SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 11, 1997: 3,300,000 shares.
<PAGE>
LATIN AMERICAN CASINOS, INC.
AS OF JUNE 30, 1997
PART I - FINANCIAL INFORMATION
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
REVIEW REPORT
AS OF JUNE 30, 1997
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONTENTS
Accountant's Review Report 1
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 2
Consolidated Statements of Changes in Stockholder's
Equity for the Six Months Ended June 30, 1997 and
the Year Ended December 31, 1996 3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements as of
June 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 June 30, 1997, and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for the
three and six months ended June 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 dated April 15, 1997, but
we have not prepared any audit procedures since that date.
/s/ SHUBITZ ROSENBLOOM & CO., P.A.
- ----------------------------------
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
August 7, 1997
-1-
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 3,975,549 $ 4,492,198
Accounts Receivable, Less $189,814 and
$149,814 of Allowance for Doubtful
Accounts in 1997 and 1996, respectively 1,102,897 848,260
Prepaid Expenses and Other Current Assets 206,136 169,072
----------- -----------
Total Current Assets 5,284,582 5,509,530
----------- -----------
PROPERTY AND EQUIPMENT - NET 4,081,600 3,852,961
----------- -----------
OTHER ASSETS
Financing Arrangement Receivable 114,460 114,460
Deposits 5,324 4,935
Note Receivable - Stockholder 129,000 129,000
Other Assets 60,000 2,710
----------- -----------
Total Other Assets 308,784 251,105
----------- -----------
TOTAL ASSETS $ 9,674,966 $ 9,613,596
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 363,614 $ 367,734
Foreign Income Tax Payable 91,175 140,660
Deferred Income Tax Payable -- 7,500
----------- -----------
Total Current Liabilities 454,789 515,894
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
Total Liabilities 454,789 515,894
----------- -----------
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 (10,749) 4,003
Deficit (690,842) (828,069)
----------- -----------
Total Stockholders' Equity 9,220,177 9,097,702
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,674,966 $ 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 SIX MONTHS ENDED JUNE 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 JUSTMENTS (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 (LOSS) 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 -- -- -- (14,752) --
NET INCOME FOR THE
SIX MONTHS ENDED
JUNE 30, 1997 -- -- -- -- 137,227
----------- ----------- ----------- ----------- -----------
BALANCE -
JUNE 30, 1997 3,300,000 $ 2,211 $ 9,919,557 ($ 10,749) ($ 690,842)
=========== =========== =========== =========== ===========
</TABLE>
Read accountants' review report and notes to financial statements.
-3-
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental Income $ 480,878 $ 732,882 $ 906,686 $ 1,321,618
Selling, General &
Administrative Expenses 449,786 302,665 812,502 555,186
Depreciation 38,500 45,180 75,000 90,563
----------- ----------- ----------- -----------
Income (Loss) from Continuing
Operations Before Interest Income,
Income Taxes and Extraordinary Item (7,408) 385,037 19,184 675,869
Interest Income 58,623 58,687 118,044 122,709
----------- ----------- ----------- -----------
Income (Loss) from
Operations Before Income Taxes and
Extraordinary Item & 51,215 443,724 137,228 798,578
Income Taxes (6,000) 118,000 41,000 235,000
----------- ----------- ----------- -----------
Income (Loss) from
Operations Before Extraordinary
Item & 57,215 325,724 96,228 563,578
Utilization of Net Operating Losses
and Foreign Tax Credits 14,000 49,200 41,000 139,600
----------- ----------- ----------- -----------
Net Income (Loss) $ 71,215 $ 374,924 $ 137,228 $ 703,178
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
Common Share Equivalent Outstanding 3,300,000 3,524,473 3,300,000 3,479,091
=========== =========== =========== ===========
Net Income (Loss) Per Share $ .02 $ .11 $ .04 $ .20
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE
ASSUMING FULL DILUTION
Common Share Equivalent Outstanding 3,330,000 3,563,430 3,300,000 3,563,430
=========== =========== =========== ===========
Net Income (Loss) Per Share $ .02 $ .11 $ .04 $ .20
=========== =========== =========== ===========
</TABLE>
Read accountants' review report and notes to financial statements.
-4-
<PAGE>
LATIN AMERICAN CASINOS, INC AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
-----------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 137,228 $ 703,178
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 75,000 90,563
Changes in Assets - (Increase) Decrease:
Accounts Receivable (254,637) (282,294)
Prepaid Expenses and Other Current Assets (70,341) (53,429)
Deferred Income Taxes (7,500) (5,600)
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses (4,120) (41,294)
Foreign Income Tax Payable (49,485) 51,839
----------- -----------
Net Cash Provided By (Used In) Operating
Activities (173,855) 462,963
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (303,639) (587,408)
Other Assets (24,403) 14,991
----------- -----------
Net Cash Provided (Used In) Investing
Activities (328,042) (572,417)
----------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (14,752) (5,337)
----------- -----------
NET (DECREASE) IN CASH (516,649) (114,791)
CASH AND CASH EQUIVALENTS - BEGINNING 4,492,198 4,668,446
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 3,975,549 $ 4,553,655
- ---------------------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ -- $ --
=========== ===========
Income Taxes, Foreign $ 49,485 $ 50,484
=========== ===========
</TABLE>
Read accountants' review report and notes to financial statements.
-5-
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
AS OF JUNE 30, 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 certain 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 June 30, 1997 the Company
had acquired approximately 7,000 slot machines and other related
equipment at a cost of $3,835,410, including applicable costs for
transportation, duty and refurbishing.
B PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Latin
American Casinos, SA, a Peruvian corporation, Latin American Casinos
of Colombia, LTPA, a Colombian corporation and Latin American
Casinos of Nicaragua. Included in other assets ont eh accompanying
balance sheet in approximately $60,000 of initial expenditures
related to the commencement of the Nicaraguran operations.
All material intercompany transactions, balances and profits have
been eliminated.
C PROPERTY AND EQUIPMENT
----------------------
Property and Equipment are stated at cost. Depreciation is provided
on accelerated and straight-line methods over the estimated useful
lives of the respective assets. Maintenance and repairs are charged
to expense as incurred; major renewals and betterments are
capitalized. When items of property or equipment are sold or
retired, the related cost and accumulated depreciation are removed
from the accounts and any gain or loss is included in the results of
operations.
Read accountants' review report and notes to financial statements.
-6-
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ------- ------------------------------------------
D REVENUE RECOGNITION
-------------------
Effective January 1, 1995, the Company began renting casino slot
machines. Revenue is recognized monthly as the casino slot machines
are placed in service.
E STATEMENT OF CASH FLOWS
-----------------------
For purposes of this statement, the Company considers all liquid
investments purchased with an original maturity of three months or
less to be cash equivalents. The marketable securities of $3,800,000
and $4,350,000 at June 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, stock options 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 JUNE 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 totalled $68,000 and
$59,000 as of June 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 JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
NOTE 2. PROPERTY AND EQUIPMENT
- ------- ----------------------
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ---------
<S> <C> <C>
Leased Property $ 346,881 $ 346,881
Rental Equipment 3,835,410 3,524,511
Leasehold Improvements 6,989 2,090
Furniture and Fixtures 177,720 174,842
Transportation Equipment 110,249 113,379
Office Equipment 28,665 28,499
--------- ----------
Total 4,505,914 4,190,202
Less: Accumulated Depreciation 424,314 331,241
---------- ----------
Property and Equipment - Net $4,081,600 $3,852,961
========== ==========
</TABLE>
Depreciation expense for the three and six months ended June 30,
1997 was $38,500 and $75,000, respectively.
Rent expense for the three and six months ended June 30, 1997 was
$37,494 and $58,394 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 June 30, 1997, cash and cash equivalents included commercial
paper in the amount of $3,800,000, with interest rates which
approximates 5.6%.
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 1995 and has been paid by the stockholder. The Company
expects that the note will be repaid by 1998.
Read accountants' review report and notes to financial statements.
-9-
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 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 issue 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 JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
NOTE 7. PROVISION FOR INCOME TAXES
- ------- --------------------------
The provision for income taxes consisted of the following for the
six months ended June 30:
1997 1996
--------- ---------
Current
Federal $ 41,000 $139,600
State 13,000 -
Foreign - 101,000
--------- --------
54,000 240,600
--------- --------
Deferred
Federal - -
State ( - ) -
Foreign (13,000) (5,600)
--------- --------
(13,000) (5,600)
--------- --------
Income Tax Provision $ 41,000 $235,000
========= ========
Deferred income taxes resulting from differences between accounting
for financial statements purposes and accounting for tax purposes,
were as follows.
1997 1996
--------- --------
Revenue Recognition ($13,000) ($5,600)
-------- -------
Tax Effects of timing Differences ($13,000) ($5,600)
======== =======
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 $ 41,000 $ 235,000
State Taxes - -
Foreign Taxes 95,400
Net Operating Losses ( - ) (95,400)
-------- -------
Income Tax Provision $ 41,000 $235,000
======== ========
Read accountants' review report and notes to financial statements.
-11-
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
NOTE 7. PROVISIONS FOR INCOME TAXES (Continued)
- ------- ---------------------------------------
As of June 30, 1997, the Company had available for income tax
purposes unused net operating loss carryforwards which may provide
future tax benefits expiring as follows:
December 31, 2009 $ 395,000
December 31, 2010 428,000
----------
Total $ 823,000
==========
In addition the company has available approximate Foreign tax
credits to offset future federal income tax of $261,000.
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 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 $127,500 due the Chief
Executive Officer for amounts due from the 1996 bonus and unpaid
salaries of 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 JUNE 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
June 30, 1997, includes assets relating to the Company's slot
machine operations in Peru, Colombia, and Nicaragua, of $4,000,000,
$1,086,000, and $127,000 respectively. Although, these countries are
considered politically and economically stable, it is possible that
unanticipated events in foreign countries could disrupt the
Company's operations. In that regard, the Company has been informed
that in Peru an excise tax has been instituted effective October 1,
1996 on the lessee's of gaming equipment. It has not been determined
the full extent that this excise tax will have on future operations
in Peru. The Company with others in the industry have been
negotiating with the appropriate governmental agencies in Peru to
have the excise tax retroactively reduced or revised.
E DIVIDEND DECLARATION
--------------------
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 the rights to the payment of such dividend. The
company estimates that approximately $85,000 will be distributed
pursuant to this dividend declaration.
Read accountants' review report and notes to financial statements
-13-
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 1997 AND DECEMBER 31, 1996
-----------------------------------------
NOTE 9. SUBLEASE AGREEMENT AND FINANCING ARRANGEMENT
- ------- --------------------------------------------
In 1994, the Company had subleased the used car and truck lot and a
portion of the office space in Miami, Florida to an unrelated party
for the operation of a used car business. The Company is owed
$114,460. The outstanding balance was collateralized by inventory,
equipment, accounts receivable and was personally guaranteed by the
sublessee's stockholder. As of May 1, 1995, the sublessee abandoned
the property without notice. Management anticipates recovery of the
amounts due under the financing arrangement in full, Company's
attorney, has indicated the proceedings may take more than a year to
resolve. The receivable is shown as long term in the accompanying
financial statements.
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
August 1, 1997, the Company has 850 machines under rental contracts and 300
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 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 OPERATIONS
- ---------------------
The Company's revenues from the rental of slot machines in Peru,
Colombia and Nicaragua for the six months ended June 30, 1997 decreased $414,932
(31.4%) to $906,686 from $1,321,618 for the six months ended June 30, 1996. The
decrease in revenues over the period described above is attributed primarily to
the increased tax and regulatory burden in Peru.
The Peruvian government, in October 1996, imposed an excise tax of 200%
on lessees of gaming equipment, including slot machines. The excise tax caused
many of the Company's customers to return their slot machines to the Company
rather than pay the higher tax. The Company with others in the industry have
been negotiating with the appropriate governmental agencies to have the
-15-
<PAGE>
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 federal government has imposed regulations
regulating the number of slot machines in each gaming parlor. The Company and
four other gaming companies have enjoined the Peruvian federal government from
implementing these regulations on the grounds that (i) such regulations were
implemented arbitrarily without consulting the Peruvian gaming commission and
(ii) gaming issues are within the jurisdiction of Peruvian municipalities and
not the Peruvian federal government. The Company's attorneys in Peru believe the
injunction will remain in effect for approximately two years. At the current
time, the Company has 1,000 machines under rental contracts in Peru.
Selling, General, and Administrative expenses incurred in the operation
of the Company's gaming and casino business increased $257,316 (46.3%) over the
six month period ended June 30, 1996. This increase reflects the continued
start-up costs for the Company's expansion into Colombia and Nicaragua, an
increase in executive compensation and increased legal fees resulting from
litigation instituted by the Company against a former subtenant of the Company's
used car lot and against the Company's former independent auditors. The lawsuit
against the Company's former auditors does not concern any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of the former auditors,
would have caused such auditors to make reference to the subject matter of the
disagreement in connection with its report.
Because revenues generated from the rental of slot machines decreased
and Selling, General, and Administrative Expenses increased, net income from
continuing operations decreased to $137,228, or $0.04 per share, for the six
months ended June 30, 1997 from $703,178, or $0.20 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 it becomes available. The Company began full scale operations by shipping
450 slot machines to Nicaragua during the first quarter of 1997. As of August 1,
1997, the Company has received commitments for the use of 350 machines on a
participation basis in Nicaragua. The Company plans to open offices in Honduras
during the third quarter of 1997.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1997, the Company had invested approximately $3,800,000
in the business of renting slot machines in Latin America. The Company's
investment in the gaming business included the acquisition of slot machines at a
approximate cost of $475 per machine. The Company anticipates that its cash flow
from operations, interest on investment and the remaining proceeds from the
Company's public offering will be sufficient to meet its needs for the next
twelve months.
The Company's balance sheet for the six months ended June 30, 1997
includes assets relating to the Company's slot machine operations in Peru,
Colombia and Nicaragua of $4,000,000, $1,086,000 and 127,000 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 $9,674,966 in assets, of which
$3,975,549 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 $823,000.
In addition, the Company has available foreign tax credits in the amount of
approximately $261,000.
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.
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>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of exhibits as required by Item 601 of Regulation S-B.
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation (Delaware)(1)
3.2 Bylaws(1)
4.1 Common Stock Specimen(1)
4.2 Warrant Specimen(1)
4.3 Form of Warrant Agreement(1)
10.1 Agreements between the Company and Aristocrat Leisure
Industries PTY LTD dated May 31, 1994, December 12, 1994 and
March 24, 1995(2)
10.2 Agreements between the Company and Latin American Casinos
S.A. dated January 10, 1996(3)
10.3 Employment Agreement between the Company and Lloyd Lyons
dated January 1, 1997(4)
27.1 Financial Data Schedule
(1) Incorporated herein by reference from the 10-KSB filed by the Company
for the year ended December 31, 1992.
(2) Incorporated herein by reference from the 10-KSB filed by the Company
for the year ended December 31, 1994.
(3) Incorporated herein by reference to the 10-KSB filed by the
Company for the year ended December 31, 1995.
(4) Incorporated herein by reference to the 10-KSB filed by the
Company for the year ended December 31, 1996.
(b) Reports on Form 8-K
None
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<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: August 12, 1997 /s/ Lloyd Lyons
--------------- ------------------------
Lloyd Lyons
Chief Executive Officer
Date: August 12, 1997 /s/ Donald D. Schiffour
---------------------- ------------------------
Donald D. Schiffour
Chief Financial Officer
-19-
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<PERIOD-START> JAN-01-1997
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