<PAGE>
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 June 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 June 30, 1996: 3,300,000 shares.
IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS QUARTERLY REPORT ON
FORM 10-QSB WAS PREVIOUSLY FILED ON PAPER PURSUANT TO A TEMPORARY HARDSHIP
EXEMPTION.
<PAGE>
LATIN AMERICAN CASINOS, INC.
AS OF JUNE 30, 1996
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
REVIEW REPORT
-------------
AS OF JUNE 30, 1996
-------------------
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONTENTS
--------
Accountant's Review Report 1
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 2
Consolidated Statements of Changes in Stockholder's
Equity for the Six Months Ended June 30, 1996 and
the Year Ended December 31, 1995 3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements as of
June 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 Practice Section
AICPA - 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 June 30, 1996, and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for the
three and six months ended June 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 six months
ended June 30, 1995 were reviewed by another accounting firm who issued their
review report dated July 27, 1995.
/s/ Shubitz Rosenbloom & Co., P.A.
Miami, Florida
August 8, 1996
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
-----------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $4,553,655 $4,668,446
Accounts Receivable, Less $109,814 and
$99,814 of Allowance for Doubtful
Accounts 1996 and 1995, Respectively 703,697 421,403
Deferred Income Taxes 39,252 33,652
Prepaid Expenses and Other Current Assets 152,608 99,180
---------- ----------
Total Current Assets 5,449,212 5,222,681
---------- ----------
PROPERTY AND EQUIPMENT - NET 3,296,069 2,799,223
---------- ----------
OTHER ASSETS
Financing Arrangement Receivable 114,460 114,460
Deposits 14,322 14,510
Note Receivable - Stockholder 129,000 129,000
Other Assets 30,015 44,818
---------- ----------
Total Other Assets 287,797 302,788
---------- ----------
TOTAL ASSETS $9,033,078 $8,324,692
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 145,325 $ 186,619
Foreign Income Tax Payable 63,139 11,300
---------- ----------
Total Current Liabilities 208,464 197,919
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
Total Liabilities 208,464 197,919
---------- ----------
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 ( 3,903) 1,434
Deficit ( 1,093,251) ( 1,796,429)
---------- ----------
Total Stockholders' Equity 8,824,614 8,126,773
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,033,078 $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 SIX MONTHS ENDED JUNE 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 - - - ( 5,337) -
NET INCOME FOR THE
SIX MONTHS ENDED
JUNE 30, 1996 - - - - 703,178
--------- ------- ---------- ------- ----------
BALANCE -
JUNE 30, 1996 3,300,000 $ 2,211 $9,919,557 ($ 3,903) ($1,093,251)
========= ======= ========== ======= ==========
</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 Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Rental Income $ 732,882 $ 275,594 $1,321,618 $ 348,219
Selling, General &
Administrative Expenses 302,665 150,017 555,186 394,680
Depreciation 45,180 11,060 90,563 22,817
---------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations Before Interest Income,
Income Taxes, Extraordinary Item,
& Discontinued Operations 385,037 114,517 675,869 ( 69,278)
Interest Income 58,687 81,824 122,709 160,554
---------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations Before Income Taxes,
Extraordinary Item & Discontinued
Operations 443,724 196,341 798,578 91,276
Income Taxes 118,000 71,000 235,000 24,700
---------- ---------- ---------- ----------
Income (Loss) from Continuing
Operations Before Extraordinary
Item & Discontinued Operations 325,724 125,341 563,578 66,576
Utilization of Net Operating Losses
and Foreign Tax Credits 49,200 - 139,600 -
---------- ---------- ---------- --------
Income (Loss) from Continuing
Operations 374,924 125,341 703,178 66,576
Discontinued Operations - Net of
Income Taxes - ( 626,676) - ( 566,576)
---------- ---------- ---------- ----------
Net Income (Loss) $ 374,924 ($ 501,335) $ 703,178 ($ 500,000)
========== ========== ========== ==========
Earnings (Loss) Per Common Share
and Common Share Equivalent
Common Share Equivalent Outstanding 3,524,473 3,300,000 3,479,091 3,300,000
========== ========== ========== ==========
Discontinued Operations $ - ($ .19) $ - ($ .17)
Income (Loss) from Continuing
Operations .11 .04 .20 .02
---------- ---------- ---------- ----------
Net Income (Loss) $ .11 ($ .15) $ .20 ($ .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 $ - ($ .19) $ - ($ .17)
Income (Loss) from Continuing
Operations .11 .04 .20 ( .02)
---------- ---------- ---------- ----------
Net Income (Loss) $ .11 ($ .15) $ .20 ($ .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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) from Continuing Operations $ 703,178 $ 66,576
Discontinued Operations - ( 566,576)
Adjustments to Reconcile Net (Loss) Income
to Net Cash Provided by Operating Activities:
Depreciation 90,563 22,817
Changes in Assets - (Increase) Decrease:
Accounts Receivable ( 282,294) ( 112,710)
Assets Held for Sale - 839,117
Prepaid Expenses and Other Current Assets ( 53,429) ( 71,390)
Deferred Income Taxes ( 5,600) -
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses ( 41,294) 129,764
Foreign Income Tax Payable 51,839 -
---------- ----------
Net Cash Provided By (Used In) Operating
Activities 462,963 307,598
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment ( 587,408) ( 709,253)
Advances from/to Affiliates - Net - 63,459
Cash - Restricted - 104,107
Other Assets 14,991 -0-
Financing Arrangement - Net - 210,815
---------- ----------
Net Cash Provided (Used In) Investing
Activities ( 572,417) ( 330,872)
---------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents ( 5,337) -
---------- -----------
NET (DECREASE) IN CASH ( 114,791) ( 23,274)
CASH AND CASH EQUIVALENTS - BEGINNING 4,668,446 5,001,399
---------- ----------
CASH AND CASH EQUIVALENTS - ENDING $4,553,655 $4,978,125
- ---------------------------------- ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ - $ -
========== ==========
Income Taxes, Foreign $ 50,484 $ -
========== ==========
</TABLE>
Read accountants' review report and notes to financial statements.
- 5 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
AS OF JUNE 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 June
30, 1996 the Company had acquired approximately 7,000 slot machines
and other related equipment at a cost of $2,924,692, 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 JUNE 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
$4,350,000 and $4,500,000 at June 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 JUNE 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 $103,000
and $53,000 as of June 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 JUNE 30, 1996 AND DECEMBER 31, 1995
-----------------------------------------
Note 3. Property and Equipment
- ------- ----------------------
Property and equipment are summarized as follows:
June 30, December 31,
1996 1995
---------- ------------
Leased Property $ 346,600 $ 273,975
Rental Equipment 2,924,692 2,461,794
Leasehold Improvements 2,090 2,090
Furniture and Fixtures 171,379 116,942
Transportation Equipment 78,617 84,922
Office Equipment 16,628 12,995
---------- ----------
Total 3,540,006 2,952,718
Less: Accumulated Depreciation 243,937 153,495
---------- ----------
Property and Equipment - Net $3,296,069 $2,799,223
========== ==========
Depreciation expense for the three and six months ended June 30,
1996 was $45,179 and $90,563, respectively.
Rent expense for the three and six months ended June 30, 1996 was
$23,020 and $40,729 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 June 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.
Read accountants' review report and notes to financial statements.
- 9 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 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 JUNE 30, 1996 AND DECEMBER 31, 1995
-----------------------------------------
Note 8. Provision for Income Taxes
- ------- --------------------------
The provision for income taxes consisted of the following for the
years ended:
1996 1995
--------- -------
Current
Federal $ 139,600 $ 16,500
State - 8,200
Foreign 101,000 -
--------- -------
240,600 24,700
--------- ---------
Deferred
Federal - -
State - -
Foreign ( 5,600) -
---------- ----------
( 5,600) -
---------- ----------
Income Tax Provision $ 235,000 $ -
========== ==========
Deferred income taxes resulting from differences between accounting
for financial statements purposes and accounting for tax purposes,
were as follows.
1996 1995
--------- --------
Revenue Recognition ($ 5,600) $ -
--------- --------
Tax Effects of timing Differences ($ 5,600) $ -
========= ========
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 $ 235,000 $ 16,500
State Taxes - 8,200
Foreign Taxes 95,400 -
Net Operating Losses ( 95,400) -
-------- -------
Income Tax Provision $ 235,000 $ 24,700
========= =========
Read accountants' review report and notes to financial statements.
- 11 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
-----------------------------------------
Note 8. Provisions for Income Taxes (Continued)
- ------- ---------------------------------------
As of June 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 $1,298,000
December 31, 2010 570,000
----------
Total $1,868,000
==========
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 a 10% incentive bonus
if the Company achieves a net profit before taxes of $1,000,000 or
more.
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 JUNE 30, 1996 AND DECEMBER 31, 1995
-----------------------------------------
Note 9. Commitments and Contingencies (Continued)
- ------- -----------------------------------------
D Foreign Assets
--------------
The accompanying consolidated balance sheet for the period ended
June 30, 1996, includes assets relating to the Company's slot
machine operations in Peru and Colombia, South America, of
$3,300,000 and $350,000, 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.
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 -
<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 opened its
Colombian office on October 1, 1995 with 15 technicians and 1,500 slot machines
in inventory.
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 for the
three months ended June 30, 1996 increased $457,288 (165%) to $732,882 from
$275,594 for the three months ended June 30, 1995. Revenues over the six month
period ended June 30, 1996 increased $973,399 (280%) to $1,321,618 from $348,219
for the
<PAGE>
three months ended June 30, 1995. The increase in revenues over the three and
six month periods described above is attributed to the fact that the Company is
now able to focus its efforts on the marketing and rental of slot machines. The
Company did not enter the gaming and casino industry until late 1994 and did not
begin renting slot machines until January 1995.
Selling, General, and Administrative expenses incurred in the operation
of the Company's gaming and casino business increased $152,648 (102%) to
$302,665 from $150,017 for the three months ended June 30, 1995. Selling,
General and Administrative expenses for the six month period ended June 30, 1996
increased 160,506 (141%) to $555,186 from 394,219 for the same six 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 $200,383, or $.11 per share, for the three
months ended June 30, 1996 from $125,341 for the same period in 1995. For the
same reasons, net income for the six month period ended June 30, 1995 increased
$636602 (956%) to $703,178 from $66,576 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 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 June 30, 1996, the Company had invested approximately $3,000,000
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 $2,900,000. 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.
<PAGE>
The Company's balance sheet for the quarter ended June 30, 1996
includes assets relating to the Company's slot machine operations in Peru and
Colombia, South America of $3,300,000 and $350,000 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 $9,033,078 in assets, of which
$4,553,655 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 $1,868,000.
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.
<PAGE>
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: August 13, 1996 /s/ Lloyd Lyons
--------------- ---------------
Lloyd Lyons
Chief Executive Officer
Date: August 13, 1996 /s/ Donald Schiffour
--------------- --------------------
Donald Schiffour
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,553,655
<SECURITIES> 0
<RECEIVABLES> 703,697
<ALLOWANCES> (109,814)
<INVENTORY> 0
<CURRENT-ASSETS> 5,449,212
<PP&E> 3,296,069
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,033,078
<CURRENT-LIABILITIES> 208,464
<BONDS> 0
0
0
<COMMON> 2,211
<OTHER-SE> 8,822,403
<TOTAL-LIABILITY-AND-EQUITY> 9,033,078
<SALES> 1,321,618
<TOTAL-REVENUES> 1,321,618
<CGS> 0
<TOTAL-COSTS> 555,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 139,600
<INTEREST-EXPENSE> 122,709
<INCOME-PRETAX> 798,578
<INCOME-TAX> 235,000
<INCOME-CONTINUING> 703,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 703,178
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
