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, 1997
[ ] 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 34,898,349
- ----------------------------- ----------
Title of Class Number of shares outstanding at
September 15, 1997
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, October 31,
1997 1996
---- ----
ASSETS (DERIVED FROM
AUDITED FINANCIAL
(UNAUDITED) STATEMENTS)
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 5,523,124 $ 10,385,292
MARKETABLE SECURITIES 1,111,098
------------ ------------
TOTAL CURRENT ASSETS 6,634,222 10,385,292
INVESTMENT IN & ADVANCES TO INTERNATIONAL
THOUROUGHBRED BREEDERS INC. (NOTE 2) 6,707,919 6,161,706
OTHER INVESTMENTS & ADVANCES - Note 3 982,476 762,606
NOTES RECEIVABLE - LAKE TROPICANA 806,489 806,489
PROGRAMING AND FILM COSTS, Net
of Amortization 180,000 180,000
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $233,450 (1997) and $180,981 (1996) 165,129 171,397
OTHER ASSETS 49,955 10,770
----------- ------------
$ 15,526,190 $ 18,478,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 335,890 $ 144,649
NOTES PAYABLE 777,702 1,056,444
ACCRUED INTEREST PAYABLE 134,548 102,346
ACCRUED OFFICER'S SALARIES & BENEFITS 879,894 645,622
----------- -----------
TOTAL CURRENT LIABILITIES 2,128,034 1,949,061
STOCKHOLDERS' EQUITY:
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 - 34,898,349 SHARES (1997 and
1996) 34,895 34,895
ADDITIONAL PAID-IN CAPITAL 47,445,080 47,280,080
DEFICIT (34,081,819) (30,785,776)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,398,156 16,529,199
----------- -----------
$15,526,190 $ 18,478,260
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
REVENUES $ 75,000 $ 75,000 $ 225,000 $ 291,200
COSTS AND EXPENSES
Research & Development - Note 4 170,638 850,268
General & Administrative 1,087,589 626,255 2,603,281 2,662,615
--------- -------- ---------- ----------
Total Costs and Expenses 1,258,227 626,255 3,453,549 2,662,615
LOSS BEFORE OTHER
INCOME AND (CHARGES) (1,183,227) (551,255) (3,228,549) (2,371,415)
OTHER INCOME AND (CHARGES):
Interest Income 92,206 146,152 327,361 379,982
Gain on Marketable Securities 97,648 97,648
Other Charges - Note 5 (30.000) (432,800) (696,875)
Interest and Finance Costs (19,308) (61,298) (59,702) (660,975)
------------ ------------ ---------- -----------
TOTAL OTHER INCOME AND (CHARGES) 170,546 54,854 (67,493) (977,868)
------------ ------------ ----------- -----------
NET LOSS $ (1,012,681) $ (496,401) (3,296,042) $(3,349,283)
============= ============ =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 34,898,349 35,024,532 34,898,349 31,879,502
============ =========== =========== ==========
LOSS PER SHARE OF COMMON STOCK $ (0.03) $ (.01) $ (.09) $ (.011)
============ =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
Additional
Number Paid-in
of Shares Amount Capital Deficit Total
--------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 1, 1996 34,898,349 $34,895 $47,280,080 $(30,785,777) $16,529,198
Issuance of Options- Note 5 165,000
165,000
Net Loss for the Nine Months
Ended July 31, 1997 (3,296,042) (3,296,042)
---------- ------- ---------- ----------- ------------
BALANCE - JULY 31, 1997 34,898,349 $34,895 $47,445,080 $(34,081,819) $13,398,156
========== ======= =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
-------- --------
1997 1996 1997 1996
----- ----- ----- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,012,681) $ (496,400) $(3,296,042) $(3,349,283)
Depreciation 17,551 17,976 52,470 85,492
Gain from Marketable Securities (111,098) (111,098)
Allowances for valuation accounts 167,800
Adjustments to reconcile net
loss to net cash used in operating
activities:
(Increase) Decrease in;
Program Inventory (175,000) (175,000)
Other Assets (39,185) (8,730)
Increase (Decrease) in;
Accounts Payable 138,932 119,567 191,241 (358,885)
Accrued Officer's Salaries 152,272 (67,500) 234,272 (132,500)
Interest Payable 19,308 60,293 32,201 (168,587)
---------- --------- ----------- -----------
CASH USED IN OPERATING ACTIVITIES (795,716) (541,064) (2,768,341) (4,107,493)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments & Advances - ITB 172,096 (546,213)
Investments & Advances - Other (417,870) 69,831 (387,670) (683,669)
Loan to NPD 2,994,875
Sale of El Rancho and Capitalized Costs 34,795,310
Issuance of Notes and Loans Receivable (12,400,000)
Collections on Notes and Loans Receivable 6,500,000
Purchase of Marketable Securities (1,000,000)
Acquisition of Property and Equipment (35,628) (307) (46,203) (13,588)
---------- --------- ----------- -----------
CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES; 2,713,473 69,524 (1,980,086) 28,198,053
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Notes Payable - 850,000
Repayment of Notes Payable (424) (1,486) (278,741) (2,904,498)
Issuances and Sales of Common Stock (385,000) 2,645,369
Repurchase of stock (155,000)
Issuances of Options and Warrants 165,000 65,272
Interest Reserve 611,278 611,278
Repayment of Loans and Interest
Payable - El Rancho (14,094,895)
---------- --------- ----------- -----------
CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (424) 224,792 (113,741) (12,982,474)
INCREASE (DECREASE) IN CASH 1,917,333 (246,748) (4,862,168) 11,108,086
CASH BALANCE - BEGINNING 3,605,791 12,144,172 10,385,292 789,338
---------- ---------- ---------- ------------
CASH BALANCE - ENDING $5,523,124 $11,897,424 $5,523,124 $ 11,897,424
========== =========== ========== ============
NON-CASH TRANSACTIONS
Coversion of Note Receivable to
Investment in Common Stock of ITB $ 5,900,000 $5,900,000
Conversion of Notes Payable and Accrued
Interest to Equity $ 260,000
Accrued Interest and Fees - El Rancho 695,832
CASH PAID FOR
Interest $27,500 $84,473
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Background and Business and Basis of Presentation - 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 is also
formulating a business plan to develop, produce, market and distribute
television and video programming, Internet access, and telephony through the
development of a new technology to be owned by the Company's majority owned
subsidiary, Electric Media Company Inc. The Company is also investigating other
potential businesses for acquisition in the entertainment, gaming, lodging, and
communications industries, including the acquisition of the Fort Erie Racetrack
(see Note 3).
The Company's primary project to date was the renovation, expansion
and redevelopment of the El Rancho Hotel & Casino located in Las Vegas, Nevada
(the "El Rancho" or the "Property"), which was acquired on November 24, 1993. On
January 22, 1996, the Company sold the El Rancho to International Thoroughbred
Breeders Inc. ("ITB") for $43,500,000 of cash, notes and assumption of debt. The
Company also received a continuing interest in the cumulative adjusted cash flow
(as defined) from the Property of up to $160,000,000 once the Property has been
developed and certain invested amounts have been recouped. On May 22, 1997, the
Company and ITB (i) exchanged the remaining note receivable from the sale for
2,093,068 shares of restricted common stock of ITB, and, (ii) agreed to explore
a similar exchange for the continuing cash flow interest (see Note 2). In
connection with the January 22, 1996 sale, the Company's Las Vegas
Communications Corporation subsidiary was granted the exclusive contract to
provide entertainment at the Property site, and accordingly will begin
developing Las Vegas style entertainment shows once the Property site has been
developed.
The accompanying unaudited financial statements include the accounts of Las
Vegas Entertainment Network Inc. (LVEN), and its wholly-owned subsidiaries; Las
Vegas Communications Corp. ("LVCC"), Casino-Co Inc. and Pacific DNS, Inc; and
its majority owned subsidiary, Electric Media Company Inc. (EMC). All
significant intercompany transactions and balances have been eliminated.
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, 1997 are not necessarily indicative of the results that
may be expected for the year ended October 31, 1997. 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, 1996.
6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. INVESTMENT IN AND ADVANCES TO INTERNATIONAL THOROUGHBRED
BREEDERS INC.
Investments in and advances to International Thoroughbred Breeders Inc
("ITB") consist of the following as of July 31, 1997 and October 31,
1996;
July 31, October 31,
1997 1996
---- ----
(A) Investment in ITB $5,900,000 $ -
(A) Note Receivable, ITB - 5,900,000
(B) Advances to ITB 807,919 261,706
----------- -----------
$6,707,919 $6,161,706
========== ==========
(A) On May 22, 1997 the Company exchanged its remaining 8% promissory note
from ITB arising from the sale of the El Rancho Property, in the
principal amount of $10,500,000, for 2,093,868 shares of Common Stock
of ITB (the "conversion shares"). The Company has valued the
conversion shares, which are initially subject to certain restrictions
described below and which constitute approximately 15% of the
outstanding shares of ITB, at the previously recorded value of the
note receivable of $5,900,000, which Management believes represents
the approximate market value of the ITB shares received. The Company
has engaged an investment banking firm to make a further valuation of
the conversion shares and may adjust the value accordingly. Management
in the future may consider distributing all or a portion of these
shares to the shareholders of the Company.
In connection with exchange of the note receivable, ITB agreed that
the $55 Million of financing provided to it by Credit Suisse First
Boston MortgageCapital ("CSFB") on May 22, 1997 has been arranged by
LVEN's subsidiary, Casino-Co, as the "Alternative Financing"
contemplated by, pursuant to, and in satisfaction of, the provisions
of El Rancho Sale Agreement dated January 22, 1996. ITB has informed
the Company that a portion of these proceeds will be used to begin the
renovation and redevelopment of the El Rancho Property as a country
western themed resort destination called "CountryLand ".
On May 22, 1997, LVEN and ITB also agreed that, as soon as
practicable, ITB may acquire from LVEN the Company's continuing
interest in the adjusted cumulative cash flow of the El Rancho of up
to $160,000,000. In order to effect the Acquisition, ITB will be
required to issue shares of ITB Common Stock (the "Acquisition
Shares") to LVEN in an amount equal to the result of (i) of a Fairness
Opinion Value from a nationally recognized investment banking firm
respective to the fair market value of the El Rancho Cash Flow
Interest, divided by (i) the average bid price for ITB Stock during
the 20 trading days prior to the closing date. The shares of ITB
common stock received will initially be subject to certain
restrictions described below. Management in the future may consider
distributing all or a portion of these shares to the shareholders of
the Company as a dividend. As a condition precedent to the
consummation of the exchange of ITB shares for the Company's
continuing interest in the cash flow from the Property, LVEN shall
have received one or more opinions from one or more investment banking
firms satisfactory to LVEN respecting the fair market value of the
continuing cash flow interest. If LVEN is unsatisfied with the fair
market value of the continuing cash flow interest of the El Rancho
Property as established by the greater of the opinions, then LVEN
shall have the right, within 180 days of the date thereof, to make a
secured first mortgage loan to ITB, and ITB must then repay the CSFB
Loan in full. If LVEN were to make such a loan to ITB, the loan would
mature on the date that the CSFB Loan is scheduled to mature and would
bear interest at the rate applicable to CSFB Loan, and LVEN would have
the right to develop the property. The Company can give no assurance
when, and if, the proposed acquisition by ITB of the
7
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Company's continuing cash flow interest will occur.
The Company has agreed to execute and deliver an irrevocable proxy
respecting both the Conversion Shares and Acquisition Shares in favor
of Mr. Nunzio DeSantis, Chairman of the Board of ITB, which proxy
shall be irrevocable until the earlier of (i) the date on which the
CSFB Loan and all of the other obligations of ITB owing to CSFB under
the Loan under the Loan Agreement have been repaid in full, (ii) the
date on which LVEN distributes the Acquisition Shares to its
shareholders generally, (iii) the date on which LVEN sells the
Conversion Shares or Acquisition Shares to, or LVEN is acquired by, or
merged with or into, a person or entity that is not affiliated with
LVEN, and (iv) the date on which Mr. DeSantis dies or becomes mentally
incompetent. LVEN and ITB have agreed to enter into a registration
rights agreement respecting the Conversion Shares and the Acquisition
Shares providing for demand rights, unlimited piggyback rights, and
other customary provisions.
(B) Advances to ITB Inc. represent amounts currently due the Company for
monthly property management fees, and for the reimbursement for
certain operational and financing advances made for the El Rancho
Property.
3. OTHER INVESTMENTS AND ADVANCES
Other Investments and Advances consist of the following as of July 31,
1997 and October 31, 1996;
July 31, October 31,
1997 1996
---- ----
(A) Malbec, Inc. $ 415,928 $462,606
(B) Tee One Up, Inc 100,000 300,000
(C) Fort Erie Racetrack 466,548
---------- --------
$982,476 $762,606
========= =========
(A) The Company has made accumulated advances to Malbec, Inc., an unaffiliated
company, of $912,606 as of July 31, 1997 and October 31, 1996,
respectively, for the purpose of developing and operating a hotel project
in Miami Beach, Florida. As of July 31, 1997, $46,678 of such advances have
been returned to the Company. The advances accrue interest at the rate of
8% per annum, and were due July 31, 1997. Due to difficulties in finalizing
a purchase agreement, and on going litigation involving the hotel property,
the Company and Malbec Inc. have discontinued any attempt to develop this
property. The Company's advances were secured by an interest in an escrow
account (which was a balance of $300,000 as of September 15, 1997) and a
$600,000 lien against the subject property. The Company expects the escrow
account to be liquidated with the net amounts, after payment of all
expenses, to be returned to the Company. The Company has also been informed
that the owners of the property have a tentative buyer for the hotel
property, which would require the Company's lien be paid off before such a
sale could be consummated. The Company has provided a $450,000 allowance
against this advance, for a net investment of $415,928 and $462,606 as of
July 31, 1997 and October 31, 1996, respectively.
(B) The Company loaned $300,000 to Tee One Up, Inc., an unaffiliated company
developing television footage of actual golf "hole in ones" at selected
golf courses. The loan is secured by the assets of Tee One Up. Principal
and interest at a rate of 17% per annum was to be paid in monthly
installments of $14,832 until maturity, November 1, 1998. In March 1997,
Tee One Up became delinquent in making its monthly payments. As of July
31, 1997, the principal balance due under this note was $267,00 for which
the Company has provided a $167,00 reserve to reflect the underlying
value of the security interest, for a net receivable of $100,000.
8
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(C) On May 23, 1997, the Company provided a refundable advance of $182,000 to a
Canadian Corporation (the "Canadian Company") as an advance deposit to
acquire certain real property and assets known as the "Fort Erie Racetrack"
which is situated on 143 acres in Fort Erie, Canada. The race track
currently offers live, as well as simulcast, thoroughbred horse racing.
Additionally, management of the race track anticipates during the next nine
months, the introduction of up to 500 to 1,000 video lottery gaming
terminals that were proposed in the 1995 Province of Ontario Budget. The
Canadian Corporation is 80% owned by Mr. Nunzio DeSantis, the Chief
Operating Officer of ITB. The Company's Chairman of the Board, Mr. Joseph
A. Corazzi, as a bonus for services rendered in negotiating the potential
acquisition of the operations of the Canadian Company as described below,
may be allocated a portion of the ownership as agreed to by Mr. DeSantis
and the LVEN Board of Directors. The remaining 20% of the Canadian Company
is owned by individuals not affiliated by the Company. As of July 31, 1997,
in addition to the deposit above, the Company has expended $284,548 of
financing and legal costs in connection with the proposed acquisition.
As an inducement to LVEN to make the advance deposit, LVEN acquired an
option to acquire from Mr. DeSantis his interest in the Canadian Company.
The exercise price, subject to further evaluation and appraisal, shall be
payable (i) $1,000,000 cash at closing, (ii) $3,600,000 payable in equal
monthly installments of $100,000 commencing on the last date of the month
on which the closing occurs, and (iii) at or as soon as after the closing
as practicable, the number of registered shares of LVEN common stock
having a value, based on the average closing price for the twenty trading
days proceeding payment of the Exercise Price, equal to the difference
between (a) the fair value of the interest as set forth in a fairness
opinion prepared by an investment banking firm retained by LVEN and (b)
the sum of the cash payments specified above. However, it is the
intention of LVEN to only exercise its option based upon its due
diligence; a valuation of the ongoing operations of the property, and;
the valuation of potential revenue from the addition of video lottery
terminals. If the Company does exercise its option to acquire the 80%
interest in the Canadian Corporation, of which there can be no assurance,
and if it decides to maintain full racing operations and proceeds with
its option, it would be responsible for maintaining operations at the
track through the end of the 1998 racing season which is currently
operating at an annual cash flow deficit of approximately $3,200,000 for
a full one hundred day racing schedule.
The Company will advance funds to the Canadian Company prior to the
exercise of the option, and as such, has entered into a credit facility
to lend the Canadian Company up to $1,300,000. The loan, which will be
due and payable on August 27, 1998 and will bear interest at a rate of
10% per annum, will be secured by a first security interest in the race
track property. Subsequent to July 31, 1997, the Company has made
$700,000 of advances under this credit facility. The Company will engage
an investment banking firm to raise up to $35 Million, for which it can
give no assurance can be achieved, to develop over a twenty-four month
period, the race track property into an entertainment destination that
would supplement the introduction of video lottery gaming.
4. RESEARCH AND DEVELOPMENT - EMC
The Company has formed a new subsidiary, Electric Media Company Inc.
(EMC), which is developing technology, that if successful, of which the
Company can give no assurance can be achieved, will allow delivery of
video voice and/or data communications over electric power lines or other
forms of transmission including cable, telephone and microwave. EMC is
75% owned by the Company and 25% owned by Mr. Nunzio DeSantis, Chairman
of the Board of ITB.
9
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
EMC has entered into two agreements for the development of this technology
with two joint venture partners/developers. The agreements are for a term
of 25 years, and can be extended to successive 25-year terms at the
election of EMC. The first agreement calls for the development of video,
voice and data communication over existing power lines. Field testing of
this technology will occur during 1997. Upon successful completion of all
field tests, EMC will begin worldwide marketing of this technology,
including the sale and distribution of addressable receiver boxes that are
necessary to receive the data communication. LVEN will receive, in
perpetuity, a $25 per unit royalty for each receiver box sold, if any. In
accordance with the joint venture agreement, EMC is committed to deliver to
the joint venture partner/developer; (i) 500,000 restricted shares of LVEN
common stock upon successful completion of the field test, (ii) monthly
renumeration of $25,000 upon successful completion of the field test (iii)
an additional 500,000 restricted shares of LVEN common stock each time the
sale of these units generates $10,000,000 of net after tax profits to LVEN,
up to a maximum of 2,500,000 shares, and (iv) 20% of the net profits once
EMC has recouped all its costs, plus a return of 6% thereon.
The second agreement calls for the development of a communications
network in Guatemala and Central America for the provision of telephone,
video, voice and/or data communications. Field testing of this technology
will occur during 1997. In accordance with the joint venture agreement,
if EMC proceeds, it will deliver to the joint venture partner/developer;
(i) up to $500,00 for general start up and market costs, (ii) 500,000
restricted shares of LVEN common stock upon successful completion of the
field test and demonstration of its economic viability, (iii) monthly
renumeration of $15,000 upon successful completion of the field test and
demonstration of its economic viability, (iv) an additional 500,000
restricted shares of LVEN common stock for each 150,000 telephones
installed, up to a maximum of 2,500,000 shares, and (v) 20% of the net
profits once EMC has recouped all its costs, plus a return of 6% thereon.
The Company has engaged an investment banking firm to raise $15 million,
for which it can give no assurance can be achieved, for the full
implementation of this project.
To date, the company has expended $850,268 in developing this technology.
Such amounts have been reflected as research and development costs for
the three and nine month periods ended July 31, 1997.
5. OTHER
On December 11, 1996, Mr. Nunzio DeSantis, now the Chief Operating
Officer of ITB, was granted 1,500,000 options to acquire shares of the
Company's Common Stock at an exercise price of $1 per share, which expire
in December 1999 as part of consideration for providing a $6,000,000
standby funding commitment. In accordance with Statement of Financial
Standards No. 123, these options have been valued at their fair value per
the Black Scholes Valuation Model at $165,000 ($.11 per share), and have
been included in other charges for the nine months ended July 31, 1997.
6. SUBSEQUENT EVENT
The Company has been informed that certain former or current directors of
International Thoroughbred Breeders Inc. ("ITB") have filed an action
against ITB and its other directors, the Company, the Company's Chairman
and certain other individuals in the Delaware Court of Chancery,
alleging, among other things, that the Company acted improperly in
connection with various transactions with ITB. The plaintiffs are
seeking, among other things, the recision of the issuance of the
2,093,068 shares of ITB common stock to LVEN on May 22, 1997, and further
seek to block the issuance to LVEN of additional shares of ITB stock in
exchange for LVEN's continuing cash flow interest in the El Rancho
Property. The Company has also been informed that a similar action has
been filed in the Delaware Chancery Court by a stockholder of ITB.
Although the Company's counsel has not yet fully investigated or
evaluated these actions, the Company believes the claims are without
merit, and intends to defend the actions vigorously.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Important Factors Relating to Forward Looking Statements. - In
connection with certain forward-looking statements contained in this Form 10-QSB
and those that may be made in the future by or on behalf of the Company which
are identified as forward-looking, the Company notes that there are various
factors that could cause actual results to differ materially from those set
forth in any such forward-looking statements. The forward-looking statements
contained in this Form 10-QSB were prepared by management and are qualified by,
and subject to, significant business, economic, competitive, regulatory and
other uncertainties and contingencies, all of which are difficult or impossible
to predict and many of which are beyond the control of the Company. Accordingly,
there can be no assurance that the forward-looking statements contained in this
Form 10-QSB will be realized or the actual results will not be significantly
higher or lower. These forward looking statements have not been audited by,
examined by, compiled by or subjected to agreed-upon procedures by independent
accountants, and no third-party has independently verified or reviewed such
statements. Readers of this Form 10-QSB should consider these facts in
evaluating the information contained herein. In addition, the business and
operations of the Company are subject to substantial risks which increase the
uncertainty inherent in the forward-looking statements contained in this Form
10-QSB. The inclusion for the forward-looking statements contained in this Form
10-QSB should not be regarded as a representation by the Company or any other
person that the forward-looking statements contained in this Form 10-QSB will be
achieved. In light of the foregoing, readers of this Form 10-QSB are cautioned
not to place undue reliance on the forward-looking statements contained herein.
GENERAL
BACKGROUND. 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%
promissory note in the face amount of up to $12 million purchase money mortgage
secured by a deed of trust on the Property, and 2.3 million shares of LVEN
common stock valued at $3 million to a third party finder. On January 22, 1996,
the Company sold the El Rancho to International Thoroughbred Breeders, Inc.(ITB)
for $43,500,000 of cash, notes and assumption of debt. It is the current
intention of the new owners of the El Rancho (the "Property") to develop and
open the Property as "CountryLand", a major hotel and casino destination. As
part of the sale agreement, once the Property is opened and invested amounts
have been recouped by ITB and the Company, of which there can be no assurance
will be achieved, the Company will also receive a continuing 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 thereafter a twenty-five percent (25%)
interest in adjusted cash flow until such time as the Company has received an
aggregate of $160,000,000. In addition, commencing with the development of the
Property, the Company's LVCC subsidiary 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 May 22,
1997, the Company and ITB (i) exchanged the remaining note receivable from the
sale for Common Shares of ITB stock to be registered and, (ii) have agreed to
explore a similar exchange for the continuing cash flow interest (See Sale of
ITB Note Receivable and Continuing Interest in El Ranch below). Management in
the future may consider distributing all or a portion of these shares to the
shareholders of the Company as a dividend.
The Company's current operations include; actively assisting
ITB in obtaining the financing necessary to redevelop and renovate the El Rancho
Property; managing the preliminary construction activities on the Property site
under an interim entertainment and property management agreement with ITB;
overseeing the collection and realization of certain investments and notes
receivables, and; the development of certain gaming, media and communication
properties, including certain limited development and production of television
and video programming, Internet access, and telephony to be distributed through
the development of a new technology to be owned by the Company's EMC subsidiary.
11
<PAGE>
Sale of ITB Note Receivable and Continuing Interest in El Rancho. On May
22, 1997, LVEN converted the ITB Note Receivable remaining from the sale of the
El Rancho of $10,500,000 and accrued interest thereon of $1,100,000 into
2,093,868 shares of restricted ITB common Stock (the "Conversion Shares"). On
May 22, 1997, LVEN and ITB also agreed that, subject to approval of Board of
Directors of both Companies, that as soon as practicable, ITB may acquire from
LVEN the Company's continuing interest in the adjusted cumulative cash flow of
the El Rancho. In order to effect the Acquisition, ITB will be required to issue
shares of ITB Stock to be registered (the "Acquisition Shares") to LVEN in an
amount equal to the result of (i) a Fairness Opinion Value to be obtained from a
nationally recognized investment banking firm respective to the fair market
value of the El Rancho Cash Flow Interest, divided by (ii) the average bid price
for ITB Stock during the 20 trading days prior to the closing date. Both the
Conversion and Acquisition shares are subject to certain restrictions as
described below. Management in the future may consider distributing all or a
portion of these shares to the shareholders of the Company as a dividend.
ITB has also agreed that the $55 Million of financing provided
to it by Credit Suisse First Boston MortgageCapital ("CSFB") on May 22, 1997 has
been arranged by LVEN's subsidiary, Casino-Co, as the "Alternative Financing"
contemplated by, pursuant to, and in satisfactory of, the provisions of El
Rancho Sale Agreement dated January 22, 1996. ITB has informed the Company that
a portion of these proceeds will be used to begin the renovation and
redevelopment of the El Rancho Property as a country western themed resort
destination known as "CountryLand ".
As a condition precedent to the consummation of the exchange
of ITB shares for the Company's continuing interest in the cash flow from the
Property, LVEN shall have received one or more opinions from one or more
investment banking firms satisfactory to LVEN respecting the fair market value
of the continuing cash flow interest. If LVEN is unsatisfied with the fair
market value of the continuing cash flow interest of the El Rancho Property as
established by the greater of the opinions, then LVEN shall have the right,
within 180 days of the date thereof, to make a secured first mortgage loan to
ITB, and ITB must then repay the CSFB Loan in full. If LVEN were to make such a
loan to ITB, the loan would mature on the date that the CSFB Loan is scheduled
to mature and would bear interest at the rate applicable to CSFB Loan, and LVEN
would have the right to develop the property.
The Company has agreed to execute and deliver an irrevocable
proxy respecting both the Conversion Shares and Acquisition Shares in favor of
Mr. Nunzio DeSantis, Chairman of the Board of ITB, which proxy shall be
irrevocable until the earlier of (i) the date on which the CSFB Loan and all of
the other obligations of ITB owing to CSFB under the Loan under the Loan
Agreement have been repaid in full, (ii) the date on which LVEN distributes the
Acquisition Shares to its shareholders generally, (iii) the date on which LVEN
sells the Conversion Shares or Acquisition Shares to, or LVEN is acquired by, or
merged with or into, a person or entity that is not affiliated with LVEN or Mr.
Joe Corazzi, Chairman of the Board of LVEN, and (iv) the date on which Mr.
DeSantis dies or becomes mentally incompetent. LVEN and ITB have agreed to enter
into a registration rights agreement respecting the Conversion Shares and the
Acquisition Shares and providing for demand rights, unlimited piggyback rights,
and other customary provisions.
RESULTS OF OPERATIONS
THREE MONTHS YEAR ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY
31, 1996.
REVENUES for each of the three month periods ended July 31,
1997 and 1996 consisted of $75,000 of fees earned under an interim property and
entertainment management agreement with ITB.
GENERAL AND ADMINISTRATIVE expenses increased $461,334 to
$1,087,589 during the three months ended July 31, 1997 as compared to $626,255
in the corresponding period in 1996. The majority of the increase relates to;
(i) an increase in professional, legal and accounting costs which increased
$162,000 to $194,000 for the three months ended July 31, 1997 as compared to
$32,000 for the corresponding period in 1996, and (ii) an increase of travel and
entertainment costs of $290,000 to $338,000 for the three months ended July 31,
1997 as compared to $48,000 for the corresponding period in 1996 relating mainly
travel connected to the Company's EMC project.
12
<PAGE>
Significant general and administrative expenses are expected
to continue while the Company seeks new acquisitions and projects.
RESEARCH AND DEVELOPMENT expenses relating to the development
of voice, video and data communication technology by the Company's EMC
subsidiary were $170,638 for the three months ended July 31, 1997. There were no
such costs incurred in the corresponding period in 1996.
INTEREST INCOME AND EXPENSE. Interest income earned on cash
balances and marketable securities decreased $53,946 to $92,206 for the three
months ended July 31, 1997 as compared to $146,152 for the corresponding period
in 1996. The decrease is consistent with the decrease in the average cash and
marketable securities outstanding during the three months ended July 31, 1997 as
compared to the corresponding period in 1996. Interest expense and finance costs
decreased $41,990 to $19,308 for the three months ended July 31, 1997 as
compared to $61,298 for the corresponding period in 1996. The decrease in
interest expense is consistent with the decrease in the average indebtedness
outstanding during the three months ended July 31, 1997 as compared to the
corresponding period in 1996.
NINE MONTHS ENDED JULY 31, 1997 COMPARED TO NINE MONTHS ENDED JULY 31, 1996
REVENUES for the nine months ended July 31, 1997 decreased by
$66,200 to $225,000 as compared to $291,200 for the corresponding period in
1996. Revenues for the nine months ended July 31, 1997 consisted of $225,000 of
fees earned under an interim entertainment management agreement with ITB.
Revenues for nine months ended April 30,1996 consisted of $66,200 of revenues
earned in connection with renting out the parking facilities at the El Rancho
Hotel property site which was previously owned by the Company, and $225,000 of
fees earned under an interim entertainment management agreement with ITB.
GENERAL AND ADMINISTRATIVE expenses decreased $59,334 to
$2,603,281 during the nine months ended July 31, 1997 as compared to $2,662,615
in the corresponding period in 1996. The majority of the decrease relates to a
decrease in; (i) professional, legal and accounting costs which decreased
$157,000 to $394,000 for the nine months ended July 31, 1997 as compared to
$551,000 for the corresponding period in 1996, and; (ii) general and
administrative costs relating to the El Rancho Property which decreased by
$315,000 in the current period as compared to the corresponding period in 1996
due to the cessation of operations when the Property was sold on January 22,
1996. These decreases were offset by an increase of travel and entertainment
costs of $529,000 to $746,000 for the nine months ended July 31, 1997 as
compared to $217,000 for the corresponding period in 1996.
RESEARCH AND DEVELOPMENT expenses relate to the development of
voice, video and data communication technology by the Company's EMC subsidiary,
and were $850,268 for the nine months ended July 31, 1997. There were no such
costs incurred in the corresponding period in 1996.
OTHER INCOME AND CHARGES - Other income and charges for the
nine months ended July 31, 1997 consists of: (i) a $167,800 charge to reflect
the estimated carrying value of the note receivable from Tee One Up (See "Notes
Receivable"), (ii) $100,000 settlement agreement entered into with a third party
(See "Legal Proceedings") and (iii) $165,000 to reflect the value of options
granted to Mr. Nunzio DeSantis, now the Chief Operating Officer of ITB, to
acquire 1,500,000 shares of the Company's Common Stock at an exercise price of
$1 per share, which expire in December 1999, as part of consideration for
providing a $6,000,000 standby funding commitment.
LIQUIDITY AND CAPITAL RESOURCES
Cash Requirements. The Company's current monthly operating cash requirements are
approximately $200,000, composed of general and administrative expenses, salary
and consulting fees and legal and professional fees. The Company is also
responsible for managing and paying the operating costs of the Property, but is
reimbursed by ITB on a monthly basis for these costs in amounts sufficient to
cover the company's cash outlay, which currently approximates $60,000 per month
but may increase to a greater amount as the renovation of this
13
<PAGE>
property begins. In addition to the above, (i) the Company is evaluating funding
$500,000 of general start up costs for its EMC projects, and may be required to
fund additional amounts if the field tests prove successful, and (ii) if the
Company elects to exercise its option to acquire the Fort Erie Race Track and
elects to maintain current track operations, the track would operate at a
projected annual cash flow deficit of approximately $3,200,000, excluding any
cost saving measures that maybe implemented by the Company. The Company will
advance funds to the Canadian Company prior to the exercise of the option, and
as such, has entered into a credit facility to lend the Canadian Company up
to$1,300,000. The loan, which will be due and payable on August 27, 1998 and
will bear interest at a rate of 10% per annum, will be secured by a first
security interest in the race track property. Subsequent to July 31, 1997, the
Company has made $700,000 of advances under this credit facility. In addition,
if the Company elects to exercise its option, it will engage an investment
banking firm to raise up to $35 Million, for which it can give no assurance can
be achieved, to develop over a twenty-four month period, the race track property
into an entertainment destination that would supplement the introduction of
video lottery gaming. The Company may also incur other consulting and
professional fees in the development and financing of its business activities.
During the nine months ended July 31, 1997, the Company made approximately
$766,000 in advances and deposits to certain businesses, individuals or others
to secure potential acquisitions or investments, and $850,268 for its EMC
research and development costs. The Company is currently in the process of
evaluating these potential acquisitions or investments for future development.
The Company will continue to make deposits or advances as it deems necessary to
secure potential investments or business acquisitions.
As of September 15, 1997, the Company had approximately
$5,950,000 in cash and marketable securities and believes that its current cash
and receivables will be sufficient to meet its cash requirements for the next 12
months, as well as the repayment of existing debt of $781,248 at September 15,
1997. However, these sources of cash may not be sufficient to enable the Company
to fund the expansion and commencement of operations of its planned television
programming, full deployment of its Electric Media Joint Ventures, or operating
and developing the Fort Erie Race Track if the Company elects to exercise its
option to acquire the race track. The Company may obtain such funds, if
required, from a public offering or the issuance of additional debt. If a public
offering or raising of debt is not successful, the Company will be required to
seek other sources of funding. There can be no assurance such other funding will
be available on terms satisfactory to the Company or at all.
Outstanding Notes Payable and Guarantees. As of July 31, 1997,
the Company had outstanding $778,421 of notes and loans payable which are
currently due and payable. The Company intends to repay the remaining
outstanding notes, along with all accrued interest, during the current year from
its current cash balances.
NOTES RECEIVABLE. In connection with the sale of the El
Rancho, the Company received an 8% promissory note in the principal amount of
$10,500,000, which was secured by a subordinated junior position in the deed of
trust on the El Rancho Hotel and Casino Property. The Note Receivable, and
accrued interest thereon of $1,100,000, were converted into 2,093,868 shares of
restricted ITB common stock on May 22, 1997.
As of July 31, 1997, 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 has reorganized its debt position, and
with such financing, is anticipated to have the funds to commence development
and sale of the time share units. As a result of such reorganization, the
Company's secured note receivable moved up to a second position. The Company has
provided an allowance of $2,929,511 against these notes (including an allowance
for imputed interest on the non-interest bearing note) as of July 31, 1997, for
a net receivable of $806,489.
14
<PAGE>
The Company has made accumulated advances to Malbec, Inc., an
unaffiliated company, of $912,606 as of July 31, 1997 and October 31, 1996,
respectively, for the purpose of developing and operating a hotel project in
Miami Beach, Florida. As of July 31, 1997, $46,678 of such advances have been
returned to the Company The advances accrued interest at the rate of 8% per
annum, and were due July 31, 1997. Due to difficulties in finalizing a purchase
agreement, and on going litigation involving the hotel property, the Company and
Malbec Inc. have discontinued any attempt at further development of this
property. The Company's advances were secured by an interest in a escrow account
(which was a balance of $300,000 as of September 15, 1997) and a $600,000 lien
against the subject property. The Company expects the escrow account to be
liquidated with the net amounts, after payment of all expenses, to be returned
to the Company. The Company has also been informed that the owners of the
property have a tentative buyer for the hotel property, which would require the
Company's lien be paid off before such a sale could be consummated. The Company
has provided a $450,000 allowance against this advance, for a net investment of
$415,928 and $462,606 as of July 31, 1997 and October 31, 1996, respectively.
The Company loaned $300,000 to Tee One Up, Inc., an
unaffiliated company developing television footage of actual golf "hole in ones"
at selected golf courses. The loan is secured by the assets of Tee One Up.
Principal and interest at a rate of 17% per annum are payable in monthly
installments of $14,832 until maturity, November 1, 1998. In March 1997, Tee One
Up became delinquent in making its monthly payments. As of July ,1997, the
principal balance due under this note receivable was $267,000, for which the
Company has provided a $167,00 reserve to reflect the underlying value of the
security interest, for a net receivable of $100,000.
On January 15, 1997, the Company, through it's wholly-owned
Nevada subsidiary Casino-Co, made a secured loan of $2,900,000 to NPD, Inc,
("NPD"), in order to enable NPD to close the acquisition from Robert Brennan of
2,904,016 shares of common stock ITB. The loan to NPD and all accrued interest
due, was repaid to the Company on June 22, 1997.
15
<PAGE>
PART 11. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been informed that certain former or current
directors of International Thoroughbred Breeders Inc. ("ITB") have filed an
action against ITB and its other directors, the Company, the Company's Chairman
and certain other individuals in the Delaware Court of Chancery, alleging, among
other things, that the Company acted improperly in connection with various
transactions with ITB. The plaintiffs are seeking, among other things, the
recision of the issuance of the 2,093,068 shares of ITB common stock to LVEN on
May 22, 1997, and further seek to block the issuance to LVEN of additional
shares of ITB stock in exchange for LVEN's continuing cash flow interest in the
El Rancho Property. The Company has also been informed that a similar action has
been filed in the Delaware Chancery Court by a stockholder of ITB. Although the
Company's counsel has not yet fully investigated or evaluated these actions, the
Company believes the claims are without merit, and intends to defend the actions
vigorously.
On October 18, 1996, an unaffiliated third party filed a
complaint against the company in California Superior Court, County of Los
Angeles, seeking damages of $1,800,000, plus attorney fees, for breach of
contract, breach of implied contract, and certain damages the individual claims
are due him under terms of a 1992 retainer agreement. This case was settled for
$100,000. Additionally, the Company has commenced action against the owners of
Patmore Broadcasting relating to an option to acquire a radio station in Las
Vegas, and intends to aggressively pursue the Company's position that it still
has a valid option to purchase the radio station.
The Company is not involved in, or a party to, any other
material legal proceedings at this time. At various times, the Company and its
subsidiaries are involved in various matters of litigation, including matters
involving settlement of fees and outstanding invoices, and consider these legal
proceedings not to be material and in the ordinary course of business.
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
15, 1997 to report the loan to NPD. No financial statements were filed with the
Form 8-K.
16
<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 15, 1997
---------------------------
By: /s/ Carl Sambus
Carl Sambus Executive Vice
President and Chief
Financial Officer (chief
financial officer and
accounting officer and
duly authorized officer)
17
<PAGE>
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