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 September 30, 1996
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 September 30, 1996: 3,300,000 shares.
<PAGE>
LATIN AMERICAN CASINOS, INC.
AS OF SEPTEMBER 30, 1996
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE>
PART I - FINANCIAL INFORMATION (Cont.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
General Overview
- - ----------------
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, since January
1996, rents slot machines in major cities in Colombia through its wholly owned
Colombian subsidiary.
The Company concentrates its efforts on the rental of used five reel
slot machines that are purchased at a fraction of the cost of new machines.
Whereas a new slot machine would cost approximately $6,000 plus additional duty
charges, the used slot machines purchased by the Company cost approximately $400
each including freight, duty, and refurbishing expenses. The Company has
determined that an investment in more extensive refurbishing would extend the
working life of each slot machine for an additional five years. Such additional
refurbishing would raise the cost of each machine by approximately $75. However,
the Company believes that the additional refurbishing will result in lower
maintenance and refurbishing costs in the future and that these savings will
offset the additional costs. For this reason, and because the parts necessary to
complete such additional refurbishing are currently available, the Company
believes that the investment is worthwhile.
The Company rents each slot machine for approximately $100 per month.
Aristocrat Leisure Industries PTY Limited, an Australian corporation
("Aristocrat"), has granted the Company an exclusive right to purchase used
Microstar I slot machines for use in any South American country in which the
Company establishes slot machine rental business. The Company concentrates on
renting its used slot machines for $.05, $.10, and $.20 games to businesses that
operate in low income areas because the cost of buying a new slot machine is
prohibitive to such businesses.
Results of Operations
- - ---------------------
The Company's revenues from the rental of slot machines in Peru and
Colombia for the three months ended September 30, 1996 increased $501,976 (176%)
to $786,973 from $284,997 for the three months ended September 30, 1995.
Revenues over the nine month period ended September 30, 1996 increased
$1,478,812 (234%) to
4
<PAGE>
$2,112,028 from $633,216 for the nine months ended September 30, 1995. The
increase in revenues over the three and nine month periods described above is
attributed to the fact that the Company now has an established presence in the
slot machine rental market in South America. The Company did not begin renting
slot machines until January 1995, but did not begin to generate significant
revenues until the fourth quarter of that year when it completed its exit from
the used car and truck business.
Selling, General, and Administrative expenses incurred in the operation
of the Company's gaming and casino business increased $136,254 (53.2%) to
$392,181 from $255,927 for the three months ended September 30, 1995. Selling,
General and Administrative expenses for the nine month period ended September
30, 1996 increased 300,196 (46.1%) to $950,803 from 650,607 for the same nine
month period in 1995. These increases reflect the Company's increased focus on
the gaming and casino industry as opposed to the used car and truck business.
Because revenues generated from the rental of slot machines increased
more rapidly than Selling, General, and Administrative Expenses, net income from
continuing operations increased to $387,350, or $0.11 per share, for the three
months ended September 30, 1996 from $125,341 for the same period in 1995. For
the same reasons, net income from continuing operations for the nine month
period ended September 30, 1995 increased $983,643 (920.3%) to $1,090,529, or
$0.31 per share, from $106,886 in 1995. The Company believes that the reduction
in overhead expenses inherent in the car business will position the Company to
maintain long term profitability in the slot machine rental business. The
Company expects its gaming operations in Peru and Colombia to continue to be
profitable.
The Peruvian government in October 1996 imposed an excise on lessee's
of gaming equipment, including slot machines. 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. Due to sharp criticism by the major gaming companies operating
in Peru, the Peruvian government has stated that it will review the new tax,
consider making a revision, and make a final decision in approximately sixty
days. While this new tax, if not modified, may adversely effect future earnings,
however, the Company expects to continue to be profitable.
The Company is currently reorganizing its Colombia-based operation by
down-sizing the main office in Bogota and opening two satellite offices, one in
Cali, 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 El Salvador, as well as the Caribbean market if and when it
becomes available. The Company expects to begin full scale operations
5
<PAGE>
with 500 slot machines in Nicaragua during the first quarter of 1997. The
Company plans to open offices in El Salvador, Paraguay and the Northern region
of Argentina during the first quarter of 1997.
In November 1996, the Company will file applications to operate in
Brazil. The Company has management and technical personnel, as well as over
6,500 fully refurbished slot machines ready to serve these open markets.
The Company had subleased the used automobile lot and a portion of the
office space at the 7th Avenue location to a dealer who operated a used car lot
on the premises until May 1, 1995 when the sublessee abandoned the property
without notice. Pursuant to a Floor Plan Agreement between the Company and the
sublessee, the Company provided financing to the sublessee. The sublessee still
owes the Company approximately $114,460 pursuant to the terms of the Floor Plan
Agreement. While there can be no assurances, the Company is taking action to
recover and anticipates recovery of the amounts due under the financing
arrangement in full.
Liquidity and Capital Resources
- - -------------------------------
As of September 30, 1996, the Company had invested approximately
$3,500,000 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 $3,350,000. 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 September 30, 1996
includes assets relating to the Company's slot machine operations in Peru and
Colombia, South America of $3,800,000 and $450,000 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 $9,667,163 in assets, of which
$4,524,944 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. However, after adjusting for dilution, there are approximately
3,500,000 shares of Common Stock outstanding for financial statement purposes.
The Company has no debt and a U.S. tax loss carry forward of approximately
$1,400,000. In addition, the Company has available foreign tax credits in the
amount of approximately $173,000.
6
<PAGE>
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.
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: November 8, 1996 /s/ Lloyd Lyons
---------------------------
Lloyd Lyons
Chief Executive Officer
Date: November 8, 1996 /s/ Donald Schiffour
---------------------------
Donald Schiffour
Chief Financial Officer
7
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
REVIEW REPORT
-------------
AS OF SEPTEMBER 30, 1996
------------------------
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONTENTS
--------
Accountant's Review Report 1
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 2
Consolidated Statements of Changes in Stockholder's
Equity for the Nine Months Ended September 30, 1996
and the Year Ended December 31, 1995 3
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements as of
September 30, 1996 and December 31, 1995 6-13
<PAGE>
SHUBITZ ROSENBLOOM & CO., P.A.
Certified Public Accountants
Members
AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS
AICPA - PRIVATE COMPANIES PRATICE SECTION
ACIPA - TAX DIVISION
HOWARD ROSENBLOOM, C.P.A.,M.B.A. SABAL CHASE PROFESSIONAL CENTER
LEONARD ALAN SHUBITZ, C.P.A. 11428 SOUTHWEST 109TH ROAD
-------- MIAMI, FLORIDA 33176
JERRY L. FEINGOLD, C.P.A. ---------
TELEPHONE (305) 596-CPAS
FAX (305) 595-2309
EMAIL [email protected]
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 September 30, 1996, and the related
consolidated statements of operations, changes in stockholder's equity and cash
flows for the three and nine months ended September 30, 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, 1995 was audited by another
accounting firm who expressed an unqualified opinion on their report dated April
8, 1996. The consolidated financial statements for the three and nine months
ended September 30, 1995 were reviewed by another accounting firm who issued
their review report dated November 8, 1995.
/s/ SHUBITZ ROSENBLOOM & CO., P.A.
Miami, Florida
November 1, 1996
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
------
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $4,524,944 $4,668,446
Accounts Receivable, Less $129,814 and
$99,814 of Allowance for Doubtful
Accounts 1996 and 1995, Respectively 946,118 421,403
Deferred Income Taxes 68,651 33,652
Prepaid Expenses and Other Current Assets 192,952 99,180
---------- ----------
Total Current Assets 5,732,665 5,222,681
---------- ----------
PROPERTY AND EQUIPMENT - NET 3,674,020 2,799,223
---------- ----------
OTHER ASSETS
Financing Arrangement Receivable 114,460 114,460
Deposits 7,374 14,510
Note Receivable - Stockholder 129,000 129,000
Other Assets 9,644 44,818
---------- ----------
Total Other Assets 260,478 302,788
---------- ----------
TOTAL ASSETS $9,667,163 $8,324,692
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 367,764 $ 186,619
Foreign Income Tax Payable 89,204 11,300
---------- ----------
Total Current Liabilities 456,968 197,919
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
Total Liabilities 456,968 197,919
---------- ----------
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 (5,673) 1,434
Deficit (705,900) (1,796,429)
---------- ----------
Total Stockholders' Equity 9,210,195 8,126,773
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,667,163 $8,324,692
========== ==========
</TABLE>
Read accountants' review report and notes to financial statements.
- 2 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE YEAR ENDED DECEMBER 31,1995
<TABLE>
<CAPTION>
Common Stock
------------
Number Par Additional Translation Retained
of Value Paid-In Ad- Earnings
Shares $.00067 Capital justments (Deficit)
--------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE -
JANUARY 31, 1995 3,300,000 $ 2,211 $9,919,557 $ - ($1,485,628)
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATION - - - 1,434 -
NET (LOSS) FOR
THE YEAR ENDED
DECEMBER 31, 1995 - - - - (310,801)
--------- ------- ---------- ------- ----------
BALANCE -
DECEMBER 31, 1995 3,300,000 2,211 9,919,557 1,434 (1,796,429)
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATION - - - (7,107) -
NET INCOME FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1996 - - - - 1,090,529
--------- ------- ---------- ------- ----------
BALANCE -
SEPTEMBER 30, 1996 3,300,000 $ 2,211 $9,919,557 $(5,673) $ (705,900)
========= ======= ========== ======= ==========
</TABLE>
Read accountants' review report and notes to financial statements.
- 3 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Rental Income $ 786,973 $ 284,997 $2,112,028 $ 633,216
Selling, General &
Administrative Expenses 392,181 255,927 950,803 650,607
Depreciation 47,437 34,241 138,000 57,058
---------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations Before Interest Income,
Income Taxes, Extraordinary Item,
& Discontinued Operations 347,355 (5,171) 1,023,225 (74,449)
Interest Income 71,595 76,781 194,304 237,335
---------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations Before Income Taxes,
Extraordinary Item & Discontinued
Operations 418,950 71,610 1,217,529 162,886
Income Taxes 310,000 31,300 545,000 56,000
---------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations Before Extraordinary
Item & Discontinued Operations 108,950 40,310 672,529 106,886
Utilization of Net Operating Losses
and Foreign Tax Credits 278,400 - 418,000 -
---------- ---------- ---------- -----------
Income (Loss) from Continuing
Operations 387,350 40,310 1,090,529 106,886
Discontinued Operations - Net of
Income Taxes - (32,943) - (599,519)
---------- ---------- ---------- ----------
Net Income (Loss) $ 387,350 $ 7,367 $1,090,529 $ (492,633)
========== ========== ========== ==========
Earnings (Loss) Per Common Share
- - --------------------------------
and Common Share Equivalent
---------------------------
Common Share Equivalent Outstanding 3,541,545 3,300,000 3,479,091 3,300,000
========== ========== ========== ==========
Discontinued Operations $ - $ (.01) $ - $ (.18)
Income (Loss) from Continuing
Operations .11 .01 .31 .03
---------- ---------- ---------- ----------
Net Income (Loss) $ .11 $ (.- ) $ .31 $ (.15)
========== ========== ========== ==========
Earnings (Loss) Per Common Share
- - --------------------------------
Assuming Full Dilution
----------------------
Common Share Equivalent Outstanding 3,563,430 3,300,000 3,563,430 3,300,000
========== ========== ========== ==========
Discontinued Operations $ - $ (.01) $ - $ (.18)
Income (Loss) from Continuing
Operations .11 .01 .31 .03
---------- ---------- ---------- ----------
Net Income (Loss) $ .11 $ (.- ) $ .31 $ (.15)
========== ========== ========== ==========
</TABLE>
Read accountants' review report and notes to financial statements.
- 4 -
<PAGE>
LATIN AMERICAN CASINOS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) from Continuing Operations $ 1,090,529 $ 106,886
Discontinued Operations -- (599,519)
Adjustments to Reconcile Net (Loss) Income
to Net Cash Provided by Operating Activities:
Depreciation 138,000 57,058
Changes in Assets - (Increase) Decrease:
Accounts Receivable (524,715) (261,506)
Assets Held for Sale -- 1,173,898
Prepaid Expenses and Other Current Assets (93,772) (258,805)
Income Tax Receivable -- 99,740
Deferred Income Taxes (34,999) --
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses 181,145 (32,690)
Foreign Income Tax Payable 77,904 --
----------- -----------
Net Cash Provided By (Used In) Operating
Activities 834,092 285,062
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (1,012,797) (1,032,609)
Advances from/to Affiliates - Net -- 112,633
Cash - Restricted -- 104,107
Other Assets 42,310 4,982
Financing Arrangement - Net -- 378,365
----------- -----------
Net Cash Provided (Used In) Investing
Activities (970,487) (432,522)
----------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (7,107) --
----------- -----------
NET (DECREASE) IN CASH (143,502) (147,460)
CASH AND CASH EQUIVALENTS - BEGINNING 4,668,446 5,001,399
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 4,524,944 $ 4,853,939
- - ---------------------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ -- $ --
=========== ===========
Income Taxes, Foreign $ 84,095 $ --
=========== ===========
</TABLE>
Read accountants' review report and notes to financial statements.
- 5 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
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
$3,500,000 for the purchase of machines and equipment. As of September
30, 1996 the Company had acquired approximately 7,000 slot machines
and other related equipment at a cost of $3,346,251, 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.
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 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
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. Therefore, the marketable securities of
$4,350,00 and $4,500,000 at September 30, 1996 and December 31, 1995
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 7) 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 6 and 7) are
anti dilutive. During 1995 all warrants, stock options and
underwriter's options were anti dilutive.
Read accountants' review report and notes to financial statements.
- 7 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
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 $58,000 and
$53,000 as of September 30, 1996 and December 31, 1995 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. Discontinued Operations
- - ------- -----------------------
In October, 1995, the Company completed the phase-out of its used car
and truck operations. Discontinued operations in 1995 includes income
and related costs incurred in the used car and truck operations.
Management determined that in order to liquidate the inventory, they
needed to substantially reduce the selling prices of their vehicles.
Read accountants' review report and notes to financial statements.
- 8 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
Note 3. Property and Equipment
- - ------- ----------------------
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------- -------
<S> <C> <C>
Leased Property $ 346,600 $ 273,975
Rental Equipment 3,346,251 2,461,794
Leasehold Improvements 2,090 2,090
Furniture and Fixtures 143,095 116,942
Transportation Equipment 108,006 84,922
Office Equipment 19,176 12,995
---------- ----------
Total 3,965,218 2,952,718
Less: Accumulated Depreciation 291,198 153,495
---------- ----------
Property and Equipment - Net $3,674,020 $2,799,223
========== ==========
</TABLE>
Depreciation expense for the three and nine months ended September 30,
1996 was $47,437 and $138,000, respectively.
Rent expense for the three and nine months ended September 30, 1996
was $24,807 and $65,536 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.
Note 4. Cash and Cash Equivalents
- - ------- -------------------------
As of September 30, 1996, cash and cash equivalents included
commercial paper in the amount of $4,350,000, with interest rates
which approximates 5.5%.
Note 5. 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.
The stockholder repaid $21,000 during 1994. All interest charged
through 1995 and has been paid by the stockholder. The Company expects
that the note will be repaid by 1998. Included in the statement of
operation is $9,991 of interest accrued for the nine months ended
September 30, 1996.
Read accountants' review report and notes to financial statements.
- 9 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
Note 6. Warrants and Options
- - ------ --------------------
As of March 31, 1996, 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 7. 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.
Read accountants' review report and notes to financial statements.
- 10 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
Note 8. Provision for Income Taxes
- - ------- --------------------------
The provision for income taxes consisted of the following for the nine
months ended September 30:
1996 1995
--------- ---------
Current
Federal $ 383,000 $ 47,000
State - 9,000
Foreign 127,000 -
--------- ---------
510,000 56,000
--------- ---------
Deferred
Federal - -
State - -
Foreign 35,000 -
--------- ---------
35,000 -
--------- ---------
Income Tax Provision $ 545,000 $ 56,000
========= =========
Deferred income taxes resulting from differences between accounting
for financial statements purposes and accounting for tax purposes,
were as follows.
1996 1995
--------- -------
Revenue Recognition $ 117,000 $ -
--------- -------
Tax Effects of timing Differences $ 35,000 $ -
========= =======
The differences between the provision for income taxes and income
taxes computed using the federal income tax rate were as follows.
1996 1995
--------- -------
Amount Computed Using the Federal
statutory rate $ 383,000 $ 55,400
State Taxes - 9,000
Foreign Taxes 162,000 -
Other - (8,400)
Net Operating Losses and Tax Credits (418,000) -
---------- ---------
Income Tax Provision $ 127,000 $ 56,000
========= =========
Read accountants' review report and notes to financial statements.
- 11 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
Note 8. Provisions for Income Taxes (Continued)
- - ------- ---------------------------
As of September 30, 1996, 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 $1,000,000
December 31, 2010 428,000
----------
Total $1,428,000
==========
In addition the Company has available foreign tax credits to offset
future federal income taxes of $173,000.
Note 9. 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. In addition, there is 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 and if the Company achieves a
net profit before taxes of $1,500,000 the executive officer in
entitled to a $150,000 bonus. Included in the statement of operations
is a $75,000 accrual for incentive bonus.
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. These costs have been capitalized to the cost of
the land.
Read accountants' review report and notes to financial statements.
- 12 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
Note 9. Commitments and Contingencies (Continued)
- - ------- -----------------------------
D Foreign Assets
--------------
The accompanying consolidated balance sheet for the period ended
September 30, 1996, includes assets relating to the Company's slot
machine operations in Peru and Colombia, South America, of $3,800,000
and $450,000, 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 instituted effective October 1, 1996 on the lessee's of gaming
equipment. It has not been determined the extent, if any, 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 10. 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.
- 13 -
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<LEGEND>
(Replace this text with the legend)
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<NAME> Latin America Casinos, Inc.
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<CURRENCY> U.S.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,524,944
<SECURITIES> 0
<RECEIVABLES> 946,118
<ALLOWANCES> 129,814
<INVENTORY> 0
<CURRENT-ASSETS> 5,732,665
<PP&E> 3,674,000
<DEPRECIATION> 47,437
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<CURRENT-LIABILITIES> 456,968
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0
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<TOTAL-LIABILITY-AND-EQUITY> 9,210,195
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<TOTAL-REVENUES> 2,112,028
<CGS> 950,803
<TOTAL-COSTS> 950,803
<OTHER-EXPENSES> 138,000
<LOSS-PROVISION> 418,000
<INTEREST-EXPENSE> 194,304
<INCOME-PRETAX> 1,217,529
<INCOME-TAX> 545,000
<INCOME-CONTINUING> 1,090,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,090,529
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