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, 1997 Commission File Number 33-43423
LATIN AMERICAN CASINOS, INC.
A Delaware Corporation 65-0159115
(IRS Employer Identification Number)
3941 N.E. 163rd Street (305) 945-9300
North Miami Beach, FL 33160 (Telephone Number)
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: $1,933,233.
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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, 1998: $4,653,976.26.
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Number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1998: 3,300,000 shares.
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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 its entrance into the gaming and casino business in South and Central
America.
The Company concentrates its efforts on the rental of used five reel
slot machines. The Company purchases these machines at a fraction of the cost of
new machines which are then 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 $500
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 $100. 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 various major cities through its
wholly-owned subsidiaries in South and Central America. In 1994, the Company
formed its Peruvian subsidiary, in late 1995, the Company formed its Columbian
subsidiary, and in 1997, the Company formed a subsidiary in Nicaragua.
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
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which want slot machines, but do not wish to enter into formal long-term rental
agreements. Participation allows the Company to share in the profits of slot
machine operations while minimizing the risks associated with the collection of
accounts receivable.
In 1997, the Company received government approval for establishing
gaming route operations in Colombia and Nicaragua and commenced operations in
these countries. As of December 31, 1997, approximately 700 slot machines were
in operation in Columbia and approximately 500 slot machines were in operation
in Nicaragua. These machines are installed in, among other establishments, drug
stores, pool halls, bars, restaurants and nightclubs. The entrance into gaming
route operations provides the Company a broader base of operations in that the
Company operates as an operational gaming company as well as a rental company.
The Company expects participation based operations 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 is headquartered in Miami, Florida and has offices in Lima,
Peru, Managua, Nicaragua and Bogota, Barranquilla, and Medellin, Colombia.
Applications to do business have been filed in Argentina, Paraguay, Brazil, and
Honduras.
CIGAR OPERATIONS
On September 23, 1997, the Company incorporated World's Best Rated
Cigar Company, a Florida corporation, as its wholly-owned subsidiary, to
distribute cigars. In September 1997, the Company's subsidiary entered into a
joint venture agreement with a cigar producer, Mr. Claudio Norberto Mercado
Garcia, in the Dominican Republic with the intent of acquiring monthly a supply
of cigars for distribution. The Company anticipates operations of the World's
Best Rated Cigar Company to commence in April 1998.
On November 5, 1997, World's Best Rated Cigar Company obtained a
mortgage in the amount of $75,000, plus interest accruing at a rate of seven
percent (7%) per annum, against certain real property owned by Mr. Claudio
Norberto Mercado Garcia located in Santiago, Dominican Republic. Pursuant to the
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terms of the mortgage agreement, the principal amount, plus accrued interest, is
due and payable no later than November 5, 2000. The mortgage secures the funds
advanced to construct a building on the land.
SOURCE OF MACHINES
The Company purchases used slot machines from several vendors in
Australia, including Damlite Pty. Ltd. and Olympic Video Gaming, a subsidiary of
International Gaming Technology. The Company has 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.
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.
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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,
the machines are calibrated to retain at least 15% of all coins played.
GOVERNMENT REGULATION
Gambling in Peru was legalized in 1992. Fourteen 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 has temporarily enjoined the Peruvian Government from
implementing the excise tax. The Company has appeared before a preliminary judge
who ruled in its favor finding just cause for the injunction. The case must now
go before a three judge panel. If the panel of three judges rules in favor of
the Company, the injunction is upheld and the government is enjoined unless new
legislation is passed through Congress. The Company is optimistic about the
outcome because two other gaming companies have gone before the panel and have
succeeded in
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obtaining an injunction against the government. In case the panel rules against
the Company, the Company can appeal to a higher court and eventually to the
World Court.
It has not been determined to what extent 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 December 31, 1997, the Company's has approximately 970
slot machines under rental agreements in Peru.
EMPLOYEES
The Company currently has a total of ninety-six full-time employees,
and no part-time employees. The Company has six employees in the Miami office.
Of these six employees, three are executives and three are clerical. In Lima,
Peru, the Company has nine clerical employees in its business office, including
a general manager and fifteen service technicians in its warehouse and
remanufacturing plant. In Managua, Nicaragua, the Company has a total of sixteen
employees working in its business office and warehouse. Of the sixteen
employees, six are clerical and ten are service technicians. In Columbia, the
Company employs a total of twelve clerical employees in its three business
offices and thirty-eight service technicians in its warehouse and
remanufacturing plant.
The Company believes its relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's executive offices and operating facilities are located at
3941 N.E. 163rd Street, North Miami Beach, Florida 33160. The Company leases
these premises for $1,800 per month. 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
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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
properties in Medellin and Barranquilla, Columbia. In Medellin, the Company
leases a combined small house and warehouse and in Barranquilla, the Company
lease a small office.
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 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 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. As of February 1998, approximately $18,000 had been
collected on the amount due.
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
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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 incurred approximately $120,000 in costs. 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.
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 1997.
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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
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1996
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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
1997
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January 1 - March 31 3 1/4 2 3/8
April 1 - June 30 2 3/4 1 3/16
July 1 - September 30 2 5/16 1 5/8
October 1 - December 31 2 5/16 1 5/16
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Warrants High Low
- -------- ---- ---
1996
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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
1997
- ----
January 1 - March 31 13/32 5/32
April 1 - June 30 19/64 5/32
July 1 - September 30 1/4 3/16
October 1 - December 31 11/32 1/16
The closing sales prices for the Common Stock and Warrants on April 6,
1998 were $2 1/32 and $ 11/32 respectively.
There were 44 registered owners and approximately 1015 beneficial
owners of the Common Stock of the Company as of December 31, 1997. The Company
declared no cash dividends in 1995 or 1996. The Company declared a dividend of
$.05 per share for shareholders of record as of May 30, 1997 which was disbursed
on September 1, 1997. The directors and officers of the Company waived their
rights to payment of such dividend. A total of $87,189 was disbursed pursuant to
this dividend declaration.
As of December 31, 1997, the Company has outstanding 1,725,000 five
year Warrants to purchase one share of the Company's Common Stock at an exercise
price of $7.25 to be exercised by December 12, 1996, which the Company has
extended to December 11, 1999.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL OVERVIEW
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 South and Central America. The Company
operates its gaming and casino operations through its wholly-owned subsidiaries.
In 1994, the Company formed its Peruvian subsidiary, in 1995, the Company formed
its Columbian subsidiary and in 1997, the Company formed a subsidiary in
Nicaragua. As of December 31, 1997, the Company has approximately 1,870 machines
under rental contracts with various business establishments located in these
countries for approximately $75 to $100 per machine 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 $500 each
including freight, duty, and refurbishing expenses. The Company rents each slot
machine for approximately $75 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. As of December 31, 1997, approximately 700
slot machines were in operation in Columbia and approximately 500 slot machines
were in operation in Nicaragua. The Company's revenues for the year ended
December 31, 1997 from the gaming route operations were $147,000 for six months
in operation in Columbia
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and $132,000 for nine months in operation in Nicaragua. The Company believes
that the expansion into slot route operations will increase cash flow and reduce
the Company's risk associated with the collection of accounts receivable,
thereby reducing allowances for doubtful accounts.
On September 23, 1997, the Company incorporated World's Best Rated
Cigar Company, ("World's Best"), a Florida corporation, as its wholly-owned
subsidiary. World's Best will operate to distribute cigars. Operations of this
subsidiary have not yet commenced; however, as of December 31, 1997, the Company
has expended approximately $183,000 primarily for start-up costs and initial
inventory acquisitions. The Company anticipates commencing operations of its
subsidiary in April 1998.
In September 1997, World's Best formed a joint venture with a cigar
producer, Mr. Claudio Norberto Mercado Garcia, in the Dominican Republic with
the intent of acquiring monthly a supply of cigars for distribution. The
contracting parties each own fifty percent (50%) of the joint venture. The
agreement setting forth the terms of the joint venture extends for a term of
twenty years; however, World's Best can withdraw upon payment of a maximum
cancellation fee of $125,000.
On November 5, 1997, World's Best obtained a mortgage in the amount of
$75,000, plus interest accruing at a rate of seven percent (7%) per annum,
against certain real property owned by Mr. Claudio Norberto Mercado Garcia
located in Santiago, Dominican Republic. Pursuant to the terms of the mortgage
agreement, the principal amount, plus accrued interest, is due and payable no
later than November 5, 2000. The mortgage secures the funds advanced to
construct a building on the land.
RESULTS OF OPERATIONS
The Company's revenues from the rental of slot machines in Peru,
Columbia and Nicaragua for the year ended December 31, 1997 deceased $567,828
(22.7%) to $1,933,233 from $2,501,061 for the year ended December 31, 1996. The
decrease in revenues for the period described above is due to a combination of
factors, including the implementation by the Peruvian Government of an excise
tax on gaming machines which resulted in several of the
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Company's customers returning machines. The Company had in Peru 2,350 slot
machines under rental agreements on October 1, 1996. After the excise tax was
implemented, the number of machines decreased to 800, however, the number of
machines has increased to 970 as of December 31, 1997. Additionally, rising
inflation rates in Columbia negatively affected the Company's revenues for the
year ended December 31, 1997.
Selling, General, and Administrative Expenses incurred in the operation
of the Company's gaming and casino business increased $311,428 (22.6%) over the
twelve month period ended December 31, 1997. This increase reflects the
continued start-up costs associated with the Company's expansion into Columbia
and Nicaragua, the increase in executive compensation and the considerable legal
fees the Company incurred in seeking to enjoin the Peruvian Government from
implementing an excise tax on lessees of gaming equipment.
As a result of the increase in Selling, General, and Administrative
Expenses and the decrease in revenues, the Company's net income decreased
$706,534 from $968,360, or $.29 per share, in the year ended December 31, 1996
to $261,826, or $0.08 per share, in the year ended December 31, 1997.
The Peruvian government, in October 1996, imposed an excise tax of 200%
on lessees of gaming equipment, including slot machines. The Company has
temporarily enjoined the Peruvian Government from implementing the excise tax.
The Company has appeared before a preliminary judge who ruled in its favor
finding just cause for the injunction. The case must now go before a three judge
panel. If the panel of three judges rules in favor of the Company, the
injunction is upheld and the government is enjoined unless new legislation is
passed through Congress. The Company is optimistic about the outcome because two
other gaming companies have gone before the panel and have succeeded in
obtaining an injunction against the government. In case the panel rules against
the Company, the Company can appeal to a higher court and eventually to the
World Court.
It has not been determined to what extent 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
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earnings, the Company expects to continue to be profitable. As of December 31,
1997, the Company's has approximately 970 slot machines under rental agreements
in Peru.
In 1997, the Company, as part of an effort to reorganize its
Columbia-based operations, down-sized the main office in Bogota and opened two
satellite offices, one in Medellin and the other in Barranquilla in the Northern
tip of Columbia. The Barranquilla office also serve as the hub for the Company's
operations in Nicaragua and in Honduras, as well as the Caribbean market if and
when it becomes available. The Company has shipped 1000 slot machines from Peru
to Columbia to supply these new offices. The Company anticipates opening an
office in Honduras in the near future.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had invested approximately
$4,229,873 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 $500 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, 1997
includes assets relating to the Company's slot machine operations in Peru,
Colombia and Nicaragua of $3,938,000, $1,421,000 and $285,000 respectively.
Although these countries are considered to be politically and economically
stable, it is possible that unanticipated events in foreign countries could
disrupt the Company's operations.
The Company is financially strong with $9,414,440 in assets, of which
$3,224,665 is in cash and cash equivalents, and 7,500 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 $679,000.
In addition, the Company has available foreign tax credits in the amount of
approximately $282,000.
Other than for the acquisition of additional slot machines and
inventory for its cigar operations, 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
Form 10-KSB
-----------
Index to Consolidated
Financial Statements
Independent Auditors' Report F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1997 F-3
Consolidated Statements of Changes in
Stockholders' Equity for years ended
December 31, 1996 and 1997 F-4
Consolidated Statements of Operations
for the years ended
December 31, 1996 and 1997 F-5
Consolidated Statements of Cash Flows
for the years ended
December 31, 1996 and 1997 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.
In 1996, the Company 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.
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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 57 1989
Donald D. Schiffour 66 1992
Jose A. Caballero 41 1994
Angel Garcia 38 1995
Ronald Zaid 61 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 1,734,612 shares of Common Stock.
Mr. Schiffour is Vice President, Chief Financial Officer and a Director of
the Company. Mr. Schiffour joined the Company as Vice President of International
Operations in June 1992 and in 1994 he was appointed as the Company's Chief
Financial Officer. Prior to joining the Company, Mr. Schiffour was the General
Manager for Samson Automobile Leasing, Co., in Pittsburgh, Pennsylvania.
Mr. Caballero has served on the Board of Directors since 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.
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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.
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 compensation paid by the Company for
services rendered for the last three completed fiscal years 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:
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
=================================================================================================================================
Annual Compensation Long Term Compensation
- ---------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------
(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, 1997 317,000 - - - - - -
Chief Executive 1996 236,000 100,000 - - - - -
Officer 1995 236,000 - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
All Executive 1997 395,000 - - -
Officers as a 1996 326,000 100,000 - - - - -
group (2,4, and 1995 461,360 - - - - - -
5 persons
respectively)
=================================================================================================================================
</TABLE>
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<PAGE>
Effective until December 19, 1996, the Chief Executive Officer of the
Company had an employment agreement for an annual salary of $200,000, subject to
annual increases. The employment agreement provided, if the Company achieved a
net profit before taxes of $1,000,000, the executive officer was entitled to a
$100,000 bonus. If the Company achieved a net profit before taxes of $1,500,000,
the executive officer was 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 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, 1997, 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
In September 1991, the Company adopted the 1991 Incentive Stock Plan
(the "1991 Plan"). 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
- 19 -
<PAGE>
Directors consisting of Messrs. Lyons, Schiffour and Garcia. 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.
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.
- 20 -
<PAGE>
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, 1998, 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 1,734,612(2) 43.91%
c/o Latin American
Casinos, Inc.
3919 N.E. 163rd Street
North Miami Beach, FL 33160
Donald D. Schiffour 82,000(3) 2.43%
c/o Latin American
Casinos, Inc.
3919 N.E. 163rd Street
North Miami Beach, FL 33160
Geraldine Lyons 198,072(4) 5.87%
c/o Latin American
Casinos, Inc.
3919 N.E. 163rd Street
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
- 21 -
<PAGE>
Jose A. Caballero 0 0%
12900 SW 11th Avenue
Miami, FL 33176
All Officer and Directors 54.14%
as a group
- --------------------
(1) Based on a total of 3,300,000 shares of Common Stock issued
and outstanding.
(2) Includes options to purchase 650,000 shares of Common Stock of the
Company exercisable at $2.50 per share.
(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 75,000 shares of Common Stock of the
Company exercisable at $2.50 per share and 123,072 shares of Common
Stock held in trust for the grandchildren.
(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, 1997,
all interest accrued on the loan had been paid to the Company in a timely
manner.
- 22 -
<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)
4.4 Secretarial Certification
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.
- 23 -
<PAGE>
(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.
- 24 -
<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 13, 1998
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 thirteenth day
of April, 1998:
/s/ LLOYD LYONS
- -------------------------------------------
Lloyd Lyons
Chairman, Chief Executive Officer,
and Director
/s/ DONALD D. SCHIFFOUR
- -------------------------------------------
Donald D. Schiffour
Vice President, Chief Financial Officer
and Director
- -------------------------------------------
Jose A. Caballero
Director
- 25 -
<PAGE>
/s/ ANGEL GARCIA
- -------------------------------------------
Angel Garcia
President, Latin American Operations
and Director
- -------------------------------------------
Ronald Zaid
Director
- 26 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
AUDIT REPORT
AS OF DECEMBER 31, 1997
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONTENTS
Independent Auditor's Report 2
Consolidated Balance Sheets as of December 31, 1997 and
1996 3
Consolidated Statements of Changes in Stockholder's
Equity for the Years Ended December 31, 1997 and
1996. 4
Consolidated Statements of Operations for the Years
Ended December 31, 1997 and 1996. 5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996. 6
Notes to Consolidated Financial Statements as of
December 31, 1997 and 1996. 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 sheets of Latin American Casinos, Inc.
and subsidiaries as of December 31, 1997 and 1996 the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years 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 audits 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, 1997 and 1996 the
results of their operations and there cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
March 24, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $3,224,665 $4,492,198
Accounts Receivable, Less $149,814
of Allowance for Doubtful
Accounts 1997 and 1996, respectively 1,168,794 848,260
Prepaid Expenses and Other Current Assets 162,008 169,072
---------- ----------
Total Current Assets 4,555,467 5,509,530
---------- ----------
PROPERTY AND EQUIPMENT - NET 4,428,109 3,852,961
---------- ----------
OTHER ASSETS
Financing Arrangement Receivable 114,460 114,460
Deposits 8,803 4,935
Note Receivable - Stockholder 125,000 129,000
Other Assets 182,601 2,710
---------- ----------
Total Other Assets 430,864 251,105
---------- ----------
TOTAL ASSETS $9,414,440 $9,613,596
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 253,238 $ 367,734
Foreign Income Tax Payable 23,280 140,660
Deferred Income Tax Payable - 7,500
---------- ----------
Total Current Liabilities 276,518 515,894
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
Total Liabilities 276,518 515,894
---------- ----------
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 (125,179) 4,003
Deficit (653,432) (828,069)
Treasury Stock, at cost (5,235) (-)
----------- ----------
Total Stockholders' Equity 9,137,922 9,097,702
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,414,440 $9,613,596
=========== ==========
The accompanying notes are an integral part of this statement.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
COMMON STOCK
NUMBER PAR ADDITIONAL RETAINED
OF VALUE PAID-IN TRANSLATION EARNINGS TREASURY
SHARES $.00067 CAPITAL ADJUSTMENTS (DEFICIT) STOCK
------ ------- ------- ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE
JANUARY 1,1996 3,300,000 $2,211 $9,919,557 $ 1,434 ($1,796,429) --
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- 2,569 -- --
NET INCOME FOR
THE YEAR ENDED
DECEMBER 31,1996 -- -- -- -- 968,360 --
--------- ------ ----------- ---------- ---------- ------
BALANCE -
DECEMBER 31, 1996 3,300,000 2,211 9,919,557 4,003 (828,069) --
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- (129,182) -- --
DIVIDENDS PAID -- -- -- -- (87,189) --
ACQUISITION OF 3400
SHARES OF TREASURY
STOCK, AT COST -- -- -- -- -- $5,235
NET INCOME FOR THE
YEAR ENDED DECEMBER
31, 1997 -- -- -- -- 261,826 --
--------- ------ ----------- ---------- ----------- ------
BALANCE -
DECEMBER 31, 1997 3,300,000 $2,211 $ 9,919,557 ($ 125,179) ($ 653,432) $5,235
========= ====== =========== ========== =========== ======
</TABLE>
Read accountants' review report and notes to financial statements.
F-4
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
Rental Income $ 1,933,233 $ 2,501,061
Selling, General &
Administrative Expenses 1,688,077 1,376,649
Depreciation 186,529 189,347
----------- -----------
Income (Loss) from
Operations Before Interest Income,
Income Taxes and Extraordinary Item 58,627 935,065
Interest Income 222,878 255,930
----------- -----------
Income from
Operations Before Income Taxes and
Extraordinary Item 281,505 1,190,995
Income Taxes 103,679 554,635
----------- -----------
Income (Loss) from
Operations Before Extraordinary
Item & 177,826 636,360
Utilization of Net Operating Losses -- --
and Foreign Tax Credits 84,000 332,000
----------- -----------
Net Income (Loss) $ 261,826 $ 968,360
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
Common Share Equivalent Outstanding 3,300,000 3,300,000
=========== ===========
Net Income (Loss) $ .08 $ .29
=========== ===========
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICAN CASINOS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 261,826 $ 968,360
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 186,529 189,347
Changes in Assets - (Increase) Decrease:
Accounts Receivable (320,534) (426,857)
Prepaid Expenses and Other Current Assets 7,064 ( 69,892)
Deferred Income Taxes -- 33,652
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses (114,496) 181,115
Foreign Income Tax Payable (117,380) 129,360
Deferred Income Tax (7,500) 7,500
---------- ----------
Net Cash Provided By (Used In) Operating
Activities (104,491) 1,012,585
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (761,677) (1,243,085)
Dividend Payments (87,189) --
Other Assets (179,759) 51,683
Treasury Stock Acquisiton (5,235) --
---------- ----------
Net Cash (Used In) Investing
Activities (1,033,860) (1,191,402)
---------- ----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalent (129,182) 2,569
---------- ----------
NET (DECREASE) IN CASH (1,267,533) (176,248)
CASH AND CASH EQUIVALENTS - BEGINNING 4,492,198 4,668,446
---------- ----------
CASH AND CASH EQUIVALENTS - ENDING $3,224,665 $4,492,198
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ -- $ --
========== ==========
Income Taxes $ 137,059 $ 110,427
========== ==========
</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, 1997 AND 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A BUSINESS AND ORGANIZATION
Latin American Casinos, Inc. (formerly Repossession Auction, Inc.)
is a Delaware corporation incorporated on September 19, 1991. The
Company started a new business in 1994 in the gaming and casino
business primarily in Peru and other Latin American countries,
initially renting casino slot machines. 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, in late 1995 the
company formed a Colombian subsidiary and in 1997 the company formed
a subsidiary in Nicaragua that are in the gaming and casino business
in Latin America. These operations include the renting of casino
slot machines to operators. The Company had allocated $4,500,000 for
the purchase of machines and equipment and as of December 31, 1997
the Company has acquired approximately 7,500 slot machines and other
related equipment at a cost of $4,229,873, 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, Inc., SA, a Peruvian corporation, Latin American
Casinos of Colombia, LTPA a Colombian corporation and Latin American
Casinos of Nicaragua. In addition, effective September 23, 1997 the
company incorporated World's Best Rated Cigar Company as a wholly
owned subsidiary to distribute cigars. Operations of this subsidiary
have not commenced; however as of December 31, 1997 the company has
expended approximately $183,000 primarily for start up costs and
initial inventory acquisitions. Such pre-operations expenditures
have been included as other assets in the accompanying financial
statements. In addition, World's Best Rated Cigar Company has formed
a working relationship with a cigar producer in South America with
the intent of acquiring at a minimum 100,000 cigars per month. The
arrangement extends for twenty years; however, the purchase
commitment can be cancelled with a cancellation fee of $125,000.
All material intercompany transactions, balances and profits have
been eliminated.
F-7
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 at
December 31, 1996 and were 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)
has 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 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 1997 and 1996 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, 1997 AND 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 $3,094,000
and $57,000 as of December 31, 1997 and 1996 for the excess of the
deposit liabilities reported by the bank over the amounts that would
have been covered by federal insurance.
H USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and revenues and expenses
during the period reported. Actual results could differ from those
estimates. Estimates are used when accounting for uncollectible
accounts receivable, obsolescence, equipment depreciation and
amortization, taxes, among others.
I FOREIGN CURRENCY TRANSLATION
For most international operations, assets and liabilities are
translated into U.S. dollars at year-end exchange rates, and
revenues and expenses are translated at average exchange rates
prevailing during the year. Translation adjustments, resulting from
fluctuations in exchange rates, are recorded as a separate component
of shareholders' equity.
F-9
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
December 31 December 31
1997 1996
---------- ----------
Lease Property $ 346,881 $ 346,881
Rental Equipment 4,229,873 3,524,511
Leasehold Improvements 8,222 2,090
Furniture and Fixtures 188,900 174,842
Transportation Equipment 143,948 113,379
Office Equipment 27,828 28,499
---------- ----------
Total 4,945,562 4,190,202
Less: Accumulated Depreciation 517,543 337,241
---------- ----------
Property and Equipment - Net $4,428,109 $3,852,961
========== ==========
Depreciation expense for the years ended December 31, 1997 and 1996 was
$186,529 and $189,347, respectively.
Rent expense for the years ended December 31, 1997 and 1996 was
approximately $91,000 and $84,000 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. This lease was re-written for a new tenant effective
January 1998.
NOTE 3. CASH AND CASH EQUIVALENTS
At December 31, 1996, cash and cash equivalents included commercial
paper in the amount of $4,350,000, with interest rates which ranged
from 5.38% - 5.44%. At December 31, 1997 there were no investments in
short-term commercial paper.
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 and $4,000 during 1997. All
interest charged through 1997 has been paid by the stockholder. The
Company expects that the note will be repaid by 1998. Included in the
statement of operations is approximately $12,000 of interest income for
the year ended December 31, 1997 and 1996, attributable to this note.
F-10
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31,,1997 AND 1996
NOTE 5. WARRANTS AND OPTIONS
As of December 31, 1997, the Company has outstanding 1,725,000 five
year 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, 1999.
As part of the 1991 Public Offering, the underwriter received options
to purchase 150,000 units to be exercised by December 12, 1996, 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
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, 1997 AND 1996
NOTE 7. PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following for the years
ended December 31:
1997 1996
--------- ---------
Current
Federal $ 96,156 $ 332,000
State 1,738 --
Foreign 13,285 215,135
--------- ---------
111,179 547,135
--------- ---------
Deferred
Federal -- --
State -- --
Foreign ( 7,500) 7,500
--------- ---------
( 7,500) 7,500
--------- ---------
Income Tax Provision $ 103,679 $ 554,635
========= =========
Deferred income taxes resulting from differences between accounting for
financial statement purposes and accounting for tax purposes, were as
follows:
1997 1996
-------- --------
Revenue Recognition ($ 22,000) $ 22,000
-------- --------
Tax Effects of timing Differences ($ 7,500) $ 7,500
======== ========
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 $ 84,000 $332,000
State Taxes 1,738 --
Foreign Taxes 5,785 222,635
Other-Additional Taxes Prior Year 12,156 --
Net Operating Losses and Tax Credits (84,000) (332,000)
-------- --------
Income Tax Provision, Net $ 19,679 $222,635
======== ========
F-12
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
NOTE 7. PROVISIONS FOR INCOME TAXES (Continued)
As of December 31, 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 $251,000
December 31, 2010 428,000
--------
Total $679,000
In addition the Company has available approximate foreign tax credits
to offset future federal income taxes of $282,000.
NOTE 8. 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 achieved 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 was entitled to a $150,000 bonus. Included in the
statement of operations, for 1996 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, 1997 AND 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 has
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, 1997, includes assets related to the Company's slot
machine operations in Peru, Colombia, and Nicaragua of $3,938,000,
1,421,000 and $285,000 respectively. Although, these countries are
considered politically and economically stable, it is possible that
unanticipated events in foreign countries could disrupt the
Company's operations.
In that regard the Company had been informed that in Peru an excise
tax was instituted effective October 1, 1996 on the lessee's of
gaming equipment. The Company with others in the industry have been
negotiating with the appropriate governmental agencies to have
incurred considerable legal expenses and have had the excise tax
significantly curtailed.
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 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. In February 1998 approximately $18,000 had been collected
on the amounts due.
F-14
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
NOTE 10. DIVIDEND PAYMENT
On April 15, 1997 The Board of Directors declared a $.05 per share
dividend to shareholders of record on May 30, 1997, payable September
1, 1997. Simultaneously, the Company's officers and directors waived
their rights to the payment of such dividend. The company disbursed
$87,189 pursuant to this dividend declaration.
F-15
Exh. 4.4
SECRETARIAL CERTIFICATION
OF
LATIN AMERICAN CASINOS, INC.
I, Geraldine E. Lyons, Secretary of Latin American Casinos, Inc. (the
"Company) do hereby certify that at a duly constituted meeting of the Company's
Board of Directors (the "Board") on August 6, 1997 that the Board approved the
following action:
WHEREAS, the Board deemed it in the best interests of the Company to
extend the Company's Warrants (LACIW) due to expire on December 11, 1997 for two
additional years to December 11, 1999.
WHEREUPON, a motion being duly made and seconded, it was:
RESOLVED, that the Company shall extend the expiration date of December
11, 1997 of the Warrants (LACIW) for an additional two years to December 11,
1999.
I, Geraldine E. Lyons, Secretary of Latin American Casinos, Inc. do
hereby certify that the aforementioned resolution truly and accurately
represents the action undertaken by the Company's Board of Directors on August
6, 1997 with respect to the extension of the term of the Warrants (LACIW).
LATIN AMERICAN CASINOS, INC.
By: /s/ GERALDINE E. LYONS
------------------------------------------
Geraldine E. Lyons,
Secretary
Date: April 13, 1998
----------------------
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