-----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, Ao08q1ICQxnkBUg5Mj3yLVmZRsb+E4XydhUE7M9rzNDlJeVDHA/g9/sEmZJez2ap Ve2keKUNDL43sEdw36JbPQ== 0001019056-00-000296.txt : 20000516 0001019056-00-000296.hdr.sgml : 20000516 ACCESSION NUMBER: 0001019056-00-000296 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LATIN AMERICAN CASINOS INC CENTRAL INDEX KEY: 0000880242 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 650159115 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19709 FILM NUMBER: 631972 BUSINESS ADDRESS: STREET 1: 200 NE 164TH ST CITY: NORTH MIAMI BEACH STATE: FL ZIP: 33162 BUSINESS PHONE: 3057561000 MAIL ADDRESS: STREET 1: 200 NE 164TH ST CITY: N MIAMI BEACH STATE: FL ZIP: 33162 10QSB 1 FORM 10-QSB LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES REVIEW REPORT AS OF MARCH 31, 2000 LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONTENTS Accountants' Review Report 1 Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 2 Consolidated Statements of Changes in Stockholders' Equity for the Three months ended March 31, 2000 and and Year Ended December 31, 1999 3 Consolidated Statements of Operations for the Three months Ended March 31, 2000 and 1999 4 Consolidated Statements of Cash Flows for the Three months Ended March 31, 2000 and 1999 5 Notes to Consolidated Financial Statements as of March 31, 2000 and December 31, 1999 6-13 ACCOUNTANTS' REVIEW REPORT To the Board of Directors of: Latin American Casinos, Inc. and Subsidiaries We have reviewed the accompanying consolidated balance sheet of Latin American Casinos, Inc. and Subsidiaries as of March 31, 2000, and the related consolidated statements of operations, changes in stockholder's equity and cash flows for the three months ended March 31, 2000 and 1999, in accordance with the Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Latin American Casinos, Inc. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. The balance sheet for the year ended December 31, 1999 was audited by us and we expressed an unqualified opinion on it in our report dated March 31, 2000, but we have not performed any auditing procedures since that date. Shubitz Rosenbloom & Co., P.A. Miami, Florida May 4, 2000
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF THE THREE MONTHS ENDED MARCH 31, 2000 AND DECEMBER 31, 1999 ASSETS March 31 December 31, 2000 1999 ----------- ----------- CURRENT ASSETS Cash and Cash Equivalents $ 639,887 $ 800,223 Accounts Receivable, Less $150,000 of Allowance for Doubtful Accounts in 2000 and 1999 1,589,294 1,591,399 Inventory 628,136 645,172 Prepaid Expenses and Other Current Assets 191,992 212,429 ----------- ----------- Total Current Assets 3,049,309 3,249,223 ----------- ----------- PROPERTY AND EQUIPMENT - NET 4,328,090 4,568,008 ----------- ----------- OTHER ASSETS Financing Arrangement Receivable 94,624 94,624 Deposits 11,609 11,609 Note Receivable - Stockholder 115,000 115,000 Other Assets 16,964 25,925 ----------- ----------- Total Other Assets 238,197 247,158 ----------- ----------- TOTAL ASSETS $ 7,615,596 $ 8,064,389 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 167,965 $ 191,650 Foreign Income Tax Payable -- -- ----------- ----------- Total Current Liabilities 167,965 191,650 ----------- ----------- COMMITMENTS AND CONTINGENCIES -- -- ----------- ----------- Total Liabilities 167,965 191,650 ----------- ----------- STOCKHOLDERS' EQUITY Common Stock, $.00067 Par Value 15,000,000 Shares Authorized, 3,300,000 Shares Issued 3,296,600 Shares Outstanding and 3,400 Shares held as Treasury Stock 2,211 2,211 Additional Paid-In Capital 9,919,557 9,919,557 Cumulative Other Comprehensive Income (Loss (535,105) (415,193) Retained Earnings (Deficit) (1,933,797) (1,628,601) Treasury Stock, at cost (5,235) (5,235) ----------- ----------- Total Stockholders' Equity 7,447,631 7,872,739 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,615,596 $ 8,064,389 =========== ===========
Read accountants' review report and notes to financial statements. - 2 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND FOR THE YEAR ENDED DECEMBER 31, 1999 Common Stock ------------------------- Number Par Additional Cumulative Retained of Value Paid-In Comprehensive Earnings Treasury Shares $.00067 Capital Income (Loss) (Deficit) Stock ----------- ----------- ----------- ----------- ----------- ----------- BALANCE JANUARY 1,1999 3,300,000 $ 2,211 $ 9,919,557 ($ 517,151) ($ 122,309) $ 5,235 ADJUSTMENT FOR FOREIGN CURRENCY TRANSLATIONS -- -- -- 101,958 -- -- NET LOSS FOR THE YEAR ENDED DECEMBER 31, 1999 -- -- -- (1,506,292) _- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE DECEMBER 31, 1999 3,300,000 2,211 9,919,557 (415,193) (1,628,601) 5,235 ADJUSTMENT FOR FOREIGN CURRENCY TRANSLATIONS -- -- -- (119,912) -- -- NET LOSS FOR THE THREE MONTHS ENDED MARCH 31, 2000 $ -- -- -- -- (305,196) -- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE MARCH 31, 2000 $ 3,300,000 $ 2,211 $ 9,919,557 ($ 535,105) ($1,933,797) $ 5,235 =========== =========== =========== =========== =========== =========== Read accountants' review report and notes to financial statements. - 3 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE MONTHS ENDED MARCH 31, 2000 AND 1999 2000 1999 ----------- ----------- REVENUES Rental Income $ 240,146 608,361 Sales of Cigars 24,301 1,059 ----------- ----------- Total Revenues 264,447 609,420 ----------- ----------- COSTS AND EXPENSES Selling, General & Administration 527,852 452,885 Depreciation 32,847 52,500 Costs of Cigar Sales 19,783 850 ----------- ----------- Total Cost and Expenses 580,482 506,235 ----------- ----------- OPERATING INCOME (LOSS) (316,035) 103,185 Interest Income 10,839 30,107 ----------- ----------- Income (Loss) Before Income Taxes And Extraordinary Item (305,196) 133,292 Income Taxes (Provision) Benefit -- 57,000 ----------- ----------- Income (Loss) Before Extraordinary Item (305,196) 76,292 Utilization of Net Operating Losses and Foreign Tax Credits -- 40,000 ----------- ----------- Net Income (Loss) ($ 305,196) $ 116,292 =========== ----------- EARNINGS (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT Common Share Equivalent Outstanding 3,296,600 3,446,475 =========== =========== Net Income (Loss) ($ .09) $ .03 =========== =========== Read accountants' review report and notes to financial statements. -4- LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) ($ 305,196) $ 116,292 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 32,847 52,500 Changes in Assets - (Increase) Decrease: Accounts Receivable 2,105 (79,957) Prepaid Expenses and Other Current Assets 20,437 44,237 Inventory of Cigars 17,036 (45,711) Changes in Liabilities - Increase (Decrease): Accounts Payable and Accrued Expenses (23,684) (114,087) Foreign Income Tax Payable -- (11,707) ----------- ----------- Net Cash Provided by (Used In) Operating Activities (256,455) (38,433) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Change in Property and Equipment 207,070 (155,637) Other Assets 8,961 (603) ----------- ----------- Net Cash Provided By (Used by)Investing Activities 216,031 (156,240) ----------- ----------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (119,912) 16,754 ----------- ----------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (160,336) (177,919) CASH AND CASH EQUIVALENTS - BEGINNING 800,223 1,567,773 ----------- ----------- CASH AND CASH EQUIVALENTS - ENDING $ 639,887 $ 1,389,854 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: Cash Paid During the Period for: Interest $ -- $ -- =========== =========== Income Taxes, Foreign $ -- $ 28,707 =========== =========== Read accountants' review report and notes to financial statements. - 5 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BUSINESS AND ORGANIZATION Latin American Casinos, Inc. (formerly Repossession Auction, Inc.) is a Delaware corporation incorporated on September 19, 1991. In 1994 the company started in the gaming and casino business, primarily in Peru and other Latin American countries renting casino type slot machines. In 1994 the company formed a Peruvian subsidiary; in 1995 the company formed a Colombian subsidiary and in 1997 the company formed a subsidiary in Nicaragua that are in the gaming and casino business in Latin America. The operations include the renting of casino slot machines to casino operators. As of March 31, 2000 the company had acquired approximately 8,000 slot machines, approximately 3,000 of which have been acquired for parts and other related equipment, at a total cost of $4,532,304 including applicable costs for transportation, duty and refurbishing (See note 10). B PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries, Latin American Casinos Del Peru S.A. (formally known as Latin American Casinos, Inc. S.A.) a Peruvian Corporation, Latin American Casinos of Colombia LTPA, a Colombian Corporation, and Latin American Casinos of Nicaragua. Effective September 23, 1997 the company incorporated World's Best Rated Cigar Company (World) as a wholly-owned subsidiary of Latin American Casinos, Inc., to distribute quality cigars. In addition, Premium Cigar Manufacturers (Premium) was incorporated in 1998 as a wholly-owned subsidiary of Latin American Casinos, Inc. It was originally intended that World will market premium cigars at "off price" whereas Premium will acquire quality cigars from six South American producers and market them through large retail chains, initially on a consignment basis. Operations of these subsidiaries have been slower than originally anticipated. Included in revenues for the three months ended March 31, 2000 is approximately $24,000 of cigar sales. As of March 31, 2000 the company has expended approximately $1,125,000 primarily for start up costs and initial inventory acquisitions. Such expenditures have been included as $23,000 prepaid and other current assets, $628,000 as inventory and $119,000 as fixed assets in the accompanying financial statements. World's Best Rated Cigar Company had committed with a cigar manufacturer in South America to acquire a minimum number of cigars per month. The arrangement had extended for twenty years; however, with the delay in the commencement of the cigar operations, the purchase commitment was canceled. All material intercompany transactions, balances and profits have been eliminated. Read accountants' review report. - 6 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C PROPERTY AND EQUIPMENT Property and Equipment are stated at cost. Depreciation is provided on accelerated and straight-line methods over the estimated useful lives of the respective assets. Maintenance and repairs are charged to expense as incurred; major renewals and betterment's are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. D REVENUE RECOGNITION Revenue is recognized monthly on the rental of slot machines as the slot machines are placed in service. E STATEMENT OF CASH FLOWS For purposes of this statement, the company considers all liquid investments purchased with an original maturity of three months or less to be cash equivalents. F INCOME (LOSS) PER COMMON SHARE Earnings per common share and common share equivalents were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The incentive stock options granted (see Note 6) have been considered to be the equivalent of common stock when the market price of the common stock exceeds the exercise price of the options. The increase in the number of common shares was reduced by the number of common shares that are assumed to have been purchased with the proceeds from the exercise of the options; those purchases were assumed to have been made at the average price of the common stock during the period. Earnings per common share assuming full dilution for 1999 were determined on the assumption that the increase in the number of common shares was calculated from the proceeds of the exercise of the options at the end of period price of common stock. During 1999, all other warrants, stock options and underwriter's options (Notes 4 and) are anti-dilative. During 2000 all warrants, stock options, and underwriter's options were anti-dilative. Read accountants' review report. - 7 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) G SIGNIFICANT CONCENTRATION OF CREDIT RISK The company has concentrated its credit risk for cash by maintaining deposits in banks located within the same geographic region. The maximum loss that would have resulted from risk totaled $532,000 and $697,000 as of March 31, 2000 and December 31, 1999 for the excess of the deposit liabilities reported by the bank over the amounts that would have been covered by federal deposit insurance. H USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for uncollectable accounts receivable, obsolescence, equipment depreciation and amortization, taxes, among others. I FOREIGN CURRENCY TRANSLATION For most international operations, assets and liabilities are translated into U.S. dollars at year-end exchange rates, and revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments, resulting from fluctuations in exchange rates, are recorded as a separate component of shareholders' equity, as other comprehensive income (loss). J INVENTORIES Inventory of cigars, and related material are stated at the lower of average cost or market. K RECLASSIFICATIONS Certain amounts reported in 1999 have been reclassified to conform to the presentation used in the year 2000. Read accountants' review report. - 8 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 NOTE 2. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows: March 31, December 31, 2000 1999 ----------- ---------- Land & Building (See Note 10) $ 335,363 $ 335,363 Rental Equipment(See Note 10) 4,532,304 4,715,798 Leasehold Improvements 26,027 26,027 Furniture, Fixtures & Office Equipment 178,885 185,327 Transportation Equipment 86,619 158,592 ----------- ---------- Total 5,159,198 5,421,107 Less: Accumulated Depreciation 831,108 853,099 ----------- ---------- Property and Equipment - Net $ 4,328,090 $4,568,008 =========== ========== Included in Rental Equipment is approximately $2,000,000 of parts and supplies purchased or obtained from other machines previously disassembled for parts. Rent expense for the three months ended March 31, 2000 and 1999 was $23,000 and $21,000, respectively. The company leases the land and building it owns in Miami for $1,200 per month, on a month to month basis (See Note 10). NOTE 3. NOTE RECEIVABLE - STOCKHOLDER The company advanced $150,000 to one of the stockholders in 1993. The stockholder repaid $21,000 during 1994, $4,000 during 1997, $8,000 in 1998 and $2,000 in 1999. All interest charged through December 31, 1999 has been paid by the stockholder. Interest is being charged at a rate of prime plus 1% per annum. Included in the statement of operations is approximately $2,500 of interest income accrued in both 2000 and 1999 on this note. Read accountants' review report. - 9 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 NOTE 4. WARRANTS AND OPTIONS As of December 31, 1999, the company has outstanding 1,500,000 five year warrants to purchase one share of the company's common stock at an exercise price of $3.00 by December 11, 2001. NOTE 5. INVESTMENT BANKER WARRANTS Effective June 5, 1998, the company contracted with an investment banker to provide on a non-exclusive basis to the company assistance in possible mergers, acquisitions and internal capital structuring. The duration of the contract is for five years. In consideration for these services, Latin American Casinos, Inc. granted warrants to purchase an aggregate of 225,000 shares of common stock at the closing bid price of $1.875 as of June 5, 1998, which can be exercised through June 5, 2003. Effective February 8, 1999, the Board of Directors reduced the option price to $1.06, which was the closing price of the stock at that date. These warrants vest and become irrevocable as follows: 75,000 warrants with signing of the agreement, 75,000 warrants 180 days after the signing of the agreement and an additional 75,000 warrants 365 days after the signing of the agreement. NOTE 6. INCENTIVE STOCK OPTION PLAN On June 13, 1994, the Board of Directors adopted the 1994 Stock Option Plan in which the aggregate number of shares for which options may be granted under the Plan shall not exceed 1,000,000 shares. The term of each option shall not exceed ten years from the date of granting (five years of options granted to employees owning more than 10% of the outstanding shares of the voting stock of the company). The 1991 plan became effective on September 30, 1991 and was terminated in March, 1999. The 1994 plan became effective on June 13, 1994 and will terminate in June, 2004 unless terminated earlier by action of the Board of Directors. In December, 1995, the company authorized the issuance under the 1994 Stock Option Plan of 492,500 options at an exercise price of $2.50 per share to various officers and employees. On March 6, 1997 the company authorized the issuance of an additional 415,000 options at an exercise price of $2.50 to various officers and employees. In June, 1999, the company increased the shares allocated to the plan to 1,500,000. Effective December 31, 1998 the company ratified the repricing of 872,000 of employee stock options to $1.00 per share and simultaneously authorized the issuance of 85,000 options at an exercise price $1.00 per share and canceled 10,000 options issued in 1995 at $2.50 per share. Read accountants' review report. -10- LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 NOTE 7. PROVISION FOR INCOME TAXES The provision for income taxes consisted of the following for the three months ended March 31: 2000 1999 ---------- --------- Current Federal $ -- $ 40,000 State -- -- Foreign -- 17,000 ---------- --------- -- 57,000 ---------- --------- Deferred Federal -- -- State -- -- Foreign -- -- ---------- --------- -- -- ---------- --------- Income Tax Provision $ -- $ 57,000 ========== ========= The differences between the provision for income taxes and income taxes computed using the federal income tax rate were as follows: 2000 1999 ---------- --------- Amount computed using the Federal statutory rate $ -- $ 40,000 Foreign Taxes -- 17,000 Net Operating Losses and Tax Credits -- (40,000) ---------- --------- Income Tax Provision, Net $ -- $ 17,000 ========== ========= As of March 31, 2000 the company had available for income tax purposes unused net operating loss carryforwards which may provide future tax benefits of $1,972,000 expiring in the year 2015. No valuation allowance has been provided for unremitted foreign profits. Read accountants' review report. -11- LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31 2000 AND DECEMBER 31, 1999 NOTE 8. COMMITMENTS AND CONTINGENCIES A LITIGATION The company is a defendant from time to time in claims and lawsuits arising out of the normal course of its business, none of which are expected to have a material adverse effect on its business or operations. B EMPLOYMENT AGREEMENTS In January 1997, the company entered into a new five year employment agreement with the Chief Executive Officer which provides for an annual salary commencing January, 1997 of $275,000 and increasing at $25,000 per annum commencing January 1, 1998. The 1999 increase has been waived. The agreement provides for an adjustment in salary to reflect increases, but not decreases, in the consumer price index. The agreement further provides that in the event of either a merger, consolidation, sale or conveyance of substantially all the assets of the company which results in the discharge of the Chief Executive Officer, he would be entitled to 200% of the balance of payments remaining under the contract. Further, the agreement provides that an annual bonus shall be at the discretion of the Board of Directors. The contract provided the salary continuation for a period of two years after the death of the officer. In January 2000 the Chief Executive Officer passed away and at present the estate of the officer has deferred its' rights under the contract. Included in the accompanying financial statements $67,000 of accrual payroll in regard to this contract. In addition, the Chief Financial Officer's annual contract required upon his death one years salary, which approximated $45,000, be paid for the one year period subsequent to his death. In November 1999 the Chief Financial Officer passed away. C FOREIGN ASSETS The accompanying consolidated balance sheets for the period ended March 31, 2000, includes assets relating to the company's slot machine operations in Peru, Colombia and Nicaragua, of $4,200,000, $1,900,000 and $250,000, respectively. Although these countries are considered politically and economically stable, it is possible that unanticipated events in foreign countries could disrupt the company's operations. In that regard, the company was informed that in Peru an excise tax has been instituted effective October 1, 1996 on the leases of gaming equipment. The company with others in the industry have been negotiating with the appropriate governmental agencies and have had the excise tax significantly curtailed. In addition, a significant portion of the company's inventory in cigars is being stored in South America awaiting finalization of the corporate marketing and distribution plans. In October, 1998 Nicaragua suffered the effects of hurricane "Mitch". The company has ceased operations in Nicaragua and it is anticipated that all of the assets in Nicaragua will be transferred to other South American subsidiaries (See Note 10). Read accountants' review report. - 12 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued) D LEASE COMMITMENT The company's Miami office is obligated for a three year lease for its premises which expires in September, 2001 and requires monthly rent of $2,500. In addition the company is obligated for two year lease for warehouse space at a monthly rent of $1,400. NOTE 9. SUBLEASE AGREEMENT AND FINANCING ARRANGEMENT In 1994, the company had subleased the used car and truck lot and a portion of the office space in Miami, Florida to an unrelated party for the operation of a used car business. The company was owed $114,460. The outstanding balance was collateralized by inventory, equipment, accounts receivable and was personally guaranteed by the sublessee's stockholder. As of May 1, 1995, the sublessee abandoned the property without notice. Management continues to pursue the recovery of the amounts due under the financing arrangement in full. The company has indicated the proceedings may take a considerable time to resolve. The receivable is shown as long term in the accompanying financial statements. In February, 1998 approximately $19,000 had been collected on the amounts due. A substantial part of this receivables has been included in the allowance for doubtful accounts. NOTE 10 RESTRUCTURING LOSSES In the fourth quarter of 1999, as a result of the death of both its founder and its Chief Financial Officer, the company initiated a review of the company's operation on a country by country basis. As a result of political changes and government mandated obsolescence of certain gaming equipment the company adjusted previously recorded cost of gaming equipment, to its anticipated net realizable value. Additionally, the company reduced the valuation of certain real estate value in Miami to reflect current market conditions and adjusted its investment in the cigar operations to account for the slower than expected sales. The total restructuring adjustments were computed as follows: Gaming Equipment Asset Impairment Cost $ 1,245,000 Miami Real Estate Impairment Cost 86,000 Reduction of Cigar investment 169,000 ------------ Total $ 1,515,000 ============ Read accountants' review report. - 13 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION GENERAL The Company entered the gaming and casino industry in Peru in 1994. Since January 1995, the Company has been engaged in the renting of slot machines to licensed gaming establishments in various cities through its wholly owned subsidiaries in South and Central America. In 1994, the Company formed its Peruvian subsidiary, in late 1995 the Company formed its Colombian subsidiary, and in 1997 the Company formed a subsidiary in Nicaragua. In October 1998 the company ceased operations in Nicaragua due to the effects of hurricane "Mitch". The company is not contemplating restarting operations in Nicaragua. As of March 31, 2000, the Company had approximately 1,600 machines under rental contracts in Peru and Colombia and no machines under participation contracts. The Company concentrates its efforts on the rental of used five reel slot machines. These machines were purchased at a fraction of the cost of new machines and are refurbished for use in South and Central America. Whereas a new slot machine would cost approximately $6,000 plus additional duty charges, the used slot machines purchased by the Company cost approximately $600 each including freight, duty, and refurbishing expenditures. In March 1997, the Company expanded its slot machine operations in Colombia and Nicaragua to include gaming slot route operations. In January 2000, the Company suspended these route operations due to increasing cost of maintaining these routes. RESULTS OF OPERATIONS FIRST QUARTER Revenues from the rental of slot machines in Peru and Colombia for the three months ended March 31, 2000 decreased by $368,000 or 60.5%, to $240,000 from $608,000 for the comparable period in 1999. The primary reason for the decrease in revenues was the overall weakness of the economy in South America. Additionally, the decrease in revenues was due in part to continued concerns over government-mandated obsolescence, political changes, increased competition as well as the devaluation of foreign currency. The Company's revenues from cigar sales were $24,300 in the first quarter of 2000 as compared to negligible sales in 1999. Selling, general, and administrative expenses incurred in the quarter ended March 31, 2000 increased $75,000 or 16.6%, to $528,000 from $453,000 for the same period in 1999. This increase is due in part to the increased cost of obtaining spare parts for the older machines. In Peru and Columbia the reduction in personnel also resulted in a one time administrative expense for severance payments as required by law in the amount of $17,000. - 14 - Net (loss) for the three months ended March 31,2000 was ($305,000) or ($0.09) per share compared to $116,000 profit or $0.03 per share for the same in period 1999. The net loss was attributable to the significant decline in revenues from slot machine operations and an increase in overhead expenditures including officer compensation continuation payments. Through March 31, 2000 the Company expended approximately $1,125,000 on the establishment of a premium cigar business; additional expenditures for marketing and personnel are expected throughout the year 2000. While the Company has expended approximately $1,125,000 on the premium cigar business, expenditures have significantly decreased due to the fact that there were no costs associated with acquisitions of new cigars and related inventory in the quarter ending March 31, 2000. In 1999, an insignificant amount was spent to acquire additional inventory. The Company anticipates that it will generate increased revenues from this business in year 2000, although the amount of such revenues is, at this time, impossible to forecast. The effect that this business will have on the overall profitability of the Company is uncertain. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased approximately $160,000 or 20%, to $640,000 at March 31, 2000 from $800,000 at December 31, 1999. The decrease is attributable primarily to the sluggish results of our slot machine operations as well as continued slow growth of our cigar sales, all while overhead increased marginally. In November 1999 and January 2000 the Chief Financial Officer and the Chief Executive Officer, respectively, of the Company passed away. Each officer was covered by an employment contract, which called for salary continuation of one year in the case of the Chief Financial Officer and two years in the case of the Chief Executive Officer. The continuation salary of Chief Financial Officer is being paid to his widow on a month basis, while the continuation salary of the Chief Executive Officer is being deferred at the request of his estate. The Company accrued $67,000 in salary pursuant to the Chief Executive Officer's contract for the quarter ending March 31, 2000. The Company anticipates that its cash flow from operations and interest on investments will be sufficient to meet its cash needs for the next twelve months. The Company does not have any commitments for material capital expenditures. FORWARD LOOKING STATEMENTS From time to time, the Company may publish forward looking statements relating to such matters as anticipated financial performance, business prospects, new products and certain other matters. The words "may", "will", "expect", "anticipate", "continue", "estimate", "project", "intend" and similar expressions are intended to identify such forward looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safeharbor, the Company notes that a variety of factors could cause its actual results and experience to differ materially from anticipated results and other expectations that may effect the operations, performance, development and results of the Company's business, including the following: - 15 - 1. Changes in government regulations of gaming, such as the excise tax imposed by Peru, could have an effect on the Company's operations and business. 2. Political factors affecting South and Central America, particularly as they pertain to currency valuation, could affect the Company's business in ways which are difficult to predict. 3. The agreements, which the Company has with five of its cigar manufacturers, are cancelable upon 60 days written notice. One or more such cancellations could have a material adverse effect on the Company's cigar operations. 4. The Company's cigar operations are in its initial stages. This business is subject to all the risks and uncertainties associated with the commencement of a new enterprise. There can be no assurances that the Company will be able to successfully penetrate the market, or that its cigar operations will become profitable. 5. The Company may be required to raise additional funds to expand its business operations, particularly the cigar business, if it proves successful. There can be no assurances that the Company will be able to raise such funds, either through the sale of equity or debt securities or through commercial sources. The inability to acquire needed capital could have a material adverse effect on the Company's ability to expand. Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Latin American Casinos, Inc. Date: _________________________ ______________________________ Jeffrey A. Felder Chief Executive Officer Date: _________________________ ______________________________ Geraldine Lyons Acting Chief Financial Officer - 16 - EX-27 2 FDS
5 0000880242 LATIN AMERICAN CASINOS, INC. 1 USD 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 639,887 0 1,739,294 150,000 628,136 3,049,309 5,159,198 831,108 7,615,596 167,965 0 0 0 2,211 7,745,420 7,615,596 24,301 275,286 19,783 580,482 0 0 0 (305,196) 0 (305,196) 0 0 0 (305,196) (.09) (.09)
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