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 March 31, 1998
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 March 31, 1998: 3,300,000 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
REVIEW REPORT
-------------
AS OF MARCH 31, 1998
----------------------
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONTENTS
Accountants' Review Report 1
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 2
Consolidated Statements of Changes in Stockholder's
Equity for the Three Months Ended March 31, 1998 and
the Year Ended December 31, 1997 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements as of March 31,
1998 and December 31, 1997 6-13
<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 March 31, 1998, and the related
consolidated statements of operations, changes in stockholder's equity and cash
flows for the three months ended March 31, 1998 and 1997, 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, 1997 was audited by us and we
expressed an unqualified opinion on it in our report dated March 24, 1998, but
we have not prepared any auditing procedures since that date.
/s/ SHUBITZ ROSENBLOOM & CO.
- ------------------------------
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
May 8, 1998
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
March 31, December 31,
1998 1997
-----------------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $2,658,905 $3,224,665
Accounts Receivable, Less
$149,814 of Allowance for Doubtful Accounts
in 1998 and 1997 1,298,659 1,168,794
Prepaid Expenses and Other Current Assets 182,986 162,008
---------- ----------
Total Current Assets 4,140,550 4,555,467
---------- ----------
PROPERTY AND EQUIPMENT - NET 4,883,594 4,428,109
---------- ----------
OTHER ASSETS
Financing Arrangement Receivable 94,624 114,460
Deposits 4,935 8,813
Note Receivable - Stockholder 125,000 125,000
Other Assets 273,145 182,601
---------- ----------
Total Other Assets 497,704 430,864
---------- ----------
TOTAL ASSETS $9,521,848 $9,414,440
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 228,440 $ 253,238
Foreign Income Tax Payable 20,000 23,280
---------- ----------
Total Current Liabilities 248,440 276,518
---------- ----------
COMMITMENTS AND CONTINGENCIES -- --
---------- ----------
Total Liabilities 248,440 276,518
---------- ----------
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 ( 184,432) ( 125,179)
Deficit ( 458,693) ( 653,432)
Treasury Stock, at cost ( 5,235) ( 5,235)
---------- ----------
Total Stockholders' Equity 9,273,408 9,137,722
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,521,848 $9,414,440
========== ==========
</TABLE>
Read accountants' review report and notes to financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
FOR THE YEAR ENDED December 31, 1997
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 - 3,300,000 $ 2,211 $9,919,557 $ 4,003 $(828,069) $ 0
January 1, 1997
Acquisition of
3400 Shares of
Treasury Stock
at Cost -- -- -- -- -- 5,235
Adjustment for
Foreign
Currency -- -- -- (129,182) -- --
Translation
Dividends Paid (87,189)
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
Adjustment for
Foreign
Currency -- -- -- (59,353) -- --
Translation
Net Income for the
Three Months
Ended March 31,
1998 -- -- -- -- 194,739 --
--------- ---------- ---------- --------- --------- ------
Balance -
March 31, 1998 3,300,000 $ 2,211 $9,919,557 $(184,532) $(458,693) $5,235
========= ========== ========== ========= ========= ======
Read accountants' review report and notes to financial statements.
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
----------------------
<S> <C> <C>
Rental Income $ 666,808 $ 425,808
Selling, General and Administrative Expenses 439,250 362,709
Depreciation 54,062 36,500
--------- ---------
Income (Loss) from Operations Before
Interest Income, Income Taxes and Extraordinary
Item 173,496 26,599
Interest Income 41,243 59,413
--------- ---------
Income (Loss) from Operations
Before Income Taxes and Extraordinary Item 214,739 86,012
Income Taxes 82,000 47,000
--------- ---------
Income from Operations
Before Extraordinary Item 132,739 39,012
Utilization of Net Operating Losses and Foreign
Tax Credits 62,000 27,000
--------- ---------
Net Income (Loss) $ 194,739 $ 66,012
========= =========
Earnings (Loss) Per Common Share and Common
- -------------------------------------------
Share Equivalent
----------------
Common Share and Common Share Equivalent
Outstanding 3,296,600 3,300,000
========= =========
Net Income (Loss) Per Share $ .06 $ .02
========= =========
</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 THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 194,739 $ 66,012
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 54,062 36,500
Changes in Assets - (Increase) Decrease:
Accounts Receivable ( 129,865) ( 123,481)
Prepaid Expenses and Other Current Assets ( 20,978) 27,321
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses ( 24,798) ( 91,523)
Foreign Income Tax Payable ( 3,280) ( 5,887)
Deferred Income Taxes -- 14,000
---------- ----------
Net Cash Provided By (Used In) Operating
Activities ( 69,880) ( 77,058)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment ( 509,547) ( 107,121)
Other Assets ( 66,840) ( 63,390)
---------- ----------
Net Cash Provided by (Used In) Investing
Activities ( 576,387) ( 170,511)
---------- ----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents ( 59,253) ( 399)
---------- ----------
NET (DECREASE) IN CASH ( 565,760) ( 247,170)
CASH AND CASH EQUIVALENTS - BEGINNING 3,224,665 4,492,198
---------- ----------
CASH AND CASH EQUIVALENTS - ENDING $2,658,905 $4,245,028
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest $ -- $ --
========== ==========
Income Taxes, Foreign $ 23,280 $ 11,887
========== ==========
Read accountants' review report and notes to financial statements.
- 5 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
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 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 $5,000,000 for the purchase of
machines and equipment. As of March 31, 1998 the Company had acquired
approximately 8,000 slot machines and other related equipment at a cost
of $4,732,062, 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 March 31, 1998 the company has expended
approximately $350,000 primarily for start up costs and initial
inventory acquisitions. Such pre-operating expenditures have been
included $273,000 as other assets and $77,000 as prepaid and other
current 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. It is anticipated operations for World's
Best Rated Cigar Company will commence in the latter part of the second
quarter of 1998.
All material intecompany transactions, balances and profits have been
eliminated.
Read accountants' review report and notes to financial statements.
- 6 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
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. 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 $2,400,000 as of
March 31, 1998 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 shares 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 all 1998 warrants, stock options and underwriter's
options were anti- dilative.
Read accountants' review report and notes to financial statements.
- 7 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
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 $127,000 and
$3,094,000 as of March 31, 1998 and December 31, 1997 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.
Read accountants' review report and notes to financial statements.
- 8 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
Note 2. Property and Equipment
- ------- ----------------------
<TABLE>
<CAPTION>
Property and equipment are summarized as follows:
March 31, December 31,
1998 1997
----------------------------------------------------------------------------
<S> <C> <C>
Leased Property $ 346,881 $ 346,881
Rental Equipment 4,732,062 4,229,873
Leasehold Improvements 8,222 8,222
Furniture and Fixtures 192,872 188,900
Transportation Equipment 156,322 143,948
Office Equipment 27,828 27,828
---------- ----------
Total 5,464,187 4,945,652
Less: Accumulated Depreciation 580,593 517,543
---------- ----------
Property and Equipment - Net $4,883,594 $4,428,109
========== ==========
</TABLE>
Depreciation expense for the three months ended March 31, 1998 and 1997
was $54,062 and $36,500, respectively.
Rent expense for the three months ended March 31, 1998 and 1997 was
$21,200 and $20,900 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. Effective February 1, 1998 the lease was rewritten for a
new tenant with similiar terms.
Note 3. Cash and Cash Equivalents
- ------- -------------------------
As of March 31, 1998, cash and cash equivalents included commercial
paper in the amount of $2,400,000, due between April 2, 1998 through
April 14, 1998 at interest rates which approximates 5.4%. 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.
Included in the statement of operations is $2,800 of interest income
accrued for 1998 on this note.
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 balance of the note will be repaid in 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 MARCH 31, 1998 AND DECEMBER 31, 1997
Note 5. Warrants and Options
- ------- --------------------
As of March 31, 1998, 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 by December 12, 1996, which has been extended
to December 11, 1998.
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 than 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.
Note 7. Provision for Income Taxes
- ------- --------------------------
The provision for income taxes consisted of the following for the three
months ended March 31:
1998 1997
--------- ---------
Current
Federal $ 62,000 $ 20,000
State -- --
Foreign 20,000 13,000
--------- ---------
82,000 33,000
--------- ---------
Deferred
Federal -- --
State -- --
Foreign -- 14,000
--------- ---------
-- 14,000
--------- ---------
Income Tax Provision $ 82,000 $ 47,000
========= =========
Read accountants' review report and notes to financial statements.
- 10 -
<PAGE>
LATIN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
Note 7. Provision for Income Taxes (Continued)
- ------- --------------------------------------
Deferred income taxes resulting from differences between accounting for
financial statements purposes and accounting for tax purposes, were as
follows.
1997 1996
--------- ---------
Revenue Recognition $ -- $ 14,400
--------- ---------
Tax Effects of Timing Differences $ -- $ 14,000
========= =========
The differences between the provision for income taxes and income taxes
computed using the federal income tax rate were as follows.
1998 1997
--------- ---------
Amount Computed Using the Federal
statutory rate $ 60,000 $ 20,000
Foreign Taxes 20,000 27,000
Net Operating Losses and Tax Credits ( 62,000) ( 27,000)
--------- ---------
Income Tax Provision, Net $ 20,000 $ 20,000
========= =========
As of March 31, 1998, 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 $ 42,000
December 31, 2010 428,000
----------
Total $ 470,000
==========
In addition the Company has available approximate foreign tax credit to
offset future federal income tax of $302,000.
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.
Read accountants' review report and notes to financial statements.
- 11 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
Note 8. Commitments and Contingencies (Continued)
- ------- -----------------------------------------
B Employment Agreements
---------------------
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.
C Environmental Liability
The Company had received notice from the Dade County Environmental
Resources Management Department indicating that there has been a
discharge on the property owned by the Company. The Company is
cooperating with the Department, and preliminary evaluation by outside
professionals hired by the Company indicates there is not a severe
contamination problem. The Company maintains that the discharge was not
as a result of the Company's ongoing activities at the location, but as
a result of prior usage of the property. The Company has incurred
approximately $120,000 in costs and believes the problems have been
remedied. These costs have been capitalized to the cost of the land.
Read accountants' review report and notes to financial statements.
- 12 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
Note 8. Commitments and Contingencies (Continued)
- ------- -----------------------------------------
D Foreign Assets
--------------
The accompanying consolidated balance sheet for the period ended March
31, 1998, includes assets relating to the Company's slot machine
operations in Peru, Colombia and Nicaragua South America, of
$4,179,000, $1,486,000 and $289,000, 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. The Company with others in
the industry have been negotiating with the appropriate governmental
agencies to have 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 anticipates recovery of the amounts due
under the financing arrangement in full. The Company 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 $19,000 has been collected on the amounts
due.
Note 10 Dividend Payment
- ------- ----------------
On April 15, 1997 The Board of Directors declared a $.05 per share
dividend to shareholders of record on May 30, 1997, payable September
1, 1997. Simultaneously, the Company's officers and directors waived
their rights to the payment of such dividend. The company disbursed
$87,189 pursuant to this dividend declaration.
Read accountants' review report and notes to financial statements.
- 13 -
<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 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. As of
March 31, 1998, the Company had approximately 1,900 machines under rental
contracts in Peru and Columbia and approximately 1,350 machines under
participation contracts with various entrepreneurs throughout Colombia and
Nicaragua.
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 $600 each
including freight, duty, and refurbishing expenses.
In March of 1997, the Company expanded its slot machine operations in
Colombia and Nicaragua to include gaming slot route operations. Under the slot
route operations, the Company places machines into various businesses on a
participation basis with the owners or managers of the location. After deducting
expenses for taxes and jackpot payouts, the Company divides any remaining
winnings of the machine on a 30% participation to the business owner and 70%
participation to the Company. The Company believes that this change will
increase cash flow and reduce the Company's risk associated with the collection
of accounts receivable, thereby reducing allowances for doubtful accounts.
Results of Operations
- ---------------------
Revenues from the rental of slot machines in Peru, Colombia and
Nicaragua for the quarter ended March 31, 1998 increased by
- 14 -
<PAGE>
$241,000 (56.60%) to $666,808 from $425,808 for the quarter ended March 31,
1997. The principal reason for the increase in revenues was the increase in
market penetration of the Company's slot machine operations in Peru, Columbia
and Nicaragua.
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 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 March 31, 1998, the Company had approximately 1000 slot
machines under rental agreements in Peru.
In addition, the Peruvian government has imposed regulations regulating
the number of slot machines in each gaming parlor. The Company and four other
gaming companies have enjoined the Peruvian federal government from implementing
these regulations on the grounds that (i) such regulations were implemented
arbitrarily without consulting the Peruvian gaming commission and (ii) gaming
issues are within the jurisdiction of Peruvian municipalities and not the
Peruvian government. The Company's attorneys in Peru believe the injunction will
remain in effect for approximately two years.
Selling, general, and administrative expenses incurred in the operation
of the Company's gaming and casino business for the
- 15 -
<PAGE>
quarter ended March 31, 1998 increased $76,541 (21.10%) to $439,250 from
$362,709 for the same period in 1997. The increase in expenses reflects an
increase in the commissions of the Company's salespersons necessary to increase
the number of the Company's slot machines on location in Peru and Columbia. The
increase was also due to an increase in executive compensation and the
continuing legal fees incurred in seeking to enjoin the Peruvian government from
implementing a 200% excise tax on lessees of gaming equipment. As a percentage
of revenues, selling, general and administrative expenses decreased 19.31% for
the three-month period ended on March 31, 1998.
Net income from continuing operations increased to $194,739, or $0.06
per share, for the quarter ended March 31, 1998, from $66,012, or $0.02 per
share, for the quarter ended March 31, 1997. The $128,727 (195%) increase in net
income is primarily attributed to the 56.60% increase in the Company's revenues
and the 19.31% decrease in selling, general and administrative expenses as a
percentage of revenues for the quarter ended March 31, 1998.
Cash and cash equivalents decreased $565,760 (17.54%) to $2,658,905 for
the three-month period ended March 31, 1998 from $3,224,665 for the same period
in 1997. The decrease is attributed to the Company's purchase of an additional
2,000 slot machines from its vendors in Australia and the freight charges and
custom fees involved in shipping 1000 slot machines from Peru to Columbia to
supply the Company's new offices in Medellin and Barranquilla. The decrease was
also due to start-up costs in the amount of approximately $355,000 of the
Company's new subsidiary, World's Best Rated Cigar Company.
On September 23, 1997 the Company incorporated World's Best Rated Cigar
Company (A World's Best@) as a wholly-owned subsidiary to distribute cigars. In
September 1997, the Company entered into a joint venture agreement with a cigar
producer in Santiago, Dominican Republic. Operations of World's Best have not
yet commenced; however as of March 31, 1998, the Company had expended
approximately $355,000, $274,000 of which the Company expended on initial cigar
inventory acquisitions, $64,000 on construction of a cigar factory in Santiago,
Dominican Republic and $17,000 on other prepaid expenses associated with the
start-up of World's Best. The Company anticipates operations of World's Best
will
- 16 -
<PAGE>
commence in the latter part of the second quarter of 1998 with full operations
in the third quarter.
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1998, the Company had invested approximately $4,732,000
in the business of renting slot machines in Latin America and had acquired
approximately 8,000 slot machines and other related equipment. The Company's
investment in the gaming business included the acquisition of slot machines at a
approximate cost of $600 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 quarter ended March 31, 1998
includes assets relating to the Company's slot machine operations in Peru,
Colombia and Nicaragua of $4,179,000, $1,486,000 and $289,000, 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. Additionally, the Company has concentrated its
credit risk for cash by maintaining deposits in banks located within the same
geographic region of its operations. The maximum loss that would have resulted
from such risk for the quarter ended March 31, 1998 totaled approximately
$127,000 for the excess of the deposit liabilities reported by the bank over the
amounts that would have been covered by federal insurance.
The Company is financially strong with $9,521,848 in assets, of which
$2,658,905 is in cash and cash equivalents, and approximately 8,000 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 U.S. net operating loss carryforwards
of approximately $470,000 which may provide the Company future tax benefits. In
addition, the Company has available foreign tax credits in the amount of
approximately $302,000.
Other than for the acquisition of additional slot machines and
inventory for new cigar operations, the Company does not presently know of any
material commitment for capital
- 17 -
<PAGE>
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".
- 18 -
<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)
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(5)
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.
(5) Incorporated herein by reference to the 10-KSB filed by the Company for
the year ended December 31, 1997.
- 19 -
<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.
- 20 -
<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: May 15, 1998 /s/ LLOYD LYONS
--------------------------------------
Lloyd Lyons
Chief Executive Officer
Date: May 15, 1998 /s/ DONALD D. SCHIFFOUR
---------------------------------------
Donald D. Schiffour
Chief Financial Officer
- 21 -
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<NAME> LATIN AMERICAN CASINOS, INC.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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