<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 for the Quarterly
Period Ended MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-22521
WINNERS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1103135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1461 GLENNEYRE STREET, SUITE F, LAGUNA BEACH, CALIFORNIA 92651
(Address of principal executive offices)
(714) 376-3010
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been the subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.00001 PAR VALUE
Class
18,268,675 SHARES
Outstanding at May 16, 1996
<PAGE> 2
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed and Consolidated Balance Sheets
at December 31 1996 and 1995.................................. 1
Condensed and Consolidated Statement of Operations
for the Three Months Ended March 31, 1996 and 1995............ 3
Condensed and Consolidated Statement of Cash flows
for the Three Months Ended March 31, 1996 and 1995............ 4
Notes to Condensed and Consolidated Financial Statements.......... 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Results of Operations............................................. 9
Revenues.......................................................... 9
Costs and Expenses................................................ 13
Cash Flows........................................................ 13
Liquidity and Sources of Capital.................................. 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.......................................... 14
Item 2 - Changes in Securities...................................... 15
Item 3 - Defaults Upon Senior Securities............................ 15
Item 4 - Submission of Matters to a Vote of Security Holders........ 15
Item 5 - Other Information.......................................... 15
Item 6 - Exhibits and Reports on Form 8-K........................... 15
Signatures............................................................. 16
-i-
<PAGE> 3
WINNERS ENTERTAINMENT, INC.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Condensed and Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,563,000 $ 807,000
Restricted cash 409,000 426,000
Notes receivable from related parties 62,000 62,000
Accounts receivable, net of allowance for
doubtful accounts of $110,000 and $70,000
in 1996 and 1995, respectively 160,000 174,000
Deferred financing costs 380,000 388,000
Other current assets 136,000 115,000
----------- ----------
Total Current Assets 2,710,000 1,972,000
Property:
Land 371,000 371,000
Buildings 15,716,000 15,716,000
Equipment and automobiles 2,282,000 2,258,000
Furniture and fixtures 2,040,000 2,021,000
Construction in progress 889,000 519,000
----------- ----------
21,298,000 20,885,000
Less accumulated depreciation (3,181,000) (2,785,000)
----------- ----------
18,117,000 18,100,000
Net Assets of Discontinued Oil and Gas Activities
(Note 4) 2,616,000 2,616,,000
Other Assets:
Excess of cost of investments over net assets
acquired net of accumulated
amortization of $833,000 at March 31, 1996 and $770,000
at December 31, 1995 2,941,000 3,004,000
Deposits and other assets 27,000 55,000
----------- ----------
2,968,000 3,059,000
TOTAL ASSETS $26,411,000 $25,747,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE> 4
WINNERS ENTERTAINMENT, INC.
Condensed and Consolidated Balance Sheets
(Continued)
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- -----------
<S> <C> <C>
LIABILITIES
Current Liabilities:
Accounts payable $ 2,801,000 3,474,000
Accrued liabilities 2,129,000 2,172,000
Accrued purses 337,000 85,000
Current portion of long term debt 4,040,000 2,536,000
Redeemable common stock 1,129,000 991,000
------------ ------------
Total Current Liabilities 10,436,000 9,258,000
------------ ------------
Accrued liabilities 1,113,000 490,000
------------ ------------
Deferred income taxes 1,496,000 1,529,000
------------ ------------
Redeemable common stock, net of current 277,000 415,000
------------ ------------
Long-term debt 6,888,000 8,071,000
------------ ------------
Shareholders' equity (Note 3)
Common stock 2,000 2,000
Paid-in capital 32,525,000 32,115,000
Receivable from exercise of options (42,000) (69,000)
Accumulated deficit (26,284,000) (26,064,000)
------------ ------------
Total shareholders' equity 6,201,000 5,984,000
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 26,411,000 $ 25,747,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 5
WINNERS ENTERTAINMENT, INC.
Condensed and Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1996 1995
---- ----
Revenues:
<S> <C> <C>
Video lottery operations $ 5,758,000 $ 2,951,000
Pari-mutuel commission 1,008,000 897,000
Lodging, food and beverage 652,000 518,000
Other 160,000 310,000
----------- -----------
Total Revenues 7,578,000 4,676,000
----------- -----------
Costs and Expenses:
Cost of video lottery operations 3,945,000 2,182,000
Cost of pari-mutuel commissions 1,136,000 1,251,000
Cost of lodging, food and beverage 681,000 745,000
Cost of other revenues 216,000 146,000
General and administrative expenses 1,195,000 1,135,000
Depreciation expense 459,000 414,000
----------- -----------
Total Costs and Expenses 7,632,000 5,873,000
----------- -----------
Operating Loss (54,000) (1,197,000)
Other Income (Expense)
Interest Expense (199,000) (416,000)
----------- -----------
Loss Before Income Tax Benefit (253,000) (1,613,000)
------------ ------------
Benefit for Income Taxes 33,000 33,000
----------- -----------
Net Loss $ (220,000) $(1,580,000)
----------- -----------
Loss per Share $ (0.01) $ (0.10)
----------- -----------
Weighted Average Number
of Shares Outstanding 18,159,783 15,260,481
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 6
WINNERS ENTERTAINMENT, INC.
Condensed and Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Loss from Continuing Operations $ (220,000) $(1,580,000)
Adjustments to Reconcile Net Losses to
Net Cash Used in Operating Activities:
Depreciation and amortization 459,000 414,000
Provision for doubtful accounts 40,000 0
Common stock issued and stock options granted 410,000 35,000
Other noncash provisions 90,000 0
Deferred income taxes (33,000) (33,000)
Net Change in Assets and Liabilities:
Prepaid expenses and other (39,000) 238,000
Restricted cash 17,000 210,000
Net assets of discontinued operations 0 (12,000)
Accounts payable and accrued expenses (179,000) 171,000
Accrued purses 252,000 (17,000)
---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 797,000 (574,000)
---------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Deposits and other (28,000) 3,000
Capital expenditures (334,000) (1,282,000)
---------- -----------
CASH USED IN INVESTING ACTIVITIES $ (362,000) $(1,279,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on note payable $ (59,000) $ 0
Proceeds from issuance of notes payable 380,000 1,500,000
---------- -----------
CASH PROVIDED BY
FINANCING ACTIVITIES 321,000 $ 1,500,000
---------- -----------
NET INCREASE IN CASH 756,000 (353,000)
Cash, Beginning of Period 807,000 1,057,000
---------- -----------
Cash, End of Period $1,563,000 $ 704,000
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 7
WINNERS ENTERTAINMENT, INC.
Notes to Condensed and Consolidated Financial Statements
March 31, 1996
Note 1 - Basis of Presentation
The accompanying unaudited condensed, consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included herein. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the consolidated financial statements and notes hereto included in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
Note 2 - Commitments and Contingencies
The Registrant has developed and is implementing a corrective action plan
in connection with leakage from underground storage tanks at its Chester, West
Virginia, facility, Mountaineer Race Track and Resort. Management has estimated
the cost of corrective action to be approximately $140,000, consisting of
approximately $80,000 in capital expenditures to be incurred in 1996 and
approximately $60,000 in monitoring and operational costs to be expended in 1995
and 1996. The Registrant recorded a provision of $140,000 in 1995 for these
projected expenses. The Registrant expended $30,000 relating to this contingency
in the first quarter of 1996 following payment of $45,000 in the second half of
1995.
Note 3 - Income Taxes
The benefit for income taxes recorded in the accompanying statement of
operations for the three month periods ended March 31, 1996 and 1995 results
from non-tax deductible depreciation expense attributable to the purchase method
of accounting for the investment. At March 31, 1996, the Registrant has recorded
a non-current valuation allowance of approximately $8.7 million against its
primary deferred tax assets (net operating loss carryforwards for federal and
state income tax purposes). At March 31, 1996, the Registrant has approximately
$23 million in net operating loss carryforwards, however, as a result of a
change of ownership during 1992 due to issuances of the Registrant's common
stock, the use of such net operating loss carryforwards is subject to certain
limitations.
Note 4 - Discontinued Operations
Oil and Gas Properties. In accordance with the Registrant's March 31, 1993
plan of orderly liquidation, the Registrant's Ohio wells and leases were sold in
December 1994 for notes valued at approximately $426,000 to Development &
Acquisition Ventures in Energy, Inc., a corporation controlled by David T.
Arneault, the brother of Edson R. Arneault, the Registrant's president. One note
is in the principal amount of $300,000 bearing interest at 8% per annum, payable
$10,000 per month beginning May 1995; no impairment was determined by management
for possible uncollectibility of the notes through March 31, 1996. In addition,
the Registrant received a non-interest bearing production note of $150,000 which
will be paid from net production revenues from the project. Such receivable is
included in net assets of discontinued operations in the consolidated balance
sheets at December 31, 1995 and March 31, 1996.
-5-
<PAGE> 8
WINNERS ENTERTAINMENT, INC.
The accompanying consolidated financial statements reflect the assets and
liabilities of its oil and gas operations separately from continuing operations.
The assets of the discontinued operations are shown net of the allocated
liabilities. The net assets of the discontinued operations as of March 31, 1996
and December 31, 1995 are presented below. Due to the sale of the oil and gas
interest in December 1994, no operations exist in 1995 or 1996.
BALANCE SHEET ITEMS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
-------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Receivable from sale of assets.................... $ 356,000 $ 386,000
Oil and Gas Activities:
Proved oil and gas properties .................... 2,582,000 2,582,000
---------- ----------
$2,938,000 $2,968,000
LIABILITIES
Current Liabilities:
Accounts payable to related parties............... 83,000 100,000
Accrued liabilities............................... 239,000 252,000
---------- ----------
NET ASSETS.............................................. $2,616,000 $2,616,000
========== ==========
</TABLE>
The Registrant's remaining assets are located in Michigan, consisting of a
25% working interest in a 64% net revenue interest in proved reserves; 34 wells
exist on the property which have been inoperative since the Registrant's
ownership. Fleur-David Corporation is currently in the process of reworking the
wells, which upon commencement of production, are expected to enable the wells
to generate production of approximately 3,300,000 barrels (BBLs) of oil over a
period of ten years, with approximately 65% of such reserves recoverable over a
period of four years. Leases, for sites on which the 34 wells are located, are
held by force majeure (by production).
During 1994 and 1995, three corporate affiliates of Mr. Arneault advanced
an aggregate sum of approximately $100,000 to the Registrant primarily to cover
overhead expenses in connection with the maintenance of leases and other costs
associated with the Registrant's existing oil and gas interests in Michigan and
former interests in Ohio. In February 1996, such accrued amount, along with
accrued interest thereon at the rate of 10% per annum, was converted into three
demand promissory notes in the aggregate principal amount of $100,218 payable to
such corporate affiliates at the rate of 10% per annum. In March 1996, the
Registrant paid $17,000 of such principal amount. No material overhead expenses
are expected to be incurred in 1996.
Hotel/Casino Development Property. Effective March 8, 1996, Winners'
wholly-owned subsidiary, SDR Corporation, was officially dissolved. SDR
Corporation had been inactive since 1993 and had no material assets or
liabilities at the time of its dissolution.
Note 5 - Expanded Video Lottery Legislation
In March 1996, the West Virginia legislature approved the usage of video
game themes depicting symbols on reels, commonly referred to as "line games" or
"slot games." The Registrant's video lottery terminal supplier is actively
working on the development of slot game software to be installed in 400 of
Mountaineer's existing video lottery terminals ("VLTs").
-6-
<PAGE> 9
WINNERS ENTERTAINMENT, INC.
Management's target date for the implementation of slot games is July 1996,
although there can be no assurance that slot game software will be successfully
installed by that date.
In 1995, the Lottery Commission approved the linking of VLTs to enhance the
amount that could be won on any single play of any single VLT within the linked
group. The Lottery Commission also approved nominal payout percentages for this
gaming option, commonly referred to as "progressives," of up to 95%. The
Registrant expects to link approximately half of its VLTs into several
progressive playing groups. Mountaineer's VLT supplier is actively working on
the development of progressive gaming software for the Registrant's existing 800
VLTs. Management's target date for implementation of progressive gaming play is
the third quarter of 1996, although there can be no assurance that progressive
games will be successfully implemented by that date or at all.
Note 6 - Settlement Agreement
On March 2, 1995, the Registrant settled a claim by Jackpot Enterprises,
Inc. arising from an earlier financing arrangement, effective June 25, 1994, by
agreeing to issue shares of its common stock with registration rights. The
number of shares of common stock to be issued is based on $512,500 divided by
the closing market price per share on the effective date of registration. The
Registrant recorded a provision for loss of $525,000 in connection with the
settlement which is included in the consolidated statement of operations for the
year ended December 31, 1994.
Subject to the terms of the agreement, the Registrant is obligated to file
a registration statement to register the shares with the Securities and Exchange
Commission. For every 60 days the registration statement remains unfiled, the
Registrant is obligated to issue an additional 12,500 shares of its common stock
up to a maximum of 250,000 shares. During 1995 and in the first quarter of 1996,
the Registrant issued 175,000 shares and 25,000 shares, respectively, of its
common stock as part of its settlement and, accordingly, $414,000 was reduced
from accrued liabilities in 1995, followed by a first quarter reduction of
$37,000. At March 31, 1996, $62,000 remains in accrued liabilities in the
accompanying consolidated balance sheet. Management expects to issue an
additional 50,000 shares of its common stock as management does not expect to
file an effective registration statement by the deadline provided in this
agreement.
Note 7 - Long-Term Debt
On January 12, 1996, Mountaineer's construction loan agreement with Bennett
Management and Development Corporation was amended, as follows: The construction
loan will automatically convert to a 36 month term loan on May 31, 1996 if not
repaid prior to that date. The term loan is payable in 36 installments of
$283,333 plus interest at 12.5% per annum, commencing May 31, 1996. Through
prior mutual agreement, interest payments totaling $216,041 were extended beyond
their scheduled November and December 1995 due dates, to January and February
1996, respectively, at which times such amounts were paid.
Amounts charged to interest during the three month period ended March 31,
1996 and 1995 totaled $199,000 and $416,000, respectively. The Registrant
capitalized $267,000 and $446,000 of interest costs in the first quarters of
1996 and 1995, respectively.
In March 1996, Bennett Management & Development Corporation and its parent,
The Bennett Funding Group, Inc. filed for protection from creditors under
Chapter 11 of the Federal Bankruptcy Laws. The Bankruptcy Court subsequently
assigned a trustee to administer the affairs of the estates while in bankruptcy.
The Registrant has continued to remit interest payments to Bennett Management &
Development Corporation under the terms of the construction loan agreement, as
amended January 1996.
-7-
<PAGE> 10
WINNERS ENTERTAINMENT, INC.
Note 8 - Short-Term Notes Payable
In March 1996, the Registrant entered into five short-term note agreements
aggregating $750,000 due in five equal monthly principal and interest
installments of $150,000, commencing 30 days from the date of the loan. In
addition, the Registrant issued 100,000 shares of its common stock valued at
approximately $81,250 as consideration for the loan. Total interest costs on
this indebtedness are expected to be approximately $261,250 and will be charged
to operations in 1996. The Registrant received the first $380,000 to be borrowed
in accordance with these agreements on March 26, 1996; the remaining $220,000 of
proceeds were received in April 1996.
Note 9 - Video Lottery Terminals Operating Lease
Mountaineer leases 800 video lottery terminals under the terms of a master
lease agreement executed in 1994. The master lease agreement contains two
payment schedules, one governing payments for 400 terminals delivered in August
1994, and another governing payments for 400 terminals delivered in June 1995.
On March 26, 1996, the Registrant entered into an agreement with the lessor
amending the payment terms of the master lease agreement. The amendment provides
for a consolidated payment schedule with no lease payments in December 1995,
January and February 1996, monthly payments of $119,471 in March and April 1996,
and from November 1996 through January 1999, and monthly payments of $183,176
from May through October 1996. In addition to the amounts reflected above, the
Registrant is obligated to make interest payments from March through October
1996 at the rate of 15% of the periodic rental payments previously due,
representing a total interest obligation of $26,278.
Note 10 - Capital Transactions
During 1995, the Registrant incurred salaries to key members of management
totaling $204,000 which remained unpaid at December 31, 1995. On February 9,
1996, the board of directors approved two agreements to issue 466,676 shares of
the Registrant's common stock in satisfaction of $186,000 of these liabilities
(plus accrued interest of $3,300 calculated at the rate of 10% per annum) based
on the closing market price of the stock on that day of $.40625 per share. The
agreements provide that for a term of one year commencing February 9, 1996, in
the event the initial holders propose to sell any of the shares, they shall be
required to notify the Registrant of such intention and the Registrant may then
elect, at any time before the proposed date of sale, to purchase the shares at
the price of $1.00 per share, payable within two days after the date of such
election. Otherwise, the shares may be sold as proposed. In addition, the
Registrant shall have the right at any time to purchase the shares for a price
of $1.00 per share within two days after notice of its intention to do so.
In November, 1995, the Registrant entered into an agreement to compensate a
key consultant for services previously rendered to the Registrant. The agreement
provided for issuance of 200,000 shares of the Registrant's common stock to the
consultant and registration of the shares on Form S-8 with the Securities and
Exchange Commission. The registration statement was filed on December 4, 1995,
and the shares were issued effective January 19, 1996.
In November, 1995, the Registrant's board of directors adopted an incentive
stock option plan meeting the requirements of Section 422 of the Internal
Revenue Code, subject to shareholder approval. In accordance with the plan,
500,000 shares were reserved for issuance on January 23, 1996 at an exercise
price $.5625 per share, based on the closing market price of the stock on that
day. The options are exercisable over a period of five years, subject to certain
limitations.
-8-
<PAGE> 11
WINNERS ENTERTAINMENT, INC.
On January 23, 1996, the board of directors granted to its two outside
directors, Robert A. Blatt and Robert L. Ruben, non-qualified stock options to
purchase 50,000 shares and 75,000 shares of the Registrant's common stock,
respectively, at the fair market value of the shares on the date of grant of
$.5625 per share. The options are immediately exercisable for a term of five
years.
On March 22, 1996, the Registrant issued 100,000 shares of common stock in
connection with the short-term financing described in Note 8 above. Such shares
were valued at the fair market value of $.8125 per share on that date.
Note 11 - Subsequent Events
In 1995, the Registrant recorded a $50,000 loss provision in connection
with a short term loan advanced in 1994 to a company with a common significant
shareholder. In April 1996, a confessed judgment promissory note was obtained to
secure payment for the loan. Payment of $58,333, including interest at 8% per
annum, is due on August 4, 1996.
On May 10, 1996, the Registrant notified American Newco, Inc. and American
Gaming & Entertainment, Ltd. of the termination of the Registrant's June 30,
1995 Consulting Agreement with American Newco and its June 2, 1994 Management
Agreement with American Gaming & Entertainment. For discussion of the notice of
termination, see "Results of Operations, Costs and Expenses, Video Lottery
Operations" in Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations," below.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The Registrant earned revenues for the respective three month periods in
1996 and 1995 as shown below:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
Operating Revenues: 1996 1995
---------- ----------
<S> <C> <C>
Video lottery operations $5,758,000 $2,951,000
Pari-mutuel commissions 1,008,000 897,000
Lodging, food and beverage 652,000 518,000
Other revenues 160,000 310,000
---------- ----------
$7,578,000 $4,676,000
========== ==========
</TABLE>
Revenues
Mountaineer's breadth and scope of operations increased significantly in
late 1995, most notably in video lottery operations. Total revenues increased
by $2.9 million or 62%, to $7.6 million in the first quarter of 1996 from $4.7
million for the three month period ended March 31, 1995.
The geographic area surrounding the Registrant's operating facilities in
West Virginia experienced extensive flooding and unusually heavy snowfall in the
first quarter of 1996 due to aberrant weather conditions. The Registrant's 62%
revenue increase was achieved despite these unusual weather conditions, which
produced difficult travel conditions as well as burdensome financial exigencies
for local residents who constitute a significant portion of Mountaineer's
customer base. Flood and snow damage in portions of Ohio, West Virginia and
Western
-9-
<PAGE> 12
WINNERS ENTERTAINMENT, INC.
Pennsylvania reached levels resulting in their designation as federal disaster
areas. Mountaineer's facilities are situated well above the flood plain and did
not sustain any damage; Mountaineer's nearest competitor was extensively damaged
and ceased operations for approximately four weeks in the first quarter of 1996.
Video Lottery Operations. The Registrant has operated video lottery
terminals ("VLTs") in West Virginia since 1990; operations were conducted under
a provisional license until September 1994. The West Virginia Racetrack Video
Lottery Act, signed in March 1994, allowed the uninterrupted continuation of
video lottery games at Mountaineer and permitted the Registrant to increase its
number of VLTs from 165 to 400 on September 4, 1994. In July 1995, the
Registrant placed into operation an additional 400 VLTs, bringing the total
number of VLTs in operation to 800. Mountaineer has subsequently received
approval from the West Virginia lottery Commission to add up to 200 more VLTs,
which it intends to install itself in the second half of 1996. A summary of the
video lottery gross winnings less patron payouts for the three months ended
March 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Total gross wagers $ 20,223,000 $10,035,000
Less patron payouts (14,465,000) 7,084,000)
------------- -----------
Revenues - video lottery operations $ 5,758,000 $2,951,000
============ ===========
</TABLE>
VLT revenues nearly doubled from the first quarter of 1995 to the same
period in 1996 to $5.8 million, an increase of $2.8 million from $3.0 million
for the three months ended March 31, 1995. The increase was primarily
attributable to the expansion of video lottery facilities and the addition of
400 more VLTs in July 1995 and expansion of the Lodge Speakeasy Gaming Saloon in
December 1995. The results of video lottery operations reflected a continued
trend of significantly increasing aggregate net win while maintaining $79 per
machine net win per day for the three months ended March 31, 1996 compared to
$82 per day for the three months ended March 31, 1995.
Racing Operations. The Registrant's revenue from racing operations is
derived mainly from commissions earned on pari-mutuel wagering handle on live
races held at Mountaineer and on races conducted at other host racetracks and
simulcast at Mountaineer. Under West Virginia Horse Racing Law, the Registrant
is required to conduct live racing a minimum of 220 days per year. Mountaineer's
total pari-mutuel commissions for the three months ended March 31, 1996 and 1995
are summarized below:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Total pari-mutuel wagering handle $ 9,255,000 $ 8,370,000
Less patrons' winning tickets (7,318,000) (6,666,000)
----------- ------------
1,937,000 1,704,000
Less:
State and County pari-mutuel tax (115,000) (103,000)
Purses and Horsemen's Association (814,000) (704,000)
----------- ------------
Pari-mutuel Commissions $ 1,008,000 $ 897,000
=========== ===========
</TABLE>
Live racing handle declined by $1.1 million to $3.7 million, or 22%, for
the three months ended March 31, 1996 from $4.8 million for the three months
ended March 31, 1995. For the first quarter of 1996, Mountaineer has completed
45 of the annually required 220 live racing days
-10-
<PAGE> 13
WINNERS ENTERTAINMENT, INC.
compared to 50 days for the same period in 1995. Simulcast handle rose by $2.0
million or 54%, to $5.5 million due to track betting renovations and an increase
in the number of wagering days to seven days per week at multiple locations,
plus the introduction of simulcast greyhound racing in the second quarter of
1995. Average daily purses, which were $22,600 in the first quarter of 1995,
increased twice during 1995 and 1996 by an average daily amount of $6,900 to
$29,500 at March 31, 1996.
Food, Beverage and Lodging Operations. Food, beverage and lodging revenues
accounted for a combined increase of 26% to $652,000 for the three months ended
March 31, 1996 from $518,000 for the same three month period in 1995.
Refurbishment of the Lodge guest rooms early in 1995 produced increased revenues
of $74,000 to $191,000 from $114,000 for the same period-to-period comparison.
Forty-one guest rooms were unavailable for use in the first quarter of 1995 due
to smoke damage experienced in the fourth quarter of 1994. Food and beverage
revenues also reflected an increase of $57,000 to $461,000, or 14%, from
$404,000 for the three months ended March 1995.
Other Operating Revenues. Other sources of revenues decreased by $150,000
to $160,000 from $310,000, for the three month period ended March 31, 1996,
compared to the same period in 1995.
Costs and Expenses
Operating costs and gross profit earned from operations for the three
month periods ended March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
Operating Costs: 1996 1995
-------- --------
<S> <C> <C>
Video lottery operations $3,945,000 $2,182,000
Pari-mutuel commissions 1,136,000 1,251,000
Lodging, food and beverage 681,000 745,000
Other revenues 216,000 146,000
---------- ----------
$5,978,000 $4,324,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
Gross Profit (Loss):
<S> <C> <C>
Video lottery operations $1,813,000 $ 769,000
Pari-mutuel commissions (128,000) (354,000)
Lodging, food and beverage (29,000) (227,000)
Other revenues (56,000) 164,000
---------- ---------
$1,600,000 $ 352,000
========== =========
</TABLE>
The Registrant's 62% increase in revenues due to the expanded scope of
entertainment offerings at Mountaineer resulted in higher total costs and
expenses which increased by $1.7 million to $6.0 million, or 38%, from $4.3
million for the three months ended March 31, 1995, compared to the same period
in 1996.
Video Lottery Operations. Costs of VLTs increased by $1.8 million, or 81%,
from $2.2 million to $3.9 million for the three months ended March 31, 1996,
compared to the three months ended March 31, 1995, reflecting the increase in
statutory expenses directly related to the 95%
-11-
<PAGE> 14
WINNERS ENTERTAINMENT, INC.
increase in video lottery revenues. Such expenses accounted for $1.5 million of
the total cost increase.
After payment of a State Administrative Fee of up to 4% of revenues, the
Registrant is obligated to make payments from the remaining video lottery
revenues to certain funds administered by the West Virginia Lottery Commission,
as follows: State Tax 30%, Horsemen's Purse Fund 15.5% Tourism Promotion 3%,
Hancock County 2%, Breeders Classics 1%, Veterans Memorial Program 1%, and .5%
to the Employee Pension Fund. Taxes and assessments paid to these funds are
included in "Cost of Video Lottery Operations" in the consolidated statement of
operations. Statutory costs and assessments for the respective three month
periods are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1996 1995
-------- --------
<S> <C> <C>
State of West Virginia $1,658,000 $ 850,000
Horsemen's Purse Fund 857,000 439,000
Other contract costs 414,000 212,000
---------- ----------
$2,929,000 $1,501,000
========== ==========
</TABLE>
In addition, the Registrant paid management fees of $89,000 to American
Gaming and Entertainment, Ltd. ("AGEL") for the three months ended March 31,
1995. The Registrant's June 2, 1994 management agreement with AGEL was suspended
pursuant to a stay agreement effective June 30, 1995, until such time as the
Registrant's construction lender complied with certain requirements of the West
Virginia Lottery Commission. In July 1995, AGEL assigned its right to conduct
business with Mountaineer to American Newco, Inc., a company owned by two
officers and shareholders of AGEL.
On July 1, 1995, the Registrant and American Newco entered into a
consulting agreement whereby American Newco agreed to provide consulting
services in connection with the Registrant's video lottery operations at the
rate of $10,000 per month, subject to increases of up to $10,000 per month for
additional services which may be provided, through March 17, 1997. The personal
involvement of the two shareholders of American Newco as consultants to the
Registrant is a material element of the consulting agreement. Such personal
involvement has not been provided since October 15, 1995, and on May 10, 1996,
Management provided American Newco and AGEL with formal notice of termination of
the consulting and management agreements. (Pursuant to a June 30, 1995
settlement agreement between the Registrant, MPI and Gamma of West Virginia,
Inc., a subsidiary of AGEL, in the event the consulting agreement is terminated
for cause, the management agreement automatically terminates.) As a result, no
consulting fees have been accrued in 1996. Although Management believes there
are sufficient grounds to terminate the consulting and management agreements
without additional liability to the Registrant, there are no assurances that
such terminations will not be successfully challenged or that the Registrant
will not incur additional liability in connection with the agreements.
VLT salaries expense increased by $99,000 to $228,000 from $129,000 for the
three months ended March 31, 1995, compared to the three months ended March 31,
1996. This increase was attributable to staff hired to support the operation of
the additional VLTs. Costs incurred by Mountaineer for utilities and insurance
due to enlarged facilities and expanded staffing increased by $69,000 to
$117,000 from $48,000 for the same period-to-period comparison. Lease expenses
increased from $218,000 in the first quarter of 1995 to $377,000 in the first
quarter of 1996, reflecting the 400 additional VLTs placed into service in the
third quarter of 1995.
-12-
<PAGE> 15
WINNERS ENTERTAINMENT, INC.
Racing Operations. Costs of pari-mutuel commissions declined $115,000, or
9%, from $1.3 million in the first quarter of 1995 to $1.1 million in the first
quarter of 1996. Simulcast host track fees and totalisator system lease expenses
relating to simulcasting operations increased $81,000 from 1995 to 1996, due to
expansion of this phase of racing. Totalisator lease expenses relating to live
racing declined $42,000 from the first quarter of 1995 versus 1996 due to
negotiation of more favorable lease terms in December 1995. Also, a reduction in
live race days, from 50 in the first quarter of 1995 to 45 in the same period in
1996, contributed to the reduction in expenses.
Food, Beverage and Lodging Operations. Food, beverage and lodging expenses
decreased by $64,000, or 9%, to $681000 in the first quarter of 1996 from
$745,000 for 1995, reflecting greater operating efficiencies achieved in 1996.
Costs of Other Operating Revenues. Costs of other revenues increased by
$70,000, or 32%, to $216,000 from $146,000 for the three month period ended
March 31, 1995, compared to the same period ended March 1996.
General and Administrative Expenses. General and administrative expenses
increased by $60,000 to $1,195,000 or 5%, from $1,135,000 for the same three
month periods ended March 31, 1996 and 1995, respectively. Management's efforts
to reduce the cost of corporate operations produced a decrease in corporate
general and administrative expenses by $64,000 from $458,000, or 13%, to
$394,000 for the same period-to-period comparison. Corporate general and
administrative expense for the first quarter of 1996 reflected the issuance of
200,000 shares, valued at $106,000 for the services rendered by a key consultant
and significant shareholder. General and administrative expenses at Mountaineer
reflected a 15% increase, from $677,000 to $801,000 for the same periods. These
increases were attributable to the expanded scope of Mountaineer's operations,
assumption of certain corporate responsibilities and expenses relating to
legislative compliance. First quarter 1996 expenses include a $40,000 provision
for bad debt write-offs.
Advertising Expense, included in General and Administrative Expenses,
increased only slightly by $6,000, from $196,000 to $202,000 for the three
months ended March 31, 1996, compared to the same period as of March 31, 1995.
Cash Flows
During the three months ended March 31, 1996, the Registrant produced net
cash from operations of $797,000 versus net cash used in operations of
($574,000) for the comparable period in 1995. Losses from operations of $220,000
for the three months ended March 31, 1996 were offset by non-cash depreciation
and amortization of $459,000, and by $132,000 in cash produced from the
management of prepaid expenses, accounts payable and other elements of working
capital. During the three months ended March 31, 1995, net losses of $1,580,000
were offset by non-cash depreciation, amortization and common stock issued for
services and settlements, aggregating $449,000. First quarter 1996 operations
were funded to the extent of $410,000 by stock issuances.
During the three months ended March 31, 1996 the Registrant invested
$324,000 for redevelopment of its properties at Mountaineer. The Registrant
borrowed $380,000 under short term borrowing arrangements in March 1996.
Liquidity and Sources of Capital
At March 31, 1996, the Registrant has current liabilities in excess of
current assets of approximately $7.7 million, of which $1.1 million relates to
redeemable common stock
-13-
<PAGE> 16
WINNERS ENTERTAINMENT, INC.
obligations. The Registrant has sought working capital financing to address
current obligations. In March 1996, the Registrant entered into a short-term
financing arrangement for the purpose of liquidating certain accounts payable
balances at discounts, which will be recorded in the Registrant's second quarter
operating results. Interest costs relating to this loan total $261,250,
including 100,000 shares of Winners common stock valued at $81,250. Interest and
principal payments totaling $750,000 will be repaid in five equal monthly
installments from April through August in full satisfaction of the financing
arrangement. The Registrant will continue in its efforts to finance its
short-term needs, however, there are no assurances that such financing will be
obtained on satisfactory terms.
The Registrant's $10.2 million long-term debt balance owed to Bennett, is
expected to be refinanced through mortgage loan or other suitable financing
which is anticipated to include more favorable amortization terms. During 1995,
the Company experienced difficulties and delays in its refinancing efforts due
to uncertainties involving the Registrant's video lottery license caused by
Bennett's repeated failure to timely file audited financial statements with the
West Virginia Lottery Commission. Bennett eventually filed the required audited
financial statements on November 1, 1995, and during the first quarter of 1996,
the Registrant was able to attract several potential lenders.
Additional uncertainties arose, however, in March 1996, when Bennett and
its parent, The Bennett Funding Group, Inc., filed for protection from creditors
under Chapter 11 of the Federal Bankruptcy Laws. The Bankruptcy Court assigned a
trustee to administer the Bennett companies while in bankruptcy. Civil
proceedings were initiated by the Securities and Exchange Commission against
both Bennett companies, and civil and criminal proceedings against Patrick
Bennett, a principal of The Bennett Funding Group. Management was not able to
obtain confirmation from the West Virginia Lottery Commission that its video
lottery license would be unaffected by these developments until May 9, 1996.
The Registrant believes that the resolution of the issues involving
Bennett, coupled with anticipated increases in video lottery and simulcast
racing revenues (especially with the introduction of video line games planned
for July 1996) will permit the Registrant to refinance its long-term debt and
meet continuing obligations. Although the Registrant is currently negotiating
with a variety of potential lenders, there are no assurances that such a
financing will be obtained on terms acceptable to the Registrant, or within
sufficient time to meet its on-going obligations. The Registrant has continued
to remit interest payments to Bennett under the terms of the construction loan
agreement.
The Registrant has substantially completed its physical renovation of
Mountaineer in preparation for its marketing as a comprehensive destination
resort centered around extensive video gaming operations. Significant increases
in revenues were provided by Mountaineer's expanded gaming operations after the
introduction of 400 additional video lottery terminals in July 1995 and the
subsequent expansion of the lodge based Speakeasy Gaming Saloon in December
1995. Mountaineer's revenue streams have historically exhibited seasonal peaks
in the summer months with declining patronage in the winter months. Management
believes that the emergence of video gaming as its dominant profit center will
reduce the severity of these seasonal fluctuations in revenue; however, there
are no assurances that this trend will be appreciably altered.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is incorporated by reference the information appearing under the
caption "Legal Proceedings" in the Registrant's Form 10-K for the year ended
December 31, 1995.
-14-
<PAGE> 17
WINNERS ENTERTAINMENT, INC.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(i) Articles of Incorporation, as amended.(1)
3(ii) By-Laws of Winners Entertainment, Inc.(1)
10(1) May 9, 1996 Notice of Termination of Consulting Agreement, dated
July 1, 1995, between Mountaineer Park, Inc. and American Newco,
Inc. and Management Agreement, dated June 2, 1994, between
Winners Entertainment, Inc. and American Gaming & Entertainment,
Inc.
10(2) April 4, 1996 Substitute and Replacement Confessed Judgment
Promissory Note by and between MPTV, Inc., and Winners
Entertainment, Inc.
10(3) March 25, 1996 Letter Agreement between Edson R. Arneault and
Winners Entertainment, Inc.
10(4) March 25, 1996 Letter Agreement between Thomas K. Russell and
Winners Entertainment, Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
--------
(1) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, Exhibits 3(i) and (ii).
-15-
<PAGE> 18
WINNERS ENTERTAINMENT, INC.
PART IV
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WINNERS ENTERTAINMENT, INC.
(Registrant)
/s/ Edson R. Arneault May 16, 1996
------------------------------------------------
Edson R. Arneault
President and Chief Executive Officer
/s/ Thomas K. Russell May 16, 1996
------------------------------------------------
Thomas K. Russell
Secretary, Treasurer and Chief Financial Officer
-16-
<PAGE> 1
EXHIBIT 10(1)
American Newco, Inc. May 9, 1996
American Gaming & Entertainment, Inc.
c/o Mr. William I. Fasy, CFO/CEO
Bayport One, Yacht Club Drive, Suite 300
West Atlantic City, NJ 08232
Re: 1. Consulting Agreement (the "Agreement") dated July 1, 1995, between
Mountaineer Park, Inc. ("MPI") and American Newco, Inc. ("American
Newco");
2. Management Agreement ("Management Agreement"), dated June 2, 1994,
between Winners Entertainment, Inc., MPI, and American Gaming &
Entertainment, Ltd. ("AGEL") and subsequently assigned by AGEL to Gamma
of West Virginia, Inc.; and
3. Settlement Agreement ("Settlement Agreement"), dated June 30, 1995,
between Winners Entertainment, Inc., MPI and Gamma of West Virginia, Inc.
Gentlemen:
As a material inducement for MPI to enter into the Consulting Agreement,
American Newco promised at paragraph 1.c. thereof to cause Alfred J. Luciani and
J. Timothy Smith each to spend at least one day per month at Mountaineer Race
Track & Resort ("Mountaineer"). As a further material inducement for MPI to
enter into the Consulting Agreement, American Newco acknowledged at paragraph
1.d. that MPI was engaging the personal services of American Newco for the
principal purpose of securing the services of Messrs. Luciani and Smith.
Luciani and Smith spent two and three days at Mountaineer during the month
of September 1995, after which no further time was spent by either of them at
Mountaineer. In addition, MPI has been informed that as of December 15, 1995,
Messrs. Luciani and Smith were officially no longer part of the management of
American Newco or AGEL. MPI was not notified of this development until April
1996.
These events constitute material breaches of American Newco's duties of
performance under the Consulting Agreement, and in accordance with paragraph
2.b. thereof, MPI hereby provides notice of termination of the Consulting
Agreement. Despite the notice provisions of paragraph 2.b., due to the
long-standing nature of the breaches, MPI deems the termination to be effective
at least by December 15, 1995. However, MPI reserves all rights with respect to
possible earlier termination after a thorough review of the matter. Pursuant to
paragraph 1 of the Settlement Agreement and paragraph 3.4 of the Management
Agreement, the Management Agreement shall be deemed automatically and
simultaneously terminated.
With respect to outstanding expenses billed by American Newco and AGEL,
there are inconsistencies, errors and instances of billing for items previously
paid by MPI. A report by our controller will follow to provide you with the
details and appropriate adjustments.
Sincerely,
/s/ Thomas K. Russell
----------------------------------
Thomas K. Russell
Secretary and General Counsel
Winners Entertainment, Inc. and
Mountaineer Park, Inc.
cc: Edson R. Arneault
Robert L. Ruben, Esq.
<PAGE> 1
EXHIBIT 10(2)
SUBSTITUTE AND REPLACEMENT
CONFESSED JUDGMENT PROMISSORY NOTE
$58,333.33 AS OF APRIL 4, 1996
LAGUNA BEACH, CALIFORNIA
THIS SUBSTITUTE AND REPLACEMENT CONFESSED JUDGMENT PROMISSORY NOTE (the
"Replacement Note") is made as of this 4th day of April, 1996 by and between
MPTV, Inc., a Nevada corporation (the "Maker"), and Winners Entertainment, Inc.,
a Delaware corporation.
WITNESSETH:
WHEREAS, Maker executed and delivered to Payee a certain Promissory Note,
dated March 4, 1994 in the original principal sum of Fifty Thousand Dollars
($50,000.00) (the "Original Note");
WHEREAS, Maker and Payee desire to substitute and replace the Original Note
with this substitute and replacement note, dated as of April 4, 1996, issued by
Maker and payable to the order of Payee in the aggregate original principal sum
of Fifty-Eight Thousand Thirty-Three and 33/100 Dollars ($58,333.33), which
Original Note is being marked "Replaced" and returned to the Maker concurrently
with the execution and delivery of this Replacement Note; and
WHEREAS, Maker and Payee desire the Replacement Note (i) to reflect that
the due date of the Original Note has been changed, (ii) to appoint Thomas K.
Russell as attorney-in-fact of Maker to confess judgment on the Replacement Note
and (iii) to further modify certain terms and provisions of the Original Note as
hereunder provided.
NOW, THEREFORE, in consideration of the foregoing, the agreements
hereafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Original Note is hereby
substituted and replaced by this Replacement Note as follows, effective as of
the date first written above:
FOR VALUE RECEIVED, the undersigned Maker promises to pay to the order of
the Payee on August 5, 1996 (the "Maturity Date"), the principal sum of
FIFTY-EIGHT THOUSAND THREE HUNDRED THIRTY-THREE AND 33/100 DOLLARS ($58,333.33)
(the "Principal Sum") with interest computed daily on the unpaid Principal Sum
at the per annum rate of interest indicated below, payable at 1461 Glenneyre
Street, Suite F, Laguna Beach, California 92651, or such other place as the
holder hereof may designate in writing delivered or mailed to the Maker. The
payment of principal will be in addition to the payments of interest.
The Maker shall pay the Principal Sum, together with accrued interest at
the fixed rate of eight percent (8%) per annum to be paid in full on the
Maturity Date. Interest shall accrue and be payable on the unpaid Principal Sum
from the date hereof until this Note is fully paid. Interest on this Note shall
be calculated on the basis of a 360-day year applied to the actual number of
days the Principal Sum, or any portion thereof, is outstanding.
Each payment hereunder shall be applied first to the payment of all
interest accrued hereunder as of the date such payment is received, and the
balance of such payment shall be applied to the principal amount hereof. Any
prepayment shall be applied to payments due under this Note in the inverse order
of maturity. Any payments made after demand,
-1-
<PAGE> 2
or default hereunder, may be applied to pay interest, principal, costs or late
charges as the Payee, in its sole discretion, may determine.
In the case of an Event of Default as hereinafter defined, and at the
option of the Payee, the whole of the principal sum shall become immediately due
and payable, without notice, notice of the exercise of such option being hereby
waived.
As used in this Note, an Event of Default shall be:
1. The failure of the Maker to pay, in whole or in part, any sum provided
for herein when due, or to perform as required hereunder or any other instrument
entered into in connection herewith as defined herein or therein, and if an
Event of Default is not defined in such Loan Document, then the occurrence of an
act of omission of the Maker or any other person or entity in breach of any
provision of such Loan Document and the expiration of any notice and/or grace
period relating to such breach;
2. The death or insolvency of the Maker;
3. The filing by the Maker of a petition for relief from creditors under
Title 11 of the United States Code or the filing against the Maker of an
involuntary bankruptcy petition under Title 11 of the United States Code and the
failure of the Maker to have such petition dismissed within ninety (90) days
after such filing or the appointment of a receiver for all or a portion of its
assets and the failure to have the same dismissed within forty-five (45) days of
such appointment;
4. The filing of formal charges against the Maker under any federal or
state law for which forfeiture is a potential penalty; or
5. The issuance of any attachment or garnishment against the Maker, if such
attachment or garnishment is not dismissed within sixty (60) days of service of
notice thereof on the Maker.
The Maker also promises to pay Payee, upon demand by Payee, from time to
time, all costs of collection, and all costs of enforcement of this Note or any
other instrument entered into in connection herewith, including reasonable
attorneys' fees and costs incurred following and during the continuance of a
default hereunder or such other instrument, whether or not any legal action
shall be instituted to enforce this Note.
The privilege is reserved to prepay at any time, without penalty or fee,
but without discount, the entire indebtedness or any part thereof.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
by overnight or second day courier, or by registered or certified mail, return
receipt requested, properly addressed and postage prepaid,
if to Payee, to: if to Maker, to:
Thomas K. Russell James C. Vellema
Winners Entertainment, Inc. MPTV, Inc.
1461 Glenneyre Street, Suite F 3 Civic Plaza, Suite 210
Laguna Beach, California 92651 Newport Beach, California 92660
Telephone (714) 376-3010 (714) 760-6747
-2-
<PAGE> 3
The date notice is deemed given is the date of receipt of such notice
except in the case of an addressee's refusal to accept delivery or in the case
of a change of address of which no notice of such change was properly provided.
In either such case, notice shall be deemed given upon the date it is sent to
the last known address. Notice of a change of address shall have been properly
given when such new address, and the date such new address shall become
effective, is sent in the manner set forth above.
The Maker, and all persons or entities now or at any time liable, whether
primarily or secondarily, for payment of the indebtedness evidenced hereby, for
themselves, their heirs, legal representatives, successors and assigns,
respectively, expressly waive presentment for payment, notice of dishonor,
protest, notice of protest, all other notices (except as expressly provided
herein) and diligence in collection, and consent that the time of said payment
or any part thereof may be extended by the Payee, without in any way modifying,
altering, releasing, affecting, or limiting their respective liability.
Any and all amounts to be paid hereunder shall be paid in good funds,
without setoff, counterclaim or deduction.
MAKER AGREES THAT TIME IS OF THE ESSENCE IN THE PERFORMANCE OF ALL
OBLIGATIONS HEREUNDER.
MAKER HEREBY CONSTITUTES AND APPOINTS THOMAS K. RUSSELL AS MAKER'S
ATTORNEY-IN-FACT, TO CONFESS JUDGMENT ON THIS PROMISSORY NOTE IN ANY APPLICABLE
COURT OF THE CITY OF LAGUNA BEACH, CALIFORNIA, PURSUANT TO THE LAWS OF THE STATE
OF CALIFORNIA. MAKER HEREBY STATES AND ACKNOWLEDGES THAT THE PURPOSE OF THIS
PARAGRAPH IS TO PERMIT PAYEE TO FILE THIS PROMISSORY NOTE AS A CONFESSION OF
JUDGMENT AGAINST MAKER FOR THE THEN UNPAID PRINCIPAL BALANCE OF THIS PROMISSORY
NOTE, ALL COSTS OF COLLECTION, INCLUDING BUT NOT LIMITED TO, ATTORNEYS' FEES AND
COSTS INCURRED BY PAYEE ON ACCOUNT OF SUCH COLLECTION AND ACCRUED INTEREST AT
THE INTEREST RATE AS SET FORTH HEREIN TO AND INCLUDING THE DATE OF SAID
CONFESSION OF JUDGMENT AND INTEREST THEREAFTER AT THE RATE OF INTEREST APPLIED
TO THE UNPAID PRINCIPAL BALANCE.
This Note shall be governed in all aspects by the laws of the State of
California (exclusive of principles of conflicts of laws). The Maker hereby
consents to the jurisdiction of the Courts of the Sate of California, and waives
all defenses of forum non conveniens and lack of venue or personal jurisdiction
with respect to any action brought on this Replacement Note in such courts.
This Note shall be binding upon the Maker and its heirs, executors,
administrators, personal representatives, successors and assigns and shall inure
to the benefit of the Payee and its heirs, executors, administrators, personal
representatives, successors and assigns.
EACH PARTY TO THIS NOTE HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRAIL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
THEREWITH, OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS NOTE OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
-3-
<PAGE> 4
SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT THE PAYEE MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE MAKER HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
Whenever possible, each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
This Replacement Note is not a novation of the Original Note.
This Note shall not be modified, and no terms of this Note shall be waived
except by a written instrument signed by the Maker and the Payee.
The term "Maker" as used in this Note shall mean and have reference to,
collectively, all parties and each of them directly or indirectly obligated for
the indebtedness evidenced by this Note, whether as principal maker, endorser,
guarantor, or otherwise, together with the respective heirs, administrators,
executors, legal representatives, successors and assigns of each of the
foregoing.
All amounts payable hereunder are payable in lawful money of the United
States of America.
This Replacement Note may be executed in counterparts, each of which shall
be deemed an original hereof.
Failure to exercise any of the foregoing options contained in this Note or
other instrument entered into in connection herewith shall not constitute a
waiver of the right to exercise the same or any other option at any subsequent
time in respect to any other event. The acceptance by Payee of any payment
hereunder that is less than payment in full of all amounts due and payable at
the time a full payment is due shall not constitute a waiver of the right to
exercise any of the foregoing options contained in this Note or any other
instrument entered into in connection herewith at that time or at any subsequent
time or nullify any prior exercise of any such option without the express
written consent of Payee.
IN WITNESS WHEREOF, this Replacement Note has been executed by the parties
as of the day and year hereinabove set forth, with the specific intention that
this Replacement Note constitute an instrument under seal in the State of
California.
MAKER: PAYEE:
MPTV, INC., WINNERS ENTERTAINMENT, INC.,
a Nevada Corporation A Delaware corporation
/s/ James C. Vellema /s/ Thomas K. Russell
-------------------------------------- -------------------------------------
James C. Vellema, President Thomas K. Russell, Secretary
(seal) (seal)
-4-
<PAGE> 1
EXHIBIT 10(3)
March 25, 1996
Edson R. Arneault
Mountaineer Park, Inc.
State Route 2 South
Chester, West Virginia 26034
Dear Mr. Arneault:
The purpose of this letter is to set forth our understanding of the terms of an
agreement to issue shares of the Common Stock of Winners Entertainment, Inc.
(the "Company") to you in payment of accrued but unpaid salary and vacation pay.
1. The Company agrees to issue to you 362,866 shares of the Company's
Common Stock (the "Shares") in payment of (i) accrued but unpaid salary and
interest thereon in the aggregate amount of $85,998.41 due to you for your
services to the Company from the period June 30, 1995 to December 31, 1995, (ii)
accrued but unpaid vacation pay in the aggregate amount of $38,416.05 for the
period 1992 through 1995 and (iii) accrued but unpaid bonus in the amount of
$23,000. The issuance of the Shares shall constitute full payment for such
accrued salary, vacation pay and bonus. The number of Shares has been calculated
based on the closing bid price of the Company's Common Stock of $0.40625 on
February 9, 1996, the date upon which we reached agreement on this matter.
2. The Company agrees to register the Shares pursuant to a Registration
Statement on Form S-8 under the Securities Act of 1933 as soon as possible.
3. The certificates representing the Shares will be delivered upon
registration pursuant to paragraph 2 without any legend restricting the resale
of the Shares. The Company agrees to file all reports and take all other actions
necessary to keep the Registration Statement on Form S-8 effective for a period
of not less than one year commencing on the date of issuance of the Shares.
4. Notwithstanding the registration of the Shares on Form S-8 and the
delivery of the certificates representing the Shares without restrictive legend,
your sale of any of the Shares shall be subject to the following restrictions
for a period beginning on the date of this letter agreement and ending on
February 9, 1997:
<PAGE> 2
A. In the event that you propose to sell any of the Shares at a price
in excess of $1.00 per Share, you shall give the Company written notice of such
proposal not less than three business days prior to the date of the proposed
sale. Upon receipt of the notice, the Company may elect at any time before the
date of the proposed sale, by written notice to you, to purchase the Shares that
you propose to sell at the price of $1.00 per Share. If such election is made,
the Company will pay the purchase price to you against the receipt of the Shares
so purchased within two business days after the date of the election. If the
election is not made, then you may proceed with the proposed sale of the Shares.
B. At any time the Company may elect to purchase any or all of the
Shares at the price of $1.00 per Share upon three business days written notice
to you. In such event, the Company shall pay the purchase price to you against
receipt of the Shares so purchased within two business days after the date of
the notice.
C. If by February 9, 1997, the closing bid price of the Company's
Common Stock on NASDAQ shall not have been in excess of $0.40625 per share for a
period of 30 consecutive trading days, then within ten business days of such
date, you may elect to sell to the Company any or all of the Shares at the price
of $0.40625 per Share upon written notice to the Company. In such event, the
Company shall pay the purchase price to you against receipt of the Shares so
purchased within two business days after the date of the notice.
5. This letter agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof; supersedes any and all prior
agreements, arrangements and understandings with respect to the subject matter
hereof; and may be modified only by another written instrument duly executed by
both parties.
6. This letter agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original and all of which taken
together shall constitute one and the same agreement.
7. This letter agreement may not be assigned by operation of law or
otherwise, but shall be binding on the heirs, legal representatives and
successors of the respective parties hereto.
2
<PAGE> 3
If the foregoing comports with your understanding and is acceptable to you,
please execute this letter agreement where indicated below.
Very truly yours,
Winners Entertainment, Inc.
/s/ Thomas K. Russell
-----------------------------------
by: Thomas K. Russell
Accepted and agreed to this 25th day of March, 1996.
/s/ Edson R. Arneault
-----------------------------------
Edson R. Arneault
3
<PAGE> 1
EXHIBIT 10(4)
March 25, 1996
Thomas K. Russell
Winners Entertainment, Inc.
1461 Glenneyre Street, Suite F
Laguna Beach, California 92651
Dear Mr. Russell:
The purpose of this letter is to set forth our understanding of the terms of an
agreement to issue shares of the Common Stock of Winners Entertainment, Inc.
(the "Company") to you in payment of accrued but unpaid salary and vacation pay.
1. The Company agrees to issue to you 103,810 shares of the Company's
Common Stock (the "Shares") in payment of (i) accrued but unpaid salary and
interest thereon in the aggregate amount of $13,629.27 due to you for your
services to the Company from the period June 30, 1995 to December 31, 1995 and
(ii) accrued but unpaid vacation pay in the aggregate amount of $28,606.74 for
the period 1992 through 1995. The issuance of the Shares shall constitute full
payment for such accrued salary, vacation pay and bonus. The number of Shares
has been calculated based on the closing bid price of the Company's Common Stock
of $0.40625 on February 9, 1996, the date upon which we reached agreement on
this matter.
2. The Company agrees to register the Shares pursuant to a Registration
Statement on Form S-8 under the Securities Act of 1933 as soon as possible.
3. The certificates representing the Shares will be delivered upon
registration pursuant to paragraph 2 without any legend restricting the resale
of the Shares. The Company agrees to file all reports and take all other actions
necessary to keep the Registration Statement on Form S-8 effective for a period
of not less than one year commencing on the date of issuance of the Shares.
4. Notwithstanding the registration of the Shares on Form S-8 and the
delivery of the certificates representing the Shares without restrictive legend,
your sale of any of the Shares shall be subject to the following restrictions
for a period beginning on the date of this letter agreement and ending on
February 9, 1997:
<PAGE> 2
A. In the event that you propose to sell any of the Shares at a price
in excess of $1.00 per Share, you shall give the Company written notice of such
proposal not less than three business days prior to the date of the proposed
sale. Upon receipt of the notice, the Company may elect at any time before the
date of the proposed sale, by written notice to you, to purchase the Shares that
you propose to sell at the price of $1.00 per Share. If such election is made,
the Company will pay the purchase price to you against the receipt of the Shares
so purchased within two business days after the date of the election. If the
election is not made, then you may proceed with the proposed sale of the Shares.
B. At any time the Company may elect to purchase any or all of the
Shares at the price of $1.00 per Share upon three business days written notice
to you. In such event, the Company shall pay the purchase price to you against
receipt of the Shares so purchased within two business days after the date of
the notice.
C. If by February 9, 1997, the closing bid price of the Company's
Common Stock on NASDAQ shall not have been in excess of $0.40625 per share for a
period of 30 consecutive trading days, then within ten business days of such
date, you may elect to sell to the Company any or all of the Shares at the price
of $0.40625 per Share upon written notice to the Company. In such event, the
Company shall pay the purchase price to you against receipt of the Shares so
purchased within two business days after the date of the notice.
5. This letter agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof; supersedes any and all prior
agreements, arrangements and understandings with respect to the subject matter
hereof; and may be modified only by another written instrument duly executed by
both parties.
6. This letter agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original and all of which taken
together shall constitute one and the same agreement.
7. This letter agreement may not be assigned by operation of law or
otherwise, but shall be binding on the heirs, legal representatives and
successors of the respective parties hereto.
2
<PAGE> 3
If the foregoing comports with your understanding and is acceptable to you,
please execute this letter agreement where indicated below.
Very truly yours,
Winners Entertainment, Inc.
/s/ Edson R. Arneault
-----------------------------------
By: Edson R. Arneault
Accepted and agreed to this 25th day of March, 1996.
/s/ Thomas K. Russell
-----------------------------------
Thomas K. Russell
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,972,000
<SECURITIES> 0
<RECEIVABLES> 332,000
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,710,000
<PP&E> 21,298,000
<DEPRECIATION> (3,181,000)
<TOTAL-ASSETS> 26,411,000
<CURRENT-LIABILITIES> 10,436,000
<BONDS> 10,928,000
0
0
<COMMON> 32,485,000
<OTHER-SE> (26,284,000)
<TOTAL-LIABILITY-AND-EQUITY> 26,411,000
<SALES> 7,578,000
<TOTAL-REVENUES> 7,578,000
<CGS> 5,978,000
<TOTAL-COSTS> 7,831,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199,000
<INCOME-PRETAX> (253,000)
<INCOME-TAX> (33,000)
<INCOME-CONTINUING> (220,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,000)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
