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 : April 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number: 0-21278
LAS VEGAS ENTERTAINMENT NETWORK, INC
(Exact name of small business issuer as specified in its Charter)
Delaware 94-3125854
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1801 Century Park East, Los Angeles, California 90067
(Address of principal executive offices) (Zip Code)
(310) 551-0011
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.001 par value 34,898,349
Title of Class Number of Shares outstanding at
June 8, 1998
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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LAS VEGAS ENTERTAINMENT NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
1998 1997
---- ----
UNAUDITED)
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 329,850 $2,399,491
TRADING SECURITIES 1,236,476 1,087,890
---------- ----------
TOTAL CURRENT ASSETS
1,566,326 3,487,381
INVESTMENT IN & ADVANCES TO INTERNATIONAL
THOROUGHBRED BREEDERS INC. - Note 2 3,554,319 3,604,564
INVESTMENT IN AND ADVANCES TO NORDIC
GAMING - Note 3 1,150,000 1,047,548
OTHER INVESTMENTS & ADVANCES 300,000 100,000
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $208,538 (1998) and $192,509 (1997) 122,341 141,536
DEPOSITS AND OTHER 943,570 1,389,893
---------- ----------
$7,636,556 $9,770,922
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $491,943 $452,137
NOTES PAYABLE 775,248 775,753
ACCRUED INTEREST PAYABLE 193,129 154,354
ACCRUED OFFICER'S SALARY 63,041 482,885
----------- -----------
TOTAL CURRENT LIABILITIES 1,523,361 1,865,129
ACCRUED OFFICER'S BENEFITS 425,000 363,000
STOCKHOLDERS' EQUITY
PREFERRED STOCK - SERIES A, AUTHORIZED 30,000,000
SHARES, $.001 PAR VALUE; ISSUED AND
OUTSTANDING - 1,000,000 SHARES 1,000 1,000
COMMON STOCK - AUTHORIZED 50,000,000
SHARES, $.001 PAR VALUE; ISSUED AND
OUTSTANDING - 34,898,349 SHARES 34,895 34,895
ADDITIONAL PAID-IN CAPITAL 47,445,080 47,445,080
LONG TERM INVESTMENT RESERVE (2,400,000) (2,400,000)
DEFICIT (39,392,780) (37,538,182)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,688,195 7,542,793
----------- -----------
$ 7,636,556 $ 9,770,922
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
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LAS VEGES ENTERTAINMENT NETWORK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three-months ended April 30, Six months ended April 30,
---------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
October 31
REVENUES $ -- $ 75,000 $ -- $ 150,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Research & Development ...... 46,676 679,630 71,676 679,630
General & Administrative .... 847,884 629,888 1,379,379 1,515,692
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 676,564 1,527,514 1,451,055 2,195,322
------------ ------------ ------------ ------------
LOSS BEFORE OTHER
INCOME AND (CHARGES) ..... (676,564) (1,452,514) (1,451,055) (2,045,322)
OTHER INCOME AND (CHARGES):
Interest Income .......... 35,739 111,584 93,148 235,155
Gain on Trading Securities 93,732 118,883
Other Charges ............ (567,548) (267,800) (576,799) (432,800)
Interest and Finance Costs (19,255) (19,406) (38,775) (40,394)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME AND (CHARGES) (457,332) (175,622) (403,543) (238,039)
------------ ------------ ------------ ------------
NET LOSS ........................ $ (1,133,896) $ (1,628,136) $(1,854,598) $(2,283,361)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING ..... 34,898,349 34,898,349 34,898,349 34,898,349
============ ============ ============ ============
LOSS PER SHARE OF COMMON STOCK .. $ (0.03) $ (0.05) $ (0.05) $ (0.07)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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LAS VEGAS ENTERTANIMENT NETWORK, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Unrealized
Preferred Stock Common Stock Additional Loss on
Number Number Paid-in Long-Term
of Shares Amount Of Shares Amount Capital Investment Deficit Total
--------- ------ --------- ------ ------- ---------- ------- -----
BALANCE - NOVEMBER 1, 1997 1,000,000 $1,000 34,898,349 $34,895 $47,445,080 $(2,400,000) $(37,538,182) $7,542,793
Net Loss for the six months
ended April 30, 1998 (1,854,598) (1,854,598)
--------- ------ --------- ------- ----------- ----------- ------------- ----------
BALANCE - April 30, 1998 1,000,000 $1,000 34,898,349 $34,895 $47,445,080 $(2,400,000) $(39,392,780) $5,688,195
========= ===== ========== ======= =========== =========== ============= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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LAS VEGAS ENTERTAINMENT NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<S> <C> <C>
Six-months ended April 30
-------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,854,598) $(2,283,361)
Gain from Marketable Securities (118,883)
Depreciation 33,311 34,919
Allowance for valuation accounts 167,800
Adjustments to reconcile net loss to net
cash used in operating activities:
(Increase) in Other Assets (39,185)
Increase (Decrease) in;
Accounts Payable 39,806 52,309
Interest Payable 38,775
Accrued Officer's Salaries (419,843) 82,000
Accrued Officer's Benefits 62,000 12,893
------------ -----------
CASH USED IN OPERATING ACTIVITIES (2,219,432) (1,972,625)
CASH FLOWS FROM INVESTING ACTIVITIES:
Trading Securities (29,704) (1,000,000)
Advances to Nordic Gaming (102,446)
Collections from ITB Inc. 50,245
Investments & Advances - Other (200,000) (688,109)
Decrease in Deposits and Other 446,323
Acquisition of Property and Equipment (14,122) (10,575)
Advances to NPD Inc. (2,994,875)
------------ -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 150,296 (4,693,559)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Notes Payable (505) (278,317)
Issuance of Options 165,000
------------- -----------
CASH USED IN FINANCING ACTIVITIES (505) (113,317)
DECREASE IN CASH (2,069,641) (6,779,501)
CASH BALANCE - BEGINNING 2,399,491 10,385,292
------------ -----------
CASH BALANCE - ENDING $ 329,850 $ 3,605,791
============ ==========
CASH PAID FOR
Interest $ - $27,500
============ ==========
</TABLE>
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Background and Business and Basis of Presentation - Las Vegas Entertainment
Network, Inc. ("LVEN" or the "Company") was incorporated in October 1990, and
is engaged in the business of acquiring, developing and operating media and
gaming facilities and businesses. The Company is also developing technology for
the delivery of television and video programming, Internet access, and
telephony. The Company is also investigating other potential businesses for
acquisition in the entertainment, gaming, lodging, and communications
industries, some of which may be developed in Brazil.
The Company's primary project to date was the planned renovation, expansion and
redevelopment of the El Rancho Hotel & Casino property located in Las Vegas,
Nevada (the "El Rancho" or the "Property"), which was acquired on November 24,
1993. On January 22, 1996, the Company sold the El Rancho to International
Thoroughbred Breeders Inc. ("ITB") for $43,500,000 of cash, notes and assumption
of debt. The Company also received a continuing interest in the cumulative
adjusted cash flow (as defined) from the Property of up to $160,000,000 once the
Property had been developed and certain invested amounts have been recouped. On
May 22, 1997, the Company and ITB (i) exchanged the remaining note receivable
from the sale for 2,093,068 shares of restricted common stock of ITB, and, (ii)
agreed to explore a similar exchange for the continuing cash flow interest (see
Note 2).
The accompanying unaudited financial statements include the accounts of LVEN,
and its wholly-owned subsidiaries Las Vegas Communications Corp. ("LVCC"),
Casino-Co Corp. and Pacific DNS, Inc, and its majority-owned subsidiary,
Electric Media Company Inc. (EMC). All significant intercompany transactions and
balances have been eliminated.
Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month periods ended
April 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended October 31, 1998. 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, 1997.
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2. INVESTMENT IN AND ADVANCES TO INTERNATIONAL THOROUGHBRED
BREEDERS INC.
Investments in and advances to ITB consist of the following as of;
April 30, 1998 October 31, 1997
-------------- ----------------
(A) Investment in ITB Stock $5,900,000 $5,900,000
Less Valuation to Market (2,400,000) (2,400,000)
---------- -----------
3,500,000 3,500,000
(B) Advances to ITB 54,319 104,564
------------ -----------
$3,554,319 $3.604,564
========== ==========
(A) On January 22, 1996, the Company sold the assets and liabilities of the El
Rancho to ITB for consideration of $43,500,000, consisting of (i)
$12,500,000 paid at closing in cash; (ii) the issuance of an 8% unsecured
promissory note in the principal amount of $6,500,000 the ("A- Note") which
A-Note was paid in full on March 15, 1996; (iii) the issuance of an 8%
promissory note in the principal amount of $10,500,000 (the "B-Note") and
(iv) the assumption by ITB of existing mortgage indebtedness and accrued
interest of $14,000,000. In addition, once the Property was developed, the
Company was entitled to share in a percentage of the ongoing adjusted
cumulative cash flow from the operation of the Property up to $160,000,000,
as provided in the ITB Sale Agreement (the "El Rancho Cash Flow Interest").
On May 22, 1997, LVEN converted the $10.5 Million receivable evidenced by
the B-Note, together with accrued interest thereon of $1.1 Million, into
2,093,868 restricted shares of ITB common stock (the "Conversion Shares").
On May 22, 1997, LVEN and ITB also agreed, subject to approval of their
respective Boards of Directors, that as soon as practicable, ITB would
acquire the El Rancho Cash Flow Interest. In order to effect such
transaction, ITB is required to issue to LVEN that number of shares of ITB
common stock (the "Acquisition Shares") equal to (i) the fair market value
of the El Rancho Cash Flow Interest, as determined in a fairness opinion to
be obtained from a nationally recognized investment banking firm, divided
by (ii) the average bid price for ITB Stock during the 20 trading days
prior to the closing. Both the Conversion Shares and the Acquisition Shares
are subject to certain restrictions as described below. In accordance with
certain New Jersey gaming laws and regulations, no person may hold or
acquire, directly or indirectly, beneficial ownership of more than 5% of
the voting securities of ITB without the approval of the New Jersey Racing
Commission. LVEN is in the process of obtaining this approval.
The Company has executed an irrevocable proxy in respect of the Conversion
Shares, and has agreed to execute such an instrument in respect of the
Acquisition Shares, in each case in favor of Mr. Nunzio P. DeSantis,
Chairman of the Board of ITB, which proxies shall be irrevocable until the
earlier of (i) the date on which all obligations of ITB owing to Credit
Suisse First Boston under a $55,000,000 loan have been repaid in full, (ii)
the date on which LVEN distributes the Acquisition Shares to its
shareholders generally, (iii) the date on which LVEN sells the Conversion
Shares or Acquisition Shares to, or LVEN is acquired by, or merged with or
into, a person or entity that is not affiliated with LVEN or Mr. Joseph A.
Corazzi, Chairman of
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the Board of LVEN, and (iv) the date on which Mr. DeSantis dies or becomes
mentally incompetent. LVEN and ITB have agreed to enter into a registration
rights agreement respecting the Conversion Shares and the Acquisition
Shares and providing for demand rights, unlimited piggyback rights, and
other customary provisions.
On or about October 10, 1997, certain former or current directors of ITB
filed an action against ITB and its other directors, the Company, the
Company's Chairman and certain other individuals in the Delaware Court of
Chancery, alleging, among other things, that the Company acted improperly
in connection with various transactions with ITB. The plaintiffs are
seeking, among other things, the recision of the issuance of the 2,093,068
shares of ITB common stock to LVEN on May 22, 1997, and further seek to
block the issuance to LVEN of additional shares of ITB stock in exchange
for LVEN's El Rancho Cash Flow Interest. The Company has entered into
settlement negotiations with all parties and is continuing to attempt to
resolve this matter.(see Part II, Item I, Legal Proceedings). In
contemplation of such a settlement, during the quarter ended April 30,
1998, the Company, in conjunction with ITB, arranged for the potential sale
of the El Rancho Property to a third party, which sale, if completed, would
result in approximately $10.5 million of proceeds in exchange for LVEN
returning all its shares, and claims to future shares, of ITB common stock.
However, such agreement is subject to final negotiations with ITB, its
lenders, the buyer, and the settlement of all outstanding litigation as
discussed above including the receipt of all necessary court approvals. In
contemplation of such settlement and potential sale, the Company made an
advance of $200,000 to the principle of the buying group as a prepaid
commission. Such advance is included in Other Investments and Advances as
April 30, 1998.
(B) Advances to ITB Inc. represent amounts currently due LVEN for monthly
property management fees, and for the reimbursement for certain operational
and financing advances made for the El Rancho Property.
3. INVESTMENTS AND ADVANCES TO NORDIC GAMING CORPORATION
During 1997, the Company was granted an option to acquire from Mr. Nunzio
P. DeSantis, the Chief Operating Officer of ITB, eighty percent (80%) of
the voting equity of Nordic Gaming Corporation, a Canadian corporation
("Nordic"). Nordic owns certain real property and assets known as the
"Fort Erie Racetrack" which is situated on 143 acres in Fort Erie,
Ontario, Canada. The Company also advanced $1,300,000 through April 30,
1998 to Nordic pursuant to a Line of Credit Agreement dated as of August
27, 1997. Such advances, which were due and payable on August 27, 1998,
bear interest at a rate of 10% per annum, and are secured by a first
mortgage lien on and a security interest in the real and personal
property assets comprising the Fort Erie Racetrack.
The Company has reached a tentative agreement to assign its debt,
mortgage and all other security in the Fort Erie Racetrack to an Ontario,
Canada Limited Corporation. The Company would also waive its option to
acquire the 80% interest in Nordic Gaming. The consideration for the
assignment and waiver shall be $1,150,000, payable (i) $300,000 at
closing, (ii) $500,000 on the earlier of the date upon which any quantity
of video lottery terminals or slot gaming machines are open for use by
the public at Fort Erie Racetrack, or June 30, 1999, and, (iii) $350,000
on the date which is 180 days after payment of the $500,000 referred to
above is due. Interest shall accrue at the rate of 8% per annum and is
payable with the last installment. As security for the
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unpaid balance, the Company will receive an irrevocable letter of credit
in the amount of $850,000 plus interest at closing. In anticipation of
the closing, the buyer has delivered to the Company $300,000 subsequent
to April 30, 1998. The Company recognized a $100,000 loss on the
assignment of this debt which is reflected in other charges during the
three-month period ended April 30, 1998.
4. DEPOSITS AND OTHER
Deposits and other consist of the following as of;
April 30, October 31,
1998 1997
----------- ------------
(A) Deposit on Nordic Gaming Aircraft Lease $130,000 $ 600,000
(B) Deposit on Stan Irwin Enterprises
Aircraft Purchase 813,571 789,893
-------- ----------
$943,571 $1,389,893
========= ==========
(A) The Company provided to Nordic Gaming Corporation a $600,000 certificate of
deposit as collateral for an irrevocable letter of credit in favor of an
aircraft leasing company. The certificate of deposit was to be returned to
the Company upon the earlier of (i) receipt of any permanent financing
relating to the Fort Erie Race Track, (ii) any other capital infusion of
$1,000,000 or more, or (iii) at the expiration of the aircraft leasing
agreement in September 2004. However, Nordic Gaming became delinquent in
its lease payments, and the aircraft leasing company exercised its rights
under the lease arrangement and repossessed and sold the plane because of
such default. On April 28, 1998, the Company was notified that $130,000 of
its initial deposit will be returned to the Company, after all costs and
expenses of the repossession and sale (including the payment of delinquent
loan payments and broker fees) had been deducted. Due to the event of
default and foreclosure, the Company reflected a loss of $470,000 which is
included in other charges during the three-months ended April 30, 1998,
(B) The Company provided a certificate of deposit of $778,000 as security to a
bank for a term loan of $778,000 that was obtained by Stan Irwin
Enterprises Inc. that was used to acquire a 12 1/2% undivided interest in
an aircraft. The Company provided the certificate of deposit on behalf of
Stan Irwin Enterprises to enable Mr. Joseph Corazzi, the Company's Chairman
of the Board, the personal use of up to fifty hours of private air travel
service at a cost to Mr. Corazzi of approximately $1,200 per hour. The
Company may also use the plane up to twenty five hours per year at cost of
approximately $1,200 hour. The certificate of deposit at all times remains
the property of the Company and will earn interest to the benefit of the
Company. At the end of two years from the date of purchase, Stan Irwin
Enterprises has the option of returning the aircraft to the seller and
receive the fair market value price. The certificate of deposit and all
accrued interest will be returned to the Company at that time.
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5. OTHER MATTERS
Nasdaq Listing
--------------
On May 29, 1998, the Company was notified by the Nasdaq Stock Market that
its shares were scheduled for delisting due to the Companys failure to meet
the new minimum bid price requirement of $1 per share, which became
effective February 23, 1998. The Company has requested a temporary
exception to the new requirements by requesting a written hearing to the
delisting procedures. There is no assurance that the Company will be
successful in its written hearing with Nasdaq in its attempt to maintain
its listing. The Company intends to distribute to stockholders a proxy
statement for the purpose of voting on a stock split that outlines the
procedure for a reverse stock split in the amount of one- for-twenty that
may enable the Company to maintain its Nasdaq listing, or not effectuating
a reverse stock split and thereby transferring all trading activity to the
bulletin board system until such time, if any, that the Company is able to
relist with Nasdaq.
Agreement with MG Entertainment
-------------------------------
On May 25, 1998, the Company entered into an agreement with MG
Entertainment, a Brazilian Company ("MG"), to sell and deliver to MG 10,000
electronic bingo machines to be delivered at approximately 1,000 machines
per month over a twelve month period. The agreement provides that the
Company will be the exclusive provider to MG of the machines, or any other
gaming machines, up through 2008. The total expected cash payment for each
machine is $141,317, which shall be made by MG in 120 monthly installments
as follows; four consecutive monthly installments of $1,307 starting 30
days after each machine is delivered, and thereafter, 116 monthly
installments as follows; 25 monthly installments of $932, then 25 monthly
installments of $1,065; and the remainder in monthly installments $1,331.
For financial statement purposes, if the contract and business plan goes
forward, the Company will reflect a purchase price of approximately $81,000
for each machine (based upon an imputed interest rate of 10%) with $64,317
to be reflected as interest income over the life of the contract.
The Company does not have a formal agreement for the purchase and
financing of the bingo machines, but has entered into discussions with a
company for the purchase of up to 10,000 of these machines. The Company
anticipates that the cost to the Company for each machine will
approximate $12,000, which cost may vary depending on the style and
accessories provided. The Company is currently seeking financing for the
purchase of the machines, however the Company can give no assurance that
any funding will ultimately be obtained, that the Company can ultimately
enter into an acquisition agreement for the machines, that the machines
will ultimately be installed, or that any payments will be received from
MG. Furthermore, the Company has not had the opportunity to fully review
the currency, economic or political risks attendant on doing business in
Brazil.
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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. Las Vegas Entertainment Network, Inc. ("LVEN" or the
"Company") was incorporated in October 1990, and is engaged in the business of
acquiring, developing and operating media and gaming facilities and businesses.
The Company is also developing technology for the delivery of television and
video programming, Internet access and telephony. The Company is also
investigating other potential businesses for acquisition in the entertainment,
gaming, lodging, and communications industries, some of which may be developed
in Brazil.
Results of Operations
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Revenues for the three months ended April 30, 1997 consisted
of $75,000 of fees earned under an interim entertainment management agreement
with ITB. There were no such fees earned under the agreement for the
corresponding period in 1998.
General and Administrative expenses decreased $217,996 to
$629,888 during the three months ended April 30, 1998 as compared to $847,884 in
the corresponding period in 1997. The majority of the decrease related to travel
and entertainment costs which decreased $214,000 to $67,000 for the three months
ended April 30, 1998 as compared to $281,000 for the corresponding period in
1997.
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Interest Income and Expense. Interest income earned on cash
balances and marketable securities decreased $75,845 to $35,739 for the three
months ended April 30, 1998 as compared to $111,584 for the corresponding period
in 1997. The decrease is consistent with the decrease in the average cash and
marketable securities outstanding during three months ended April 30, 1998 as
compared to the corresponding period in 1997. The Company had unrealized gains
in marketable securities of $93,732 during the three months ended April 30,
1998. There were no such gains in the comparable period in 1997. Interest
Expense for the for the three months ended April 30, 1998 remained consistent
with the corresponding period in 1997 as the average indebtedness outstanding
during the three months ended April 30, 1998 was consistent with the
corresponding period in 1997.
Research and Development expenses which relate to the
development of voice, video and data communication technology decreased $632,954
to $46,676 during the three months ended April 30, 1998 as compared to $679,630
for the corresponding period in 1997.
Other Income and Charges for the three months ended April 30,
1998 consisted of a $470,000 charge related to the forfeiture of an airplane
deposit made on behalf of Nordic Gaming Inc, and a $100,000 charge that resulted
from assignment of the Company's debt from Nordic Gaming to a third party. Other
Income and Charges for the three months ended April 30, 1997 included a charge
of $100,000 for settlement of certain outstanding litigation, and a charge of
$167,800 to reflect the carrying value of a certain note receivable.
Six Months Ended April 30, 1998 Compared to Six Months Ended April 30, 1997 -
Revenues for the six months ended April 30, 1997 consisted of
$150,000 of fees earned under an interim entertainment management agreement with
ITB. There were no such fees earned under the agreement for the corresponding
period in 1998.
General and Administrative expenses decreased $136,313 to
$1,379,379 during the six months ended April 30, 1998 as compared to $1,515,692
in the corresponding period in 1997. The majority of the decrease related to
travel and entertainment costs which decreased $227,000 to $181,000 for the six
months ended April 30, 1998 as compared to $408,000 for the corresponding period
in 1997. This decrease was offset by an increase in legal and professional costs
of $67,000 to $267,000 for the six months ended April 30, 1998 as compared to
$200,000 in the comparable period in 1997. The increase related mostly to costs
incurred in connection with the actions filed by certain former and current
directors of ITB (see "Litigation"). Significant general and administrative
expenses are expected to continue while the Company seeks new acquisitions and
projects.
Interest Income and Expense. Interest income earned on cash
balances and marketable securities decreased $142,007 to $93,148 for the
six-months ended April 30, 1998 as compared to $235,155 for the corresponding
period in 1997. The decrease is consistent with the decrease in the average cash
and marketable securities outstanding during the six months ended April 30, 1998
as compared to the corresponding period in 1997. The Company had unrealized
gains in marketable securities of $118,883 during the six months ended April 30,
1998. Interest Expense for the for the six months ended April 30, 1998 remained
consistent with the corresponding period in 1997 as the average indebtedness
outstanding during the six months ended April 30, 1998 was consistent with the
corresponding period in 1997.
12
<PAGE>
Other Income and Charges for the six months ended April 30,
1998 consisted of a $470,000 charge related to the forfeiture of an airplane
deposit made on behalf of Nordic Gaming Inc, and a charge of $100,000 that
resulted from the assignment of the Company's debt from Nordic Gaming to a third
party. Other Income and Charges for the six months ended April 30, 19987
included charges of (i) $100,000 from the settlement of certain litigation, (ii)
$167,800 to reflect the carrying value of a certain note receivable, and (iii)
$165,000 relating to the issuance to Mr. Nunzio DeSantis, now the Chief
Operating Officer of ITB, of 1,500,000 options to acquire shares of the
Company's Common Stock at an exercise price of $1 per share. These options were
issued as part of consideration for providing a $6,000,000 standby funding
commitment, and in accordance with Statement of Financial Standards No. 123,
were valued per the Black Scholes Valuation Model at $165,000 ($.11 per share),
and reflected as an expense.
Liquidity and Capital Resources
The Company has experienced operating losses since its inception. For the
six month period ended April 30, 1998 and the fiscal year ended October 31,
1997, the Company experienced net losses (including reserves) of $1,854,598 and
$6,752,405, respectively. The Company anticipates that it will continue to
experience losses as it continues working on its development plans, including
the development of a technology for the delivery of television and video
programming, Internet access, and telephony. Even if the Company's development
plans are completed, there can be no assurance that the Company will be
profitable. 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.
Cash Requirements. The Company's current monthly operating cash
requirements are approximately $250,000, composed of general and administrative
expenses, salary and consulting fees, legal and professional fees, marketing and
travel costs. In addition to the above, the Company may be required to fund, or
obtain financing for, the acquisition of up to 1,000 electronic bingo machines
per month (up to 10,000 machines in total) that cost approximately $12,000 each
to meet delivery requirements to MG entertainment under the Company's agreement
with them.
As of April 30, 1998, the Company had approximately $1,566,000 in cash
and marketable securities and believes that its current cash and receivables,
including the expected repayment from the assignment of the advance made to
Nordic Gaming will be sufficient to meet its cash requirements for the next 12
months, as well as the repayment of existing debt of $775,248 at April 30, 1998.
The Company may, if necessary to meet its cash requirements over the next 12
months, liquidate certain of its investments, including its current and
potential future holdings of shares of ITB common stock. The Company may require
additional capital to develop a telecommunications company in Brazil or acquire
the bingo machines necessary to fulfill the sale to MG Enterprises. There can be
no assurance that additional financing will be available to the Company on
acceptable terms, or at all. In addition, on May 29, 1998, the Company was
notified by the Nasdaq Stock Market that its shares were scheduled for delisting
due to the Companys failure to meet the new minimum bid price requirement of $1
per share, which became effective February 23, 1998. The Company has requested a
temporary exception to the new requirements by requesting a written hearing to
the delisting procedures. There is no assurance that the Company will be
successful in its written hearing in its attempt to remain listed. If the
Company is de-listed from the Nasdaq SmallCap Market, this might result in the
Company having difficulty in placing its securities with prospective investors.
13
<PAGE>
Notes Receivable. As of April 30, 1998, the Company has the following
outstanding notes receivable:
As of April 30, 1998, the Company had advanced $1,300,000 to Nordic
Gaming Corporation pursuant to a Line of Credit Agreement dated as of August 27,
1997. Such advances, which were due and payable on August 27, 1998, bear
interest at a rate of 10% per annum, are secured by a first mortgage lien on and
a security interest in the real and personal property assets comprising the Fort
Erie Racetrack. Subsequent to April 30, 1998, the Company reached a tentative
agreement to assign its debt, mortgage and all other security in the Fort Erie
Racetrack to an Ontario Limited Corporation. The Company would also waive its
option to acquire the 80% interest in Nordic Gaming. The consideration for the
assignment and waiver shall be $1,150,000, payable (i) $300,000 at closing, (ii)
$500,000 on the earlier of the date upon which any quantity of video lottery
terminals or slot gaming machines are open for use by the public at Fort Erie
Racetrack, or June 30, 1999, and, (iii) $350,000 on the date which is 180 days
after payment of the $500,000 referred to above is due. Interest shall accrue at
the rate of 8% per annum and is payable with the last installment described
above. As security for the unpaid balance, the Company will receive an
irrevocable letter of credit in the amount of $850,000 plus interest at closing.
In anticipation of the closing, the buyer has delivered to the Company $300,000
subsequent to April 30, 1998.
As of April 30, 1998, the Company provided a certificate of deposit of
$778,000 as security for a letter of credit issued on behalf of Stan Irwin
Enterprises, Inc. that was used to acquire a 12 1/2% undivided interest in an
aircraft. The Company provided the certificate of deposit on behalf of Stan
Irwin Enterprises Inc. to enable Mr. Joseph Corazzi, the Company's Chairman of
the Board, the personal use of up to fifty hours of private air travel service
at a cost to Mr. Corazzi of approximately $1,200 per hour. The Company may also
use the plane up to twenty five hours per year. The certificate of deposit at
all times remains the property of the Company and will earn interest to the
benefit of the Company. At the end of two years from the date of purchase, Stan
Irwin Enterprises, Inc. has the obligation of returning the aircraft to the
seller and receive the fair market value price. It is anticipated that the
certificate of deposit and all accrued interest ($35,571 at April 30, 1998) will
be returned to the Company at that time.
As of April 30, 1998, the Company has made accumulated advances to
Malbec, Inc., an unaffiliated company, of $912,606 for the purpose of developing
and operating a hotel project in Miami Beach, Florida. As of April 30, 1998,
$46,678 of such advances have been returned to the Company The advances accrued
interest at the rate of 8% per annum, and were due July 31, 1997. Due to
difficulties in finalizing a purchase agreement, and on going litigation
involving the hotel property, the Company and Malbec Inc. have discontinued any
attempt at further development of this property. The Company has previously
provided a $812,606 allowance against this advance, for a net investment of
$100,000 as of April 30, 1998.
14
<PAGE>
PART 11. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about September 10, 1997, two actions were filed in the
Delaware Court of Chancery, each of which named the Company and its Chairman as
a defendant. The first such action, captioned Robert J. Quigley, Frank A. Leo
and The Family Investment Trust (Henry Brennan as Trustee) v. Nunzio P.
DeSantis, Michael Abraham, Anthony Coelho, Kenneth W. Scholl, Joseph Zapalla,
Joseph A. Corazzi, Las Vegas Entertainment Network, Inc. and International
thoroughbred Breeders, Inc., C.A. No. 15919-NC, ("Quigley") is a derivative suit
brought by two former directors of ITB and an investment trust which alleges,
among other things, that certain ITB directors have breached their fiduciary
duties to ITB. The Quigley complaint seeks: (i) a declaratory judgment that (a)
the share of ITB's common stock held by NPD may not be voted at any
stockholders' meeting; (b) all actions taken by the current board of ITB are
null and void; and (c) certain purported "super-majority" voting provisions in
ITB's By-laws remain in full force and effect, and (ii) rescission of certain
actions taken by ITB's Board, including but not limited to certain contractual
rights or entitlements that involve the Company.
Specifically, with respect to the Company, the Quigley
Complaint alleges that the Company and its Chairman were part of a concerted
effort to divert the stock and assets of ITB to the Company, its Chairman and
Messrs. DeSantis and Coelho, and seeks to (i) rescind the issuance of 2,093,868
shares of ITB stock to the Company, (ii) invalidate certain rights presently
existing in favor of the Company relative to the El Rancho Cash Flow Interest,
and (iii) rescind certain agreements entered into between or among the Company,
ITB and/or CSFB in connection with CSFB's refinancing of the El Rancho project.
On November 7, 1997, the Company filed an Answer to the
Quigley Complaint, in which the Company denied the substantive claims asserted
against or with respect to the Company. Discovery in the Quigley action is
ongoing. The Company believes that the claims against it are without merit and
is vigorously defending itself in this action.
The second action, captioned James Rekulak v. Nunzio P. DeSantis, Michael
Abraham, Anthony Coelho, Kenneth W. Scholl, Joseph Zappala, Las Vegas
Entertainment Network, Inc., Joseph A. Corazzi and International Thoroughbred
Breeders, Inc., C.A. No. 15920-NC ("Rekulak") is a derivative suit which repeats
the allegations in the Quigley Complaint verbatim and seeks the identical
relief. The Company is taking the same positions with regards to the Rekulak
action as it is taking with respect to the Quigley action.
The Company and its Chairman are named as defendants in an
action filed on November 30, 1997 by Robert William Green ("Green"), a
stockholder of ITB, captioned Robert William Green v. Nunzio DeSantis, Joseph
Corazzi, Anthony Coelho, Las Vegas Entertainment Network, Inc. and NPD, Inc.,
C.A. 97-5359(JHR) ("Green"), in the United States District Court for the
District of New Jersey. The Green complaint alleges, among other things, that
the defendants have usurped certain corporate opportunities at the expense of
ITB, have diluted Green's interest in ITB through the issuance of shares of
stock and have conspired to deprive him of certain rights under an option
granted to him by NPD, which, subject to regulatory approval, grants Green the
right to purchase approximately 50% of the shares of ITB's common stock held by
NPD. The Company believes that the claims against it are without merit and
intends to vigorously defend itself.
15
<PAGE>
On or about February 24, 1998, the Company, together with all of the
other parties thereto, agreed to a standstill in the foregoing litigation, and
since that time have been engaged in substantive settlement negotiations and the
preparation of definitive settlement documentation.
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
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused the report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: June 17, 1998
By: /s/ Carl Sambus
Carl Sambus Executive Vice
President and Chief
Financial Officer (chief
financial officer and
accounting officer and
duly authorized officer)
17
<PAGE>
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<NAME> Las Vegas Entertainment Inc.
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<PERIOD-END> Apr-30-1998
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