UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended : JULY 31,1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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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
incorporation or organization) Identification No.)
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)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $.001 par value 6,537,667
Title of Class Number of Shares outstanding at
September 15, 1999
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, OCTOBER 31,
1999 1998
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 177,619 $ 553,525
TRADING SECURITIES 19,977 106,199
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TOTAL CURRENT ASSETS 197,596 659,724
INVESTMENT IN & ADVANCES TO INTERNATIONAL
THOROUGHBRED BREEDERS INC. - Note 2 3,500,000 3,500,000
OTHER INVESTMENTS & ADVANCES 100,000 100,000
PROPERTY AND EQUIPMENT
net of accumulated depreciation
of $294,675 (1999) and $259,547(1998) 54,574 89,404
DEPOSITS AND OTHER - Note 6 3,000,000 56,652
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$ 6,852,170 $ 4,405,780
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 243,174 $ 308,181
ACCRUED OFFICERS SALARY 105,812
LOAN PAYABLE, OFFICER - Note 4 443,080
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TOTAL CURRENT LIABILITIES 792,066 308,181
ACCRUED OFFICER'S BENEFITS - Note 3 - 294,379
STOCKHOLDERS' EQUITY (NOTE 5)
PREFERRED STOCK - SERIES A, AUTHORIZED 30,000,000
SHARES, $.001 PAR VALUE; NONE OUTSTANDING - -
COMMON STOCK - AUTHORIZED 50,000,000
SHARES, $.001 PAR VALUE; ISSUED AND
OUTSTANDING 6,537,667 SHARES (1999)
AND 1,831,167 (1998) 130,750 36,620
ADDITIONAL PAID-IN CAPITAL 53,504,202 48,459,312
LONG TERM INVESTMENT RESERVE - (2,400,000)
DEFICIT (47,574,848) (42,292,712)
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TOTAL STOCKHOLDERS' EQUITY 6,060,104 3,803,220
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$ 6,852,170 $ 4,405,780
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
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LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended July 31, Nine Months Ended July 31
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES $ - $ - $ - $ -
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
COSTS AND EXPENSES
El Rancho Costs - Note 2 142,205
Research & Development 16,250 290,137 108,250 361,814
Write-off of Investment in ITB - Note 2 - 2,400,000
General & Administrative 1,237,169 1,002,023 2,793,914 2,381,401
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 1,253,419 1,292,160 5,444,369 2,743,215
------------ ------------ ------------ ------------
LOSS BEFORE OTHER
INCOME AND (CHARGES) (1,253,419) (1,292,160) (5,444,369) (2,743,215)
OTHER INCOME AND (CHARGES):
Interest Income 402 31,200 5,763 124,348
Gain (Loss) on Trading Securities (27,400) (13,310) 43,847 105,573
Other Charges (155,000) 115,892 (731,799)
Interest and Finance Costs (365) (21,512) (3,269) (60,287)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME AND (CHARGES) (27,363) (158,622) 162,233 (562,165)
------------ ------------ ------------ ------------
NET LOSS $(1,280,782) $(1,450,782) $(5,282,136) $(3,305,380)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 4,934,532 1,744,917 3,720,111 1,744,917
============ ============ ============ ============
LOSS PER SHARE OF COMMON STOCK $ (0.26) $ (0.65) $ (1.42) $ (1.89)
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JULY 31, 1999 (UNAUDITED)
COMMON STOCK UNREALIZED
ADDITIONAL LOSS ON
NUMBER PAID-IN LONG-TERM
OF SHARES AMOUNT CAPITAL INVESTMENT DEFICIT TOTAL
--------- -------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - NOVEMBER 1, 1998 1,831,167 $ 36,620 $48,459,312 $(2,400,000) $(42,292,712) $ 3,803,220
Common Stock issued for services 1,456,500 29,130 1,812,390 1,841,520
Sales of Common Stock 250,000 5,000 292,500 297,500
Common Stock Issued for Acquisitions 3,000,000 60,000 2,940,000 3,000,000
Realization of loss on ITB Securities 2,400,000 2,400,000
Net Loss for the nine months ended July 31, 1999 (5,282,136) (5,282,136)
BALANCE - JULY 31, 1999 6,537,667 $130,750 $53,504,202 $ - $(47,574,848)
$6,060,104 ========= ======== =========== ============ ============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JULY 31,
---------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (5,282,136) $(1,854,598)
Gain from Marketable Securities (43,492) (118,883)
Loss on ITB Securities 2,400,000
Issuance of Stock for Services 1,841,520
Depreciation 34,830 33,311
Adjustments to reconcile net loss to net
Cash used in operating activities:
Increase (Decrease) in;
Accounts Payable (65,007) 39,806
Interest Payable - 38,775
Accrued Officer's Salaries 105,812 (419,843)
Accrued Officer's Benefits (294,379) 62,000
------------------- ------------
CASH USED IN OPERATING ACTIVITIES (1,302,852) (2,219,432)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Trading Securities (29,704)
Sale of Trading Securities 129,714
Advances to Nordic Gaming (102,446)
Advances on Airplane Deposits
Colllections on Airplane Deposits 56,652
Collections from ITB Inc. - 50,245
Investments & Advances - Other - (200,000)
Decrease in Deposits and Other - 446,323
Acquisition of Property and Equipment - (14,122)
------------------- ------------
CASH PROVIDED BY INVESTING ACTIVITIES 186,366 150,296
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Stock for Cash 297,500
Advances from Officer 443,080
Repayment of Notes Payable (505)
------------------- ------------
CASH PROVIDED BY (USED IN) FINANCING 740,580 (505)
ACTIVITIES
DECREASE IN CASH (375,906) (2,069,641)
CASH BALANCE - BEGINNING 553,525 2,399,491
------------------- ------------
CASH BALANCE - ENDING $ 177,619 $ 329,850
=================== ============
SUPPLEMENTAL INFORMATION OF NON-CASH Transactions
- -------------------------------------------------
On July 15, 1999, the Company issued 3,000,000 shares of stock valued at $3,000,000
in contemplation of an acquisition closing.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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LAS VEGAS ENTERTAINMENT NETWORK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF BUSINESS, GOING CONCERN AND SIGNIFICANT ACCOUNTING POLICIES
Background - Las Vegas Entertainment Network, Inc. ("LVEN" or "the
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Company") was incorporated in October 1990, and is engaged in the business
of acquiring, developing and operating media and communications businesses
and gaming facilities including real estate redevelopment. The Company has
also identified a major business opportunity for the distribution of bingo
machines in Brazil, when if implemented, for which there can be no
assurance, will substantially alter the direction of the Company. The
Company is also investigating other potential businesses for acquisition in
the entertainment, gaming, lodging, and communications industries.
The accompanying unaudited financial statements include the accounts of
LVEN, and its wholly owned subsidiaries Las Vegas Communications Corp.
("LVCC"), Casino-Co Corporation, Casino Co. Ltda., Pacific DNS, Inc, and
its majority-owned subsidiary, Electric Media Company Inc. (EMC). All
significant intercompany transactions and balances have been eliminated.
Going Concern - The accompanying financial statements have been prepared on
--------------
a going concern basis which contemplates the realization of assets and
liabilities in the normal course of business. For the nine months ended
July 31, 1999 and the year ended October 31, 1998, the Company experienced
net losses of $5,282,136 and $4,754,530, respectively, and has experienced
operating losses since its inception. The Company anticipates that it will
continue to experience significant losses and significant cash shortages as
it continues working on its development plans.
The Company's capital requirements have been and will continue to be
significant. 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. At July 31, 1999, the Company
had cash and cash equivalents of $177,619 and trading securities of
$19,977. The Company's current monthly operating cash requirements are
approximately $50,000 to $75,000, composed of general and administrative
expenses, salary and consulting fees, legal and professional fees,
marketing and travel costs. In addition, the Company may be required to
fund, or obtain financing for; (i) the acquisition of up to 1,000
electronic bingo machines per month (up to 10,000 machines in total) that
cost approximately $10,000 each to meet delivery requirements to MG
Entertainment under the Company's agreement with them, and (ii) $5,500,000
to fund the acquisition of a fifty percent interest in Sulmatic, a
Brazilian corporation which currently operates approximately 500 electronic
gaming machines throughout Brazil. Under the terms of the Sales Contract,
the Company is required to pay Three Million Dollars ($3,000,000) forty
five days from the date of a definitive agreement, which obligation has
been secured by the pledge of a Gold Certificate for 10,601 Troy Ounces
.9999 pure (the "Gold Certificate") issued by a Nevada Real Estate Trust
(the "REIT") and Five Hundred Thousand Dollars ($500,000) per month
thereafter until the entire purchase price has been paid.
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In order to preserve working capital, the Company has reduced the number of
its employees, deferred or delayed the payment of certain accounts payable,
and reduced operating and capital expenditures. To fund operations during
the first nine months of fiscal 1999, the Company (i) issued 1,456,500
shares of its Common Stock for services and to settle certain accounts
payable, (ii) issued 250,000 shares of its common stock in private
transaction for aggregate proceeds of $297,500, (iii) issued 3,000,000
restricted shares of its common stock in connection with a potential
acquisition, and (iv) received advances of $443,080 from a credit facility
provided by the Company's Chairman.
The Company's sources and uses for financing during 1999 and beyond will
vary based upon a number of factors, some of which are outside the control
of the Company. These factors include; the success of the Company in
meeting its delivery requirements to MG Entertainment for the sale of up to
10,000 bingo machines; the potential sale of the El Rancho Property and
receipt of proceeds therefrom (Note 2); the ultimate realization of other
LVEN assets, and; potential legal and political issues. In addition, the
Company's business plans may change based on changes in technology, new
developments in the marketplace or unforeseen events which could require
the Company to raise additional funds. The unavailability of additional
funds under acceptable terms and conditions when needed could have a
material adverse effect on the Company.
The Company's significant operating losses and capital requirements raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments relating
to the recoverability of the recorded assets or the classification of the
liabilities that might be necessary should the Company not be able to
continue as a going concern.
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 nine-month period ended July 31, 1999 are not necessarily indicative of
the results that may be expected for the year ended October 31, 1999. 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, 1998.
Stock Split - On October 16, 1998, the stockholders of the Company ratified
a one for twenty reverse stock split of the shares of the Company's Common
Stock. All disclosures and applicable per share data have been
retroactively restated to reflect this reverse split.
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2. INVESTMENT IN AND ADVANCES TO INTERNATIONAL THOROUGHBRED BREEDERS INC.
On January 22, 1996, the Company sold the assets and liabilities of the El
Rancho Hotel and Casino in Las Vegas, Nevada (the "El Rancho" or "the
Property") to International Thoroughbred Breeders Inc. ("ITB") for
consideration of $43,500,000. The purchase price included the issuance of
an 8% promissory note in the principal amount of $10.5 Million. On May 22,
1997, the Company, ITB and its lender entered into certain agreements
whereby LVEN converted the $10.5 Million into 2,093,868 restricted shares
of ITB common stock.
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.
The plaintiffs sought, among other things, the recession of the issuance of
the 2,093,068 shares of ITB common stock to LVEN. On July 2, 1998, the
parties entered into a Stipulation and Agreement of Compromise, whereby all
prior agreements between or among LVEN and ITB pursuant to which ITB issued
to LVEN 2,093,868 shares of ITB Common Stock, were terminated and the
Company returned all such shares to ITB for cancellation. Upon return of
the shares on January 29, 1999, and in accordance with Financial Accounting
Standards Board Statement No. 115, the Company recognized a $2,400,00
non-cash loss during the first quarter of 1999 that had previously been
provided as a reduction in stockholders equity.
Pursuant to the Stipulation and Agreement, the Company obtained various
exclusive and non-exclusive rights for the period ending on April 19, 1999,
(the "Escrow Period") to effect a sale or refinancing of ITB's
non-operating El Rancho Hotel and Casino property in Las Vegas, Nevada,
under the terms and conditions set forth in the Stipulation and Agreement,
including the right of LVEN to receive certain excess sales proceeds. On
April 19, 1999, the Escrow Period terminated without the Company having
exercised its Disposition Rights, which Disposition Right thereby lapsed
and expired.
On August 16, 1999, the Company entered into a letter with Countryland USA,
an unrelated party, and a prospective buyer of the former El Rancho Hotel &
Casino property from ITB Corporation. The agreement provides that the
Company, upon the successful acquisition by Countryland USA will receive
certain compensation. The agreement between Countryland USA and ITB did not
close as scheduled, and the parties are currently intervening to structure
a closing time frame that meets all parties needs. If this transaction is
not concluded, the Company will immediately issue an 8K and write off any
remaining amount associated with the El Rancho property.
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3. ACCRUED OFFICERS SALARY AND BENEFIT
As of October 31, 1998, Mr. Corazzi, the Chairman of the Board of the
Company, agreed to terminate any past or future amounts due him under his
retirement benefit in exchange for cash payment of $192,000 and the
issuance of 85,000 registered shares of common stock of the Company. These
shares were issued during the second fiscal quarter of 1999. The
termination of the retirement plan resulted in a gain of $125,000 which is
included in other income. Effective May 1, 1999 Mr. Corazzi agreed to
cancel his LVCC employment contract for 205,000 shares of the Company's
Common Stock. The termination of the employment contract with LVCC resulted
in a charge of $205,000 which is included in general and administrative
expenses.
During the three months ended July 31, 1999, Mr. Corazzi was issued 300,000
shares of the Company's common stock and Mr. Carl Sambus, the Company's
Chief Financial Officer was issued 100,000 shares of the Company's common
stock as a bonus for consideration of various transactions secured for the
Company. These shares have been valued at $450,000 and $150,000,
respectively. A portion of these shares must be returned to the Company if
the Company unwinds the transactions for any reason. In addition, all
previous stock options given to Mr. Corazzi have been canceled. The
4. LOAN PAYABLE, OFFICER
The Chairman of the Board has committed to provide a credit line to fund
working capital to fund operations. As of July 31, 1999, the Chairman has
made advances of $443,080. The advances are unsecured with no formal terms
of repayment.
5. CAPITAL STOCK TRANSACTIONS
During the nine months ended July 31, 1999, the Company issued 1,456,500
shares of its Common Stock in settlement for certain accounts payable. The
shares were valued at $1,841,520, the value of the accounts payable settled
or at the market price at the date of issuance (average price ranging from
$1.00 to $4.40 per share). Included in these shares were 590,000 shares
issued to the Chairman (Note 3) and177,000 shares issued to other officers
and directors.
During the nine months ended July 31, 1999, the Company sold, in private
transactions, 250,000 shares of its Common Stock for aggregate proceeds of
$297,500.
The Company entered into an acquisition agreement whereby the company
issued 3,000,000 restricted shares of its capital stock to each of six
different trusts in contemplation of closing (Note 6). The shares have been
valued at $3,000,000 and have been reflected as a deposit in the
accompanying balance sheet until such time as the Company closes the
transaction.
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6. OTHER MATTERS
Pending Acquisition
--------------------
On April 27, 1999, Casino Co. Ltda. ("CCL"), a wholly-owned subsidiary of
the Company, as buyer, and the principal shareholder (the "Seller") of
Sulmatic ("Sulmatic") entered into a document entitled Sales Contract (the
"Sales Contract"), pursuant to which CCL agreed to purchase from the Seller
the Seller's one-half interest in Sulmatic for a purchase price of Five
Million Five Hundred Thousand Dollars ($5,500,000). The remaining one-half
interest in Sulmatic, subject to a final contract, would be owned by L. G.
Cirsa, a manufacturer of gaming equipment.
Sulmatic is a Brazilian corporation which currently operates approximately
500 electronic gaming machines throughout Brazil, and has stated that it
intends to install an additional 500 machines by July 1, 1999. Under the
terms of the Sales Contract, CCL is required to pay Three Million Dollars
($3,000,000) forty five days from the date of a definitive agreement, which
obligation has been secured by the pledge of a Gold Certificate for 10,601
Troy Ounces .9999 pure (the "Gold Certificate") issued by a Nevada Trust
(the "Trust") and Five Hundred Thousand Dollars ($500,000) per month
thereafter until the entire purchase price has been paid. The closing of
the Sulmatic acquisition is subject to, among other things, the completion
of due diligence, the negotiation and execution of definitive documentation
and the obtaining of any required regulatory approvals, and financing.
In consideration of the pledge by the Trust of the Gold Certificate, and
the assignment by Trust to the Company of certain bank guarantees in the
aggregate face amount of Three Hundred Million Dollars ($300,000,000), the
Company issued 3,000,000 shares of the Company's restricted common stock to
six third party trusts. The shares have been valued at $3,000,000 and have
been reflected as a deposit in the accompanying balance sheet until such
time as the Company closes the transaction. In the event the transaction
does not close, the Company would receive Gold Certificate which is
currently valued at $3,000,000.
Nasdaq Status
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Based on information made available to the Company at the time of this
filing, the transaction between Countryland USA and ITB Corporation (see
Note 2) will be scheduled for a closing date prior to the end of the month
and that the transaction between ITB Corporation and Countryland USA will
be concluded. If the Company fails to conclude either this transaction or
the pending acquisition of a 50% interest in Sulmatic, the Company may no
longer meet the minimum net worth standards imposed by NASDAQ. If the
Company is not successful in meeting its NASDAQ listing, all trading
activity may be transferred to a bulletin board system until such time if
any the Company is able to re-list with NASDAQ.
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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.
RESULTS OF OPERATIONS
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 including real estate
redevelopment. The Company has also identified a major business opportunity for
the distribution of bingo machines in Brazil, when if implemented, for which
there can be no assurance, will substantially alter the direction of the
Company. The Company is also investigating other potential businesses for
acquisition in the entertainment, gaming, lodging, and communications
industries.
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
RESEARCH AND DEVELOPMENT expenses which relate to the development of voice,
video and data communication technology decreased $273,887 to $16,250 during the
three-months ended July 31, 1999 as compared to $290,137 in the corresponding
period in 1998. The majority of the costs related to the payment of consulting
fees paid to individuals developing technology to be used in the Company's
intended telephone operations in Brazil.
GENERAL AND ADMINISTRATIVE expenses increased $235,146 to $1,237,169 during
the three-months ended July 31, 1999 as compared to $1,002,023 in the
corresponding period in 1998. The increase related mostly to the issuance of
300,000 shares of common stock to Mr. Joseph Corazzi, the Company's Chairman of
the Board and 100,000 shares of common stock issued to Mr. Carl Sambus, the
Company's President, as bonus payments in consideration of various transactions
secured for the Company. These shares were valued at $600,000. This increase
was offset by a decrease of (i) $159,000 in legal and professional fees
incurred during the three month period ending July 31, 1999 as compared to the
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prior period in 1998, (ii) a decrease of $165,000 in travel and entertainment
costs during the three month period ending July 31, 1999 as compared to the
prior period in 1998, and (iii) a decrease of $85,000 in general and
administrative costs as compared to the prior period in 1998.
INTEREST INCOME AND EXPENSE. Interest income earned on cash balances and
marketable securities decreased $30,798 for the three-months ended July 31, 1999
as compared to the corresponding period in 1998. The decrease is consistent with
the decrease in the average cash and marketable securities outstanding during
the three-months ended July 31, 1999 as compared to the corresponding period in
1998. The Company had realized and unrealized losses from marketable securities
of $27,400 during the three-months ended July 31, 1999 compared to a loss of
$13,310 in the comparable period in 1998. Interest expense and finance costs
decreased $21,148 to $364 for the three-months ended July 31, 1999 as compared
to $21,512 for the corresponding period in 1998. The decrease is due to the
reduction in average outstanding indebtedness for the three months ended July
31, 1999 as compared to the corresponding period in 1998.
Other Income and Charges for the three months ended July 31, 1998 consisted
of a $155,000 charge that resulted from assignment of the Company's debt from
Nordic Gaming to a third party. There were no such costs for the corresponding
period in 1999.
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
RESEARCH AND DEVELOPMENT expenses which relate to the development of voice,
video and data communication technology decreased $253,564 to $108,250 during
the nine-months ended July 31, 1999 as compared to $361,814 in the corresponding
period in 1998. The majority of the costs related to the payment of consulting
fees paid to individuals developing technology to be used in the Company's
intended telephone operations in Brazil.
WRITE-DOWNS AND RESERVES for the nine-months ended July 31, 1999 consists
of a charge of $2,400,000. This charge relates to the effectiveness of the
Settlement Agreement between LVEN and ITB, whereby the agreement pursuant to
which ITB issued to LVEN 2,093,868 shares of ITB Common Stock was terminated and
the Company returned all such shares to ITB for cancellation. In return, the
Company received certain rights in the El Rancho Property including the
conditional right to sell such property. Upon return of the shares on January
29, 1999, and in accordance with Financial Accounting Standards Board Statement
No. 115, the Company recognized a $2,400,00 non-cash loss that had previously
been provided as a reduction in stockholders equity.
GENERAL AND ADMINISTRATIVE expenses increased $412,513 to $2,793,914 during
the nine-months ended July 31, 1999 as compared to $2,381,401 in the
corresponding period in 1998. The increase related mostly to an increase of
(i) $507,000 in wages and salaries relating mostly to the value of the issuances
of stock to Mr. Corazzi and Mr. Sambus as a bonus for their services in securing
certain transactions for the Company, and (ii) $91,000 in legal and professional
fees incurred during the nine month period ending July 31, 1999 as compared to
the prior period in 1998. This increase was offset by decreases of $270,000 in
travel and entertainment costs during the nine-month period ending July 31, 1999
as compared to the prior period in 1998. The majority of these decreases relate
to reduced operating and capital expenditures in order to preserve working
capital of the Company.
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INTEREST INCOME AND EXPENSE. Interest income earned on cash balances and
marketable securities decreased $118,585 to $5,763 for the nine-months ended
July 31, 1999 as compared to $124,348 for the corresponding period in 1998. The
decrease is consistent with the decrease in the average cash and marketable
securities outstanding during the nine-months ended July 31, 1999 as compared to
the corresponding period in 1998. Interest expense and finance costs decreased
$57,018 to $3,269 for the nine-months ended July 31, 1999 as compared to $60,287
for the corresponding period in 1998. The decrease is due to the reduction in
average outstanding indebtedness for the nine months ended July 31, 1999 as
compared to the corresponding period in 1998.
OTHER INCOME AND CHARGES for the nine months ended July 31, 1999 consists
mainly of a gain on the extinguishment of the retirement plan for Mr. Joseph
Corazzi, the Chairman of the Board of the Company. Other Income and Charges for
the nine months ended July 31, 1998 consisted of a $445,000 charge related to
the forfeiture of an airplane deposit made on behalf of Nordic Gaming, and a
$275,000 charge that resulted from the assignment of the Company's debt from
Nordic Gaming to a third party.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements for the six months ended July 31, 1999
have been prepared on a going concern basis which contemplates the realization
of assets and liabilities in the normal course of business. For the six months
ended July 31, 1999 and the year ended October 31, 1998, the Company experienced
net losses of $5,282,136 and $4,754,530, respectively, and has experienced
operating losses since its inception. The Company anticipates that it will
continue to experience significant losses and cash flow needs as it continues
working on its development plans. The Company's capital requirements have been
and will continue to be significant. As a result, and until financing
arrangements have been finalized, the Company's independent auditors have
expressed substantial doubt about the Company's ability to continue as a going
concern.
Cash Requirements. The Company's capital requirements have been and will
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continue to be significant. 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. At July 31, 1999, the Company
had cash and cash equivalents of $177,619 and trading securities of $19,977. The
Company's current monthly operating cash requirements are approximately $50,000
to $75,000, composed of general and administrative expenses, salary and
consulting fees, legal and professional fees, marketing and travel costs. In
addition, the Company may be required to fund, or obtain financing for; (i) 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, and
(ii) $5,500,000 to fund the acquisition of a fifty percent interest in Sulmatic,
a Brazilian corporation which currently operates approximately 500 electronic
gaming machines throughout Brazil. Under the terms of the Sales Contract, the
Company is required to pay Three Million Dollars ($3,000,000) forty five days
from the date of a definitive agreement, which obligation has been secured by
the pledge of a Gold Certificate for 10,601 Troy Ounces .9999 pure(the "Gold
Certificate") issued by a Nevada Real Estate Trust (the "REIT") and Five Hundred
Thousand Dollars ($500,000) per month thereafter until the entire purchase price
has been paid.
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In order to preserve working capital, the Company has reduced the number of its
employees, deferred or delayed the payment of certain accounts payable, and
reduced operating and capital expenditures. To fund operations during the first
six months of fiscal 1999, the Company (i) issued 1,456,500 shares of its Common
Stock for services and to settle certain accounts payable, (ii) issued 250,000
shares of its common stock in private transaction for aggregate proceeds of
$297,500, and (iii) received advances of $443,079 from a credit facility
provided by the Company's Chairman.
The Company's sources and uses for financing during 1999 and beyond will
vary based upon a number of factors, some of which are outside the control of
the Company. These factors include; the success of the Company in meeting its
delivery requirements to MG Entertainment for the sale of up to 10,000 bingo
machines; the potential sale of the El Rancho Property and receipt of proceeds
therefrom; the ultimate realization of other LVEN assets, and; potential legal
and political issues. In addition, the Company's business plans may change
based on changes in technology, new developments in the marketplace or
unforeseen events which could require the Company to raise additional funds.
The unavailability of additional funds under acceptable terms and conditions
when needed could have a material adverse effect on the Company.
Notes Receivable.
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As of July 31, 1999, the Company 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, of which $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 July 31,
1999.
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PART 11. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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The Company has filed an action against American Pastime West ("APW") seeking
among other things to collect advance deposits it made to APW, and seeking
clarification of any APW rights pertaining to the Stipulation Agreement and the
sale of the El Rancho. The matter is still pending and the Company intends to
vigorously pursue its rights.
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
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On February 14, 1999, the Company caused to be registered 2,000,085 shares of
its common stock under the Securities Act of 1933, as amended, pursuant to Form
S-8. These shares were registered and available to be issued to officers,
directors, employees and consultants, pursuant to the Company's 1999 Stock
Compensation Plan (the "Plan"). Since adoption of the Plan, through
approximately July 31, 1999, the Company issued approximately 1,459,000 shares
of common stock pursuant to the Plan.
The Company sold in private transactions 250,000 shares of its Common Stock for
aggregate proceeds of $297,500. The Company has also issued 3,000,000 shares of
its capital stock in connection with the pending acquisition of a one-half
interest in Sulmatic, a Brazilian Corporation.
As of October 31, 1998, the Company had 1,831,167 shares of common stock
outstanding. Based on the large number of shares issued under the Plan since
that date and other issuances for cash and acquisitions, such issuances could
have a material adverse effect on the trading price of the common stock of the
Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
On May 27, 1999, the Company filed a Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 to vote on ratifying the agreement to
purchase fifty percent (50%) of the voting shares of stock of Sulmatic
Administradora De Bens Ltd. ("Sulmatic") for the purchase price of Five Million
Five Hundred Thousand Dollars ($5,500,000). In exchange for issuance of 500,000
restricted shares of the Company's common stock to each of six trusts, the
Company will receive consideration of approximately Three Hundred Five Million
Dollars ($305,000,000)in the form of bank guarantees, gold certificates and
cash, which will be used to fund the Sulmatic acquisition and provide additional
financing for the Company's future expansion. The Shareholders ratified the
proposal on July 15, 1999.
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ITEM 5. OTHER INFORMATION
- ----------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------
None.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 22,1999
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By: /s/ Carl Sambus
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Carl Sambus
Executive Vice President and
Chief Financial Officer
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