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, 1997
LATIN AMERICAN CASINOS, INC.
Commission File Number 33-43423
A Delaware Corporation 65-0159115
(IRS Employer Identification Number)
3941 N.E. 163rd Street (305) 945-9300
North Miami Beach, FL 33160 (Telephone Number)
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, 1997: 3,300,000 shares.
<PAGE>
LATIN AMERICAN CASINOS, INC.
AS OF SEPTEMBER 30, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
REVIEW REPORT
-------------
AS OF SEPTEMBER 30, 1997
------------------------
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONTENTS
--------
Accountant's Review Report 1
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 2
Consolidated Statements of Changes in Stockholder's
Equity for the Nine Months Ended September 30, 1997
and the Year Ended December 31, 1996 3
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements as of
September 30, 1997 and December 31, 1996 6-14
<PAGE>
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, 1997, and the related
consolidated statements of operations, changes in stockholder's equity and cash
flows for the three and nine months ended September 30, 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 April 15, 1997, but we have
not prepared any audit procedures since that date.
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
November 7, 1997
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
----------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $3,666,739 $4,492,198
Accounts Receivable, Less $199,814 and
$149,814 of Allowance for Doubtful
Accounts 1997 and 1996, respectively 1,222,338 848,260
Prepaid Expenses and Other Current Assets 137,807 169,072
---------- ----------
Total Current Assets 5,026,884 5,509,530
---------- ----------
PROPERTY AND EQUIPMENT - NET 4,205,102 3,852,961
---------- ----------
OTHER ASSETS
Financing Arrangement Receivable 114,460 114,460
Deposits 10,525 4,935
Note Receivable - Stockholder 129,000 129,000
Other Assets 41,462 2,710
---------- ----------
Total Other Assets 295,447 251,105
---------- ----------
TOTAL ASSETS $9,527,433 $9,613,596
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 349,407 $ 367,734
Foreign Income Tax Payable 43,394 140,660
Deferred Income Tax Payable -0- 7,500
---------- ----------
Total Current Liabilities 392,801 515,894
---------- ----------
COMMITMENTS AND CONTINGENCIES -- --
---------- ----------
Total Liabilities 392,801 515,894
---------- ----------
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 (60,910) 4,003
Deficit (726,226) (828,069)
---------- ----------
Total Stockholders' Equity 9,134,632 9,097,702
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,527,433 $9,613,596
========== ==========
</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, 1997 AND
------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------
NUMBER PAR ADDITIONAL TRANSLATION RETAINED
OF VALUE PAID-IN AD- EARNINGS
SHARES $.00067 CAPITAL ADJUSTMENTS (DEFICIT)
------ ------- ------- ----------- ---------
BALANCE -
<S> <C> <C> <C> <C> <C>
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 -- -- -- (64,913) --
DIVIDENDS PAID -- -- -- -- (87,189)
NET INCOME FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1997 -- -- -- -- 189,032
----------- ----------- ----------- ----------- -----------
BALANCE -
SEPTEMBER 30, 1997 3,300,000 $ 2,211 $ 9,919,557 $ (60,910) $ (726,226)
=========== =========== =========== =========== ===========
</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,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental Income $ 559,104 $ 786,973 $1,465,790 $2,112,028
Selling, General &
Administrative Expenses 501,832 392,181 1,314,335 950,803
Depreciation 48,500 47,437 123,500 138,000
---------- ---------- ---------- ----------
Income (Loss) from
Operations Before Interest Income,
Income Taxes, and Extraordinary Item 8,772 347,355 27,955 1,023,225
and Interest Income 56,927 71,595 174,971 194,304
---------- ---------- ---------- ----------
Income (Loss) from
Operations Before Income Taxes and
Extraordinary Item 65,699 418,950 202,926 1,217,529
Income Taxes 29,156 310,000 71,894 545,000
---------- ---------- ---------- ----------
Income (Loss) from Operation
Before Extraordinary Item 36,543 108,950 131,032 672,529
Utilization of Net Operating Losses
and Foreign Tax Credits 17,000 278,400 58,000 418,000
---------- ---------- ---------- ----------
Net Income 53,543 $ 387,350 $ 189,032 $1,090,529
========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE
- --------------------------------
AND COMMON SHARE EQUIVALENT
---------------------------
Common Share Equivalent Outstanding 3,300,000 3,541,545 3,300,000 3,479,091
========== ========== ========== ==========
Net Income (Loss) Per Share $ .02 $ .11 $ .06 $ .31
========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE
- --------------------------------
ASSUMING FULL DILUTION
----------------------
Common Share Equivalent Outstanding 3,300,000 3,563,430 3,300,000 3,563,430
========== ========== ========== ==========
Net Income (Loss) Per Share $ .02 $ .11 $ .06 $ .31
========== ========== ========== ==========
</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, 1997 AND 1996
-----------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 189,032 $ 1,090,529
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 123,500 138,000
Changes in Assets - (Increase) Decrease:
Accounts Receivable (374,078) (524,715)
Prepaid Expenses and Other Current Assets 31,265 (93,772)
Deferred Income Taxes (7,500) (34,999)
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses (18,327) 181,145
Foreign Income Tax Payable (97,266) 77,904
----------- -----------
Net Cash Provided By (Used In) Operating
Activities (153,374) 834,092
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (475,641) (1,012,797)
Dividend Payments (87,189) --
Other Assets (44,342) 42,310
----------- -----------
Net Cash Provided (Used In) Investing
Activities (607,172) (970,487)
----------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (64,913) (7,107)
----------- -----------
NET (DECREASE) IN CASH (825,459) (143,502)
CASH AND CASH EQUIVALENTS - BEGINNING 4,492,198 4,668,446
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 3,666,739 $ 4,524,944
- ---------------------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ -- $ --
=========== ===========
Income Taxes, Foreign $ 97,266 $ 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, 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.
In 1994, the Company formed a Peruvian subsidiary, in late 1995 the
company formed a Colombian subsidiary and in 1997 the company formed
a Nicaraguan 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 September 30, 1997 the
Company had acquired approximately 7,000 slot machines and other
related equipment at a cost of $3,964,998, 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 and Latin American
Casinos of Nicaragua. Included in other assets in the accompanying
balance sheet is approximately $30,000 of initial expenditures
related to the commencement of the Nicaraguan operations. In
addition, effective September 23, 1997 the company incorporated
World's Best Rated Cigar Company as a wholly-owned subsidiary, to
distribute cigars. Operations for this subsidiary have not commenced
and as such approximately $11,000 of pre operation costs have been
included in other assets in the accompanying balance sheet.
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 the 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, 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. Therefore, the marketable securities of
$3,497,000 and $4,350,000 at September 30, 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, and underwriter's
options (notes 5 and 6) are anti dilutive. During 1997 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, 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 totaled $55,000 and
$59,000 as of September 30, 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.
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, 1997 AND DECEMBER 31, 1996
----------------------------------------------
NOTE 2. PROPERTY AND EQUIPMENT
- ------- ----------------------
Property and equipment are summarized as follows:
September 30, December 31,
1997 1996
---------- ----------
Leased Property $ 346,881 $ 346,881
Rental Equipment 3,964,998 3,524,511
Leasehold Improvements 8,222 2,090
Furniture and Fixtures 206,280 174,842
Transportation Equipment 124,663 113,379
Office Equipment 30,413 28,499
---------- ----------
Total 4,681,457 4,190,202
Less: Accumulated Depreciation 476,355 337,241
---------- ----------
Property and Equipment - Net $4,205,102 $3,852,961
========== ==========
Depreciation expense for the three and nine months ended September
30, 1997 was $48,500 and $123,500, respectively.
Rent expense for the three and nine months ended September 30, 1997
was $14,820 and $73,214 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 3. CASH AND CASH EQUIVALENTS
- ------- -------------------------
As of September 30, 1997, cash and cash equivalents included
commercial paper in the amount of $3,497,000, with interest rates
which approximates 5.53%.
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.
The stockholder repaid $21,000 during 1994. All interest charged
through 1996 and has been paid by the stockholder. The Company
expects that the note will be repaid by 1998.
Included in the statement of operations is approximately $8,700 of
interest accrued for the nine months ended September 30, 1997.
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, 1997 AND DECEMBER 31, 1996
----------------------------------------------
NOTE 5. 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, 1999.
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, 1999, 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
excise price of $2.50 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, 1997 AND DECEMBER 31, 1996
----------------------------------------------
NOTE 7. PROVISION FOR INCOME TAXES
- ------- --------------------------
The provision for income taxes consisted of the following for the
nine months ended September 30:
1997 1996
--------- ---------
Current
Federal $ 70,156 $ 383,000
State 1,738 --
Foreign 28,000 127,000
--------- ---------
99,894 510,000
--------- ---------
Deferred
Federal -- --
State -- --
Foreign (28,000) 35,000
--------- ---------
(28,000) 35,000
--------- ---------
Income Tax Provision $ 71,894 $ 545,000
========= =========
Deferred income taxes resulting from differences between accounting
for financial statements purposes and accounting for tax purposes,
were as follows:
1997 1996
--------- ---------
Revenue Recognition $ (28,000) $ 117,000
--------- ---------
Tax Effects of timing Differences $ (28,000) $ 35,000
========= =========
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 $ 58,000 $ 383,000
State Taxes -- --
Foreign Taxes -- 162,000
Other (Assessment of taxes Prior Year) 13,894 --
Net Operating Losses and Tax Credits (58,000) (418,000)
--------- ---------
Income Tax Provision $ 13,894 $ 127,000
========= =========
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, 1997 AND DECEMBER 31, 1996
----------------------------------------------
NOTE 7. PROVISIONS FOR INCOME TAXES (Continued)
- ------- ---------------------------------------
As of September 30, 1997, the Company had available for income tax
purposes unused net operating loss carry forwards which may provide
future tax benefits expiring as follows:
December 31, 2009 $ 329,000
December 31, 2010 428,000
----------
Total $ 757,000
==========
In addition the Company has available approximate foreign tax
credits to offset future federal income taxes of $276,000.
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. In addition, there is a 10% incentive bonus
if the Company achieves a net profit before taxes of $1,000,000 or
more. In January 1997 the company entered into a new five year
employment agreement with the Chief Executive officer which provides
for a annual salary commencing January 1, 1997 of $275,000 and
increasing $25,000 per annum plus commencing January 1, 1998 and
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. Included in
accounts payable and accrued expenses are $146,250 due the Chief
Executive Officer for amounts due from the 1996 bonus and unpaid
salaries of 1997, which was subsequently paid in October 1997.
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, 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. These costs have been capitalized
to the cost of the land.
D FOREIGN ASSETS
--------------
The accompanying consolidated balance sheet for the period ended
September 30, 1997, includes assets relating to the Company's slot
machine operations in Peru, Colombia, and Nicaragua, of $4,000,000,
$1,378,00 and $285,000 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 had 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 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 in Peru 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. The 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>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
----------------------------------------------
NOTE 10. DIVIDEND PAYMENT
- -------- ----------------
On April 15, 1997 The Board of Directors declared a $.05 per share
dividend to shareholders of record on May 30, 1997, payable
September 1, 1997. Simultaneously the Company's officers and
directors waived their rights to the payment of such dividend. The
company disbursed $87,189 pursuant to this dividend declaration.
Read accountants' review report and notes to financial statements
-14-
<PAGE>
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
November 1, 1997, the Company had 900 machines under rental contracts and 600
machines under participation contracts with various entrepreneurs throughout
Colombia.
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.
In March of 1997, the Company expanded its slot machine operations 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 OPERATIONS
- ---------------------
The Company's revenues from the rental of slot machines in Peru,
Colombia and Nicaragua for the nine months ended September 30, 1997 decreased
$646,238 (30.6%) to $1,465,790 from $2,112,028 for the nine months ended
September 30, 1996.
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
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.
In addition, the Peruvian 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
15
<PAGE>
(ii) gaming issues are within the jurisdiction of Peruvian municipalities and
not the Peruvian government. The Company's attorneys in Peru believe the
injunction will remain in effect for approximately two years. At the current
time, the Company has 825 machines under rental contracts in Peru.
Selling, General, and Administrative expenses incurred in the
operation of the Company's gaming and casino business increased $363,532 (38.4%)
over the nine month period ended September 30, 1996. This increase reflects the
continued start-up costs for the Company's expansion into Colombia and Nicaragua
and an increase in executive compensation.
Because revenues generated from the rental of slot machines decreased,
Selling, General, and Administrative Expenses increased, and because of the
increased tax and regulatory burden in Peru, net income from continuing
operations decreased to $189,032, or $0.06 per share, for the nine months ended
September 30, 1997 from $1,090,529, or $0.31 per share, for the same period in
1996.
The Company is currently restructuring 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 these markets become available. The Company began full scale operations by
shipping 900 slot machines to Nicaragua during the first nine months of 1997. As
of November 1, 1997 the Company had received commitments for the use of 500
machines on a participation basis in Nicaragua.
On September 23, 1997 the company incorporated World's Best Rated
Cigar Company as a wholly-owned subsidiary, to distribute cigars. Operations for
this subsidiary have not yet commenced. For the quarter ended September 30, 1997
this subsidiary had approximately $11,000 of pre-operation costs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1997, the Company had invested approximately
$3,950,000 in the business of renting slot machines in Latin America and had
acquired approximately 7,000 slot machines and other related equipment. 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 nine months ended September 30,
1997 includes assets relating to the Company's slot machine operations in Peru,
Colombia and Nicaragua of $4,000,000, $1,378,000 and $285,000 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 $9,527,433 in assets, of which
$3,666,739 is in cash and cash equivalents, and approximately 7,000 slot
machines in inventory. The Company has
16
<PAGE>
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 $757,000. In addition, the Company has available
foreign tax credits in the amount of approximately $276,000.
Other than for the acquisition of additional slot machines and
inventory for new cigar operations the Company does not presently know of any
material commitment for capital expenditures for the upcoming year.
In August 1997, the Board of Directors of the Company authorized the
extension of the expiration date of the Company's Redeemable Common Stock
Purchase Warrants (the "Warrants") for two additional years to December 1999
from December 1997. The Warrants currently trade on the NASDAQ National Market
System under the symbol "LACIW".
17
<PAGE>
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: NOVEMBER 14, 1997 /s/ LLOYD LYONS
------------------ ----------------------------
Lloyd Lyons
Chief Executive Officer
Date: NOVEMBER 14, 1997 /s/ DONALD D. SCHIFFOUR
------------------ ----------------------------
Donald D. Schiffour
Chief Financial Officer
18
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<NAME> Latin American Casinos, Inc.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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