U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________.
Commission File Number 33-43423
LATIN AMERICAN CASINOS, INC.
----------------------------
(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 No.)
2000 N.E. 164 Street
North Miami Beach, Fl 33162
----------------------------------------
(Address of principal executive offices)
(305) 945-9300
---------------------------
(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 March 31, 2001: 4,221,600 shares of common stock, $0.00067 par
value per share.
CONTENTS
Accountant's Review Report 1
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 2
Consolidated Statements of Changes in Stockholders'
Equity for the Three months ended March 31, 2001 and
Year Ended December 31, 2000 3
Consolidated Statements of Operations for the Three months
Ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the Three months
Ended March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements as of March 31, 2001
and December 31, 2000 6-12
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, 2001, and the related
consolidated statements of operations, changes in stockholder's equity and cash
flows for the three months ended March 31, 2001, in accordance with the
Statements 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 inquires 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, 2000 was audited by us and we
expressed an unqualified opinion on it in our report dated March 15, 2001, but
we have not performed any auditing procedures since that date.
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
May 18, 2001
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
ASSETS
------
March 31, December 31,
2001 2000
------------ ------------
CURRENT ASSETS
Cash and Cash Equivalents $ 4,381,785 $ 4,422,715
Accounts Receivable, Less $150,000 of
Allowance for Doubtful Accounts
in 2001 and 2000 1,282,858 1,382,382
Inventory 554,764 539,560
Prepaid Expenses and Other Current Assets 142,262 136,717
------------ ------------
Total Current Assets 6,361,669 6,481,374
------------ ------------
PROPERTY AND EQUIPMENT - NET 3,277,362 3,772,795
------------ ------------
OTHER ASSETS
Deposits 11,609 11,609
Other Assets
Total Other Assets 50,504 46,208
------------ ------------
62,113 57,817
------------ ------------
TOTAL ASSETS $ 9,701,144 $ 10,311,986
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses 139,576 $ 190,703
Debentures Payable 3,500,000 3,500,000
------------ ------------
Total Current Liabilities 3,639,576 3,690,703
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
Total Liabilities 3,639,576 3,690,703
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, $.00067 Par Value 15,000,000
Shares Authorized, 4,225,000 Shares Issued
4,221,600 Shares Outstanding and 3,400 Shares
held as Treasury Stock 2,831 2,831
Additional Paid-In Capital 10,929,437 10,929,437
Cumulative Other Comprehensive Income (Loss) (559,444) (560,326)
Retained Earnings (Deficit) (4,306,021) (3,745,424)
Treasury Stock, at cost (5,235) (5,235)
------------ ------------
Total Stockholders' Equity 6,061,568 6,621,283
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,701,144 $ 10,311,986
============ ============
Read accountants' review report and notes to financial statements.
- 2 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND
FOR THE YEAR ENDED DECEMBER 31, 2000
Common Stock
--------------------------- Additional Cumulative Retained
Number Par Value Paid-In Comprehensive Earnings Treasury
of Shares $.00067 Capital Income (Loss) (Deficit) Stock
------------ ------------ ------------ ------------ ------------ ------------
BALANCE JANUARY
1,2000 3,300,000 $ 2,211 $ 9,919,557 ($ 415,193) ($ 1,628,601) $ 5,235
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- (145,133) -- --
EXERCISE OF
STOCK OPTIONS 725,000 486 724,514 -- -- --
STOCK ISSUED AS
COMPENSATION 200,000 134 349,866 -- -- --
COST INCURRED IN
REGARD TO PRIVATE
PLACEMENT -- -- (64,500) -- -- --
NET LOSS FOR THE
YEAR ENDED DECEMBER
31, 2000 -- -- -- -- (2,116,823) --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE DECEMBER
31, 2000 4,225,000 2,831 10,929,437 (560,326) (3,745,424) 5,235
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- 882 -- --
NET LOSS FOR THE
THREE MONTH ENDED
MARCH 31, 2001 -- -- -- -- (560,597) --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE MARCH 31,
2001 $ 4,225,000 $ 2,831 $ 10,929,437 ($ 559,444) ($ 4,306,021) $ 5,235
============ ============ ============ ============ ============ ============
Read accountants review report and notes to financial statements.
- 3 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
----------- -----------
Revenue
-------
Rental Income $ 148,335 $ 240,146
Sales of Cigars 33,916 24,301
----------- -----------
Total Revenues $ 182,251 $ 264,447
----------- -----------
Cost and Expenses
-----------------
Selling, General & Administration 501,211 527,852
Depreciation 16,630 32,847
Cost of Cigar Sales 21,384 19,783
----------- -----------
Total Cost and Expenses 539,225 580,482
----------- -----------
Operating Income (Loss) (356,974) (316,035)
----------- -----------
Other Income (Expenses)
-----------------------
Interest Income 54,796 10,839
Restructuring And Non Recurring Losses (258,419) --
----------- -----------
Net Other Income (Expenses) (203,623) (10,839)
----------- -----------
Income (Loss) Before Income Taxes (560,597) (305,196)
Income Taxes (Provision) Benefit -- --
----------- -----------
Net Income (Loss) ($ 560,597) ($ 305,196)
=========== ===========
Earnings (Loss) Per Common Share and
Common Share Equivalent Basic And
Fully Diluted
Common Share Equivalent Outstanding 4,221,600 3,296,600
=========== ===========
Net Income (Loss) per share ($.13) ($.09)
=========== ===========
Read accountants' review report and notes to financial statements.
- 4 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($ 560,597) ($ 305,196)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 16,630 32,847
Reconstructing and non recurring losses 258,419 --
Changes in Assets - (Increase) Decrease:
Accounts Receivable 99,524 2,105
Prepaid Expenses and Other Current Assets (5,545) 20,437
Inventory of Cigars (15,204) 17,036
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses (51,127) (23,684)
----------- -----------
Net Cash Provided by (Used In) Operating
Activities (257,900) (256,455)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in Property and Equipment 220,384 207,070
Other Assets (4,296) 8,961
----------- -----------
Net Cash Provided By (Used by)Investing
Activities 216,088 216,031
----------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 882 (119,912)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,930) (160,336)
CASH AND CASH EQUIVALENTS - BEGINNING 4,422,715 800,223
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 4,381,785 $ 639,887
---------------------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
---------------------------------------------------
Cash Paid During the Period for:
Interest $ 1,715 $ --
=========== ===========
Income Taxes, Foreign $ -- $ --
=========== ===========
Read accountants' review report and notes to financial statements.
- 5 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
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 (which has subsequently been
liquidated) that are in the gaming and casino business in Latin
America (See Note 9C). The operations include the renting of casino
slot machines to casino operators. As of March 31, 2001, 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 $3,944,111 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 and Latin American
Casinos of Colombia LTPA, a Colombian Corporation 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. It was originally
intended that the company would market premium cigars at "off
price", and will acquire quality cigars from six South American
producers and market them through large retail chains, initially on
a consignment basis. The cigar operations have been slower than
originally anticipated and as of March 31, 2001, the company had
expended approximately $1,190,000 in regard to the cigar operations.
Such expenditures have been included in the accompanying
consolidated financial statements as follows:
Cash $ 7,000
Accounts Receivable 60,000
Prepaid and Other Current Assets 16,000
Inventory 555,000
Fixed Assets, Net of Accumulated Depreciation 73,000
Other Assets 3,000
Aggregate Accumulated Deficit 476,000
----------
Total Investment $1,190,000
==========
All material intercompany transactions, balance and profits have
been eliminated.
- 6 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001, AND DECEMBER 31, 2000
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 and common share equivalent were
computed by dividing net (loss) 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 2001 and 2000 all warrants, stock
options and underwriter's options (Note 4, 5, 6) were anti-dilutive.
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 $4,266,000
and $4,320,000 as of March 31, 2001 and December 31, 2000 for the
excess of the deposit liabilities reported by the bank over the
amounts that would have been covered by federal deposit insurance.
- 7 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
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.
Note 2. Property and Equipment
------- ----------------------
Property and equipment are summarized as follows:
March 31 December 31,
2001 1999
----------- -----------
Land & Building (See Note 9) $ 75,000 $ 335,363
Rental Equipment(See Note 9) 3,944,111 4,197,282
Leasehold Improvements 19,894 26,027
Furniture, Fixtures & Office Equipment 143,899 141,914
Transportation Equipment 25,823 48,510
----------- -----------
Total 4,208,727 4,749,096
Less: Accumulated Depreciation 931,365 976,301
----------- -----------
Property and Equipment - Net $ 3,277,362 $ 3,772,795
=========== ===========
- 8 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
Note 2. Property and Equipment (Continued)
------- ----------------------------------
Included in Rental Equipment is approximately $3,000,000 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 2000 were
$20,000 and $21,000, respectively.
The company had leased the land and building it owned in Miami for
$1,200 per month, on a month to month basis. The property was sold in
2001 (See Note 9).
Note 3. Warrants and Options
------- --------------------
At March 31, 2001 the company has outstanding 1,750,000 five year
publicly traded warrants to purchase one share of the company's common
stock at an exercise price of $3.00 by December 11, 2001. In December
2000 the board of directors authorized the issuance of an additional
3,275,000 five year stock warrants to acquire common stock at $1.75 per
share.
Note 4. 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 exercise
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.
- 9 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
Note 5. 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 the 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. Effective February 2000 the company issued
35,000 options at an exercise price of $1.06 and in December 2000 the
company issued 80,000 option at a 1.75 exercise price.
Incentive Stock Options Outstanding
-----------------------------------
Price
Amount Per Share
---------- ----------
Options Outstanding at January 1, 2000 $ 932,500 1.00
Additional Options Issued 35,000 1.06
Additional Options Issued 80,000 1.75
Options Lapsed (85,000) 1.00
Options Exercised (725,000) 1.00
----------
Options Outstanding at December 31, 2000 and
March 31, 2001 $ 237,500
==========
Note 6. Debentures
------- ----------
In December 2000 the company, through a Private Placement issued
$3,500,000 principle amount of 6% Convertible Debentures. These
Debentures are due June 13, 2001 and are Convertible into common stock
at an exercise price of $1.75 per share.
Note 7. Provision of Income Taxes
------- -------------------------
As of March 31, 2001 the company had available for income tax purposes
unused net operating loss carryforwards which may provide future tax
benefits of $4,344,000 expiring in the year 2016. No valuation
allowance has been provided for unremitted foreign profits.
- 10 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
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 five year employment
agreement with The Chief Executive Officer, Lloyd Lyons, which
provided for an annual salary commencing January, 1997 of $275,000.
The agreement provided that in the event of either a merger,
consolidation, sale or conveyance of substantially all the assets of
the company which results in his discharge, he would be entitled to
200% of the balance of payments remaining under the contract. The
contract provided for the salary continuation for a period of two
years after the death of the officer. In January 2000, Mr. Lyons
passed away and effective August 2, 2000 the company amended it's
employment contract with his surviving widow and primary beneficiary
of the Estate where-in the salary continuation clause included in
his contract was replaced with a severance arrangement which
requires the company to pay the spouse $100,000 over a one year
period commencing on the first month following her termination from
her employment with the company and upon her termination she is to
receive 100,000 shares of common stock pursuant to an amendment to
her employment agreement. The amended employment agreement will
obligate the company to register these shares and reimburse her for
the difference in the gross proceeds upon the sale of such shares
and $300,000, regardless of the time she holds such shares. The
agreement further provides that the spouse remain in the employment
of the company for at least 4 months following the amendment of the
contract. The contract revisions further provided that the then
officer loan of $115,000 be off-set by the accrued compensation as
required by the officer compensation agreement. The employment
agreement with the spouse remains intact in all other regards and
obligates the company to provide an annual compensation at the rate
of $46,800 per anum in the year 2000 and $51,480 in the subsequent
year.
In January 2000 the company entered into two additional employment
contracts with President, Jeffrey Felder and President of Latin
American Operations, Angel Garcia, both for the duration of two
years and provides that company be obligated for an aggregate
compensation of $115,000 in year 2000 and $126,500 in year 2001.
Effective August 2, 2000 both of these employment contracts were
amended to reflect upon termination from employment these
individuals would also be entitled to nine months of compensation
and will receive in the aggregate 35,000 shares of common stock
which the company has agreed to reimburse the respective employees
the difference between the gross proceeds they receive upon sale and
$105,000, regardless of the term the employees hold such shares.
The company entered into two additional one-year employment
agreements with the Chief Operating Officer, William Bossung, and
the Chief Executive Officer, Todd Sanders, requiring the company
issue 100,000 shares of stock and 750,000 warrants to purchase
additional common stock at $1.75 per share, individually. The
distribution of the stock was considered compensation in the year
2000 (See note 3).
- 11 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
Note 8. Commitments and Contingencies (Continued)
------- -----------------------------
C Foreign Assets
--------------
The accompanying consolidated balance sheets includes assets
relating to the company's slot machine operations in Peru and
Colombia of $3,520,000 and $1,264,000 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 negotiated 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 instructions to deliver
them to the Miami location.
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 a two year
lease for it's warehouse space, at a monthly rent of $1,400.
Note 9 Restructuring Losses And Non-Recurring Losses
------ ---------------------------------------------
In March 2001, the company sold it's Miami property for an aggregate
consideration of $139,000 and recorded a net loss on disposition of
$64,000. In addition the company recorded a reduction in value for
certain slot machine parts of $194,000.
Note 10 Pending Merger
------- --------------
In February, 2001 the company announced that it had entered into a non
binding letter of intent to merge with Digital Convergence Corporation,
a privately held California company. The company has deferred $37,500
of cost incurred in connection with this merger. The Company terminated
these negotiations on May 17, 2001.
- 12 -
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 America. In 1994, the Company formed its Peruvian
subsidiary in late 1995 the Company formed its Colombian subsidiary.
As of March 31, 2001, the Company had approximately 900 machines under
rental contracts in Peru and Colombia.
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 America. Whereas a new slot
machine would cost approximately $10,000 plus additional charges for duty, the
used slot machines cost approximately $600 each including freight, duty, and
refurbishing expenditures.
In March 1997, the Company expanded its slot machine operations in
Colombia to include gaming slot route operations. In January 2000, the Company
suspended these route operations due to increasing cost of maintaining these
routes.
In September 1997, the company incorporated World's Best Rated Cigar
Company, as a wholly owned subsidiary, to distribute premium cigars. It was
originally intended that the company would acquire quality cigars from six
manufacturers and market them at "off price" through large retail chains. In
February 2000, the marketing strategy was modified to include selling directly
to consumers through our web site, www.worldsbestrated.com, and our toll free
number.
Results of Operations
---------------------
First Quarter
-------------
Revenues from the rental of slot machines in Peru and Colombia for the
three months ended March 31, 2001 decreased by $91,800 or 38.2 %, to $148,350
from $240,150 for the comparable period in 2000. The Company's revenues from
cigar sales were $33,900 in the first quarter of 2001 as compared to sales of
$24,300, an increase of $9,600 or 39.5% for the same period in 2000.
The decrease in revenues was the result of an overall weakness of the
economy in South America and the continued concerns over government-mandated
obsolescence, political changes, increased competition as well as the increasing
need to replace the older machines on rental with more modern machines.
- 13 -
Selling, general, and administrative expenses incurred in the quarter
ended March 31, 2001 decreased $26,600 or 5.0%, to $501,200 from $527,850 for
the same period in 2000.
The decrease is due to a reduction in staffing in South America offset
by severance payments in South America.
Net (loss) for the three months ended March 31, 2001 was ($560,600) or
($0.13) per share compared to ($305,200) loss or ($0.09) per share for the same
period in 2000.
The net loss was attributable to the significant decline in revenues
from slot machine operations, the write down of slot machine parts and the loss
incurred on the sale, by the company, of it's real property in Miami.
Through March 31, 2001 the Company expended approximately $1,190,000 on
the establishment of a premium cigar operation; minor additional expenditures
for marketing and personnel are expected throughout the year 2001. No
significant cost associated with acquisitions of new cigars and related
inventory are expected in year 2001. The Company anticipates that it will
generate increased revenues from this business in year 2001, although the amount
of such increased revenues is, at this time, impossible to forecast. The effect
that this business will have on the overall profitability or loss of the Company
is uncertain.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents decreased approximately $40,900 or less than
1%, to $4,381,800 at March 31, 2001 from $4,422,700 at December 31, 2000. The
decrease is attributable to the poor results of the slot machine operations,
partially offset by the sale of slot machines, and the continued slow growth of
the cigar operations.
The Company anticipates that its cash flow from operations and interest
earned on cash equivalents 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:
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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 subject to all the risks and
uncertainties associated with the development 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 has a recently terminated it's merger negotiations with
Digital Convergence Corporation. The Company is exploring potential
business opportunities, which if consummated, could dramatically change
the operations of the Company.
Pursuant to the requirements of the Securities and Exchange Act of
1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Latin American Casinos, Inc.
Date: May 21, 2001 /s/ JEFFREY A. FELDER
------------------------ --------------------------------
Jeffrey A. Felder
President
Date: May 21, 2001 /s/ GERALDINE LYONS
------------------------ --------------------------------
Geraldine Lyons
Acting Chief Financial Officer
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