SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1996 Commission File Number 33-43423
LATIN AMERICAN CASINOS, INC.
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
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $0.00067 par value
Warrants, exercisable at $7.25 per share
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
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $2,501,001.
Aggregate market value of the voting stock held by non-affiliates,
computed by reference to the average bid and asked prices of such stock, as of
March 31, 1997 $3,982,500.
Number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1997: 3,300,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Latin American Casinos, Inc. (the "Company") is the largest slot
machine rental and remanufacturing company in South America. The Company was
initially organized as Repossession Auction, Inc., a Florida corporation, in
1989. The Company merged into a Delaware corporation bearing the same name in
1991. In 1994, the Company changed its name to Latin American Casinos, Inc. to
reflect entrance into the gaming and casino business.
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 $400 each
including freight, duty, and limited refurbishing expenses. The Company has
determined that more extensive refurbishing extends the working life of each
slot machine for an additional five years. Such additional refurbishing
increases the cost of each machine by approximately $75. The Company believes
that the additional refurbishing results in lower maintenance and future
refurbishing costs and that these savings offset the additional costs.
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 Colombia office on
October 1, 1995 with 15 technicians and 1,500 slot machines in inventory. As of
April 1, 1997 the Company has 700 machines under rental contracts with various
entrepreneurs for approximately $85 per month.
On February 25, 1997 the Company entered into gaming route operations
on a participating basis with the owners of various business establishments. The
Company has determined that such an arrangement benefits both the Company and
those establishments which want slot machines, but do not wish to enter into
formal long-term rental agreements. Participation allows the Company share in
profits of slot machine operations while minimizing the risks associated with
the collection of accounts receivable.
The Company has received government approval for establishing gaming
route operations in Colombia and Nicaragua and is prepared to move rapidly into
these markets. The Company expects to be fully operational in both countries by
May of 1997.
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The Company expects to install thousands of machines in, among other
establishments, drug stores, pool halls, bars, restaurants and nightclubs. This
new venture will change the Company into an operational gaming company as well
as a strictly rental company. Participation based operations are expected to
increase profitability by increasing cash flow while limiting accounts
receivable. The Company believes that its decision to broaden the base of its
business operations illustrates the Company's commitment to continually enhance
its position for further growth in Central and South America.
The Company commenced operations in Nicaragua in April 1997. The
Company will offer both rental and participation agreement in Nicaragua and
expects to have 1,000 machines in operation within one year.
The Company is headquartered in Miami, Florida and has offices in Lima,
Peru, Bogota, Colombia and Managua, Nicaragua. Applications to do business have
been filed in Argentina, Paraguay, Brazil, and Honduras.
Source of Machines
The Company has entered into an exclusive purchase agreement with
Aristocrat Leisure Industries, Ltd. ("Aristocrat") of Sydney, Australia.
Aristocrat is the second largest manufacturer of slot machines in the world.
This agreement allows the Company to purchase up to 15,000 used Microstar I
machines for use in South American countries where the Company is licensed to do
business. On July 1, 1996, the Company signed a new contract with Aristocrat for
the purchase of the later model Microstar Video machines under the same terms
and conditions as the original agreement.
Refurbishing Process
All slot machines are received in the Company's warehouses in Lima,
Peru or Bogota, Colombia and are promptly refurbished by the Company's
technicians. Each slot machine is electronically tested for 30 minutes to assure
that it is in correct working order. Defective or worn parts are replaced or
repaired. Once the technician is satisfied that the machine is in proper working
order, the machine is thoroughly cleaned inside and out. At that time, a
computerized printed card that translates the rule of play from English to
Spanish is placed inside the machine in such a way that it can be seen and read
by the slot machine player.
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Rental of Slot Machines
The slot machines are rented to licensed individual owner operators
under a rental contract. The contracts are for various terms, conditions and
amounts depending on, among other things, the number of slot machines requested
by the renter. All contracts are backed by a personal guarantee for the first
four installment payments from the renter to insure against non-payment of
rental fees in the initial stage of the contract. The rental contracts also
provide insurance to cover any loss by fire, theft, vandalism or political
unrest.
Slot Route Operations - Participation
Under certain circumstances, slot machines are placed into various
business establishments under an agreement that calls for participation between
the Company and the owner of the business establishment. Under such an
agreement, an amount equal to the monthly tax imposed by the government is
deducted from the total winnings of the machine, along with all jackpots paid
out. The remaining monies are divided on a weekly basis 30% to the owner of the
business establishment and 70% to the Company. In certain instances, due to
jackpots paid out, there may be no participation monies to be divided. However,
in the long run, the machines are programmed to retain at least 15% of all coins
played.
Government Regulation
Gambling in Peru was legalized in 1992. Six small casinos are now in
operation in Lima. The Sheraton Hotel has opened a Las Vegas style casino in
downtown Lima with a reported investment of over $12,000,000.
Regulations governing slot machines were issued in March 1994. Lloyd
Lyons, the Company's Chief Executive Officer, presented views before the
Peruvian Gaming Commission prior to the issuance of the regulations.
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 and four other gaming companies have enjoined the Peruvian
federal government from implementing the tax on the grounds that (i) the tax was
implemented arbitrarily without consulting the Peruvian gaming commission and
(ii) gaming issues are within the jurisdiction of Peruvian municipalities and
not
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the Peruvian federal government. The Company's attorneys in Peru believe the
injunction will remain in effect for approximately two years. It has not been
determined to what extent, if any, that the excise tax will have on the future
operations of the Company in Peru. While this new tax, if not modified, may
adversely effect future earnings, the Company expects to continue to be
profitable. As of the date of this report, the Company's market has stabilized
with approximately 1,000 slot machines under rental agreements.
Employees
The Company currently has five full time employees and one part-time
employee in Miami. Of these six employees, three are executives and three are
clerical. In Lima, Peru, the Company has nine full time employees in its
business office including a general manager. The Company employs one supervisor
in the remanufacturing plant and now has eighteen service technicians of which
six are part-time personnel.
The Colombia and Nicaragua offices each has a general manager. Colombia
has 20 contract service technicians and Nicaragua has 2 technicians at present.
The Company believes its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's executive offices and operating facilities are located at
3909 N.E. 163rd Street, Suite 202-B, North Miami Beach, Florida 33160. The
Company leases these premises for $1,800 per month. The current term expired in
1996, but the Company has exercised an option to renew on a month-to-month basis
through June, 1997 at which time the Company will relocate its offices. The
property is in overall good condition.
The Company leases a 2,000 square foot business office and a 1,500
square foot warehouse in Miraflores, a municipality in Lima, Peru. The Company
also leases an 11,000 square foot main warehouse and remanufacturing plant
approximately five miles from the business office.
In Bogota, Colombia, the Company leases a two story 7,000 square foot
combined office, warehouse, and remanufacturing plant.
The Company also leases an office/warehouse in Managua, Nicaragua.
In addition, the Company owns real estate and office space at 11337
N.W. 7th Avenue in Miami which housed the Company's former executive offices and
leased the adjacent used car and
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truck lot during 1995. As of April 1996, the Company has leased the office space
at this location to an unrelated third party for $1,500 per month.
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.
ITEM 3. LEGAL PROCEEDINGS
In 1994, the Company received notice from the Dade County Environmental
Resources Management Department indicating that there has been a discharge on
the property owned by the Company at 11337 N.W. 7th Avenue, Miami, Florida. The
discharge resulted in contaminated soil and wells on the property. The Company
maintains that the discharge was not the result of the Company's ongoing
activities at the location, but was the result of prior use of the property.
The Company has cooperated fully with the Department, and the
evaluation performed by outside professionals hired by the Company indicated
that the contamination was not severe. The Company had the contaminated soil
removed from the property, hauled away, and disposed of in accordance with state
and federal environmental laws and regulations. The excavation was filled in
with clean soil and the area concerned repaved.
In addition, the applicable regulatory agencies will monitor the
contamination levels in the three shallow wells on the property for an
undetermined period. If, after the prescribed period, all wells test at
appropriate levels for contaminants, the wells will be sealed and all monitoring
of the discharge will cease.
To date, the Company has paid $113,000 to various environmental
professionals toward the clean-up. The Company does not believe that the further
costs of remediation will be material.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock and Warrants were listed on NASDAQ under the
symbol "REPO" and "REPOW", respectively until June 20, 1994. Since June 20,
1994, the Company's Common Stock and Warrants are listed on NASDAQ under the
symbol "LACI" and "LACIW", respectively. Trading in the Common Stock and
Warrants began on December 19, 1991. The table below represents the quarterly
high and low sales prices for the Company's Common Stock and Warrants for the
last two fiscal years as reported by NASDAQ.
Common Stock High Low
1995
January 1 - March 31 1 1/2 1 1/8
April 1 - June 30 2 3/16 1 5/16
July 1 - September 30 2 3/4 1 7/10
October 1 - December 31 3 7/8 2 1/4
1996
January 1 - March 31 4 1/8 2 11/16
April 1 - June 30 7 1/8 3 1/4
July 1 - September 30 5 7/8 3 5/8
October 1 - December 31 5 11/16 2 1/2
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Warrants High Low
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1995
- ----
January 1 - March 31 1/8 1/16
April 1 - June 30 1/8 1/16
July 1 - September 30 5/32 1/16
October 1 - December 31 1/4 1/8
1996
- ----
January 1 - March 31 9/32 5/32
April 1 - June 30 13/8 7/32
July 1 - September 30 15/16 1/2
October 1 - December 31 3/4 1/8
The closing sales prices for the Common Stock and Warrants at April 24,
1997 were $2 3/8 and $9/32 respectively.
There were 50 registered owners and approximately 700 beneficial owners
of the Common Stock of the Company as of April 24, 1997. The Company declared no
cash dividends in 1995 or 1996. The Company has declared a dividend of $.05 per
share for shareholders of record as of May 30, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
General Overview
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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
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owned subsidiary. The Company opened its Colombian office on October 1, 1995
with 15 technicians and 1,500 slot machines in inventory. As of April 1, 1997,
the Company has 700 machines under rental contracts with various entrepreneurs
for approximately $85 to $100 per month.
The Company concentrates its efforts on the rental of used five reel
slot machines. These machines are purchased at a fraction of the cost of new
machines and are refurbished for use in South and Central America. Whereas a new
slot machine would cost approximately $6,000 plus additional duty charges, the
used slot machines purchased by the Company cost approximately $475 each
including freight, duty, and refurbishing expenses. The Company rents each slot
machine for approximately $85 to $100 per month.
In March of 1997 the Company decided to expand its slot machine
operation in Colombia and Nicaragua to include gaming slot route operations.
Under the slot route operations, the Company places machines into various
businesses on a participation basis with the owners or managers of the location.
After deducting expenses for taxes and jackpot payouts, the Company divides any
remaining winnings of the machine on a 30% participation to the business owner
and 70% participation to the Company. The Company believes that this change will
increase cash flow and reduce the Company's risk associated with the collection
of accounts receivable, thereby reducing allowances for doubtful accounts.
Results of the slot route operations will be reflected starting in the second
quarter of 1997.
As of October 31, 1995, the Company completed its exit from the used
car and truck business in the United States and Panama and began devoting its
full efforts to the gaming and casino industry.
Results of Operations
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The Company's revenues from the rental of slot machines in Peru and
Colombia for the year ended December 31, 1996 increased $1,200,408 (92%) to
$2,501,061 from $1,300,653 for the year ended December 31, 1996. The increase in
revenues over the period 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. The increase in revenues can also be attributed to the fact that,
while the Company commenced its Colombian operations during the last quarter of
1995, the Company was operating in Colombia for all of 1996.
Selling, General, and Administrative expenses incurred in the operation
of the Company's gaming and casino business increased $262,959 (23.6%) over the
twelve month period ended December 31, 1995. This increase reflects the
Company's increased focus on the gaming and casino industry as opposed to
the used car and truck business.
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Depreciation increased by $125,878, or 198.3%, to $189,347 for the year
ended December 31, 1996. This increase is attributable primarily to the
extensive use of the Company's increased inventory of slot machines.
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 $968,360, or $0.29 per share, for the year
ended December 31, 1996 from $433,006, or $0.13 per share, for the same period
in 1995. The Company experienced a net loss of $310,801, or $(.09) per share,
for the year ended December 31, 1995 due primarily to the costs associated with
exiting the used car and truck business. 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 and expects
its gaming operations in Peru and Colombia to continue to be profitable.
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 and four other gaming companies have enjoined the Peruvian
federal government from implementing the tax on the grounds that (i) the tax was
implemented arbitrarily without consulting the Peruvian gaming commission and
(ii) gaming issues are within the jurisdiction of Peruvian municipalities and
not the Peruvian federal government. The Company's attorneys in Peru believe the
injunction will remain in effect for approximately two years. It has not been
determined to what extent, if any, that the excise tax will have on the future
operations of the Company in Peru. While this new tax, if not modified, may
adversely effect future earnings, the Company expects to continue to be
profitable. As of the date of this report, the Company's market has stabilized
with approximately 1,000 slot machines under rental agreements.
The Company is currently reorganizing its Colombia-based operation by
down-sizing the main office in Bogota and opening three satellite offices, one
in Cali, one in Medellin, and the other in Barranquilla in the Northern tip of
Colombia. The Barranquilla office will also serve as the hub for the Company's
operations in Nicaragua and Honduras, as well as the Caribbean market if and
when it becomes available. The Company began full scale operations with 500 slot
machines in Nicaragua during the first quarter of 1997. The Company plans to
open offices in Honduras during the second quarter of 1997.
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Liquidity and Capital Resources
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As of December 31, 1996, the Company had invested approximately
$3,524,511 in the business of renting slot machines in Latin America. The
Company's investment in the gaming business included the acquisition of slot
machines at a approximate cost of $475 per machine. The Company anticipates that
its cash flow from operations, interest on investment and the remaining proceeds
from the Company's public offering will be sufficient to meet its needs for the
next twelve months.
The Company's balance sheet for the year ended December 31, 1996
includes assets relating to the Company's slot machine operations in Peru and
Colombia of $3,600,000 and $600,000 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 $9,613,596 in assets, of which
$4,492,198 is in cash and cash equivalents, and 7,000 slot machines in
inventory. The Company has 3,300,000 shares of Common Stock currently
outstanding. All options and warrants are considered to be anti-dilutive. The
Company has no debt and a U.S. tax loss carry forward of approximately $960,000.
In addition, the Company has available foreign tax credits in the amount of
approximately $248,000.
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.
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ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated
Financial Statements Form 10-KSB
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Independent Auditors' Report F-2
Consolidated Balance Sheets as of
December 31, 1995 and 1996 F-3
Consolidated Statements of Changes in
Stockholders' Equity for years ended
December 31, 1995 and 1996 F-4
Consolidated Statements of Operations
for the years ended
December 31, 1995 and 1996 F-5
Consolidated Statements of Cash Flows
for the years ended
December 31, 1995 and 1996 F-6
Notes to the Consolidated
Financial Statements F-7
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The independent auditor for the Company, Weinberg, Pershes & Company,
P.A. ("Weinberg") was dismissed on April 17, 1996. Weinberg's reports on the
financial statements for the past two years did not contain an adverse opinion
or disclaimer of opinion, and were not modified as to uncertainty, audit scope,
or accounting principles. At this time, management is not aware of any
disagreements with Weinberg on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the Weinberg's satisfaction, would have caused Weinberg to make
reference to the subject matter of the disagreement in connection with its
report.
Weinberg was dismissed because management believes that its new
auditors possess better Spanish to English translation capabilities. The Company
believes that it is essential that the Company's auditors have Spanish to
English translation capabilities in order to conduct the audits and reviews of
the Company's financial statements efficiently and in a timely manner.
Management determined that it was in the Company's best interests to engage a
new independent auditor.
The Company has engaged Shubitz Rosenbloom & Co., P.A. ("Shubitz,
Rosenbloom") of Miami, Florida as its principal accountant to audit the
Company's financial statements. Shubitz, Rosenbloom has Spanish speaking
accountants who are competent to handle the Company's changing needs and who
have expertise in international tax and accounting issues.
Weinberg has not consented to the use of its auditor's report dated
April 8, 1996 for the year ended December 31, 1995 in this Form 10-KSB on the
grounds that it is no longer independent due to a lawsuit filed against it by
the Company. The lawsuit does not concern any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the Weinberg's satisfaction, would have caused
Weinberg to make reference to the subject matter of the disagreement in
connection with its report. The Company's audit for the year ended December 31,
1996 (including the procedures with respect to subsequent events) did not reveal
any matters that, in the opinion of the Company's independent auditors, might
have a material effect on the financial statements reported on by Weinberg or
would require disclosure in the notes thereto.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The executive officers, directors and key employees of the Company are
as follows:
Director
Name Age Since
---- --- --------
Lloyd Lyons 56 1989
Donald D. Schiffour 65 1992
Jose A. Caballero 40 1994
Angel Garcia 37 1995
Ronald Zaid 60 1997
Lloyd Lyons is Chairman of the Board and Chief Executive Officer and is
the founder of the Company. Prior to founding the Company, Mr. Lyons was General
Manager and auctioneer of Miami Recovery Corp., a Miami based used car auction
company, from 1987 to 1989. From 1984 to 1987, Mr. Lyons was President and sole
stockholder of National Lien and Recovery Corp. of Florida, a firm which
specialized in recovering movable assets subject to mortgages and liens. Mr.
Lyons is a licensed auctioneer and has over 30 years experience in the used car
business. Mr. Lyons beneficially owns 1,700,000 shares of Common Stock.
Mr. Schiffour joined the Company as Vice President of International
Operations in June 1992. Prior to joining the Company, Mr. Schiffour was the
General Manager for Samson Automobile Leasing, Co., in Pittsburgh, Pennsylvania.
Mr. Caballero joined the Board of Directors in April, 1994. Mr.
Caballero is the Vice President of Exfi International Corporation, an
advertising and marketing agency that specializes in doing work for companies
that plan to expand their businesses into Latin America. Mr. Caballero has been
with Exfi International Corporation since 1987.
Mr. Garcia joined the Company in January 1995 and serves as President
of LACI in Peru. Mr. Garcia was the Marketing Manager of Slot Operations for one
of the largest casinos in Lima, Peru before joining LACI. He was named to the
Board of Directors of the Company in April 1995.
Mr. Zaid joined the Board of Directors in March 1997. Mr. Zaid has been
a successful entrepreneur in many businesses including the leasing of security
equipment and the car business.
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To the best of the Company's knowledge and belief, no director, officer
or beneficial owner of more than five percent of any class of equity securities
of the registrant failed to file on a timely basis reports required by Section
16(a) of the Exchange Act during fiscal year 1996.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by
the Company for services rendered for the year ended December 31, 1996 to each
of the Executive Officers of the Company whose cash compensation exceeded
$100,000 during that year, and the aggregate cash compensation of all Executive
Officers as a group:
Summary Compensation Table
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<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation Long Term Compensation
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Awards Payouts
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(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------------------------------------------------------------------------------------------------------------------
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Awards SARs Payouts sation
$ $ $ $ (#) $ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lloyd Lyons, 1996 236,000 100,000 - - - - -
Chief Executive 1995 236,000 - - - - - -
Officer 1994 236,000 - - - 300,000 - -
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All Executive 1996 326,000 100,000 - - - - -
Officers as a 1995 461,360 - - - - - -
group (4,5, and 1994 478,750 - - - 492,500 - -
5 persons
respectively)
====================================================================================================================================
</TABLE>
The Chief Executive Officer of the Company has an employment agreement
for an annual salary of $200,000 subject to annual increases effective until
December 19, 1996. Under the terms of the Employment Agreement, if the Company
achieves a net profit before taxes of $1,000,000, the executive offices is
entitled to a $100,000 bonus. If the Company achieves a net profit before taxes
of $1,500,000, the executive officer is entitled to a $150,000 bonus.
In January 1997, the Company entered into a new five year employment
agreement with the Chief Executive Officer which provides for an annual salary
commencing January 1997 of $275,000 and increasing $25,000 per annum commencing
January 1, 1998. The agreement provides for an adjustment in salary to reflect
increases, but not decreases, in the consumer price index. The
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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 may be awarded to the CEO
at the discretion of the Board of Directors.
Other than the incentive bonus plan described above and the stock
option plans described below, as of December 31, 1996, the Company does not have
any contingent forms of remuneration, including any pension, retirement, stock
appreciation, cash or stock bonus, or other compensation plan.
1991 Incentive Stock Plan and 1994 Stock Option Plan
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The Company adopted the Incentive Stock Plan (the "1991 Plan") in 1991.
The maximum number of shares available for issuance under the 1991 Plan is
450,000 shares. In June 1994 the Board of Directors adopted the 1994 Stock
Option Plan (the "1994 Plan"). The maximum number of shares available for
issuance under the 1994 Plan is 1,000,000 shares. The Plans are designed to
provide additional incentives for Directors and officers and other key employees
of the Company, to promote the success of the business and to enhance the
Company's ability to attract and retain the services of qualified persons. The
Plans are administered by the Compensation Committee of the Board of Directors
consisting of Messrs. Lyons, Caballero and Zaid. The 1991 Plan and the 1994 Plan
authorize the Compensation Committee to grant key employees selected by it until
September 30, 2001 and June 2004, respectively, incentive stock options and
non-qualified stock options. The exercise price of shares of Common Stock
subject to options qualifying as incentive stock options must be not less that
the fair market value of the Common Stock on the date of the grant. The exercise
price of incentive options granted under the Plans to any participant who owns
stock possessing more than 10% of the total combined voting power of all classes
of outstanding stock of the Company must be at least equal to 110% of the fair
market value on the date of grant. To date, 907,500 options have been issued
under the 1994 Plan, but none have been exercised.
The Board of Directors may amend the Plans at any time but may not,
without shareholder approval, adopt any amendment which would materially
increase the benefits accruing to participants or materially modify the
eligibility requirements. The Company also may not, without shareholder
approval, adopt any amendment which would increase the maximum number of shares
which may be issued under the Plans unless the increase results from a stock
dividend, stock split or other change in the capital stock of the Company.
- 15 -
<PAGE>
The Company may adopt additional compensation programs at a later date
suitable for its executive personnel. The Company is unable to predict at this
time the format or manner of compensation to be included in any such program.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding shares of
the Common Stock beneficially owned as of March 31, 1995 by (i) each person or a
group, known to the Company, who beneficially owns more than 5% of the Common
Stock, (ii) each of the Company's directors, and (iii) all officers and
directors as a group:
Number of
Shares
Beneficially Percent of
Name Owned(1) Class
- ---- ------------ ----------
Lloyd Lyons 2,350,000(2)(4) 59.5%
c/o Latin American
Casinos, Inc.
3909 N.E. 163rd Street
Suite 202-B
North Miami Beach, FL 33160
Donald D. Schiffour 82,000(3) 2.43%
c/o Latin American
Casinos, Inc.
3909 N.E. 163rd Street
Suite 202-B
North Miami Beach, FL 33160
Geraldine Lyons 75,000(3) 2.22%
c/o Latin American
Casinos, Inc.
3909 N.E. 163rd Street
Suite 202-B
North Miami Beach, FL 33160
Angel Garcia 65,000(5) 1.93%
Mariscal Sucre 321 Miraflores
Lima, 18 Peru
Ronald Zaid 3,000 *
16 Birchwood Park Court
Jericho, NY 11753
- 16 -
<PAGE>
Jose A. Caballero 0 0%
12900 SW 11th Avenue
Miami, FL 33176
All Officer and Directors 2,575,000 61.82%
as a group
- ----------
(1) Based on a total of 3,300,000 shares of Common Stock issued and
outstanding.
(2) Includes 615,388 shares owned by Mr. Lyons' children and
grandchildren's trusts.
(3) Includes options to purchase 75,000 shares of Common Stock of the
Company exercisable at $2.50 per share.
(4) Includes options to purchase 650,000 shares of Common Stock of the
Company exercisable at $2.50 per share.
(5) Includes options to purchase 65,000 shares of Common Stock of the
Company exercisable at $2.50 per share.
* Less than 1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1993, the Company loaned $150,000 to
Lloyd Lyons. In 1994, Mr. Lyons repaid $21,000 of this amount. Interest is being
accrued and paid at a rate of prime plus 1% per annum. As of December 31, 1996,
all interest accrued on the loan had been paid to the Company in a timely
manner.
- 17 -
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of exhibits as required by Item 601 of Regulation S-B.
Exhibit No. Description of Exhibit
- ----------- -----------------------
3.1 Articles of Incorporation (Delaware)
3.2 Bylaws(1)
4.1 Common Stock Specimen(1)
4.2 Warrant Specimen(1)
4.3 Form of Warrant Agreement(1)
10.1 Agreements between the Company and Aristocrat Leisure
Industries PTY LTD dated May 31, 1994, December 12,
1994 and March 24, 1995(2)
10.2 Agreements between the Company and Latin American
Casinos S.A. dated January 10, 1996.(3)
10.3 Employment Agreement between the Company and Lloyd
Lyons dated January 1, 1997.
27.1 Financial Data Schedule
(1) Incorporated herein by reference from the 10-KSB filed by the Company
for the year ended December 31, 1992.
(2) Incorporated herein by reference from the 10-KSB filed by the Company
for the year ended December 31, 1994.
(3) Incorporated herein by reference to the 10-KSB filed by the Company for
the year ended December 31, 1995.
(b) Reports on Form 8-K
Current Report on Form 8-K as filed with the Commission on
February 12, 1997 regarding the resignation of Mr. George
Edelson from the Board of Directors of the Company.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Latin American Casinos, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
LATIN AMERICAN CASINOS, INC.
By /s/ Lloyd Lyons
-----------------------------
Lloyd Lyons
Chairman and Chief Executive
Officer
Date: April 28 , 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Latin American Casinos, Inc., and in the capacities and on this 28th day of
April, 1997:
/s/ Lloyd Lyons
- ----------------------------------
Lloyd Lyons
Chairman, Chief Executive Officer,
and Director
/s/ Donald D. Schiffour
- ----------------------------------
Donald D. Schiffour
Vice President and Director
- ----------------------------------
Jose A. Caballero
Director
/s/ Angel Garcia
- ----------------------------------
Angel Garcia
President, Latin American Operations
and Director
- ----------------------------------
Ronald Zaid
Director
- 19 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONTENTS
--------
Independent Auditor's Report 2
Consolidated Balance Sheets as of December 31, 1996 and
1995 3
Consolidated Statements of Changes in Stockholder's
Equity for the Years Ended December 31, 1996 and
1995. 4
Consolidated Statements of Operations for the Years
Ended December 31, 1996 and 1995. 5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995. 6
Notes to Consolidated Financial Statements as of
December 31, 1996 and 1995. 7-15
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors of:
Latin American Casinos, Inc. and Subsidiaries
We have audited the consolidated balance sheet of Latin American Casinos, Inc.
and subsidiaries as of December 31, 1996 and the related consolidated statement
of operations, changes in stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Latin
American Casinos, Inc. and subsidiaries as of December 31, 1996 and the results
of their operations and there cash flows for the year then ended, in conformity
with generally accepted accounting principles. The financial statement 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.
Miami, Florida
April 15, 1997
F-2
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $4,492,198 $4,668,446
Accounts Receivable, Less $149,814
and $99,814 of Allowance for Doubtful
Accounts 1996 and 1995, Respectively 848,260 421,403
Deferred Income Taxes - 33,652
Prepaid Expenses and Other Current Assets 169,072 99,180
---------- ----------
Total Current Assets 5,509,530 5,222,681
---------- ----------
PROPERTY AND EQUIPMENT - NET 3,852,961 2,799,223
---------- ----------
OTHER ASSETS
Financing Arrangement Receivable 114,460 114,460
Deposits 4,935 14,510
Note Receivable - Stockholder 129,000 129,000
Other Assets 2,710 44,818
---------- ----------
Total Other Assets 251,105 302,788
---------- ----------
TOTAL ASSETS $9,613,596 $8,324,692
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 367,734 $ 186,619
Foreign Income Tax Payable 140,660 11,300
Deferred Income Tax Payable 7,500 -
---------- ----------
Total Current Liabilities 515,894 197,919
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
Total Liabilities 515,894 197,919
---------- ----------
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 4,003 1,434
Deficit ( 828,069) ( 1,796,429)
---------- ----------
Total Stockholders' Equity 9,097,702 8,126,773
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,613,596 $8,324,692
---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 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 - - - 2,569 -
NET INCOME FOR THE
THE YEAR ENDED
DECEMBER 31, 1996 - - - - 968,360
--------- -------- ---------- ----------- ------------
BALANCE -
DECEMBER 31, 1996 $3,300,000 $ 2,211 $9,919,557 $ 4,003 ($ 828,069)
========== ======== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the statement.
F-4
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Rental Income $ 2,501,061 $ 1,300,653
Selling, General &
Administrative Expenses 1,376,649 1,113,690
Depreciation 189,347 63,469
----------- -----------
Income (Loss) from Continuing
Operations Before Interest Income,
Income Taxes, Extraordinary Item,
& Discontinued Operations 935,065 ( 123,494)
Interest Income 255,930 309,512
----------- -----------
Income (Loss) from Continuing
Operations Before Income Taxes,
Extraordinary Item & Discontinued
Operations 1,190,995 443,006
Income Taxes 554,635 127,000
Income (Loss) from Continuing
Operations Before Extraordinary
Item & Discontinued Operations 636,360 306,006
Utilization of Net Operating Losses - -
and Foreign Tax Credits 332,000 127,000
----------- -----------
Income from Continuing
Operations 968,360 433,006
Discontinued Operations - Net of
Income Taxes - ( 743,807)
----------- -----------
Net Income (Loss) $ 968,360 ($ 310,801)
=========== ============
Earnings (Loss) Per Common Share
and Common Share Equivalent
Common Share Equivalent Outstanding 3,300,000 3,300,000
=========== ============
Discontinued Operations $ - ( .22)
Income from Continuing .29 .13
----------- -----------
Operations
Net Income (Loss) $ .29 ( .09)
=========== ============
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
LATIN AMERICAN CASINOS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) from Continuing Operations 968,360 $ 433,006
Discontinued Operations - ( 743,807)
Adjustments to Reconcile Net (Loss) Income
to Net Cash Provided by Operating Activities:
Depreciation 189,347 63,469
Changes in Assets - (Increase) Decrease:
Accounts Receivable 426,857) ( 334,645)
Assets Held for Sale - 1,204,898
Prepaid Expenses and Other Current Assets 69,892) 30,103
Deferred Income Taxes 33,652 ( 33,652)
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses 181,115 ( 72,194)
Foreign Income Tax Payable 129,360 11,300
Deferred Income Tax 7,500 -
----------- -----------
Net Cash Provided By Operating
Activities 1,012,585 802,606
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment 1,243,085) ( 152,820)
Advances from/to Affiliates - Net - 112,633
Cash - Restricted - 104,107
Other Assets 51,683 ( 44,818)
Financing Arrangement - Net - 263,905
----------- -----------
Net Cash (Used In) Investing
Activities 1,191,402) ( 1,136,993)
----------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalent 2,569 1,434
----------- -----------
NET (DECREASE) IN CASH ( 176,248) ( 332,953)
CASH AND CASH EQUIVALENTS - BEGINNING 4,668,446 5,001,399
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $4,492,198 $4,668,446
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ - $ -
=========== ===========
Income Taxes, Foreign $ 110,427 $ 22,352
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 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
$4,000,000 for the purchase of machines and equipment. As of
December 31, 1996 the Company has acquired approximately 7,000 slot
machines and other related equipment at a cost of $3,524,511,
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, Inc., 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 repair 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.
F-7
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
Note 1. Summary of Significant Accounting Policies (Continued)
- ------- ------------------------------------------
D Revenue Recognition
-------------------
Effective January 1, 1995, the Company began renting casino slot
machines. Revenues are 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. Marketable securities of $4,350,000 and
$4,500,00 at December 31, 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)
has been considered to be the equivalent of common stock when the
market price of the common stock excess the exercise price of the
options. The increase in the number of common share was reduced by
the number of common shares that are assumed to have been purchased
with the proceeds from the exercise of the options; those purchases
were assumed to have been made at the average price of the common
stock during the period. During 1996 the incentive stock options
were considered anti diluted. All 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.
F-8
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 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 $59,000 and
$53,000 as of December 31, 1996 and 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 in income.
Note 2. Discontinued Operations
- ------- -----------------------
On October 31, 1995, the Company completed the phase-out of its used
car and truck operations. Discontinued operations 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.
In that regard the book value of the used car inventory was reduced
by $377,000 in 1995 and was included in discontinued operations.
F-8
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
Note 3. Property and Equipment
- ------- ----------------------
Property and equipment are summarized as follows:
December 31 December 31
1996 1995
------------ ------------
Lease Property $ 346,881 $ 273,975
Rental Equipment 3,524,511 2,461,794
Leasehold Improvements 2,090 2,090
Furniture and Fixtures 174,842 116,942
Transportation Equipment 113,379 84,922
Office Equipment 28,499 12,995
------------ ------------
Total 4,190,202 2,952,718
Less: Accumulated Depreciation 337,241 153,495
------------ ------------
Property and Equipment - Net $3,852,961 $2,799,223
============ ============
Depreciation expense for the years ended December 31, 1996 and 1995
was $189,347 and $63,469, respectively.
Rent expense for the years ended December 31, 1996 and 1995 was
approximately $84,000 and $42,000 respectively.
Effective April 1, 1996, the Company leased the land and building
owned by the Company for $1,500 per month to an unrelated party for
a three year period.
Note 4. Cash and Cash Equivalents
- ------- -------------------------
As of December 31, 1996, cash and cash equivalents included
commercial paper in the amount of $4,350,000, with interest rates
which range from 5.38% - 5.44%.
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 1996 has been paid by the stockholder. The Company expects
that the note will be repaid by 1998. Included in the statement of
operations is $11,932, of interest income for the year ended
December 31, 1996, attributable to this note.
F-10
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,,1996 AND 1995
Note 6. Warrants and Options
- ------- --------------------
As of December 31, 1996, the Company has outstanding 1,725,000 five
years warrants to purchase one share of the Company's common stock
at an exercise price of $7.25 to 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
- ------- ----------------------
On September 30, 1991, the Company adopted the 1991 Incentive Stock
Option Plan in which the aggregate number of shares for which
options may be granted under the plan shall not exceed 450,000
shares. On June 13, 1994, the Board of Directors adopted the 1994
Stock Option Plan in which the aggregate number of shares for which
options may be granted under the plan shall not exceed 1,000,000
shares. The term of each option shall not exceed ten years from the
date of granting (five years for options granted to employees owning
more that 10% of the outstanding shares of the voting stock of the
Company). The 1991 plan became effective on September 30, 1991 and
will terminate on September 30, 2001. The 1994 plan became effective
on June 13, 1994 and will terminate in June 2004 unless terminated
earlier by action of the Board of Directors. In December, 1995, the
Company authorized the issuance under the 1994 Stock Option Plan to
issue 492,500 options at an exercise price of $2.50 per share to
various officers and employees. On March 6, 1997 the company
authorized the issuance of an additional 415,000 options at an
exercise price of $2.50 to various officers and employees.
F-11
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
Note 8. Provision for Income Taxes
- ------- --------------------------
The provision for income taxes consisted of the following for the
years ended December 31:
1996 1995
Current
Federal $ 332,000 $ -
State - -
Foreign 215,135 33,000
547,135 33,000
Deferred
Federal - -
State - -
Foreign 7,500 94,000
7,500 94,000
Income Tax Provision $ 554,635 $ 127,000
Deferred income taxes resulting from differences between accounting
for financial statement purposes and accounting for tax purposes,
were as follows:
1996 1995
Revenue Recognition $ 22,000 $ 94,000
Tax Effects of timing Differences $ 7,500 $ 94,000
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 $ 332,000 $152,000
State Taxes - 24,000
Foreign Taxes 222,635 127,000
Other - -
Net Operating Losses and Tax Credits ( 332,000) (176,000)
Income Tax Provision 222,635 $127,000
F-12
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
Note 8. Provisions for Income Taxes (Continued)
- ------- ---------------------------
As of December 31, 1996, the Company had available for income tax
purposes unused net operation loss carryforwards which may provide
future tax benefits expiring as follows:
December 31, 2009 $532,000
December 31, 2010 428,000
Total $960,000
In addition the Company has available approximate foreign tax
credits to offset future federal income taxes of $248,000.
Note 9. Commitments and Contingencies
- ------- -----------------------------
A Litigation
----------
The Company is a defendant from time to time in claims and lawsuites
arising out of the normal course of its business, non of which are
expected to have a material adverse effect on its business or
operations.
B Employment Agreements
---------------------
The chief executive officer has an employment agreement for an
annual salary of $200,000 subject to annual increases effective
until December 19, 1996. The Employment agreement provided for an
incentive bonus if the Company achieves a net profit before taxes of
$1,000,000 the executive officer is entitled to a $100,000 bonus. If
the Company achieves a net profit before taxes of $1,500,000 the
executive officer is entitled to a $150,000 bonus. Included in the
statement of operations is an accrual for the incentive bonus of
$100,000.
In January 1997 the company entered into a new five year employment
agreement with the Chief Executive Officer which provides for an
annual salary commencing January 1997 of $275,000 and increasing
$25,000 per annum plus commencing January 1, 1998 the agreement
provides for an adjustment in salary to reflect increases, but not
decreases, in the consumer price index. The agreement further
provides that in the event of either a merger, consolidation sale or
conveyance of substantially all the assets of the Company which
results in the discharge of the Chief Executive Officer he would be
entitled to 200% of the balance of payments remaining under the
contract. Further, the agreement provides that an annual bonus shall
be at the discretion of the Board of Directors.
F-13
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
Note 9. Commitments and Contingencies (Continued)
- ------- -----------------------------
C. Enviromental Liability
----------------------
The Company had received notice from the Dade County Enviromental
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 professional 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 cost 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
December 31, 1996, includes assets related to the Company's slot
machine operations in Peru and Colombia, South America of $3,600,000
and $600,000, respectively. Although, these countries are considered
politically and ecomnomically stable, it is possible that
unanticipated events in foreign countries could disrupt the
Company's operations.
In that regard the Company has been informed that in Peru an excise
tax has been instituted effective October 1, 1996 on the lessee's of
gaming equipment. It has not been determined the full extent that
this excise tax will have on future operations in Peru. The Company
with others in the industry have been negotiating with the
appropriate governmental agencies to have the excise tax
retroactively reduced or revised.
Note 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 anticipated recovery of the
amounts due under the financing arrangement in full. The Company's
has indicated the proceedings may take more than twelve months to
resolve. The receivable is shown as long term in the accompanying
financial statements.
F-14
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995
Note 11. Unaudited Financial Information
- -------- -------------------------------
<TABLE>
<CAPTION>
For The Quarters Ended
March 31 June 30 Sept.30 Dec. 31
1996 1996 1996 1996
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Rental Income $588,737 $732,882 $786,973 $ 392,469
Income (Loss) From
Continuing Operations $328,254 $374,924 $387,350 ($122,168)
Net Income (Loss) $328,254 $374,924 $387,350 ($122,168)
Earnings (Loss) Per Common
Share .10 .11 .11 ( .03)
Earnings (Loss) Per
Common Shares Assuming Full
Dilution .10 .11 .11 ( .03)
*At December 31, 1996 all
outstanding options and warrants
were considered anti dilutive (Note 1F)
</TABLE>
F-15
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated this 1st day of January, 1997, is entered into by
and between Latin American Casinos, Inc., a Delaware corporation ("Employer")
and Lloyd Lyons ("Employee").
W I T N E S S E T H:
--------------------
WHEREAS, Employer desires to retain the services of Employee upon the
terms and conditions stated herein, and
WHEREAS, Employee desires to be employed by Employer upon the terms and
conditions stated herein.
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and promises contained herein, the parties hereby agree as follows:
1. Employment Term. Employer herewith employs Employee as Chairman of
the Board of Directors and Chief Executive Officer of Employer for a period of
five years from the date hereof. This Agreement shall continue in effect for
annual renewal periods subsequent to the aforementioned 5 year period, provided
that this Agreement may be cancelled effective at the end of either the
aforementioned 5 year period or any annual renewal period subsequent to such 5
year period, by either party by giving notice to the other delivered at least
one hundred and twenty (120) days before the end of such period.
2. Duties. Employee's executive duties shall involve the supervision
and operation of the Employer's business and such other executive duties as may
be determined by the Board of Directors. The Employee shall devote all of his
working time, attention and energies to the business of the Employer, but shall
not be precluded from engaging in other
<PAGE>
activities, or investments, that do not affect his required attention to the
Employer's business.
3. Compensation.
-------------
(a) The Employer shall pay to the Employee, the following
compensation as his Base Salary per annum for his services to be rendered
hereunder the sum of $275,000 from the effective date hereof until December 31,
1997. Employee's base annual salary shall automatically increase by $25,000 per
annum each year throughout the term of this Agreement, including any renewals
hereof.
(b) Beginning on January 1, 1998 through the termination of
this Agreement, the Employee shall receive from the Employer an adjustment in
the Base Salary to reflect (increases but not decreases) in the Consumer Price
Index. Such amount shall be calculated as follows:
(i) Definitions: For the purpose of this
Paragraph, the following definitions shall apply:
(A) The term "Base Year" shall mean the full
calendar year of 1997.
(B) The term "Price Index" shall mean the
'Consumer Price Index' published by the Bureau of
Labor Statistics of the U.S. Department of Labor-All
Items for all Urban Consumers (presently denominated
"CPI-U") 1967 Base = 100, or a successor or
substitute index appropriately adjusted. (ii) The
term "Price Index for the Base Year" shall mean the
average
of the monthly Price Indexes for each of the 12 months of the
Base Year.
- 2 -
<PAGE>
(iii) Effective as of January 1, 1998 and each
succeeding January 1 thereafter throughout the term of this
Agreement, there shall be made a cost of living adjustment of
the Base Salary payable hereunder. The adjustments shall be
based on such percentage difference between the Price Index
for the preceding month of September and Price Index for the
Base Year.
(iv) In the event the Price Index for December in any
calendar year during the term of this Agreement reflects a
change from the Price Index for the Base year, then the Base
Salary herein provided to be paid as of the first full week in
January following such month of December (unchanged by any
adjustments under this Paragraph) shall be multiplied by the
percentage difference between the price Index for December and
the Price Index for the Base Year, and the resulting sum shall
be added to or subtracted from such Base Salary effective as
of such first full week in January. Said adjusted Base Salary
shall thereafter be payable hereunder, in equal installments
with the Base Salary, until it is readjusted pursuant to the
terms of this Agreement. In no event shall the Base Salary be
reduced as a result of the application of this paragraph (b).
- 3 -
<PAGE>
4. Bonus. Payment of a bonus shall be left to the discretion of
the Board of Directors.
5. Reimbursement of Expenses. Employee shall be entitled to
reimbursement for all reasonable actual out-of-pocket business related expenses
incurred by him which shall be substantiated. Further, Employee shall be
entitled to a non-accountable expense allowance not to exceed three thousand
five hundred dollars ($3,500) per month, increasing each successive year by five
hundred dollars ($500) per month, throughout the term of this Agreement,
including any renewal periods hereof.
6. Automobile. Employer shall provide employee with an automobile
of Employee's choice from Company inventory. Employee shall be entitled to
reimbursement for all reasonable business related costs directly associated with
the operation and maintenance of such automobile including fuel and repairs.
7. Benefits; Insurance; Legal Expenses.
(a) Employee shall be entitled to participate in all benefit
programs of Employer offered generally to employees and/or to officers and
directors on the same basis as other employees of the Employer.
(b) Employee shall be entitled to participate in all insurance
programs of Employer, and shall be provided the following minimum insurance
coverage:
(i) major medical insurance for him and his
dependents, together with basic hospital/medical care
insurance such as Blue Cross and Blue Shield; and
(ii) indemnification insurance for acts committed
within the scope of
- 4 -
<PAGE>
employment, if available.
(c) In addition to insurance coverage provided for all
employees of the Employer, due to his extensive travel in Latin America, the
Employer shall provide insurance coverage for the Employee for (i) long-term
health care and (ii) any and all losses, injuries or other damages suffered as a
result of kidnapping.
(d) In addition to any right of indemnification that the
Employee has or may have pursuant to applicable state law, or articles of
incorporation or by-laws of the Employer, the Employer agrees to pay and advance
all expenses incurred or to be incurred by the Employee, including reasonable
attorneys fees and disbursements, in connection with the defense by the Employee
of any and all litigation or adversary proceedings commenced during the term of
this Agreement, unless otherwise prohibited by law. Notwithstanding the
foregoing, in the event that a court of competent jurisdiction has found that
the Employee has committed fraud with respect to the Employer or any other
intentional tort wherein the employee has procured a pecuniary benefit at the
expense of the Employer, then this subparagraph 7(b) shall be void, and the
Employee shall reimburse the Employer for all expenses advanced hereunder.
8. Hours of Vacation. Employee shall work full time and shall be
entitled to four weeks paid vacation per year.
9. Takeovers, Mergers, etc. In the event of either a merger,
consolidation, sale or conveyance of substantially all of the assets of the
Employer or sale of either majority or plurality control by one or more of the
controlling stockholders of the Employer, which results in the discharge of the
Employee, then in such event, Employer shall pay to Employee
- 5 -
<PAGE>
a sum of money equal to (i) 200% of the sum of the balance of payments remaining
through the term of this Agreement for Base Salary together with adjustments
made to date as stated in Paragraph 3 hereof, and (ii) 200% of the sums of all
other monies paid to the Employee pursuant to the terms of this Agreement during
- 6 -
<PAGE>
the last 12 months prior to such event times the number of years remaining on
the term at this Agreement, within 30 days of such event.
10. Disability.
-----------
(a) In the event Employee should die or become permanently
disabled as that term is hereinafter defined, his employment shall terminate
immediately provided, however, that the Corporation shall continue to pay the
annual Base Salary of such Employee as adjusted in accordance with paragraph 3
hereof on a monthly basis for twenty-four (24) months to the Employee, or in the
event of his death, to his spouse, or if she should predecease him, to his
estate.
(b) The term "permanently disabled" shall mean the inability
to perform the duties required to be performed hereunder for a period of 90 days
within any 365 day period.
11. Discharge.
----------
(a) Employee may not be discharged except for cause. In the
event of a dismissal for cause, Employee shall be entitled to a statement
setting forth the nature of the cause alleged and the facts which constitute
such cause.
(b) The meaning of the term "cause", for the purposes of this
paragraph, shall be defined to mean a breach of fiduciary obligation to the
Employer.
12. Covenant not to Compete.
------------------------
(a) The Employee covenants and agrees that during the term of
this Agreement and until one year after the termination of his employment with
the Employer, he shall not directly or indirectly:
(i) Compete with or be engaged in the same
business as the
- 7 -
<PAGE>
Employer or any parent, subsidiary, or affiliate of the
Employer, or employed by, or act as consultant or lender to,
or be a director, officer, employee, owner, or partner of, any
business or organization which, at the time of such
termination, directly or indirectly competes with or is
engaged in the same business as the Employer or any parent,
subsidiary, or affiliate of the Employer within a 100 mile
radius of any office maintained by the Employer, except that,
in each case, the provisions of this section will not be
deemed breached merely because the Employee owns no more than
5% of the outstanding common stock of a corporation, if, at
the time of its acquisition by the Employee, such stock is
listed on a national securities exchange, is reported on
NASDAQ, or is regularly traded in the over-the-counter market;
or
(ii) solicit in connection with the same business
as the Employer, any customer of the Employer who was at any
time during the term of this Agreement, a customer of the
Employer.
(b) Notwithstanding anything to the contrary, in the
event that the Employer terminates this Agreement in accordance with the terms
of paragraph 1 hereof or in the event Employee is discharged as a result of a
hostile take over, then the terms of this paragraph 12, "Covenant Not to
Compete", shall not be enforced.
(c) If any term of this paragraph 12, "Covenant Not to
Compete" is found by any court having jurisdiction to be too broad, then and in
that case, such term shall nevertheless remain effective, but shall be
considered amended (as to the time or area or otherwise, as the case may be) to
a point considered by said court, as reasonable, and as so
- 8 -
<PAGE>
amended, shall be fully enforceable.
13. No Waiver. The failure of any of the parties hereto
enforce any provision hereof on any occasion shall not be deemed to be a waiver
of any preceding or succeeding breach of such provision or of any other
provision.
14. Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto an no amendment, modification
or waiver of any provision herein shall be effective unless in writing, executed
by the party charged therewith.
15. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with and shall be governed by the laws of
the State of Florida applicable to agreements to be wholly performed therein.
16. Binding Effect. This Agreement shall bind and inure to the
benefit of the parties, their successors and assigns.
17. Attorney's Fees. In the case that litigation should arise
pertaining to this Agreement or any portion thereof, the party which shall be
entitled to receive reasonable attorney's fees resulting therefrom.
18. Assignment and Delegation of Duties. This Agreement may not
be assigned by the parties hereto. This Agreement is in the nature of a personal
services contract and the duties imposed hereby are non-delegable.
19. Paragraph Headings. The paragraph headings herein have been
inserted for convenience of reference only, and shall in no way modify or
restrict any of the terms of provisions hereof.
- 9 -
<PAGE>
20. Notices. Any Notice under the provisions of this
Agreement shall be given by registered or certified mail, return receipt
requested, directed to the addresses set forth above, unless notice of a new
address has been sent pursuant to the terms of this paragraph.
21. Unenforceability; Severability. If any provision of this
Agreement is found to be void or unenforceable by a court of competent
jurisdiction, the remaining provisions of this Agreement, shall nevertheless, be
binding upon the parties with the same force and effect as though the
unenforceable part has been severed and deleted.
22. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be deemed to be duplicate originals.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
EMPLOYER: EMPLOYEE:
Latin American Casinos, Inc.
BY: /s/ Donald D. Schiffour /s/ Lloyd Lyons
----------------------------------- ------------------
Donald D. Schiffour Lloyd Lyons
Vice-President and Chief Financial Officer
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,492,198
<SECURITIES> 0
<RECEIVABLES> 848,260
<ALLOWANCES> 149,814
<INVENTORY> 0
<CURRENT-ASSETS> 5,509,530
<PP&E> 3,852,961
<DEPRECIATION> 189,347
<TOTAL-ASSETS> 9,613,596
<CURRENT-LIABILITIES> 515,894
<BONDS> 0
0
0
<COMMON> 2,211
<OTHER-SE> 9,095,491
<TOTAL-LIABILITY-AND-EQUITY> 9,613,596
<SALES> 2,501,061
<TOTAL-REVENUES> 2,501,061
<CGS> 1,376,649
<TOTAL-COSTS> 1,376,649
<OTHER-EXPENSES> 189,347
<LOSS-PROVISION> 332,000
<INTEREST-EXPENSE> (255,930)
<INCOME-PRETAX> 1,190,995
<INCOME-TAX> 554,635
<INCOME-CONTINUING> 968,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 968,360
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
