SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended October 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-21270
LAS VEGAS ENTERTAINMENT NETWORK, INC.
-------------------------------------
(Exact name of small business issuer in its charter)
DELAWARE 94-3123854
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1801 Century Park East, 23rd Floor
Los Angeles, California 90067
----------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 551-0011
--------------
Securities registered pursuant to Section 12(b) of the Act: None
-------
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.001 par value
-----------------------------
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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X ]
State issuer's revenues for its most recent fiscal year: - $291,200
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $15,016,090 computed on the basis of the average bid and
asked prices of the Common Stock of $0.44 per share as reported by NASDAQ on
January 31, 1997.
Number of common shares outstanding of the issuer's classes of Common Stock as
of January 31, 1997: 34,898,349
-----------
DOCUMENTS INCORPORATED BY REFERENCE: NONE
1
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
General
Background and Business and Basis of Presentation
- -------------------------------------------------
Las Vegas Entertainment Network ("LVEN", "the Company") is engaged in
acquiring and developing media, communication and gaming facilities and
businesses. The Company's primary project to date was the renovation, expansion
and redevelopment of the El Rancho Hotel (the "El Rancho" or the "Property"), a
1,006 room hotel and casino located on 20.86 acres in Las Vegas, Nevada which
was acquired on November 24, 1993, and subsequently sold on January 22, 1996.
The Company is also developing media related opportunities, including
formulating a business plan to develop, produce, market and distribute
television and video programming. The Company is also investigating other
potential businesses for acquisition in the gaming, entertainment, lodging or
communications industry.
The Company, as formed in October 1990, developed, produced and distributed
television programming featuring entertainment in Las Vegas, Nevada. The Company
changed its focus to the gaming industry in 1993 with the acquisition of the El
Rancho Hotel and Casino for $36,500,000. However, on January 22, 1996, the
Company sold the El Rancho to Orion Casino Corporation ("Orion"), a subsidiary
of 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 to develop and open the Property as an international country music
attraction called "CountryLand, USA", a major hotel and casino destination. As
part of the sale agreement, once the Property is opened and certain invested
amounts have been recouped by ITB and the Company, which the Company can provide
no assurance can be achieved, the Company will receive as additional
consideration for entering into the sale agreement (but not as part of the
Purchase Price for the assets) 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 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 ITB and the Company first receive 100% of the adjusted cash flow
until all invested amounts have been recouped.
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 commissions.
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 media and communication properties,
including certain limited production of television and film programming.
Casino and Gaming Operations
- ----------------------------
On November 24, 1993, the Company acquired the El Rancho Hotel and Casino
property in Las Vegas, Nevada. The Property had been closed before its
acquisition by the Company and was never operated by the Company. The casino and
gaming activities of the Company to date had been limited to managing the El
Rancho property site, developing site construction and architectural plans for
the renovation and expansion of the hotel as well as obtaining the necessary
permits and approvals, and arranging for potential financing, equity or joint
ventures to further develop and renovate the property.
2
<PAGE>
On January 22, 1996, the Company sold the assets and liabilities of the El
Rancho to Orion Casino Corporation, a wholly-owned subsidiary of International
Thoroughbred Breeders, Inc., for consideration of $43,500,000. The Purchase
Price was paid as follows: (i) $12,500,000 paid at closing in cash; (ii)
issuance of an 8% unsecured promissory note in the principal amount of
$6,500,000 which was paid in full on March 15, 1996; (iii) issuance of an 8%
promissory note in the principal amount of $10,500,000, co-signed by Orion and
ITB (see "Item 6 Management's Discussion and Analysis - Notes Receivable"), and
(iv) the assumption of existing mortgage indebtedness and accrued interest of
$14,000,000, (the "Refinance Obligation"). In addition, once the property has
been developed, of which the Company can provide no assurance can be achieved,
the Company will share in a percentage of the on-going adjusted cumulative cash
flow from the operation of the property up to $160,000,000 as defined above. In
connection with arranging the Refinance Obligation necessary for the closing the
sale, the Company issued 1,512,588 shares of its common stock to SunAmerica Life
Insurance, the lender, and also issued warrants to a third party to purchase
600,000 shares of LVEN common stock at $.10 per share.
On January 15, 1997 ITB announced that they had received a $100,000,000
funding proposal, the proceeds of which will be used, in part, for the
renovation and opening of the former El Rancho Hotel and Casino site as an
international country music attraction called "CountryLand USA", a major
destination hotel and casino. The proposed funding is subject to the execution
of a definitive loan agreement between ITB and the proposed lender, which the
Company can give no assurance will be made. The proceeds of this loan are
anticipated to be sufficient to renovate and reopen the Property site, as well
as repay the Company's remaining outstanding note receivable. ITB had previously
announced that it intended to develop the El Rancho property under a "Starship
Orion" multiple-casino theme. It was estimated that the total cost of completion
would be approximately $1 Billion and that ITB intended to develop the
property with up to as many as six partners. ITB had not engaged any partners
for its "Starship Orion" theme development, and will now develop the property
under a more modest "CountryLand, USA" theme.
In accordance with the initial sale agreement, if by October 25, 1996 (i)
Orion had not closed on or received permanent financing and obtained the
required lease commitments to develop the "Starship Orion", and (ii) and had not
closed or received a firm commitment for alternative financing to develop the
Property, and if the Company had arranged for the refinancing and also placed
into an escrow account amounts sufficient to cover the financing and carrying
costs of the property for either a six month or year period (the "option
period"), LVEN may either (i) appoint and authorize a reputable commercial real
estate broker to sell the property at an amount, after expenses, in excess of
the underlying mortgage and invested amounts of both Orion and LVEN, or (ii)
arrange on behalf of Orion, in conformity with prevailing financing terms and
conditions for a major Las Vegas hotel/casino project, alternative financing of
not less than fifty-five million dollars ($55,000,000). On October 25, 1996,
LVEN advised that it was asserting its rights afforded during the Option Period
by arranging the prescribed escrow account. On October 28, 1996, ITB announced
that LVEN forfeited its rights with respect to the purchase agreement because
they believed LVEN failed to satisfy certain contractual preconditions. LVEN
advised ITB that it contested its position. On February 2, 1997, the Company and
ITB announced that they had settled their disagreement. As described above, and
with the assistance of the Company, ITB has announced its plans for the
development of the Property as "CountryLand, USA", and had received a proposal
for $100 Million of financing which will be used, in part, for such development.
If the Property is not developed, or if the expected funding is not completed,
the Company believes it still maintains the rights under the option period
described above. In connection therewith, the Company has engaged an investment
banking firm to seek funding necessary to provide the alternative financing
described above, and also arranged with Mr. Nunzio DeSantis, who subsequently
became the Chief Operating Officer of ITB, to provide a $6,000,000 standby
funding commitment for a portion of the replacement financing on the El Rancho
Property Site. In connection therewith, Mr. DeSantis 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.
The Company is actively seeking other investments and acquisitions in the
gaming and lodging industries, and currently has several projects under
consideration, subject to further due-diligence and analysis. These investments
may include acquiring interests in casinos, hotels or other ancillary businesses
in the gaming industry. The Company can give no assurance that any of these
contemplated transactions will close or occur as the successful closing of any
of the contemplated transactions is subject to many variable factors, a
significant number of which are outside the control of the Company.
3
<PAGE>
Las Vegas Gaming Market and Marketing
Although there are various segments to the Las Vegas gaming market, the
largest segment in terms of revenue and the one in which the hotel to be
developed on the El Rancho site will compete is comprised of the hotel casinos
located in the heart of Las Vegas on Las Vegas Boulevard South, also known as
the Las Vegas Strip. Some of the newer hotel casinos on the Strip have attempted
to broaden their appeal to families and repeat visitors by adoption of a
theme-park atmosphere.
Competition
The gaming industry in the United States and Canada has experienced rapid
growth in recent years, and has not been limited to the traditional areas of
Nevada and Atlantic City, New Jersey. Casino gaming is currently permitted in a
number of states, including Colorado, Illinois, Indiana, Iowa, Louisiana,
Mississippi, Missouri, Montana, Nevada, New Jersey, South Dakota, and in
Windsor, Ontario, Canada, as well as on Indian lands in certain states. Other
jurisdictions may legalize gaming in the near future. New or expanded operations
by other persons can be expected to increase competition for the Company's
proposed gaming operations and could result in the saturation of gaming markets.
In particular, casinos and other gaming businesses in Las Vegas, Nevada compete
directly with those in Laughlin and Henderson, Nevada, which are rapidly
expanding markets. In addition, several jurisdictions in various states have
received proposals to permit Indian tribes to designate Indian land for the
purpose of building gaming facilities. As new gaming opportunities arise, new or
expanded operations by others can be expected to increase competition for the
Company, and any other gaming operations which the Company may develop or
acquire could result in the saturation of gaming markets. The gaming industry is
highly fragmented and characterized by a high degree of competition among a
large number of participants, many of whom may have greater financial,
management and other resources than the Company.
Broadly, the Company will compete with all hotel casinos in the Las Vegas
area and in other cities in Nevada for its gaming and hotel customers, including
several which have recently opened or have undergone or are undergoing major
expansions. Competition in the Las Vegas hotel casino industry is based on
location, price, ambience, quality of accommodations and facilities, and
ancillary attractions such as shows or amusement facilities. As of December 31,
1996, there were approximately 99,000 hotel rooms in Las Vegas, with
approximately 11,200 rooms being added in 1997. The Property's most direct
competition will be with other major hotel casinos in Las Vegas, namely the MGM
Grand, Treasure Island, The Mirage, The Riviera Hotel & Casino, Caesars Palace,
Luxor, Excalibur Hotel & Casino, Tropicana Resort & Casino, Circus Circus,
Sahara Hotel & Casino, Frontier, Stardust Resort & Casino, Aladdin Hotel, Desert
Inn, Sands Hotel & Casino, Flamingo Hilton Las Vegas, Bally's Casino Resort Las
Vegas, Hacienda Resort Hotel & Casino, Imperial Palace Hotel & Casino, and
Harrah's Las Vegas. As compared to these hotel casinos, the Hotel developed on
the El Rancho site will have slightly fewer rooms than the average, and will be
more highly leveraged and less well financed and established than some of its
competitors. Several large hotel casinos have recently opened or will soon open
in Las Vegas, and the effect of such openings and the increased number of hotel
rooms will increase competition.
Governmental Regulation - Nevada Gaming
The ownership and operation of casino gaming facilities in Nevada are
subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder and to licensing and regulatory control by the Nevada Gaming
Authorities. The laws, regulations and supervisory procedures of the Nevada
Gaming Authorities are based upon declarations of public policy which are
concerned with, among other things, (i) the character of persons having any
direct or indirect involvement with gaming, (ii) application of appropriate
accounting practices and procedures, (iii) maintenance of effective control over
the financial practices and financial stability of licensees, including
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, (iv) record keeping and reporting to the Nevada Gaming Authorities,
(v) fair operation of games, and (vi) the raising of revenues through taxation
and licensing fees.
4
<PAGE>
The Company must register with the Nevada Gaming Commission and be found
suitable and be granted all requisite licenses under the terms of the Nevada Act
to conduct a nonrestricted gaming operation in Nevada. The sale of alcoholic
beverages and the operation of a gaming establishment by the Company in Las
Vegas is subject to licensing, control and regulation by the applicable local
authorities. All licenses are revocable and not transferrable. The agencies have
the full power to limit, condition, suspend or revoke any such license, and any
such disciplinary action could (and revocations would) have a material adverse
effect upon the operations of the Company.
The Company, or its subsidiaries, and Orion intend to apply for the
necessary governmental licenses, permits and approvals for the ownership and
operation of a casino. However, there can be no assurances that any licenses,
permits or approvals that may be required will be given or that once received,
they will not be suspended or revoked.
Media and Entertainment
- -----------------------
The Company is active in the development of media related opportunities,
and is formulating a business plan to develop, produce, market and distribute
television and video programming. It is the current intention of the Company to
develop programming and technology that will respond to the new business
opportunities resulting from the current evolution of electronic program
delivery systems. The Company has also obtained a management contract to manage
all aspects of the entertainment activities at the proposed "CountryLand, USA"
Hotel and Casino, and will seek to manage entertainment activities at other Las
Vegas hotels, casinos, and venues.
Television and Video Programming
Revolutionary changes in program delivery, including fiber optic cabling
which will enable telephone and utility companies to become television
programming providers, direct broadcast satellite services, the Internet and
world wide web, and the expansion of foreign television channels and markets
have created an unprecedented demand for programming. The Company intends
specifically to act upon this increased need for television programming by
creating and packaging new program services and developing distribution
strategies based upon current industry dynamics and trends. To accomplish these
objectives, the Company has assembled a group of executives with vast experience
in program origination, production, and distribution operation and technologies.
It is the Company's intention to develop and provide programing to a
targeted group of these emerging electronic delivery systems that will be unique
in its scope and content. The majority of the Company's proposed program
channels may be dedicated to pay-per-view programming featuring primarily new
video movie releases. The Company intends to design a unique scheduling and
channel design for pay-per-view service that may approach desired "video on
demand" ("VOD") status for the most popular movie titles. The ability to offer a
selection of top video titles on almost a VOD basis is a feature greatly valued
in the electronic delivery industry due to resulting higher buy-rates which
translate directly into increased revenues. In addition to developing its near
VOD pay-per-view program service, the Company may package existing program
channels and distribution, currently in the early stages of development,
together with channels it may create independently or in partnership with
others.
The Company also intends to capitalize on the evolution of Las Vegas into
one of the world's premier entertainment centers by providing television
programming with fast-paced music and entertainment programming, featuring
excerpts from performances in Las Vegas, as well as throughout the United
States, interviews with personalities, information on Las Vegas gaming and
non-gaming attractions and related topics. This entertainment programming will
include segments dedicated to the merchandising of such goods and services as
Las Vegas travel packages, concert tickets, memorabilia and audio and video
recordings featuring entertainers that appear in the programming as well as
other entertainers. The Company intends to produce this programming primarily
using its own creative staff and third party crews on location in Las Vegas and
other remote locations as well as at production studios. The Company will be
required to obtain rights to use excerpts from Las Vegas shows and to contract
with performers directly for their services. No arrangements have been made to
obtain such rights or contracts with performers. The Company will also use stock
footage and segments of a program originally produced by LVEN for a television
show entitled "Las Vegas Tonight." The Company intends to use portions of this
program inventory to create certain segments. The Company intends to market to a
national audience and syndicate its programming utilizing the services
5
<PAGE>
and contacts in the television industry of the Company's officers and other
employees. The Company ultimately plans to distribute its programming nationally
by satellite to various broadcast and cable television outlets by providing
programming seven days per week.
The Company has not signed any formal agreements with television stations
for broadcast time and the Company does not expect to air programming until at
least three months after the completion of an offering to raise the needed
capital. The Company also has not signed any agreements for the acquisition of
any film rights. Inasmuch as the Company intends to increase its level of
activities it television and video production, it will be required to make
significant expenditures in connection with production and distribution of its
programming. The Company anticipates that it will need additional funds to
commence production of its programming and that losses will occur until such
time, if ever, as revenues generated are sufficient to offset the Company's
operating costs. There can be no assurance that the Company will be able to
raise additional funds and/or produce and distribute its programming or achieve
significant levels of revenue or profitable operations or that the Company will
be able to achieve any of its goals.
The primary sources of revenue are expected to be from service subscription
fees and advertisements on and commercial sponsorships of the intended
television programming, or from the sale and licensing to third parties of any
television or video programming developed. To date, no advertising or
sponsorship commitments, or film distribution contracts, have been obtained and
no assurances can be given that such commitments will be obtained in the future.
Live Entertainment Management
In connection with the sale of the El Rancho, and once the project has been
developed, completed and opened either under the "CountryLand, USA" theme or
another theme, the Company's LVCC subsidiary has the exclusive right to manage
all aspects of ITB's entertainment activities (including "CountryLand, USA").
This would include; (i) responsibility for management and oversight of booking
all acts, performers, entertainers, movies, virtual reality rides and other
non-gaming attractions of any kind or nature at the property site, (ii)
arranging all advertising for all of ITB's advertising needs, and (iii)
managing all other entertainment venues for ITB. The term of the agreement is
for ten (10) years commencing on the date which is six (6) months prior to the
projected opening date of the property, and LVCC shall have the option to renew
the agreement for two (2) consecutive five year terms. The agreement provides
the Company with an annual fee of $800,000 subject to annual increases. LVCC
will also receive an additional (i) twenty-five percent (25%) of profits from
entertainment activities, (ii) ten percent (10%) of the cost of all advertising
placed by ITB, and (iii) booking fee equal to ten percent (10%) of gross
compensation paid to talent. The Company has agreed with ITB that at all times
during the term of the agreement, it will make available the services of Joseph
A. Corazzi, the Company's Chairman of the Board.
Electronic Media Delivery
The Company entered into an agreement on January 31, 1997 whereby it
acquired a 5% equity interest in Electric Media Co. Inc. (EMC) and a continuing
royalty in certain of its operations, for $400,000 plus the contingent issuance
of up to 5,500,000 shares of LVEN common stock as described below. EMC, along
with a joint venture partner/developer, is developing technology that if
successful, of which the Company can give no assurance, will allow delivery of
media, Internet and telecommunication services to customers all over the world,
utilizing existing power utility infrastructures. Field testing of this
technology will occur during 1997, and in connection therewith, the Company has
agreed to provide a guarantee up to $1,500,000 for the financing of certain
equipment necessary for the field tests. The equipment is returnable to the
vendor, without cost to the Company, should the test not be satisfactory. Upon a
successful field test of this technology, the Company is committed to deliver
500,000 restricted shares of its common stock to the developer of this
technology.
If the field tests are successful, 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. The Company will
receive, in perpetuity, a $25 per unit royalty for each receiver box sold, if
any. Each time the sale of these units generates $10,000,000 of net after tax
profits, the Company will deliver the developer an additional 500,000 restricted
shares of the Company's common stock, up to a maximum of 5,000,000 restricted
shares. The Company may terminate the agreement at its sole discretion, and have
no further liability to EMC or the developer.
6
<PAGE>
Competition.
Competition in the areas of television programming and live entertainment
is intense and the Company will face intense competition in all areas of its
media and entertainment operations. The Company's television programming will
compete not only against other television entertainment sources, such as
existing cable channels, but also against other television programming in
general and other forms of leisure time entertainment, such as videocassette,
radio and live entertainment. The Company will compete with major companies in
the television industry as well as with numerous smaller companies for the
services of performing artists and other creative and technical personnel and
creative material.
The Company's programming will compete with other first run programming,
network reruns and programs produced by local television stations. The Company
will face competition from companies that have been acquiring, producing and
distributing programs for several years, and many of these companies have
greater financial resources than those of the Company. The Company also will
compete with other companies for sale of television advertising time and
merchandising of goods and services. Should the Company's programming and
marketing efforts find wide public acceptance, it is likely that one or more of
such competitors will seek to emulate the Company's programming.
The Company will also face intense competition in the development of live
Las Vegas entertainment. The Company will face completion from long established
hotel casinos such as Caesars, The Mirage, Bally's, and The MGM Grand who have
been staging headline Las Vegas shows for years, as well as newer casinos such
as New York, New York, the Luxor and Treasure Island. These casinos are large,
well financed, known to the public as providing quality headline acts, and have
large venues. The Company will be competing against these casinos not only for
customers, but for headline talent, producers, and directors necessary to make a
successful show.
Employees
The Company currently has 3 officers and 5 other full-time secretarial and
administrative employees involved in corporate administration, accounting and
marketing and development. The Company also employs various employees and
consultants for gaming, financing, architectural and security and maintenance
matters who are engaged to work on either a consulting or part-time basis. If
the Company develops its television programming and live entertainment as
described above, it intends to employ 5 additional full-time employees, and up
to seven persons on a part time basis. Additional personnel will be hired as
needed, or on a project by project basis. None of the Company's employees are
represented by unions, and the Company believes that its employee relations are
good.
7
<PAGE>
Item 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 1801 Century Park East, Suite
2300, Los Angeles, California 90067 and consists of 7,000 square feet of office
space, which it leases on a month-to-month basis from an unaffiliated party for
$8,500 per month. The Company also leases, on a month-to-month basis, certain
other office and storage facilities at an aggregate rental of $4,500 per month.
The Company sold on January 22, 1996, the assets and liabilities of the El
Rancho Hotel and Casino. The El Rancho consisted of a 1,006 room hotel, a 90,000
square foot casino and ancillary areas, a 52-lane bowling alley, a swimming pool
and a parking garage and was encumbered by a $12 million purchase-money deed of
trust as of October 31, 1995. The El Rancho is located in Las Vegas, Nevada at
2755 Las Vegas Boulevard South (also known as the Las Vegas Strip) on 20.86
acres on a quadrilateral parcel of land bounded by Las Vegas Boulevard South on
the west, Riviera Boulevard on the south, a vacant lot on the east, and the "Wet
and Wild" attraction on the north. The El Rancho was one of the first large
scale hotel-casinos built in Las Vegas, and was operated on a western theme by
its former owners.
Item 3. LEGAL PROCEEDINGS
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. The Company believes there are no funds due, and that
the case is without merit. Management intends to vigorously defend the lawsuit.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of the year ended October 31, 1996.
8
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded on NASDAQ Stock Market since
February 20, 1992 under the symbol LVEN. The following table shows the range of
high and low bid quotations reported by NASDAQ in each fiscal quarter from
November 1, 1994 to December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal 1995
Quarter ended January 31, 1995 $1.94 $0.97
Quarter ended April 30, 1995 $1.81 $0.63
Quarter ended July 31, 1995 $1.59 $0.81
Quarter ended October 31, 1995 $1.44 $0.66
Fiscal 1996
Quarter ended January 31, 1996 $1.25 $0.50
Quarter ended April 30, 1996 $0.84 $0.46
Quarter ended July 31, 1996 $0.75 $0.37
Quarter ended October 31, 1996 $0.43 $0.21
</TABLE>
The number of record holders of Common Stock as of January 31, 1997 was
approximately 786. On January 31, 1997, the high and low bid asked prices for
the Common Stock were $0.47 and $0.44 respectively.
Holders of Common Stock are entitled to receive dividends as may be
declared by the Company's Board of Directors. No contractual restrictions exist
on the payment of dividends. No dividends on the Common Stock have been paid by
the Company, nor does the Company anticipate that dividends will be paid in the
foreseeable future. Further, there can be no assurance that the proposed
operations of the Company will generate the revenues and cash flow needed to
declare a cash dividend or that the Company will have legally available funds to
pay dividends.
9
<PAGE>
Item 6. 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-KSB 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 form those set forth in any
such forward-looking statements. The forward-looking statements contained in
this Form 10-KSB 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-KSB 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-KSB 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-KSB. The inclusion for the forward-looking statements contained in this Form
10-KSB should not be regarded as a representation by the Company or any other
person that the forward-looking statements contained in this Form 10-KSB will be
achieved. In light of the foregoing, readers of this Form 10-KSB are cautioned
not to place undue reliance on the forward-looking statements contained herein.
General
Background. The Company was formed in October 1990 to develop, produce and
distribute television programming utilizing Las Vegas themes. Upon receipt of
$4,657,241 of 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 the
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.
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
(the "El Rancho 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 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 (the "Property") to develop and open the Property as "CountryLand, USA",
a major hotel and casino destination. As part of the sale agreement, once the
Property is opened and invested amounts have been recouped by Orion 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 ( See "Item 1 - Description
of Business - General").
10
<PAGE>
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 media and communication properties,
including certain limited production of television and film programming.
Cash Requirements. The Company's current monthly operating cash
requirements are approximately $250,000, composed in approximate amounts of
salary and consulting fees of $110,000; general and administrative expenses of
$100,000; professional fees of $30,000; and, interest payments on existing debt
of $10,000. The Company is also responsible for managing and paying the
operating costs of the 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 but may increase to a greater amount as
Orion begins the renovation of this property. The Company may also incur other
consulting and professional fees in the development and financing of its
business activities. During the year ended October 31, 1996, the Company made
$1,476,000 in advances and deposits to certain businesses, individuals or others
to secure potential acquisitions or investments. Subsequent to October 31, 1996,
the Company has made an additional $500,000 of such advances. 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.
Subsequent to October 31, 1996, the Company's Casino-Co subsidiary made a
90-day secured loan of $2,900,000 to NPD Inc., an unaffiliated third party (See
"Liquidity and Capital Resources - Notes Receivable"). This loan, which bears
interest at 10% per annum, is due on April 15, 1997. Additionally subsequent to
October 31, 1996, the Company paid to Mr. Nunzio DeSantis, who subsequently was
named the Chief Operating Officer of ITB, $110,000 of loan fees and also granted
to him options to acquire 1,500,000 shares of the Company's Common Stock at an
exercise price of $1 per share, as consideration for providing a $6,000,000
standby funding commitment for a portion of the replacement financing on the
Property (See "Item 1. Description of Business; Casino and Gaming Operations").
As of January 31, 1997, the Company had approximately $9,200,000 in cash
and current notes receivable and believes that its current cash and receivables
(including funds expected to be received by April 15, 1997 by repayment of the
NPD Note Receivable) 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 January
31, 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. The Company may obtain such funds, if required, from a
public offering. If a public offering 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.
Results of Operations
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995 - Continuing
Operations
Revenues for the year ended October 31, 1996 increased by $85,228 to
$291,200 as compared to $205,972 for the corresponding period in 1995. Revenues
for the year ended October 31, 1996 consisted of $225,000 of fees earned under
an interim entertainment and property management agreement with Orion (such
agreement did not exist in 1995), and $66,000 earned in connection with renting
out the parking facilities while the Company owned the El Rancho property.
Revenues for year ended October 31, 1995 consisted of $151,000 earned in
connection with renting out the parking facilities at the El Rancho Hotel
property site and approximately $54,000 in fees earned from miscellaneous
program sources.
Programming costs, which relate to write-downs made to the Company's
television programming library to reflect management's estimate of its net
realizable value, increased $82,561 to $805,061 during the year ended October
31, 1996 as compared to $722,500 in the corresponding period in 1995.
11
<PAGE>
General and Administrative expenses decreased $3,642,581 to $3,202,893
during the year ended October 31, 1996 as compared to $6,774,448 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 year ended October 31, 1995.
In connection therewith, professional and consulting fees decreased $2,378,000
to $570,000 during the year ended October 31, 1996 as compared to $2,948,000 for
the corresponding period in 1995. Professional advisory and investment banking
fees also decreased $970,000 to $59,000 during the year ended October 31, 1996
as compared to $1,029,000 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 a potential spin-off of the CountryLand
USA subsidiary. These offerings were terminated during 1996 and 1995 given the
sale of the El Rancho. General and administrative costs relating to the El
Rancho decreased by $251,000 for the year ended October 31, 1996 as compared to
1995 due to the cessation of operating costs when the Property was sold on
January 22, 1996.
Significant general and administrative expenses are expected to continue
while the Company seeks new acquisitions and projects.
Interest Income and Expense. Interest income increased $374,183 to $495,350
for the year ended October 31, 1996 as compared to $121,167 for corresponding
period in 1995. The majority of the increase relates to (i) an increase in
interest earned on cash balances of $335,00 to $420,000 for the year ended
October 31, 1996 as compared to $85,000 in the comparable period in 1995,
and.(ii) interest of $75,000 earned on the Company's receivables due from Orion
during the year ended October 31, 1996, for which there was none in the
comparable period in 1995. The increase in interest income is consistent with
the increase in the average cash outstanding during the year ended October 31,
1996 as compared to the corresponding period in 1995. Interest expense and
finance costs decreased $144,504 to $537,081 for the year ended October 31, 1996
as compared to $681,585 for the corresponding period in 1995. The majority of
decrease related to a $137,000 decrease in interest expense to $205,000 for the
year ended October 31, 1996 as compared to $343,000 for the comparable period in
1995. The decrease in interest expense is consistent with the decrease in the
average indebtedness outstanding during the year ended October 31, 1996 as
compared to the corresponding period in 1995. Finance costs, which consist of
loan fees and stand-by financing fees, approximated $335,000 in each of the
years ended October 31, 1996 and 1995.
Other Income and Charges - Included in other income and charges for the
year ending October 31, 1996 is $625,000 which represents cash and the value of
800,000 restricted shares of the Company's Common Stock and 167,000 shares of
Common Stock of Satellite Networks Inc. paid in connection with settling claims
arising from arranging certain financing in connection with the initial
acquisition of the El Rancho Property site; a valuation allowance of $450,000
relating to advances made to Malbec, Inc. an unaffiliated third party, in
connection with the development of certain hotel properties in Miami Beach,
Fla.; $295,000 related to an adjustment to reflect the value of certain shares
of common stock previously issued for services; and $150,000 issued in
settlement of an outstanding loan and stock purchase agreement.
Reserve on disposal of El Rancho Hotel and Casino. On January 22 , 1996,
the Company sold the assets and certain liabilities of the El Rancho to Orion
Casino Corporation for consideration of $43,500,000 of cash, notes and
assumption of existing indebtedness. The Company previously reflected the
effects of the above transaction and provided an allowance of $9,000,000 as of
October 31, 1995. This allowance was reduced by $576,677 during the year ended
October 31, 1996 to reflect the actual settlement of all charges, relating
mainly to $611,000 of escrow funds that were returned to the Company upon
Orion's settlement of the Refinance Obligations (see "Liquidity and Capital
Resources, Refinance Obligations" )
Year Ended October 31, 1995 Compared to Year Ended October 31, 1994 - Continuing
Operations
Revenues for 1995 represented principally receipts earned in connection
with renting out the parking facilities at the El Rancho Hotel property site.
There were no corresponding revenues for the year ended October 31, 1994.
12
<PAGE>
Programming costs, which relate to write-downs made to the Company's
television programming library to reflect management's estimate of its net
realizable value, increased $442,500 to $722,500 during the year ended October
31, 1995 as compared to $300,000 in the corresponding period in 1994.
General and Administrative expenses increased $4,163,543 to $6,774,448
during the year ended October 31, 1995 as compared to $2,610,905 in the
corresponding period in 1994. The major reason for the increase was the expenses
related to investigating and negotiating various alternatives to developing the
El Rancho and various other business opportunities. In connection therewith,
professional advisory and investment banking fees increased $2,457,000 to
$2,513,000 from $56,000, accounting and legal fees increased $302,000 to
$427,000 from $125,000 and travel costs increased $384,000 to $408,000 from
$24,000 during the year ended October 31, 1995 as compared to the corresponding
period in 1994. Additionally, costs incurred in preparation of certain intended
underwritings increased $629,000 to $1,029,000 during the year ended October 31,
1995 as compared to $400,000 in the corresponding period in 1994. The increase
was due to legal, accounting and professional fees incurred in connection with
the intended spin-off of LVCC and public registration of its shares, and the
potential spin-off of CLND, and also includes a write-off of $542,000 of
offering costs previously deferred as of October 31, 1994.
Management salaries and consulting costs increased $851,000 to $1,513,000
during the year ending October 31, 1995 as compared to $662,000 in the
corresponding period in 1994. The increase is due to an increase in officers'
salary of $288,000 and consulting costs of $344,000 incurred in connection with
developing the operations of LVCC and CLND properties, and for the accrual of
$115,000 in retirement benefits under a plan which did not exist in 1994.
Interest Income and Expense. Interest income decreased $124,000 to $121,000
for the fiscal year ended October 31, 1995 as compared to $245,000 for fiscal
year 1994. The majority of the decrease related to the interest accrued on the
Lake Tropicana note receivable of $1,868,463. Interest of $37,000 was accrued on
this note in 1995 as compared to $118,000 of interest which was accrued in 1994.
Interest expense increased $151,000 to $343,000 for the fiscal year ended
October 31, 1995 as compared to $192,000 for fiscal year 1994. Approximately
$100,000 of the increase was directly attributable to the increase in the amount
of outstanding convertible debt during the period, and $44,000 was attributable
to interest accrued on $1,500,000 note to UK Foods which did not exist in 1994.
Additionally in the year ended October 31, 1995, the Company incurred
approximately $338,500 of loan fees and other financing costs as compared to
only $15,000 of such costs in 1994.
Other Income and Charges. Included in other charges as of October 31, 1995
is $500,000 allowance for reduction to market value of 4,000,000 shares of
common stock of Sky Scientific Inc; $33,000 loss on the sale of 25,000 shares of
American Network Group, Inc. common stock ; $72,850 for an additional allowance
against the Company's investment in Patmore Radio Broadcasting; $107,000
additional allowance against existing notes receivable, and $70,000 loss
relating to investments no longer pursued.
Reserve on disposal of El Rancho Hotel and Casino. On January 22 , 1996,
the Company sold the assets and certain liabilities of the El Rancho Hotel and
Casino to Orion Casino Corporation for consideration of $43,500,000 of cash,
notes and assumption of existing indebtedness. The Company has reflected the
effects of the above transaction as if it had occurred as of October 31, 1995
and accordingly provided an allowance of $9,000,000 for accounting purposes
reflecting an adjustment to the net realizable value of the El Rancho Property.
Liquidity and Capital Resources
The Company's cash requirements to date have been funded from proceeds
received in connection with the sale of shares of its common stock, warrants and
short-term borrowings. The Company's cash has been used for selling, general and
administrative expenses, and for investments and advances made to third paries.
Issuance of debt and equity. The Company sold 3,034,294 shares of its
Common Stock in a series of private placements made to non-U.S. (foreign)
purchasers, under the exemption of Regulation S of the Securities Act of 1933
during the year ended October 31, 1996 (all during the first quarter of fiscal
1996). The Company received net proceeds of $1,242,500 in 1996 from these
issuances. The Company also issued 604,651 shares of its common stock to
13
<PAGE>
extinguish $252,500 of outstanding convertible bridge notes payable and accrued
interest during the year ended October 31, 1996. Also during the year ended
October 31, 1996 (during the first and second quarters), the Company issued
2,752,588 shares of its Common Stock valued at $1,369,135 for services provided
and to settle accounts payable.
As of October 31, 1996, the Company had outstanding $1,056,444 of notes and
loans payable which are currently due and payable. Subsequent to October 31,
1996, $275,000 of this debt has been repaid. The Company intends to repay the
remaining outstanding notes, along with all accrued interest, during the current
year from its current cash balances. Also subsequent to year end, the Company
agreed to guarantee up to $1,500,000 of equipment financing in connection with
an investment it made in Electronic Media Corp.(See "Item 1, Media and
Entertainment, Electronic Media Delivery").
Refinance Obligations. In connection with the sale of El Rancho, the
Company refinanced the existing El Rancho indebtedness with a $14,000,000 13%
first mortgage note due SunAmerica Life Insurance Company on December 20, 1996.
In connection therewith, the Company issued to SunAmerica 1,912,588 shares of
its Common Stock. Orion assumed the Company's obligations under the refinance
note concurrent with the sale transaction (the "Refinance Obligations"). As part
of the sale agreement, the Company agreed to co-guarantee the assumed note for a
certain amount of time. The SunAmerica note was refinanced and retired by Orion
on June 4, 1996, 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
Obligations, 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 refinancing of the SunAmerica loan by
Orion on June 4, 1996, $339,000 of this escrow amount was paid to SunAmerica,
and the remaining $611,000 was returned to LVEN.
Notes Receivable. In connection with the sale of the El Rancho, the Company
received two promissory notes due 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 $6,500,000 which was paid in full March 15, 1996.
The second note is an 8% promissory note in the principal amount of $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. The Company expects that this note receivable should be collected from
the proceeds from Orion's $100,000,000 funding proposal; however, the Company
can give no assurance the closing of such funding will actually occur ( see Item
1, General " Casino and Gaming Operations").
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 October 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 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
14
<PAGE>
of such reorganization, the Company's secured note receivable moved up to a
second position. As of October 31, 1996, 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 October 31, 1996, the Company had made advances of $912,606 to
Malbec, Inc., an unaffiliated company, for the purpose of developing and
operating a hotel project in Miami Beach, Florida. The advances accrue interest
at the rate of 10% per annum, are due July 31, 1997, and are secured by a first
security interest in a cash escrow account, after payment of all expenses (which
has a balance of $667,000 as of January 31, 1997). The Company has re-evaluated
this project and has decided not to pursue development as it believes it will
not be able to obtain a favorable purchase price, and/or resolve certain
bankruptcy proceedings involving the hotel project. The Company expects that the
escrow account will be liquidated with the net amounts, after payment of all
expenses, to be returned to the Company. The Company has provided a $450,000
allowance against this advance, for a net investment of $462,606 as of October
31, 1996.
On September 4, 1996, 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. Principal and interest at a rate of 17% per annum are
payable in monthly installments of $14,832 until maturity, November 1, 1998. In
connection with making this loan, the Company received a 3% equity interest in
the common shares of Tee One Up. The Company has given no value this investment
for financial statement purposes, as Tee One Up Inc. currently has a
shareholders' deficiency.
On January 15, 1997, the Company, through it's wholly-owned Nevada
subsidiary Casino-Co, made a 90-day secured loan of $2,900,000 to NPD, Inc,
("NPD"), in order to enable NPD to close the acquisition from Robert Brennan
("the Seller") of 2,904,016 shares (the "Shares") of the common stock of
International Thoroughbred Breeders, Inc. ("ITB"), representing twenty-five
percent (25%) of the outstanding stock of ITB. At the closing of such purchase
and sale, the shareholders of NPD, Nunzio DeSantis and Anthony Coelho, became
the Chairman of the Board and Chief Executive Officer, respectively, of ITB. The
sale of the Shares was instrumental to LVEN, as it will allow ITB to (i) meet
the requirements of a $100 Million funding proposal that would be used, in part,
for the renovation and opening by ITB of ITB's 21-acre Strip property in Las
Vegas, Nevada, formerly know as the El Ranch Hotel and Casino, in which the
Company has a continuing cash flow interest, and (ii) meet the requirements of
The New Jersey Racing Commission and Division of Gaming Enforcement for
continued racing licencing at ITB's New Jersey facilities. The Company believes
that the sale of the Shares will also facilitate ITB's application for Nevada
Gaming Licencing.
The loan to NPD is evidenced by a 10% Secured Promissory Note due on April
15, 1997 (the "NPD Note"). The NPD Note is secured by a security interest in and
to certain rights of NPD in and to the Shares, subject to a purchase money lien
in favor of the Seller for the balance of the purchase price owing to him in
respect of the sale of the Shares. In addition, 1,452,088 of the Shares are
subject to an existing purchase option in favor of a third party, and would
likely cease to provide collateral to the Company upon the exercise of such
option. The NPD Note is personally guaranteed by Mr. DeSantis. As consideration
for Casino-Co making the $2,910,000 loan, NPD granted Casino-Co an option to
acquire, at an exercise price of $4 per share, the Shares, of which 1,452,088
shares are subject to an existing purchase option in favor of a third party.
Exercise of the option must be approved by the Seller, as well and the United
States Bankruptcy Court, before which certain proceedings involving the Seller
are pending.
Upon a default by NPD under its payment obligations to the Seller in
respect of the balance of the purchase price for the Shares, the Seller would be
free to exercise certain creditor's rights under a Pledge Agreement between the
Seller and ITB in respect of the Shares (the "Pledge Agreement"). Such actions
could have the effect of modifying the Company's security interest in such
collateral, which at all times is subordinated to and secondary to the rights of
the Seller. In the event that the Seller elects to foreclose on the Shares, the
Company will be obligated to execute all documents requested by the Seller to
reflect the discharge of the Company's security interest therein. In the event
of a sale by the Seller after a default, the Company's right in such
circumstance shall be limited to the right to receive any proceeds from such
sale over and above the amounts due the Seller under the Pledge Agreement. Upon
satisfaction of NPD's purchase money obligation to the Seller during the term of
the NPD Note, the Company would then have a first priority security interest in
the Shares.
15
<PAGE>
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company required to be
included in Item 7 are set forth in the Index to Financial
Statements..
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT.
The members of the Board of Directors of the Company serve until the next
annual meeting of stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors. The directors and
executive officers of the Company are set forth in the table below.
Name Age Position
Joseph A. Corazzi 47 Chairman of the Board,President, Chief
Executive Officer and Director of the
Company; proposed Chairman of the Board
of LVCC.
Carl A. Sambus 46 Executive Vice President, Chief Financial
Officer, Chief Operating Officer, Secretary,
Treasurer and Director of the Company;
proposed Chairman of the Board, Chief
Executive Officer, Chief Financial Officer
and Director of CountryLand; and Chief
Financial Officer and Director of LVCC.
Ken Scholl 59 President, Casino-Co.
Paul Whitford 55 Director of the Company.
Joseph A. Corazzi has been an executive officer and director of the
Company since October 1990 and of LVCC since May 1994. He has extensive
experience in the entertainment and marketing industry. In 1974, he founded
Communications Associates, Inc., which became one of the first suppliers of
hotel/motel video entertainment, using master antenna television systems to
carry movies from 3/4" videotape machines into hotel guest rooms. In connection
with this business, Mr. Corazzi pioneered the usage of 1/2" videotape machines,
followed by the first installation of 24 hour satellite transmission in lieu of
videotape machines. From 1981 to 1985, Mr. Corazzi was President and Chief
Operating Officer, and from 1985 to February 1989 he was Vice-Chairman of the
Board, of Telstar Corporation, and an executive officer of Telstar Satellite
Corporation of America ("Telstar"), which was engaged in the business of
satellite programming and distribution to cable television systems and to motel,
hotel and other private cable systems. From 1975 to 1982, Mr. Corazzi owned and
operated several cable television and private cable television systems
throughout the southwest United States. In 1985, Mr. Corazzi created Country
Music Television ("CMT"), the first all-country, all-music video programming
service. CMT is currently distributed to more than 20 million homes nationwide.
From January 1987 to December 1990, Mr. Corazzi was Chairman of SelecTV of
California, Inc. ("SelecTV"), a wireless cable television operator in Los
Angeles. From 1989 to the present, Mr. Corazzi engages in the business of
advising financially troubled companies with respect to their reorganization
under the U.S. Bankruptcy Code. Bankruptcy petitions for both Telstar and
SelecTV were filed under Chapter 11 of the U.S. Bankruptcy Code in 1989. The
plan of reorganization for each of these companies was confirmed by the
bankruptcy court in November 1992. Mr. Corazzi graduated from the University of
New Mexico and completed course work for his master's degree in communications
at the University of Wisconsin, Madison.
16
<PAGE>
Carl A. Sambus has been an executive officer of the Company since
October 1990, and of the Company's CountryLand subsidiary since November 1993
and of LVCC since May 1994. Mr. Sambus has spent most of his professional career
in the cable industry, pay-per-view, pay television and satellite entertainment
industries in the United States. One year after joining Viacom International
("Viacom") in 1972, Mr. Sambus was placed in charge of Suffolk Cablevision, in
which capacity he conducted a test for the nation's first one-way addressable
pay-per-view system. In late 1977, Mr. Sambus was one of the five originators of
Viacom's adaption of its private pay television network into ShowtimeTM,
pioneering the cable delivery of movie entertainment on pay television. In that
capacity, he also helped negotiate Showtime'sTM merger with The Movie ChannelTM
to form the nation's second largest satellite pay television service. As
Showtime/The Movie Channel's Vice President of Business Development from 1977 to
1986, Mr. Sambus was in charge of finance and planning and supervising Viacom's
entrance into a host of ancillary markets, including SMATV, hotel and motel,
private cable and direct broadcast satellite markets. Since 1986, Mr. Sambus has
been an active partner in CLR Associates, a family investment and consulting
partnership specializing in logistical management and marketing services. CLR
Associates maintains an equity interest in various business' interests and its
partners serve as officers and directors of several private corporations. Mr.
Sambus is a graduate of Marietta College with a BA in Finance and Accounting.
Ken Scholl has been a President of the Company's Casino-Co Corporation
subsidiary since January 23, 1996. Since 1984, Mr. Scholl has been President of
Stanford Company, in Las Vegas, Nevada and from November 1992 until February
1993 he was an independent contractor with Minami Development, Inc. in
connection with the closing of the Dunes Hotel and Casino in Las Vegas, Nevada.
From July 1990 until June 1962, Mr. Scholl was the President and a Management
Consultant for the Peabody Hotel Group in Memphis, Tennessee, and from 1986
until 1996 he was the President and a partner in the Aristocrat Hotels, Inc. and
Aristocrat Hotels of Nevada, Inc. which operated the Sands Hotel in Las Vegas,
Nevada. Mr. Scholl was President and CEO of Princess Hotels International and
employed from November 1967 through 1978. Mr. Scholl held a Nevada State Gaming
License, and is a Licensed Nevada Real Estate Broker. Mr. Scholl is also a
director of International Thoroughbred Breeders Inc.
Paul Whitford has been a director of the Company since March 1, 1996. Mr.
Whitford is in private legal practice, concentrating in entertainment, taxation
and bankruptcy law. He has been a member of the Bar of the State of California
since 1978. Mr. Whitford received his Bachelor of Business Administration degree
from the University of North Texas and his Juris Doctor from San Fernando Valley
College of Law (now University of La Verne). Mr. Whitford has also been a
Certified Public Accountant since 1968, and is currently licensed in Texas.
Compliance with Section 16(a)
There were no corresponding transactions.
17
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the
Company to present executive officers and as to all persons as a group who were
executive officers of the Company at any time during the year ended October 31,
1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION(2)
------------------- -------------------------
Other
Name and Annual Awards Payouts All
Principal Position Year Salary(1) Bonus Compensation Other
------------------ ---- --------- ----- ------------ -----
Restricted Optional LTIP 3)
Stock SARs(#) Payouts
----- ---------------
<S> <C> <C> <C> <C>
Joseph A. Corazzi, CEO 1996 $550,000 -0- -0- -0- -0- -0- -0 $124,000
President and Chairman 1995 $500,000 -0- -0- -0- 4,000,000 -0- -0- $115,000
1994 $267,151 -0- -0- -0- 130,000(4) -0- -0-
Carl A. Sambus, 1996 96,667 -0- -0- -0- -0- -0- -0- -0-
Executive Vice 1995 $ 80,000 -0- -0- -0- -0- -0- -0- -0-
President, Chief 1994 $ 73,863 -0- -0- -0- 250,000 -0- -0- -0-
Financial Officer
and Secretary
Ken Scholl, 1996 $120,000 -0- -0- -0- -0- -0- -0- -0-
President, Casino-Co 1995 $120,000 -0- -0- -0- -0- -0- -0- -0-
1994 $100,000 -0- -0- -0- -0- -0- -0- -0-
All executive officers
as a group (3 Persons 1996 $766,667 -0- -0- -0- -0- -0- -0- $124,000
1995 $700,000 -0- -0- -0- 4,100,000 -0- -0- $115,000
1994 $441,014 -0- -0- -0- 380,000 -0- -0- -0-
</TABLE>
The company issued 200,000 shares of its Common Stock, valued at $125,000,
to James Sargent, a former director of its CountryLand Properties Inc.
subsidiary, for consulting fees during the year ended October 31, 1996. The
Company paid to Mr. Paul Whitford, director fees of $13,500. There were no other
directors fees (other than stated above) paid during the years ended October 31,
1996 or 1995.
(1) The amounts shown do not include the value of certain personal benefits
received in addition to cash compensation. The aggregate value of such
personal benefits received was less than ten percent (10%) of the total
cash compensation payable.
(2) The officers and directors have not participated in the Company's
1992 Stock Option Plan and have no stock options or other long-term
compensation except as stated below.
(3) Represents amount accrued on Mr. Corazzi's retirement plan which
entitles him to an annual retirement benefit starting with the calendar
month after his retirement or termination, equal to fifty percent of
his average annual Company salary and bonus received in the twenty-four
(24) month period prior to his termination (the retirement plan becomes
effective once Mr. Corazzi has been employed 10 years, including any
time pre-dating these agreements)
(4) Does not include options to purchase 1,500,000 shares, which options
were canceled in fiscal 1995.
18
<PAGE>
The following table contains information concerning the grant of stock
options and employment related warrants to the named executive officers:
Percentage of
Total Options
Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date
- ---- ------- ----------- ----- ----
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Options Granted in Fiscal 1996
- ------------------------------
None
Options Granted in Fiscal 1995
- ------------------------------
Joseph Corazzi 4,000,000 98% $1.00 June 1997
Dean Homayouni 100,000 2% $1.00 June 1997(1)
</TABLE>
(1) These options have lapsed as a result of Mr. Homayouni's resignation in
September 1995.
The following table contains information concerning the exercise of stock
options and employment related options and information in unexercised stock
options held as of October 31, 1996 by the named executive officers:
Options Exercises and Year-end Value Table
Value of
of Unexercised
Number of Unexercised In-the-Money
Options at
Options & Warrants October 31, 1996
-------------------- --------------
Shares Non-
Acquired On Value Exercisable exercisable Exercisable(2)
Exercise Realized(1) ----------- ----------- --------------
-------- ----------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -
Name
- ----
Joseph Corazzi -0- -0- 4,130,000 -0 - - 0-
Carl Sambus -0- -0- 250,000 -0 -0-
- -------------------------------------------------------------------------------
</TABLE>
(1) Market Value at time of exercise less exercise price.
(2) The average of the closing bid and ask prices of the Common Stock at October
31, 1996 was $.40 Value equals the difference between market value and
exercise price.
The Company entered into a one year employment agreement on February 20,
1992 with Joseph Corazzi, the Chairman of the Board of the Company, providing
for annual salary of $80,000. The annual salary for Mr. Corazzi was increased to
$350,000 as of March 1, 1994. On March 1, 1995, the Company and its subsidiary,
LVCC, entered into two (2) separate five year employment agreements with Mr.
Corazzi, which provide for an annual aggregate salary of $550,000. The
agreements may be renewed by mutual agreement of the parties for successive
terms of one year and are subject to annual increases and bonuses at the
discretion of the Board of Directors. The agreements also entitle Mr. Corazzi to
participate in any employee benefit plans which may be offered in the future,
such as group life, health, hospitalization and life insurance, and prohibits
him from engaging in a business competitive with the Company during the term of
the agreement. Under the agreements, Mr. Corazzi's employment terminates upon
death or disability and may be terminated by the Company for "cause," which is
defined as the willful failure to perform duties, malfeasance, commission of a
felony, gross negligence, or breach of the employee's covenant not to compete or
maintain confidential certain information. Termination by the Company for any
other reason entitles the employee to receive his salary for the remaining term
of the agreements.
The employment agreements with Mr. Corazzi also provide for the following;
(i) a lump sum payment of $2,000,000 upon the consummation of a definitive
agreement by the Company and any potential purchaser providing for a change of
control, (ii), an annual retirement benefit starting with the calender month
after his retirement or termination, equal to fifty percent of his average
annual LVEN salary and bonus received in the twenty-four (24) month period prior
to his termination (plan becomes effective once Mr. Corazzi has been employed 10
years, including any time pre-dating
19
<PAGE>
the agreements), and (iii) an annual lump sum cash payment equal to 5% of
earnings before income taxes, depreciation and amortization of the LVCC
subsidiary.
The Company entered into a one year employment agreement on February 20,
1992 with Mr. Sambus providing for an annual salary of $60,000. The annual
salary of Mr. Sambus increased as of March 1, 1994 to $80,000, and $100,000 as
of January 1, 1996. The agreement with Mr. Sambus was renewed until February 8,
1997, and may be renewed by mutual agreement of the parties for successive terms
of one year. All the agreements are subject to annual salary increases and
bonuses at the discretion of the Board of Directors. The employment agreements
also entitle these individuals to participate in any employee benefit plans
which may be offered in the future, such as group and life insurance.
The Company has no pension or other plans pursuant to which cash or non-cash
compensation was paid or distributed during the fiscal years ended October 31,
1996 or 1995 other than as described above for Mr. Corazzi.
In connection with the Company's initial public offering in February 1992,
Mr. Byron Lasky and Messrs. Corazzi and Sambus and Communications Associates
Partnership ("CAP"), a partnership of which Mr. Corazzi was the general partner,
escrowed with American Stock Transfer & Trust Company, New York, New York, as
depositary, an aggregate of 750,000 shares of Common Stock held by them (the
"Escrow Shares"). On March 2, 1994, Messrs. Lasky, Corazzi and Sambus
surrendered their rights to receive all Escrow Shares. Subsequently, the Company
issued five-year options under the Stock Option Plan to purchase 250,000 shares
of Common Stock granted to each of Messrs. Lasky and Sambus and options to
purchase 130,000 shares were granted to Mr. Corazzi. All such options are fully
vested and have an exercise price of $1.00 per share. A five-year option (not
under the Stock Option Plan) to purchase 1,500,000 shares was also granted to
Mr. Corazzi. On March 1, 1995, the Company canceled Mr. Corazzi's option to
acquire 1,500,000 shares. Mr. Corazzi was subsequently issued options to
purchase 4,000,000 shares of common stock of CountryLand Properties Inc. which
are transferrable to any new subsidiary formed to operate the gaming assets of
the Company, including Casino-Co. The 4,000,000 CountryLand Properties Inc.
warrants are fully transferable and convertible into options to purchase LVEN
Common Stock at $1.00 per share. These shares are not issuable in connection
with the "Stock Option Plan" described below.
Subsequent to October 31, 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. The options were issued as
part of the consideration for providing a $6,000,000 standby funding commitment
for replacement financing on the El Rancho Property Site (See "Item 1, Casino
and Gaming Operations"). These shares are not issuable in connection with the
Stock Option Plan described below.
The Delaware General Corporation Law permits a corporation, in its
Certificate of Incorporation, to exonerate its directors from personal liability
to the corporation or its stockholders for monetary damages for breach of the
duty of care as a director, with certain exceptions. The exceptions include
breach of the director's duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or knowing violations of law, improper
declarations of dividends, and transactions from which the directors derived an
improper personal benefit. The Company's Certificate of Incorporation exonerates
its directors, acting in such capacity, from monetary liability to the extent so
permitted. This limitation of liability does not eliminate a stockholder's right
to seek non-monetary, equitable remedies such as an injunction or recision to
redress an action taken by directors. However, as a practical matter, equitable
remedies may not be available in all situations, and there may be instances in
which no effective remedy is available.
Stock Option Plan
The Company adopted the 1993 Stock Option Plan in February 1993. The Stock
Option Plan enables the Company to offer an incentive based compensation system
to key employees, officers, directors, consultants and to employees of companies
who do business with the Company. In the discretion of a committee comprised of
non-employee directors (the "Committee"), directors, officers and key employees
of the Company and its Subsidiaries or employees of companies with which the
Company does business become participants in the Stock Option Plan upon
receiving grants of stock options or awards of restricted stock or stock
appreciation rights.
20
<PAGE>
A total of 1,000,000 shares are reserved for issuance under the Stock Option
Plan, of which 150,000 shares are issuable under an option which has been
granted to an employee at $1.50 per share, and 770,000 shares under options
granted to officers and directors (see "Item 10 - Executive Compensation"), all
with an exercise price of $1.00 per share. The Company may increase the number
of shares reserved for issuance under the Stock Option Plan or may make other
material modifications to the Stock Option Plan without shareholder approval.
However, no amendment may change the existing rights of any option or award
holder. Any shares which are subject to an option but are not used because the
terms and conditions of the option are not met, or any shares which are used by
participants to pay all or part of the purchase price of any option, may again
be used for options or awards under the Stock Option Plan. However, shares with
respect to which a stock appreciation right has been exercised may not again be
made subject to an option or award.
Stock options may be granted as non-qualified stock options or incentive
stock options, but incentive stock options may not be granted at a price less
than 100% of the fair market value of the stock as of the date of grant (110% as
to any 10% shareholder at the time of grant) and non-qualified stock options may
not be granted at a price less than 85% of fair market value of the stock as of
the date of grant. Restricted stock may not be awarded under the Stock Option
Plan in connection with incentive stock options. Incentive stock options may
only be issued to directors, officers and employees of the Company. Stock
options may be exercised during a period of time fixed by the Committee except
that no stock option may be exercised more than ten years after the date of
grant or three years after death or disability of the option holder, whichever
is later. In the discretion of the Committee, payment of the purchase price for
the stock acquired through the exercise of a stock option may be made in cash,
shares of Common Stock or delivery of recourse promissory notes or a combination
thereof.
Stock options granted under the Stock Option Plan may include the right to
acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). If an option
grant contains the AO feature and if a participant pays all or part of the
purchase price of the option with stock, then upon exercise of the option the
participant is granted an AO to purchase, at the fair market value as of the
date of the AO grant, the number of shares of stock equal to the sum of the
number of whole shares used by the participant in payment of the purchase price
and the number of whole shares, if any, withheld by the Company as payment for
withholding taxes. An AO may be exercised between the date of grant and the date
of expiration, which will be the same as the date of expiration of the option to
which the AO is related. All of the 880,000 stock options granted to date have
included the AO feature.
Except as described above, stock appreciation rights and/or restricted stock
may be awarded in conjunction with, or may be unrelated to, stock options. A
stock appreciation right entitles a participant to receive a payment, in cash or
stock or a combination thereof, in an amount equal to the excess of the fair
market value of the stock at the time of exercise over the fair market value as
of the date of grant. Stock appreciation rights may be exercised during a period
of time fixed by the Committee not to exceed ten years after the date of grant
or three years after death or disability of the award holder, whichever is
later. Restricted stock requires the recipient to continue in service as an
officer, director, employee or consultant for a fixed period of time for
ownership of the shares to vest. If restricted shares or stock appreciation
rights are issued in tandem with options, the restricted stock or stock
appreciation right is canceled upon exercise of the option and the option will
likewise terminate upon vesting of the restricted shares.
21
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 31, 1997, the stock ownership
of all persons known to own beneficially five percent or more of the Company's
Common Stock and all directors and executive officers of the Company,
individually and as a group. Each person has sole voting and investment power
over the shares indicated, except as noted.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares
of Common Stock
Beneficially
Names and Addresses Owned Percent
- ------------------- ----- -------
Joseph A. Corazzi(1) 4,795,872 12.3.%
505 Marquette
Albuquerque, New Mexico 87102
Carl A. Sambus(2) 292,500 *
88 10th Street
Garden City, NY 11530
Ken Scholl 12,500 *
2805 Ashworth Circle
Las Vegas, Nevada 89107
Paul Whitford
1208 Cochise Drive
Arlington, Texas 76012 - *
All Directors and Executive Officers 5,100,872 13.0%
as a Group (4 persons)(3)
</TABLE>
* Less than 1%
(1) Includes 665,872 shares owned by Mr. Corazzi; 130,000 shares issuable
pursuant to an option granted to Mr. Corazzi under the Company's Stock
Option Plan, and 4,000,000 shares issuable under options not granted
under the Stock Option Plan. See "Certain Transactions."
(2) Includes options to purchase 250,000 shares of Common Stock granted to
Mr. Sambus.
(3) Includes options to purchase 250,000 shares of Common Stock granted to
Mr. Sambus, and options to purchase 4,130,000 shares granted to Mr.
Corazzi.
By virtue of their share ownership and/or management positions, Messrs.
Sambus and Corazzi may be deemed "promoters" and "parents" of the Company as
those terms are defined in the rules and regulations under the Securities Act.
22
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 2, 1994, Messrs. Lasky, Corazzi and Sambus surrendered their
rights to receive 20,000 Escrow Shares each in exchange for (i) an increase in
the annual salaries payable to them under their employment agreements described
above, (ii) five-year options under the Stock Option Plan to purchase 250,000
shares of Common Stock granted to each of Messrs. Lasky and Sambus and to
purchase 130,000 shares granted to Mr. Corazzi and (iii) a five-year option (not
under the Stock Option Plan) to purchase 1,500,000 shares granted to Mr.
Corazzi. On March 1, 1995, the Company canceled the five year option Mr. Corazzi
had to acquire the 1,500,000 shares and instead granted Mr. Corazzi 4,000,000
options to purchase Common Stock of CountryLand Properties Inc. (transferable to
any new subsidiary that may be formed to operate the gaming assets of the
Company, including Casino-Co.). The 4,000,000 CountryLand Properties Inc.
warrants are fully transferable and convertible into options to purchase LVEN
Common Stock at $1.00 per share. These shares are not issuable in connection
with the Company's Stock Option Plan. All such options are fully vested and have
an exercise price of $1.00.
Salary and benefits due Joseph A. Corazzi amounting to $645,622 and
$701,739 has been accrued as of October 31, 1996 and 1995, respectively. This
amount includes an accrual for $124,00 and $115,000 for amounts due Mr. Corazzi
under his retirement plan as of October 31, 1996 and 1995, respectively. The
Company paid and reimbursed Mr. Corazzi $730,177 and $283,360 for accrued and
current salary during the years ended October 31, 1996 and 1995, respectively.
Such sums were due Mr. Corazzi from inception of the Company to October 31,
1996.
The company issued 200,000 shares of its Common Stock, valued at $125,000,
to James Sargent, a former director of its CountryLand Properties Inc.
subsidiary, for consulting fees during the year ended October 31, 1996. The
Company paid to Mr. Paul Whitford, director fees of $13,500. There were no other
directors fees (other than stated above) paid during the years ended October 31,
1996 or 1995.
On December 11,1996, Mr. Nunzio DeSantis, who was subseqently named 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. The options
were issued as part of the consideration for providing a $6,000,000 standby
funding commitment for replacement financing on the El Rancho Property. These
shares are not issuable in connection with the Stock Option Plan described
below.
Ken Scholl, President of the Company's Casino-Co subsidiary, was named a
director of ITB on January 15, 1997.
23
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits of the Company are included
herein.
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession
2.1 Agreement of Purchase and Sale by and between BRT, Inc. and
the Company for the El Rancho Hotel & Casino(9)
2.3 Letter Agreement, dated as of January 22, 1996, between the
Company, CountryLand Properties, Inc., International
Thoroughbred Breeders, Inc., and Orion Casino Corporation,
with respect to sale of El Rancho Hotel & Casino (10)
3. Certificate of Incorporation and Bylaws
3.1 Certificate of Incorporation(1)
3.2 Bylaws(1)
3.3 Amendment to Certificate of Incorporation(5)
3.4 Adopted Amendment to Certificate of Incorporation regarding
preferred stock(9)
4. Instruments Defining the Rights of Security Holders
4.1 Form of Amended Warrant Agreement(5)
4.2 Form of Amended Unit Purchase Option(5)
4.3 Form of Amended Stock Escrow Agreement(2)
10. Material Contracts
10.1 Compensatory Plan for Directors and Officers, with
schedule of details(1)
10.2 Employment Agreement with Stan Irwin(1)
10.4 Employment Agreement with Carl A. Sambus(1)
10.11 1993 Stock Option Plan(7)
10.12 Stock Compensation Plan(7)
10.13 Employment Agreement with Joseph A. Corazzi(7)
10.15 Form of Mergers and Acquisitions Agreement with D.H.
Blair Investment Banking Corp.
(formerly Exhibit 4.4)(1)
10.16 Finders Agreement with Anker Bank(9)
10.17 Joint Venture Agreement between the Registrant, through
Pacific DNS, Inc. and Consolidated Resort Enterprises,
Inc.(9)
10.18 Form of Mergers and Acquisitions Agreement with D.H.
Blair Investment Banking Corp.(formerly Exhibit 4.4)(1)
10.19 Settlement Agreement with Winner's Entertainment,
Inc.(9)
10.20 Loan Agreements between the Company and BP
Group, Ltd.--$375,000 loan(9)
10.21 Loan Agreements between the Company and BP
Group, Ltd.--$1,150,000 loan(9)
10.22 Loan Agreements between the Company and Duneden, Ltd.(9)
10.23 Agreement for Purchase and Sale of Joint Venture
between Pacific DNS, Inc. (a wholly owned
subsidiary of the Company), MPTV, Inc. and
Consolidated Resort Enterprises, Inc.(9)
10.24 Securities Purchase Agreement dated as of January 22,
1996 between the Company, CountryLand Properties, Inc.
and SunAmerica Life Insurance Company, with exhibits(10
10.25 Subordination Agreement dated as of January 22, 1996
between the Company, CountryLand Properties,
International Thoroughbred Breeders, Inc., Orion Casino
24
<PAGE>
Corporation and SunAmerica Life Insurance Company(10)
10.26 Assignment and Assumption Agreement between CountryLand
Properties, Inc. and Orion Casino Corporation and
acknowledged and agreed to by SunAmerica Life Insurance
Company(10)
10.27 Loan Agreement between NPD and Casino-Co Corporation
dated January 15, 1997 with related Secured Promissory
Note, and Security Agreement, and Pledge Agreement.(11)
10.28 Guaranty of Nunzio DeSantis in favor of Casino-Co
Corporation.(11)
10.29 Option of NPD, in favor of Casino-Co Corporation.(11)
10.30 Loan Agreement between LVEN and Malbec Inc. dated
March 20, 1996 with related
Secured Promissory Note and Security Agreement. (12)
10.31 Loan Agreement between Pacific DNS and Tee One Up Inc.
dated September 4, 1996 with related Secured Promissory
Note and Security Agreement. (12)
10.32 Joint Venture Agreement between Electronic Media Inc.,
Texas Information Development
Commission and William Luke Stewart. (12)
21. Subsidiaries(10)
(1) Filed with original filing of the Registration Statement on Form S-1,
File No. 33-39047 (the "1992 S-1)
(2) Filed with Amendment No. 3 to the 1992 S-1
(3) Filed with Amendment No. 4 to the 1992 S-1
(4) Filed with amendment No. 5 to the 1992 S-1
(5) Filed with Amendment No. 6 to the 1992 S-1
(6) Incorporated by reference to the Company's annual Report on
Form 10-KSB for the year ended October
31, 1992
(7) Filed with Post Effective Amendment No. 1 to the 1992 S-1, filed on
Form SB-2
(8) Filed with Registration Statement on Form S-1, File No. 33-72980, filed
on December 15, 1993
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended October 31, 1994
(10) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended October 31, 1995.
(11) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 15, 1997.
(12) Filed herewith
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 7, 1997.
LAS VEGAS ENTERTAINMENT NETWORK, INC.
\s\ Joseph A. Corazzi
---------------------
Joseph A. Corazzi
Chairman
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated on February 6, 1997.
Signature
\s\ Joseph A. Corazzi Chairman of the Board, President, Chief
- --------------------- Executive Officer and Director (principal executive
Joseph A. Corazzi officer)
\s\ Carl A. Sambus Executive Vice President, Chief Financial Officer,
- ----------------------- Secretary and Director (principal accounting and
Carl A. Sambus financial officer)
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors.......................................F-1
Consolidated Balance Sheets as of
October 31, 1996 and
October 31, 1995 ...................................................F-2
Consolidated Statements of Operations
for the Years Ended
October 31, 1996 and 1995.................... ......................F-3
Consolidated Statement of Stockholders'
Equity for the Years Ended
October 31, 1996 and 1995...........................................F-4
Consolidated Statements of Cash Flows
for the Years Ended
October 31, 1996 and 1995...........................................F-5
Notes to Consolidated Financial Statements...........................F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Las Vegas Entertainment Network, Inc.
We have audited the consolidated balance sheets of Las Vegas Entertainment
Network, Inc. and Subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Las Vegas
Entertainment Network, Inc. and Subsidiaries as of October 31, 1996 and 1995 and
the consolidated results of its operations, stockholders' equity and cash flows
for the two years then ended, in conformity with generally accepted accounting
principles.
HOLLANDER, GILBERT & CO.
Los Angeles, California
January 26, 1997
F-1
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------ ------------
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 10,385,292 $ 789,338
------------ ------------
TOTAL CURRENT ASSETS 10,385,292 789,338
HOTEL AND CASINO ASSETS, net of
reserve - Note 2 -- 34,795,310
NOTE RECEIVABLE, ITB - Note 3 5,900,000
INVESTMENTS & ADVANCES - Note 4 1,024,312 370,150
NOTES RECEIVABLE, LAKE TROPICANA - Note 5 806,489 806,489
PROGRAMING AND FILM COSTS,
net of Amortization - Note 6 180,000 805,061
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $180,981 (1996) and $78,370 (1995) 171,397 260,421
OTHER ASSETS 10,770 10,770
------------ ------------
$ 18,478,260 $ 37,837,539
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
HOTEL AND CASINO LIABILITIES - Note 2 $ -- $ 14,094,895
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 144,650 638,632
NOTES PAYABLE - Note 7 1,056,444 3,612,968
ACCRUED INTEREST PAYABLE 102,346 312,833
ACCRUED OFFICER'S SALARIES & BENEFITS -
NOTE 9 645,622 701,739
PATMORE DEPOSIT - Note 4 -- 327,150
------------ ------------
TOTAL CURRENT LIABILITIES 1,949,062 19,688,217
COMMITMENTS AND CONTINGENCIES - Note 10
STOCKHOLDERS' EQUITY: - Note 8
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 (1996) AND
28,506,816 (1995) 34,895 28,503
ADDITIONAL PAID-IN CAPITAL 47,280,080 44,166,137
DEFICIT (30,785,777) (26,045,318)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,529,198 18,149,322
------------ ------------
$ 18,478,260 $ 37,837,539
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------ ------------
REVENUES $ 291,200 $ 205,972
COSTS AND EXPENSES
Programming 805,061 722,500
Selling 9,585
General & Administrative 3,202,893 6,774,448
------------ ------------
TOTAL COSTS AND EXPENSES 4,007,954 7,506,533
LOSS BEFORE OTHER
INCOME AND (CHARGES) AND PROVISION FOR
DISPOSAL OF ASSETS HELD FOR SALE (3,716,754) (7,300,561)
OTHER INCOME AND (CHARGES):
Interest Income 495,350 121,167
Other Charges - Note 9 (1,558,651) (800,447)
Interest and Finance Costs (537,081) (681,585)
------------ ------------
TOTAL OTHER INCOME AND (CHARGES) (1,600,382) (1,360,865)
------------ ------------
NET LOSS BEFORE PROVISION FOR DISPOSAL
OF ASSETS HELD FOR SALE (5,317,136) (8,661,426)
GAIN ON (PROVISION FOR) DISPOSAL OF ASSETS HELD
FOR SALE - Note 2 576,677 (9,000,000)
------------ ------------
NET LOSS $ (4,740,459) $(17,661,426)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING
33,238,660 21,468,037
============ ============
LOSS PER SHARE OF COMMON STOCK $ (0.14) $ (0.82)
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
Additional
Number Paid-in
of Shares Amount Capital Deficit Total
--------- ------ ------- ------- -----
<S> <C> <C> <C>
BALANCE - November 1, 1994 18,887,600 $18,888 $ 36,872,417 $(8,383,892) $28,507,413
Issuance of Common Stock for
Services 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
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 2,752,588 2,753 1,366,382 1,369,135
Sales of Common Stock 3,034,294 3,034 1,239,466 1,242,500
Conversion of Debt 604,651 605 251,895 252,500
Issuance of Warrants 256,200 256,200
Net Loss for the Year Ended
October 31, 1996 (4,740,459) (4,740,459)
------------ --------- ------------ ------------ ------------
BALANCE - October 31, 1996 34,898,349 $ 34,895 $ 47,280,080 $(30,785,777) $16,529,198
============ ========= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (4,740,459) $(17,661,426)
(Gain) Loss on Assets Held for Sale (576,677) 9,000,000
Depreciation 102,611 40,000
Amortization of Program Inventory 805,061 700,000
Adjustments to reconcile net loss to net
cash used in operating activities:
(Increase) Decrease in;
Program Inventory (180,000)
Other Assets 77,975
Increase (Decrease) in;
Accounts Payable (493,979) (199,162)
Accrued Officer's Salaries (56,117) 216,739
Interest Payable (200,489) 333,934
------------ ------------
CASH USED IN OPERATING ACTIVITIES (5,340,049) (7,491,940)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments & Advances (981,312) (43,000)
Issuance of Notes and Loans Receivable (12,400,000)
Collections on Notes and Loans Receivable 6,500,000
Increase in El Rancho Capitalized Costs (3,599,858)
Sale of Hotel and Casino Assets 35,371,987
Lark Landing 72,850
Proceeds from sale of Marketable securities 151,952
Loss on securities held for sale 533,048
Acquisition of Property and Equipment (13,588) (26,533)
------------ ------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 28,477,087 (2,911,541)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Notes Payable 850,000 5,028,000
Repayment of Notes Payable (3,156,524) (2,986)
Issuances and Sales of Common Stock 2,604,135 3,344,091
Issuances of Warrants 256,200
Decrease in Deferred Offering Costs 542,019
Hotel and Casino Liabilities (14,094,895) 1,681,145
------------ ------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,541,084) 10,592,269
INCREASE IN CASH 9,595,954 188,788
CASH BALANCE - BEGINNING 789,338 600,550
------------ ------------
CASH BALANCE - ENDING $ 10,385,292 $ 789,338
============ ============
NON-CASH TRANSACTIONS
Conversion of Notes Payable and Accrued
Interest to Equity $260,000 $3,959,244
Accrued Interest and Fees - El Rancho 695,832 413,750
Reclassification of Patmore Deposit 327,100
Reclassification of investment in Lake
Tropicana to Notes Receivable 403,244
Settlement of Accounts Receivable and
Payable - Investment 500,000
CASH PAID FOR
Interest $405,847 $434,601
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Background and Business and Basis of Presentation - Las Vegas Entertainment
Network, Inc. ("The Company") was incorporated in October 1990, and is
engaged in acquiring, developing and operating media and gaming facilities
and businesses. In prior years, the Company had been in the development
stage. The Company's primary project to date was the renovation, expansion
and redevelopment of the El Rancho Hotel & Casino (the "El Rancho" or the
"Property"), which was acquired on November 24, 1993, and is located in Las
Vegas, Nevada. On January 22, 1996, the Company sold the El Rancho to a
third party for $43,500,000 of cash, notes and assumption of debt, and will
also receive a continuing interest in the adjusted cash flow up to
$160,000,000 from the Property once it has been developed by the new owners
(see Note 2). In connection with the 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 Company is also developing media related opportunities, including
formulating a business plan to develop, produce, market and distribute
television and video programming. The Company is also investigating other
potential businesses for acquisition in the entertainment, lodging, or
communications industry.
Principles of Consolidation - The accompanying financial statements include
the accounts of Las Vegas Entertainment Network Inc. (LVEN), and its
wholly-owned subsidiaries; CountryLand Properties, Inc. (CLND), Las Vegas
Communications Corp. ("LVCC"), Las Vegas Development Corporation, Casino-Co
Inc. and Pacific DNS, Inc; and its majority owned subsidiary, Satellite
Networks Inc. (SNI). All significant intercompany transactions and balances
have been eliminated.
Programming and film costs- Programming and film costs include all the
acquisition, production and exploitation costs incurred in the development
of the Company's television and video programming, and are stated at the
lower of unamortized cost or estimated net realizable value. Such costs are
amortized in the proportion that revenue recognized during the year for
each program or film bears to estimated total revenue to be received from
all sources in accordance with the individual film forecast method.
Estimated total revenues and costs are reviewed on a periodic basis and are
revised, if warranted, based upon management's appraisal of current market
conditions. When necessary, unamortized program and film costs are written
down to net realizable value based upon this assessment, where applicable.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is provided primarily on a straight line basis over the
estimated useful lives of the related assets.
Revenues - Revenues are recognized when earned, and consist of fees earned
under the Company's interim entertainment management agreement (see Note
2), and fees earned from renting out the parking facilities at the El
Rancho Property site.
Earnings (Loss) Per Share - Earnings (loss) per common share is based upon
the weighted average number of common and common equivalent shares
outstanding during the period. For all periods presented, all outstanding
warrants, options and other common stock equivalents were anti-dilutive,
and accordingly, were not included in the per share calculation.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity date of three months or less to be cash
equivalents.
F-6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk - As of October 31, 1996, financial
instruments which potentially subject the Company to concentrations of
credit risk are cash and cash equivalents, which are mostly comprised of
over night repurchase agreements with high credit quality financial
institutions. The amount of cash and cash equivalents on deposit in any one
institution that exceeds federally insured limits is subject to credit
risk. At October 31, 1996, the Company had approximately $10,000,000 on
deposit in two institutions that was subject to such risk. The Company has
also made certain advances to unaffiliated third parties where the company
believes it has obtained sufficient underlying collateral.
Accounting for Stock Based Compensation - In October 1995, the Financial
Accounting Standards Board (the "FASB") issued SFAS 123, "Accounting for
Stock Based Compensation," which is effective for fiscal years beginning
after December 15, 1995. Under SFAS 123, companies can elect, but are not
required, to recognize compensation expense for all stock-based awards to
employees, using a fair value methodology. The Company will implement the
disclosure only provisions of the fair value method for awards to employees
in the fiscal year beginning November 1, 1996, as permitted by SFAS 123.
The Company will continue to account for stock-based awards to employees
under the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees." SFAS 123
also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. Those
transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. Adoption on November 1, 1996 of the
above is not expected to have a significant effect on the Company.
Accounting for Impairment of Long-Lived Assets - The Company adopted
Financial Accounting Standards ("SFAS") No. 121 "Accounting for Impairment
of Long-Lived Assets to be disposed of" on November 1, 1995. SFAS No. 121
established accounting standards that require that long-lived assets and
certain identifiable intangibles held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable. Adoption of SFAS
No.
121 had no significant impact on the Company.
Re-classifications - Certain 1995 amounts have been re-classified to
conform with 1996 presentation.
2. HOTEL AND CASINO ASSETS AND LIABILITIES
Hotel and Casino Assets and Liabilities consist of the following as of
October 31, 1995 and 1996;
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Hotel and Casino Assets;
Original Purchase Price (1,2) $ -- $ 36,500,000
Other capitalized costs -- 3,847,450
Capitalized Interest -- 3,447,860
--------- -------------
43,795,310
Provision for loss on disposal -- (9,000,000)
--------- -------------
Total Hotel and Casino Assets $ -- $ 34,795,310
========= =============
</TABLE>
F-7
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Hotel and Casino Liabilities:
Mortgage Payable (2) $ -- $13,350,000
Accrued Interest -- 413,751
Assessment Payable (3) -- 331,144
-------- -----------
Total Hotel and Casino
Liabilities $ -- $14,094,895
========= ===========
</TABLE>
On January 22, 1996 the Company sold the assets and 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 $43,500,000. The Company also received a
continuing interest in the future adjusted cumulative cash flow of the
property as defined, if any, of up to $160,000,000 (see Note 3). The
purchase price was paid as follows: $12,500,000 paid at closing in cash;
(ii) an 8% unsecured promissory note in the principal amount of $6,500,000
which was paid in full on March 15, 1996; (iii) an 8% promissory note in
the principal amount of $10,500,000 (see Note 3), and (iv) assumption of
existing mortgage indebtedness and accrued interest of $14,000,000. As of
October 31, 1996, the Company has provided an allowance of $4,600,000
against the remaining note.
The Company previously recorded an allowance 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. This allowance was reduced by
$576,677 during the year ended October 31, 1996 to reflect the actual
settlement of all charges, mostly relating to the return of the escrowed
interest described below.
(1) On November 24, 1993, the Company acquired the El Rancho Hotel and
Casino, a 1,006-room hotel with 90,000 square feet of casino and ancillary
space and a 52-lane bowling alley, which is located in Las Vegas, Nevada,
on the Las Vegas Strip at 2755 Las Vegas Boulevard South. The purchase
price for the El Rancho was $36.5 million, including a cash payment of
$21.5 million, issuance of a promissory note in the face amount of $12
million and the issuance of 2,300,000 shares of Company common stock to a
third party valued at $3 million.
(2) 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 El Rancho Hotel & Casino. On January 22, 1996, the Company
replaced this loan with a one year, 13%, $14,000,000 mortgage note (the
"Refinance Obligation"), 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 ITB 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 was refinanced and retired by
ITB on June 4, 1996, 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 the Company 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
refinancing of the SunAmerica loan by ITB on June 4, 1996, $339,000 of this
escrow amount was paid to SunAmerica, and the remaining $611,000 of was
returned to the Company.
(3) Assessments payable represent amounts due the city of Las Vegas for
general roadway improvements made during the year ended October 31, 1995.
This assessment was assumed by ITB as part of the El Rancho sale.
F-8
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NOTE RECEIVABLE, ITB, AND CONTINUING INTEREST IN THE EL RANCHO PROPERTY
Note Receivable, ITB, represents an 8% promissory note in the principal amount
of $10,500,000 arising from the sale of the El Rancho (see Note 2), secured by a
subordinated junior position in assets of the El Rancho Hotel and Casino (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 (see "Development Plans" below), or upon the ultimate sale of the
Property. As of October 31, 1996, the Company has provided an allowance of
$4,600,000 against this note.
Once the Property has been developed by ITB (see "Development Plans" below), of
which there can be no assurance will be achieved, the Company will receive as
additional consideration for entering into the sale agreement (but not as part
of the Purchase Price for the assets) 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 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 $160,000,000, but only after ITB 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.
Additionally, commencing with the development of the Property, the Company's
LVCC subsidiary was granted an exclusive contract to provide entertainment at
the Property site, subject to meeting certain profitability criteria. This would
include; (i) responsibility for management and oversight of booking all acts,
performers, entertainers, movies, virtual reality rides, and other non-gaming
attractions, of any kind or nature at the property site, (ii) arranging all
advertising for all of the properties needs, and (iii), managing all other
entertainment venues for ITB. The term of the agreement is for ten (10) years
commencing on the date which is six (6) months prior to the opening date of the
property, and LVCC shall have the option to renew the agreement for two
consecutive five year terms. The agreement provides LVCC with annual fees of
$800,000 subject to annual increases. LVCC will also receive an additional; (i)
twenty- five percent (25%) of profits from entertainment activities, (ii) ten
percent (10%) of the cost of all advertising placed by ITB, and (iii) booking
fee equal to ten percent (10%) of gross compensation paid to talent.
Development Plans
On January 15, 1997 ITB announced that they had received a $100,000,000 funding
proposal, the proceeds of which will be used, in part, for the renovation and
opening of the former El Rancho Hotel and Casino site as an international
country music attraction called "CountryLand USA", a major destination hotel and
casino. The proposed funding is subject to the execution of a definitive loan
agreement between ITB and the proposed lender, which the Company can give no
assurance will be made. The proceeds of this loan are anticipated to be
sufficient to renovate and reopen the Property site, as well as repay the
Company's remaining outstanding note receivable. ITB had previously announced
that it intended to develop the El Rancho property under a "Starship Orion"
multiple-casino theme. It was estimated that the total cost of completion would
be approximately $1 Billion, and that ITB intended to develop the property with
up to as many as six partners. ITB had not engaged any partners for its
"Starship Orion" theme development, and will now develop the property under a
more modest "CountryLand, USA" theme.
In accordance with the initial sale agreement, if by October 25, 1996 (i) ITB
had not closed on or received permanent financing and obtained the required
lease commitments to develop the "Starship Orion" , and (ii) has not closed or
received a firm commitment for the alternative financing, and if the Company has
arranged for the refinancing of the refinance loan and places into an escrow
account amounts sufficient to cover the financing and carrying costs of the
refinance loan and the operating costs of the property for either a six month or
year period (the "option period"), LVEN may either (i) appoint and authorize a
reputable commercial real estate broker to sell the property at an amount, after
expenses, in excess of the underlying mortgage and invested amounts of both ITB
and
F-9
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LVEN, or (ii) arrange on behalf of ITB, in conformity with prevailing financing
terms and conditions for major Las Vegas hotel/casino projects, alternative
financing of not less than $55,000,000. On October 25, 1996, LVEN advised that
it was asserting its rights afforded during the Option Period by arranging the
prescribed escrow account. On October 28, 1996, ITB announced that LVEN
forfeited its rights with respect to the purchase agreement because they
believed LVEN failed to satisfy certain contractual pre-conditions. LVEN advised
ITB that it contested its position. On February 2, 1997, the Company and ITB
settled their disagreement. As described above, and with the assistance of the
Company, ITB has announced its plans for the financing and development of the El
Rancho site as "CountryLand, USA" and had received a proposal of $100,000,000 of
financing which, if funded, will be used, in part, for such development. If the
Property is not developed, or if the expected funding is not completed, the
Company believes it still maintains the rights under the option period described
above. In connection therewith, the Company has engaged an investment banking
firm to seek funding necessary to provide the alternative financing described
above, and also arranged with Mr. Nunzio DeSantis, who was subsequently named
the Chief Operating Officer of ITB, to provide a $6,000,000 standby funding
commitment for a portion of the replacement financing on the El Rancho Property
site. In connection therewith, Mr. DeSantis 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 (see Note 8).
If ITB, with the consent of the Company, sells the Property prior to the
commencement of casino operations or if the Property is sold through foreclosure
or other forced sale, 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 current $14,000,000 mortgage refinancing; (ii) second, to repay
ITB 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 remaining note, plus $4,000,000 and any
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 from closing; (iv) fourth,
to pay ITB $2,000,000 together with an accrued return thereon in the amount of
eight percent (8%) per annum from closing and (v) fifth, any excess to be
divided fifty percent (50%) to ITB and fifty percent (50%) to the Company,
provided however, that if the property is sold after January 25, 2001, in order
for the Company to receive its fifty percent (50%) share from and after such
date, the Company must pay on an ongoing basis fifty percent (50%) of the
carrying costs of the property, including interest, taxes, maintenance, and
insurance.
4. INVESTMENT AND ADVANCES
Investments and advances consist of the following as of October 31, 1996
and 1995;
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------ ------
(A) Malbec, Inc. $ 462,606 $ 43,000
(B) Tee One Up, Inc 300,000
(C) Orion Inc. 261,706
(D) Patmore Broadcasting - 327,150
---------- --------
$1,024,312 $370,150
========== ========
</TABLE>
F-10
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) During 1996, the Company made advances of $912,606 to Malbec, Inc., an
unaffiliated company, for the purpose of developing and operating a hotel
project in Miami Beach, Florida. The advances accrue interest at the rate
of 8% per annum, are due July 31, 1997, and are secured by a first security
interest in a cash escrow account (which has a balance of $667,000 as of
January 31, 1997). The Company has re-evaluated this project and has
decided not to pursue development as it believes it will not be able to
obtain a favorable purchase price, and/or resolve certain bankruptcy
proceedings involving the hotel project. 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 provided a
$450,000 allowance against this advance, for a net investment of $462,606
as of October 31, 1996.
(B) On September 4, 1996, 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. Principal and interest at a rate of 17%
per annum are payable in monthly installments of $14,832 until maturity,
November 1, 1998. In connection with making this loan, the Company received
a 3% equity interest in the common shares of Tee One Up. The Company has
given no value to this investment for financial statement purposes as Tee
One Up Inc. currently has a shareholder's deficiency.
(C) Advances to Orion Inc. represent amounts currently due the Company for
monthly entertainment and property management fees, and for the
reimbursement for certain operational advances made for the El Rancho
Property.
(D) The Company acquired an option to acquire Patmore Radio Broadcasting
for $515,258 during the year ended October 31, 1993. Notice of exercise of
the option by LVEN was given in September 1993, with the closing originally
scheduled to occur by March 31, 1994. 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 1994 in an effort by Patmore to terminate LVEN's
right to purchase the radio station. Management reflected the $327,150 as a
liability on the balance sheet at October 31, 1995. The Company recorded a
reserve of $188,108 against its investment resulting in a net investment of
$327,150 at October 31, 1995.
Management became aware that Patmore attempted to sell the Station to
Compass Communications on November 7, 1995, and 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. As of October 31, 1996, the
Company has applied the $327,150 liability as an offset to its investment
in Patmore. Management still considers its purchase option as valid, and
continues to investigate and pursue various options.
5. NOTES RECEIVABLE - LAKE TROPICANA
Notes receivable - Lake Tropicana consist of the following as of October
31, 1996 and 1995;
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
-------- ---------
Lake Tropicana $3,736,000 $3,736,000
Less allowances for valuation
and imputed interest 2,929,511 2,929,511
----------- ----------
$ 806,489 $ 806,489
========== ==========
</TABLE>
F-11
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 24, 1993, the Company acquired for $806,488 a 45% interest in a
venture which owns a 184 unit apartment complex in Las Vegas, Nevada. The
complex is being converted into 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, and management recorded an allowance of
$1,584,172 against the $1,987,417 receivable (principal of $1,868,643 and
interest receivable of $118,774) for a net receivable of $403,245 at
October 31, 1994.
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 with 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 October 31, 1996 and 1995, Notes
Receivable - Lake Tropicana represent two (2) separate notes payable to
the Company of $1,868,000 each. The first note bears interest at a rate
of 8% per annum, payable monthly, and is secured by a fifth position in a
deed of trust. 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 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. As of January 15, 1997, the joint venture had reorganized
its debt position, and with such financing, anticipates it will have the
funds to commence development and sale of the time share units.
Concurrent with such reorganization, the Company's secured note
receivable moved up to a second position.
6. PROGRAM AND FILM COSTS
Program and film costs consist of the following as October 31, 1996 and
1995;
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Released programs $1,505,061 $1,505,061
Less Amortization 1,505,061 700,000
---------- ----------
- 805,061
In process and development 180,000 -
---------- ---------
Total Program and Film Costs $180,000 $805,061
========= =========
</TABLE>
7. NOTES PAYABLE
Notes payable consist of the following as of October 31, 1996 and 1995;
<TABLE>
<CAPTION>
<S> <C>
<C> <C>
1996 1995
---- ----
(A) Convertible Bridge Loans $1,050,249 $ 778,000
(B) BP Group -- 1,325,000
(C) UK Foods -- 1,500,000
Other 6,195 9,968
---------- ----------
Total $1,056,444 $3,612,968
========== ==========
</TABLE>
F-12
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) Convertible bridge loans consist of five (5) one-year unsecured notes.
The notes, which are currently due and payable, accrue interest at a rate
of 8% per annum until the principal and accrued interest are paid. 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, whichever is less, at any time prior
to the repayment by the Company. Subsequent to October 31, 1996, $275,000
of these notes were repaid.
(B) 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.
(C) The UK Foods note consisted of a $1,500,000, 8% unsecured bridge loan.
The note and all outstanding interest was repaid on January 31, 1996.
Consolidated interest expense for the years ended October 31, 1996 and
1995, excluding any interest capitalized, was $205,352 and $343,085,
respectively. Interest expense of $2,548,351 was capitalized during the
year ended October 31, 1995.
8. STOCKHOLDERS' EQUITY
Description of securities - The Company's authorized capital stock
consists of 50,000,000 shares of Common Stock, at $.001 per share par
value, of which 34,898,349 and 28,506,816 shares of common stock were
issued and outstanding as of October 31, 1996 and 1995, respectively. The
Company has also authorized 30,000,000 shares of Preferred Stock, par
value $.001 per share, none of which was outstanding during the years
ended October 31, 1996 and 1995. The Board of Directors of the Company is
authorized to determine the number and designation of one or more series
of Preferred Stock and the voting powers, rights, preferences,
qualifications, limitations or restrictions and the shares of any such
series.
Issuances of common stock - The Company has made the following issuances
of common stock during the years ended October 31, 1996 and 1995;
Shares Issued for Services - The Company issued 2,752,588 shares of its
Common Stock for services provided and to settle accounts payable during
the year ended October 31, 1996 (during the first and second quarters of
fiscal 1996) and 3,081,500 shares of its Common Stock for services
provided and to settle accounts payable during the year ended October 31,
and 1995. The shares were valued at $1,369,135 and $3,009,589,
respectively, for the years ended October 31, 1996 and 1995. The shares
were issued at prices ranging from $.40 to $.63 per share during 1996 and
from $.70 to $1.50 per share in 1995. The shares were valued at the
average bid market price for the shares 10 days prior to issuance or the
estimated selling price. Since inception, the Company has issued
5,230,885 shares valued at $5,860,677 at an average price ranging from
$.40 to $5.63 per share.
Included in the 1996 issuance of the Company's common shares described
above were 1,412,588 shares of common stock issued to SunAmerica Insurance
Company in connection with arranging the financing of the sale of the El
Rancho Hotel and Casino described in Note 2. The Company initially issued
1,912,588 shares to Sun America, however in accordance with the refinance
agreement, 500,000 of these common shares were returned to the Company
during 1996 as the buyer subsequently prepaid this obligation.
F-13
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales of Common Stock - The Company sold 3,034,294 shares of its Common
Stock during the year ended October 31, 1996 (all during the first
quarter ) and 592,858 shares of its Common Stock during the year ended
October 31, 1995, respectively, in a series of private placements made to
non-U.S. (foreign) purchasers, under the exemption of Regulation S of the
Securities Act of 1933. The Company received net proceeds of $1,242,500
in 1996 and $400,002 in 1995 from these sales. The sales prices per share
ranged from $.50 to $.55 per share in 1996, and from $.60 to $.80 per
share in 1995.
Shares issued in lieu of Notes Payable and Accrued Interest - The Company
issued 604,651 and 5,944,858 shares of its common stock to extinguish
$252,500 and $3,893,744 of outstanding notes payable and accrued interest
during the years ended October 31, 1996 and 1995, respectively.
Outstanding Warrants - The Company has issued and outstanding 1,600,385
Class A warrants and 1,263,115 Class B warrants as of October 31, 1996
and 1995. The holder of each Class A Warrant is entitled to purchase one
share of Common Stock of the Company and one Class B Warrant at an
exercise price of $4.00. The holder of each Class B Warrant is entitled
to purchase one share of Common Stock at an exercise price of $6.60. The
exercise dates of both the Class A and Class B warrants, which initially
were to February 20, 1997, have been extended until June 1, 1997.
The Class A Warrants are subject to redemption commencing on February 20,
1996, on not less than thirty days' notice, at a price of $.05 per
Warrant, at any time after the average closing price of the Common Stock
shall have exceeded $4.00 per share with respect to the Class A Warrants
and $6.60 per share with respect to the Class B Warrants for any 30
consecutive business days ending within 15 days of the date on which the
notice of redemption is given. Holders of the Warrants will automatically
forfeit their rights to purchase the shares of Common Stock issuable upon
exercise of such Warrants unless the Warrants are exercised before they
are redeemed. All of the outstanding Warrants of a class, except for
those underlying the Unit Purchase Option, must be redeemed if any of
that class are redeemed. The Company shall not be able to call the
Warrants unless a registration statement covering the securities issuable
upon exercise of the Warrants is, and remains, current throughout the
period fixed for redemption.
On January 22, 1996, in connection with arranging the financing of the
sale of the El Rancho Hotel and Casino described in Note 2, the Company
issued warrants valued at $256,200, based on the current market price at
the date of the grant, to a third party to purchase 600,000 shares of its
Common Stock at $.10 per share.
Stock Options- Outstanding stock options consist of the following;
Chairman of the Board - On March 1, 1995, Mr. Joseph Corazzi, Chairman
of the Board, was granted 4,000,000 options to purchase Common Stock of
CountryLand Properties Inc., which is transferable to any new subsidiary
formed to operate the gaming assets of the Company, including Casino-Co.
The 4,000,000 CountryLand Properties Inc. warrants are fully transferable
and convertible into options to purchase LVEN Common Stock at $1.00 per
share. These shares are not issuable in connection with the Stock Option
Plan described below.
Other - Subsequent to October 31, 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. The options were issued as part of
the consideration for providing a $6,000,000 standby funding commitment
for replacement financing on the El Rancho Property Site (See Note 2).
These shares are not issuable in connection with the Stock Option Plan
described below.
F-14
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plan - The Company adopted a Stock Option Plan in July
1994. The Stock Option Plan enables the Company to offer an incentive
based compensation system to key employees, officers, directors,
consultants and to employees of companies who do business with the
Company. A total of 1,000,000 shares are reserved for issuance under the
Stock Option Plan, of which 190,000 shares are issuable under options
which have been granted to employees, and 730,000 shares under options
granted to officers and directors, all with an exercise price of $. 71 to
$1.50 per share. The Company may increase the number of shares reserved
for issuance under the Stock Option Plan or may make other material
modifications to the Stock Option Plan without stockholder approval.
However, no amendment may change the existing rights of any option or
award holder. The following table summarizes option transactions through
October 31, 1996;
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Price Per
Shares Share
------ -----
November 1, 1994 -- --
Granted 880,000 $ 1.00
-------- --------
October 31, 1995 880,000 $ 1.00
Canceled (100,000) $ 1.00
Granted 40,000 $ 0.71
-------- ---------
October 31, 1996 820,000 $0.71 - $1.00
========= =============
</TABLE>
9. OTHER CHARGES
Included in other charges for the year ended October 31, 1996 is $625,000
which represents cash and the value of 800,000 restricted shares of the
Company's Common Stock and 167,000 shares of Common Stock of Satellite
Networks Inc. paid in connection with settling claims arising from
arranging certain financing in connection with the initial acquisition of
the El Rancho Property site; an allowance of $450,000 relating to
advances made to Malbec, Inc., an unaffiliated third party, in connection
with the development of certain hotel properties in Miami Beach, Fla.;
$295,000 related to an adjustment to reflect the value of certain shares
of common stock previously issued for services; and $150,000 to settle an
outstanding loan and stock purchase agreement.
Included in other charges for the year ended October 31, 1995 is $500,000
allowance for reduction to market value of 4,000,000 shares of common
stock of Sky Scientific Inc; $33,000 loss on the sale of 25,000 shares of
American Network Group, Inc. common stock ; $72,850 for an additional
allowance against the Company's investment in Patmore Radio Broadcasting;
$107,000 additional allowance against existing note receivables, and;
$70,000 loss relating to investments no longer pursued.
10. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases on a month-to-month basis 7,000 square feet
in Los Angeles, California for $8,500 per month. The Company also leases,
on a month-to-month basis, certain other facilities at an aggregate
rental of $4,500 per month. Consolidated rent expense for the years ended
October 31, 1996 and 1995 was $257,590 and $205,434 respectively.
Employment Agreements - On March 1, 1995, the Company and its LVCC
subsidiary entered into two (2) separate five-year employment agreements
with Joseph Corazzi, the Chairman of the Board of the Company, which
provide for an annual aggregate salary of $550,000. The agreements may be
renewed by mutual agreement of the parties for successive terms of one
year. The employment agreements are subject to annual
F-15
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
increases and bonuses at the discretion of the Board of Directors. The
agreements also entitle Mr. Corazzi to participate in any employee
benefit plans which may be offered in the future, such as group life,
health, hospitalization and life insurance, and prohibits him from
engaging in a business competitive with the Company during the term of
the agreement. Under the agreements, Mr. Corazzi's employment terminates
upon death or disability and may be terminated by the Company for
"cause," which is defined as the willful failure to perform duties,
malfeasance, commission of a felony, gross negligence, or breach of the
employee's covenant not to compete or maintain confidential certain
information. Termination by the Company for any other reason entitles the
employee to receive his salary for the remaining term of the agreements.
The employment agreements also provide for the following; (i) a lump sum
payment of $2,000,000 upon the consummation of a definitive agreement by
the Company and potential purchaser providing for a change of control,
(ii), an annual retirement benefit starting with the calendar month after
his retirement or termination, equal to fifty percent of his average
annual LVEN salary and bonus received in the twenty-four (24) month
period prior to his termination (plan becomes effective once Mr. Corazzi
has been employed 10 years, including any time pre-dating these
agreements), and (iii) an annual lump sum cash payment equal to 5% of
earnings before income taxes, depreciation and amortization of the LVCC
subsidiary.
The Company paid and reimbursed Mr. Corazzi $730,177 and $283,360 during
the years ended October 31, 1996 and 1995, respectively for amounts due
him since inception through October 31, 1996. Amounts due Mr. Corazzi
amounting to $431,739 and $586,739 have been accrued as of October 31,
1996 and 1995, respectively. The Company has also accrued $239,000 and
$115,000 for amounts due Mr. Corazzi under the retirement plan which is
included in accrued officers salary and benefits as of October 31, 1996
and 1995.
Legal -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 interest and 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.
The Company believes that the individual failed to competently perform
all of his duties under the agreement, that there are no funds due, and
that the case is without merit. Management intends to vigorously defend
the lawsuit. 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.
Other - In connection with its investment in Electronic Media Corp made
subsequent to year end (See Note 12), the Company agreed to guarantee up
to $1,500,000 of equipment financing, and is also committed to issue up
to 5,500,00 shares of the Company's stock based on certain performance
levels.
11. INCOME TAXES
The Company has available unused operating loss carryforwards of
approximately $18,900,000 at October 31, 1996 which may be used against
future taxable income. Certain amounts of the net operating loss
carryforward may be limited due to changes in the Company's stock
ownership. The operating loss carry forwards will expire in various
amounts through the years through 2011. Generally Accepted Accounting
Principles require the establishment of a deferred tax asset for all
deductible temporary differences and operating loss carryforwards. The
Company has not provided for any deferred tax asset due to the
F-16
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
doubtfulness of realization due to the uncertainty that the Company will
generate income in the future sufficient to fully or partially utilize
these carryforwards, and because of the more than 50% change in
ownership.
12. SUBSEQUENT EVENTS
Note Receivable - On January 15, 1997, the Company, through its
wholly-owned Nevada subsidiary Casino- Co, made a 90-day secured loan of
$2,900,000 to NPD, Inc, ("NPD"), in order to enable NPD to close the
acquisition from Robert Brennan (" the Seller") of 2,904,016 shares (the
"Shares") of the common stock of International Thoroughbred Breeders,
Inc. ("ITB"), representing twenty-five percent (25%) of the outstanding
stock of ITB. At the closing of such purchase and sale, the shareholders
of NPD, Nunzio DeSantis and Anthony Coelho, became the Chairman of the
Board and Chief Executive Officer, respectively, of ITB. The sale of the
Shares was instrumental to the Company, as it will allow ITB to (i) meet
the requirements of a $100 Million funding proposal that would be used,
in part, for the renovation and opening by ITB of ITB's 21-acre Strip
property in Las Vegas, Nevada, formerly know as the El Ranch Hotel and
Casino, in which the Company has a continuing cash flow interest, and
(ii) meet the requirements of The New Jersey Racing Commission and
Division of Gaming Enforcement for continued racing licencing at ITB's
New Jersey facilities. The Company believes that the sale of the Shares
will also facilitate ITB's application for Nevada Gaming Licencing.
The loan to NPD is evidenced by a 10% Secured Promissory Note due on
April 15, 1997 (the "NPD Note"). The NPD Note is secured by a security
interest in and to certain rights of NPD in and to the Shares, subject to
a purchase money lien in favor of the Seller for the balance of the
purchase price owing to him in respect of the sale of the Shares. In
addition, 1,452,088 of the Shares are subject to an existing purchase
option in favor of a third party, and would likely cease to provide
collateral to the Company upon the exercise of such option. The NPD Note
is personally guaranteed by Mr. DeSantis.
As consideration for Casino-Co making the $2,910,000 loan, NPD granted
Casino-Co an option to acquire, at an exercise price of $4 per share, the
Shares, of which 1,452,088 shares are subject to an existing purchase
option in favor of a third party. Exercise of the option must be approved
by the Seller, as well and the United States Bankruptcy Court, before
which certain proceedings involving the Seller are pending.
Upon a default by NPD under its payment obligations to the Seller in
respect of the balance of the purchase price for the Shares, the Seller
would be free to exercise certain creditor's rights under a Pledge
Agreement between the Seller and ITB in respect of the Shares (the
"Pledge Agreement"). Such actions could have the effect of modifying the
Company's security interest in such collateral, which at all times is
subordinated to and secondary to the rights of the Seller. In the event
that the Seller elects to foreclose on the Shares, the Company will be
obligated to execute all documents requested by the Seller to reflect the
discharge of the Company's security interest therein. In the event of a
sale by the Seller after a default, the Company's right in such
circumstance shall be limited to the right to receive any proceeds from
such sale over and above the amounts due the Seller under the Pledge
Agreement. Upon satisfaction of NPD's purchase money obligation to the
Seller during the term of the NPD Note, the Company would then have a
first priority security interest in the Shares.
Investment in Electric Media Co. - The Company entered into an agreement
on January 31, 1997 whereby it acquired a 5% equity interest in Electric
Media Co. Inc. (EMC) and a continuing royalty in certain of its
operations, for $400,000 plus the contingent issuance of up to 5,500,000
shares of LVEN common stock as described below. EMC, along with a joint
venture partner/developer, is developing technology that if successful,
of which the Company can give no assurance, will allow delivery of media,
Internet and telecommunication services to customers all over the world,
utilizing existing power utility infrastructures.
F-17
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Field testing of this technology will occur during 1997, and in
connection therewith, the Company has agreed to provide a guarantee up to
$1,500,000 for the financing of certain equipment necessary for the field
tests. The equipment is returnable to the vendor, without cost to the
Company, should the test not be satisfactory. Upon a successful field
test of this technology, the Company is committed to deliver 500,000
restricted shares of its common stock to the developer of this
technology.
If the field tests are successful, 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. Each time the sale of these units generates $10,000,000 of
net after tax profits, the Company will deliver the developer an
additional 500,000 restricted shares of the Company's common stock, up to
a maximum of 5,000,000 restricted shares. The Company may terminate the
agreement at its sole discretion, and have no further liability to EMC or
the developer.
Other - Subsequent to October 31, 1996, Mr. Nunzio DeSantis, who was
subsequently named 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 (See
Note 8).
F-18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000872588
<NAME> Las Vegas Entertainment Network
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-END> Oct-31-1996
<CASH> 10,385,292
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,385,292
<PP&E> 352,378
<DEPRECIATION> 180,981
<TOTAL-ASSETS> 18,478,260
<CURRENT-LIABILITIES> 1,949,062
<BONDS> 0
0
0
<COMMON> 34,895
<OTHER-SE> 47,280,080
<TOTAL-LIABILITY-AND-EQUITY> 18,478,260
<SALES> 0
<TOTAL-REVENUES> 291,200
<CGS> 0
<TOTAL-COSTS> 4,007,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 537,081
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,740,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,740,459)
<EPS-PRIMARY> $(0.14)
<EPS-DILUTED> $(0.14)
</TABLE>
