-----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, V+23hR6rwoypVvdK1u5bIRY6okTUXbhqiMX19Ad+verBsXKWc3IEgnUycCMARKdJ 5qgiLKm7hsfHYrN6gMweQQ== /in/edgar/work/20000821/0001019056-00-000464/0001019056-00-000464.txt : 20000922 0001019056-00-000464.hdr.sgml : 20000922 ACCESSION NUMBER: 0001019056-00-000464 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LATIN AMERICAN CASINOS INC CENTRAL INDEX KEY: 0000880242 STANDARD INDUSTRIAL CLASSIFICATION: [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: 706748 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 0001.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-QSB ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------- For the period ended: June 30, 2000 Commission File #33-43423 LATIN AMERICAN CASINOS, INC. A Delaware Corporation 65-0159115 (IRS Employer Identification Number) 2000 NE 164th Street (305) 945-9300 North Miami Beach, FL 33162 (Telephone Number) Securities Registered Under Section 12(b) of the Exchange Act: None Securities Registered Under Section 12(g) of the Exchange Act: Common Stock, $0.00067 par value Warrants, exercisable at $3.00 per share Check whether the registrant (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 [_] Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for its most recent fiscal year: $1,879,071. Aggregate market value of the voting stock held by non-affiliates, computed by reference to the average bid and asked prices of such stock, as of August 18, 2000: $4,120,750. Number of shares outstanding of the registrant's common stock, as of August 18, 2000: 3,296,600 shares. LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONTENTS Accountants' Review Report 1 Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 2 Consolidated Statements of Changes in Stockholders' Equity for the Six Months Ended June 30, 2000 and and Year Ended December 31, 1999 3 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 1999 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 5 Notes to Consolidated Financial Statements as of June 30, 2000 and December 31, 1999 6-12 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 June 30, 2000, and the related consolidated statements of operations, changes in stockholder's equity and cash flows for the three and six months ended June 30, 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 August 4, 2000 - 1 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 ASSETS ------ JUNE 30, DECEMBER 31, 2000 1999 ----------- ----------- CURRENT ASSETS Cash and Cash Equivalents $ 533,529 $ 800,223 Accounts Receivable, Less $150,000 of Allowance for Doubtful Accounts in 2000 and 1999 1,485,887 1,591,399 Inventory 587,526 645,172 Prepaid Expenses and Other Current Assets 104,658 212,429 ----------- ----------- Total Current Assets 2,711,600 3,249,223 ----------- ----------- PROPERTY AND EQUIPMENT - NET 4,287,061 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 11,032 25,925 ----------- ----------- Total Other Assets 232,265 247,158 ----------- ----------- TOTAL ASSETS $ 7,230,926 $ 8,064,389 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 175,144 $ 191,650 Foreign Income Tax Payable -- -- ----------- ----------- Total Current Liabilities 175,144 191,650 ----------- ----------- COMMITMENTS AND CONTINGENCIES -- -- ----------- ----------- Total Liabilities 175,144 191,650 ----------- ----------- 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 (548,836) (415,193) Retained Earnings (Deficit) (2,311,915) (1,628,601) Treasury Stock, at cost (5,235) (5,235) ----------- ----------- Total Stockholders' Equity 7,055,782 7,872,739 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,230,926 $ 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 SIX MONTHS ENDED JUNE 30, 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 -- -- -- (133,643) -- -- NET LOSS FOR THE SIX MONTHS ENDED JUNE 30, 2000 $ -- -- -- -- (683,314) -- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE JUNE 30, 2000 $ 3,300,000 $ 2,211 $ 9,919,557 ($ 548,836) ($2,311,915) $ 5,235 =========== =========== =========== =========== =========== ===========
Read accountants' review report and notes to financial statements. - 3 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED --------------------- ---------------------- June 30, June 30, June 30, June 30, 2000 1999 2000 1999 --------- --------- --------- ---------- REVENUES Rental Income $ 164,344 $ 431,642 $ 404,486 $1,040,003 Sales of Cigars 50,931 2,795 75,232 3,854 --------- --------- --------- ---------- Total Revenues 215,275 434,437 479,718 1,043,857 --------- --------- --------- ---------- COSTS AND EXPENSES Selling, General & Administration 534,639 417,104 1,062,484 869,989 Depreciation 29,007 44,500 61,854 97,000 Costs of Cigar Sales 44,668 1,700 64,451 2,550 --------- --------- --------- ---------- Total Cost and Expenses 608,314 463,304 1,188,789 969,539 --------- --------- --------- ---------- OPERATING INCOME (LOSS) (393,039) (28,867) (709,071) 74,318 Interest Income 15,368 27,969 25,757 58,076 --------- --------- --------- ---------- Income (Loss) Before Income Taxes And Extraordinary Item (377,671) (898) (683,314) 132,394 Income Taxes (Provision) Benefit -- 14,536 -- (42,464) --------- --------- --------- ---------- Income (Loss) Before Extraordinary Item (377,671) 13,638 (683,314) 89,930 Utilization of Net Operating Losses and Foreign Tax Credits -- (5,000) -- 35,000 --------- --------- --------- ---------- Net Income (Loss) ($ 377,671) $ 8,638 ($ 683,314) $ 124,930 ========= ========= ========= ========== EARNINGS (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT - BASIC AND FULLY DILUTED Common Share Equivalent Outstanding 3,296,600 3,296,600 3,296,600 3,296,600 ========= ========= ========= ========== Net Income (Loss) ($ .11) ($ .00) ($ .21) $ .04 ========= ========= ========= ==========
Read accountants' review report and notes to financial statements. - 4 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 2000 1999 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) ($ 683,314) $ 124,930 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 61,854 97,000 Changes in Assets - (Increase) Decrease: Accounts Receivable 105,512 (106,529) Prepaid Expenses and Other Current Assets 107,771 (73,376) Inventory of Cigars 57,646 (76,312) Changes in Liabilities - Increase (Decrease): Accounts Payable and Accrued Expenses (16,507) 5,405 Foreign Income Tax Payable -- (9,707) ---------- ---------- Net Cash Provided by (Used In) Operating Activities (367,038) (38,589) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Change in Property and Equipment 219,093 (295,488) Other Assets 14,894 14,292 ---------- ---------- Net Cash Provided By (Used by)Investing Activities 233,987 (281,196) ---------- ---------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (133,643) 24,659 ---------- ---------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (266,694) (295,126) CASH AND CASH EQUIVALENTS - BEGINNING 800,223 1,567,773 ---------- ---------- CASH AND CASH EQUIVALENTS - ENDING $ 533,529 $1,272,647 - ---------------------------------- ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: - -------------------------------------------------- Cash Paid During the Period for: Interest $ 14,592 $ 13,902 ========== ========== 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 JUNE 30, 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 entered 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 June 30, 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 $4,529,895 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. As of June 30, 2000, the company had expended approximately $1,130,000 in regard to the cigar operations. Such expenditures have been included in the accompanying consolidated balance sheet as follows: Cash $ 1,000 Accounts Receivable 47,000 Prepaid and Other Current Assets 16,000 Inventory 587,000 Fixed Assets, Net of Accumulated Depreciation 103,000 Other Assets 3,000 Aggregate Accumulated Deficit 373,000 ---------- Total Investment $1,130,000 ========== World's Best Rated Cigar Company had committed with a cigar manufacturer in South America to acquire a minimum number of cigars per month; however, with slower than anticipated cigar operations, this purchase commitment was cancelled. All material intercompany transactions, balance and profits have been eliminated. Read accountants' review report. - 6 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 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 betterments 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 underwriters options (Notes 4 and) are anti-dilative. During 2000 all warrants, stock options, and underwriters options were anti-dilative. 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 $420,000 and $697,000 as of June 30, 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. Read accountants' review report. - 7 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. NOTE 2. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows: June 30 December 31, 2000 1999 ---------- ---------- Land & Building (See Note 10) $ 335,363 $ 335,363 Rental Equipment(see Note 10) 4,529,895 4,715,798 Leasehold Improvements 26,027 26,027 Furniture, Fixtures & Office Equipment 180,760 185,327 Transportation Equipment 72,151 158,592 ---------- ---------- Total 5,144,196 5,421,107 Less: Accumulated Depreciation 857,135 853,099 ---------- ---------- Property and Equipment - Net $4,287,061 $4,568,008 ========== ========== Read accountants' review report. - 8 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 NOTE 2. PROPERTY AND EQUIPMENT (CONTINUED) Included in Rental Equipment is approximately $2,500,000 of parts and supplies purchased or obtained from other machines previously disassembled for parts. Rent expense for the three and six months ended June 30, 2000, were $25,000 and $48,000, 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 $5,000 of interest income accrued in both 2000 and 1999 on this note. 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, 2000, 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. Read accountants' review report. - 9 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 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. NOTE 7. PROVISION FOR INCOME TAXES The provision for income taxes consisted of the following for the six months ended June 30: 2000 1999 --------- ---------- Current Federal $ -- $ 23,464 State -- -- Foreign -- 19,000 --------- ---------- -- 42,464 Deferred Federal -- -- State -- -- Foreign -- -- --------- ---------- -- -- --------- ---------- Income Tax Provision $ -- $ 42,464 ========= ========== 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 $ -- $ 35,000 Foreign Taxes -- 19,000 Refund of Prior Years Tax -- (11,536) Net Operating Losses and Tax Credits -- (35,000) --------- ---------- Income Tax Provision, Net $ -- $ 7,464 ========= ========== As of June 30, 2000 the company had available for income tax purposes unused net operating loss carryforwards which may provide future tax benefits of $2,350,000 expiring in the year 2015. No valuation allowance has been provided for unremitted foreign profits. Read accountants' review report. - 10 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 NOTE 8. COMMITMENTS AND CONTINGENCIES A LITIGATION The company is a defendant from time to time on 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 certain rights under the contract. Included in the accompanying financial statements is $144,000 of accrued payroll in regard to this contract. In addition, the Chief Financial Officers 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 June 30, 2000, includes assets relating to the company's slot machine operations in Peru, Colombia and Nicaragua, of $4,070,000, $1,720,000 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 ultimately be transferred to other South American subsidiaries (See Note 10). Read accountants' review report. - 11 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 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 and has subsequently been settled at a total loss. 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 companys 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 $ 1,500,000 =========== Read accountants' review report. - 12 - 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 June 30, 2000, the Company had approximately 1300 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 Revenues from the rental of slot machines in Peru and Colombia for the three months ended June 30, 2000 decreased by $267,300 or 61.9 %, to $164,300 from $431,600 for the comparable period in 1999. The Company's revenues from cigar sales were $50,900 in the second quarter of 2000 as compared to sales of $2,800 for the comparable period in 1999. Revenues from the rental of slot machines in Peru and Colombia for the six months ended June 30, 2000 decreased by $635,500 or 61.1%, to $404,500 from $1,040,000 for the comparable period in 1999. The Company's revenues from cigar sales were $75,200 for the six months ended June 30, 2000 as compared to sales of $3,800 for the comparable period in 1999. The 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. - 13 - Selling, general, and administrative expenses incurred in the quarter ended June 30, 2000 increased $117,500 or 28.20%, to $534,600 from $417,100 for the same period in 1999. Selling, general, and administrative expenses incurred in the six months June 30, 2000 increased $192,500 or 22.1%, to $1,062,500 from $870,000 for the same period in 1999. The increase is due in part to the increased cost of obtaining spare parts for the older machines. In Peru reduction in personnel resulted in a one time administrative charge for severance payments as required by Peruvian law in the amount of $15,000. Net (loss) for the three months ended June 30,2000 was ($377,600) or ($0.11) per share compared to $8,600 profit or $0.00 per share for the same in period 1999. Net (loss) for the six months ended June 30,2000 was ($683,300) or ($0.21) per share compared to $124,900 profit or $0.04 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 June 30, 2000 the Company expended approximately $1,130,000 on the establishment of a premium cigar business; minor additional expenditures for marketing and personnel are expected throughout the year 2000. No additional costs associated with acquisitions of new cigars and related inventory occurred in year 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 $266,700 or 33.3%, to $533,500 at June 30, 2000 from $800,000 at December 31, 1999. The decrease is attributable primarily to the poor results of the slot machine operations as well as continued slow growth of the cigar sales, all while overhead increased. 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 $144,000 in salary pursuant to the Chief Executive Officer's contract as at June 30, 2000. - 14 - 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: 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. - 15 - Latin American Casinos, Inc. Date: August 18, 2000 /s/ JEFFREY A. FELDER ------------------------------ Jeffrey A. Felder Chief Executive Officer Date: August 18, 2000 /s/ GERALDINE LYONS ------------------------------ Geraldine Lyons Acting Chief Financial Officer - 16 - EX-27 2 0002.txt FDS
5 0000880242 LATIN AMERICAN CASINOS, INC. 1 USD 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1 533,529 0 1,635,887 150,000 587,526 2,711,600 5,144,196 857,135 7,230,926 175,144 0 0 0 2,211 7,053,571 7,230,926 75,232 479,718 64,451 1,118,789 0 0 0 (683,314) 0 (683,314) 0 0 0 (683,314) (.21) (.21)
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