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 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.
---------------------------------------
(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.
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
CONTENTS
--------
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 6-17
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 stockholders' 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 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
August 10, 2001
(Except as to Note 1 N
Whose date is March 22, 2002)
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 3,708,795
------------ ------------
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 $ 10,247,986
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 523,598 $ 190,703
Debentures Payable net of deferred debt issuance
costs of $32,250 and $64,500 in 2001 and 2000 3,467,750 3,435,500
------------ ------------
Total Current Liabilities 3,991,348 3,626,203
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
Total Liabilities 3,991,348 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) (560,238) (560,326)
Retained Earnings (Deficit) (7,958,231) (6,612,099)
Treasury Stock, at cost (5,235) (5,235)
------------ ------------
Total Stockholders' Equity 5,275,739 6,621,783
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,267,087 $ 10,247,986
============ ============
Read accountants' review report and notes to financial statements.
- 2 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
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
------------------------- Accumulated
Number Par Additional Other Retained
of Value Paid-In Comprehensive Earnings Treasury Comprehensive
Shares $.00067 Capital Income (Loss) (Deficit) Stock Income (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 EXPENSES
OF VARIABLE OPTION PLANS -- -- 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
(Loss) For The
Year Ended
December 31, 2001 ($4,844,456)
===========
ADJUSTMENT FOR
FOREIGN CURRENCY
TRANSLATIONS -- -- -- 89 -- -- 89
NET (LOSS) FOR THE
SIX MONTHS ENDED
JUNE 30, 2001 -- -- -- -- (1,346,132) -- (1,346,132)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE JUNE 30, 2001 4,225,000 $ 2,831 $13,796,612 ($ 560,237) ($7,958,231 $ 5,235
=========== =========== =========== =========== =========== ===========
Comprehensive
Income (Loss) For
The Six Months
Ended June 30, 2001 ($1,346,043)
===========
Read accountants review report and notes to financial statements.
- 3 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
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:
Impairment Charges 152,652 -- 347,071 --
Selling, General & Administration 825,095 534,639 1,344,146 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 1,033,918 608,314 1,785,402 1,188,789
----------- ----------- ----------- -----------
Operating Income (Loss) (878,676) (393,039) (1,447,909) (709,071)
Interest Income 45,266 15,368 101,777 25,757
----------- ----------- ----------- -----------
Net Other Income (Expenses) 45,266 15,368 101,774 25,757
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (833,410) (377,671) (1,346,132) (683,314)
Income Taxes (Provision) Benefit -- -- -- --
----------- ----------- ----------- -----------
Net Income (Loss) ($ 833,410) ($ 377,671) ($1,346,132) ($ 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) ($ .20) ($ .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) ($1,346,132) ($ 683,314)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation 50,869 61,854
Asset Impairment Charges 247,071 --
Amortization of Deferred Debt Issuance Costs 32,250 --
Loss on Sale of Fixed Assets 23,571 4,867
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 332,896 (16,507)
----------- -----------
Net Cash Provided by (Used In) Operating
Activities (524,723) (362,171)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on Sale of Fixed Assets 188,351 225,423
Fixed Assets, Other 11,803 (11,247)
Other Assets (42,243) 14,894
----------- -----------
Net Cash Provided By (Used by)Investing
Activities 157,911 229,120
----------- -----------
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
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
Note 1. Summary of Significant Accounting Policies
------------------------------------------
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. (formerly known as Latin America
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 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.
- 6 -
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. Whenever there is a change in events or circumstances,
the Company performances 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 costs 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 underwriters options (Notes 4, 5, 6, 7) 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 could 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 $4,052,000
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.
- 7 -
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.
K Valuation of Company's Stock 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
expenses incurred were 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 -
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)
------------------------------------------
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:
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
========== ==========
The estimated useful lives of property and equipment, is as follows:
Rental Equipment 5-7 years
Special Used 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 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).
Read accountants' review report.
- 9 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
Note 3. Warrants and Options
--------------------
At June 30, 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 (See note 7). 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 market value
of the restricted stock, $350,000. The remaining warrants were issued
for servcie 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, 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). 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 re-priced warrants over the current value of
the warrants calculated with the with the Black-Scholes option pricing
model was recorded in the restated financial statement of year 2000.
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 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.(See Note 7)
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
==========
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 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
Range Average
--------------- Number 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 $ (1,346,132) $ (4,699,323)
Net income -pro forma $ (1,346,132) $ (6,429,924)
Loss per share - as reported:
Basic and Diluted $ (.32) $ (1.40)
Loss per share - pro forma:
Basic and Diluted $ (.32) $ (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 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 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 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). 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. Included as part of selling general & administration
expenses in the statement of operations for the three and six months
ended June 30, 2001 is $32,250 and $16,125 amortization of deferred
debt issuance costs.
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 shares 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
registration legend stock they currently own. The estimated cost
incurred with the registration statement, $25,000, has been included as
part of selling, general and administration expenses 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. No
provision had been provided for deferred taxes in the accompanying
financial statements. The current provision for taxes, if any, are
based on tax provisions of foreign operations.
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,
operations, financial position, or corporate liquidity.
Read accountants' review report
- 13 -
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 its
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. Upon
termination of the employee contract the company will record
additional compensation at the greater of the then market price of
the company 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 Mr. Lyons 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 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. Upon termination of the employees
contract 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 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. Compensation was recorded on the arrangement
equal to the then market value of the restricted stock, $350,000, in
year 2000.
Read accountants' review report
- 14 -
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. Revenue from rental operations is
entirely earned in Colombia and Peru.
D Lease Commitment
----------------
The company is obligated for a three year lease for its Miami office
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. 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. Future minimum payments required as of
June 30, 2001 on all non-cancelable leases in effect that are one
year in duration or longer, are as follows:
Miami California
Total Faculty Warehouse Office
--------- --------- --------- ---------
Year 2001 $ 61,920 $ 7,500 $ 8,400 $ 46,020
Year 2002 39,810 -- 16,800 23,010
--------- --------- --------- ---------
Total $ 101,730 $ 7,500 $ 25,200 $ 69,030
========= ========= ========= =========
Note 10. Asset Impairment Charges
------------------------
In March 2001, the company sold its Miami property for an aggregate
consideration of $139,000 and recorded an additional loss on
disposition of $64,000. The $64,000 loss had been recorded as an
impairment charges in the restated fiscal year 2000 financial
statement. In addition, the company recorded a reduction in value for
certain slot machine parts of $194,000 and recorded gaming equipment
impairment costs of $100,000. The impairment costs associated with
gaming equipment parts was the result of non usable parts previously
recorded as part of slot machine fixed asset costs on the accompanying
balance sheet. The impairment costs on the gaming equipment of $100,000
was the result of management's on-going valuation as to the utility of
gaming equipment in conjunction with decreased volume of operations.
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
asset impairment costs.
Read accountants' review report
- 15 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
Note 11. Subsequent Event
----------------
In August 2001 Latin American Casinos, Inc., changed it's name to NuWay
Energy, Inc. The stock symbol will be changed to NWAY 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 a consulting arrangement for
financial advisory services. As part of the consideration for the
agreement the company advanced $90,000. The consulting arrangement has
subsequently been rescinded.
Note 12. Operating Segments Six Months Ended June 30, 2001
-------------------------------------------------
Cigars Gaming
Total Operations Equipment Unallocated
----------- ----------- ----------- -----------
Revenues $ 337,493 $ 71,775 $ 265,718 $ 0
----------- ----------- ----------- -----------
Costs & Expenses
Cost of Product Sold 43,316 43,316 0 0
Direct Overhead Cost 557,374 81,085 496,289
Allocated Overhead
Costs 766,772 163,070 603,702 0
Depreciation 50,869 5,202 42,167 3,500
Assets Impairment
Costs 347,071 0 347,071 --
----------- ----------- ----------- -----------
Total Costs
and Expenses 1,785,402 292,673 1,489,229 3,500
----------- ----------- ----------- -----------
Operating Income
(Loss) ($1,447,909) ($ 220,898) ($1,223,511) ($ 3,500)
=========== =========== =========== ===========
Total Assets $ 9,267,000 $ 687,000 $ 4,467,000 $ 4,114,000
=========== =========== =========== ===========
Read accountants' review report
- 16 -
NUWAY ENERGY, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
Note 12. Operating Segments Six Months Ended June 30, 2000 (Continued)
-------------------------------------------------
Cigars Gaming
Total Operations Equipment Unallocated
----------- ----------- ----------- -----------
Revenues $ 479,718 $ 75,232 $ 404,486 $ --
----------- ----------- ----------- -----------
Cost & Expenses
Cost of Product Sold 64,451 64,451 -- --
Direct Overhead Cost 624,354 60,403 563,951
Allocated Overhead
Cost 438,130 68,709 369,421 --
Depreciation 61,854 5,682 52,172 4,000
Assets Impairment
Cost -- -- -- --
----------- ----------- ----------- -----------
Total Costs
And Expenses $ 1,188,789 $ 199,245 $ 985,544 $ 4,000)
=========== =========== =========== ===========
Operating Income
(Loss) $ (709,071) $ (124,013) $ (581,058) $ (4,000)
=========== =========== =========== ===========
Total Assets $ 7,245,000 $ 758,000 $ 5,476,000 $ 1,011,000
=========== =========== =========== ===========
The company allocates indirect overhead expenses to specific segments
in proportion to the revenues earned by the segment. All revenue from
gaming equipment and the related assets are in South America where as
all revenue and a majority of the assets of the cigar operations are in
the United States.
Read accountants' review report.
- 17 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
General
-------
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 $700 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. Substantially all advertising expense incurred is paid with barter
transactions.
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.
In March 2001, the company sold its Miami property for an aggregate
consideration of $139,000 and recorded an additional loss on disposition of
$64,000. The $64,000 loss had been recorded as an impairment charges in the
restated fiscal year 2000 financial statement. In addition, the company recorded
a reduction in value for certain slot machine parts of $194,000 and recorded
gaming equipment impairment costs of $100,000. The impairment costs associated
with gaming equipment parts was the result of non usable parts previously
recorded as part of slot machine fixed asset costs on the accompanying balance
sheet. The impairment costs on the gaming equipment of $100,000 was the result
of management's on-going valuation as to the utility of gaming equipment in
conjunction with decreased volume of operations.
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 asset impairment costs.
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.
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.
- 18 -
Selling, general, and administrative expenses incurred in the quarter
ended June 30, 2001 increased $280,400 or 54%, to $825,000 from $534,600 for the
same period in 2000. Selling, general, and administrative expenses incurred for
the six months ended June 30, 2001 increased $281,700 or 26%, to $1,384,000 from
$1,062,500 for the same period in 2000.
These increases 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 and costs associated with pending registration statement and
the amortization of deferred debt issuance costs.
Net (loss) for the three months ended June 30, 2001 was ($833,400) or
($0.20) 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
(1,410,100) or ($0.32) per share compared to ($683,300) or $0.21 per share for
the same period in 2000.
The increase in 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 impairment
costs.
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 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
(a) Exhibits: 99.1 Amendment to 6% Convertible Debenture
- 19 -
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: March 25, 2002 /s/ TODD SANDERS
------------------ -------------------------------
Todd Sanders
President
Date: March 25, 2002 /s/ JOE TAWIL
------------------ -------------------------------
Joe Tawil
Acting Chief Financial and
Accounting Officer
- 20 -
EXHIBIT 99.1
AMENDMENT TO LATIN AMERICAN CASINOS, INC.
6% Convertible Debenture due June 13, 2001
Latin American Casinos, Inc. and the undersigned holder (the "Holder")
of that principal amount of Latin American Casinos, Inc. 6% Convertible
Debentures due June 13, 2001 (the "Debentures") set forth below hereby agree, as
of the date below, as follows:
1. Within thirty (30) days of the date below, Latin American
Casinos, Inc. agrees to file a registration statement with the
Securities and Exchange Commission including the shares of
Latin American Casinos, Inc. common stock underlying that
principal amount of Debentures owned by the Holder as set
forth below.
2. The Maturity Date as defined in the Debentures is hereby
amended to be December 13, 2001.
3. The Holder has good and marketable title to the principal
amount of Debentures set forth below free and clear of any
security interests, pledges, mortgages or other encumbrances
of any kind, and the Holder is authorized to enter into this
amendment.
Holder:
------
--------------------------
Debenture No.:
Principal Amount of Debenture: $
Latin American Casinos, Inc.
By: Dated:
-------------------------------- ----------------
Jeffrey Felder, President