10-Q 1 s15-2132_10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ------------- [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 No. 0-22191 CCA COMPANIES INCORPORATED ------------------------------------------------------------------ (Exact Name of Registrant) DELAWARE 65-0675901 -------------------------------- ----------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 9130 S. DADELAND BLVD., SUITE 1602 MIAMI, FL 33156 -------------------------------- (Address of Principal Executive Offices) (305) 670-3838 --------------------- (Registrant's Telephone Number, Including Area Code) N/A ------------- (Former Name, Former Address and Former Fiscal Year, if changed Since Last Report) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ] State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date. Class Outstanding at April 30, 2001 --------- ----------------------------- Common Stock, $.001 par value 18,140,000 shares CCA COMPANIES INCORPORATED INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 and March 31, 2001 (unaudited)....................................1 Condensed Consolidated Statements of Operations for the Three and Nine Months ended March 31, 2001 (unaudited), and the Three and Nine Months ended March 31, 2000 (unaudited)........2 Condensed Consolidated Statements of Cash Flows for the Three and Nine Months ended March 31, 2001 (unaudited), and the Three and Nine Months ended March 31, 2000 (unaudited)........3 Notes to Condensed Consolidated Financial Statements.......................4 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations...............9 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds...................15 Item 3. Quantitative and Qualitative Disclosure about Market Risk...15 Item 6. Exhibits and Reports on Form 8-K............................15 SIGNATURES................................................................16 i PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CCA COMPANIES INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, ~~December~~March 31, ASSETS 2000 ~~2000~~2001 ------ ----------------- ------------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 215,559 $ ~~382~~610,~~493~~967 Prepaid and other current assets 65,788 3334,~~018~~317 ------------- ------------- Total current assets 281,347 ~~415~~645,~~511~~284 Construction in progress 2,100,000 2,100,000 Property, equipment and leasehold improvements, net 5,489,279 54,~~135~~943,~~636~~811 Other assets 20,300 20,300 ------------- ------------- TOTAL $ 7,890,926 $ 7,~~671~~709,~~447~~395 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 846,805 $ ~~874~~855,~~282~~744 Income tax payable 144,650 93196,~~626~~786 Notes and loans payable - current 335,000 ~~176~~135,~~500~~000 Net liabilities from discontinued operations 94,000 7565,664 ------------- ------------- Total current liabilities 1,420,453 1,~~220~~253,~~072~~193 ------------- ------------- Notes payable - long term 515,900 ~~479~~395,900 ------------- ~~-------------~~ Deferred income ~~tax~~taxes 192,884 ~~239~~262,~~384~~884 ------------- ------------- Minority interest in consolidated subsidiary 671,482 ~~804~~916,~~193~~574 ------------- ------------- Commitments and contingencies STOCKHOLDERS' EQUITY: Preferred stock, par value $.01, 5,000,000 shares authorized, no shares issued and outstanding Common stock, par value $.001; 50,000,000 shares authorized; 16,326,666 shares and 1618,~~806~~140,~~666~~000 shares issued and outstanding at June 30, 2000 and ~~December~~March 31, ~~2000~~2001, respectively 16,328 1618,~~808~~140 Additional paid-in capital 47,497,487 47,~~582~~680,~~007~~675 Accumulated deficit (42,423,610) (42,~~670~~817,~~917~~972) ------------- ------------- Total stockholders' equity 5,090,207 4,~~927~~880,~~898~~843 ------------- ------------- TOTAL $ 7,890,926 $ 7,~~671~~709,~~447~~395 ============= =============

See notes to condensed consolidated financial statements. 1 CCA COMPANIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the ~~Three~~ For the ~~Three~~ For the For the Three Months Three Months ~~Six~~Nine Months ~~the~~Nine Months Ended Ended Ended ~~Six~~Ended ~~Months~~March ~~December~~ 31, ~~December~~March 31, ~~December~~March 31, ~~Ended~~March ~~December~~31, 2001 2000 ~~1999~~2001 2000 ~~31, 1999~~ ---------------- ---------------- ---------------- ---------------- REVENUES $ 1,~~270~~509,~~884~~269 $ 1,~~887~~812,~~417~~716 $ 24,~~703~~212,~~047~~316 $3 5,~~585~~398,~~480~~196 OPERATING EXPENSES: Marketing, General and administrative 1,~~270~~373,~~393~~563 1,~~756~~687,~~514~~712 23,~~613~~987,~~897~~460 34,~~196~~884,~~497~~209 ------------- ------------- -------------- ----------- INCOME (LOSS) FROM OPERATIONS ~~491~~135,706 ~~130~~125,~~903~~004 89224,~~150~~856 ~~388~~513,~~983~~987 OTHER INCOME (EXPENSE): Interest income 58726 1,~~066~~745 ~~482~~ 1,~~546~~208 3,291 Interest expense (5444,~~972~~445) (6863,~~306~~068) (~~114~~158,~~503~~948) (~~143~~206,~~755~~823) ------------- ------------- -------------- ----------- Total other income (expense) (5443,~~914~~719) (6761,~~240~~323) (~~114~~157,~~021~~740) (~~142~~203,~~209~~532) ------------- ------------- -------------- ----------- Foreign income ~~tax~~taxes (20126,~~672~~660) - (89216,~~724~~384) ------------ ------------ ------------- ----------- NET INCOME (LOSS) BEFORE (7534,~~095~~673) 63,~~663~~681 (~~114~~149,~~595~~268) ~~246~~310,~~774~~455 MINORITY INTEREST Minority interest (51112,~~640~~381) (~~267~~249,~~585~~269) (~~132~~245,~~711~~092) (~~487~~736,~~127~~396) ------------- ------------- -------------- ----------- LOSS FROM CONTINUED OPERATIONS (~~126~~147,~~735~~054) (~~203~~185,~~922~~588) (~~247~~394,~~306~~360) (~~240~~425,~~353~~941) Loss from discontinued operations (~~15,000) (~~103,500) ------------- ------------- -------------- ----------- NET LOSS $ (~~126~~147,~~735~~054) $ (~~218~~185,~~922~~588) $ (~~247~~394,~~306~~360) $ (~~343~~529,~~853~~441) ============= ============= ============== =========== NET LOSS PER SHARE OF COMMON STOCK: Loss from continuing operations $ (0.01) $ (0.~~014~~01) $ (0.02) $ (0.~~017~~03) Loss from discontinued operations (0.~~001~~01) ~~(0.007)~~ ------------- ------------- -------------- ----------- $ (0.01) $ (0.~~015~~01) $ (0.02) $ (0.~~024~~04) ============= ============= ============== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING 1617,~~681~~917,~~449~~778 1416,~~408~~074,~~014~~798 16,~~504~~968,~~057~~418 14,~~269~~872,~~654~~967 ============= ============= ============== ===========

See notes to condensed financial statements. 2 CCA COMPANIES INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the For the ~~Three~~ For the For the Three Months Three Months ~~Six~~Nine Months ~~Six~~Nine Months Ended Ended Ended Ended ~~December~~March ~~December~~ 31, ~~December~~March 31, ~~December~~March 31, March 31, 2001 2000 ~~1999~~2001 2000 ~~1999~~ ---------------- ---------------- ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (~~126~~$147,~~735~~054) $ (~~218~~185,~~922~~588) $ (~~247~~$394,~~306~~360) $ (~~343~~529,~~853~~441) Adjustments: Loss from discontinued operations ~~15,000~~ 103,500 Compensation expense in connection with issuance of options and warrants 13,000 ~~13,000~~ Depreciation and amortization ~~193~~209,~~080~~379 ~~275~~281,~~356~~381 ~~385~~594,~~424~~803 ~~549~~831,~~898~~279 Legal services provided for stock options 10,000 ~~10,000~~ Consulting services provided for common stock 7266,000 ~~7,500~~ 72,000 773,500 Minority interest 51112,~~640~~381 ~~267~~249,~~585~~269 ~~132~~245,~~711~~092 ~~487~~736,~~127~~396 Deferred income ~~tax~~taxes 23,~~000~~500 ~~- 46~~70,~~500~~000 - Changes in current assets and current liabilities: Prepaid expenses and other current assets 259,~~155~~468 (835,~~718~~888) 2231,~~003~~471 (1046,~~672~~560) Accounts payable and accrued expenses ~~(52~~84,~~910)~~622 (~~516~~416,~~413~~181) ~~(23~~61,~~547)~~075 (~~492~~909,~~932~~113) ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ Net cash provided (used) by continuing operations ~~198~~292,~~230~~296 (~~168~~41,~~612~~007) ~~400~~693,~~785~~081 ~~310~~269,~~568~~561 Net cash provided (used) by discontinued operations (1510,~~336~~000) (2535,~~310~~440) (1828,336) (~~147~~202,~~235~~775) ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ Net cash provided (used) by operating activities ~~182~~282,~~894~~296 (~~193~~76,~~922~~447) ~~382~~664,~~449~~745 ~~163~~66,~~333~~786 ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ CASH FLOWS FROM INVESTING ACTIVITIES: Property, equipment and leasehold improvements (117,~~419~~555) (2183,~~989~~290) (3149,~~782~~337) (63146,~~413~~703) Funds used for acquisitions and development (27272,~~333~~473) (~~100~~373,~~675~~148) ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ Net cash provided (used) by investing activities (117,~~419~~555) (49355,~~322~~763) (3149,~~782~~337) (~~164~~519,~~088~~851) ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 100,000 100,000 125,000 Notes payable and interest converted for common stock 195,500 ~~195,500~~ Proceeds from notes and loans payable ~~350~~450,000 ~~400~~850,000 Repayments of notes payable (89136,~~683~~267) (~~210~~30,000) (~~183~~320,~~733~~000) (~~755~~765,~~100~~000) ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ Net cash provided (used) by financing activities (8936,~~683~~267) ~~335~~420,~~500~~000 (~~183~~220,~~733~~000) ~~(34~~405,~~600)~~500 ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 91228,~~792~~474 92(12,~~255~~210) ~~166~~395,~~934~~408 (3547,~~355~~565) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ~~290~~382,~~701~~493 ~~298~~390,~~052~~307 215,559 425,662 ---------~~---~~ ---------~~-----~~ ---------~~-----~~ ---------~~----~~ CASH AND CASH EQUIVALENTS, END OF PERIOD $ ~~382~~610,~~493~~967 $ ~~390~~378,~~307~~097 $ ~~382~~610,~~493~~967 $ ~~390~~378,~~307~~097 =========~~===~~ =========~~=====~~ =========~~=====~~ =========~~====~~

See notes to condensed consolidated financial statements. 3 CCA COMPANIES INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (NOTE A) BASIS OF PRESENTATION AND THE COMPANY: CCA Companies Incorporated was incorporated on March 6, 1996 and has adopted a fiscal year ending June 30. The accompanying unaudited condensed consolidated financial statements include the accounts of CCA, its subsidiaries and joint venture (collectively, the "Company"). Intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three-month and nine-month periods ended March 31, 2001 are not necessarily indicative of the results that may be expected for any interim period or the year ending June 30, 2001. The balance sheet at June 30, 2000 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the audited financial statements and footnotes thereto included in the Form 10-K for the year ended June 30, 2000 filed by the Company. The subsidiaries Sakhalin General Trading and Investments Ltd. ("SGTI"), Sakhalin City Center Ltd. ("SCC") and Suriname Leisure Company A.V.V. ("SLC") are based and operating in Cyprus, Russian Federation and Suriname, respectively. The statutory currencies in the countries of incorporation are respectively the Cyprus Pound, the Russian Ruble and the Suriname Guilder. The reporting currency is the U.S. Dollar. (NOTE B) THE COMPANY: CCA Companies Incorporated was incorporated under the laws of the State of Delaware on March 6, 1996 as Conserver Corporation of America and changed its name on December 2, 1997. The Company's principal lines of operation is to provide gaming services through the ownership and management of a Casino in Suriname. In addition, the Company is in the planning and design stage of a Casino and mountain resort project on Sakhalin Island and is actively pursuing other opportunities. 4 (NOTE C) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [1] Principles of consolidation The accompanying consolidated financial statements include the accounts of CCA and its subsidiaries (collectively, the "Company"). Inter-company transactions and balances have been eliminated in consolidation. SCC is currently generating losses. Accordingly, the minority interest held is not reflected in the financial statements. The minority shareholders are not obligated to fund SCC's losses. [2] Use of Estimates in the Preparation of Financial Statements 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. [3] Impairment of Long-Lived Assets The Company adopted the Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Under the provisions of this statement, the Company has evaluated its long-lived assets for financial impairment, and will continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. [4] Foreign currency translation The functional currency for the Company's subsidiaries, SGTI and SLC, is the United States dollar. All assets and liabilities, materially all contracts, transactions and normal business activities have been transacted, conducted, negotiated and recorded in U.S. dollars. It is the Company's position that the operations of the Company are not integrally connected to the currencies of Cyprus and Suriname. Pursuant to Financial Accounting Standards Board Statement No. 52, "Foreign Currency Translation" (FAS 52), the Company's Russian subsidiary is situated in a highly inflationary economy. Accordingly, the Company's Russian subsidiary's functional currency will be the U.S. dollar. 5 The financial statements for the Company's subsidiaries outside the U.S. have been translated to U.S. Dollars using a methodology consistent with Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation. Assets and liabilities are translated to United States Dollars at the rates prevailing on the balance sheet dates and the statements of operations have been translated from the functional currencies to U.S. Dollars using average exchange rates for the applicable years. [5] Property, Equipment and Leasehold Improvements Property and equipment is recorded at cost. Depreciation and amortization is computed by the straight line method based on the estimated useful lives (3-5 years) of the related assets. Leasehold improvements are amortized over the shorter of the life of the asset or the lease. [6] Income Taxes For the purpose of these financial statements the Company has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," for all periods presented. Under the asset and liability method of SFAS 109, deferred taxes are recognized for differences between financial statement and income tax bases of assets and liabilities. Until June 30, 1998 the Company, for tax purposes, did not have any operations and therefore no net operating loss. All of the expenses incurred to that date were pre-operating and accordingly were capitalized. Subsequent to the commencement of operations capitalized expenses are being amortized over sixty months. [7] Earnings Per Share Effective December 31, 1997, the Company adopted Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which simplifies the computation of earnings per share requiring the restatement of all prior periods. Net loss per share of common stock is based on the weighted average number of common shares outstanding during each period. Diluted loss per share of common stock is computed on the basis of the weighted average number of common shares and diluted securities outstanding. Dilutive securities having an anti-dilutive effect are excluded from the calculation. [8] Stock Based Compensation In October 1995, FASB issued SFAS No. 123, "Accounting for Stock Based Compensation." SFAS No. 123 establishes a fair value method for accounting for stock-based compensation plans either through recognition or disclosure. The Company did not adopt the fair value based method for employees but instead discloses the pro forma effects of the calculation required by the statement. 6 [9] New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") NO. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires the recognition of the fair value of all derivative instruments on the balance sheet. Subsequent to the issuance of SFAS 133, the FASB received many requests to clarify certain issues causing difficulties in implementation. In June 2000, the FASB issued SFAS 138, which responds to those requests by amending certain provisions of SFAS 133. These amendments include allowing foreign-currency exposures that reduce the need for third-party derivatives and redefining the nature of interest rate risk to avoid sources of ineffectiveness. The impact of adopting SFAS 133, as amended by SFAS 138, is not significant. In October 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 134 "Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", which is effective for the first fiscal quarter beginning after December 15, 1998. There is no impact to the Company's financial reporting or presentation due to the adoption of SFAS No. 134. In February 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 135 "Recession of FASB Statement No. 75 and Technical Corrections", which is effective for financial statements issued after February 15, 1999. There is no impact to the Company's financial reporting or presentation due to the adoption of SFAS No. 135. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation and disclosure of revenues in financial statements and requires adoption no later than the fourth quarter of fiscal 2001. There is no impact to the Company's financial reporting or presentation due to SAB 101. (NOTE D) SLC INCOME TAXES AND IMPORT DUTIES: In 1999, SLC requested that the Government of Suriname (the "Government") grant it certain concessions regarding the imposition of taxes and import duties under the Suriname Investment Act. To date the Government has not granted the Company any relief. The Company is continuing to pursue the concessions but a favorable ruling is questionable according to the Company's Suriname legal counsel. In June 2000, SLC provided for income taxes payable to the Government based on a tax rate of 50% of the net taxable income since inception based on the Suriname Hazard Games Act 1962. The Company made no provisions for income tax or duties prior to this date based on opinions from Counsel regarding the tax concessions that they believe should have been granted. The Company is still pursuing tax incentives and entitlements that according to Suriname law is available. 7 The Government of Suriname imposed import duties on operating assets which the Company paid. In an effort to get a refund for the duties paid, the Company is attempting to obtain an import duty waiver for the investment it made, from the Ministry of Finance in Suriname through its legal counsel. However, the Company believes it will be difficult to obtain a decision in its favor due to the current economic conditions in Suriname. The Ministry of Finance is trying to impose value added tax ("VAT") tax on slot machines. According to the Company's legal counsel, they have not completed their study and deliberations prior to reporting to parliament on the issue. At this time the Company cannot quantify the amount payable, if any, for VAT on slot machines. (NOTE E) COMMITMENTS AND CONTINGENCIES: RENTAL COMMITMENTS Through the year ended June 30, 2000, SLC paid a base rent of $16,667 per month, before any escalations, as required by its original lease on the premises which the Suriname casino operates. Suriname law regulates the maximum amount of rent that a landlord can charge and in July 2000, the Company determined that it was being charged in excess of fair rental value. Based on a Government validated valuation of the maximum rent chargeable under Suriname law on the space occupied by the casino, the Company commenced paying a reduced rental of approximately $3,200 per month and is currently attempting to recover through litigation the excess rent previously charged of approximately $315,000. The landlord is contesting the valuation and the amount of the requested refund. LITIGATION AND ARBITRATION The Company anticipates that it will be subjected to various lawsuits, claims and proceedings of a nature considered normal to its business. MARITIME SERVICES CORPORATION ("MSC") In September 2000, Maritime Services Corporation ("MSC"), the contractor that constructed the Suriname casino, brought an action in the United States District Court of Oregon seeking damages in the amount of $200,250 plus interest. MSC claims that the Company issued shares of its Common Stock in 1998 having a value of $200,250 as partial payment for construction work performed and that the Company was obligated to buy the shares back for the same value. The Company has denied all material allegations of the complaint and believes that it has no liability for the claim. Discovery is now proceeding in the action. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of significant factors affecting the Company's operating results and liquidity and capital resources should be read in conjunction with the accompanying financial statement and related notes. OVERVIEW CCA Companies Incorporated was incorporated under the laws of the State of Delaware on March 6, 1996 as Conserver Corporation of America and changed its name on December 2, 1997. The active business of CCA Companies Incorporated (with its subsidiaries, the "Company") now is the operation of a 50% owned gaming casino in Suriname and actively pursuing other opportunities including the development of a casino and hotel project in Sakhalin of the Russian Federation. The Company's original principal business was food preservation technology. The Company continued making attempts to exploit that business through November 1999 at which time the Company's Board of Directors determined that it would discontinue all activities and efforts with respect to the food business since the Company could not effectively develop a sufficient market for its food preservation technology. Additionally, on November 4, 1998, the Company reached a settlement agreement terminating all of its hotel operating contracts and consequently, as of such date had no active hotel management operating business. Accordingly, the Company has currently and retroactively reported all activities related to its food division and hotel management operations as gains or losses from discontinued operations. The Company began operations of its Suriname casino in October 1998 in temporary quarters in the hotel where the Company's joint venture completed and opened its permanent casino facility on March 31, 1999. The Company, with its joint venture partner, provided the funds to build the permanent facility. The Company's Suriname casino occupies two leased floors, totaling about 20,000 square feet, in the Plaza Hotel, which is a downtown hotel in the capital city. The casino has 20 gaming tables, 161 slot machines and a 50-seat restaurant. Commencing in 1997, the Company acquired rights and secured property under a 101-year lease on a ten acre site to build and operate a 140 million-dollar 450-room year round hotel/casino resort. The Company initially planned to have 70 tables and 350 slot machines with the intent to add additional gaming equipment. The site is located in the center of the City of Yuzhno-Sakhalinsk ("City") on Sakhalin Island (the "Sakhalin Project"). Sakhalin Island is a Russian territory located just north of Japan. This proposed hotel/casino, if built, would be easily accessible for gaming activities from Japan, China, Korea, and the Russian mainland. Further development was planned at a nearby ski mountain. Since that time, the Company has entered into numerous discussions and several agreements in attempts to raise capital to finance the Sakhalin Project without success. In the fiscal year ended June 30, 2000, due to the Company's failure to proceed and based on its evaluation of assets for financial impairment as required by SFAS No. 121, certain capitalized expenditures and goodwill (the excess of the aggregate purchase price over the fair market value of net assets acquired), net of amortization, totaling approximately $13,552,000 were written down. The Company is continuing to explore additional possibilities to finance the project and protect its investment. 9 The Company believes that its outlay to secure the lease with the City for the land and an existing ski resort and the money expended principally for demolition and the relocation of the residents living on the site has not been financially impaired. Accordingly, approximately $2,100,000 expended in connection with the lease and demolition remains on the Company's accounts. In addition to granting the lease, the City has committed contractually that it will not permit the several small existing casinos to increase their floor areas or extend the range of their operations without the written approval of SCC. The Company will also have certain rights to participate in the development and management of any future casinos within the jurisdiction of the City. RESULTS OF OPERATIONS Comparison of Three Months Ended March 31, 2001 to Three Months Ended March 31, 2000 Loss from continued operations. The Company incurred a loss from continued operations of $147,054, or $0.01 per share, for the three months ended March 31, 2001, as compared to a loss of $185,588, or $0.01 per share, for the three months ended March 31, 2000. The current period saw less revenues generated by its casino operations which were offset by reductions in both casino and general corporate overhead expenses. Revenues. During the three months ended March 31, 2001, the Company had revenues of $1,509,269 generated from its Suriname casino operations. For the three months ended March 31, 2000, the Company recorded revenues of $1,812,716 generated by the Suriname casino. The 17% decline in revenues resulted primarily from a downturn in the Suriname economy coupled with increased competition. Marketing, General and Administrative Expenses. Marketing, General and administrative expenses were $1,373,563 for the three months ended March 31, 2001 consisting primarily of $922,191 related to operating expenses of the Suriname casino and $451,372 for general corporate overhead. Marketing, General and administrative expenses were $1,687,712 for the three months ended March 31, 2000 consisting primarily of $994,210 related to operating expenses of the Suriname casino, $87,869 for the amortization of goodwill and $605,633 for general corporate overhead. The current period's Suriname casino operating expenses decreased by $72,019 or 7% as a result of reductions in rent, staff expenses and other office expenses. The $154,261 or 25% decrease in the general corporate overhead during the current period is primarily attributable to reductions in expenses including consulting, travel and legal and professional. In addition, goodwill was written down to zero in June 2000 and therefore no amortization was recorded in the current year's period. 10 Interest Expense. For the three months ended March 31, 2001, interest expense was $44,445 compared to $63,068 for the three months ended March 31, 2000. The decrease during the current period was primarily attributable to the reduction in the balance remaining on loans made by the Company's Suriname joint venture partner during 1998 and 1999 for the completion of the Suriname casino construction. Minority Interest. The Company has management control of the Suriname casino joint venture company in which it owns a 50% equity interest. As such, the casino's operations are consolidated with those of the Company and a minority interest is recorded for the 50% interest held by the Company's joint venture partner. During the three months ended March 31, 2001, the joint venture company generated net after tax income of $224,762 after deduction for management fees and interest expenses earned by the Company and eliminated in consolidation. As a result, a minority interest equal to 50% of such amount or $112,381 was recorded by the Company. For the three months ended March 31, 2000, the joint venture company generated net income of $498,538 after deduction for management fees and interest expenses earned by the Company and the Company recorded a minority interest equal to 50% of such amount, or $249,269. The Company made no provisions for income taxes during the 1999 period based on opinions from Counsel regarding tax concessions that they believe should have been granted. Foreign Income Taxes. During the three months ended March 31, 2001, SLC accrued for income taxes of $126,660, including $23,500 of deferred taxes, payable to the Suriname Government based on a tax rate of 50% of the net taxable income pursuant to the Suriname Hazard Games Act 1962. The Company made no provisions for income taxes during the prior year's period based on opinions from Counsel regarding the tax concessions that they believe should have been granted. Comparison of Nine Months Ended March 31, 2001 to Nine Months Ended March 31, 2000 Loss from continued operations. The Company incurred a loss from continued operations of $394,360, or $0.02 per share, for the nine months ended March 31, 2001, as compared to a loss of $425,941, or $0.03 per share, for the nine months ended March 31, 2000. The current period saw less revenues generated by its casino operations which were offset by reductions in both casino and general corporate overhead expenses. Revenues. For the nine months ended March 31, 2001, the Company had revenues of $4,212,316 from the operations of the Suriname casino compared with $5,398,196 for the nine months ended March 31, 2000. The 22% decline in revenues resulted primarily from a downturn in the Suriname economy coupled with increased competition. Marketing, General and Administrative Expenses. Marketing, General and administrative expenses were $3,987,460 for the nine months ended March 31, 2001 consisting primarily of $2,799,147 related to operating expenses of the Suriname casino and $1,188,313 for general corporate overhead. For the nine months ended March 31, 2000, marketing, general and administrative expenses were $4,884,209 consisting primarily of $2,928,815 related to operating expenses of the Suriname casino, $263,607 for the amortization of goodwill and $1,691,787 for general corporate overhead. The current period's Suriname casino operating expenses decreased by $129,668 or 5% as a result of reductions in rent, staff expenses and other office expenses. The $503,474 or 30% decrease in the general corporate overhead during the current period is primarily attributable to reductions in expenses including consulting, travel and legal and professional. In addition, goodwill was written down to zero in June 2000 and therefore no amortization was recorded in the current year's period. 11 Interest Expense. For the nine months ended March 31, 2001, interest expense was $158,948 compared to $206,823 for the nine months ended March 31, 2000. The decrease during the current period was primarily attributable to the reduction in the balance remaining on loans made by the Company's Suriname joint venture partner during 1998 and 1999 for the completion of the Suriname casino construction. Minority Interest. The Company has management control of the Suriname casino joint venture company in which it owns a 50% equity interest. As such, the casino's operations are consolidated with those of the Company and a minority interest is recorded for the 50% interest held by the Company's joint venture partner. During the nine months ended March 31, 2001, the joint venture company generated net after tax income of $490,184 after deduction for management fees and interest expenses earned by the Company and eliminated in consolidation. As a result, a minority interest equal to 50% of such amount or $245,092 was recorded by the Company. For the nine months ended March 31, 2000, the joint venture company generated net income of $1,472,792 after deduction for management fees and interest expenses earned by the Company and the Company recorded a minority interest equal to 50% of such amount, or $736,396. The Company made no provisions for income taxes during the 1999 period based on opinions from Counsel regarding tax concessions that they believe should have been granted. Loss from discontinued operations. During the nine months ended March 31, 2000, the Company incurred a loss from discontinued operations of $103,500 related to final efforts to exploit or joint venture the food preservation business and legal fees incurred in the arbitration case brought against the Company by the former President of its discontinued hotel management division. For the nine months ended March 31, 1999, the Company had no losses from discontinued operations. Foreign Income Taxes. During the nine months ended March 31, 2001, SLC accrued for income taxes of $216,384, including $70,000 of deferred taxes, payable to the Suriname Government based on a tax rate of 50% of the net taxable income pursuant to the Suriname Hazard Games Act 1962. The Company made no provisions for income taxes during the prior year's period based on opinions from Counsel regarding the tax concessions that they believe should have been granted. LIQUIDITY AND CAPITAL RESOURCES Since July 1998 the Company has actively sought to raise cash through loans or sales of its securities in order to fund its past due obligations, current operations and completion of its permanent Suriname casino facility which opened March 31, 1999. From July 1998 through August 1999, the Company was successful in raising sufficient funds from numerous private investors through the sale of its securities enabling it to fund its ongoing operational costs during such period and complete the construction of the Suriname casino. 12 In October 1999, the Company entered into a convertible loan agreement with a private investor and received $350,000 which it used to fund current and past due obligations. On December 22, 1999, the lender converted $185,000 of the loan amount together with interest. The balance of $165,000 together with 15% interest was paid on April 30, 2000. In January 2000, a director of the Company advanced $300,000 which the Company also used to fund past due obligations. The loan is due December 31, 2000 and bears interest at the bank prime rate. The term of the loan has been extended and the balance remaining at May 10, 2001 is $105,000. In March 2000, the Company entered into a convertible loan agreement with a private investor and received $150,000. The loan was paid off in February 2001. On October 24, 2000, 480,000 shares of the Company's Common Stock were issued to Star Casinos Limited in payment for $120,000 of services provided by David Hartley, President of the Company's Casino Division, during the year ended June 30, 2000. In January 2001, a private investor purchased 1,333,334 shares of the Company's Common Stock at a purchase price of $.075 per share. The proceeds were used for general working capital purposes. At March 31, 2001, the Company had a working capital deficit of $608,000 and had approximately $611,000 cash or cash equivalents on hand. In late August 1999, the Company began to receive cash distributions from the profits of its Suriname casino joint venture. Prior to August 1999, all cash profits of the casino had been used to first pay the remaining balance due on the casino construction contract and then to repay a $750,000 loan previously made by the Company's Suriname casino joint venture partner in December 1998. The Company received an average of approximately $300,000 per month in cash distributions from casino profits during the nine months of September 1999 through May 2000. As a result of the decline in the Suriname economy, increased competition and the Government's tax assessments commencing in June 2000, the cash distributions from casino profits have been reduced significantly since June 2000 to approximately $150,000 per month. This cash flow has and should continue to enable the Company to pay its current corporate overhead expenses, fund its loan obligations and make payments on any other remaining obligations. The Company believes that the distribution of profits from the Suriname casino will provide adequate cash flow to maintain the Company's current operations for the next 12 months. As a result of the delinquent filing of its Form 10-K, the Company was delisted by Nasdaq from its 12(g) SmallCap Market Exchange in November 1999. The Company currently trades on the OTC pink sheets and expects to have its securities traded on the OTC bulletin board shortly after the filing of this Form 10-Q. 13 OTHER Certain statements in this Quarterly Report on Form 10-Q are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different form the results, performance or achievements expressed or implied by the forward looking statement. Factors that impact such forward looking statements include, among others, risk factors included in the Company's Annual Report on Form 10-K for the year ended June 30, 2000 and other filings with the Securities and Exchange Commission. 14 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The following information is furnished pursuant to Item 701(a)-(c) of Regulation S-K in connection with unregistered securities sold or issued by the Company: In January 2001, the Richard Devries Professional Corporation purchased 1,333,334 shares of the Company's Common Stock at a purchase price of $.075 per share. The proceeds were used for general working capital purposes. In completing the above transactions, the Company relied upon section 4(2) of the Securities Act of 1933, as amended, with respect to such transactions. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company held no material market risk sensitive financial instruments or interest therein, and held none at March 31, 2001. The Company's loans, payables, or receivables to or from others (including loans, payables or receivables to or from its subsidiaries or joint ventures) and the interest thereon, are all expressed as dollar obligations and payable in dollars. However, the Company's routine daily foreign operations are usually conducted in local foreign currencies. The Company is exposed to foreign currency exchange rate risk between the time foreign gaming revenue or other revenues are received and the time they are converted into dollars. The Company has not entered into any exchange rate protection arrangements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits N/A (b) Reports on Form 8-K N/A 15 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CCA COMPANIES INCORPORATED Dated: May 11, 2001 By: /s/ Dallas Dempster ----------------------------------------- Dallas Dempster Chief Executive Officer and President By: /s/ Miles R. Greenberg ----------------------------------------- Miles R. Greenberg Chief Financial Officer 16

Filing Compare · LOTTERY & WAGERING SOLUTIONS INC