U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission file number: 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: 8,942,700 as of August 7, 2001.
VIVA GAMING & RESORTS INC.
Form 10-QSB for the quarter ended June 30, 2001
TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
Page
PART I Financial Information (unaudited):
Item 1. Condensed and Consolidated:
Balance Sheet as of June 30, 2001 3
Statements of Operations for the six months ended
June 30, 2001 and June 30, 2000 and for the period
from December 9, 1997 (inception) to June 30, 2001 4
Statements of Operations for the three months ended
June 30, 2001 and June 30, 2000 5
Statements of Stockholders' Equity for the period
from December 9, 1997 (inception) to June 30, 2001 6
Statements of Cash Flows for the six months ended June 30,
2001 and June 30, 2000 and for the period
from December 9, 1997 (inception) to June 30, 2001 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of
Operation 14
PART II Other Information
Item 1. Legal Proceedings 17
Item 2 Changes in Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURES 19
2
VIVA GAMING & RESORTS INC.
(A Development Stage Company)
Condensed and Consolidated Balance Sheet
(Unaudited)
June 30, 2001
================================================================================
Assets
Current assets
Cash $ 15,428
Accounts receivable, net 127,711
Note receivable, net 445,000
Prepaid expenses and other current assets 42,248
-----------
Total current assets 630,387
Property and equipment, net 1,061,605
Investment in licenses and permits, net 1,651,676
Goodwill, net 4,284,995
-----------
$ 7,628,663
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 1,498,614
Notes and advances from stockholders and officers 1,669,998
Notes payable 2,878,772
-----------
Total current liabilities 6,047,384
------------
Minority interest --
Commitments and 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 and outstanding
8,942,700 common shares 8,943
Additional paid-in capital 6,719,058
Deficit accumulated during the development stage (5,137,764)
Accumulated other comprehensive (loss) (8,958)
-----------
Total stockholders' equity 1,581,279
-----------
$ 7,628,663
===========
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
Six Months Ended June 30, December 9, 1997
----------------------------- (inception) to
2001 2000 June 30, 2001
----------- ----------- -----------
Revenue $ -- $ -- $ --
----------- ----------- -----------
Operating Expenses
Consultants 158,067 230,299 944,310
Depreciation and amortization 150,688 1,383 264,575
Finance fees -- 51,100 83,133
Legal and accounting 115,313 107,855 378,382
Payroll and related costs 327,496 152,709 915,897
Office and administration 523,154 113,458 841,663
Regulatory, transfer and fees 7,917 9,113 46,224
Stock based compensation 526,500 -- 1,222,500
Travel, entertainment and promotion 114,722 122,734 387,565
----------- ----------- -----------
Total operating expenses 1,923,857 788,651 5,084,249
----------- ----------- -----------
(Loss) from operations (1,923,857) (788,651) (5,084,249)
----------- ----------- -----------
Other income (expenses)
Gain (Loss) on sale of subsidiary (487,331) -- 542,068
Equity investment in subsidiary -- -- (603,254)
Loss on sale of property and equipment (15,462) -- (18,273)
Foreign exchange 61,582 4,652 30,704
Interest income 42,393 -- 54,879
Interest expense (145,842) -- (200,247)
----------- ----------- -----------
Total other income (expenses) (544,660) 4,652 (194,123)
Minority Interest 75,687 -- 140,608
----------- ----------- -----------
Net (loss) $(2,392,830) $ (783,999) $(5,137,764)
=========== =========== ===========
Net (loss) per share - Basic and Diluted $ (0.27) $ (0.11) $ (0.78)
=========== =========== ===========
Weighted average shares
of common stock outstanding 8,773,893 6,986,270 6,622,819
=========== =========== ===========
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 Operations
(Unaudited)
================================================================================
Three Months Ended June 30,
----------------------------
2001 2000
----------- -----------
Revenue $ -- $ --
----------- -----------
Operating Expenses
Consultants 153,567 119,473
Depreciation and amortization 75,706 815
Finance fees -- 51,100
Legal and accounting 18,894 59,272
Payroll and related costs 245,851 102,152
Office and administration 494,064 53,939
Regulatory, transfer and fees (25,661) 4,645
Stock based compensation 402,500 --
Travel, entertainment and promotion 90,733 58,518
----------- -----------
Total operating expenses 1,455,654 449,914
----------- -----------
(Loss) from operations (1,455,654) (449,914)
----------- -----------
Other income (expenses)
(Loss) on sale of subsidiary (487,331) --
Loss on sale of property and equipment (3,117) --
Foreign exchange 53,265 297
Interest income 12,585 --
Interest expense (98,560) --
----------- -----------
Total other income (expense) (523,158) 297
Minority Interest 43,422 --
----------- -----------
Net (loss) $(1,935,390) $ (449,617)
=========== ===========
Net (loss) per share - Basic and Diluted $ (0.22) $ (0.06)
=========== ===========
Weighted average shares
of common stock outstanding 8,839,655 7,115,741
=========== ===========
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)
================================================================================
Deficit
Accumulated Accumulated Total
Common Unearned Additional During the Other Stockholders'
Common Stock Stock to be Consulting Paid-in Development Comprehensive Equity
Shares Amount Issued Fees Capital Stage Income (Deficit
---------------------------------------------------------------------------------------------------
Initial capitalization
June 30, 1998 for cash 3,750,000 $ 3,750 $ -- $ -- $ 108,750 $ -- $ -- $ 112,500
Net (loss) (189,710) (189,710)
----------------------------------------------------------------------------------------------------
Balance as of December 31,
1998 3,750,000 3,750 -- -- 108,750 (189,710) -- (77,210)
Shares issued for:
Settlement of accounts
payable 2,750,000 2,750 -- -- 107,250 -- -- 110,000
Consulting services 200,000 200 -- -- 199,800 -- -- 200,000
Consulting services 40,000 40 60,000 (60,000) 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 6,740,000 6,740 60,000 (60,000) 1,131,210 (1,293,108) -- (155,158)
Shares issued for:
Private placement 324,000 324 -- -- 1,349,676 -- -- 1,350,000
Private placement fee 29,400 29 -- -- 122,471 -- -- 122,500
Consulting services 70,000 70 (60,000) 60,000 79,930 -- -- 80,000
Exercise of warrants 4,000 4 -- -- 24,996 -- -- 25,000
Private placement commissions -- -- (294,500) -- -- (294,500)
Consulting services 40,000 40 -- -- 24,960 -- -- 25,000
Acquisition of subsidiary 1,500,000 1,500 -- -- 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 8,707,400 8,707 -- -- 6,192,793 (2,744,934) (9,372) 3,447,194
Stock option term changes -- -- -- 124,000 -- -- -- 124,000
Shares issued for:
Consulting services 235,300 236 -- -- 402,265 -- -- 402,501
Comprehensive Income
Cumulative translation
adjustment -- -- -- -- 414 414
Net (loss) (2,392,830) -- (2,392,830)
-----------
Total comprehensive income (2,392,416)
----------------------------------------------------------------------------------------------------
Balance as of June 30, 2001 8,942,700 $ 8,943 -- -- $6,719,058 $(5,137,764) $ (8,958) $1,581,279
===================================================================================================
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 9, 1997
Six Months Ended June 30, (inception) to
2001 2000 June 30, 2001
----------- ----------- -----------
Cash used in operating activities $ (903,769) $ (534,157) $(3,052,019)
----------- ----------- -----------
Cash used in investing activities
Acquisition of property and equipment (660,895) (466,756) (683,753)
Acquisition of other long-term assets (242,669) -- (687,898)
Acquisition of and investment in subsidiaries -- -- (796,383)
Cash reserved for property and equipment -- (400,039) --
Cash receipt for note receivable 402,669 -- 402,669
Advance receivable -- (347,500) --
----------- ----------- -----------
Cash used in investing activities (500,895) (1,214,295) (1,765,365)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from the issuance of common stock -- 1,203,000 1,193,000
Advances to stockholder -- -- (115,366)
Repayment from stockholder advance -- -- 115,366
Proceeds from notes payable 1,328,772 -- 2,591,272
Repayment of notes payable -- -- (112,500)
Advance from stockholders and officers 221,500 769,231 1,559,794
Repayment of stockholders and officers advances (134,388) (225,408) (389,796)
----------- ----------- -----------
Cash provided by financing activities 1,415,884 1,746,823 4,841,770
----------- ----------- -----------
Effect of Exchange Rate Changes on Cash & Equivalents 414 -- (8,958)
----------- ----------- -----------
Increase (decrease) in cash 11,634 (1,629) 15,428
Cash and cash equivalents:
Beginning of period 3,794 3,290 --
----------- ----------- -----------
End of period $ 15,428 $ 1,661 $ 15,428
=========== =========== ===========
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 Mexican subsidiary corporation, Viva
Gaming & Resort de Mexico, S.A. de C.V. ("Viva Mexico").
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
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 $5,137,764 since inception to June 30, 2001. At June 30, 2001, the Company
had negative working capital of $5,416,997. In July and August 2001, the Company
borrowed an additional $799,750 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
8
and are of a recurring nature unless otherwise disclosed herein. The results of
operations for the six-month period ended June 30, 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 Mexico has entered into a Venture Agreement with a minority shareholder and
director of Viva Mexico (the "Holder") assigning the Holder's rights in certain
licenses and permits. As of June 30, 2001, Viva Mexico has funded, under this
agreement, capital expenditures of approximately $2.4 million pesos ($266,214
USD), license and permit costs of approximately $15.0 million pesos ($1,651,676
USD) and pre-opening expenses of approximately $3.5 million pesos ($368,612
USD).
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%. The agreement is
expected to be notarized and registered pursuant to Mexican securities
regulations in the third quarter 2001.
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, as well as extended 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, establishes 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 outstanding 675,000 non-qualified
stock options, and 525,000 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 the aggregate number of options
surrendered multiplied by the difference between the market price and the option
price.
For the six months ended June 30, 2001, the Company recorded stock compensation
expense, resulting from the issuance and exercise of stock options to
non-employees of $526,500.
9
A summary of the status of the Company's stock options as of June 30, 2001 and
the changes in the six months since December 31, 2000 is presented below:
June 30, 2001
------------------------------
Weighted Average
Shares Exercise 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 (350,000) 1.03
Forfeited or cancelled (475,000) 2.55
---------- ------------
Outstanding at June 30, 2001 675,000 $ 1.20
========== ============
Outstanding Exercisable
------------------------------------------- --------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
at June 30, Contractual Exercise at June 30, Exercise
2001 Life Price 2001 Price
-----------------------------------------------------------------------
Non-Qualified
stock option
$0.50 - $4.25 675,000 1.14 $ 1.20 675,000 $ 1.20
NOTE 6: ADVANCES FROM SHAREHOLDERS AND OFFICERS (also see Note 10: Subsequent
Events)
During the period January 1, 2001 to June 30, 2001, certain shareholders and
officers made advances to and received repayments from the Company. The
outstanding balance as of June 30, 2001 was $1,669,998. All of the advances bear
interest at 10% and $200,000 is due April, 2002. The balance of $1,469,998 is
due on demand.
Of the above advances, $500,000 is 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. Another $200,000 of these advances is
collateralized with 1,000,000 common shares of Viva Gaming and Resorts.
NOTE 7: RELATED PARTY TRANSACTIONS (also see Note 10: Subsequent Events)
During the period January 1, 2001 to June 30, 2001, various amounts were due to
and paid to shareholders for services or reimbursement of expenses. The
outstanding balance as of June 30, 2001 was $565,218, which was included in
accounts payable and accrued liabilities.
10
As at June 30, 2001, the Company had notes payable and advances due to directors
and certain shareholders in the aggregate amount of $1,669,998.
During the period January 1, 2001 to June 30, 2001, certain 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 June 30, 2001, certain administrative
activities of Viva Mexico were performed by a minority shareholder of Viva
Mexico. The cost of these services amounted to $1,610,283 pesos, or $177,131
USD. The construction services of Viva Mexico were performed by the same
minority shareholder during the same period. The cost of these services totaled
$2,361,708 pesos, or $266,214 USD.
The Company has receivables of $91,500 as a result of advances to shareholders.
Certain officers and directors of the Company are also officers and directors of
Phoenix Leisure, Inc. ("Phoenix"). One of the directors of the Company also
serves as a director and president of Phoenix. Another director of the Company
serves as an employee of Phoenix and an officer of the Company is also an
officer of Phoenix.
NOTE 8: NOTES PAYABLE (also see Note 10: Subsequent Events)
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 furthering the business objectives of Viva
Mexico. This promissory note bears interest at the rate of 10% per annum and is
due on demand. 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.
In April 2001, the Company entered into a gaming equipment sale agreement with
Phoenix Leisure, Inc. ("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 ("Gaming
Equipment Note") to Phoenix, together with interest thereon at the rate of 10%
per annum, due 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.
In April, 2001, the Company began borrowing against a convertible promissory
note ("Convertible Grid Note") from Phoenix for its Mexican development due,
together with interest thereon at the rate of 10% per annum, in April, 2002. The
June 30, 2001 balance was approximately $1,328,772. The convertible promissory
note is convertible at the option of the holder in denominations of not less
11
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.
NOTE 9: CONTINGENCIES
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 $17,051 per month or 2% of the operation's gross
revenues, as defined in the lease (the "Base Minimum Rent"), in addition to
common area costs commencing after August 14, 2001. The Base Minimum Rent cannot
exceed $30 per square meter leased, or approximately $28,418 per month based on
the current amount of leased space. Rental rates under the lease will be
adjusted yearly for inflation based on the U.S. Consumer Price Index. The
Company and its subsidiary will pay a penalty 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.
NOTE 10: SUBSEQUENT EVENTS
The Company approved a settlement and release agreement with Corpus Christi Day
Cruise, Ltd. whereby the Company received $445,000 as settlement of the Corpus
Christi Day Cruise note receivable and the Company has been released from any
further obligations associated with Corpus Christi Day Cruise, Ltd. On July 26,
2001, the Company received cash for the $445,000 settlement amount. The note
receivable in these financial statements has been adjusted to reflect the
realized value of the note, with a resulted loss of $487,331 included in the
statement of operations.
On July 10, 2001, the Company entered into agreements with officers, directors
and investors to convert certain notes payable into equity shares of Viva Gaming
and Resorts Inc. and release collateral in Viva Mexico shares, contingent upon
the delivery of gaming machines to Viva Mexico. According to the agreements,
notes payable of $2,712,047 are to be converted to 13,560,232 shares of Viva
Gaming and Resorts and notes payable to shareholders, officers and directors of
$1,039,000 are to be converted to 5,250,000 shares of Viva Gaming and Resorts
Inc. Certain accounts payable due to shareholders of $319,836 will also be
eliminated as part of this transaction.
On July 10, 2001, subject to the above transaction, the Company consolidated its
promissory note for $500,000 with the remaining amount of a convertible
promissory note into a $560,998 unsecured promissory note to a director with no
stated interest rate, due July 10, 2002.
On July 10, 2001, the Company entered into an agreement with Phoenix, subject to
the delivery of gaming equipment to Viva Mexico, whereby:
(a) Phoenix will purchase 2,500,000 shares of the Company's common stock for an
aggregate cash payment of $500,000 or $0.20 per share.
12
(b) Phoenix shall be given additional consideration of 1,000,000 shares of the
Company's common stock for it's consideration as mentioned in (c) and (d) below
in addition to its cash payment of $1,000.
(c) Phoenix will sell to the Company or its designee, 600 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") to replace the
current "Gaming Equipment 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 total 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"). This note will replace the current "Convertible Grid Note".
(e) Phoenix shall retain the development rights to two locations in Mexico for
which it will be entitled to an equal distribution of profits and cash flow with
Viva Mexico in these two locations.
Additionally, on July 10, 2001, The Company and Viva Mexico entered into a
management agreement with Viva Management LLC to provide management and
administrative services in consideration of an annual fee (payable quarterly)
equal to 4% of the gross revenues generated by the business of the Company and
Viva Mexico. The members of Viva Management LLC include Phoenix and three
directors of the Company.
13
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.
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 ability to utilize
Viva Mexico's National Lottery License, 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.
To fund its operations in the quarter ended June 30, 2001, the Company operated
principally from loans and advances from related and unrelated persons and
companies.
The Company's financial position as of June 30, 2001 is as follows:
Cash and other current assets $ 630,387
Liabilities:
Accounts payable and accrued liabilities 1,498,614
Advances from stockholders and officers 1,669,998
Notes payable 2,878,772
-----------
6,047,384
------------
Net working capital (deficit) $(5,416,997)
===========
At June 30, 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 June 30, 2001 the Company's working
capital deficit has decreased.
14
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 on demand. 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.
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, together with
interest thereon at the rate of 10% per annum, due 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.
In April, 2001, the Company began borrowing against a convertible promissory
note ("Convertible Grid Note") from Phoenix for its Mexican development, due
together with interest thereon at the rate of 10% per annum, April, 2002. The
June balance was approximately $1,328,772. 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.
On July 10, 2001, the Company entered into agreements with officers, directors
and unrelated investors to convert certain notes payable into equity shares of
Viva Gaming and Resorts Inc. and release collateral in Viva de Mexico shares,
contingent upon the delivery of gaming machines to Viva Mexico. According to the
agreements, notes payable of $2,712,047 will be converted to 13,560,232 shares
of Viva Gaming and Resorts and notes payable to shareholders and officers of
$1,039,000 will be converted to 5,250,000 shares of Viva Gaming and Resorts.
Certain accounts payable due to shareholders of $319,836 will also be
eliminated.
On July 10, 2001, subject to the above transaction, the Company consolidated its
promissory note for $500,000 with the remaining amount of a convertible
promissory note into a $560,998 unsecured promissory note to a director with no
stated interest rate, due July 10, 2002
On July 10, 2001, the Company entered into an agreement with Phoenix, subject to
the delivery of gaming equipment to Viva Mexico, whereby:
(a) Phoenix will purchase 2,500,000 shares of the Company's common stock for an
aggregate cash payment of $500,000 or $0.20 per share.
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(b) Phoenix shall be given additional consideration of 1,000,000 shares of the
Company's common stock for it's consideration as mentioned in (c) and (d) below
in addition to its cash payment of $1,000.
(c) Phoenix will sell to the Company or its designee, 600 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") to replace the
current "Gaming Equipment 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 total 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"). This note will replace the current "Convertible Grid Note".
(e) Phoenix shall retain the development rights to two locations in Mexico for
which it will be entitled to an equal distribution of profits and cash flow with
Viva Mexico in these two locations.
Additionally, on July 10, 2001, The Company and Viva Mexico entered into a
management agreement with Viva Management LLC to provide management and
administrative services in consideration of an annual fee (payable quarterly)
equal to 4% of the gross revenues generated by the business of the Company and
Viva Mexico. The members of Viva Management LLC include Phoenix and three
directors of the Company.
Notwithstanding the loans received in the period after June 30, 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 twelve-month
period. The Company is seeking additional capital to fund the remaining
development and pre-opening costs related to Viva Mexico's first entertainment
center. There is, however, no assurance additional financing 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 180
employees from its current level of 9 contracted persons. The number and
positions of any new employees will be determined by the Company's financial
position.
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PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
On July 10, 2001, Securities Purchase Agreements were entered into as follows:
Bram Solloway agrees to sell 250,000 shares to Clifford McCarlie
Bram Solloway agrees to sell 250,000 shares to Gene McCarlie
Bram Solloway agrees to sell 500,000 shares to Eric Nelson
Bram Solloway agrees to sell 250,000 shares to Doug Waugh
Bram Solloway agrees to sell 250,000 shares to Peter LaFemina
Bram Solloway agrees to sell 1,000,000 shares to Stephin Irwin
Dana Gillman agrees to sell 1,250,000 shares to Eric Nelson
Each agreement was entered into at the same cost per share. See exhibit 10.16
for an example of the Securities Purchase Agreements.
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
- -------- ---------------------------------
10.1 Stock Purchase Agreement - Viva and Phoenix
10.2 Stock Purchase Agreement - Viva and Phoenix
10.3 Stock Purchase Agreement - Viva and R.A. Bruce McDonald
10.4 Conversion Agreement - Viva and Robert Sim
10.5 Promissory Note - Robert Sim
10.6 Conversion Agreement - Viva, Kernaghan, McDonald and Gillman
10.7 Conversion Agreement - Viva and Middlemarch Partners Ltd.
10.8 Conversion Agreement - Viva, Zana Holdings, Inc. and Solloway
10.9 Gaming Equipment Sale Agreement
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10.10 Management Agreement
10.11 Development Rights Agreement
10.12 Stock Pledge Agreement - Viva and Phoenix
10.13 Exhibit A to Stock Pledge Agreement "Grid Note"
10.14 Shareholders' Agreement
10.15 Side Agreement
10.16 Securities Purchase Agreement
(b) Reports on 8-K.
On May 18, 2001, the Company filed a Current Report on Form 8-K regarding the
agreement with the minority stockholders of Viva Mexico to purchase their
holdings of the remaining 35.7% to increase its ownership in Viva Mexico to
100%.
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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
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By
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(Peter LaFemina, Chief Financial Officer, Secretary and Treasurer)
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