<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended : July 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-21278
LAS VEGAS ENTERTAINMENT NETWORK, INC
(Exact name of small business issuer as
specified in its Charter)
Delaware 94-3125854
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1801 Century Park East, Los Angeles, California 90067
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 551-0011
(Registrant's telephone number, including area code)
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 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, $.001 par value 34,496,199
Title of Class Number of Shares outstanding at
September 16, 1996
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
ASSETS UN-AUDITED) (DERIVED FROM
AUDITED
FINANCIAL
STATEMENTS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $11,897,424 $ 789,338
---------- ---------
-
TOTAL CURRENT ASSETS 11,897,424 789,338
ASSETS HELD FOR SALE, net of associated
liabilities and reserves - Note 2 - 20,700,415
LONG TERM NOTE RECEIVABLE - Note 2 5,900,000
LONG TERM NOTES RECEIVABLE - LAKE TROPICANA 806,489 806,489
PROGRAM INVENTORY, Net of Amortization 980,061 805,061
OTHER INVESTMENTS - Note 3 726,669 370,150
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $164,118 (1996) and $78,370 (1995) 188,516 260,421
OTHER ASSETS 19,500 10,770
----------- -----------
$20,518,659 $23,742,644
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES $394,945 $753,631
PATMORE DEPOSIT - 327,150
INTEREST RESERVE - Note 2 611,278 -
NOTES PAYABLE - Note 4 1,306,983 3,612,968
ACCRUED INTEREST PAYABLE 141,768 312,834
ACCRUED OFFICER'S SALARIES 454,239 586,739
-------- ---------
TOTAL CURRENT LIABILITIES 2,909,213 5,593,322
COMMITMENTS AND CONTINGENCIES - Note 2
STOCKHOLDERS' EQUITY: - Note 5
PREFERRED STOCK - SERIES A, AUTHORIZED
30,000,000 SHARES, - -
ISSUED AND OUTSTANDING - NONE
COMMON STOCK - AUTHORIZED 50,000,000
SHARES, $.001 PAR VALUE; ISSUED AND
OUTSTANDING 34,496,199 (1996)
AND 28,506,816 (1995) 34,493 28,503
ADDITIONAL PAID-IN CAPITAL 46,969,554 44,166,137
DEFICIT ACCUMULATED DURING
DEVELOPMENT STAGE (29,394,601) (26,045,318)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 17,609,446 18,149,322
------------- ------------
$20,518,659 $23,742,644
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
LAS VEGAS ENTERTAINMENT
NETWORK, INC. AND SUBSIDIARIES
(A Company in the Development
Stage)
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Since
Inception
(Oct. 3,
1990)
THREE NINE to
MONTHS MONTHS
ENDED JULY 31 ENDED JULY 31, July 31,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
REVENUES $191,204 $56,800 $ 564,005 $95,552 $1,472,621
COSTS AND EXPENSES
Programming - 300,000 - 502,500 2,212,170
Selling - - - 5,000 71,256
General & Admin 742,459 1,740,669 2,935,420 4,494,567 14,915,115
------- --------- --------- -------- ----------
TOTAL COSTS AND EXPENSES 742,459 2,040,669 2,935,420 5,002,067 17,198,541
LOSS BEFORE OTHER
INCOME AND (CHARGES)
AND PROVISION FOR
DISPOSAL OF ASSETS HELD
FOR SALE (551,255) (1,983,869) (2,371,415)(4,906,515) (15,725,920)
OTHER INCOME AND (CHARGES):
Gain (loss) on Sale
of Securities and
Investments (200,000) 950,000
Interest Income 146,152 17,500 379,982 107,733 973,088
Other Charges - Note 5 (30,000) (518,321) (696,875) 752,291 (5,024,186)
Interest and Finance (61,298) (152,835) (660,975) (370,445) (1,567,583)
--------- --------- -------- --------- ----------
TOTAL OTHER INCOME AND
(CHARGES) 54,854 (853,656) (977,868) 489,579 (4,668,681)
--------- --------- --------- ------- ----------
NET LOSS BEFORE
PROVISION FOR
DISPOSAL OF
ASSETS HELD FOR SALE (496,401) (2,837,525) (3,349,283)(4,416,936) (20,394,601)
PROVISION FOR DISPOSAL
OF ASSETS HELD
FOR SALE - Note 2 (9,000,000)
-------- ---------- ---------- ---------- -----------
NET LOSS $(496,401) $(2,837,525) $(3,349,283)$(4,416,936 $(29,394,601)
========== ============ ========== ========== ============
WEIGHTED AVERAGE
NUMBER OF
SHARES OF
COMMON STOCK
OUTSTANDING 34,965,247 24,079,563 32,724,078 20,618,595 7,130,539
========== ========== ========== ========== =========
LOSS PER SHARE OF
COMMON STOCK $(0.01) $(0.12) $(0.10) $(0.21) $(4.12)
========= ========== ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK,
INC. AND SUBSIDIARIES
(A Company in the DevelopmentStage)
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY (DEFICIENCY)
INCEPTION (OCTOBER 3, 1990) T0 JULY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common Accumulated
Stock Additional During
Number Paid-in Development
of Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
--------- ------ --------- ---------- --------
Issuance of Common Stock for;
Cash and Contribution of
Office Equipment 2,150,000 $2,150 $11,150 $- $13,300
Net Loss for the Year Ended (500) (500)
October 31 , 1990
---------- ------ ------- ------- -------
BALANCE - October 31, 1990 2,150,000 2,150 11,150 (500) 12,800
Net Loss for the Year Ended (16,871) (16,871)
October 31, 1991
---------- ------ ------ -------- --------
BALANCE - October 31, 1991 2,150,000 2,150 11,150 (17,371) (4,071)
Sales of Common Stock, Initial
Public Offering 1,909,000 1,909 4,655,332 4,657,241
Issuance of Common Stock for 60,000 60 178,740 178,800
Services
Net Loss for the Year Ended (601,438) (601,438)
October 31, 1992
------------ ----- --------- -------- ---------
BALANCE - October 31, 1992 4,119,000 4,119 4,845,222 (618,809) 4,230,532
Issuance of Common Stock for 107,250 107 380,565 380,672
Services
Sales of Common Stock 9,341,330 9,341 23,942,149 23,951,490
Exercise of A Warrants 308,615 309 1,234,151 1,234,460
Stock Issued for Investments 450,000 450 849,550 850,000
Net Loss for the Year Ended
October 31, 1993 (2,711,585) (2,711,585)
----------- ------ ---------- ---------- -----------
BALANCE - October 31, 1993 14,326,195 14,326 31,251,637 3,330,394 27,935,569
Issuance of Common Stock for 613,000 614 921,867 922,481
Services
Sales of Common Stock 1,380,021 1,380 1,352,861 1,352,861
Stock Issued for Investments 2,300,000 2,300 2,997,700 3,000,000
Return of Shares on El Rancho (350,000) (350) (699,650) (700,000)
Return of Escrow Shares (750,000) (750) 750 -
Conversion of Debt 1,368,384 1,368 1,048,632 1,050,000
Net Loss for the Year Ended
October 31, 1994 (5,053,498) 5,053,498)
---------- ------ ---------- ----------- -----------
BALANCE - October 31, 1994 18,887,600 18,888 36,872,417 (8,383,892) 28,507,413
Issuance of Common Stock for 3,081,500 3,081 3,006,508 3,009,589
Sales of Common Stock 592,858 593 399,409 400,002
Conversion of Debt 5,944,858 5,941 3,887,803 3,893,744
Net Loss for the Year Ended
October 31, 1995 (17,661,426) (17,661,426)
----------- ------ --------- ----------- -------------
BALANCE - October 31, 1995 28,506,816 28,503 44,166,137 (26,045,318) 18,149,322
Issuance of Common Stock for
Services 3,277,588 3,278 1,695,857 1,699,135
Sales of Common Stock 2,500,000 2,500 945,000 947,500
Conversion of Debt 604,651 605 251,895 252,500
Repurchase of Common Stock (392,856) (393) (154,607) (155,000)
Issuance of Warrants 170,800 170,800
Repurchase of Warrants (105,528) (105,528)
Net Loss for the Nine Months
Ended July 31, 1996 (3,349,283) (3,349,283)
---------- ------- --------- ------------ ------------
BALANCE - July 31, 1996 34,496,199 $34,493 $46,969,554 $(29,394,601) $17,609,446
========== ======= ============ ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK,
INC. AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
Cumulative
Since
Inception
Three Nine (Oct. 3,
Months Months 1990)
Ended Ended to
July July July
31, 31 31,
1996 1995 1996 1995 1996
------ ------ ------ ------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net Loss $(496,400) $(2,837,525) $(3,349,283) $(4,416,936) $(29,394,602)
Depreciation 17,976 85,492 164,185
Amortization of Program Inventory 300,000 500,000 1,284,060
Adjustments to reconcile net loss
to net cash used in operating
activities:
(Increase) Decrease in ;
Prepaid Expenses - 756,764 1,153,244)
Accounts Receivable (762,975)
Program Inventory (175,000) (175,000) (2,264,121)
Other Assets - 10,428 (8,730) 58,475
Increase (Decrease) in;
Accounts Payable 119,567 (1,079,187) (358,685) (944,963) 979,797
Accrued Expenses 81,143 192,397 528,145
Accrued Officer's Salaries (67,500) (112,500) (132,500) 62,500 454,239
--------- ----------- --------- -------- ------------
CASH USED IN OPERATING ACTIVITIES (601,357) (2,880,877) (3,938,706) (5,760,246) (28,952,797)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Marketable securities 372,706 364,021 -
Repayment of Loans Receivable (19,630) 2,100,000
Advances/Deposits - Acquisitions 69,831 (683,669) (3,762,441)
CountryLand Hotel 36,500,000
Pre-Opening Expenses - 688,465 3,847,450 (1,516,723)
Capitalized Interest - 3,447,860
Reserve on CountryLand Hotel (9,000,000)
Sale of Lark Landing 1,500,000
Writedown of Investments 72,850 564,839 1,421,501
Loan Receivable - Distributor (770,000)
Reserve on Loan Receivable -
Distributor 1,012,300
Accounts Payable - Lark Landing (500,000)
Proceeds from sale of
Marketable securities 151,959
Loss on securities held for sale 533,048
Acquisition of Office Equipment (307) (4,299) (13,588) 177,856 (342,713)
--------- --------- ---------- ---------- ---------- -
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 69,524 1,110,092 34,098,053 (410,007) 1,343,654
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Notes Payable 850,000 900,706 10,215,953
Repayment of Notes Payable (1,486) (2,905,984) (4,908,970)
Issuances and Sales of Common
Stock (385,000) 1,202,304 2,646,635 4,729,535 41,712,665
Issuances of Warrants, net 65,272 65,272
Repurchase of Stock - (155,000) (155,000)
(Increase) Decrease in Deferred 100,000 142,019 -
Offering Costs
Issuance of Notes and Loans
Receivable (12,400,000) (14,700,000)
Collections on Notes and Loans -
Receivable 6,500,000 6,500,000
Assessment Payable -
CountryLand (331,144)
Interest Payable 60,293 (168,567) 165,369
Loan payable - CountryLand (13,350,001)
Interest Payable - CLND (413,750)
Interest Reserve 611,278 611,278 611,278
---------- --------- ------------ ----------- -----------
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 285,085 1,302,304 (19,051,261) 5,772,260 39,506,567
INCREASE (DECREASE) IN CASH (246,748) (468,481) 11,108,086 (397,993) 11,897,424
CASH BALANCE - BEGINNING 12,144,172 671,038 789,338 600,550
---------- -------- ----------- --------- ----------= -
CASH BALANCE - ENDING $11,897,424 $202,557 $11,897,424 $202,557 $11,897,424
=========== ======== =========== ========== ============ =
NON-CASH TRANSACTIONS
Conversion of Notes Payable and
Accrued Interest to Equity $260,000 $5,269,244
Accrued Interest and Fees - El
Rancho 695,832 1,447,726
Common Stock Issued for Services 3,700,000
Reclassification of Patmore 327,100 327,100
CASH PAID FOR
Interest 84,473 1,418,581
</TABLE>
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC.
( A Company in the Development Stage)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Background and Business - Las Vegas Entertainment Network, Inc. ("LVEN" or "The
Company") was incorporated in October 1990, and is engaged in the business of
acquiring, developing and operating media and gaming facilities and businesses.
The Company's primary project to date was the renovation, expansion and
operation of the El Rancho Hotel & Casino (the "El Rancho" or the "Property")
which was acquired on November 24, 1993 and sold on January 22, 1996 (see Note
2). The Company is also active in the development of media related
opportunities, including formulating a business plan to develop, produce, market
and distribute television programming. The Company is also investigating other
potential businesses for acquisition in the entertainment, lodging or
communications industries.
The accompanying financial statements include the accounts of LVEN, and
its wholly-owned subsidiaries, CountryLand Properties, Inc. (CLND), Casino-Co
Corp., Las Vegas Communications Corp. (formerly Protex Technology Inc.), Las
Vegas Development Corporation and Pacific DNS, Inc. All significant intercompany
transactions and balances have been eliminated.
On March 11, 1996, the Company incorporated Satellite Networks Inc.
("SNI"), a new subsidiary in which the Company and its management own a combined
55% interest in the 6,000,000 currently issued and outstanding shares. The
Company, which is in a development stage with no operations to date, was formed
to explore various options in the telecommunication industry. On April 14, 1996,
SNI filed a registration statement, which is subject to significant revision, on
Form SB-2 with the Securities and Exchange Commission to register 1,000,000
shares of its common stock and 2,000,000 redeemable warrants to raise capital
for the intended operations of SNI. There can be no assurance that the public
offering will be successful.
The Company is a development stage company which has had no substantial
operations or financial operating history.
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended July 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended October 31, 1996. The unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
October 31, 1995.
2. HOTEL AND CASINO PROPERTY
On January 22, 1996 the Company sold the assets and certain liabilities of
the El Rancho Hotel and Casino to Orion Casino Corporation ("Orion"), a
wholly-owned subsidiary of International Thoroughbred Breeders Inc. ("ITB"), for
consideration of Forty-Three Million Five Hundred Thousand Dollars
($43,500,000). The Company also received a fifty percent (50%) interest in the
future adjusted cumulative cash flow from the Property, if any , of up to
$160,000,000 (see below). The purchase price was paid as follows: (i) Twelve
Million Five Hundred Thousand Dollars ($12,500,000) paid at closing in cash;
(ii) an 8% unsecured promissory note in the principal
6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC.
( A Company in the Development Stage)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
amount of Six Million Five Hundred Thousand Dollars ($6,500,000) which was paid
in full on March 15, 1996; (iii) an 8% promissory note in the principal amount
of Ten Million Five Hundred Thousand Dollars ($10,500,000), secured by a
subordinated junior position in the assets of the Property (which may be further
subordinated if additional borrowing is made against the Property), and is due
upon the successful raising of financing to develop the Property, or upon the
ultimate sale of the Property, and (iv) assumption of existing mortgage
indebtedness and accrued interest of $14,000,000. As of July 31, 1996, the
Company has reflected a reserve of $4,600,000 against the remaining note.
Once the Property has been developed, which the Company will provide
no assurance can be achieved, Casino-Co will receive as additional consideration
for entering into the sale agreement (but not as part of the purchase price for
the Property) a fifty percent (50%) interest in the adjusted cumulative cash
flow (as defined) from the operation of the Property as so developed for a
period of six (6) years following the opening of the first casino on the
Property and the commencement of operations, and thereafter a twenty-five
percent (25%) interest in adjusted cash flow from operations until such time as
it has received an aggregate of One Hundred Sixty Million Dollars
($160,000,000), but only after Orion and the Company first receive 100% of the
adjusted cash flow until all invested amounts, plus $8,000,000, have been
recouped, plus any other additional costs incurred, together with interest
thereon at the rate of eight percent (8%) per annum from the closing date.
Furthermore, commencing with the development of the Property, the Company's Las
Vegas Communications Corporation subsidiary ("LVCC") was granted an exclusive
contract for up to twenty (20) years to provide entertainment at the Property
site which will provide for minimum annual fees of $800,000, plus additional
commissions.
The El Rancho property had been encumbered by a first mortgage promissory
note in the face amount of $12,000,000, which was initially due November 24,
1994, and was secured by the real and personal property assets comprising the
former El Rancho Hotel & Casino. On January 22, 1996, the Company replaced this
loan with a one year, 13%, $14,000,000 mortgage note, secured by a first deed of
trust on the El Rancho Property, due SunAmerica Life Insurance Company. In
connection therewith, the Company issued to SunAmerica 1,912,588 shares of its
Common Stock. This note was assumed by Orion as part of the El Rancho sale
agreement. As part of the sale agreement, the Company agreed to co-guarantee the
assumed note for a certain amount of time. The SunAmerica note has subsequently
been retired by Orion, and in accordance with the agreement, 500,000 shares of
the Company's Common Stock have been returned, and the co-guarantee of the note
by LVEN has been released. In addition to the above, the Company initially
agreed to be responsible for one-half (1/2) of the interest on the refinance
loan, limited to its original stated maturity of one year at 13% interest per
annum. Such funds, aggregating $950,000, were escrowed at closing of the sale of
the El Rancho. Concurrent with the subsequent refinancing of the SunAmerica loan
by Orion on June 4, 1996, $611,000 of this amount was returned to LVEN. The
Company has reflected this amount as an interest reserve until a final
settlement is made with Orion as to how much of this interest (which related to
the original refinance term through December 22, 1996) will be the
responsibility of the Company.
The Company recorded a reserve of $9,000,000 as of October 31, 1995 to
reflect the net realizable value of the El Rancho Hotel and Casino based on the
January 22, 1996 sale. No further adjustments were made during the three months
or nine months ended July 31, 1996 to reflect the sale of the Property. The net
assets of the Property have been segregated on the Balance Sheet as of October
31, 1995 as "Assets Held for Sale."
3. OTHER INVESTMENTS AND REFUNDABLE DEPOSITS
Other investments and refundable deposits represent advances and deposits
the Company has made to certain businesses, individuals or others to secure
potential acquisitions or investments. The Company is currently in the process
of evaluating these potential acquisitions or investments.
7
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC.
( A Company in the Development Stage)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. NOTES PAYABLE
Notes payable consist of the following as of July 31, 1996 and October 31,
1995;
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
(A) BP Group $ - $1,325,000
(B) UK Foods - 1,500,000
(C) Convertible Bridge Loans 1,300,248 778,000
(D) Other 9,968
-------- ----------
Total $1,306,983 $3,612,968
========== ==========
</TABLE>
(A) The BP Group note consisted of a $1,325,000, 8% unsecured bridge loan. The
note and all outstanding interest was repaid in full on February 20, 1996.
(B) The UK Foods note consisted of a $1,500,000, 8% unsecured bridge loan to
LVCC (the Company's wholly owned subsidiary). The note and all outstanding
interest was repaid on January 31, 1996.
(C) Convertible bridge loans consist of various one-year unsecured notes. The
notes accrue interest at a rate of 8% per annum until the principal and
accrued interest become due and payable at various dates prior to July 31,
1997. The notes and any accrued interest are convertible at the lender's
option into shares of the Company's common stock at a price of $1.25 per
share, or approximately 90% of the market price, which ever is less, at any
time prior to the repayment by the Company. Subsequent to July 31, 1996,
$250,000 of these notes have been repaid by the Company.
5. OTHER
In connection with arranging the financing of the sale of the El Rancho,
the Company issued 1,912,588 shares of its common stock to SunAmerica Insurance
(the lender providing the replacement mortgage financing, see Note 2). This loan
has subsequently been retired by Orion, and in accordance with the loan
agreement, as the loan was repaid in six (6) months or less, SunAmerica has
returned 500,000 of these shares to the Company. The Company has no obligation
to issue any additional shares to SunAmerica. Additionally, during the nine
months ended July 31, 1996 (none during the three months ended July 31, 1996),
the Company; (i) sold 2,500,000 shares of its Common Stock during January 1996
in a series of private placements made to non-U.S. purchasers, under an
exemption under the Securities Act of 1933, (ii) issued 1,865,000 shares of
stock for services and settlement of amounts due, and (iii), issued 604,651
shares of its Common Stock in November 1995 to extinguish outstanding
convertible bridge notes payable and accrued interest. During the nine months
ended July 31, 1996, the Company reacquired from certain individuals, or had
returned to it, 892,856 shares of its outstanding Common Stock, including the
500,000 SunAmerica shares.
In connection with arranging the financing of the sale of the El Rancho,
the Company issued warrants to a third party to purchase 400,000 shares of its
Common Stock at $.10 per share (see Note 2). In connection with the repayment of
the UK Foods debt obligations (Note 4), the Company re-acquired certain
outstanding warrants for $105,208. Included in other charges as of July 31, 1996
is $625,000 which represents the value of cash, 800,000 restricted shares of the
Company's Common Stock and 167,000 shares of Common Stock of Satellite Networks
Inc., a newly formed subsidiary (see Note 1) paid in connection with arranging
certain financing.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
General
Background. Las Vegas Entertainment Network, Inc. ("LVEN") was formed in
October 1990 to develop, produce and distribute television programming utilizing
Las Vegas themes. Upon receipt of the $4,657,241 of the net proceeds from its
initial public offering in February 1992, LVEN commenced the development and
production of the Las Vegas Tonight Show. The first programming developed,
called "Las Vegas Tonight," featured excerpts from Las Vegas shows and was sold
outside the United States. In connection with development of "Las Vegas Tonight"
Management became aware that, while the casino hotels on the Las Vegas Strip had
adopted various themes, such as Egyptian (at the Luxor), medieval (at the
Excalibur Hotel & Casino) and Roman (at Caesars Palace), there was no hotel
casino on the Las Vegas Strip with a country music theme. In light of the
popularity of country music and based on management's experience in that genre
and in the Las Vegas marketplace (acquired in connection with developing "Las
Vegas Tonight"), management believed that a hotel casino utilizing a country
music theme could be successful. Since then, LVEN focused its business on
acquiring and developing the property on the Las Vegas Strip known as the El
Rancho Hotel, and developing Las Vegas entertainment based television
programming.
On November 24, 1993, the Company acquired the El Rancho, a 1,006-room
hotel with 90,000 square feet of casino and ancillary space and a 52-lane
bowling alley, located on the Las Vegas Strip. The purchase price for the El
Rancho was $36.5 million, including cash of $21.5 million, an 8%, $12 million
purchase money mortgage secured by a deed of trust on the Property that was
initially due November 24, 1994 (the "El Rancho Note"), and 2.3 million shares
of LVEN Common Stock valued at $3 million.
On January 22, 1996, the Company's CountryLand Properties Inc. subsidiary
sold the El Rancho to Orion Casino Corporation, a subsidiary of International
Thoroughbred Breeders, Inc. for $43,500,000 of cash, notes and assumption of
debt. It is the current intention of the new owners of the El Rancho to develop
a multi - casino project, for which the Company's wholly-owned subsidiary,
Casino-Co, has the option of developing one of the casinos. As part of the sale
agreement, once the Property is opened and invested amounts have been recouped
by Orion and the Company, which the Company can provide no assurance will be
achieved, Casino-Co will also receive a continuing fifty percent (50%) interest
in the adjusted cumulative cash flow from the operation of the Property as so
developed for a period of six (6) years following the opening of the first
casino on the Property, and thereafter a twenty-five percent (25%) interest in
the adjusted cash flow until such time as the Company has received an aggregate
of One Hundred Sixty Million Dollars ($160,000,000). In addition, commencing
with the development of the Property, the Company's Las Vegas Communications
Corporation subsidiary ("LVCC") was granted an exclusive contract for up to
twenty (20) years to provide entertainment at the Property site which will
provide for minimum annual fees of $800,000 plus additional fees.
On July 24, 1993, the Company acquired for $806,488, a 45% interest in a
venture which owns the Lake Tropicana 184 unit apartment complex in Las Vegas,
Nevada. The complex is being converted into a vacation interval ownership (time-
share) project. During 1994, the managing general partner of the joint venture,
a subsidiary of MPTV, Inc., agreed to purchase one-half of the Company's
interest (22.5%) for $1,868,643. The purchase price was payable by a promissory
note bearing interest at a rate of 8% per annum, secured by a deed of trust on
the property. During 1994 the managing general partner filed for bankruptcy
protection. During 1995, the project emerged from bankruptcy protection and
reorganized its debt with its creditors . As part of the reorganization, the
Company replaced its original $1,868,000 principal note for a new note of the
same amount dated March 22, 1995, and sold to MPTV its remaining 22.5% interest
in the project for an additional note of $1,868,000. Accordingly, as of July 31,
1996, Notes Receivable, Lake Tropicana represents two (2) separate notes payable
to the Company with a face value of $1,868,000 each (which have been reflected
on the Company's balance sheet, net of applicable reserves, at $806,489 as of
July 31, 1996 and October 31, 1995). See "Liquidity and Capital Resources -
Notes Receivable".
The Company presently has three (3) operating subsidiaries: Casino-Co,
which in connection with the sale of the El Rancho will maintain the continuing
interest in the cumulative adjusted cash flow from operations of the property
and has the option of developing a casino on the site; Las Vegas Communications
Corporation (LVCC, formerly Protex Technology, Inc.), which will maintain the
entertainment contracts on the Property, and; Pacific DNS, which holds the
interests in the Lake Tropicana Notes Receivable. The Company will also continue
to develop, produce, market and distribute television programming.
8
<PAGE>
On March 11, 1996, the Company incorporated Satellite Networks Inc.
("SNI"), a new subsidiary in which the Company and its management own a combined
55% interest in the 6,000,000 currently issued and outstanding shares. The
Company, which is in a development stage with no operations to date, was formed
to explore various options in the telecommunication industry. On April 14, 1996,
SNI filed a registration statement, which is subject to significant revision, on
Form SB-2 with the Securities and Exchange Commission to register 1,000,000
shares of its common stock and 2,000,000 redeemable warrants to raise capital
for the intended operations of SNI.
There can be no assurance that the public offering will be successful.
Cash Requirements. The Company's current monthly operating cash
requirements are approximately $250,000, composed of general and administrative
expenses, salary and consulting costs and interest payments on existing debt.
The Company is also responsible for managing and paying the operating costs of
the El Rancho Property, but is reimbursed by Orion on a monthly basis for these
costs in amounts sufficient to cover the company's cash outlay, which currently
approximates $60,000 per month. The Company may also incur other professional
fees in the development and financing of its business activities. During the
nine months ended July 31, 1996, the Company made $1,476,000 in advances and
deposits to certain businesses, individuals or others to secure potential
acquisitions or investments ($750,000 of these advances have been returned to
the Company). The Company is currently in the process of evaluating these
potential acquisitions or investments. The Company will continue to make
deposits or advances as it deems necessary to secure potential investments or
business acquisitions.
As of July 31, 1996, the Company had $11,897,424 in cash. Management
believes that its current cash and receivables (including funds received from
the sale of the El Rancho Hotel ) and potential placements of its securities
will be sufficient to meet those cash requirements for the next 12 months as
well as the repayment of existing debt of $1,306,983 and interest reserve of
$611,278 at July 31, 1996 without regard to the successful completion of a
public offering or other significant financing. However, these sources of cash
may not be sufficient to enable the Company to fund the renovation, expansion
and commencement of operations if it elects to develop one of the casinos at the
Starship Orion site, or to fund the expansion and commencement of operations of
its planned television programming. The Company may obtain such funds, if
required, from a public offering or other significant financing. If a public
offering or other form of financing is not successful, the Company will be
required to seek other funding therefor. There can be no assurance such other
funding will be available on terms satisfactory to the Company or at all.
Results of Operations
Three Months Year Ended July 31, 1996 Compared to the Three Months Ended
July 31, 1995
Revenues for the three months ended July 31, 1996 increased $134,404 to
$191,204 as compared to $56,800 for the corresponding period in 1995. The
increase principally represented approximately $101,206 in receipts for the
three months ended July 31, 1996 earned in connection with renting out the
parking facilities at the El Rancho Hotel property site as compared to none for
the corresponding period in 1995. The Company also earned approximately $90,000
for the three months ended July 31, 1996 in management and entertainment fees
earned from Orion in managing the El Rancho Property site. There were no
corresponding management fees for the three months ended July 31, 1995. During
the three months ended July 31, 1995 the Company realized approximately $56,800
in fees from miscellaneous program sources. There were no such fees earned
during the three months ended July 31, 1996.
General and Administrative expenses decreased $998,210 to $742,459 during
the three months ended July 31, 1996 as compared to $1,740,669 in the
corresponding period in 1995. The majority of the decrease relates in part to
legal, accounting and professional fees previously incurred in connection with
investigating and negotiating various alternatives to developing the El Rancho
and various other business opportunities during the three months July 31, 1995.
In connection therewith, professional and consulting fees decreased $563,000 to
$37,000 during the quarter ended July 31, 1996 as compared to $600,000 for the
corresponding period in 1995. Professional advisory and investment banking fees
also decreased $157,000 to none during the three months ended July 31, 1996 as
compared to $157,000 in the corresponding period in 1995. The majority of the
decrease relates to 1995 fees that were incurred in preparation of certain
intended underwritings, a proposed spin-off of the Company's LVCC subsidiary and
public registration of its shares, and the potential spin-off of CLND. These
offerings were terminated during the first quarter of 1996 given the sale of the
El Rancho, but management may decide to pursue such spin-offs or offerings at a
later date. Travel and related costs also decreased $138,000 to $60,000 during
the three months ended July 31, 1996 as compared to $198,000 in the
corresponding period in 1995.
9
<PAGE>
Offsetting the decreases above, management salaries and consulting costs
increased $135,000 to $527,000 during the three months ending July 31, 1996 as
compared to $392,000 in the corresponding period in 1995. The majority of the
increase is due to an increase in officers' salary of $60,000 and for the
accrual of $33,000 in retirement benefits under a plan which did not exist in
the first three months of 1995.
Significant general and administrative expenses are expected to continue
while the Company is in the development stage.
Interest Income and Expense. Interest income increased $128,652 to
$146,152 for the three months ended July 31, 1996 as compared to $17,500 for
corresponding period in 1995. The interest income relates to interest earned on
the Company's cash investments, and the increase is consistent with the increase
in the average cash outstanding during the three months ended July 31, 1996 as
compared to the corresponding period in 1995. Interest expense and finance costs
decreased $91,537 to $61,298 for the three months ended July 31, 1996 as
compared to $152,835 for corresponding period in 1995. The decrease was due to;
(i) a decrease of loan fees of $60,000 which were incurred during the three
months ending July 31, 1995 for which no such costs were incurred during the
period ending July 31, 1996 and, (ii) a $31,888 decrease in interest expense on
outstanding indebtedness in the 1996 period as compared to 1995. The decrease in
interest expense is consistent with the decrease in the average indebtedness
outstanding during the three months ended July 31, 1996 as compared to the
corresponding period in 1995.
Other Income and Charges. In connection with the sale of its Tunica,
Mississippi based assets during 1994, the Company received 4,000,000 shares of
Common Stock of Sky Scientific Inc. ("Sky"), which it held as of July 31, 1996
and 1995. These shares were initially sold by the Company during the three
months ended January 31, 1995, and a gain of $1,250,000 was recognized. Due to
the subsequent decline in the value of the shares, and other factors, the
Company reduced this gain by approximately $500,000 during the three months
ended July 31, 1995. The Company and the purchaser of the Sky shares
subsequently agreed to cancel the sales agreement, and the shares were returned
to the Company by October 31, 1995. The Company did not assign any value to the
returned shares and subsequently recorded a loss of $500,000 for the year ended
October 31, 1995 to reflect the net effect of these transactions. There were no
such transactions during the quarter ending July 31, 1996.
Nine Months Ended July 31, 1996 Compared to the Nine Months
Ended July 31, 1995
Revenues for the nine months ended July 31, 1996 increased by $468,453 to
$564,005 during the nine months ended July 31, 1996 as compared to $95,552 for
the corresponding period in 1995. The increase principally represented
approximately $309,000 in receipts for the nine months ended July 31, 1996
earned in connection with renting out the parking facilities at the El Rancho
Hotel property site as compared to $27,000 for the corresponding period in 1995.
The Company also earned approximately $255,000 for the nine months ended July
31, 1996 in management and entertainment fees earned from Orion in managing the
El Rancho Property site. There were no corresponding management fees for the
nine months ended July 31, 1995. During the nine months ended July 31, 1995 the
Company realized approximately $68,000 in fees from miscellaneous program
sources. There were no such fees earned during the nine months ended July 31,
1996.
General and Administrative expenses decreased $1,559,147 to $2,935,420
during the nine months ended July 31, 1996 as compared to $4,494,567 in the
corresponding period in 1995. The majority of the decrease relates in part to
legal, accounting and professional fees previously incurred in connection with
investigating and negotiating various alternatives to developing the El Rancho
and various other business opportunities during the first nine months of 1995.
In connection therewith, professional and consulting fees decreased $1,365,000
to $325,000 during the quarter ended January 31, 1996 as compared to $1,690,000
for the corresponding period in 1995. Professional advisory and investment
banking fees also decreased $363,000 to $50,000 during the nine months ended
July 31, 1996 as compared to $413,000 in the corresponding period in 1995. The
majority of the decrease relates to 1995 fees that were incurred in preparation
of certain intended underwritings, a proposed spin-off of the Company's LVCC
subsidiary and public registration of its shares, and the potential spin-off of
CLND. These offerings were terminated during the first quarter of 1996 given the
sale of the El Rancho, but management may decide to pursue such spin-offs or
offerings at a later date.
10
<PAGE>
Offsetting the decreases above, management salaries and consulting costs
increased $329,000 to $1,319,000 during the nine months ending July 31, 1996 as
compared to $990,000 in the corresponding period in 1995. The increase is due to
an increase in officers' salary of $150,000, and for the accrual of $93,000 in
retirement benefits under a plan which did not exist in the first nine months of
1995.
Significant general and administrative expenses are expected to continue
while the Company is in the development stage.
Interest Income and Expense. Interest income increased $272,248 to
$379,982 for the nine months ended July 31, 1996 as compared to $107,733 for
corresponding period in 1995. The majority of the increase relates to (i)
interest of $75,000 earned on the Company's receivables due from Orion during
the nine months ended July 31, 1996, for which there was none in the comparable
period in 1995, and (ii) interest of $305,000 earned on the Company's cash
investments during the nine months ended July 31, 1996 as compared to $50,000 in
the comparable period in 1995. The increase in interest income is consistent
with the increase in the average cash outstanding during the nine months ended
July 31, 1996 as compared to the corresponding period in 1995. Interest expense
and finance costs increased $290,530 to $660,975 for the nine months ended July
31, 1996 as compared to $370,445 for corresponding period in 1995. The increase
was due to; (i) loan fees of $446,000 incurred during the nine months ended July
31, 1996 to provide for certain stand-by financing and upon repayment of certain
outstanding debt as compared to loan fees of $78,500 for the corresponding
period in 1995, offset by (ii) a $17,000 increase in interest expense on
outstanding indebtedness. The increase in interest expense is consistent with
the increase in the average indebtedness outstanding during the nine months
ended July 31, 1996 as compared to the corresponding period in 1995.
Other Income and Charges. Included in other charges as of July 31, 1996 is
$625,000 which represents the value of cash, 800,000 restricted shares of the
Company's Common Stock and 167,000 shares of Common Stock of Satellite Networks
Inc., a newly formed subsidiary, paid in connection with arranging certain
financing.
In connection with the sale of its Tunica, Mississippi based assets
during 1994, the Company received 4,000,000 shares of Common Stock of Sky
Scientific Inc. ("Sky"), which it held as of January 31, 1996 and 1995. These
shares were sold by the Company during the nine months ended January 31, 1995,
and a gain of $1,250,000 was recognized. Due to the subsequent decline in the
value of the shares, and other factors, the Company reduced this gain by
$500,000 in the three months ended July 31, 1995. The Company and the purchaser
of the Sky shares subsequently agreed to cancel the sales agreement, and the
shares were returned to the Company by October 31, 1995. The Company did not
assign any value to the returned shares and subsequently recorded a loss of
$500,000 for the year ended October 31, 1995 to reflect the net effect of these
transactions. There were no such transactions during the quarter ending January
31, 1996.
Disposal of El Rancho Hotel and Casino. On January 22 , 1996, the Company
sold the El Rancho to Orion Casino Corporation for consideration of Forty-Three
Million Five Hundred Thousand Dollars ($43,500,000) of cash, notes and
assumption of existing indebtedness. The Company has previously reflected the
effects of the above transaction as if it had occurred as of October 31, 1995
and accordingly provided a reserve as of that date of $9,000,000 for accounting
purposes reflecting an adjustment to the net realizable value of the El Rancho
Property. No further adjustments were made during the six-months ended July 31,
1996. The tax effects and benefits of the sale will be accounted for in the
fiscal year ending October 31, 1996 based upon the ultimate satisfaction of the
notes receivable.
Liquidity and Capital Resources
The Company's cash requirements to date have been funded from proceeds
received in connection with the sale of the El Rancho Hotel, shares of its
Common Stock, warrants and short-term borrowing. The Company's cash has been
used for selling, general and administrative expenses and for investments.
During the nine months ended July 31, 1996 (but none during the three
months ended July 31, 1996), the Company; (i) received net proceeds of $945,000
during January 1996 in a series of private placements made to non-U.S.
purchasers, under an exemption under the Securities Act of 1933, (ii) issued
$1,695,857 of its Common Stock for services provided, and (iii) issued 604,651
shares of its Common Stock in November 1995 to extinguish outstanding
convertible bridge notes payable and accrued interest.
11
<PAGE>
As of July 31, 1996, the Company had outstanding $1,306,983 of notes and
loans payable which become due during the current fiscal year. Subsequent to
July 31, 1996, the Company repaid $250,000 of these notes. The Company intends
to repay the remaining notes, along with all other outstanding notes and accrued
interest during the current fiscal year.
Refinance Obligations. In connection with the sale of El Rancho, the
Company refinanced the existing El Rancho indebtedness with a Fourteen Million
Dollar ($14,000,000) 13% first mortgage note due SunAmerica Life Insurance
Company. Orion then assumed CLND's obligations under the refinance Note due
December 20, 1996, a related Deed of Trust and a related Security Agreement
(collectively, the "Refinance Obligations"). The Company and LVCC conditionally
guaranteed the Refinance Obligations, and in the event Orion did not repay the
Refinance Obligation when due, the Company may have been required to do so. On
June 4, 1996, Orion retired the existing SunAmerica obligation, and in
accordance with the initial loan agreement, the Company, CLND and LVCC were
released from all obligations under the Refinance Obligations.
Notes Receivable. In connection with the sale of the El Rancho, the
Company received two promissory notes from Orion and ITB as co-makers under the
notes. The first note was an 8% unsecured promissory note co-signed by Orion and
ITB in the principal amount of Six Million Five Hundred Thousand Dollars
($6,500,000) which was paid in full on March 15, 1996. The second note is an 8%
promissory note in the principal amount of Ten Million Five Hundred Thousand
Dollars ($10,500,000), secured by a subordinated junior position in the deed of
trust on the El Rancho Hotel and Casino Property. This note is due upon the
successful raising of financing to develop the Property by Orion, or upon the
ultimate sale of the Property. If the Property is sold through foreclosure or
other forced sale or based upon mutual decision of Orion and the Company, the
proceeds of such sale shall be paid in the following order of priority: (i)
first, to pay in full all principal, interest and costs owing under the
Refinancing Loan or any substitution or additional mortgage refinancing thereof;
(ii) second, to repay Orion for its investment in the property or any additions
thereto in the amount of all cash payments comprising a part of the purchase
price plus $2,000,000 and any and all reasonable documented costs, expenses and
any additional investment in, or debt incurred in furtherance of the development
of the Property, together with an accrued return thereon in the amount of eight
percent (8%) per annum; (iii) third, to pay the Company the outstanding balance
of principal and accrued interest owing under the Note, plus an additional
$4,000,000, together with an accrued return thereon in the amount of eight
percent (8%) per annum. Any excess will then be allocated fifty percent (50%) to
Orion and fifty percent (50%) to the Company. As of July 31, 1996, the Company
has reflected a reserve of $4,600,000 against the remaining note.
As of July 31,1996 the Company has outstanding two (2) separate notes
receivable of $1,868,000 ($3,736,000 in total) from MPTV, Inc. arising from the
sale of the Company's Lake Tropicana investment. The first note bears interest
at a rate of 8% per annum, is payable monthly, and is secured by a fifth
position in a deed of trust on the underlying time- share project. The first
interest payment is due one month after the borrower has completed certain
refinancing currently in process. The second note is unsecured and non-interest
bearing. Principal payments for both notes will be at a rate of $205 ($410 for
both notes) as each time-share interval is sold until August 1, 1998, when any
remaining outstanding principal is due in full. The notes contain a
cross-default provision so that a default under one note shall also be deemed a
default on the other. The joint venture is currently reorganizing its debt
position, and with such financing, is anticipated to have the funds to commence
development and sale of the time-share units. It is also anticipated that with
such reorganization, the Company's secured note receivable will move up to a
second position. As of July 31, 1996, the Company has reflected a reserve of
$2,929,511 against these notes (including a reserve for imputed interest on the
non-interest bearing note).
PART 11. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the year ended October 31, 1993, the Company acquired an option to
acquire Patmore Radio Broadcasting for $515,258. Notice of exercise of the
option by LVEN was given in September 1993, with the closing originally
scheduled to occur by March 31, 1994. The purchase price was to be paid by the
cancellation of the $400,000 loan and the issuance of the Company's Common Stock
in the value of $1,400,000. The Company was to forgive the loan to Patmore if
the acquisition was effected; if the acquisition was not closed, $100,000 of the
loan was to be repaid. Patmore alleges that the purchase option expired in March
1994, and informed the Company they considered the purchase option as
terminated. The Company received $327,150 of unsolicited funds from Patmore in
an effort by
12
<PAGE>
Patmore to terminate LVEN's right to purchase the radio station. Management
became aware that Patmore subsequently attempted to sell the Station to Compass
Communications on November 7, 1995. The Company obtained a temporary restraining
order to block the sale of the station on February 23, 1996, however on March 6,
1996 the restraining order was dissolved, allowing Patmore the ability to
proceed with its sale. Management considered its purchase option as valid, and
continues to investigate and pursue various options.
In July, 1996, an unaffiliated third party filed a complaint against the
company seeking payment of consulting fees, a success fee and recovery of
certain damages due him under terms of a 1992 retainer agreement. The Company
believes there are no funds due, and that the case is without merit. Management
intends to vigorously defend the lawsuit. At various times, the Company and its
subsidiaries are involved in various other matters of litigation, including
matters involving settlement of fees and outstanding invoices.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K dated January 24, 1996 to
report the sale of the El Rancho property. No financial statements were filed
with the Form 8-K.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 16, 1996
By: /s/ Carl Sambus
Carl Sambus Executive Vice President
and Chief Financial Officer (chief
financial officer and accounting
officer and duly authorized officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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