LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
REVIEW REPORT
AS OF MARCH 31, 2000
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONTENTS
Accountants' Review Report 1
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 2
Consolidated Statements of Changes in Stockholders'
Equity for the Three months ended March 31, 2000 and
and Year Ended December 31, 1999 3
Consolidated Statements of Operations for the Three months
Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Three months
Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements as of March 31, 2000
and December 31, 1999 6-13
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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, 2000, and the related
consolidated statements of operations, changes in stockholder's equity and cash
flows for the three months ended March 31, 2000 and 1999, 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, 1999 was audited by us and we
expressed an unqualified opinion on it in our report dated March 31, 2000, but
we have not performed any auditing procedures since that date.
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
May 4, 2000
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF THE THREE MONTHS ENDED MARCH 31, 2000 AND
DECEMBER 31, 1999
ASSETS
March 31 December 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 639,887 $ 800,223
Accounts Receivable, Less
$150,000 of Allowance for Doubtful Accounts
in 2000 and 1999 1,589,294 1,591,399
Inventory 628,136 645,172
Prepaid Expenses and Other Current Assets 191,992 212,429
----------- -----------
Total Current Assets 3,049,309 3,249,223
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PROPERTY AND EQUIPMENT - NET 4,328,090 4,568,008
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OTHER ASSETS
Financing Arrangement Receivable 94,624 94,624
Deposits 11,609 11,609
Note Receivable - Stockholder 115,000 115,000
Other Assets 16,964 25,925
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Total Other Assets 238,197 247,158
----------- -----------
TOTAL ASSETS $ 7,615,596 $ 8,064,389
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 167,965 $ 191,650
Foreign Income Tax Payable -- --
----------- -----------
Total Current Liabilities 167,965 191,650
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COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
Total Liabilities 167,965 191,650
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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 (535,105) (415,193)
Retained Earnings (Deficit) (1,933,797) (1,628,601)
Treasury Stock, at cost (5,235) (5,235)
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Total Stockholders' Equity 7,447,631 7,872,739
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,615,596 $ 8,064,389
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Read accountants' review report and notes to financial statements.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
FOR THE YEAR ENDED DECEMBER 31, 1999
Common Stock
-------------------------
Number Par Additional Cumulative Retained
of Value Paid-In Comprehensive Earnings Treasury
Shares $.00067 Capital Income (Loss) (Deficit) Stock
----------- ----------- ----------- ----------- ----------- -----------
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BALANCE
JANUARY 1,1999 3,300,000 $ 2,211 $ 9,919,557 ($ 517,151) ($ 122,309) $ 5,235
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- 101,958 -- --
NET LOSS FOR
THE YEAR ENDED
DECEMBER 31, 1999 -- -- -- (1,506,292) _-
----------- ----------- ----------- ----------- ----------- -----------
BALANCE DECEMBER
31, 1999 3,300,000 2,211 9,919,557 (415,193) (1,628,601) 5,235
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- (119,912) -- --
NET LOSS FOR THE
THREE MONTHS ENDED
MARCH 31, 2000 $ -- -- -- -- (305,196) --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE MARCH
31, 2000 $ 3,300,000 $ 2,211 $ 9,919,557 ($ 535,105) ($1,933,797) $ 5,235
=========== =========== =========== =========== =========== ===========
Read accountants' review report and notes to financial statements.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
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REVENUES
Rental Income $ 240,146 608,361
Sales of Cigars 24,301 1,059
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Total Revenues 264,447 609,420
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COSTS AND EXPENSES
Selling, General & Administration 527,852 452,885
Depreciation 32,847 52,500
Costs of Cigar Sales 19,783 850
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Total Cost and Expenses 580,482 506,235
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OPERATING INCOME (LOSS) (316,035) 103,185
Interest Income 10,839 30,107
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Income (Loss) Before Income Taxes
And Extraordinary Item (305,196) 133,292
Income Taxes (Provision) Benefit -- 57,000
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Income (Loss) Before Extraordinary Item (305,196) 76,292
Utilization of Net Operating Losses and
Foreign Tax Credits -- 40,000
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Net Income (Loss) ($ 305,196) $ 116,292
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EARNINGS (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
Common Share Equivalent Outstanding 3,296,600 3,446,475
=========== ===========
Net Income (Loss) ($ .09) $ .03
=========== ===========
Read accountants' review report and notes to financial statements.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($ 305,196) $ 116,292
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 32,847 52,500
Changes in Assets - (Increase) Decrease:
Accounts Receivable 2,105 (79,957)
Prepaid Expenses and Other Current Assets 20,437 44,237
Inventory of Cigars 17,036 (45,711)
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses (23,684) (114,087)
Foreign Income Tax Payable -- (11,707)
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Net Cash Provided by (Used In) Operating
Activities (256,455) (38,433)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Change in Property and Equipment 207,070 (155,637)
Other Assets 8,961 (603)
----------- -----------
Net Cash Provided By (Used by)Investing
Activities 216,031 (156,240)
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Effect of Exchange Rate Changes on Cash and
Cash Equivalents (119,912) 16,754
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (160,336) (177,919)
CASH AND CASH EQUIVALENTS - BEGINNING 800,223 1,567,773
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CASH AND CASH EQUIVALENTS - ENDING $ 639,887 $ 1,389,854
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest $ -- $ --
=========== ===========
Income Taxes, Foreign $ -- $ 28,707
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Read accountants' review report and notes to financial statements.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
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
type 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. The operations include the renting of casino slot
machines to casino operators. As of March 31, 2000 the company had
acquired approximately 8,000 slot machines, approximately 3,000 of
which have been acquired for parts and other related equipment, at a
total cost of $4,532,304 including applicable costs for
transportation, duty and refurbishing (See note 10).
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 been slower than originally
anticipated. Included in revenues for the three months ended March
31, 2000 is approximately $24,000 of cigar sales. As of March 31,
2000 the company has expended approximately $1,125,000 primarily for
start up costs and initial inventory acquisitions. Such expenditures
have been included as $23,000 prepaid and other current assets,
$628,000 as inventory and $119,000 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.
All material intercompany transactions, balances and profits have
been eliminated.
Read accountants' review report.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
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
Earnings per common share and common share equivalents were computed
by dividing net income 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. Earnings per common share assuming full dilution
for 1999 were determined on the assumption that the increase in the
number of common shares was calculated from the proceeds of the
exercise of the options at the end of period price of common stock.
During 1999, all other warrants, stock options and underwriter's
options (Notes 4 and) are anti-dilative. During 2000 all warrants,
stock options, and underwriter's options were anti-dilative.
Read accountants' review report.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
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 $532,000 and
$697,000 as of March 31, 2000 and December 31, 1999 for the excess
of the deposit liabilities reported by the bank over the amounts
that would have been covered by federal deposit 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.
K RECLASSIFICATIONS
Certain amounts reported in 1999 have been reclassified to conform
to the presentation used in the year 2000.
Read accountants' review report.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
March 31, December 31,
2000 1999
----------- ----------
Land & Building (See Note 10) $ 335,363 $ 335,363
Rental Equipment(See Note 10) 4,532,304 4,715,798
Leasehold Improvements 26,027 26,027
Furniture, Fixtures & Office Equipment 178,885 185,327
Transportation Equipment 86,619 158,592
----------- ----------
Total 5,159,198 5,421,107
Less: Accumulated Depreciation 831,108 853,099
----------- ----------
Property and Equipment - Net $ 4,328,090 $4,568,008
=========== ==========
Included in Rental Equipment is approximately $2,000,000 of parts and
supplies purchased or obtained from other machines previously
disassembled for parts.
Rent expense for the three months ended March 31, 2000 and 1999 was
$23,000 and $21,000, respectively.
The company leases the land and building it owns in Miami for $1,200
per month, on a month to month basis (See Note 10).
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 December 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
approximately $2,500 of interest income accrued in both 2000 and 1999
on this note.
Read accountants' review report.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
NOTE 4. WARRANTS AND OPTIONS
As of December 31, 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.
Effective February 8, 1999, the Board of Directors reduced the option
price to $1.06, which was the closing price of the stock at that date.
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 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 of 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 canceled 10,000 options issued in
1995 at $2.50 per share.
Read accountants' review report.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
NOTE 7. PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following for the three
months ended March 31:
2000 1999
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Current
Federal $ -- $ 40,000
State -- --
Foreign -- 17,000
---------- ---------
-- 57,000
---------- ---------
Deferred
Federal -- --
State -- --
Foreign -- --
---------- ---------
-- --
---------- ---------
Income Tax Provision $ -- $ 57,000
========== =========
The differences between the provision for income taxes and income
taxes computed using the federal income tax rate were as follows:
2000 1999
---------- ---------
Amount computed using the Federal
statutory rate $ -- $ 40,000
Foreign Taxes -- 17,000
Net Operating Losses and Tax Credits -- (40,000)
---------- ---------
Income Tax Provision, Net $ -- $ 17,000
========== =========
As of March 31, 2000 the company had available for income tax
purposes unused net operating loss carryforwards which may provide
future tax benefits of $1,972,000 expiring in the year 2015. No
valuation allowance has been provided for unremitted foreign
profits.
Read accountants' review report.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31 2000 AND DECEMBER 31, 1999
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. The contract provided the salary continuation for a
period of two years after the death of the officer. In January 2000
the Chief Executive Officer passed away and at present the estate of
the officer has deferred its' rights under the contract. Included in
the accompanying financial statements $67,000 of accrual payroll in
regard to this contract. In addition, the Chief Financial Officer's
annual contract required upon his death one years salary, which
approximated $45,000, be paid for the one year period subsequent to
his death. In November 1999 the Chief Financial Officer passed away.
C FOREIGN ASSETS
The accompanying consolidated balance sheets for the period ended
March 31, 2000, includes assets relating to the company's slot
machine operations in Peru, Colombia and Nicaragua, of $4,200,000,
$1,900,000 and $250,000, 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 (See Note 10).
Read accountants' review report.
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LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
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 $2,500. 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. A substantial part of
this receivables has been included in the allowance for doubtful
accounts.
NOTE 10 RESTRUCTURING LOSSES
In the fourth quarter of 1999, as a result of the death of both its
founder and its Chief Financial Officer, the company initiated a
review of the company's operation on a country by country basis. As
a result of political changes and government mandated obsolescence
of certain gaming equipment the company adjusted previously recorded
cost of gaming equipment, to its anticipated net realizable value.
Additionally, the company reduced the valuation of certain real
estate value in Miami to reflect current market conditions and
adjusted its investment in the cigar operations to account for the
slower than expected sales. The total restructuring adjustments were
computed as follows:
Gaming Equipment Asset Impairment Cost $ 1,245,000
Miami Real Estate Impairment Cost 86,000
Reduction of Cigar investment 169,000
------------
Total $ 1,515,000
============
Read accountants' review report.
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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 not contemplating restarting operations in Nicaragua.
As of March 31, 2000, the Company had approximately 1,600 machines
under rental contracts in Peru and Colombia and no machines under participation
contracts.
The Company concentrates its efforts on the rental of used five reel
slot machines. These machines were 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 expenditures.
In March 1997, the Company expanded its slot machine operations in
Colombia and Nicaragua to include gaming slot route operations. In January 2000,
the Company suspended these route operations due to increasing cost of
maintaining these routes.
RESULTS OF OPERATIONS
FIRST QUARTER
Revenues from the rental of slot machines in Peru and Colombia for the
three months ended March 31, 2000 decreased by $368,000 or 60.5%, to $240,000
from $608,000 for the comparable period in 1999. The primary reason for the
decrease in revenues was the overall weakness of the economy in South America.
Additionally, the decrease in revenues was due in part to continued concerns
over government-mandated obsolescence, political changes, increased competition
as well as the devaluation of foreign currency. The Company's revenues from
cigar sales were $24,300 in the first quarter of 2000 as compared to negligible
sales in 1999.
Selling, general, and administrative expenses incurred in the quarter
ended March 31, 2000 increased $75,000 or 16.6%, to $528,000 from $453,000 for
the same period in 1999. This increase is due in part to the increased cost of
obtaining spare parts for the older machines. In Peru and Columbia the reduction
in personnel also resulted in a one time administrative expense for severance
payments as required by law in the amount of $17,000.
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Net (loss) for the three months ended March 31,2000 was ($305,000) or
($0.09) per share compared to $116,000 profit or $0.03 per share for the same in
period 1999. The net loss was attributable to the significant decline in
revenues from slot machine operations and an increase in overhead expenditures
including officer compensation continuation payments.
Through March 31, 2000 the Company expended approximately $1,125,000 on
the establishment of a premium cigar business; additional expenditures for
marketing and personnel are expected throughout the year 2000. While the Company
has expended approximately $1,125,000 on the premium cigar business,
expenditures have significantly decreased due to the fact that there were no
costs associated with acquisitions of new cigars and related inventory in the
quarter ending March 31, 2000. In 1999, an insignificant amount was spent to
acquire additional inventory. The Company anticipates that it will generate
increased revenues from this business in year 2000, although the amount of such
revenues is, at this time, impossible to forecast. The effect that this business
will have on the overall profitability of the Company is uncertain.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased approximately $160,000 or 20%, to
$640,000 at March 31, 2000 from $800,000 at December 31, 1999. The decrease is
attributable primarily to the sluggish results of our slot machine operations as
well as continued slow growth of our cigar sales, all while overhead increased
marginally.
In November 1999 and January 2000 the Chief Financial Officer and the
Chief Executive Officer, respectively, of the Company passed away. Each officer
was covered by an employment contract, which called for salary continuation of
one year in the case of the Chief Financial Officer and two years in the case of
the Chief Executive Officer. The continuation salary of Chief Financial Officer
is being paid to his widow on a month basis, while the continuation salary of
the Chief Executive Officer is being deferred at the request of his estate. The
Company accrued $67,000 in salary pursuant to the Chief Executive Officer's
contract for the quarter ending March 31, 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:
- 15 -
<PAGE>
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.
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.
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: _________________________ ______________________________
Jeffrey A. Felder
Chief Executive Officer
Date: _________________________ ______________________________
Geraldine Lyons
Acting Chief Financial Officer
- 16 -
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