SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended : January 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-21278
LAS VEGAS ENTERTAINMENT NETWORK, INC
------------------------------------
(Exact name of small business issuer as pecified in its Charter)
Delaware 94-3125854
--------------------------- ---------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1801 Century Park East, Los Angeles, California 90067
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(Address of principal executive offices) (Zip Code)
(310) 551-0011
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.001 par value 34,898,349
- ----------------------------- ------------------------------
Title of Class Number of Shares outstanding at
March 18, 1997
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, October 31,
1997 1996
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 5,553,357 $10,385,292
NOTE RECEIVABLE, NPD - Note 3 2,922,933
----------- -----------
TOTAL CURRENT ASSETS 8,476,290 10,385,292
LONG TERM NOTE RECEIVABLE - Note 2 5,900,000 5,900,000
INVESTMENTS & ADVANCES - Note 4 . 2,224,033 1,024,312
NOTES RECEIVABLE - LAKE TROPICANA 806,489 806,489
PROGRAMING AND FILM COSTS 180,000 180,000
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $198,202 (1997) and $180,981 (1996) 156,221 171,397
OTHER ASSETS 10,770 10,770
------------ ------------
$17,753,803 $18,478,260
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 181,453 $ 144,649
NOTES PAYABLE - Note 5 778,421 1,056,444
ACCRUED INTEREST PAYABLE 95,834 102,346
ACCRUED OFFICER'S SALARIES & BENEFITS 659,122 645,622
------------ ------------
TOTAL CURRENT LIABILITIES 1,714,830 1,949,061
STOCKHOLDERS' EQUITY:
PREFERRED STOCK - SERIES A, AUTHORIZED
30,000,000 SHARES, ISSUED AND
OUTSTANDING - NONE
COMMON STOCK - AUTHORIZED 50,000,000
SHARES, $.001 PAR VALUE; ISSUED
AND OUTSTANDING 34,898,349
SHARES (1997 and 1996) 34,895 34,895
ADDITIONAL PAID-IN CAPITAL 47,445,080 47,280,080
DEFICIT (31,441,002) (30,785,776)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,038,973 16,529,199
------------ ------------
$ 17,753,803 $ 18,478,260
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS
ENDED JANUARY 31,
-----------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES $ 75,000 $ 66,200
COSTS AND EXPENSES
General & Administrative 667,808 1,022,697
----------- ------------
LOSS BEFORE OTHER
INCOME AND (CHARGES) (592,808) (956,497)
OTHER INCOME AND (CHARGES):
Interest Income 123,571 36,606
Other Charges - Note 6 (165,000) (20,000)
Interest and Finance Costs (20,988) (399,379)
------------ ------------
TOTAL OTHER INCOME AND (CHARGES) (62,417) (382,773)
------------ ------------
NET LOSS $ (655,225) $ (1,339,270)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 34,898,349 30,055,232
\ ========== ==========
LOSS PER SHARE OF COMMON STOCK $(0.02) $(0.04)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS
ENDED JANUARY 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (655,225) $ (1,339,270)
Depreciation 17,221 10,000
Adjustments to reconcile net loss
to net cash used in operating activities:
(Increase) in Prepaid Expenses (309,750)
Increase (Decrease) in;
Accounts Payable 36,803 (27,540)
Accrued Officer's Salaries 13,500 72,500
----------- ------------
CASH USED IN OPERATING ACTIVITIES (587,701) (1,594,060)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments & Advances (1,199,721)
Loan to NPD (2,922,933)
Sale of El Rancho and Capitalized Costs 34,795,310
Acquisition of Property and Equipment (2,045) (5,025)
------------ ------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (4,124,699) 34,790,285
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Notes Payable 850,000
Repayment of Notes Payable (278,022) (1,501,413)
Issuances and Sales of Common Stock 2,987,010
Issuances of Options and Warrants 165,000 65,272
Issuance of Notes and Loans Receivable (12,400,000)
Repayment of Loans and interest payable
- El Rancho (14,094,895)
Interest Payable (6,513) 19,906
------------ ------------
CASH USED IN FINANCING ACTIVITIES (119,535) (24,074,120)
INCREASE (DECREASE) IN CASH (4,831,935) 9,122,105
CASH BALANCE - BEGINNING 10,385,292 789,338
------------ ------------
CASH BALANCE - ENDING $ 5,553,357 $ 9,911,443
============ ============
NON-CASH TRANSACTIONS
Conversion of Notes Payable and Accrued
Interest to Equity $260,000
Accrued Interest and Fees - El Rancho 695,832
CASH PAID FOR
Interest $ 27,500 $84,473
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JANUARY 31, 1997 (UNAUDITED)
Common Stock
Additional
Number Paid-in
of Shares Amount Capital Deficit Total
------------ --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 1, 1996 34,898,349 $34,895 $47,280,080 $(30,785,777) $16,529,198
Issuance of Warrants 165,000 165,000
Net Loss for the Three
Months Ended
January 31, 1997 (655,225) (655,225)
----------- ------- ------------- ------------ ------------
BALANCE - January 31, 1997 34,898,349 $34,895 $47,445,080 $(1,441,002) $16,038,973
=========== ======= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Background and Business and Basis of Presentation - Las Vegas Entertainment
Network, Inc. ("LVEN" or "the Company") was incorporated in October 1990, and
is engaged in the business of acquiring, developing and operating media and
gaming facilities and businesses. The Company's primary project to date was the
renovation, expansion and redevelopment of the El Rancho Hotel & Casino located
in Las Vegas, Nevada (the "El Rancho" or the "Property"), which was acquired on
November 24, 1993. On January 22, 1996, the Company sold the El Rancho to a
third party for $43,500,000 of cash, notes and assumption of debt, and will
also receive a continuing interest in the cumulative adjusted cash flow (as
defined) from the Property of up to $160,000,000 once the Property has been
developed and certain invested amounts have been recouped (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 active in the development of 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.
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"),
Casino-Co Inc. and Pacific DNS, Inc. All significant intercompany transactions
and balances have been eliminated.
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended January 31, 1997
are not necessarily indicative of the results that may be expected for the year
ended October 31, 1997. The unaudited consolidated financial statements should
be read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's Form 10-KSB for the year ended October 31,
1996.
2. NOTE RECEIVABLE AND CONTINUING INTEREST IN EL RANCHO PROPERTY
On January 22, 1996, the Company sold the assets and liabilities of
the El Rancho to International Thoroughbred Breeders, Inc. ("ITB"), for
consideration of $43,500,000 of cash, notes and assumption of debt. As of
January 31, 1997 and October 31, 1996, Long Term Note Receivable, ITB,
represents the remaining 8% promissory note, in the principal amount of
$10,500,000, arising from the sale of the El Rancho Property. The note is
secured by a subordinated junior position in assets of the El Rancho (which may
be further subordinated if additional borrowing is made against the property),
and is due upon the successful raising of financing to develop the Property, or
upon the ultimate sale of the Property. As of January 31, 1997 and October 31,
1996, the Company had provided an allowance of $4,600,000 against the remaining
note.
6
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ITB has informed the Company that it has received a proposal from a
institutional mortgage lender for approximately $100,000,000 of first mortgage
financing, 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. Proceeds of the proposed funding, which the Company can give no
assurance will be made, are anticipated to be sufficient to renovate and reopen
the Property site, as well as repay the Company's remaining outstanding note
receivable.
Once the Property has been developed, 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. 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 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, and (iii) booking fee equal
to ten percent (10%) of gross compensation paid to talent.
3. NOTE RECEIVABLE, NPD
On January 15, 1997, the Company, through its wholly-owned Nevada
subsidiary Casino-Co, made a ninety 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 the Company believes it
will allow ITB (i) to meet the requirements for funding the renovation of the
Property site, 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
cease to provide collateral to the Company upon the exercise of such option. The
NPD Note is personally guaranteed by Mr. DeSantis.
7
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
4. INVESTMENT AND ADVANCES
Investments and advances consist of the following as of January 31, 1997
and October 31, 1996;
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
---- ----
<S> <C> <C>
(A) Malbec, Inc. $ 462,606 $ 462,606
(B) Tee One Up, Inc 267,800 300,000
(C) ITB Inc. 1,175,952 261,706
(D) EMC 317,675
---------- ----------
$2,224,033 $1,024,312
========== ==========
</TABLE>
(A) The Company has made advances to Malbec, Inc., an unaffiliated company, of
$912,606 as of January 31, 1997 and October 31, 1996, respectively, 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 March 15, 1997). The
Company has re-evaluated this project and has decided not to pursue
development, and 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 January 31, 1997 and October 31, 1996,
respectively.
(B) The Company loaned $300,000 to Tee One Up, Inc., an unaffiliated company
developing television footage of actual golf "hole in ones" at selected
golf courses. Principal and interest at a rate of 17% per annum are being
paid 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.
(C) Advances to ITB Inc. represent amounts currently due the Company for
monthly entertainment management fees, and for the reimbursement for
certain operational advances made for the El Rancho Property. Subsequent to
January 31, 1997, $485,000 of these amounts were repaid to the Company.
8
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(D) 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 can be achieved, 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.
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.
5. NOTES PAYABLE
Notes payable 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.
6. OTHER
On March 1, 1997, the Company extended, until March 1, 2000, the warrant
of Mr. Joseph A. Corazzi, Chairman of the Board of the Company, to acquire
4,000,000 shares of common stock of CountryLand Properties Inc. (CLND). The
4,000,000 CLND warrants are fully transferable and convertible into options to
purchase LVEN common shares at $1.00 per share. The Corporation has adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock options. If the Company had elected to
recognize compensation cost based upon the fair value of the options granted at
the grant date as prescribed by SFAS No. 123, the Company's net loss and net
loss per share would have been reduced to the pro forma amounts listed below:
<TABLE>
<CAPTION>
Three Months Ended
January 31, 1997
----------------
<S> <C>
Net loss, as reported $ 655,225
Net loss, pro forma $ 2,095,225
Loss per share, as reported $.02
Loss per share, pro forma $.06
</TABLE>
9
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On December 11, 1996, Mr. Nunzio DeSantis, now the Chief Operating
Officer of ITB, was granted 1,500,000 options to acquire shares of the Company's
Common Stock at an exercise price of $1 per share, which expire in December 1999
as part of consideration for providing a $6,000,000 standby funding commitment.
In accordance with Statement of Financial Standards No. 123, these options have
been valued at their fair value per the Black Scholes Valuation Model at
$165,000 ($.11 per share), and have been reflected as an expense for the three
months ended January 31, 1997.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Important Factors Relating to Forward Looking Statements. - In connection
with certain forward-looking statements contained in this Form 10-QSB and those
that may be made in the future by or on behalf of the Company which are
identified as forward-looking, the Company notes that there are various factors
that could cause actual results to differ materially from those set forth in any
such forward-looking statements. The forward- looking statements contained in
this Form 10-QSB were prepared by management and are qualified by, and subject
to, significant business, economic, competitive, regulatory and other
uncertainties and contingencies, all of which are difficult or impossible to
predict and many of which are beyond the control of the Company. Accordingly,
there can be no assurance that the forward-looking statements contained in this
Form 10-QSB will be realized or the actual results will not be significantly
higher or lower. These forward looking statements have not been audited by,
examined by, compiled by or subjected to agreed-upon procedures by independent
accountants, and no third-party has independently verified or reviewed such
statements. Readers of this Form 10-QSB should consider these facts in
evaluating the information contained herein. In addition, the business and
operations of the Company are subject to substantial risks which increase the
uncertainty inherent in the forward-looking statements contained in this Form
10-QSB. The inclusion for the forward-looking statements contained in this Form
10-QSB should not be regarded as a representation by the Company or any other
person that the forward-looking statements contained in this Form 10-QSB will be
achieved. In light of the foregoing, readers of this Form 10- QSB are cautioned
not to place undue reliance on the forward-looking statements contained herein.
General
Background. 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 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 ITB and the Company, of which there can be no assurance
will be achieved, the Company will also receive a continuing fifty percent (50%)
interest in the adjusted cumulative cash flow (as defined) from the operation of
the Property as so developed for a period of six (6) years following the opening
of the first casino on the Property, and thereafter a twenty-five percent (25%)
interest in adjusted cash flow until such time as the Company has received an
aggregate of $160,000,000. In addition, commencing with the development of the
Property, the Company's LVCC subsidiary was granted an exclusive contract for up
to twenty (20) years to provide entertainment at the Property site which will
provide for minimum annual fees of $800,000 plus additional fees.
11
<PAGE>
The Company presently has three (3) operating subsidiaries: Casino-Co,
which in connection with the sale of the El Rancho will maintain the continuing
interest in the cumulative adjusted cash flow from operations of the property;
Las Vegas Communications Corporation (LVCC, formerly Protex Technology, Inc.),
which will maintain the entertainment contracts on the Property and also
continue to develop, produce, market and distribute television programming, and,
Pacific DNS, which holds interests in certain of the Company's notes receivable.
Cash Requirements. The Company's current monthly operating cash
requirements are approximately $250,000, composed of general and administrative
expenses, salary and consulting fees and interest payments on existing debt. The
Company is also responsible for managing and paying the operating costs of the
Property, but is reimbursed by ITB on a monthly basis for these costs in amounts
sufficient to cover the company's cash outlay, which currently approximates
$60,000 per month but may increase to a greater amount as the renovation of this
property begins. The Company may also incur other consulting and professional
fees in the development and financing of its business activities. During the
quarter ended January 31, 1997, the Company made approximately $350,000 in
advances and deposits to certain businesses, individuals or others to secure
potential acquisitions or investments. Subsequent to January 31, 1997, the
Company has made an additional $150,000 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.
As of March 15, 1997, the Company had approximately $8,100,000 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 March
15, 1997. However, these sources of cash may not be sufficient to enable the
Company to fund the expansion and commencement of operations of its planned
television programming. 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
Three Months Year Ended January 31, 1997 Compared to Three Months Ended
January 31, 1996.
Revenues. Revenues for the three months ended January 31, 1997
increased by $8,800 to $75,000 as compared to $66,200 for the corresponding
period in 1996. Revenues for the three months ended January 31, 1997 consisted
of $75,000 of fees earned under an interim entertainment management agreement
with ITB (such agreement did not exist in the first quarter of fiscal 1996).
Revenues for three months ended January 31, 1996 consisted of $66,200 of
revenues earned in connection with renting out the parking facilities at the El
Rancho Hotel property site which was previously owned by the Company.
General and Administrative expenses. General and Administrative expenses
decreased $354,889 to $832,807 during the three months ended January 31, 1997 as
compared to $1,022,697 in the corresponding period in 1996. Professional, legal
and accounting costs decreased $67,000 to $66,300 for the three months ended
January 31, 1997 as compared to $133,300 for the corresponding period in 1996.
The remainder of the decrease for the three months ended January 31, 1997 as
compared to 1996 related to an overall decrease in general and administrative
costs relating to the El Rancho Property due to the cessation of operations 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.
12
<PAGE>
Interest Income and Expense. Interest income earned on cash balances
increased $86,965 to $123,571 for the three months ended January 31, 1997 as
compared to $36,606 for the corresponding period in 1996. The increase in
interest income is consistent with the increase in the average cash balances
outstanding during the three months ended January 31, 1997 as compared to the
corresponding period in 1996. Interest expense and finance costs decreased
$378,391 to $20,988 for the three months ended January 31, 1997 as compared to
$399,379 for the corresponding period in 1996. The majority of the decrease
related to a decrease in finance costs, which were none in the three months
ended January 31, 1997 as compared to $295,000 for the comparable period in
1996. The remaining decrease in interest and finance costs related to a $83,391
decrease in interest expense to $20,988 for the three months ended January 31,
1997 as compared to $104,379 for the comparable period in 1996. The decrease in
interest expense is consistent with the decrease in the average indebtedness
outstanding during the three months ended January 31, 1997 as compared to the
corresponding period in 1996.
Other Income and Charges. Mr. Nunzio DeSantis, now the Chief Operating
Officer of ITB, was granted 1,500,000 options to acquire shares of the Company's
Common Stock at an exercise price of $1 per share, which expire in December 1999
as part of consideration for providing a $6,000,000 standby funding commitment.
In accordance with Statement of Financial Standards No. 123, these options have
been valued per the Black Scholes Valuation Model at $165,000 ($.11 per share),
and have been reflected as an expense for the three months ended January 31,
1997.
Liquidity and Capital Resources
Outstanding Notes Payable and Guarantees. As of January 31, 1997, the
Company had outstanding $778,421 of notes and loans payable which are currently
due and payable. The Company intends to repay the remaining outstanding notes,
along with all accrued interest, during the current year from its current cash
balances. The Company has also agreed to guarantee up to $1,500,000 of equipment
financing in connection with an investment it made in Electronic Media Corp.
Notes Receivable. In connection with the sale of the El Rancho, the
Company received an 8% promissory note in the principal amount of $10,500,000,
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, or upon the ultimate sale of the Property.
The Company expects that this note receivable should be collected from the
proceeds from a $100,000,000 funding proposal ITB has received; however, the
Company can give no assurance the closing of such funding will actually occur.
If the Property is sold through foreclosure or other forced sale or based
upon mutual decision of ITB 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
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 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 ITB and fifty percent
(50%) to the Company.
As of January 31, 1997, the Company has outstanding two (2) separate
notes receivable of $1,868,000 ($3,736,000 in total) from MPTV, Inc. arising
from the sale of the Company's Lake Tropicana investment. The first note bears
interest at a rate of 8% per annum, is payable monthly, and is secured by a
fifth position in a deed of trust on the underlying time-share project. The
first interest payment is due one month after the borrower has completed certain
refinancing currently in process. The second note is unsecured and non-interest
bearing. Principal payments for both notes will be at a rate of $205 ($410 for
both notes) as each time-share interval is sold until August 1,
13
<PAGE>
1998, when any remaining outstanding principal is due in full. The notes contain
a cross-default provision so that a default under one note shall also be deemed
a default on the other. The joint venture has reorganized its debt position, and
with such financing, is anticipated to have the funds to commence development
and sale of the time share units. As a result of such reorganization, the
Company's secured note receivable moved up to a second position. The Company has
provided an allowance of $2,929,511 against these notes (including an allowance
for imputed interest on the non-interest bearing note) as of January 31, 1997,
for a net receivable of $806,489.
As of January 31, 1997, 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 March 15, 1997). The Company has re-evaluated
this project and has decided not to pursue development, and 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 January 31, 1997.
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. As of January
31, 1997, principal balance due under this note receivable was $267,800.
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 for funding proposal the renovation of the Property site, 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
cease to provide collateral to the Company upon the exercise of such option. The
NPD Note is personally guaranteed by Mr. DeSantis.
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.
14
<PAGE>
PART 11. OTHER INFORMATION
ITEM 1. 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 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K dated January 15, 1997 to
report the loan to NPD. No financial statements were filed with the Form 8-K.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: March 18, 1997
-----------------------
By: /s/ Carl Sambus
------------------------
Carl Sambus Executive Vice
President and Chief
Financial Officer (chief
financial officer and
accounting officer and
duly authorized officer)
16
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<NAME> Las Vegas Entertainment Network Inc.
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<PERIOD-END> JAN-31-1997
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