<PAGE>
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: April 30,1999
[ ] 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)
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 3,362,167
Title of Class Number of Shares outstanding at
June 15, 1999
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 90,473 $ 553,525
TRADING SECURITIES 47,742 106,199
----------------------- -----------------------
TOTAL CURRENT ASSETS 138,215 659,724
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 $281,029 (1999) and $259,547(1998) 68,219 89,404
OFFICERS ADVANCES - Note 3
DEPOSITS AND OTHER - 56,652
----------------------- -----------------------
$ 3,806,434 $ 4,405,780
======================= =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 241,098 $ 308,181
LOAN PAYABLE, OFFICER - Note 4 268,392
----------------------- -----------------------
TOTAL CURRENT LIABILITIES 509,490 308,181
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 2,799,667 SHARES (1999)
AND 1,831,167 (1998) 55,990 36,620
ADDITIONAL PAID-IN CAPITAL 49,535,020 48,459,312
LONG TERM INVESTMENT RESERVE (2,400,000)
DEFICIT (46,294,066) (42,292,712)
----------------------- -----------------------
TOTAL STOCKHOLDERS' EQUITY 3,296,944 3,803,220
----------------------- -----------------------
$ 3,806,434 $ 4,405,780
====================== =======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ $ -
------------------ ----------------- --------------- ---------------
COSTS AND EXPENSES
El Rancho Costs - Note 2 78,985 142,205
Research & Development 55,000 46,676 92,000 71,676
Loss on ITB Securities 2,400,000
General & Administrative 939,109 629,888 1,556,745 1,379,379
----------------- ----------------- --------------- ---------------
TOTAL COSTS AND EXPENSES 1,073,094 676,564 4,190,950 1,451,055
----------------- ----------------- --------------- ---------------
LOSS BEFORE OTHER
INCOME AND (CHARGES) (1,073,094) (676,564) (4,190,950) (1,451,055)
OTHER INCOME AND (CHARGES):
Interest Income (0) 35,739 5,361 93,148
Gain on Trading Securities 6,600 93,732 71,247 118,883
Other Income (Charges) 124,380 (567,548) 115,893 (576,799)
Interest and Finance Costs (351) (19,255) (2,905) (38,775)
----------------- ----------------- --------------- ---------------
TOTAL OTHER INCOME AND (CHARGES) 130,629 (457,332) 189,596 (403,543)
----------------- ----------------- --------------- ---------------
NET LOSS $ (942,465) $ (1,133,896) $ (4,001,354) $ (1,854,598)
================= ================= =============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 2,406,584 1,744,917 2,001,286 1,744,917
================= ================= =============== ===============
LOSS PER SHARE OF COMMON STOCK $ (.39) $ (0.65) $ (2.00) $ (1.06)
================= ================= =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
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 868,500 17,370 967,708 985,078
Sales of Common Stock 100,000 2,000 108,000 110,000
Loss on ITB Securities 2,400,000 2,400,000
Net Loss for the six months ended
April 30, 1999 (4,001,354) (4,001,354)
-------------- -------- ------------ ------------- ---------------- --------------
BALANCE - APRIL 30, 1999 2,799,667 $ 55,990 $ 49,535,020 $ - $ (46,294,066) $ 3,296,944
============= ========= ============ ============= ================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
LAS VEGAS ENTERTAINMENT NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
APRIL 30,
---------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (4,001,354) $ (1,854,598)
Gain from Marketable Securities (71,257) (118,883)
Loss on ITB Securities 2,400,000
Issuance of Stock for Services 985,078
Depreciation 21,482 33,311
Adjustments to reconcile net loss to net
cash used in operating activities:
Increase (Decrease) in;
Accounts Payable (67,083) 39,806
Interest Payable - 38,775
Accrued Officer's Salaries (419,843)
Accrued Officer's Benefits (294,379) 62,000
----------------- --------------
CASH USED IN OPERATING ACTIVITIES (1,027,513) (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
Collections 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 (296) (14,122)
----------------- --------------
CASH PROVIDED BY INVESTING ACTIVITIES 186,070 150,296
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Stock for Cash 110,000
Advances from Officer 268,392
Repayment of Notes (505)
----------------- --------------
CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 378,392 (505)
DECREASE IN CASH (463,050) (2,069,641)
CASH BALANCE - BEGINNING 553,525 2,399,491
----------------- --------------
CASH BALANCE - ENDING $ 90,473 $ 329,850
================= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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
----------
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 six months ended
April 30, 1999 and the year ended October 31, 1998, the Company experienced
net losses of $4,001,354 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 April 30, 1999, the Company
had cash and cash equivalents of $90,473 and trading securities of $47,742.
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, 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. 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 953,500 shares of its Common Stock for services and to settle
certain accounts payable, (ii) issued 100,000 shares of its common stock in
private transaction for aggregate proceeds of $110,000, and (iii) received
advances of $236,629 from a credit facility provided by the Company's
Chairman.
6
<PAGE>
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 unforseen 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 six-month period ended April 30, 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.
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, 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").
7
<PAGE>
On May 22, 1997, the Company, ITB and Credit Suisse First Boston Mortgage
entered into a certain Bi-lateral agreement and a certain Tri-lateral
agreement whereby 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. LVEN and ITB also agreed
that ITB would acquire the El Rancho Cash Flow Interest. 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 sought, among
other things, the recision of the issuance of the 2,093,068 shares of ITB
common stock to LVEN.
On July 2, 1998, LVEN and certain of its subsidiaries, Countryland
Properties, Inc.,Casino-Co Corporation, and Las Vegas Communications
Corporation, entered into a Stipulation and Agreement of Compromise,
Settlement and Release (the"Stipulation and Agreement") by and among the
Company and such subsidiaries, on the one hand, and ITB, ITB's Directors,
certain ITB shareholders and various related parties, on the other hand, to
resolve the pending stockholder derivative litigation brought in the name
of ITB in the Delaware Court of Chancery. Upon the effectiveness of the
Settlement as to LVEN, all prior agreements between or among LVEN and ITB,
including without limitation, that certain Bi-Lateral Agreement, and that
certain Tri-Party Agreement 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.
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. The Company has entered into a letter agreement with an
unrelated party, Countryland USA, the prospective buyer of the El Rancho
property from ITB Corporation. The agreement provides that the Company,
upon the successful acquisition by Countryland USA of the former El Rancho
Hotel & Casino property from ITB Corporation will be compensated a cash
fee. Upon the successful closing of the property, the Company will receive
a continuing interest in the El Rancho Hotel & Casino property for
assisting in securing the financing necessary for the project. ITB has
agreed substantially to the terms upon which it will sell its interest in
the El Rancho property to Countryland USA, although no final purchase and
sale contract has been entered into. Additionally, the Company is informed
that Countryland USA has substantially concluded agreements with a lender
that has provided a bank account number for proof of funds of $354,000,000
to be used for the re-development of the property. The agent for the lender
and Countryland USA have informed the Company that they are in the final
stages of securing an insurance policy to cover the loan agreement. This
insurance policy is a requirement of closing. The Company has been informed
that the transaction will be scheduled for closing prior to the end of the
month although there is no assurance that this transaction will be
concluded. If this transaction is not concluded, the Company as presented
in its 8K filing will immediately issue a new 8K and, in the third quarter,
write off any remaining amount associated with the El Rancho property.
8
<PAGE>
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 Compan. Mr.
Corazzi, effective May 1, 1999, has agreed to cancel his LVCC employment
contract for 205,000 shares of the Company's Common Stock. These shares
were issued during the second fiscal quarter of 1999. The termination of
the employment contract with LVCC resulted in a charge of $205,000 which is
included in other income. Subsequent to April 30, 1999, Mr. Corazzi was
issued another 300,000 shares and Mr. Sambus was issued 100,000 shares as
bonus payments for consideration of various transactions secured for the
Company. 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.
4. Loan Payable, Officer
The Chairman of the Board has committed to provide a $250,000 credit line
to fund working capital to fund operations. As of April 30, 1999, the
Chairman has made advances of $268,392. The advances are unsecured with
repayment due from excess working capital.
5. Capital Stock Transactions
During the six months ended April 30, 1999, the Company issued 868,500
shares of its Common Stock in settlement for certain accounts payable. The
shares were valued at $985,078, the value of the account 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 375,000 shares
issued to the Chairman (Note 3) and 82,000 shares issued to other officers
and directors. Subsequent to April 30, 1999, an additional 300,000 shares
were issued to the Chairman and 100,000 shares issued to another officer
and director. Mr. Corazzi also loaned 82,000 of his shares to a vendor of
the Company and was subsequently repaid those shares by the Company.
During the six months ended April 30, 1999, the Company sold, in a private
transaction, 100,000 shares of its Common Stock for aggregate proceeds of
$110,000.
The Company has entered into an acquisition agreement that is subject to
stockholder approval, whereby the Company may issue up to 500,000
additional shares of its capital stock to each of six different trusts
(Note 6).
6. Other Matters
Potential 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
9
<PAGE>
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 has agreed to issue upon closing of the acquisition 500,000 shares
of the Company's restricted common stock to each of the six third party
trusts, subject to stockholder approval.
Nasdaq Status
-------------
Based on information made available to the Company at the time of this 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 proposed
acquisition of a 50% interest in Sulmatic pursuant to the proxy presented
to the shareholders for vote, 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.
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.
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 April 30, 1999 compared to three months ended April 30, 1998
Research and Development expenses which relate to the development of voice,
video and data communication technology increased $8,324 to $55,000 during the
three-months ended April 30, 1999 as compared to $46,676 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 $327,162 to $939,109 during
the three-months ended April 30, 1999 as compared to $629,888 in the
corresponding period in 1998. The increase related mostly to an increase of
$328,000 in legal and professional fees and $115,000 in management salaries
incurred during the three month period ending April 30, 1999 as compared to the
11
<PAGE>
prior period in 1998. These fees related mostly to financing fees incurred in
attempting to obtaining financing for the Company's various projects. This
increase was offset by decreases of $35,000 in travel and entertainment costs,
$40,000 in wages, salaries and retirement benefits and $13,000 in general costs
during the three month period ending April 30, 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.
Interest Income and Expense. Interest income earned on cash balances and
marketable securities decreased $35,739 for the three-months ended April 30,
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 April 30, 1999 as compared to the corresponding
period in 1998. The Company had realized and unrealized gains from marketable
securities of $6,600 during the three-months ended April 30, 1999 compared to a
gain of $93,732 in the comparable period in 1998. Interest expense and finance
costs decreased $18,904 to $351 for the three-months ended April 30, 1999 as
compared to $19,255 for the corresponding period in 1998. The decrease is due to
the reduction in average outstanding indebtedness for the three months ended
April 30, 1999 as compared to the corresponding period in 1998.
Other Income and Charges for the three months ended April 30, 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 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.
Six months ended April 30, 1999 compared to six months ended April 30, 1998
Research and Development expenses which relate to the development of
voice, video and data communication technology increased $20,324 to $92,000
during the six-months ended April 30, 1999 as compared to $71,676 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 six-months ended April 30, 1999 consists
of a charge of $2,400,000. This charge relates to the expiration of the
Company's rights in accordance with 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
$2,400,000 non-cash loss that previously had been provided as a reduction to
shareholders equity.
General and Administrative expenses increased $177,366 to $1,556,745
during the six-months ended April 30, 1999 as compared to $1,379,379 in the
corresponding period in 1998. The increase related mostly to an increase of
$350,000 in legal and professional fees incurred during the six month period
ending April 30, 1999 as compared to the prior period in 1998. These fees
related mostly to financing fees incurred in attempting to obtaining financing
for the Company's various projects. This
12
<PAGE>
increase was offset by decreases of $104,000 in travel and entertainment costs,
$62,000 in wages, salaries and retirement benefits and $57,000 in general costs
during the six month period ending April 30, 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.
Interest Income and Expense. Interest income earned on cash balances and
marketable securities decreased $87,787 to $5,361 for the six-months ended April
30, 1999 as compared to $93,148 for the corresponding period in 1998. The
decrease is consistent with the decrease in the average cash and marketable
securities outstanding during the six-months ended April 30, 1999 as compared to
the corresponding period in 1998. The Company had realized and unrealized gains
from marketable securities of $82,075 during the six-months ended April 30, 1999
compared to a gain of $118,883 in the comparable period in 1998. Interest
expense and finance costs decreased $35,871 to $2,905 for the six-months ended
April 30, 1999 as compared to $38,775 for the corresponding period in 1998. The
decrease is due to the reduction in average outstanding indebtedness for the six
months ended April 30, 1999 as compared to the corresponding period in 1998.
Other Income and Charges for the six months ended April 30, 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 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.
Liquidity and Capital Resources
The Company's financial statements for the six months ended April 30, 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 April 30, 1999 and the year ended October 31, 1998, the Company
experienced net losses of $4,001,354 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 flow
shortages 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
-----------------
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 April 30, 1999, the Company
had cash and cash equivalents of $90,473 and trading securities of $47,742. 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
13
<PAGE>
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.
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 868,500 shares of its Common
Stock for services and to settle certain accounts payable, (ii) issued 100,000
shares of its common stock in private transaction for aggregate proceeds of
$110,000, and (iii) received advances of $236,629 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 unforseen
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.
- ----------------
As of April 30, 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 April 30,
1999.
14
<PAGE>
PART 11. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
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
- -----------------------------
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 April 30, 1999, the Company issued approximately 868,500 shares of
Common Stock pursuant to the Plan. Subsequent to April 30, 1999, the Company has
issued another 513,000 shares pursuant to the plan.
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, such issuances could have a material adverse
effect on the trading price of the common stock of the Company.
The Company sold in a private transaction 100,000 shares of its Common Stock for
aggregate proceeds of $110,000. The Company has also entered into an acquisition
agreement that is subject to stockholder approval, whereby the Company may issue
up to 500,000 additional shares of its capital stock to each of the six trusts
upon closing of the acquisition.
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
15
<PAGE>
financing for the Company's future expansion.
ITEM 5. OTHER INFORMATION
- -------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
On April 19, 1999, the Company filed a Current Report on Form 8K Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report to
report i) the expiration of the Company's rights in El Rancho Property under the
Settlement Stipulation, ii) the potential acquisition of a one-half interest in
Sulmatic, a Brazilian Corporation, and iii) the issuance of stock pursuant to
Form S-8.
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 23, 1999
----------------------------
By: /s/ Carl Sambus
----------------------------
Carl Sambus
Executive Vice President and
Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APRIL 99
- - 10QSB - AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1999
<PERIOD-START> FEB-01-1999 FEB-01-1999
<PERIOD-END> APR-30-1999 APR-30-1999
<CASH> 90,473 0
<SECURITIES> 47,742 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 138,215 0
<PP&E> 68,219 0
<DEPRECIATION> 281,029 0
<TOTAL-ASSETS> 3,806,434 0
<CURRENT-LIABILITIES> 509,490 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2,799,667 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,806,434 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 1,073,094 4,190,950
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 351 2,905
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (942,465) (4,001,354)
<EPS-BASIC> 0 0
<EPS-DILUTED> (.39) (2.00)
</TABLE>
