U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-1
(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
NUWAY ENERGY, 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.)
19100 Von Karman Ave, Ste 450
Irvine, CA 92612
----------------------------------------
(Address of principal executive offices)
(949) 553-8002
---------------------------
(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 22, 2002: 5,133,883 shares of common stock, $0.00067 par
value per share.
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
---------------------------------------------
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 6-16
Accountants' Review Report
--------------------------
To the Board of Directors of:
Latin American Casinos, Inc. and Subsidiaries
We have reviewed the accompanying consolidated balance sheets of Latin American
Casinos, Inc. and Subsidiaries as of March 31, 2001, and the related
consolidated statements of operations, changes in stockholders 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 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, 2000 was audited by us and we
expressed an unqualified opinion on it in our report dated March 15, 2001, and
restated on March 12, 2002 but we have not performed any auditing procedures
since that date.
Shubitz Rosenbloom & Co., P.A.
Miami, Florida
May 18, 2001
(Except as to Note 1 N
Whose date is March 22, 2002)
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 3,708,795
------------ -------------
OTHER ASSETS
Deposits 11,609 11,609
Other Assets 50,504 46,208
------------ -------------
Total Other Assets 62,113 57,817
------------ -------------
TOTAL ASSETS $ 9,701,144 $ 10,247,986
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 139,576 $ 190,703
Debentures Payable Net of Deferred Issuance
Costs of $48,375 and $64,500 in 2001 and 2000 3,451,625 3,435,500
------------ -------------
Total Current Liabilities 3,591,201 3,626,203
------------ -------------
COMMITMENTS AND CONTINGENCIES - -
------------ -------------
Total Liabilities 3,591,201 3,626,203
------------ -------------
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 13,796,612 13,796,612
Accumulated Other Comprehensive Income (Loss) ( 559,444) ( 560,326)
Retained Earnings (Deficit) ( 7,124,821) ( 6,612,099)
Treasury Stock, at cost ( 5,235) ( 5,235)
------------ -------------
Total Stockholders' Equity 6,109,943 6,621,783
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,701,144 $ 10,247,980
============ =============
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
-------------------- Accumulated
Number Par Additional Other Retained Comprehensive
of Value Paid-In Comprehensive Earnings Treasury Income
Shares $.00067 Capital Income (Loss) (Deficit) Stock (Loss)
--------------------- ----------- ------------- ------------ ------ ------------
BALANCE JANUARY
1,2000 3,300,000 $ 2,211 $10,203,732 ($415,193) ($ 1,912,776) $ 5,235 $ -
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS - - - (145,133) - - ( 145,133)
WARRANTS ISSUED IN
EXCHANGE FOR SERVICE - - 1,991,700 - - - -
COMPENSATION EXPENSE ON
VARIABLE OPTIONS PLAN - - 491,900 - - - -
COMPENSATION ON
RE-PRICING
OF STOCK OPTIONS - - 34,900 - - - -
EXERCISE OF
STOCK OPTIONS 725,000 486 724,514 - - - -
STOCK ISSUED AS
COMPENSATION 200,000 134 349,866 - - - -
NET (LOSS) FOR THE
YEAR ENDED DECEMBER
31, 2000 - - - - ( 4,699,323) - ( 4,699,323)
--------- -------- ----------- --------- ----------- ------- -------------
BALANCE DECEMBER
31, 2000 4,225,000 2,831 13,796,612 ( 560,326) ( 6,612,099) 5,235 -
Comprehensive Income
For The Years Ended
December 31, 2000 - - - - - - ($4,844,456)
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS - - - 882 - - 882
NET (LOSS) FOR THE
THREE MONTH ENDED
MARCH 31, 2001 - - - - ( 512,722) - ( 512,722)
--------- -------- ----------- --------- ----------- ------- -------------
BALANCE MARCH 31,
2001 4,225,000 $ 2,831 $13,796,612 ($ 559,444) ($ 7,124,821) $ 5,235
========= ======== =========== ========== =========== =======
Comprehensive
Income (Loss)
For The Three
Months Ended
March 31, 2001 ($ 511,840)
===========
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 517,336 527,852
Depreciation 16,630 32,847
Cost of Cigar Sales 21,384 19,783
Impairment Charges 194,419 -
----------- -----------
Total Cost and Expenses 749,769 580,482
----------- -----------
Operating Income (Loss) (567,518) (316,035)
----------- -----------
Other Income (Expenses)
-----------------------
Interest Income 54,796 10,839
Net Other Income (Expenses) 54,796 10,839
----------- -----------
Income (Loss) Before Income Taxes (512,722) (305,196)
Income Taxes (Provision) Benefit - -
----------- -----------
Net Income (Loss) ($ 512,722) ($ 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 ($ .12) ($ .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) ($ 512,722) ($ 305,196)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 16,630 32,847
Asset Impairment Charges 194,419 -
Amortization of Deferred Debt Issuance Costs 16,125 -
Loss On Sale Of Assets 34,022 4,867
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 (223,878) (251,588)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on Sale of Fixed Assets 165,303 211,607
Fixed Assets, Other 21,059 (9,404)
Other Assets (4,296) 8,961
----------- -----------
Net Cash Provided By (Used by)Investing
Activities 182,066 211,164
----------- -----------
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. (formerly known as Latin American Casinos, Inc.
S.A.) a Peruvian Corporation and Latin American Casinos of Colombia
LTDA, 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.
Read accountants' review report.
- 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 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. Whenever there
is a change in events or circumstances, the Company performs an
impairment analysis by comparing the future undiscounted cash flows and
if they are less than the carrying amount, and impairment charge is
recorded to reduce the assets to its estimated fair value.
D Revenue Recognition
-------------------
Revenue is recognized monthly on the rental of slot machines as the
slot machines are placed in service. Typical rental arrangements for
slot machines are for one year or less in duration with consistent rent
income earned over the life of the lease. As a general rule the company
does not incur any significant direct cost with the inception of a
lease. All leasing expense, payroll and maintenance of equipment are
charged to operations as incurred. Revenue on the sale of cigars are
recorded when customer orders are shipped. The cost of cigar sales
represents the direct cost of the product sold.
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, and excluded
from the computation of basic and diluted earnings (loss) per share. In
the future these warrants, stock options, and underwriter options could
be dilutive and as such future earnings per share would be diluted by
7,607,496 additional shares.
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.
Read accountants' review report.
- 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 uncollectible 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 Valuation of Company's Stocks Options and Warrants
--------------------------------------------------
As permitted under the Statement of Financial Accounting Standards No.
123 (SFAS No.123), Accounting for Stock-Based Compensation, the Company
accounts for it stock-based compensation to employees in accordance
with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. As such, compensation
expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. Certain pro
forma net income and EPS disclosures for employee stock options grants
are also included in the notes to the financial statements as if the
fair value method as defined in SFAS No. 123 had been applied.
Transactions in equity instruments with non-employees for goods or
services are accounted for by the fair value method.
L Advertising
-----------
The company expenses all advertising costs as incurred. Included in the
statement of operations is approximately $49,000 and $34,000
advertising expense charged to operations for the six months ended June
30, 2001 and 2000, respectively. Substantially all advertising expense
incurred is paid with a barter transaction.
M Reclassifications
-----------------
Certain amounts reported in prior financial statements have been
reclassified to conform to current classification.
Read accountants' review report.
- 8 -
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)
------- ------------------------------------------
N Restatements
------------
The Company had restated its previously issued financial statements for
the years ended December 31, 2000 and 1999 for the following
adjustments:
1. Recognition of impairment loss on the sale of Miami Property of
$64,000 was recorded in year 2000 instead of year 2001.
2. Adjustment of beginning additional paid in Capital and retained
earnings deficit for expense recorded with option and warrants
issued in 1998, $284,175.
3. Adjustment of retained earnings (deficit) and additional paid in
capital for the cost of warrants issued, compensation expenses on
variable option plan and compensation recorded on repricing of
stock options, $2,518,500 in year 2000.
Note 2. Property and Equipment
------- ----------------------
Property and Equipment are summarized as follows:
March 31, December 31,
2001 2000
----------- -----------
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
=========== ============
The estimated useful lives of property and equipment, is a follows:
Rental Equipment 5-7 years
Special Use Buildings 10 years
Commercial Buildings 30 years
Leasehold Improvements 7 years
Furniture, Fixtures and Office Equipment 5-7 years
Transportation Equipment 5 years
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).
Read accountants' review report.
- 9 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
------------------------------------------
Note 3. Warrants and Options
------- --------------------
At March 31, 2001 the company has outstanding 1,725,000 five year
publicly traded warrants that were issued as part of the company's
initial public offering 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
3,300,000 private five year stock warrants to acquire common stock at
$1.75 per share. The issuance of the private warrants were part of the
arrangement with the executive officers of the corporation who also
received restricted stock aggregating 200,000 shares. Compensation was
recorded on the arrangement equal to the then market value of the
restricted stock, $350,000. The remaining warrants were issued for
service and were valued at $1,800,000 using the Black-Scholes option
pricing model. This amount has been recorded in the statement of
operations for year 2000.
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. At the date of issuance and
subsequent re-pricing date the warrant price equaled or exceeded the
market value of the corporate stock. At the date issuance and
subsequent re-pricing date the warrant price equaled or exceeded the
market value of the corporate stock. The incremental value of the
repriced warrants over the current value of the warrants calculated
with the Black-Scholes option pricing model was recorded in the
restated financial statements of year 2000.
Read accountants' review report.
- 10 -
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 for options granted to employees owning more than 10% of the
outstanding shares of the voting stock of the company). The 1991 plan
became effective on September 30, 1991 and was terminated in March,
1999. The 1994 plan became effective on June 13, 1994 and will
terminate in June, 2004, unless terminated earlier by action of the
Board of Directors. In December, 1995, the company authorized the
issuance under the 1994 Stock Option Plan of 492,500 options at an
exercise price of $2.50 per share to various officers and employees. On
March 6, 1997 the company authorized the issuance of an additional
415,000 options at an exercise price of $2.50 to various officers and
employees. In June, 1999, the company increased the shares allocated to
the plan to 1,500,000. Effective December 31, 1998, the company
ratified the repricing of the employee stock options to $1.00 per share
and simultaneously authorized the issuance of 85,000 options at an
exercise price of $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.
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 March 31, 2001 $ 237,500
=========
Read accountants' review report.
- 11 -
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 (Continued)
------- ---------------------------------------
All outstanding warrants and non-qualified options are incentive stock
options were exercisable at March 31, 2001.
The following table shows the years in which all the company's options
and warrants (as discussed in Notes 4, 5, and 6) will expire:
Weighted
Number Average
Range of Exercise
Year Ending December 31 Low High Shares Price
----------- ------ ---------
2001 $ 3.00 $ 3.00 1,725,000 $ 3.00
2002 1.00 1.00 172,500 1.00
2003 1.00 1.00 310,000 1.00
2004 - - - -
Thereafter 1.06 1.75 3,415,000 1.74
---------
Total 5,622,500
The weighted average fair value of options granted during fiscal 2000
was $1.07 per share. All options were granted at an exercise price that
equaled the market price.
The Company adopted the provision so SFAS No. 123, Accounting for Stock
Based Compensation, effective for fiscal year 1997 for all issuances of
stock options to non-employees of the Company. The Company will
continue to apply APB Opinion On 25 (Opinion 25), Accounting for Stock
Issued to Employees for all issuances stock options to its employees.
In June 1999, the Company adopted the Financial Accounting Standards
Board Interpretation Number 44, which requires re-priced options be
re-measured for expenses each quarter based on the quarter end stock
price. Expenses are also re-measured upon exercise for the options. The
Company recorded $491,900 and no expenses as a result of the
aforementioned accounting in 2000 and 2001, respectively.
Had compensation cost for the Plan been determined based upon the fair
value at the grant date for options granted consistent with the
provision of SFAS 123, the Company's net loss and net loss per share
would have been reduced to the pro forma amounts indicated below:
2001 2000
----------- -------------
Net income - as reported $ (512,722) $ (4,699,323)
Net income -pro forma $ (512,722) $ (6,429,924)
Loss per share - as reported:
Basic and Diluted $ (.12) $ (1.40)
Loss per share - pro forma:
Basic and Diluted $ (.12) $ (1.90)
The fair value of each option grant under the Plan is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following assumptions:
2000
-------------
Risk - free interest $ 5.80%
Expected life 5 years
Expected volatility 68.19%
Expected dividend -
Read accountants' review report.
- 12 -
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
------------------------------------------
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 which has been subsequently extended
to December 13, 2001 and are convertible into common stock at an
exercise price of $1.75 per share. The company incurred approximately
$64,500 of costs in regard to this private placement. The debt issuance
costs are being amortized over the life of the debentures. The interest
on the debentures is payable either in cash or in additional shares of
common stock, at the discretion of the company. The conversion price of
the debentures was determined by the approximate market value of the
common stock at the date of issuance. Included as part of selling
general & administration expenses in the statements of operations for
the three months ended March 31, 2001 is $16,125 amortization of
deferred debt issuance costs.
Note 7. Provision of Income Taxes
------- -------------------------
As of March 31, 2001 the company had available for income tax purposes
unused net operating loss carry forwards which may provide future tax
benefits of $4,344,000 expiring in the year 2016. No valuation
allowance has been provided for unmerited foreign profits. No provision
had been provided for deferred taxes in the accompanying financial
statements. The current provision for taxes, if any, are based on a tax
provision for foreign operations.
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, operations,
financial position or corporate liquidity.
Read accountants' review report.
- 13 -
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 (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 the
officer. In January 2000, The Chief Executive Officer passed away and
effective August 2, 2000 the company amended its 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. Upon termination of the employee contract, the company will
record additional compensation at the greater of the then market price
of the company's stock or the guaranteed price stipulated in the
contract. 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 recorded as additional 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 annum 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. Upon termination of the employee, the company will
record additional compensation at the greater of the market price of
the company stock or the guaranteed price stipulated in the contract.
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). The issuance
of the private warrants were part of the arrangement with the executive
officers of the corporation who also received restricted stock
aggregating 200,000 shares. Compensation was recorded on the
arrangement equal to the then market value of the restricted stock,
$350,000.
Read accountants' review report.
- 14 -
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 (Continued)
------- -----------------------------
C Foreign Assets
--------------
The accompanying consolidated balance sheets include 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. Revenue from rental
operation is entirely earned in Colombia and Peru.
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
its warehouse space, at a monthly rent of $1,400.
Future minimum payments required as of March 31, 2001 on all non
cancelable leases in effect that are one year in duration or longer,
are as follows:
Miami
Total Faculty Warehouse
---------- ---------- ----------
Year 2001 $ 27,600 $ 15,000 $ 12,600
Year 2002 16,800 - 16,800
---------- ---------- ----------
Total $ 44,400 $ 15,000 $ 29,400
========== ========== ==========
All other leases are less the 12 month in duration or are on a month to
month bases.
Note 9 Impairment Charges
------ ------------------
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. The $64,000 loss had been recorded as an impairment charge in
the restated fiscal year 2000 financial statement. In addition, the
company recorded an additional impairment loss due to obsolescence in
value for certain slot machine parts of $194,000. The impairment cost
associated with gaming equipment parts was the result of non-usable
parts previously recorded as part of the slot machine fixed asset costs
on the accompanying balance sheet.
Read accountants' review report.
- 15-
LATIN AMERICAN CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
------------------------------------------
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 had deferred $37,500
of cost incurred in connection with this merger. It is contemplated
that if the merger is consummated, the acquisition will be recorded as
a "purchase" and the deferred costs will be allocated to the purchase
price of the acquired assets. The company terminated these negotiations
on May 17, 2001.
Note 11 Operating Segments Three Months Ended March 31, 2001
------- ----------------------------------------------------
Cigar Gaming
Total Operations Equipment Unallocated
------------ ------------ ------------ ------------
Revenues $ 182,251 $ 33,916 $ 148,335 $ 0
-------- ------------ ------------ ------------ ------------
Cost & Expenses
---------------
Cost of Product Sold 21,384 21,384 0 0
Direct Overhead Cost 374,140 36,650 337,490
Allocated Overhead Cost 143,196 26,648 116,548 0
Depreciation 16,630 2,601 12,926 1,103
Asset Impairment Cost 194,419 0 194,419 -
------------ ------------ ------------ ------------
Total Cost and
Expenses 749,769 87,283 661,383 1,103
-------- ------------ ------------ ------------ -----------
Operating Income
(Loss) ($ 567,518) ($ 53,367) ($ 513,048) ($ 1,103)
------ ============ ============ ============ ============
Total Assets $ 9,701,144 $ 713,370 $ 4,637,600 $ 4,350,174
------------ ============ ============ ============ ============
For The Quarter Ended March 31, 2000
------------------------------------
Cigar Gaming
Total Operations Equipment Unallocated
------------ ------------ ------------ ------------
Revenues $ 264,447 $ 24,301 $ 240,146 $ -
-------- ------------- ------------ ------------ -------------
Cost & Expenses
---------------
Cost of Product Sold 19,783 19,783 - -
Direct Overhead Cost
Expenses Associated 304,309 18,667 285,642 -
Allocated Overhead
Cost 223,543 20,542 203,001 -
Depreciation 32,847 2,841 28,006 2,000
------------ ------------ ------------ ------------
Total Cost and
Expenses 580,482 61,833 516,649 2,000
-------- ------------ ------------ ------------ ------------
Operating Income
(Loss) $ (316,035) $ (37,532) $ (276,503) $ (2,000)
------ ============ ============ ============ ============
Total Assets $ 10,312,000 $ 682,000 $ 8,635,200 $ 1,404,000
------------ ============ ============ ============ ============
The company allocates indirect overhead expenses to specific segments
in proportion to the revenues earned by the segment.
Read accountants' review report.
- 16 -
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
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 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 and Central America. Whereas a new
slot machine would cost approximately $10,000 plus additional charges for duty,
the used slot machines cost approximately $700 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. Substantially all advertising expense incurred is paid with barter
transactions.
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. The
$64,000 loss had been recorded as an impairment charge in the restated fiscal
year 2000 financial statement. In addition, the company recorded an additional
impairment loss due to obsolescence in value for certain slot machine parts of
$194,000. The impairment cost associated with gaming equipment parts was the
result of non-usable parts previously recorded as part of the slot machine fixed
asset costs on the accompanying balance sheet.
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.
Selling, general, and administrative expenses incurred in the quarter
ended March 31, 2001 decreased $10,500 or 5.0%, to $517,000 from $527,850 for
the same period in 2000.
The decrease is due to a reduction in staffing in South America offset
by employee severance payments in South America.
Net (loss) for the three months ended March 31, 2001 was ($576,800) or
($0.14) 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 estate in Miami.
- 17 -
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 position 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.
Item 6. Exhibits and Reports on Form 8-K
(b) Form 8-K, Item 5, Dated January 5, 2001
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 safe
harbor, 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 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.
- 18 -
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: March 25, 2002 /s/ TODD SANDERS
------------------------ ----------------------------------------
Todd Sanders
President
Date: March 25, 2002 /s/ JOE TAWIL
------------------------ ----------------------------------------
Joe Tawil
Acting Chief Financial and Accounting
Officer
- 19 -