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 June 30, 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
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------------
(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 August __, 2001: _________ shares of common stock, $0.00067 par
value per share.
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
CONTENTS
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Page
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Accountant's Review Report ............................................... 1
Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 .... 2
Consolidated Statements of Changes in Stockholders' Equity for the
Six months ended June 30, 2001 and Year Ended December 31, 2000 ........ 3
Consolidated Statements of Operations for the Three months and Six
Months Ended June 30, 2001 and 2000 .................................... 4
Consolidated Statements of Cash Flows for the Six months Ended
June 30, 2001 and 2000 ................................................. 5
Notes to Consolidated Financial Statements as of June 30, 2001
and December 31, 2000 .................................................. 6-13
i
Accountants' Review Report
--------------------------
To the Board of Directors
NuWay Energy, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheets of NuWay Energy,
Inc. and Subsidiaries as of June 30, 2001, and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for the
three and six months ended June 30, 2001 and 2000 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 NuWay Energy, 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
August 10, 2001
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------
ASSETS
------
June 30, December 31,
2001 2000
------------ ------------
CURRENT ASSETS
Cash and Cash Equivalents $ 4,055,992 $ 4,422,715
Accounts Receivable, Less
$150,000 of Allowance for Doubtful Accounts
in 2001 and 2000 1,287,299 1,382,382
Inventory 538,097 539,560
Prepaid Expenses and Other Current Assets 98,511 136,717
------------ ------------
Total Current Assets 5,979,899 6,481,374
------------ ------------
PROPERTY AND EQUIPMENT - NET 3,187,128 3,772,795
------------ ------------
OTHER ASSETS
Deposits 86,610 11,609
Other Assets 13,450 46,208
------------ ------------
Total Other Assets 100,060 57,817
------------ ------------
TOTAL ASSETS $ 9,267,087 $ 10,311,986
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 523,598 $ 190,703
Debentures Payable 3,500,000 3,500,000
------------ ------------
Total Current Liabilities 4,023,598 3,690,703
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
Total Liabilities 4,023,598 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 10,904,437 10,929,437
Cumulative Other Comprehensive Income (Loss) (510,238) (560,326)
Retained Earnings (Deficit) (5,098,306) (3,745,424)
Treasury Stock, at cost (5,235) (5,235)
------------ ------------
Total Stockholders' Equity 5,243,489 6,621,283
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,267,087 $ 10,311,986
============ ============
Read accountants' review report and notes to financial statements.
- 2 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND
------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000
------------------------------------
Common Stock
------------
Number Par Additional Cumulative Retained
of Value Paid-In Comprehensive Earnings Treasury
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 -- -- -- 89 -- --
COSTS INCURRED IN
REGARD TO AN SEC
REGISTRATION
(FORM S-3) -- -- (25,000) -- -- --
NET LOSS FOR THE
SIX MONTHS ENDED
JUNE 30, 2001 -- -- -- -- (1,352,882) --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE JUNE 30, 2001 $ 4,225,000 $ 2,831 $ 10,904,437 ($ 560,237) ($ 5,098,306) $ 5,235
============ ============ ============ ============ ============ ============
Read accountants review report and notes to financial statements.
- 3 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
--------
Rental Income $ 117,383 $ 164,344 $ 265,718 $ 404,486
Sales of Cigars 37,859 50,931 71,775 75,232
----------- ----------- ----------- -----------
Total Revenues 155,242 215,275 337,493 479,718
----------- ----------- ----------- -----------
Costs and Expenses
------------------
Selling, General & Administration 783,970 534,639 1,286,896 1,062,484
Depreciation 34,239 29,007 50,869 61,854
Costs of Cigar Sales 21,932 44,668 43,316 64,451
----------- ----------- ----------- -----------
Total Cost and Expenses 840,141 608,314 1,381,081 1,188,789
----------- ----------- ----------- -----------
Operating Income (Loss) (684,899) (393,039) (1,043,588) (709,071)
-----------------------
Interest Income 45,266 15,368 101,777 25,757
Restructuring and Non-Recurring
Losses (152,652) -- (411,071) --
----------- ----------- ----------- -----------
Net Other Income (Expenses) (107,386) 15,368 (309,294) 25,757
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (792,285) (377,671) ( 1,352,882) (683,314)
Income Taxes (Provision) Benefit -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) ($ 792,285) ($ 377,671) ($1,352,882) ($ 683,314)
=========== =========== =========== ===========
Earnings (Loss) Per Common Share and
------------------------------------
Common Share Equivalent - Basic
-------------------------------
and Fully Diluted
-----------------
Common Share Equivalent
Outstanding 4,221,600 3,296,600 4,221,600 3,296,600
=========== =========== =========== ===========
Net Income (Loss) ($ .19) ($ .11) ($ .32) ($ .21)
=========== =========== =========== ===========
Read accountants' review report and notes to financial statements.
- 4 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
-----------------------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($1,352,882) ($ 683,314)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 50,869 61,854
Reconstructing and Non Recurring Losses
Changes in Assets - (Increase) Decrease:
Accounts Receivable 95,083 105,512
Prepaid Expenses and Other Current Assets 38,206 107,771
Inventory of Cigars 1,463 57,646
Changes in Liabilities - Increase (Decrease):
Accounts Payable and Accrued Expenses 322,896 (16,507)
----------- -----------
Net Cash Provided by (Used In) Operating
Activities (834,365) (367,038)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in Property and Equipment 534,796 219,093
Other Assets (42,243) 14,894
Cost Incurred In Regard to a Registration Statement (25,000) --
----------- -----------
Net Cash Provided By (Used by) Investing
Activities 467,553 233,987
----------- -----------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 89 (133,643)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (366,723) (266,694)
CASH AND CASH EQUIVALENTS - BEGINNING 4,422,715 800,223
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 4,055,992 $ 533,529
---------------------------------- =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
---------------------------------------------------
Cash Paid During the Period for:
Interest $ 4,696 $ 14,592
=========== ===========
Income Taxes, Foreign $ -- $ --
=========== ===========
Read accountants' review report and notes to financial statements.
- 5 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------------
Note 1. Summary of Significant Accounting Policies
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A Business and Organization
-------------------------
NuWay Energy, Inc. (formerly Latin American Casinos, Inc.) is a
Delaware corporation incorporated on September 19, 1991 (See note 11).
In 1994, the company entered in the gaming and casino business,
primarily in Peru and other Latin American countries renting casino
type slot machines and other gaming equipment.
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 and other
gaming equipment to casino operators. As of June 30, 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 $3,809,542 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 America 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 NuWay Energy, 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 June 30, 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 10,000
Inventory 538,000
Fixed Assets, Net of Accumulated Depreciation 70,000
Other Assets 3,000
Aggregate Accumulated Deficit 502,000
----------
Total Investment $1,190,000
==========
In year 2001 the company incorporated NuWay Resource, Inc., a Nevada
Corporation and NuWay Resources of Canada, Ltd., a Canadian Company.
These corporations are presently inactive and were formed to pursue
opportunities in the oil and gas exploration industry (See note 11).
All material intercompany transactions, balance and profits have been
eliminated.
Read accountants' review report.
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NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 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 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
------------------------------
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 (Notes 4, 5, 6, 7) 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 $4,052,000 and
$4,320,000 as of June 30, 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.
Read accountants' review report.
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NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
-----------------------------------------
AS OF JUNE 30, 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:
June 30, December 31,
2001 2000
---------- ----------
Land & Building (See Note 10) $ 75,000 $ 335,363
Rental Equipment(See Note 10) 3,809,542 4,197,282
Leasehold Improvements 19,894 26,027
Furniture, Fixtures & Office Equipment 182,495 141,914
Transportation Equipment 2,830 48,510
---------- ----------
Total 4,089,761 4,749,096
Less: Accumulated Depreciation 902,633 976,301
---------- ----------
Property and Equipment - Net $3,187,120 $3,772,795
========== ==========
Included in Rental Equipment is approximately $3,000,000 of parts and
supplies purchased or obtained from other machines previously
disassembled for parts
Read accountants' review report.
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NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------------
Note 2. Property and Equipment (Continued)
------- ----------------------------------
Included in Rental Equipment is approximately $3,000,000 of parts and
supplies purchase or obtained form other machines previously
disassembled for parts.
Rent expense for the three and six months ended June 30, 2001 were
$112,000 and $92,000, respectively. Included as rental expense for the
three and six months ended June 30, 2001 is approximately $74,000 of
rental expenditures incurred at the corporate offices of the Chief
Executive officer in California.
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 10).
Note 3. Warrants and Options
------- --------------------
At June 30, 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
3,500,000 five year stock warrants to acquire common stock at $1.75 per
share (See note 7).
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, the company 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 (See note
7).
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 options at a 1.75 exercise price.(See note 7)
Read accountants' review report.
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NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------------
Note 5. Incentive Stock Option Plan (Continued)
------- ---------------------------------------
Incentive Stock Options Outstanding
-----------------------------------
Amount Price 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 June 30, 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 were due June 13, 2001 and were extended to December 13,
2001 and are Convertible into common stock at an exercise price of
$1.75 per share. Included in accounts payable and accrued expenses in
the accompanying financial statements is approximately $122,000 of
accrued interest on these disbursements. The interest on these
debentures are payable either in cash or in additional shares of common
stock, at the discretion of the company (see note 7).
Note 7. SEC Registration Statement
------- --------------------------
In July 2001 the company filed a registration statement with the
Securities and Exchange Commission to register 7,229,608 shares of
common stock of the corporation. These shares represent substantially
all the convertible shares outstanding from options, warrants and
debentures. In addition, certain shareholders have included in the
proposal registration of securities legend stock they currently own.
The estimated cost incurred with the registration statement, $25,000,
has been included as a reduction of additional paid-in capital in the
accompanying statements.
Note 8. Provision of Income Taxes
------- -------------------------
As of June 30, 2001 the company had available for income tax purposes
unused net operating loss carryforwards which may provide future tax
benefits of $5,136,000 expiring in the year 2016. No valuation
allowance has been provided for unremitted foreign profits.
Note 9. 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.
Read accountants' review report.
- 10 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------------
Note 9. Commitments and Contingencies (Continued)
------- -----------------------------------------
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 Mr.
Lyons. 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 his 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 Mr. Lyons 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 the company president and the officer in charge of
Latin American Operations, 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 and the Chief Executive Officer,
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.
Read accountants' review report.
- 11 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------------
Note 9. Commitments and Contingencies (Continued)
------- -----------------------------------------
C Foreign Assets
--------------
The accompanying consolidated balance sheets includes assets relating
to the company's slot machine rental operations in Peru and Colombia of
$3,246,000 and $979,000 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 is obligated for a three year lease for its Miami office
premise, 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. The company is also
obligated for an office lease at its California facility. This lease
requires monthly rentals of $7,670 through March 2002. All other leases
are of short duration or are on a month to month arrangement.
Note 10. 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 and recorded gaming equipment
impairment cost of $100,000.
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 merger agreement had been
rescinded in May, 2001 and the company recorded $52,000 as part of the
non-recurring expenses.
Read accountants' review report
- 12 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
-----------------------------------------
Note 11. Subsequent Event
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In August 2001 Latin American Casinos, Inc., changed it's name to NuWay
Energy, Inc. The stock symbol will be changed to NuWay and will
commence trading with the new symbol on August 15, 2001. The name
change reflects a new direction that the company will be exploring. The
company anticipates it will enter the oil and gas industries in Canada
via the formation of subsidiaries in Alberta Canada and Nevada U.S. and
other potential acquisitions in the energy field without disturbing its
current business operations.
In August 2001 the company entered into an eighteen month consulting
arrangement for financial advisory services and the introductions of
investors and investment banking firms to the company. In consideration
for these services the company is obligated to issue 50,000 shares of
restricted common stock, to be issued pro-rata over the terms of the
contract, 150,000 warrants to be issued pro-rata over the term of the
contract and $60,000 per month for the duration of the contract. The
warrants will be valued at an exercise price of 110% of the closing
sales price of the company's common stock during the five consecutive
trading days immediately preceding the date of the agreement and will
provide for equal monthly vesting over the duration of the contract.
The agreement may be terminated by either party for "just cause" or by
thirty day written notice.
Read accountants' review report.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
General
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In August 2001 Latin American Casinos, Inc., changed its name to NuWay
Energy, Inc. The name change reflects a new direction that the company will be
exploring. The Company anticipates it will enter the oil and gas industries in
Canada via the formation of subsidiaries in Alberta Canada and Nevada U.S. and
other potential acquisitions in the energy field without disturbing its current
business operations.
Since January 1995, the Company has been engaged in the renting of slot
machines and other gaming equipment 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.
As of June 30, 2001, the Company had approximately 900 machines under
rental contracts in Peru and Colombia.
The Company currently concentrates its efforts on the rental of used
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 $10,000 plus additional charges for duty,
the used slot machines cost approximately $600 each including freight, duty, and
refurbishing expenditures.
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.
In 2001 the Company formed two subsidiaries, NuWay Resources, Inc., a
Nevada Corporation and NuWay Resources of Canada, Ltd., a Canadian company.
These corporations are presently inactive and were formed to pursue
opportunities in the oil and gas exploration industry.
Results of Operations
---------------------
Revenues from the rental of slot machines in Peru and Colombia for the
three months ended June 30, 2001 decreased by $47,000 or 29%, to $117,400 from
$164,300 for the same period in 2000. The Company's revenues from cigar sales
were $37,900 in the second quarter of 2001 as compared to sales of $51,000 for
the same period in 2000.
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Revenues from the rental of slot machines in Peru and Colombia for the
six months ended June 30, 2001 decreased by $138,800 or 34%, to $265,700 from
$404,500 for the comparable period in 2000. The Company's revenues from cigar
sales were $71,800 for the six months ended June 30, 2001 as compared to sales
of $75,200 for the same period in 2000.
The decrease in revenues was the overall weakness of the economy in
South America. Additionally, the decrease was due in part to continued concerns
over government-mandated obsolescence, political changes, increased competition
as well as the devaluation of foreign currency.
Selling, general, and administrative expenses incurred in the quarter
ended June 30, 2001 increased $249,300 or 47%, to $783,900 from $534,600 for the
same period in 2000. Selling, general, and administrative expenses incurred for
the six months ended June 30, 2001 increased $224,400 or 21%, to $1,286,900 from
$1,062,500 for the same period in 2000.
These expenses are due in part to the increased cost of servicing the
older machines, as well as fees and costs associated with exploring new ventures
and acquisitions.
Net (loss) for the three months ended June 30, 2001 was ($792,300) or
($0.19) per share compared to ($377,700) loss or ($0.11) per share for the same
period in 2000. Net (loss) for the six months ended June 30, 2001 was
($1,352,800) or ($0.32) per share compared to ($683,300) or $0.21 per share for
the same period in 2000.
The net loss was attributable to the significant decline in revenues
from slot machine operations and an increase in overhead expenditures, costs
associated with exploring new ventures and acquisitions, as well as certain
non-recurring expenses for the rescinded merger and asset impairments.
Through June 30, 2001 the Company expended approximately $1,190,000 on
the establishment of a premium cigar business; minor additional expenditures for
marketing and personnel are expected throughout the year 2001. No additional
costs associated with acquisitions of new cigars and related inventory occurred
in year 2001. In 2001 an insignificant amount was spent to acquire additional
inventory.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents decreased approximately $366,700 or 8%, to
$4,056,000 at June 30, 2001 from $4,422,700 at December 31, 2000. The decrease
is attributable primarily to the poor results of operations and the increase in
overhead expenditures.
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.
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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, tobacco, and oil and
gas exploration could have an effect on the Company's operations
and business.
2. Political factors affecting Canada, and 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 Company's proposed venture into oil and gas exploration 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 this operation will become profitable.
4. The Company may be required to raise additional funds to expand
its business operations, particularly the Company's proposed
venture into oil and gas exploration, 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.
NuWay Energy, Inc.
Date: August 20, 2001 /s/ JEFFREY A. FELDER
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Jeffrey A. Felder
President
Date: August 20, 2001 /s/ GERALDINE LYONS
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Geraldine Lyons
Acting Chief Financial Officer
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