SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the period ended: June 30, 2000 Commission File #33-43423
LATIN AMERICAN CASINOS, INC.
A Delaware Corporation 65-0159115
(IRS Employer Identification Number)
2000 NE 164th Street (305) 945-9300
North Miami Beach, FL 33162 (Telephone Number)
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $0.00067 par value
Warrants, exercisable at $3.00 per share
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [_]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $1,879,071.
Aggregate market value of the voting stock held by non-affiliates,
computed by reference to the average bid and asked prices of such stock, as of
August 18, 2000: $4,120,750.
Number of shares outstanding of the registrant's common stock, as of
August 18, 2000: 3,296,600 shares.
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONTENTS
Accountants' Review Report 1
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 2
Consolidated Statements of Changes in Stockholders'
Equity for the Six Months Ended June 30, 2000 and
and Year Ended December 31, 1999 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements as of June 30, 2000
and December 31, 1999 6-12
<PAGE>
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors of:
Latin American Casinos, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of Latin American
Casinos, Inc. and Subsidiaries as of June 30, 2000, and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for the
three and six months ended June 30, 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
August 4, 2000
- 1 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND
DECEMBER 31, 1999
ASSETS
------
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
CURRENT ASSETS
Cash and Cash Equivalents $ 533,529 $ 800,223
Accounts Receivable, Less
$150,000 of Allowance for Doubtful Accounts
in 2000 and 1999 1,485,887 1,591,399
Inventory 587,526 645,172
Prepaid Expenses and Other Current Assets 104,658 212,429
----------- -----------
Total Current Assets 2,711,600 3,249,223
----------- -----------
PROPERTY AND EQUIPMENT - NET 4,287,061 4,568,008
----------- -----------
OTHER ASSETS
Financing Arrangement Receivable 94,624 94,624
Deposits 11,609 11,609
Note Receivable - Stockholder 115,000 115,000
Other Assets 11,032 25,925
----------- -----------
Total Other Assets 232,265 247,158
----------- -----------
TOTAL ASSETS $ 7,230,926 $ 8,064,389
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 175,144 $ 191,650
Foreign Income Tax Payable -- --
----------- -----------
Total Current Liabilities 175,144 191,650
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
Total Liabilities 175,144 191,650
----------- -----------
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 (548,836) (415,193)
Retained Earnings (Deficit) (2,311,915) (1,628,601)
Treasury Stock, at cost (5,235) (5,235)
----------- -----------
Total Stockholders' Equity 7,055,782 7,872,739
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,230,926 $ 8,064,389
=========== ===========
Read accountants' review report and notes to financial statements.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
-------------------------
Number Par Additional Cumulative Retained
of Value Paid-in Comprehensive Earnings Treasury
Shares $.00067 Capital Income (Loss) (Deficit) Stock
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE
JANUARY 1,1999 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 -- -- -- (133,643) -- --
NET LOSS FOR THE
SIX MONTHS ENDED
JUNE 30, 2000 $ -- -- -- -- (683,314) --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE JUNE
30, 2000 $ 3,300,000 $ 2,211 $ 9,919,557 ($ 548,836) ($2,311,915) $ 5,235
=========== =========== =========== =========== =========== ===========
</TABLE>
Read accountants' review report and notes to financial statements.
- 3 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ----------
REVENUES
<S> <C> <C> <C> <C>
Rental Income $ 164,344 $ 431,642 $ 404,486 $1,040,003
Sales of Cigars 50,931 2,795 75,232 3,854
--------- --------- --------- ----------
Total Revenues 215,275 434,437 479,718 1,043,857
--------- --------- --------- ----------
COSTS AND EXPENSES
Selling, General & Administration 534,639 417,104 1,062,484 869,989
Depreciation 29,007 44,500 61,854 97,000
Costs of Cigar Sales 44,668 1,700 64,451 2,550
--------- --------- --------- ----------
Total Cost and Expenses 608,314 463,304 1,188,789 969,539
--------- --------- --------- ----------
OPERATING INCOME (LOSS) (393,039) (28,867) (709,071) 74,318
Interest Income 15,368 27,969 25,757 58,076
--------- --------- --------- ----------
Income (Loss) Before Income Taxes
And Extraordinary Item (377,671) (898) (683,314) 132,394
Income Taxes (Provision) Benefit -- 14,536 -- (42,464)
--------- --------- --------- ----------
Income (Loss) Before
Extraordinary Item (377,671) 13,638 (683,314) 89,930
Utilization of Net Operating Losses
and Foreign Tax Credits -- (5,000) -- 35,000
--------- --------- --------- ----------
Net Income (Loss) ($ 377,671) $ 8,638 ($ 683,314) $ 124,930
========= ========= ========= ==========
EARNINGS (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT - BASIC
AND FULLY DILUTED
Common Share Equivalent
Outstanding 3,296,600 3,296,600 3,296,600 3,296,600
========= ========= ========= ==========
Net Income (Loss) ($ .11) ($ .00) ($ .21) $ .04
========= ========= ========= ==========
</TABLE>
Read accountants' review report and notes to financial statements.
- 4 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($ 683,314) $ 124,930
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 61,854 97,000
Changes in Assets - (Increase) Decrease:
Accounts Receivable 105,512 (106,529)
Prepaid Expenses and Other Current Assets 107,771 (73,376)
Inventory of Cigars 57,646 (76,312)
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses (16,507) 5,405
Foreign Income Tax Payable -- (9,707)
---------- ----------
Net Cash Provided by (Used In) Operating
Activities (367,038) (38,589)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in Property and Equipment 219,093 (295,488)
Other Assets 14,894 14,292
---------- ----------
Net Cash Provided By (Used by)Investing
Activities 233,987 (281,196)
---------- ----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (133,643) 24,659
---------- ----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (266,694) (295,126)
CASH AND CASH EQUIVALENTS - BEGINNING 800,223 1,567,773
---------- ----------
CASH AND CASH EQUIVALENTS - ENDING $ 533,529 $1,272,647
---------------------------------- ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
--------------------------------------------------
Cash Paid During the Period for:
Interest $ 14,592 $ 13,902
========== ==========
Income Taxes, Foreign $ -- $ 28,707
========== ==========
Read accountants' review report and notes to financial statements.
- 5 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 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 entered 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 June 30, 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 $4,529,895 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. As of June 30, 2000, the
company had expended approximately $1,130,000 in regard to the cigar
operations. Such expenditures have been included in the accompanying
consolidated balance sheet as follows:
Cash $ 1,000
Accounts Receivable 47,000
Prepaid and Other Current Assets 16,000
Inventory 587,000
Fixed Assets, Net of Accumulated Depreciation 103,000
Other Assets 3,000
Aggregate Accumulated Deficit 373,000
----------
Total Investment $1,130,000
==========
World's Best Rated Cigar Company had committed with a cigar manufacturer in
South America to acquire a minimum number of cigars per month; however, with
slower than anticipated cigar operations, this purchase commitment was
cancelled.
All material intercompany transactions, balance and profits have been
eliminated.
Read accountants' review report.
- 6 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 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 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
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 underwriters options (Notes 4 and) are anti-dilative.
During 2000 all warrants, stock options, and underwriters options were
anti-dilative.
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 $420,000 and
$697,000 as of June 30, 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.
Read accountants' review report.
- 7 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
June 30 December 31,
2000 1999
---------- ----------
Land & Building (See Note 10) $ 335,363 $ 335,363
Rental Equipment(see Note 10) 4,529,895 4,715,798
Leasehold Improvements 26,027 26,027
Furniture, Fixtures & Office Equipment 180,760 185,327
Transportation Equipment 72,151 158,592
---------- ----------
Total 5,144,196 5,421,107
Less: Accumulated Depreciation 857,135 853,099
---------- ----------
Property and Equipment - Net $4,287,061 $4,568,008
========== ==========
Read accountants' review report.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
NOTE 2. PROPERTY AND EQUIPMENT (CONTINUED)
Included in Rental Equipment is approximately $2,500,000 of parts and
supplies purchased or obtained from other machines previously
disassembled for parts.
Rent expense for the three and six months ended June 30, 2000, were
$25,000 and $48,000, 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 $5,000 of interest income accrued in both
2000 and 1999 on this note.
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, 2000, 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.
Read accountants' review report.
- 9 -
<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
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.
NOTE 7. PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following for the six
months ended June 30:
2000 1999
--------- ----------
Current
Federal $ -- $ 23,464
State -- --
Foreign -- 19,000
--------- ----------
-- 42,464
Deferred
Federal -- --
State -- --
Foreign -- --
--------- ----------
-- --
--------- ----------
Income Tax Provision $ -- $ 42,464
========= ==========
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 $ -- $ 35,000
Foreign Taxes -- 19,000
Refund of Prior Years Tax -- (11,536)
Net Operating Losses and Tax Credits -- (35,000)
--------- ----------
Income Tax Provision, Net $ -- $ 7,464
========= ==========
As of June 30, 2000 the company had available for income tax purposes
unused net operating loss carryforwards which may provide future tax
benefits of $2,350,000 expiring in the year 2015. No valuation
allowance has been provided for unremitted foreign profits.
Read accountants' review report.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
NOTE 8. COMMITMENTS AND CONTINGENCIES
A LITIGATION
The company is a defendant from time to time on 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 certain rights under the contract. Included in the
accompanying financial statements is $144,000 of accrued payroll in
regard to this contract. In addition, the Chief Financial Officers
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 June
30, 2000, includes assets relating to the company's slot machine
operations in Peru, Colombia and Nicaragua, of $4,070,000, $1,720,000
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 ultimately be
transferred to other South American subsidiaries (See Note 10).
Read accountants' review report.
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<PAGE>
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 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 and has subsequently
been settled at a total loss.
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 companys 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 $ 1,500,000
===========
Read accountants' review report.
- 12 -
<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 not contemplating restarting operations in Nicaragua.
As of June 30, 2000, the Company had approximately 1300 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
Revenues from the rental of slot machines in Peru and Colombia for the
three months ended June 30, 2000 decreased by $267,300 or 61.9 %, to $164,300
from $431,600 for the comparable period in 1999. The Company's revenues from
cigar sales were $50,900 in the second quarter of 2000 as compared to sales of
$2,800 for the comparable period in 1999.
Revenues from the rental of slot machines in Peru and Colombia for the
six months ended June 30, 2000 decreased by $635,500 or 61.1%, to $404,500 from
$1,040,000 for the comparable period in 1999. The Company's revenues from cigar
sales were $75,200 for the six months ended June 30, 2000 as compared to sales
of $3,800 for the comparable period in 1999.
The 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.
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<PAGE>
Selling, general, and administrative expenses incurred in the quarter
ended June 30, 2000 increased $117,500 or 28.20%, to $534,600 from $417,100 for
the same period in 1999. Selling, general, and administrative expenses incurred
in the six months June 30, 2000 increased $192,500 or 22.1%, to $1,062,500 from
$870,000 for the same period in 1999.
The increase is due in part to the increased cost of obtaining spare
parts for the older machines. In Peru reduction in personnel resulted in a one
time administrative charge for severance payments as required by Peruvian law in
the amount of $15,000.
Net (loss) for the three months ended June 30,2000 was ($377,600) or
($0.11) per share compared to $8,600 profit or $0.00 per share for the same in
period 1999. Net (loss) for the six months ended June 30,2000 was ($683,300) or
($0.21) per share compared to $124,900 profit or $0.04 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 June 30, 2000 the Company expended approximately $1,130,000 on
the establishment of a premium cigar business; minor additional expenditures for
marketing and personnel are expected throughout the year 2000. No additional
costs associated with acquisitions of new cigars and related inventory occurred
in year 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 $266,700 or 33.3%, to
$533,500 at June 30, 2000 from $800,000 at December 31, 1999. The decrease is
attributable primarily to the poor results of the slot machine operations as
well as continued slow growth of the cigar sales, all while overhead increased.
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 $144,000 in salary pursuant to the Chief Executive Officer's
contract as at June 30, 2000.
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<PAGE>
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.
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.
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<PAGE>
Latin American Casinos, Inc.
Date: August 18, 2000 /s/ JEFFREY A. FELDER
------------------------------
Jeffrey A. Felder
Chief Executive Officer
Date: August 18, 2000 /s/ GERALDINE LYONS
------------------------------
Geraldine Lyons
Acting Chief Financial Officer
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