U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ______________
Commission file number: 000-29443
VIVA GAMING & RESORTS INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0873132
------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 108, 3611 S. Lindell Road, Las Vegas, Nevada 89103-1241
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (702) 739-1769
--------------
Suite 1400, 400 Burrard Street, Vancouver, BC V6C 3G2
- -----------------------------------------------------
(Former address and former fiscal year end, if changed since last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,707,400 as of April 30, 2001.
VIVA GAMING & RESORTS INC.
Form 10-QSB for the quarter ended March 31, 2000
TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
Page
----
PART I Financial Information
Item 1. Financial Statements (unaudited):
Condensed and Consolidated:
Balance Sheet as of March 31, 2001 3
Statements of Operations for the three months ended March 31,
2001 and March 31, 2000 and for the period
from December 9, 1997 (inception) to March 31, 2001 4
Statements of Stockholders' Equity for the period
from December 9, 1997 (inception) to March 31, 2001 5
Statements of Cash Flows for the three months ended March 31,
2001 and March 31, 2000 and for the period
from December 9, 1997 (inception) to March 31, 2001 7
Notes to Condensed and Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of
Operation 17
PART II Other Information
Item 1. Legal Proceedings 19
Item 2 Changes in Securities and Use of Proceeds 19
Item 3 Defaults Upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Condensed and Consolidated Balance Sheet
(Unaudited)
March 31, 2001
Assets
Current assets
Cash $ 3,663
Accounts receivable 24,986
Note receivable 1,086,066
Prepaid expenses and other current assets 50,974
-----------
Total current assets 1,165,689
Property and equipment, net 3,118
Investment in licenses and permits, net 1,419,436
Goodwill, net 4,360,535
-----------
$ 6,948,778
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 1,141,262
Notes and advances from stockholders and officers 1,499,998
Notes payable 1,150,000
-----------
Total current liabilities 3,791,260
Minority interest 43,423
Contingencies
Stockholders' equity
Share capital
Authorized
10,000,000 preferred shares with $0.10 par value
100,000,000 common shares with $0.001 par value
Issued
8,707,400 common shares 8,707
Additional paid-in capital 6,316,793
Deficit accumulated during the development stage (3,202,373)
Accumulated other comprehensive income (9,032)
-----------
Total stockholders' equity 3,114,095
-----------
$ 6,948,778
===========
The Accompanying Notes are an Integral
Part of These Financial Statements
3
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Condensed and Consolidated Statements of Operations
(Unaudited)
Period from
December
Three Months Ended 9, 1997
March 31, (inception)
--------------------------------- to March
2001 2000 31, 2001
----------- ----------- -----------
Revenue $ -- $ -- $ --
Operating Expenses
Consultants 4,500 110,826 790,743
Depreciation and amortization 74,982 568 188,869
Finance fees -- -- 83,133
Legal and accounting 96,419 48,584 359,488
Payroll and related costs 81,645 50,557 670,046
Office and administration 29,090 59,519 347,599
Regulatory, transfer and fees 33,578 4,468 71,886
Stock based compensation 124,000 -- 820,000
Travel, entertainment and promotion 23,989 64,216 296,831
----------- ----------- -----------
Total operating expenses 468,203 338,738 3,628,595
=========== =========== ===========
(Loss) from operations (468,203) (338,738) (3,628,595)
Other income (expenses)
Gain on sale of subsidiary -- -- 1,029,399
Equity investment in subsidiary -- -- (603,254)
Loss on sale of property and equipment (12,345) -- (15,156)
Foreign exchange 8,318 4,356 (22,560)
Interest income 29,808 -- 42,294
Interest expense (47,282) -- (101,687)
----------- ----------- -----------
Total other income (expenses) (21,501) 4,356 329,036
----------- ----------- -----------
Minority Interest 32,265 -- 97,186
----------- ----------- -----------
Net (loss) $ (457,439) $ (334,382) $(3,202,373)
=========== =========== ===========
Net (loss) per share - Basic and Diluted $ (0.05) $ (0.05) $ (0.49)
=========== =========== ===========
Weighted average shares
of common stock outstanding 8,707,400 6,856,800 6,509,391
=========== =========== ===========
The Accompanying Notes are an Integral
Part of These Financial Statements
4
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Condensed and Consolidated Statements of Stockholders' Equity
(Unaudited)
Common
Stock Unearned
Common Stock To Be Consulting
Shares Amount Issued Fees
- ---------------------------------------------------------------------------------------------
Initial capitalization
September 30, 1998
for cash 3,750,000 $ 3,750 $ -- $ --
- ---------------------------------------------------------------------------------------------
Net (loss) -- -- -- --
Balance as of December 31, 1998 3,750,000 3,750 -- --
Shares issued for:
Settlement of
accounts payable 2,750,000 2,750 -- --
Consulting services 200,000 200 -- --
Consulting services 40,000 40 60,000 (60,000)
Stock options granted to
Non-employees for services -- -- -- --
Net (loss) -- -- -- --
- ---------------------------------------------------------------------------------------------
Balance as of December 31, 1999 6,740,000 6,740 60,000 (60,000)
Shares issued for:
Private placement 324,000 324 -- --
Private placement fee 29,400 29 -- --
Consulting services 70,000 70 (60,000) 60,000
Exercise of warrants 4,000 4 -- --
Private placement commissions -- -- -- --
Consulting services 40,000 40 -- --
Acquisition of subsidiary 1,500,000 1,500 -- --
Stock options granted to
Non-employees for services -- -- -- --
Comprehensive Income
Cumulative translation adjustment -- -- -- --
Net (loss) -- -- -- --
Total comprehensive income -- -- -- --
- ---------------------------------------------------------------------------------------------
Balance as of December 31, 2000 8,707,400 $ 8,707 $ -- $ --
[RESTUBBED]
Deficit
Accumulated Accumulated Total
Additional During the Other Stockholders'
Paid-in Development Comprehensive Equity
Capital Stage Income (Deficit)
- --------------------------------------------------------------------------------------------------
Initial capitalization
September 30, 1998
for cash $ 108,750 $ -- $ -- $ 112,500
Net (loss) -- (189,710) -- (189,710)
- --------------------------------------------------------------------------------------------------
Balance as of December 31, 1998 108,750 (189,710) -- (77,210)
Shares issued for:
Settlement of
accounts payable 107,250 -- -- 110,000
Consulting services 199,800 -- -- 200,000
Consulting services 39,960 -- -- 40,000
Stock options granted to
Non-employees for services 675,450 -- -- 675,450
Net (loss) -- (1,103,398) -- (1,103,398)
- --------------------------------------------------------------------------------------------------
Balance as of December 31, 1999 1,131,210 (1,293,108) -- (155,158)
Shares issued for:
Private placement 1,349,676 -- -- 1,350,000
Private placement fee 122,471 -- -- 122,500
Consulting services 79,930 -- -- 80,000
Exercise of warrants 24,996 -- -- 25,000
Private placement commissions (294,500) -- -- (294,500)
Consulting services 24,960 -- -- 25,000
Acquisition of subsidiary 3,733,500 -- -- 3,735,000
Stock options granted to
Non-employees for services 20,550 -- -- 20,550
Comprehensive Income
Cumulative translation adjustment -- -- (9,372) (9,372)
Net (loss) -- (1,451,826) -- (1,451,826)
-----------
Total comprehensive income -- -- -- (1,461,198)
- --------------------------------------------------------------------------------------------------
Balance as of December 31, 2000 $ 6,192,793 $(2,744,934) $ (9,372) $ 3,447,194
The Accompanying Notes are an Integral Part of These Financial Statements
5
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Condensed and Consolidated Statements of Stockholders' Equity
(Unaudited)
Common
Stock Unearned Additional
Common Stock To Be Consulting Paid-in
Shares Amount Issued Fees Capital
- -------------------------------------------------------------------------------------------------
Stock options granted to
Non-employees for services -- -- -- -- 124,000
Comprehensive Income
Cumulative translation adjustment -- -- -- -- --
Net (loss) -- -- -- -- --
Total comprehensive income -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Balance as of March 31, 2001 8,707,400 $ 8,707 $ -- $ -- $ 6,316,793
=================================================================================================
[RESTUBBED]
Deficit
Accumulated Accumulated Total
During the Other Stockholders'
Development Comprehensive Equity
Stage Income (Deficit)
- -------------------------------------------------------------------------------------
Stock options granted to
Non-employees for services -- -- 124,000
Comprehensive Income
Cumulative translation adjustment -- 340 340
Net (loss) (457,439) -- (457,439)
-----------
Total comprehensive income -- -- (457,099)
- -------------------------------------------------------------------------------------
Balance as of March 31, 2001 $(3,202,373) $ (9,032) $ 3,114,095
=====================================================================================
The Accompanying Notes are an Integral Part of These Financial Statements
6
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Condensed and Consolidated Statements of Cash Flows
(Unaudited)
Period from
December
Three Months Ended 9, 1997
March 31, (inception)
-------------------------------- to March
2001 2000 31, 2001
----------- ----------- -----------
Cash used in operating activities $ 82,417 $ (269,284) $(2,065,833)
Cash flows from investing activities
Acquisition of property and equipment -- (3,878) (22,858)
Cash flows from acquisitions -- -- (445,229)
Acquisition of and investment in subsidiaries -- -- (796,383)
----------- ----------- -----------
Cash used in investing activities -- (3,878) (1,264,470)
=========== =========== ===========
Cash flows from financing activities
Proceeds from the issuance of common stock -- 430,000 1,193,000
Proceeds from common stock to be issued -- 825,000 --
Advances to stockholder -- -- (115,366)
Repayment from stockholder advance -- -- 115,366
Proceeds from note payable -- -- 1,262,500
Repayment of note payable -- -- (112,500)
Advances from stockholders and officers 21,500 70,228 1,359,794
Repayment of stockholders and officers advances (104,388) (217,620) (359,796)
----------- ----------- -----------
Cash provided by financing activities (82,888) 1,107,608 3,342,998
----------- ----------- -----------
Effect of exchange rate changes in cash &
cash equivalents 340 -- (9,032)
----------- ----------- -----------
Increase (decrease) in cash &
cash equivalents (131) 834,446 3,663
Cash and cash equivalents:
beginning of period 3,794 3,290 --
----------- ----------- -----------
end of period $ 3,663 $ 837,736 $ 3,663
=========== =========== ===========
The Accompanying Notes are an Integral
Part of These Financial Statements
7
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
These financial statements include the accounts of Viva Gaming & Resorts Inc.
(the "Company") and its majority owned limited liability company, Viva Gaming &
Resort de Mexico, S.A. de C.V.
Principals of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary. All material intercompany transactions and balances have been
eliminated upon consolidation
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers cash and
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Property and Equipment
Property and Equipment are stated at cost and depreciated on the straight-line
basis over the assets' estimated useful lives.
Goodwill
Goodwill represents the excess of the cost of the Company's interest in a
purchased subsidiary over the fair value of a proportionate share of its net
assets at the date of acquisition. Goodwill is being amortized using the
straight line method over 15 years.
Minority Interest
Minority interest represents the interest of shareholders in subsidiaries that
are not wholly-owned subsidiaries of the Company, in the assets and liabilities
of the subsidiary included on the balance sheet and in the net income (loss) of
the subsidiary included in the statement of operations.
Licenses and Permits
The Company capitalizes the cost of acquiring the licenses and permits required
to operate its business in Mexico. Licenses and Permits are stated at cost less
amortization on a straight line basis over the shorter of the term of the
license or permit or 15 years, commencing with operations. Lottery licenses are
held for an indefinite period. Municipal licenses are renewable yearly.
8
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation
The Company translates the assets and liabilities of international non-U.S.
functional currency subsidiaries into dollars at the current rates of exchange
in effect at each period. Revenues and expenses are translated using rates that
approximate those in effect during the period. Gains and losses from translation
adjustments are to be included in stockholders' equity in the consolidated
balance sheet caption "Accumulated other comprehensive income (loss)."
Net Loss per Share
Basic and diluted net loss per share represents net loss divided by the weighted
average number of shares outstanding for the period.
Fair Value of Financial Instruments
The carrying amount of cash, prepaid expenses, accounts payable and advances
from shareholders and officers approximate fair value because of the short
maturity of the instruments and the provision, if any, for what management
believes to be adequate reserves for potential losses.
Long-Lived Assets
The Company reviews for the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount.
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123") establishes the use of fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered.
The Company accounts for non-employee stock-based awards in which services are
the consideration received for the equity instruments issued in accordance with
SFAS No. 123 and Emerging Issues Task Force No. 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.
As permitted under SFAS No. 123, the Company has elected not to adopt the fair
value based method of accounting for its stock based compensation plan but to
account for such compensation using the intrinsic value method under the
provisions of Accounting Principles Board (APB) Opinion No. 25.
9
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
Reclassifications
Certain amounts in the prior year's financial statements have been reclassified
to conform to the current year's presentations.
NOTE 2: GOING CONCERN
The financial statements have been presented on the basis that the Company is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company reported a net loss
of $3,202,373 since inception to March 31, 2001. At March 31, 2001, the Company
had a negative working capital of $2,625,571. In April and May 2001, the Company
borrowed an additional $1,320,000 at an interest rate of 10% payable in one
year. The Company is also currently negotiating additional borrowings. Although
the Company has raised this additional capital, the Company's continued
existence is dependent upon its ability to successfully market and sell its
services. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the outcome
of this uncertainty.
NOTE 3: INTERIM FINANCIAL DATA
The accompanying unaudited condensed and consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. All
adjustments that, in the opinion of management, are necessary for the fair
presentation of the results of operations for the interim periods have been made
and are of a recurring nature unless otherwise disclosed herein. The results of
operations for the three month period ended March 31, 2001 are not necessarily
indicative of the results that will be realized for a full year. For further
information, refer to the financial statements and notes thereto contained in
the Company's Annual Report on Form 10-KSB.
NOTE 4: ACQUISITIONS AND VENTURES
Viva Gaming & Resort de Mexico, S.A. de C.V.
In August, 2000, the Company acquired 3,215,000 common shares of Viva Gaming &
Resort de Mexico, S.A. de C.V. ("Viva Mexico"), a Mexican corporation,
representing a 64.3% interest therein, from certain shareholders of Viva Mexico
for consideration of 1,500,000 restricted shares of the Company's common stock,
valued at $2.49 per share, $500,000 as a reimbursement to a director for
expenses incurred to develop Viva Mexico's business opportunity and the payment
to Viva Mexico of capital contributions of $563,070. The selling stockholders of
Viva Mexico included directors of the Company. (note 10, item 7)
10
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
NOTE 4: ACQUISITIONS AND VENTURES (Continued)
The acquisition was accounted for as a purchase and accordingly, the operations
of Viva Mexico have been included in the Company's financial statements since
the date of acquisition. The excess of the purchase price over the fair market
value of the assets acquired, aggregating $4,545,885, is being amortized over 15
years.
The Venture
Viva Mexico has entered into a Venture Agreement ("Venture") with a minority
shareholder and director of Viva Mexico (the "Holder"). The Venture has the
right to utilize certain licenses and permits held by the minority shareholder.
The Venture provides, among other items, that in exchange for approximately $21
million pesos ($2.24 million USD at March 31, 2001) the Venture will have (1)
the non-exclusive availability of the minority shareholders rights under the
National Lottery License (see below), (2) the commitment to build and operate
facilities in Mexico City, Cancun and other locations as to be determined, (3)
develop the Internet lottery, and (4) is required to compensate the minority
shareholder for security services to be provided to the facilities. The Venture
has an indefinite term and Viva Mexico is to own all assets of the Venture as
well as having a 100 percent profit/loss participation. As of March 31, 2001,
Viva Mexico has expended, under this agreement, approximately $13 million pesos
($1.39 million USD) has payables of approximately $372,000 pesos ($39,000 USD)
and commitments for an additional $7.7 million pesos ($808,800 USD) related to
the two municipalities and the Internet. As a result of the 100% ownership and
profit participation the underlying venture has been consolidated with the
subsidiary.
National Lottery License
This non-exclusive license ("National Lottery License") permits the Holder to
distribute and market instant lottery tickets in facilities throughout the
Republic of Mexico. The National Lottery License provides that the Holder must
obtain certain local and Municipal licenses and permits in order to operate.
Viva Mexico plans to market and distribute these lottery tickets utilizing
facilities consisting of games and drawings for the public with slot machines
that grant prizes in the form of tickets, which are to be exchanged for Lottery
tickets. The Holder has applied for certain municipal licenses in Mexico City
and Cancun and plans to expand to other cities. It is not possible at this time
to determine which additional municipal licenses will ultimately be obtained.
The License, which has an indefinite term, provides for a 10 percent fee, a 2
percent distribution expense allowance and a 1 percent conditional fee for
achieving certain sales levels payable to the Holder. The License also contains
requirements for the Holder related to security, audit, marketing, point of sale
authorization, bonds, lack of assignability, as well as other requirements. The
license has an indefinite term subject to various causes for termination. It is
the opinion of management and local legal counsel that the termination clause
related to the death or disability of the Holder would not have a significant
effect on the availability of the license to Viva Mexico
11
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
NOTE 5: STOCK OPTIONS
In January 2001, the Board of Directors approved the cancellation of 300,000
incentive stock options and 175,000 non-qualified stock options and the
amendment of the exercise price of, as well as to extend the date to which
certain stock options can be exercised under the 1999 Stock Option Plan and
amendments thereto (the "Revised Plan"). Under the Revised Plan, 2,500,000
shares of common stock are reserved for the grant of incentive stock options,
non-qualified stock options, or stock appreciation rights to officers,
directors, employees, and consultants of the Company, its subsidiaries, and
affiliates. The committee designated by the Board of Directors fixes the term of
the stock option, but no incentive stock option is exercisable more than ten
years after the date the stock option is granted.
Pursuant to the Revised Plan, the Company has granted 1,025,000 non-qualified
stock options, and 875,000 stock appreciation rights to certain directors,
employees and independent contractors. The stock options are immediately
exercisable through December 28, 2001 and January 5, 2003 and enable the holders
to purchase shares of the Company's common stock at exercise prices ranging from
$0.50 to $4.25 per share. The stock appreciation rights permit the holder, upon
surrendering all of the related stock options to receive cash, common stock, or
a combination thereof, in an amount equal to 100 percent of the difference
between the market price and the option price.
For the three months ended March 31, 2001, the Company recorded stock
compensation expense, resulting from the issuance of non-qualified stock options
to non-employees of $124,000.
A summary of the status of the Company's stock options as of March 31, 2001 and
the changes in the three months since December 31, 2000 is presented below:
March 31, 2001
-------------------------
Weighted
Average
Exercise
Shares Price
---------- --------
Outstanding at beginning of year 1,500,000 $ 2.49
Granted
Repriced - original options (775,000) 2.37
Repriced - repriced options 775,000 0.63
Exercised
Forfeited or cancelled (475,000) 2.55
---------- --------
Outstanding at March 31, 2001 1,025,000 $ 1.14
========== ========
12
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
NOTE 5: STOCK OPTIONS (Continued)
Outstanding Exercisable
---------------------------------------------- ---------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
at March Contractual Exercise at March exercise
31, 2001 Life Price 31, 2001 Price
---------------------------------- ----------- -----------------------------
Non-Qualified
stock options
$0.50 - $4.25 1,025,000 1.41 $ 1.14 1,025,000 1.14
NOTE 6: ADVANCES FROM SHAREHOLDERS AND OFFICERS
During the period January 1 to March 31, 2001, certain shareholders and officers
made advances to and received repayments from the Company. The outstanding
balance as of March 31, 2001 and December 31, 2000 was $1,499,998 and
$1,582,886, respectively. Of the advances, $1,369,998 bear interest at 10% and
are due on June 14, 2001, the balance of $130,000 is due on demand.
$500,000 of these advances are collateralized with 1,071,667 of the 3,215,000
common shares of Viva Mexico held by the Company which shall be released to the
Company from escrow upon full payment of principal and interest due on the
secured promissory notes.
NOTE 7: RELATED PARTY TRANSACTIONS
During the period January 1 to March 31, 2001, various amounts were due to and
paid to shareholders for services or reimbursement of expenses. The outstanding
balance as of March 31, 2001 was $293,000, which was included in accounts
payable and accrued liabilities.
At March 31, 2001, the Company owed the Holder approximately $372,000 pesos, or
$39,000 USD and is contingently liable for the balance of the contract of
approximately $7.7 million pesos, or $808,800 USD.
During the period January 1, 2001 to March 31, 2001, all of the expenses of Viva
Mexico were paid by its shareholders. These shareholders are to be reimbursed
for these payments and such amounts have been included as liabilities in the
financial statements.
During the period January 1, 2001 to March 31, 2001, the administrative
activities of Viva Mexico were performed by a minority shareholder of Viva
Mexico. The cost of these services amounted to $76,750 pesos, or $8,028 USD.
The Company has a receivable of $24,986 as a result of an advance for a
shareholder.
13
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
NOTE 8: NOTES PAYABLE
The Company has issued a secured promissory note for $1,000,000 to an investor
for monies borrowed by the Company to advance to Viva Mexico for development
expenses incurred in connection with obtaining the business opportunity for Viva
Mexico. This promissory note bears interest at the rate of 10% per annum and is
due June 14, 2001. The promissory note is collateralized through escrow of
2,143,333 of the 3,215,000 common shares of Viva Mexico held by the Company
which shall be released from escrow upon full payment of principal and interest
due on the secured promissory note.
In April 2001, the Company memorialized advances made to the Company on October
15, 2000 in the amount of $150,000. This unsecured promissory note bears
interest at 10% per annum and is due on demand.
NOTE 9: CONTINGENCIES
At March 31, 2001, the Company was liable for unpaid legal fees incurred by the
its previously owned subsidiary Corpus Christi Day Cruise, LLC ("LLC") of
approximately $20,000 if the LLC fails to pay these fees for any reason.
As part of the sale of the Company's interest in the LLC and its subsidiaries,
the Company was indemnified by the buyer against any breach of underlying
agreements. To date, the Company has not received releases of these agreements,
and as such is contingently liable for approximately $1,600,000
NOTE 10: SUBSEQUENT EVENTS
1. In April, 2001, the Company borrowed the sum of $100,000 for its Mexican
development from Phoenix Leisure Inc., a gaming company ("Phoenix"), due on
demand at the rate of 7 percent per annum.
2. In April 2001, the Company entered into a gaming equipment sale agreement
with Phoenix for the purchase of certain gaming equipment for its Mexican
development. The purchase price of $400,000 has been settled by the Company's
issuance of a $400,000 convertible promissory note to Phoenix, due together with
interest thereon at the rate of 10% per annum, April 18, 2002. The promissory
note is convertible at the option of the holder in denominations of not less
than $5,000, into fully paid shares of the Company's common stock at the lesser
of $0.20 per share or the market price per share.
3. In April, 2001, the Company borrowed the sum of $320,489 from Phoenix for its
Mexican development and to repay the $100,000 amount borrowed in April, 2001.
The Company issued a $320,489 convertible promissory note to Phoenix, due
together with interest thereon at the rate of 10% per annum, April 23, 2002. The
promissory note is convertible at the option of the holder in denominations of
not less than $10,000, into fully paid shares of the Company's common stock at
the lesser of $0.20 per share or the market price per share.
14
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
NOTE 10: SUBSEQUENT EVENTS (Continued)
4. In April 2001, the Company borrowed the sum of $200,000 from a unrelated
person for its Mexican operations. The Company issued a $200,000 convertible
promissory note to the lender, due together with interest thereon at the rate of
10% per annum, April 20, 2002. The promissory note is convertible at the option
of the holder in denominations of not less than $10,000, into fully paid shares
of the Company's common stock at the lesser of $0.20 per share or the market
price per share.
5. In April, 2001, the Company and Viva Mexico entered into a five year lease
with an option for two additional five year renewal terms at the Gransur Mall
("Gransur") in Mexico City. Under the terms of the lease, the Company will pay
monthly rent at the higher of $17,050 per month or 2% of the operation's gross
revenues, as defined in the lease, in addition to common costs commencing after
August 14, 2001. Rental rates under the lease will be adjusted yearly for
inflation based on the U.S. Consumer Price Index. To enter into the lease, the
Company and its subsidiary paid the lessor the sum of $331,541 and value added
tax as an inducement fee and is required to pay a security deposit of $39,217
and post a bond equal to twelve months of lease payments and common costs
aggregating $270,594, subject to change when annual lease payments change. The
Company and its subsidiary will pay a penalty if the sites operation is not in
operations by August 14, 2001 and will risk cancellation of its lease if the
site is not operational by September 30, 2001. The Company is a guarantor of
this lease.
6. In April, 2001, subject to regulatory approvals and the completion of
negotiations with current secured creditors, the Company entered into an
agreement with Phoenix whereby:
(a) Phoenix will purchase 2,500,000 shares of the Company's common
stock $.001 par value for a an aggregate cash payment of $500,000 or
$0.20 per share.
(b) As additional consideration for the cash portion and note described
below, Phoenix shall purchase 1,000,000 shares of the Company's common
stock for an aggregate consideration of $1,000.
(c) Phoenix will sell to the Company or its designate, 600 gaming
devices ("Gaming Devices") for $1,500,000 payable by the issuance of
1,000,000 shares of the Company's common stock and a $500,000
Convertible Note ("Gaming Devices Note"). The Gaming Devices Note shall
bear interest at an annual rate of 10%, be payable at the end of one
year and at the option of Phoenix, be convertible into 500,000 shares
of the Company's common stock.
(d) Phoenix shall lend or caused to be loaned to the Company, the
amount of $1,500,000 which shall bear interest at an annual rate of
10%, be payable at the end of one year and be evidenced by a promissory
note from the Company (the "Note").
15
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Notes to Condensed and Consolidated Financial Statements
(Unaudited )
NOTE 10: SUBSEQUENT EVENTS (Continued)
(e) The Note and the Gaming Devices Note shall be secured by a first
security interest or compatible encumbrance on the 3,215,000 shares of
Viva Mexico owned by the Company. As a condition to the Note and Gaming
Devices Note, the Company and Viva Mexico shall grant Phoenix or their
assigns: a) the exclusive rights to develop and operate two (2) gaming
facilities in the Country of Mexico (the "Mexican Sites") which
locations will be agreed upon no later than six months from the
agreement date; and, b) a 50% equity interest in the Mexican Sites with
the balance owned by Viva Mexico.
(f) As a further condition to the Note and Gaming Devices Note, in the
event the transaction is not completed, the agreement calls for the
return of advances and rights and the Company and Viva Mexico to grant
Phoenix or it's assign the exclusive rights to develop and operate an
unlimited number of gaming facilities in two Mexican states which will
be owned equally by Phoenix and Viva Mexico and will be operated by the
lender or its assigns.
(g) The Company and Viva Mexico shall enter into a management agreement
with Phoenix's assign pursuant to which the assign shall provide
management services to the Company and its affiliates in consideration
of an annual fee (payable quarterly) equal to 4% of the gross revenue
of Viva Mexico. The participants in the management company shall
include a director of the Company, Phoenix, an officer of Phoenix and
an investor.
(h) The Company will be required to amend it's Bylaws and/or Articles
of Incorporation to provide that all board matters will require
approval of at least 4 of the 5 directors and immediately cause the
election of the Phoenix's designees to the Company's Board of
Directors.
7. In May, 2001, the Company entered into an agreement with the minority
stockholders of Viva Mexico to purchase their holdings of 1,785,000 shares of
Viva Mexico's common stock representing a 35.7% interest therein in exchange for
2.25 million restricted shares of the Company's common stock. The acquisition
will increase the Company's ownership in Viva Mexico to 100%.
8. In May, 2001, the Company borrowed the sum of $400,000 from Phoenix for its
Mexican development and consolidated its convertible promissory note for
$320,489 (see item 3 above) to a $720,489 convertible promissory note due to
Phoenix together with interest thereon at the rate of 10% per annum, May 8,
2002. The convertible promissory note is convertible at the option of the holder
in denominations of not less than $10,000, into fully paid shares of the
Company's common stock at the lesser of $0.20 per share or the market price per
share.
9. In May 2001, 250,000 Non-Qualified Incentive Stock Option and Stock
Appreciation Rights were surrendered and pursuant to the Company's 1999 Stock
Option Plan, the Company issued to the optionee 201,900 restricted shares of its
common stock.
16
The information contained in this quarterly report about us and our business and
operations contains "forward-looking statements." Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. You are cautioned that all forward-looking statements
are necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward looking statements. We do not have a policy of updating or
revising forward-looking statements and thus it should not be assumed that
silence by our management over time means that actual events are bearing out as
estimated in such forward looking statements.
ITEM 2 Management's Discussion and Analysis or Plan of Operation
The Company is in the business of acquiring or developing and managing casino
gaming operations that are either undervalued or believed to evidence a high
rate of profitability, and providing consulting and managerial services relating
to the management and operation of such facilities.
To fund its operations in the quarter ended March 31, 2001, the Company relied
on payments received from a note receivable from the sale of its interest in the
Texas Treasure Cruise operation. The note receivable is for an amount of
$1,086,066 at March 31, 2001 payable to the Company in monthly installments of
principal and interest of $95,040. In addition to payments from its note
receivable, the Company is currently funding its operations principally from
loans and advances from unrelated persons and companies.
The Company's financial position as at March 31, 2001 is as follows:
Cash and other current assets $ 1,165,689
Liabilities
Accounts payable and accrued liabilities 1,141,262
Advances from stockholders and officers 1,499,998
Notes payable 1,150,000
---------------
3,791,260
---------------
Net working capital (deficit) $ (2,625,571)
===============
Notes payable and advances from stockholders and officers in the amount of
$280,000 are due on demand with the balance of $2,369,998 due and payable April
30, 2001. Notes payable and advances from stockholders and officers in the
amount of $1,500,000 are secured by a pledge of the 3,215,000 common shares of
Viva Mexico owned by the Company.
At March 31, 2001 and at present, the Company's resources are insufficient to
satisfy its debts and obligations without the infusion of capital or the
renegotiation of such obligations. Since March 31, 2001 the Company's working
capital deficit has increased.
The Company's sole source of funds has been loans and advances from stockholders
and unrelated parties and monthly payments due under the terms of a note
receivable from the sale of its interest in the Texas Treasure Cruise. Although
payments under the note receivable are ultimately dependent on the continued
operations of the Texas Treasure Cruise, the Company expects the repayment of
the note receivable to enable it to pay its monthly obligations during the
current period.
17
The Company is also contingently liable for certain debts and lease obligations
of the Texas Treasure Cruise aggregating approximately $1.6 million which are
unsecured. The Company's ability to avoid payment of these contingent
liabilities depends upon the continued operations of the Texas Treasure Cruise.
The Company's principal business operation and investment is in Viva Mexico. The
value and ultimate recoverability of the Company's investment in Viva Mexico and
its plans to develop operating revenues are subject to the maintenance of Viva
Mexico's ability to utilize the National Lottery License which is made available
under the Venture, the maintenance of which is at the sole discretion of the
National Lottery. Were the National Lottery License to be terminated or be
unavailable, Viva Mexico would be unable to operate as planned and would have
difficulty in receiving value from its investment.
Since March 31, 2001, Viva Mexico has entered into a five year lease for its
first location in Mexico City ("Gransur") the Company has received monies from
certain unrelated persons and companies in the amount of approximately
$1,320,000 by way of convertible promissory notes bearing interest at 10% per
annum and due one year from their making, to pay expenses related to Viva
Mexico's development including lease commitment fees, the first shipment of 160
gaming machines, licensing costs and monies for construction and leasehold
improvements at Gransur.
Notwithstanding the loans received in the period after March 31, 2001, the
Company is required to seek additional funding and complete negotiations with
certain secured and unsecured creditors to enable it to satisfy its current
obligations and enable it to fund the development of its operations and any
shortfall between expenses and expected revenue over the next 12 month period.
The Company is seeking additional capital funding in the amount of $1.3 million
to pay outstanding liabilities related to Viva Mexico's acquisition of various
state, federal and municipal licenses and to complete the leasing, equipping and
building of the first entertainment center and a further amount of $3.0 million
to pay notes payable and other current obligations and to provide adequate
working capital. There is however, no assurance additional financing, as
required, will be available or available upon acceptable terms.
Except to the extent required to complete the development of the individual
entertainment sites including the acquisition of gaming equipment, leasehold
improvements and other related equipment and capital assets, the Company does
not expect to purchase or sell plant and significant equipment in the next
twelve months.
With funding, the Company expects its Mexican subsidiary to grow to 110
employees from its current level of 5 contracted persons and also expects to
attract new senior management personnel. The number and positions of any new
employees will be determined by the Company's financial position.
18
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submissions of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibits Description of Documents
None
(b) Reports on 8-K.
No reports on form 8-K were filed during the quarter.
19
SIGNATURES
In accordance with the Requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Viva Gaming & Resorts Inc.
(Registrant)
Date May 14, 2001
---------------------
By /s/ Robert Sim
------------------------------------------------------------------
(Robert Sim, Chief Executive Officer, President, Director,
Chairman of the Board, Chief Financial and Accounting Officer)
20