SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition form _______________ to _______________.
Commission File Number 33-43423
LATIN AMERICAN CASINOS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 65-0159115
- --------------------------------- ----------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
2000 N.E. 164th Street
North Miami Beach, FL 33162
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(Address of principal executive offices)
(305) 945-9300
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common equity,
as of September 30, 1999: 3,300,000 shares of common stock $.00067 par value per
share.
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONTENTS
Accountants' Review Report 1
Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 2
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 30, 1999 and
the Year Ended December 31, 1998 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements as of September 30,
1999 and December 31, 1998 6-13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
REVIEW REPORT
AS OF SEPTEMBER 30, 1999
<PAGE>
SHUBITZ ROSENBLOOM & CO., P.A.
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS
AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS
AICPA PRIVATE COMPANIES PRACTICE SECTION
AICPA - TAX DIVISION
HOWARD ROSENBLOOM, C.P.A., M.B.A. SABAL CHASE PROFESSIONAL CENTER
LEONARD ALAN SHUBITZ, C.P.A. 11428 SOUTHSWEST 109TH ROAD
---- MIAMI, FLORIDA 33176
JERRY L. FEINGOLD, C.P.A. -------
TELEPHONE (305) 596-CPAS
FAX (305) 595-2309
EMAIL [email protected]
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors of:
Latin American Casinos, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of Latin American
Casinos, Inc. and Subsidiaries as of September 30, 1999, and the related
consolidated statements of operations, changes in stockholder's equity and cash
flows for the three and nine months ended September 30, 1999 and 1998, 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 than 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, 1998 was audited by us and we
expressed an unqualified opinion on it in our report dated April 2, 1999, but we
have not performed any auditing procedures since that date.
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
November 12, 1999
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 1,024,303 $ 1,567,773
Accounts Receivable, Less
$150,000 of Allowance for Doubtful Accounts
in 1999 and 1998 1,336,793 1,322,130
Inventory 785,055 725,609
Prepaid Expenses and Other Current Assets 272,835 189,513
----------- -----------
Total Current Assets 3,418,986 3,805,025
----------- -----------
PROPERTY AND EQUIPMENT - NET 5,882,575 5,497,734
----------- -----------
OTHER ASSETS
Financing Arrangement Receivable 94,624 94,624
Deposits 11,320 22,275
Note Receivable - Stockholder 115,000 117,000
Other Assets 36,815 16,248
----------- -----------
Total Other Assets 257,759 250,147
----------- -----------
TOTAL ASSETS $ 9,559,320 $ 9,552,906
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 174,043 $ 247,126
Foreign Income Tax Payable 30,393 28,707
----------- -----------
Total Current Liabilities 204,436 275,833
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
Total Liabilities 204,436 275,833
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.00067 Par Value 15,000,000
Shares Authorized, 3,300,000 Shares Issued
3,296,600 Shares Outstanding and 3,400 Shares
held as Treasury Stock 2,211 2,211
Additional Paid-In Capital 9,919,557 9,919,557
Cumulative Other Comprehensive Income (Loss) (511,407) (517,151)
Retained Earnings (Deficit) (50,242) (122,309)
Treasury Stock, at cost (5,235) (5,235)
----------- -----------
Total Stockholders' Equity 9,354,884 9,227,073
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,559,320 $ 9,552,906
=========== ===========
</TABLE>
Read accountants' review report
and notes to financial statement.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock
-----------------------
Number Par Additional Other Retained
of Value Paid-In Comprehensive Earnings Treasury
Shares $.00067 Capital Income (Loss) (Deficit) Stock
---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE
JANUARY 1,1998 3,300,000 $ 2,211 $9,919,557 ($ 125,179) ($ 653,432) $ 5,235
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- (391,972) -- --
DIVIDENDS PAID -- -- -- -- --
NET INCOME FOR
THE YEAR ENDED
DECEMBER 31, 1998 -- -- -- -- 531,123 --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE -
DEC. 31, 1998 3,300,000 2,211 9,919,557 (517,151) (122,309) 5,235
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- 5,744 -- --
NET INCOME FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1999 -- -- -- -- 72,067 --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE SEPTEMBER
30, 1999 3,300,000 $ 2,211 $9,919,557 ($ 511,407) ($ 50,242) $ 5,235
========== ========== ========== ========== ========== ==========
</TABLE>
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Read accountants' review report and notes to financial statement
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 357,826 $ 667,561 $ 1,401,684 $ 2,063,171
Selling, General And
Administrative Expenses 390,609 466,912 1,263,148 1,371,496
Depreciation 53,500 81,996 150,500 203,196
----------- ----------- ----------- -----------
Income (Loss) from Operations Before
Interest Income, Income Taxes And
Extraordinary Item (86,283) 118,653 (11,964) 488,479
Interest Income 35,419 23,306 93,495 106,975
----------- ----------- ----------- -----------
Income (Loss) from Operations Before
Income Taxes and Extraordinary Item (50,864) 141,959 81,531 595,454
Income Taxes 2,000 38,000 31,464 187,000
----------- ----------- ----------- -----------
Income (Loss) from Operations
Before Extraordinary Item (52,864) 103,959 50,067 408,454
Utilization of Net Operating Losses
And Foreign Tax Credits -- 25,000 22,000 144,000
----------- ----------- ----------- -----------
Net Income (Loss) ($ 52,864) $ 128,959 $ 72,066 $ 552,454
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
BASIC
Common Equivalent Shares Outstanding 3,296,600 3,296,000 3,296,600 3,296,600
=========== =========== =========== ===========
Net Income (Loss) Per Share ($ .02) $ .04 $ .02 $ .17
=========== =========== =========== ===========
FULLY DILUTED
Common Equivalent Shares Outstanding 3,296,600 3,296,600 3,296,600 3,481,432
=========== =========== =========== ===========
Net Income (Loss) Per Share ($ .02) $ .04 $ .02 $ .17
=========== =========== =========== ===========
</TABLE>
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 72,067 $ 552,454
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 150,500 203,196
Changes in Assets - (Increase) Decrease:
Accounts Receivable (14,664) (445,033)
Prepaid Expenses and Other Current Assets (83,322) (105,895)
Inventory of Cigars (59,446) (688,770)
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses (73,082) (36,448)
Foreign Income Tax Payable 1,686 19,720
----------- -----------
Net Cash Provided by (Used In) Operating
Activities (6,261) (500,776)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Property and Equipment (535,341) (745,987)
Other Assets (7,612) 195,805
----------- -----------
Net Cash (Used In) Investing
Activities (542,953) (550,182)
----------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 5,744 (321,876)
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (543,470) (1,372,834)
CASH AND CASH EQUIVALENTS - BEGINNING 1,567,773 3,224,665
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 1,024,303 $ 1,851,831
- ---------------------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest $ 24,590 $ --
=========== ===========
Income Taxes, Foreign $ 19,314 $ 23,280
=========== ===========
Read accountants' review report and notes to financial statement.
- 5 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
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. In
1994 the Company started in the gaming and casino business,
primarily in Peru and other Latin American countries renting casino
slot machines.
In 1994 the Company formed a Peruvian subsidiary; in 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 casino operators. As of September 30, 1999 the
Company had acquired approximately 8,000 slot machines,
approximately 2,000 of which have been acquired for parts and other
related equipment, at a total cost of $5,885,121 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 Del Peru S.A. (formally known as Latin American
Casinos, Inc. S.A.) a Peruvian Corporation, Latin American Casinos
of Colombia LTPA, a Colombian Corporation, and Latin American
Casinos of Nicaragua. Effective September 23, 1997 the Company
incorporated World's Best Rated Cigar Company (World) as a wholly
owned subsidiary of Latin American Casinos, Inc., to distribute
quality cigars. In addition, Premium Cigar Manufacturers (Premium)
was incorporated in 1998 as a wholly-owned subsidiary of Latin
American Casinos, Inc. It was originally intended that World will
market premium cigars at "off price" whereas Premium will acquire
quality cigars from six South American producers and market them
through large retail chains, initially on a consignment basis.
Operations of these subsidiaries have only initially commenced in
this quarter. Included in revenues is approximately $13,000 of cigar
sales. As of September 30, 1999 the Company has expended
approximately $1,100,000 primarily for start up costs and initial
inventory acquisitions. Such pre-operating expenditures have been
included as $54,000 prepaid and other current assets, $785,000 as
inventory and $149,000 as fixed assets in the accompanying financial
statements. World's Best Rated Cigar Company had committed with a
cigar manufacturer in South America to acquire a minimum number of
cigars per month. The arrangement had extended for twenty years;
however, with the delay in the commencement of the cigar operations,
the purchase commitment was canceled. It is anticipated that cigar
operations will be fully operational in either late 1999 or in year
2000.
All material intercompany transactions, balances and profits have
been eliminated.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
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 betterment's 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
Revenue is recognized monthly on the rental of slot machines as the
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.
F INCOME (LOSS) PER COMMON SHARE
Basic earnings per common share were computed by dividing net income
by the weighted average number of shares of common stock outstanding
during the period. Fully diluted earnings per share was calculated
based on the assumption that the increase in the number of common
shares assumed outstanding on conversion are reduced by the number
of common shares that are assumed to be purchased with the proceeds
from the exercise of the incentive stock options. During 1999 all
other warrants, stock options and underwriter's options (Notes 4 and
5) are anti-dilutive. During 1998 all warrants, stock options, and
underwriter's options were anti-dilutive.
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
G SIGNIFICANT CONCENTRATION OF CREDIT RISK
The Company has concentrated its credit risk for cash by maintaining
deposits in banks located within the same geographic region. The
maximum loss that would have resulted from risk totaled $885,000 and
$1,411,000 as of September 30, 1999 and December 31, 1998 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 Uncollectable
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, as other comprehensive income (loss).
J INVENTORIES
Inventory of cigars, and related material are stated at the lower of
average cost or market.
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
September 30, December 31,
1999 1998
---------- ----------
Land & Building $ 421,882 $ 421,882
Rental Equipment 5,885,121 5,580,705
Leasehold Improvements 26,027 26,027
Furniture, Fixtures & Office Equipment 212,556 153,930
Transportation Equipment 157,126 149,876
---------- ----------
Total 6,702,712 6,332,426
Less: Accumulated Depreciation 820,137 834,686
---------- ----------
Property and Equipment - Net $5,882,575 $5,497,734
========== ==========
Included in Rental Equipment is approximately $1,500,000 of parts
and supplies purchased or obtained from other machines previously
disassembled for parts.
Depreciation expense for the three and nine months ended September
30, 1999 was $53,500 and $150,500 respectively.
Rent expense for the three and nine months ended September 30,1999
was $25,600 and $63,899, respectively.
Effective April 1, 1996, the Company leased the land and building it
owns for $1,500 per month increased to $1,900 per month in 1999 to
an unrelated party for a three year period. The lease is presently
on a month to month basis with similar terms.
NOTE 3. NOTE RECEIVABLE - STOCKHOLDER
The Company advanced $150,000 to one of the stockholders in 1993.
The stockholder repaid $21,000 during 1994, $4,000 during 1997,
$8,000 in 1998 and $2,000 in 1999. All interest charged through
March 31, 1999 has been paid by the stockholder. Interest is being
charged at a rate of prime plus 1% per annum. Included in the
statement of operations is $9,680 of interest income accrued in 1999
on this note.
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 4. WARRANTS AND OPTIONS
As of June 30, 1999, the Company has outstanding 1,500,000 five year
warrants to purchase one share of the Company's common stock at an
exercise price of $3.00 by December 11, 2001.
NOTE 5. INVESTMENT BANKER WARRANTS
Effective June 5, 1998, the Company contracted with an investment
banker to provide on a non-exclusive basis to the Company assistance
in possible mergers, acquisitions and internal capital structuring.
The duration of the contract is for five years. In consideration for
these services, Latin American Casinos, Inc. granted warrants to
purchase an aggregate of 225,000 shares of common stock at the
closing bid price of $1.875 as of June 5, 1998, which can be
exercised through June 5, 2003. These warrants vest and become
irrevocable as follows: 75,000 warrants with signing of the
agreement, 75,000 warrants 180 days after the signing of the
agreement and an additional 75,000 warrants 365 days after the
signing of the agreement.
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
was terminated in March, 1999. 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 of
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. In June 1999, the company
increased the shares allocated to the plan to 1,500,000. Effective
December 31, 1998 the Company ratified the repricing of 872,000 of
employee stock options to $1.00 per share and simultaneously
authorized the issuance of 85,000 options at an exercise price $1.00
per share and cancelled 10,000 options issued in 1995 at $2.50 per
share.
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 7. PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following for the
nine months ended September 30:
1999 1998
--------- ---------
Current
Federal $ 10,464 $ 144,000
State -- --
Foreign 21,000 43,000
--------- ---------
31,464 187,000
--------- ---------
Deferred
Federal -- --
State -- --
Foreign -- ( --)
--------- ---------
Income Tax Provision $ 31,464 $ 187,000
========= =========
The differences between the provision for income taxes and income
taxes computed using the federal income tax rate were as follows:
1999 1998
--------- ---------
Amount computed using the Federal
statutory rate $ 22,000 $ 144,000
Foreign Taxes 21,000 43,000
Refund Prior Year Taxes (11,536) --
Net Operating Losses and Tax Credits (22,000) (144,000)
--------- ---------
Income Tax Provision, Net $ 9,464 $ 43,000
========= =========
As of September 30, 1999, the Company had available for income tax
purposes unused net operating loss carryforwards which may provide
future tax benefits of $73,000, expiring in the year 2010. No
valuation allowance has been provided for unremitted foreign
profits.
In addition the Company has available approximate foreign tax
credits of $331,000 to offset future Federal Income Taxes.
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 8. COMMITMENTS AND CONTINGENCIES
A LITIGATION
The Company is a defendant from time to time in claims and lawsuits
arising out of the normal course of its business, none of which are
expected to have a material adverse effect on its business or
operations.
B EMPLOYMENT AGREEMENTS
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 at
$25,000 per annum commencing January 1, 1998. The 1999 increase has
been waived. 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 FOREIGN ASSETS
The accompanying consolidated balance sheets for the period ended
September 30, 1999, includes assets relating to the Company's slot
machine operations in Peru, Colombia and Nicaragua, South America of
$4,219,000, $2,488,000 and $362,000, 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 was
informed that in Peru an excise tax has been instituted effective
October 1, 1996 on the leases of gaming equipment. The Company with
others in the industry have been negotiating with the appropriate
governmental agencies and have had the excise tax significantly
curtailed. In addition, a significant portion of the Company's
inventory in cigars is being stored in South America awaiting
finalization of the corporate marketing and distribution plans. In
October, 1998 Nicaragua suffered the effects of hurricane "Mitch".
The Company has ceased operations in Nicaragua and it is anticipated
that all of the assets in Nicaragua will be transferred to other
South American subsidiaries.
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NOTE 8. COMMITMENTS AND CONTINGENCIES (Continued)
D LEASE COMMITMENT
The Company's Miami office is obligated for a three year lease for
its premises which expires in September, 2001 and requires monthly
rent of $2,200. In addition the company is obligated for two year
lease for warehouse space at a monthly rent of $1,400.
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 was 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 continues to pursue the
recovery of the amounts due under the financing arrangement in full.
The Company has indicated the proceedings may take a considerable
time to resolve. The receivable is shown as long term in the
accompanying financial statements. In February, 1998 approximately
$19,000 had been collected on the amounts due.
Read accountants' review report and notes to financial statements.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
GENERAL
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 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 Colombian subsidiary,
and in 1997, the Company formed a subsidiary in Nicaragua. In October 1998 the
company ceased operations in Nicaragua due to the effects of hurricane "Mitch".
The company is contemplating restarting operations early in the year 2000.
As of September 30, 1999, the Company had approximately 1,900
machines under rental contracts in Peru and Colombia and approximately 250
machines under participation contracts with various entrepreneurs throughout
Colombia.
The Company concentrates its efforts on the rental of used five reel
slot machines. These machines are purchased at a fraction of the cost of new
machines and are refurbished for use in South and Central America. Whereas a new
slot machine would cost approximately $6,000 plus additional duty charges, the
used slot machines purchased by the Company cost in excess $600 each including
freight, duty, and refurbishing expenses.
In March 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 payoffs, the Company divides any remaining
winnings of the machine on 30% participation to the business owner and 70%
participation to the Company.
RESULTS OF OPERATIONS
THIRD QUARTER
Revenues from the rental of slot machines in Peru and Colombia for the
three months ended September 30, 1999 decreased by $309,735 or 47%, to $357,826
from the comparable period in 1998. The primary reason for the decrease in
revenues were the overall weakness of the economy in South America and the
continued bureaucratic delays in obtaining permits to open new slot machine
parlors, and the cessation of operations in Nicaragua. The Company believes the
bureaucratic delays are over and anticipates the rental of additional slot
machines in the forth quarter.
Selling, general, and administrative expenses incurred in the quarter
ended September 30, 1999 decreased by $76,303 or 16%, to $390,609 from $466,912
for the same period in 1998.
- 14 -
<PAGE>
Net (loss) for the three months ended September 30, 1999 was to
($52,864) or ($0.02) per share from $128,959, profit or $0.04 per share for the
same in period 1998. The net loss was attributable to the decline in revenues
from slot machine operations and to a lesser extent to the expenses of starting
the cigar operation.
NINE MONTHS
Revenues from the rental of slot machines in Peru and Colombia for the
nine months ended September 30, 1999 decreased $661,487 or 32%, to $1,401,684
from the comparable period in 1998.
Selling, general, and administrative expenses for the nine months ended
September 30, 1999 decreased $108,348 or 9%, to $1,263,148 from the same period
in 1998.
Net income for the nine months ended September 30, 1999 decreased to
$72,066 or $0.02 per share from $552,454 or $0.17 per share for the same period
1998.
The Company has temporarily enjoined the Peruvian government from
implementing an excise tax on slot machine revenues. The case is now on appeal
before a panel of three judges. If the injunction is upheld, the government will
continue to be enjoined, unless Congress passes new legislation. The Company is
optimistic about the outcome because two other gaming companies have succeeded
in obtaining similar injunctions against the government. In the event the panel
rules against the Company, the Company can appeal to a higher court and
eventually, if necessary, to the World Court.
In addition, the Peruvian government has imposed regulations regulating
the number of slot machines that each parlor could maintain. The Company and
four other gaming companies have enjoined the Peruvian 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.
On September 23, 1997, the Company incorporated World's Best Rated
Cigar Company ("World's Best") as a wholly owned subsidiary to distribute
cigars. In addition, in 1998, Premium Cigar Manufacturers ("Premium") was
incorporated as a wholly owned subsidiary of the Company. Operations of World's
Best and Premium have now commenced as of September 30, 1999, the Company had
expended approximately $1,100,000, primarily for the start-up and initial
inventory acquisitions for World's Best and Premium. These costs have been
allocated $54,000 to prepaid expenses, $785,000 to inventory and $149,000 to
fixed assets.
- 15 -
<PAGE>
The Company's balance sheet at September 30, 1999 includes assets
relating to the Company's slot machine operations in Peru, Colombia and
Nicaragua of $4,219,000, $2,488,000 and $362,000, 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 at September 30, 1999 totaled approximately $1,411,000 for the excess of
the deposit liabilities reported by the bank over the amounts that would have
been covered by federal insurance. In October 1998, the Company ceased
operations in Nicaragua and as a result the Company reported revenes in
Nicaragua of $156,000 in 1998 and $0 in 1999.
The Company has reviewed issues associated with its computer system and
its ability to operate effectively as the millenium (year 2000) approaches, as
well as the potential effect of year 2000 on key suppliers and customers. The
Company believes that its year 2000 transition will not have a material adverse
affect on its business, financial condition or results of operations. The
Company is confident that the funds deposited in foreign banks will continue to
be accessible.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $543,470 or 35%, to $1,024,303 at
September 30, 1999 from $1,567,773 at December 31, 1998. The decrease is
attributable primarily to the Company's investment in inventory and related cost
of the cigar business. It is anticipated that the cigar operation will commence
and be fully operational and profitable either in the last quarter of 1999 or in
the year 2000.
The Company anticipates that its cash flow from operations and interest
on investments will be sufficient to meet its cash needs for the next twelve
months. The Company does not have any commitments for material capital
expenditures.
FORWARD LOOKING STATEMENTS
From time to time, the Company may publish forward looking statements
relating to such matters as anticipated financial performance, business
prospects, new products and certain other matters. The words "may", "will",
"expect", "anticipate", "continue", "estimate", "project", "intend" and similar
expressions are intended to identify such forward looking statements. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safeharbor,
the Company notes that a variety of factors could cause its actual results and
experience to differ materially from anticipated results and other expectations
that may effect the operations, performance, development and results of the
Company's business, including the following:
1. Changes in government regulations of gaming, such as the excise tax imposed
by Peru, could have an effect on the Company's operations and business.
- 16 -
<PAGE>
2. Political factors affecting South and Central America, particularly as they
pertain to currency valuation, could affect the Company's business in ways,
which are difficult to predict.
3. The agreements, which the Company has with five of its cigar manufacturers,
are cancelable upon 60 days written notice. One or more such cancellations
could have a material adverse effect on the Company's cigar operations.
4. The Company's cigar operations are in its initial stages. This business is
subject to all the risks and uncertainties associated with the commencement
of a new enterprise. There can be no assurances that the Company will be
able to successfully penetrate the market, or that its cigar operations
will become profitable.
5. The Company may be required to raise additional funds to expand its
business operations, particularly the cigar business, if it proves
successful. There can be no assurances that the Company will be able to
raise such funds, either through the sale of equity or debt securities or
through commercial sources. The inability to acquire needed capital could
have a material adverse effect on the Company's ability to expand.
6. The Company may be required to expand its infrastructure, including the
hiring of additional personnel in its executive offices. The Company is
currently in the process of a search for a replacement for its Chief
Financial Officer, Donald Schiffour, who passed away in November of this
year. There can be no assurances that the Company will be able to attract
and retain qualified personnel who will be successful in managing the
Company's operations.
7. As previously announced, Lloyd Lyons, the President and Chief Executive
Officer of Latin American Casinos, Inc. has entered into a letter of intent
to sell his shares in the Company to Blue Whale Investments, Ltd. A final,
definitive agreement has not yet been signed. In addition, the Company is
in the initial stages of negotiating a possible combination of the
interests of Blue Whale and the Company.
- 17 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LATIN AMERICAN CASINO, INC.
(Registrant)
Dated: November 19, 1999 By: /s/ LLOYD LYONS
-----------------------------------
Lloyd Lyons
Chief Executive Officer
By: /s/ LLOYD LYONS
-----------------------------------
Lloyd Lyons
Acting Chief Financial Officer
- 18 -
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