in gaming taxes, a $0.1 millionincrease in bad debt expenses related to potentially uncollectible creditextended to casino customers, a $0.1 million increase in discounts on creditissued by the casino, a $0.1 million increase in concert tickets given toguests and a $0.1 million increase in apparel. The Company’s provision and allowance for doubtful accounts are based onestimates by management of the collectability of the receivable balances ateach period end.  Management’s estimatesconsider, among other factors, the age of the receivables, the type or sourceof the receivables and the results of collection efforts to date, especiallywith regard to significant accounts. Casino expenses as a percentage of casino revenues increased to 55% from49%, an increase of 6 percentage points 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, remained constant at 28%.

 

 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 allowancesdecreased to 56% from 59% in the prior year period due to the opening of BodyEnglish Nightclub, which runs at a much higher profit margin than other foodand beverage outlets.

 

RETAILCOSTS AND EXPENSES.  Retail costs and expenses in relation to retailrevenues, prior to reclassifying the cost of complimentaries to casino expenseor department complimentaries to promotional allowances, increased to 51% from49% due to less retail revenue in relation to fixed retail costs.

 

OTHERCOSTS AND EXPENSES.  Other costs and expenses in relation to otherincome increased to 51% from 49%.  Theincrease is due to upgrading the quality of our hair salon.

 

MARKETING,GENERAL AND ADMINISTRATIVE.  Marketing,general and administrative expenses in relation to gross revenues decreased to20% from 21%.  Marketing, general andadministrative expenses increased $0.7 million. This increase is due to an increase of $1.3 million increase in entertainment costs and a $0.7 millionincrease in promotional costs for our 10 year anniversary party. These costs were partially offset by $1.4 million decrease inpromotional costs for us not having the Howard Stern show at our property thisyear.

 

DEPRECIATION ANDAMORTIZATION.  Depreciation and amortization remained constant at$2.9 million.

 

INTERESTEXPENSE.  Interest expense remained constant at $4.9 million.

 

INCOME TAXES.  The Company did not have income tax expenseduring the six-months ended June 30, 2005 and 2004 due to being able tooffset 100% of its income with net operating loss carryforwards (“NOL”) fromprevious periods against which a valuation 

 

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allowance has beenplaced.

 

NET INCOME(LOSS) Net income was $4.0 million compared to $0.7 millionduring the prior year period.  Theincrease in net results for common shareholders was due to the factorsdescribed above as well a $2.1 million decrease in other expense.  Other expenses for the quarter ended June 30,2004, had a $2.6 million dollar loss for the renovation of our night clubcalled Baby’s into our new night club called Body English.

 

SIX-MONTHSENDED JUNE 30, 2005 COMPARED TO SIX-MONTHS ENDED JUNE 30, 2004

 

NETREVENUES.  Net revenues increased 17% for the six-months ended June30, 2005 to $88.5 million compared to $75.7 million for thesix-months ended June 30, 2004.  The$12.8 million increase in net revenues was primarily attributable to a$8.9 million or a 36% increase in food and beverage revenue, a $2.7 million or9% increase in casino revenues, a $1.7 million or 9% increase in lodgingrevenue and a $0.7 million or 17% increase in other revenues.  These increases in revenue were partiallyoffset by $0.3 million or 7% decrease in retail revenue and a $0.9 millionor 15% increase in promotional allowances related to items furnished to customerson a complimentary basis.

 

CASINOREVENUES.  The $2.7 million increase in casino revenues wasprimarily due to a $1.5 million or 7% increase in table games revenues, a$1.0 million or 12% increase in slot machine revenues and a $0.1 millionor 17% increase in race and sports book revenue.  The increase in table games revenues was dueto an increase in table games drop as well as hold percentage.  Table games drop had an increase of$8.2 million or 5% to $164.2 million from $155.9 million.  Table games hold percentage had an increaseof 0.3 percentage points to 13.5% from 13.2%.  The average number of table games inoperations decreased to 91 from 93, a decrease of 2 or 2%.  The net result of these changes in drop, holdpercentage and change in number of games in operation was an increase in winper table game per day to $1,342 from $1,216, an increase of $126 or 10%.  We have historically reported table gameshold percentage using the gross method, while casinos on the Strip report holdpercentage using the net method (which reduces the table game drop by markerrepayments made in the gaming pit area). For the purpose of comparison to properties on the Strip, our net holdpercentage for the six-months ended June 30, 2005 was 15.5% compared to15.4% for the six-months ended June 30, 2004.  The increase in slot machine revenues was dueto an increase in slot machine hold percentage and an increase in slot machinehandle.  Slot machine hold percentageincreased 0.5 percentage points to 5.5% from 5.0%.  Slot machine handle increased$3.9 million or 2% to $177.2 million from $173.3 million.  The average number of slot machines inoperation increased to 552 from 551, an increase of 1 machine or less than1%.  The net result of these changes inhandle, hold percentage and average number of slot machines in operation was anincrease in win per slot machine per day to $97 from $87, an increase of $10 or12%.  The increase in race and sportsrevenues was due to an increase in race and sports hold percentage and an increasein race and sports handle.  Race andsports hold percentage increased 1.1 percentage points to 10.8% from 9.7%.  Race and sports handle increased$1.0 million or 12% to $9.9 million.

 

LODGINGREVENUES.  The $1.7 million increase in lodging revenues to$19.7 million was primarily due to an increase in average daily rate (“ADR”)to $170 from $155.  Hotel occupancyincreased to 95.3% from 94.5% between periods.

 

FOODAND BEVERAGE REVENUES.  The $8.9 million increase in food andbeverage revenues was due to food revenues increasing by approximately $2.1million and beverage revenues increasing by approximately$6.8 million.  Food revenuesincreased due primarily to a $1.2 million increase in banquet foodrevenue, a $0.4 million increase in room service revenue due to theinstallation of new in room mini bars, a $0.2 million increase inMr. Lucky’s, a $0.1 million increase in each of Pink Taco, Beach Cluband AJ’s Steakhouse.  Every food outletexcept for Simon Kitchen and Bar had an increase in revenue year overyear.  Simon Kitchen and Bar had severalcompetitors open in the surrounding Las Vegas area in the last 12 months.  Beverage revenues increased due primarily toa $5.3 million increase in Body English, which is our new club replacingBaby’s, a $0.5 million increase in banquet bar, a $0.3 millionincrease in The Joint bar, a $0.3 million increase in Beach Club bar, a$0.2 million increase in casino bars and a $0.1 million increase inSports Deluxe Bar.

 

RETAILREVENUES.  We believe the $0.3 million decrease in retailrevenues was due in part to continued general market decline in the themedmerchandise segment and the addition of other retail operations in Las Vegas.

 

OTHERINCOME.  Other income increased $0.7 million primarily due to a$0.2 million increase in token float taken to income and a$0.1 million increase in each of Rock Spa, Sundry Store, Cuba Libre, LoveJones and box office revenue.

 

PROMOTIONALALLOWANCES.  Promotional allowances increased as a percentage ofcasino revenues to 21% from 19%.  Thisincrease is due to additional promotional items associated with a full sixmonths of operating Body English.  Casinoissued promotional allowances as a percentage of casino revenues remainedconstant at 16%.

 

CASINOEXPENSES.  Casino expenses decreased $0.2 million or 1% to$17.3 million.  The decrease wasprimarily due to a $0.2 million decrease in bad debt expenses related topotentially uncollectible credit extended to casino customers, a $0.1 milliondecrease in gaming taxes, a $0.1 million decrease in discounts on credit issuedby the casino, a $0.1 million decrease in concert tickets given to guests and a$0.1 million decrease in customer travel. These decreases were offset 

 

 

 

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partiallyby a $0.3 million increase in payroll and related expenses and a $0.1million increase in operating supplies. The Company’s provision and allowance for doubtful accounts are based onestimates by management of the collectability of the receivable balances ateach period end.  Management’s estimatesconsider, among other factors, the age of the receivables, the type or sourceof the receivables and the results of collection efforts to date, especiallywith regard to significant accounts. Casino expenses as a percentage of casino revenues decreased to 53% from58%, a decrease of 5 percentage points between comparative periods due to thechanges mentioned above.

 

LODGINGEXPENSES.  Hotel 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% in theprior year due primarily to a higher ADR while total operating expenses priorto reclassifying complimentaries to casino expense remained constant.

 

FOODAND BEVERAGE COSTS AND EXPENSES.  Food and beverage costs andexpenses in relation to food and beverage revenues, prior to reclassifying thecost of complimentaries to casino expense or department complimentaries topromotional allowances decreased to 56% from 60% in the prior year period dueto the opening of Body English Nightclub, which runs at a much higher profitmargin than other food and beverage outlets.

 

RETAILCOSTS AND EXPENSES.  Retail costs and expenses in relation to retailrevenues, prior to reclassifying the cost of complimentaries to casino expenseor department complimentaries to promotional allowances, increased to 51% from49% due to less retail revenue in relation to fixed retail costs.

 

OTHERCOSTS AND EXPENSES.  Other costs and expenses in relation to otherincome remained increased to 52% from 50%. The increase is due to upgrading the quality of our hair salon.

 

MARKETING,GENERAL AND ADMINISTRATIVE.  Marketing,general and administrative expenses in relation to gross revenues decreased to19% from 20%.  Marketing, general andadministrative expenses increased $1.7 million. This increase is due to a $1.0 million increase in entertainment costs,  a $0.8 million increase in payroll and relatedexpenses, a $0.4 millionincrease in promotional costs related to our 10 year anniversary party, a $0.2 increase in advertising costs, a$0.2 million increase in utilities, a $0.2 million increase in propertyinsurance, a $0.1 million increase in taxes and licenses, a $0.1 million increasein professional services, a $0.1 million increase in contract services, a $0.1million increase inrepairs and maintenance and $0.1 million increase in equipment rental.  These costs were partially offset by $1.4million decrease in promotional costs for us not having the Howard Stern showat our property this year and a $0.2 decrease in guest claims.

 

DEPRECIATION ANDAMORTIZATION.  Depreciation and amortization remained constant at$5.9 million.

 

INTERESTEXPENSE.  Interest expense increased to $9.7 million from$9.6 million, an increase of $0.1 million or 2%.  The amount of outstanding Junior Notesincreased causing the additional interest expense.

 

INCOME TAXES.  The Company did not have income tax expenseduring the nine-months ended June 30, 2005 and 2004 due to being able to offset100% of its income with net operating loss carryforwards (“NOL”) from previousperiods against which a valuation allowance has been placed.

 

NET INCOME(LOSS).  Net income was $8.4 million compared to net loss of$0.6 million during the prior year period. The increase in net results for common shareholders was due to thefactors described above.  The increase innet results for common shareholders was due to the factors described above aswell a $2.1 million decrease in other expense. Other expenses for the six months ended June 30, 2004, had a $2.6million dollar loss for the renovation of our night club called Baby’s into ournew night club called Body English.

 

LIQUIDITY AND CAPITALRESOURCES

 

For the six-month period ended June 30, 2005 ourprincipal sources of funds were cash on-hand at December 31, 2004, andcash provided by operating activities of $16.3 million.  The amount of cash provided by operatingactivities primarily included net income of $8.4 million, depreciation andamortization of $5.9 million, provision for losses on accounts receivable of$0.2 million, amortization of loan fees of $0.3 million and net changes inoperating assets and liabilities of $1.5 million.  Other sources and uses of funds were capitalexpenditures of $4.9 million, a decrease in construction payables of $0.1million and payments on debt of $8.6 million. As a result, as of June 30, 2005, we had cash and cash equivalentsof $13.4 million.

 

During January 2005,the Company entered into an agreement to install a new hotel system.  Total costs of the project are estimated tobe $0.8 million of which $0.5 million has been paid in cash as of June 30,2005.

 

We believe that ourcurrent cash balances and cash flow from operations and other sources of cashincluding the available borrowings under our $20.0 million Facility ($20.0million available as of June 30, 2005) will be sufficient to provideoperating and investing liquidity during the next 12 months.  We may, however, need to raise additionalfunds prior to July 1, 2006.  Ourability to raise additional funds is limited by restrictions on our financingactivities under our Facility and the 2013 Notes.  We cannot be certain that additional financingwill be available to us on favorable terms when required, if at all.

 

 

 

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                Interest on the2013 Notes is payable on each June 1 and December 1 which began onDecember 1, 2003.  The 2013 Notesare 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 2013 Notes arecontractually subordinated in right of payment to all indebtedness incurredpursuant to the Facility.  The 2013 Notesare subject to redemption at the option of the Company, in whole or in part, atany time on or after June 1, 2008, at a premium to the face amount ($140million) that decreases on each subsequent anniversary date, plus accruedinterest to the date of redemption.  The2013 Notes contain covenants restricting or limiting the ability of the Companyto, among other things, pay dividends, create liens or other encumbrances,incur additional indebtedness, issue certain preferred stock, sell or otherwisedispose of a portion of its assets, make acquisitions or merge or consolidatewith another entity and enter into transactions with affiliates.  The Company was in compliance with thesecovenants as of June 30, 2005.

 

                Interest on theFacility accrues on all individual borrowings at an interest rate determined atthe option of the Company, at either the LIBOR Index plus an applicable LIBORmargin (not to exceed 3.5% (applicable margin was 2.5% at June 30, 2005)and aggregating 5.7% at June 30, 2005), or the Base Rate, defined as thehigher of the Federal Funds Rate plus 0.5%, or the reference rate, as defined,plus an applicable margin (not to exceed 2.25%).  The Company chose the LIBOR Index for all ofits borrowings outstanding at June 30, 2005.  These margins are dependent upon the Company’stotal debt to EBITDA ratio, as defined. Interest accrued on the Base Rate borrowings is due monthly, up to thematurity date, while interest on LIBOR borrowings is due three-months up to thematurity date.  The Facility is securedby substantially all of the Company’s property at the Las Vegas site.  The Facility contains certain covenantsincluding, among other things, financial covenants, limitations on the Companyfrom disposing of capital stock, entering into mergers and certainacquisitions, incurring liens or indebtedness, issuing dividends on stock, and enteringinto transactions with affiliates.  TheCompany was in compliance with these covenants as of June 30, 2005.

 

                Interest on theJunior Notes is payable on each January 15 and July 15, whichcommenced on January 15, 2004, and may be paid in cash or in kind at theCompany’s option, provided that interest will be paid in kind if a payment ofsuch interest in cash would cause a default under the 2013 Notes or theFacility.  The Junior Notes require thatany semi-annual interest payment in cash be equal to the lesser of (x) 50% ofthe amount of interest accrued on the Junior Notes since the most recentinterest payment date and (y) the amount of interest that the Company ispermitted to pay in cash without causing a default under the 2013 Notes or theFacility.  For interest payments payablein cash, interest accrues at a rate per annum equal to 9.875%, and for interestpayments payable in kind, interest accrues at a rate per annum equal to 10.50%and increases the principal amount of the Junior Notes.  On January 15, 2005, the Company paid incash $1.3 million of interest on the Junior Notes.  The remaining $1.4 million of accruedinterest was paid in kind at a rate of 10.50%. The Junior Notes are contractually subordinated to the 2013 Notes andthe Facility and any other senior debt of the Company.

 

                The Junior Notesare contractually subordinated to the 2013 Notes and the Facility and any othersenior debt of the Company.  The JuniorNotes mature on January 15, 2014 but are subject to redemption at the optionof the Company, in whole or in part, at any time on or after January 15,2009, at a premium to the principal amount thereof that decreases on eachsubsequent anniversary date, plus accrued interest to the date of redemption.  The Junior Notes contain covenantsrestricting the Company’s ability to, among other things, sell or otherwisedispose of its assets, pay dividends, incur additional indebtedness, makeacquisitions or merge or consolidate with another entity and enter intotransactions with affiliates.  TheCompany was in compliance with these covenants as of June 30, 2005.

 

**Off-Balance Sheet Arrangements**

 

                We do not have anyoff-balance sheet arrangements that have, or are reasonably likely to have, acurrent or future effect on our financial condition, changes in financialcondition, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources that are material.  Currently, we have no guarantees, such asperformance guarantees, keep-well agreements or indemnity.  We are not engaged in derivatives.

 

**Contractual Obligations and Commitments**

 

                We have variouscontractual obligations that we record as liabilities in our financialstatements.  We also enter into otherpurchase commitments and other executory contracts that are not recognized asliabilities until services are performed or goods are received.  Additionally, we enter into contracts forgoods and services such as food, inventory and entertainment.  Such liabilities are recorded as liabilitieswhen so incurred and we expect that such contracts will generate revenue inexcess of such liabilities.  As ofJune 30, 2005, there have been no material changes to the table ofcontractual obligations and commitments in our most recently filedForm 10-K.

 

                We made cash interestpayments on long-term debt, including capitalized interest, of $8.1 million and$8.1 million in the six month periods ended June 30, 2005 and 2004,respectively.  We anticipate our cashinterest payments for the remainder of 2005 to be constant with theselevels.  We have not made significantcash tax payments during the six month periods ended June 30, 2005 and2004 and, due to available net operating loss and AMT tax credit carryforwards,we do not anticipate making significant cash tax payments in the remainder of2005.  Total supervisory fee expense forthe six month periods ended June 30, 2005 and 2004 amounted to $1.8million and $1.5 million, respectively, under the Company’s Amended andRestated Supervisory Agreement with Peter Morton.  The supervisory fee is equal to two percentof annual

 

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gross revenues (as defined in the Supervisory Agreement), net ofcomplimentaries for each year.

 

                Our ability toservice our contractual obligations and commitments will be dependent on ourfuture performance, which will be affected by, among other things, prevailingeconomic conditions and financial, business and other factors, certain of whichare beyond our control.

 

                The Company is adefendant in various lawsuits relating to routine matters incidental to itsbusiness.  Management provides an accrualfor estimated losses that may occur and does not believe that the outcome ofany pending claims or litigation, in the aggregate, will have a material adverseeffect on the Company’s financial position, results of operations or liquidity.

 

CRITICAL ACCOUNTING POLICIES

 

                There have been nochanges in the Company’s critical accounting policies from those described inthe Company’s most recently filed Form 10-K.

 

**                Item3.    Quantitative and QualitativeDisclosures About Market Risk**

 

                Market risksrelating to our operations result primarily from changes in short-term LIBORinterest rates.  We do not have anyforeign exchange or other significant market risk.  We did not have any derivative financialinstruments at June 30, 2005.

 

                Our exposure tomarket risk for changes in interest rates relates primarily to our currentRevolving Credit Facility.  In accordancewith the Revolving Credit Facility, we enter into variable rate debtobligations to support general corporate purposes, including capitalexpenditures and working capital needs. We continuously evaluate our level of variable rate debt with respect tototal debt and other factors, including assessment of the current and futureeconomic environment.

 

                We had $9.0million in variable rate debt outstanding at June 30, 2005.  Based upon these variable rate debt levels, ahypothetical 10% adverse change in the effective interest rate (approximately a57 basis point increase) would increase interest expense by approximately $0.1million on an annual basis, and likewise decrease our earnings and cashflows.  We cannot predict marketfluctuations in interest rates and their impact on our variable rate debt, norcan there be any assurance that fixed rate long-term debt will be available tous at favorable rates, if at all. Consequently, future results may differ materially from the estimatedadverse changes discussed above.

 

                The fair value ofthe Company’s $140 million of 8.875% Second Lien Notes, which are due in 2013and are publicly traded, approximated $151.2 million at June 30, 2005based on published bid prices.  The fairvalue of the Company’s $54.4 million of Junior Notes cannot be estimated asthere was no established market nor published bid prices and a portion was heldby an affiliate of Mr. Morton.

 

**                Item4.    Controls and Procedures**

 

                                (a)  Disclosure Controlsand Procedures.  The Company’smanagement, with the participation of the Company’s Chief Executive Officer andChief Financial Officer, has evaluated the effectiveness of the Company’sdisclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934, as amended (the “Exchange Act”)) as of the end of the period coveredby this report.  Based on suchevaluation, the Company’s Chief Executive Officer and Chief Financial Officerhave concluded that, as of the end of such period, the Company’s disclosurecontrols and procedures are effective in recording, processing, summarizing andreporting, on a timely basis, information required to be disclosed by theCompany in the reports that it files or submits under the Exchange Act.

 

                                (b)  Internal Control OverFinancial Reporting.  There have not beenany changes in the Company’s internal control over financial reporting (as suchterm is defined in Rules 13a-15(f) and 15d-15(f) under theExchange Act) during the fiscal six-months to which this report relates thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**PART II OTHER INFORMATION**

 

                Item1.    Legal Proceedings

 

                We are a defendantin various lawsuits relating to routine matters incidental to ourbusiness.  Management does not believethat the outcome of any litigation, in the aggregate, will have a materialadverse effect on our business or results of operations.

 

`               Item 6.    Exhibits

 
| **EXHIBIT NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                |
|--------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |       |                                                                                                                                                                                                           |
| 3.                 |       | CERTIFICATE OF INCORPORATION AND BY-LAWS                                                                                                                                                                       |
|               |       |                                                                                                                                                                                                           |
| (1)3.1             |       | Second Amended and Restated Certificate of  Incorporation of the Company.                                                                                                                                      |
|               |       |                                                                                                                                                                                                           |
| (2)3.2             |       | Certificate of Amendment of Second Amended and  Restated Articles of Incorporation.                                                                                                                            |
|               |       |                                                                                                                                                                                                           |
| (1)3.3             |       | Second Amended and Restated By-Laws of the Company                                                                                                                                                             |
|               |       |                                                                                                                                                                                                           |
| 4.                 |       | INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS,  INCLUDING INDENTURES.                                                                                                                                     |
|               |       |                                                                                                                                                                                                           |
| (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 87/8% 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 87/8% Second Lien Notes due 2013. |
|               |       |                                                                                                                                                                                                           |
| 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                      |
|               |       |                                                                                                                                                                                                           |
| 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.                                                                                            |

----

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

 

(2)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the three-months ended August 31, 1999 (FileNo. 333-53211).

 

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

 

(4)                                  Incorporated by reference to designatedexhibit 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 designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the three-months ended March 31, 2005 (FileNo. 333-53211).

 

15

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**SIGNATURES**

 

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

 
|                       | HARD ROCK HOTEL, INC.                                      |
|----------------------------|------------------------------------------------------------|
|                       |                                                       |
| Date: August 15, 2005 | /s/ JAMES D. BOWEN                                         |
|                       | James D. Bowen                                             |
|                       | CHIEF FINANCIAL OFFICER                                    |
|                       | (PRINCIPAL FINANCIAL OFFICER AND DULY AUTHORIZED  OFFICER) |

 

16

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**Exhibit Index**

 
| **EXHIBIT NUMBER** | ** ** | **DESCRIPTION**                                                                                                                                                                                                 |
|--------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |       |                                                                                                                                                                                                            |
| 3.                 |       | CERTIFICATE OF  INCORPORATION AND BY-LAWS                                                                                                                                                                       |
|               |       |                                                                                                                                                                                                            |
| (1)3.1             |       | Second Amended and Restated  Certificate of Incorporation of the Company.                                                                                                                                       |
|               |       |                                                                                                                                                                                                            |
| (2)3.2             |       | Certificate of  Amendment of Second Amended and Restated Articles of Incorporation.                                                                                                                             |
|               |       |                                                                                                                                                                                                            |
| (1)3.3             |       | Second Amended and  Restated By-Laws of the Company                                                                                                                                                             |
|               |       |                                                                                                                                                                                                            |
| 4.                 |       | INSTRUMENTS DEFINING  THE RIGHT OF SECURITY HOLDERS, INCLUDING INDENTURES.                                                                                                                                      |
|               |       |                                                                                                                                                                                                            |
| (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  87/8% 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  87/8% Second Lien Notes due 2013. |
|               |       |                                                                                                                                                                                                            |
| 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                      |
|               |       |                                                                                                                                                                                                            |
| 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.                                                                                            |

 

----

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

 

(2)                                  Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the three-months ended August 31, 1999 (FileNo. 333-53211).

 

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

 

(4)                                  Incorporated by reference to designatedexhibit 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 designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the three-months ended March 31, 2005 (FileNo. 333-53211).

 

17

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