-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HUFBXmwZyc0ZGbJR9hFqiuRlEwd3Ro1oFgVapY6HBAKbTvkExIgohlMZPliLNP/K FiRni1ekRsPMgp5XrhYnJw== 0001002334-98-000045.txt : 19980323 0001002334-98-000045.hdr.sgml : 19980323 ACCESSION NUMBER: 0001002334-98-000045 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980319 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAS VEGAS ENTERTAINMENT NETWORK INC CENTRAL INDEX KEY: 0000872588 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 943125854 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21278 FILM NUMBER: 98568881 BUSINESS ADDRESS: STREET 1: 1801 CENTURY PK E 23RD FL STREET 2: STE 2300 CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3105510011 MAIL ADDRESS: STREET 1: 1801 CENTURY PARK EAST STREET 2: 23RD FLOOR CITY: LAS ANGELES STATE: CA ZIP: 90067 10QSB 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended : January 31, 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 March 16, 1998 DOCUMENTS INCORPORATED BY REFERENCE: NONE LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 31, October 31, 1998 1997 ---- ---- (UNAUDITED) CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 1,125,224 $2,399,491 TRADING SECURITIES 1,133,647 1,087,890 ----------- ----------- TOTAL CURRENT ASSETS 2,258,871 3,487,381 INVESTMENT IN & ADVANCES TO INTERNATIONAL THOROUGHBRED BREEDERS INC. - Note 2 3,604,564 3,604,564 INVESTMENT IN AND ADVANCES TO NORDIC GAMING - Note 3 1,247,548 1,047,548 OTHER INVESTMENTS & ADVANCES 100,000 100,000 PROPERTY AND EQUIPMENT net of accumulated depreciation of $208,538 (1998) and $192,509 (1997) 125,803 141,536 DEPOSITS AND OTHER 1,401,840 1,389,893 ---------- --------- $ 8,738,626 $9,770,922 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES ACCOUNTS PAYABLE AND ACCRUED EXPENSES $510,372 $452,137 NOTES PAYABLE 775,248 775,753 ACCRUED INTEREST PAYABLE 173,874 154,354 ACCRUED OFFICER'S SALARY 63,041 482,885 --------- --------- TOTAL CURRENT LIABILITIES 1,522,535 1,865,129 ACCRUED OFFICER'S BENEFITS 394,000 363,000 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 (38,258,884) (37,538,182) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 6,822,091 7,542,793 ----------- ---------- $ 8,738,626 $ 9,770,922 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 1998 1997 ----- ---- REVENUES $ - $ 75,000 -------- --------- COSTS AND EXPENSES Research & Development 25,000 - General & Administrative 749,491 667,808 -------- --------- TOTAL COSTS AND EXPENSES 774,491 667,808 -------- --------- LOSS BEFORE OTHER INCOME AND (CHARGES) (774,491) (592,808) -------- --------- OTHER INCOME AND (CHARGES): Interest Income 57,409 123,571 Gain on Trading Securities 25,151 - Other Charges (9,251) (165,000) Interest and Finance Costs (19,520) (20,988) -------- --------- TOTAL OTHER INCOME AND (CHARGES) 53,789 (62,417) -------- --------- NET LOSS $ (720,702) $(655,225) ========== ========= WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING 34,898,349 34,898,349 =========== ========== LOSS PER SHARE OF COMMON STOCK $ (0.02) $ (0.02) =========== =========
The accompanying notes are an integral part of these consolidated financial statements. 3 LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) THREE MONTHS ENDED JANUARY 31, 1998
Preferred Stock Common Stock --------------- ------------ Unrealized 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 three months (720,702) (720,702) --------- -------- ----------- ------- ---------- ---------- ----------- --------- BALANCE - January 31, 1998 1,000,000 $ 1,000 34,898,349 $34,895 $47,445,080 ($2,400,000) $(38,258,884) $6,822,091 ========= ======== ========== ======== ========== =========== ============= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 LAS VEGAS ENTERTAINMENT NETWORK INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED)
THREE MONTHS ENDED JANUARY 31, ------------------------------ 1998 1997 ----- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (720,702) $(655,225) Gain from Marketable Securities (25,151) Depreciation 16,030 17,221 Adjustments to reconcile net loss to net cash used in operating activities: Increase (Decrease) in; Accounts Payable 58,235 36,803 Interest Payable 19,520 Accrued Officer's Salaries (419,843) (17,500) Accrued Officer's Benefits 31,000 31,000 ---------- --------- CASH USED IN OPERATING ACTIVITIES (1,040,911) (587,701) CASH FLOWS FROM INVESTING ACTIVITIES: Trading Securities (20,606) Advances to Nordic Gaming (200,000) Investments & Advances - Other (1,199,721) Increase in Deposits and Other (11,947) Acquisition of Property and Equipment (298) (2,045) Advances to NPD Inc. (2,922,933) ---------- --------- CASH USED IN INVESTING ACTIVITIES (232,851) (4,124,699) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Notes Payable (505) (278,022) Issuance of Options Payable 165,000 Interest Payable (6,513) ---------- --------- CASH USED IN FINANCING ACTIVITIES (505) (119,535) DECREASE IN CASH (1,274,267) (4,831,935) CASH BALANCE - BEGINNING 2,399,491 10,385,292 ---------- --------- CASH BALANCE - ENDING $1,125,224 $5,553,357 =========== =========== CASH PAID FOR Interest $ - $ 27,500 ========= ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 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 to be owned by the Company's majority owned subsidiary, Electric Media Company Inc. The Company is also investigating other potential businesses for acquisition in the entertainment, gaming, lodging, and communications industries. The Company's primary project to date was the renovation, expansion and redevelopment of the El Rancho Hotel & Casino located in Las Vegas, Nevada (the "El Rancho" or the "Property"), which was acquired on November 24, 1993. On January 22, 1996, the Company sold the El Rancho to 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 has 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 Las Vegas Entertainment Network Inc. (LVEN), and its wholly-owned subsidiaries; Las Vegas Communications Corp. ("LVCC"), Casino-Co Inc. 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 period ended January 31, 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. 2. INVESTMENT IN AND ADVANCES TO INTERNATIONAL THOROUGHBRED BREEDERS INC. Investments in and advances to International Thoroughbred Breeders Inc.("ITB") consist of the following as of January 31, 1998 and October 31, 1997; (A) Investment in ITB Stock $5,900,000 Less Valuation to Market (2,400,000) ----------- 3,500,000 (B) Advances to ITB 104,564 ----------- $3,604,564 =========== 6 (A) On January 22, 1996, the Company sold the assets and liabilities of the El Rancho Hotel and Casino (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) assumption 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 LVEN's 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. Management in the future may consider distributing all or a portion of these shares to the shareholders of the Company as a dividend. In accordance with certain regulatory and gaming commissions, 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. 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 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 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. (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. 7 3. INVESTMENTS AND ADVANCES TO NORDIC GAMING CORPORATION Investments and advances to Nordic Gaming Corporation consist of the following as of; January 31, October 31, 1998 1997 (A) Purchase Option and related Costs $ 1,000 $ 1,000 (B) Advances under line of credit Agreement 1,246,548 1,046,548 ----------- --------- $1,247,548 $1,047,548 ========== ========== (A) During 1997, the Company was granted an option to acquire from Mr. Nunzio P. DeSantis, the Chief Operating Officer of ITB, his eighty percent (80%) of the voting equity of Nordic Gaming Corporation, a Canadian corporation ("Nordic"). The Company's Chairman of the Board, Mr. Joseph A. Corazzi, as a bonus for services rendered in negotiating the potential acquisition of the operations of Nordic, may be allocated a portion of the ownership as agreed to by Mr. DeSantis and LVEN's Board of Directors. The remaining 20% of Nordic is owned by Canadian citizens not affiliated with the Company. On August 23, 1997, Nordic acquired certain real property and assets known as the "Fort Erie Racetrack" which is situated on 143 acres in Fort Erie, Ontario, Canada. Fort Eric Racetrack currently offers live, as well as simulcast, thoroughbred horse racing. Additionally, the racetrack has been notified by the Ontario Lottery Corporation that it is eligible to receive 621 video lottery terminals ("VLTs") and may receive an additional 130 VLTs or more based upon performance. However, before any of these VLTs are received, the racetrack and the Provincial Government of Ontario, Canada have to come to an agreement as to the percentage of the net revenues from the VLTs that can be kept by the race track. Furthermore, the Company and Nordic would have to obtain the necessary gaming licenses. The exercise price of the option, subject to further evaluation and appraisal is payable (i) $1,000,000 cash at closing, (ii) $2,600,000 payable in equal monthly installments of $100,000 commencing on the last date of the month on which the closing occurs, and (iii) upon exercise, the entire issuance of the Series A Preferred Stock shall be converted into that number of restricted shares of LVEN common stock equal to the positive difference between (a) eighty percent (80%) of the fair value of the Fort Erie Racetrack as set forth in a fairness opinion prepared by an investment banking firm and (b) $3,600,000 divided by (c) the average closing price of LVEN Common Stock for the twenty trading days proceeding the giving of the notice of exercise. However, it is the intention of LVEN to only exercise its option based upon its due diligence, a valuation of the ongoing operations of the property, the valuation of potential revenue from the addition of video lottery terminals, and the availability of financing. If the Company does exercise its option to acquire the 80% interest in Nordic, of which there can be no assurance, and if it decides to maintain full racing operations, it would be responsible for maintaining operations at the track through the end of the 1998 racing season which is currently projected at a cash flow deficit of approximately $2,000,000 for a seventy five day racing schedule, excluding any additional revenues that may be generated by the introduction of the VLTs. (B) The Company has advanced $1,246,548 to Nordic pursuant to a Line of Credit Agreement dated as of August 27, 1997, providing for advances of up to $1,300,000. Such advances, which are 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 notified Nordic that it will not fund any additional advances. 8 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 to be owned by the Company's majority owned subsidiary, Electric Media Company Inc. The Company is also investigating other potential businesses for acquisition in the entertainment, gaming, lodging, and communications industries. The Company initially developed, produced and distributed television programming featuring entertainment in Las Vegas, Nevada. The Company changed its focus to the gaming industry in 1993 with the acquisition of the El Rancho Hotel and Casino in Las Vegas, Nevada (the "El Rancho" or the "Property") for $36,500,000. On January 22, 1996, the Company sold the El Rancho to International Thoroughbred Breeders, Inc. ("ITB") for $43,500,000, consisting of cash, notes and assumption of debt. As part of the January 22, 1996 sale agreement with ITB (the "ITB Sales Agreement"), as subsequently amended, once the Property is opened and invested amounts have been recouped by ITB and the Company, which the Company can provide no assurance can be achieved, the Company will receive as additional consideration for entering into the ITB Sale Agreement a fifty percent (50%) interest in the adjusted cumulative cash flow (as defined) from the operation of the Property as so developed for a period of six (6) years following the opening of the Property and the commencement of operations, and thereafter a twenty-five percent (25%) interest in adjusted cash flow from operations until such time as it has received an aggregate of One Hundred Sixty Million Dollars ($160,000,000), but only after ITB and the Company first receive 100% of the adjusted cash flow until all invested amounts have been recouped. On May 22, 1997, LVEN converted the $10.5 Million receivable remaining from the sale of the El Rancho together with accrued interest thereon of $1.1 Million into 2,093,868 shares of restricted ITB common Stock. On May 22, 1997, LVEN and ITB also agreed, subject to approval of the Boards of Directors of both companies, that as soon as practicable, ITB would acquire LVEN's continuing interest in the adjusted cumulative cash flow (as defined) of the El Rancho (the "El Rancho Cash Flow Interest"), in consideration of which ITB would issue to LVEN that number of shares of ITB common stock 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 9 firm, divided by (ii) the average bid price for ITB Stock during the 20 trading days prior to the closing date. The shares are subject to certain restrictions as described below (see "Casino Operations, Investment in ITB"). On or about September 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 (See Legal Proceedings). Results of Operations - --------------------- Three Months Year Ended January 31, 1998 Compared to Three Months Ended January 31, 1997 - Revenues for the three months ended January 31, 1997 consisted of $75,000 of fees earned under an interim entertainment management agreement with ITB. There were no such fees earned during the corresponding period in 1998. General and Administrative expenses increased $81,683 to $749,491 during the three months ended January 31, 1998 as compared to $667,808 in the corresponding period in 1997. The majority of the increase related to an increase in legal and accounting costs which increased $66,000 to $130,000 for the three months ended January 31, 1998 as compared to $64,000 for the corresponding 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 $66,163 to $57,408 for the three months ended January 31, 1998 as compared to $123,571 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 January 31, 1998 as compared to the corresponding period in 1997. Interest Expense for the three months ended January 31, 1998 remained consistent with the corresponding period in 1997 as the average indebtedness outstanding during the periods remained consistent. Other Income and Charges for the three months ended January 31, 1997 included a charge of $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). There were no such transactions for the three months ended January 31, 1998. Liquidity and Capital Resources - ------------------------------- The Company has experienced operating losses since its inception. For the three month period ended January 31, 1998 and the fiscal year ended October 31, 1997, the Company experienced net losses of $720,702 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 after 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. 10 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, and travel costs. The Company is also responsible for managing and paying the operating costs of the Property, but is reimbursed by ITB on a monthly basis for these costs in amounts sufficient to cover the company's cash outlay, which currently approximates $30,000 per month but may increase to a greater amount if renovation of this property begins. In addition to the above, (i) the Company is evaluating funding $500,000 of general start up costs for its EMC projects, and may be required to fund additional amounts if the field tests prove successful, and (ii) if the Company elects to exercise its option to acquire Nordic Gaming and elects to maintain current track operations the at Fort Erie Racetrack, the track would operate at a projected annual cash flow deficit of approximately $2,000,000, excluding any cost saving measures that maybe implemented by the Company. As of January 31, 1998, the Company had advanced $1,246,548 to Nordic pursuant to a Line of Credit Agreement dated as of August 27, 1997, providing for advances of up to $1,300,000. Such advances, which are 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. If the Company exercises its option, the Company will use its best efforts to engage an investment banking firm to raise up to $35 Million (which the Company can give no assurance will be achieved) in order to develop the Fort Erie Racetrack property over a twenty-four month period into an entertainment destination that would supplement any introduction of video lottery or other gaming activities. As of January 31, 1998, the Company had approximately $2,258,000 in cash and marketable securities and believes that its current cash and receivables, including the expected repayment of all advances made to Nordic Gaming by August 1998, will be sufficient to meet its cash requirements for the next 12 months, as well as the repayment of existing debt of $775,000 at January 31, 1998. However, Nordic currently does not have the current source of cash to repay its obligations to LVEN, and any repayment of this advance would have to come from future operations, or from additional financing Nordic may obtain. 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 acquire the 80% interest in Nordic Gaming Corporation and to develop the technology to be owned by the Company's majority owned subsidiary, Electric Media Company Inc. There can be no assurance that additional financing will be available to the Company on acceptable terms, or at all. In addition, the Company does not currently meet the new listing standards for maintenance of the Company's securities on Nasdaq's SmallCap Market, which new standards became effective in February 1998. Although the Company intends to seek to comply with the new maintenance criteria for continued listing, if the Company should be unable to meet these criteria, it is possible that its securities could be de-listed from the Nasdaq SmallCap Market, which might result in the Company having difficulty in placing its securities with prospective investors. Notes Receivable. - ---------------- As of January 31, 1998, the Company has the following outstanding notes receivable; As of January 31, 1998, the Company had advanced $1,246,548 to Nordic Gaming Corporation pursuant to a Line of Credit Agreement dated as of August 27, 1997, providing for advances of up to $1,300,000. Such advances, which are 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. The Company has notified Nordic that it will not fund any additional advances. As of January 31, 1998, the Company has 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 shall be returned to the Company upon the earlier of; (i) receipt of any permanent financing relating to the Fort Erie Racetrack, (ii) any other capital infusion of $1,000,000 or more, or (iii) at the expiration of the aircraft leasing agreement which expires in September 2004. In the event of default or other foreclosure, the entire amount of the cash collateral shall be deemed to have been loaned to Nordic Gaming upon the terms and conditions of the existing credit facility with them, and secured by the assets of the Fort Erie Racetrack. 11 As of January 31, 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 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 ($23,840 at January 31, 1998) will be returned to the Company at that time. As of January 31, 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 January 31, 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 January 31, 1998. 12 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. 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. 13 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 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. Date: March 17, 1998 By: /s/ Carl Sambus ---------------------------- Carl Sambus Executive Vice President and Chief Financial Officer (chief accounting officer and duly authorized officer) 15 EX-27 2 FDS --
5 0000872588 Las Vegas Entertainment Network Inc. 3-Mos Oct-31-1998 Jan-31-1998 1,125,224 1,133,647 0 0 0 2,258,871 334,331 208,538 8,738,626 1,522,535 0 0 1,000 34,895 47,445,080 8,738,626 0 0 0 774,491 9,251 0 19,520 (720,702) 0 (720,702) 0 0 0 (720,702) ($.02) ($.02)
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