-----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, MzUXF0PJBZUYPqJ/dHhgSx00belHrJk8aLRTEsQSiED8/iY0vSNlXhX6AVIJ3Szo JPErj7bg4lv3tJlywA2hOA== 0001019056-97-000094.txt : 19970520 0001019056-97-000094.hdr.sgml : 19970520 ACCESSION NUMBER: 0001019056-97-000094 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970516 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-19709 FILM NUMBER: 97610045 BUSINESS ADDRESS: STREET 1: 3909 N E 163RD STREET STREET 2: SUITE 202-B CITY: NORTH MIAMI BEACH STATE: FL ZIP: 33168 BUSINESS PHONE: 3057561000 10QSB 1 FORM 10QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------------------- For the quarterly period ended March 31, 1997 LATIN AMERICAN CASINOS, INC. Commission File Number 33-43423 A Delaware Corporation 65-0159115 (IRS Employer Identification Number) 3909 N.E. 163rd Street (305) 945-9300 Suite 202-B (Telephone Number) North Miami Beach, FL 33160 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ] Number of shares outstanding of each of the issuer's classes of common equity, as of March 31, 1997: 3,300,000 shares. LATIN AMERICAN CASINOS, INC. AS OF MARCH 31, 1997 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES --------------------------------------------- REVIEW REPORT ------------- AS OF MARCH 31, 1997 -------------------- LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES --------------------------------------------- CONTENTS -------- Accountants' Review Report 1 Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 2 Consolidated Statements of Changes in Stockholder's Equity for the Three Months Ended March 31, 1997 and the Year Ended December 31, 1996 3 Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1996 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 5 Notes to Consolidated Financial Statements as of March 31, 1997 and December 31, 1996 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, 1997, and the related consolidated statements of operations, changes in stockholder's equity and cash flows for the three months ended March 31, 1997 and 1996, 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 that 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, 1996 was audited by us and we expressed an unqualified opinion on it in our report dated April 15, 1997, but we have not prepared any auditing procedures since that date. Miami, Florida May 9, 1997 LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------
ASSETS ------ March 31, December 31, 1997 1996 ---------- ---------- CURRENT ASSETS Cash and Cash Equivalents $4,245,028 $4,492,198 Accounts Receivable, Less $189,814 and $149,814 of Allowance for Doubtful Accounts 1997 and 1996 971,741 848,260 Prepaid Expenses and Other Current Assets 141,751 169,072 ---------- ---------- Total Current Assets 5,358,520 5,509,530 ---------- ---------- PROPERTY AND EQUIPMENT - NET 3,923,582 3,852,961 ---------- ---------- OTHER ASSETS Financing Arrangement Receivable 114,460 114,460 Deposits 4,935 4,935 Note Receivable - Stockholder 129,000 129,000 Other Assets 66,100 2,710 ---------- ---------- Total Other Assets 314,495 251,105 ---------- ---------- TOTAL ASSETS $9,596,597 $9,613,596 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 276,211 $ 367,734 Foreign Income Tax Payable 134,773 140,660 Deferred Income Tax Payable 21,500 7,500 ---------- ---------- Total Current Liabilities 432,484 515,894 ---------- ---------- COMMITMENTS AND CONTINGENCIES -- -- ---------- ---------- Total Liabilities 432,484 515,894 ---------- ---------- STOCKHOLDERS' EQUITY Common Stock, $.00067 Par Value 7,500,000 Shares Authorized, 3,300,000 Shares Issued and Outstanding 2,211 2,211 Additional Paid-In Capital 9,919,557 9,919,557 Cumulative Translation Adjustments 4,402 4,003 Deficit ( 762,057) ( 828,069) ---------- ---------- Total Stockholders' Equity 9,164,113 9,097,702 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,596,597 $9,613,596 ========== ==========
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, 1997 AND FOR THE YEAR ENDED DECEMBER 31,1996 -----------------------------------
COMMON STOCK NUMBER PAR ADDITIONAL TRANSLATION RETAINED OF VALUE PAID-IN AD- EARNINGS SHARES $.00067 CAPITAL JUSTMENTS (DEFICIT) ------ ------- ------- --------- --------- BALANCE - JANUARY 1, 1996 3,300,000 $ 2,211 $9,919,557 $ 1,434 ($1,796,429) ADJUSTMENT FOR FOREIGN CURRENCY TRANSLATION - - - 2,569 - NET INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 - - - - 968,360 --------- ------- ---------- ------- ---------- BALANCE - DECEMBER 31, 1996 3,300,000 2,211 9,919,557 4,003 ( 828,069) ADJUSTMENT FOR FOREIGN CURRENCY TRANSLATION - - - 399 - NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 - - - - 66,012 --------- ------- ---------- ------- ---------- BALANCE - MARCH 31, 1997 3,300,000 $ 2,211 $9,919,557 $4,402 ( $762,057) ========= ======= ========== ====== ==========
Read accountants' review report and notes to financial statements. - 3 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 --------------------------------------------------
1997 1996 --------- ------- Rental Income $ 425,808 $ 588,737 Selling, General and Administrative Expenses 362,709 253,123 Depreciation 36,500 45,383 --------- --------- Income (Loss) from Operations Before Interest Income, Income Taxes and Extraordinary Item 26,599 290,231 Interest Income 59,413 64,623 --------- --------- Income (Loss) from Operations Before Income Taxes and Extraordinary Item 86,012 ( 354,854) --------- -------- INCOME TAXES Federal 20,000 90,400 State - - Foreign 27,000 26,600 --------- ---------- Total Income Taxes 47,000 117,000 --------- ---------- Income from Operations Before Extraordinary Item 39,012 237,854 Utilization of Net Operating Losses and Foreign Tax Credits 27,000 90,400 --------- ---------- Net Income (Loss) $ 66,012 $ 328,254 ========= ========== EARNINGS (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT Common Share and Common Share Equivalent Outstanding 3,300,000 3,398,500 ========= ========== Net Income (Loss) Per Share $ .02 $ .10 ========= ========== EARNINGS (LOSS) PER COMMON SHARE ASSUMING FULL DILUTION Common Share and Common Share Equivalent Outstanding 3,300,000 3,427,685 ========= ========= Net Income (Loss) Per Share $ .02 $ .10 ========= =========
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, 1997 AND 1996 --------------------------------------------------
1997 1996 ---------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 66,012 $ 328,254 Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities: Depreciation 36,500 45,383 Changes in Assets - (Increase) Decrease: Accounts Receivable ( 123,481) ( 139,615) Prepaid Expenses and Other Current Assets 27,321 ( 40,269) Deferred Income Taxes - 8,601 Changes in Liabilities - Increase (Decrease): Accounts Payable and Accrued Expenses ( 91,523) 178,462 Foreign Income Tax Payable ( 5,887) ( 11,300) Deferred Income Taxes 14,000 ( - ) ---------- --------- Net Cash Provided By (Used In) Operating Activities ( 77,058) ( 369,516) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Property and Equipment ( 107,121) ( 359,941) Other Assets ( 63,390) ( 1,079) --------- --------- Net Cash Provided (Used In) Investing Activities ( 170,511) 361,020 --------- --------- Effect of Exchange Rate Changes on Cash and Cash Equivalents ( 399) ( 15,169) --------- --------- NET (DECREASE) IN CASH ( 247,170) ( 6,673) CASH AND CASH EQUIVALENTS - BEGINNING 4,492,198 4,668,446 ---------- ---------- CASH AND CASH EQUIVALENTS - ENDING $4,245,028 $4,661,773 - ---------------------------------- ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: Cash Paid During the Year for: Interest $ - $ - ========== ========== Income Taxes, Foreign $ 11,887 $ 25,662 ========== ==========
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, 1997 AND DECEMBER 31, 1996 ------------------------------------------ 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. The Company started a new business in 1994 in the gaming and casino business primarily in Peru and other Latin American countries, initially renting casino slot machines. The Company discontinued its used car and truck business in Miami, Florida and Panama in October, 1995. In 1994, the Company formed a Peruvian subsidiary and in late 1995 formed a Colombian subsidiary that are in the gaming and casino business in Latin America. The initial venture is the renting of casino slot machines to operators. The Company had allocated $4,000,000 for the purchase of machines and equipment. As of March 31, 1996 the Company had acquired approximately 7,000 slot machines and other related equipment at a cost of $3,633,408, including applicable costs for transportation, duty and refurbishing. B PRINCIPLES OF CONSOLIDATED -------------------------- The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Latin American Casinos, SA, a Peruvian corporation and Latin American Casinos of Colombia, LTPA a Colombian corporation. The Company is in the process of forming a Nicaraguan operation and as such all costs incurred to date has been deferred until operations commence later in the year. Included in other assets on the balance sheet is approximately $66,000 of such expenditures. All material intercompany transactions, balances and profits have been eliminated. 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. Read accountants' review report and notes to financial statements. - 6 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------ NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - ------- ------------------------------------------ D REVENUE RECOGNITION ------------------- Effective January 1, 1995, the Company began renting casino slot machines. Revenue is recognized monthly as the casino 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. The marketable securities of $4,000,000 and $4,350,000 as of March 31, 1997 and December 31, 1996, respectively are considered a cash equivalent. F INCOME (LOSS) PER COMMON SHARE ------------------------------ Earnings per common share and common share equivalents were computed by dividing net income (loss) 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 share was reduced by the number of common share 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 1996 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 1996 all other warrants, stock options and underwriter's options (notes 5 and 6) are anti dilative. During 1997 all warrants, stock options and underwriter's options were anti dilative. Read accountants' review report and notes to financial statements. - 7 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------ 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 totalled $52,000 and $59,000 as of March 31, 1997 and December 31, 1996 for the excess of the deposit liabilities reported by the bank over the amounts that would have been covered by federal insurance. H TRANSLATION OF FOREIGN CURRENCIES --------------------------------- The Company translates foreign currency financial statements by translating balance sheet accounts at the current exchange rate and income statement accounts at the average exchange rate for the year. Translation gains and losses are recorded in Stockholders' Equity and realized gains and losses are reflected on the statement of income. NOTE 2. PROPERTY AND EQUIPMENT - ------- ---------------------- Property and equipment are summarized as follows:
March 31, December 31, 1997 1996 ---------- ------------ Leased Property $ 346,881 $ 346,881 Rental Equipment 3,633,408 3,524,511 Leasehold Improvements 6,989 2,090 Furniture and Fixtures 177,350 174,842 Transportation Equipment 116,144 113,379 Office Equipment 28,624 28,499 ---------- ---------- Total 4,309,396 4,190,202 Less: Accumulated Depreciation 385,814 337,241 ---------- ---------- Property and Equipment - Net $3,923,582 $3,852,961 ========== ==========
Depreciation expense for the three months ended March 31, 1997 and 1996 was $36,500 and $45,383, respectively. Rent expense for the three months ended March 31, 1997 and 1996 was $20,900 and $18,000 respectively. Effective April 1, 1996, the Company leased the land and building owned by the Company for $1,500 per month to an unrelated party for a three year period. Read accountants' review report and notes to financial statements. - 8 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------ NOTE 3. CASH AND CASH EQUIVALENTS - ------- ------------------------- As of March 31, 1997, cash and cash equivalents included commercial paper in the amount of $4,000,000, due between April 2, 1997 through May 1, 1997 at interest rates which is approximated 5.3%. NOTE 4. NOTE RECEIVABLE - STOCKHOLDER - ------- ----------------------------- The Company advanced $150,000 to one of the stockholders in 1993. Interest is being charged at a rate of prime plus 1% per annum. Included in the statement of operations is $2,600 of interest income accrued for 1997 on this advance. The stockholder repaid $21,000 during 1994. All interest charged for 1996 has been paid by the stockholder. The Company expects that the note will be repaid by 1998. NOTE 5. WARRANTS AND OPTIONS - ------- -------------------- As of March 31, 1997, the Company had outstanding 1,725,000 five year warrants to purchase one share of the Company's common stock at an exercise price of $7.25 by December 12, 1996, which has been extended to December 11, 1997. As part of the 1991 Public Offering, the underwriter received options to purchase 150,000 units to be exercised by December 12, 1996, which has been extended to December 11, 1997 at a price of $9.00 per unit. A unit consists of one share of the Company's common stock and one five year warrant to purchase one share of the Company's common stock at a price of $7.25. NOTE 6. INCENTIVE STOCK OPTION PLAN - ------- --------------------------- On September 30, 1991, the Company adopted the 1991 Incentive Stock Option Plan in which the aggregate number of shares for which options may be granted under the plan shall not exceed 450,000 shares. 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 for options granted to employees owning more that 10% of the outstanding shares of the voting stock of the Company). The 1991 plan became effective on September 30, 1991 and will terminate on September 30, 2001. 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 to issue 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. Read accountants' review report and notes to financial statements. - 9 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------ NOTE 7. PROVISION FOR INCOME TAXES - ------- -------------------------- The provision for income taxes consisted of the following for the three months ended March 31:
1997 1996 --------- --------- Current Federal $ 20,000 $ 90,400 State - - Foreign 13,000 18,000 --------- --------- 33,000 108,400 --------- --------- Deferred Federal - - State - - Foreign 14,000 8,600 --------- --------- 14,000 8,600 --------- --------- Income Tax Provision $ 47,000 $ 117,000 ========= ========= Deferred income taxes resulting from differences between accounting for financial statements purposes and accounting for tax purposes, were as follows. 1997 1996 --------- --------- Revenue Recognition $ 14,000 $ 8,400 --------- --------- Tax Effects of timing Differences $ 14,000 $ 8,400 ========= ========= The differences between the provision for income taxes and income taxes computed using the federal income tax rate were as follows. 1997 1996 --------- ------- Amount Computed Using the Federal statutory rate $ 20,000 $ 117,000 Foreign Taxes 27,000 26,600 Net Operating Losses ( 27,000) ( 26,600) -------- -------- Income Tax Provision $ 20,000 $ 117,000 ======== =========
Read accountants' review report and notes to financial statements. - 10 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------ NOTE 7. PROVISIONS FOR INCOME TAXES (Continued) - ------- --------------------------- As of March 31, 1997, the Company had available for income tax purposes unused net operating loss carryforwards which may provide future tax benefits expiring as follows: December 31, 2009 $ 446,000 December 31, 2010 428,000 ---------- Total $ 874,000 ========== In addition the Company has available approximate foreign tax credit to offset future federal income tax of $275,000. 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 --------------------- The chief executive officer has an employment agreement for an annual salary of $200,000 subject to annual increases effective until December 19, 1996. The Employment agreement provided for an incentive bonus if the Company achieves a net profit before taxes of $1,000,000 the executive officer is entitled to a $100,000 bonus. If the Company achieves a net profit before taxes of $1,500,000 the executive officer is entitled to a $150,000 bonus. 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 $25,000 per annum plus commencing January 1, 1998 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. Read accountants' review report and notes to financial statements. - 11 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------ NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued) - ------- ----------------------------- C ENVIRONMENTAL LIABILITY ----------------------- The Company had received notice from the Dade County Environmental Resources Management Department indicating that there has been a discharge on the property owned by the Company. The Company is cooperating with the Department, and preliminary evaluation by outside professionals hired by the Company indicates there is not a severe contamination problem. The Company maintains that the discharge was not as a result of the Company's ongoing activities at the location, but as a result of prior usage of the property. The Company has incurred approximately $120,000 in costs and believes the problems have been remedied. D FOREIGN ASSETS -------------- The accompanying consolidated balance sheet for the period ended March 31, 1997, includes assets relating to the Company's slot machine operations in Peru and Colombia, South America, of $3,700,000 and $900,000, 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 has been informed that in Peru an excise tax has been instituted effective October 1, 1996 on the lessee's of gaming equipment. It has not been determined the full extent that this excise tax will have on future operations in Peru. The Company with others in the industry have been negotiating with the appropriate governmental agencies to have the excise tax retroactively reduced or revised. 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 is 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 anticipates recovery of the amounts due under the financing arrangement in full, Company's attorney, has indicated the proceedings may take more than twelve months to resolve. The receivable is shown as long term in the accompanying financial statements. Read accountants' review report and notes to financial statements. - 12 - LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND DECEMBER 31, 1996 ------------------------------------------ NOTE 10 SUBSEQUENT EVENT - ------- ---------------- On April 15, 1997 The Board of Directors declared a $.05 per share dividend to shareholders of record on May 30, 1997. Simultaneous the Company's officers and directors waived the rights to the payment of such dividend. The company estimates that approximately $85,000 will be distributed pursuant to this dividend. Read accountants' review report and notes to financial statements. - 13 - PART I - FINANCIAL INFORMATION (CONT.) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 Lima and various other major cities in Peru through its wholly owned subsidiary. The Company opened its Colombian office on October 1, 1995 with 15 technicians and 1,500 slot machines in inventory. As of April 1, 1997 the Company has 700 machines under rental contracts with various entrepreneurs for approximately $85 to $100 per month. The Company concentrates its efforts on the rental of used five reel slot machines. These machines are 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 $475 each including freight, duty, and refurbishing expenses. The Company rents each slot machine for approximately $85 to $100 per month. In March of 1997 the Company decided to expand its slot machine operation in Colombia and Nicaragua to include gaming slot route operations. Under the slot route operations, the Company places machines into various businesses on a participation basis with the owners or managers of the location. After deducting expenses for taxes and jackpot payouts, the Company divides any remaining winnings of the machine on a 30% participation to the business owner and 70% participation to the Company. The Company believes that this change will increase cash flow and reduce the Company's risk associated with the collection of accounts receivable, thereby reducing allowances for doubtful accounts. Results of the slot route operations will be reflected starting in the second quarter of 1997. RESULTS OF OPERATIONS - --------------------- The Company's revenues from the rental of slot machines in Peru and Colombia for the three months ended March 31, 1997 decreased $162,929 (27.7%) to $425,808 from $588,737 for the three months ended March 31, 1996. The decrease in revenues over the period described above is attributed primarily to the increased tax burden in Peru. The Peruvian government, in October 1996, imposed an excise tax of 200% on lessees of gaming equipment, including slot machines. The excise tax caused many of the Company's customers to return their slot machines to the Company rather than pay the higher tax. The Company with others in the industry have been negotiating with the appropriate governmental agencies to have the 14 excise tax retroactively reduced or revised. It has not been determined to what extent, if any, that the excise tax will have on the future operations of the Company in Peru. While this new tax, if not modified, may adversely effect future earnings, the Company expects to continue to be profitable. As of the date of this report, the Company's market has stabilized with approximately 1,000 slot machines under rental agreements. In addition, the Peruvian federal government has imposed regulations regulating the number of slot machines in each gaming parlor. The Company and four other gaming companies have enjoined the Peruvian federal government from implementing these regulations on the grounds that (i) such regulations were implemented arbitrarily without consulting the Peruvian gaming commission and (ii) gaming issues are within the jurisdiction of Peruvian municipalities and not the Peruvian federal government. The Company's attorneys in Peru believe the injunction will remain in effect for approximately two years. Selling, General, and Administrative expenses incurred in the operation of the Company's gaming and casino business increased $109,586 (43.3%) over the three month period ended March 31, 1996. This increase reflects start-up costs for the Company's expansion into Colombia and Nicaragua, an increase in executive compensation and increased legal fees resulting from litigation insituted by the Company against a former subtenant of the Company's used car lot and against the Company's former independent auditors. The lawsuit against the Company's former auditors does not concern any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of the former auditors, would have caused such auditors to make reference to the subject matter of the disagreement in connection with its report. Because revenues generated from the rental of slot machines decreased and Selling, General, and Administrative Expenses increased, net income from continuing operations decreased to $66,012, or $0.02 per share, for the quarter ended March 31, 1997 from $328,254, or $0.10 per share, for the same period in 1996. The Company is currently reorganizing its Colombia-based operation by down-sizing the main office in Bogota and opening three satellite offices, one in Cali, one in Medellin, and the other in Barranquilla in the Northern tip of Colombia. The Barranquilla office will also serve as the hub for the Company's operations in Nicaragua and Honduras, as well as the Caribbean market if and when it becomes available. The Company began full scale operations with 500 slot machines in Nicaragua during the first quarter of 1997. The Company plans to open offices in Honduras during the third quarter of 1997. 15 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- As of March 31, 1997, the Company had invested approximately $3,600,000 in the business of renting slot machines in Latin America. The Company's investment in the gaming business included the acquisition of slot machines at a approximate cost of $475 per machine. The Company anticipates that its cash flow from operations, interest on investment and the remaining proceeds from the Company's public offering will be sufficient to meet its needs for the next twelve months. The Company's balance sheet for the quarter ended March 31, 1997 includes assets relating to the Company's slot machine operations in Peru and Colombia of $3,700,000 and $900,000 respectively. Although these countries are considered to be politically and economically stable, it is possible that unanticipated events in foreign countries could disrupt the Company's operations. The Company is financially strong with $9,596,597 in assets, of which $4,245,028 is in cash and cash equivalents, and 7,000 slot machines in inventory. The Company has 3,300,000 shares of Common Stock currently outstanding. All options and warrants are considered to be anti-dilutive. The Company has no debt and a U.S. tax loss carry forward of approximately $874,000. In addition, the Company has available foreign tax credits in the amount of approximately $275,000. Other than for the acquisition of additional slot machines, the Company does not presently know of any material commitment for capital expenditures for the upcoming year. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Index of exhibits as required by Item 601 of Regulation S-B. EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 3.1 Articles of Incorporation (Delaware) 3.2 Bylaws(1) 4.1 Common Stock Specimen(1) 4.2 Warrant Specimen(1) 4.3 Form of Warrant Agreement(1) 10.1 Agreements between the Company and Aristocrat Leisure Industries PTY LTD dated May 31, 1994, December 12, 1994 and March 24, 1995(2) 10.2 Agreements between the Company and Latin American Casinos S.A. dated January 10, 1996(3) 10.3 Employment Agreement between the Company and Lloyd Lyons dated January 1, 1997(4) 27.1 Financial Data Schedule - ---------- (1) Incorporated herein by reference from the 10-KSB filed by the Company for the year ended December 31, 1992. (2) Incorporated herein by reference from the 10-KSB filed by the Company for the year ended December 31, 1994. (3) Incorporated herein by reference to the 10-KSB filed by the Company for the year ended December 31, 1995. (4) Incorporated herein by reference to the 10-KSB filed by the Company for the year ended December 31, 1996. (b) Reports on Form 8-K None 17 SIGNATURES 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: MAY 15, 1997 /s/ LLOYD LYONS -------------------- -------------------------------- Lloyd Lyons Chief Executive Officer Date: MAY 15, 1997 /s/ DONALD D. SCHIFFOUR -------------------- -------------------------------- Donald D. Schiffour Chief Financial Officer 18 EX-27 2 FDS
5 (Replace this text with the legend) 0000880242 LATIN AMERICAN CASINOS, INC. 1 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 4,245,028 0 771,741 189,814 0 5,358,520 3,923,582 0 9,596,597 432,484 0 0 0 2,211 9,163,629 9,596,597 425,808 425,808 362,709 362,709 0 27,000 59,413 86,012 47,000 39,012 0 0 0 66,012 .02 .02
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