0000898430-95-001431.txt : 19950810 0000898430-95-001431.hdr.sgml : 19950810 ACCESSION NUMBER: 0000898430-95-001431 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950809 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS INC CENTRAL INDEX KEY: 0000354813 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 953276269 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10294 FILM NUMBER: 95559948 BUSINESS ADDRESS: STREET 1: 2131 FARADAY AVE CITY: CARLSBAD STATE: CA ZIP: 92008-7297 BUSINESS PHONE: 6199314000 MAIL ADDRESS: STREET 1: 2131 FARADAY AVE CITY: CARLSBAD STATE: CA ZIP: 92008 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL TOTALIZATOR SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (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, 1995 [_] 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: 0-10294 ------------ INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) formerly International Totalizator Systems, Inc.(R) (Exact Name of Registrant as specified in its charter) CALIFORNIA 95-3276269 (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2131 FARADAY AVENUE, CARLSBAD, CALIFORNIA 92008-7297 (Address of Principal Executive Offices) (Zip Code) (619) 930-3600 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 ___ --- Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. As of June 30, 1995, 16,815,211 shares of common stock were outstanding. 1 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) PART I FINANCIAL INFORMATION
PAGE ---- Condensed Consolidated Balance Sheets 3 June 30, 1995 and December 31, 1994 Condensed Consolidated Statements of Operations Three Months Ended June 30, 1995 and 1994 4 and Six Months Ended June 30, 1995 and 1994 Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8
2 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets
JUNE 30, DECEMBER 31, 1995 1994 (UNAUDITED) (NOTE) ----------- ------------- (Thousands of dollars) ASSETS Current assets: Cash and cash equivalents $ 5,851 $ 9,467 Accounts receivable, net of allowance 1,336 2,398 Costs and estimated earnings in excess of billings on uncompleted contracts 4,225 3,382 Inventories at lower of cost (first-in, first-out) or market 10,476 10,499 Other current assets 722 1,233 -------- -------- Total current assets 22,610 26,979 Non-current accounts receivable 54 --- Investment in lottery service agreements, net 2,228 2,254 Equipment, furniture and fixtures, net 1,376 1,650 Computer software costs, net 945 1,005 -------- -------- Total assets $ 27,213 $ 31,888 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 431 $ 909 Note payable to bank --- 300 Capital lease obligations - current 40 --- Billings in excess of costs and estimated earnings on uncompleted contracts 436 968 Accrued payroll and related taxes 1,205 595 Warranty reserves 289 348 Other current liabilities 2,043 1,623 -------- -------- Total current liabilities 4,444 4,743 Notes payable - long term 156 --- -------- -------- Total Liabilities 4,600 4,743 -------- -------- Shareholders' equity: Common shares; no par value: Authorized shares 50,000,000 - Issued and outstanding shares 16,815,211 (16,803,711 in 1994) 48,661 48,650 Retained earnings (accumulated deficit) (26,041) (21,354) Foreign currency translation adjustment (7) (151) -------- -------- Total shareholders' equity 22,613 27,145 -------- -------- Total liabilities and shareholders' equity $ 27,213 $ 31,888 ======== ========
Note: The balance sheet at December 31, 1994 has been derived from the audited financial statements at that date. 3 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Condensed Consolidated Statements of Operations
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, (UNAUDITED) (UNAUDITED) ------------------- ------------------- (Thousands of dollars, except per share amounts) 1995 1994 1995 1994 ------- -------- ------- -------- Contract revenue and sales: $ 4,211 $ 7,612 $ 9,451 $ 13,208 Costs & expenses: Cost of sales 4,817 15,938 (A) 9,751 20,100 (A) Engineering, research & development 262 331 361 784 Selling, general & administrative 2,173 2,583 4,200 4,205 ------- -------- ------- -------- Total costs and expenses 7,252 18,852 14,312 25,089 ------- -------- ------- -------- Loss from operations (3,041) (11,240) (4,861) (11,881) Other income: Interest and other income, net 84 133 174 277 ------- -------- ------- -------- Income (loss) before income taxes (2,957) (11,107) (4,687) (11,604) Provision for taxes based on income --- --- --- --- ------- -------- ------- -------- Net income (loss) $(2,957) (11,107) (4,687) $(11,604) ======= ======== ======= ======== Net income (loss) per common share: ---------------------------------- Primary and fully diluted $ (0.18) $ (0.66) $ (0.28) $ (0.69) ======= ======== ======= ======== Shares used in per share amounts: Primary and fully diluted 16,810 16,788 16,807 16,715 ====== ======== ======= ========
(A) Includes a $9,800 charge for service contract reserves. 4 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Condensed Consolidated Statements of Cash Flows
SIX MONTHS ENDED JUNE 30, (UNAUDITED) ------------------- 1995 1994 ------- -------- (Thousand of dollars) Cash flow from operating activities: Net loss $(4,687) $(11,604) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 488 939 Stock Option Compensation --- 255 Lottery service agreement and write-off and write-down --- 9,800 Changes in assets and liabilities: Accounts receivable 1,062 (94) Costs and estimated earnings in excess of billings on uncompleted contracts (843) 1,883 Inventories 23 (3,275) Accounts payable (478) (38) Billings in excess of costs and estimated earnings on uncompleted contracts (532) (2,299) Accrued payroll and related taxes 610 313 Other 1,265 535 ------- -------- Net cash used for operating activities (3,092) (3,585) ------- -------- Cash flow used for investing activities: Investment in lottery service agreements (26) (3,832) Non-current accounts receivable (54) (90) Additions to equipment (149) (655) Additions to computer software cost (150) --- ------- -------- Net cash used for investing activities (379) (4,577) Cash flow provided by (used for) financing activities: Payments on notes payable (300) --- Proceeds from issuance of common shares 11 605 ------- -------- Net cash provided by (used for) financing activities (289) 605 ------- -------- Effect of exchange rate changes on cash 144 111 ------- -------- Increase (decrease) in cash and cash equivalents (3,616) (7,446) Cash and cash equivalents at beginning of year 9,467 22,903 ------- -------- Cash and cash equivalents at end of year $ 5,851 $ 15,457 ======= ========
Non Cash Investing & Finance Activities A capital lease obligation in the amount of $196 was incurred in 1995 to acquire fixed assets. 5 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Notes to Condensed Consolidated Financial Statements June 30, 1995 (Thousands of dollars) 1. In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments necessary to present fairly the Registrant's financial position and results of operations at June 30, 1995 and for the three and six months then ended. The accounting policies followed by the Registrant are set forth in Note 1 to the Registrant's consolidated financial statements in the Registrant's 1995 Annual Report which is incorporated by reference. 2. The results of operations for the interim periods shown in this report are not necessarily indicative of the results to be expected for the full year. 3. Inventories - The current inventory balance at June 30, 1995 is composed of raw materials and work in process totaling $9,674 and finished goods totaling $802. 4. Papua New Guinea Lottery - In July 1995 the Registrant sold all interests in its Papua New Guinea ("PNG") lottery to the principal shareholders of the lottery licensee, The Lotto Pty. Ltd., in return for $175 cash and a note of $1,525 to be paid in monthly installments of approximately $90 per month for a period of 17 months commencing in September 1995, and a sum equal to a percentage of the annual gross lotto sales or an annual sum of $260, whichever is greater for a period of five years, provided that the aggregate of all sums shall not exceed $3,000. The installment payments and the minimum percentage payments are secured by all lottery assets and the personal guarantees and indemnifications of all of the shareholders of the Lotto Pty. Ltd. The Registrant's remaining investment in the PNG lottery is approximately $936 at June 30, 1995 and payments to the Registrant from Lotto Pty. Ltd. will be recorded against the balance. The Registrant will not record any gain until the balance of the receivable has been collected. McKinnie & Associates, Inc. - The Registrant sold its subsidiary, McKinnie & Associates, Inc. to Shreveport Acquisition on March 31, 1993 for cash, a note, and certain additional payments, contingent upon the future operations of McKinnie, and the Registrant issued the buyer an option that expires July 1, 1995 to purchase 500 thousand shares of its common stock at $7.38 per share. The $614 value of the option was recorded as a reduction of the gain to be recognized on the McKinnie sale. In January 1994, an amendment to the original sales agreement fixed the previously contingent payment at $1,000 and changed the terms of the note so that the note balance and operating expenses were due to the Registrant on or before July 1, 1994. Shreveport Acquisition did not make such payments prior to the July 1994 maturity date. In December 1994, an amendment to the original sales agreement changed the terms of the note so that the note balance of $1.4 million and $110 of operating expenses, together with accrued interest thereon, are to be paid in monthly installments until all such amounts have been paid in full. The previously contingent amount, fixed at $1.0 million in the January 1994 amendment, is due and payable only if the option shares granted to Shreveport are exercised at an agreed upon sales price. 6 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) The balance of the receivable has been reduced by the deferred gain on the McKinnie sale and the balance of $483 at December 31, 1994 and $183 at June 30, 1995 is included in the balance sheet with accounts receivable. As a result of the difficulty in realizing the proceeds from the sale, in 1994 the Registrant determined that no further gain will be recorded until the balance of the net receivable is collected. 7 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Thousands of dollars) RESULTS OF OPERATIONS During the quarter ended June 30, 1995, revenue decreased by $3,401, or 44% as compared to the quarter ended June 30, 1994. The decrease reflects lower contract volume in 1995. Cost of sales, as a percentage of revenue was 114% in 1995 compared to 1994's cost of sales percentage (excluding the $9,800 service contract write-offs and write-down) of 81%. The increase in cost of sales was primarily a result of higher unfavorable manufacturing variances and the ongoing expense of establishing the Registrant's Russian lottery project. The Registrant reorganized several departments throughout its worldwide operations which included a reduction in work force of approximately 17% of its total headcount at a cost of $250, most of which was included in cost of sales for the quarter ended June 30, 1995. Engineering, research and development costs of $262 in 1995 related essentially to the development of software for the North American lottery market, whereas the costs of $331 in 1994 were primarily attributable to the development costs of the DATAMARK Flipper (TM) and software development costs for pari-mutuel markets in South America. Selling, general and administrative expenses decreased $410 from the same period in 1994. The 1994 second quarter expenses included a $455 charge for costs associated with the retirement of the Registrant's former chairman. Selling, general & administrative costs in 1995 remain a large percentage of sales due to low revenue and costs related to continuing litigation. During the six month period ended June 30, 1995, revenue decreased by $3,757, or 28% as compared to the period in 1994. This decrease reflects lower contract volume in 1995. Cost of sales as a percentage of revenue, increased to 103% for the six month period ended June 30, 1995, as compared to 77% (excluding the $9,800 service contract write-offs and write down) for the like period in 1994. The increase in cost of sales was primarily a result of higher unfavorable manufacturing variances and the ongoing expense of establishing the Registrant's Russian lottery project. Engineering, research and development costs decreased $423, or 54% for the six month period ended June 30, 1995, as compared to the like period in 1994. As explained above, 1995 costs were primarily attributable to the development of software for the North American lottery market. Selling, general and administrative costs decreased $5 from the same period in 1994. LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 1995, the Registrant's working capital decreased by $4,070 due primarily to additional investment made in the Registrant's Russian lottery project. Cash and current receivables totaled $7,187 at June 30, 1995. The Registrant currently has a $400 revolving line of credit which expires in August 1996. No borrowing against the line was outstanding at June 30, 1995. Additional costs related to the Registrant's Russian lottery project of $1,150 are anticipated to be incurred during the third quarter of 1995. A portion of the costs are anticipated to be financed from the Registrant's working capital. As discussed above, a reduction in work force of approximately 17% was effected during the June 1995 quarter in order to reduce the Registrant's future cash requirements. As of June 30, 1995, there were no material commitments for capital expenditures. 8 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Part II OTHER INFORMATION Item 1. Legal Proceedings ----------------- In January 1995 the Registrant filed an action in the United States District Court for the Southern District of Florida against M. Kadirova, a former owner of the Registrant's Russian subsidiary for fraud, misappropriation, conversion and intentional interference with contractual relations and prospective economic advantage. The Registrant seeks in excess of $1,000 in damages. The Registrant also filed claims for negligence and breach of fiduciary duty against the escrow agent who was holding $300 in stock purchase price payments of the Registrant that the escrow agent paid to Kadirova. In May, defendant Kadirova filed a counterclaim against the Registrant in excess of $150,000 for fraud, intentional interference with business relations and prospective economic advantage. The Defendant has demanded a jury trial. The discovery process has begun. The Registrant denies all claims made by Kadirova and is vigorously defending the counterclaim. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On June 1, 1995, the Registrant held its 1995 Annual Meeting of Shareholders. At the Annual Meeting, the following persons were elected as directors of the Registrant: Frederick A. Brunn, Theodore A. Johnson, Ng Foo Leong, M. Mark Michalko, Martin J. O'Meara Jr., Sir Michael G.R. Sandberg and Tan Sri Dato Vincent Tan Chee Yioun. The following is the results of the voting on this matter: 1. THE ELECTION OF DIRECTORS WAS CONDUCTED BY THE INSPECTOR OF ELECTIONS. FOR ALL NOMINEES, AT LEAST 14,405,511 -OR- 94% OF THE VOTES CAST; PARTIAL WITHHOLD AUTHORITY 746,387 -OR- 5% OF THE VOTES CAST; WITHHOLD AUTHORITY 218,403 -OR- 1% OF THE VOTES CAST. 9 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) /s/ William A. Hainke --------------------------------- William A. Hainke Chief Financial Officer, Corporate Secretary and Treasurer Date: August 9, 1995 10 EX-27 2 ART. 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 JUN-30-1995 5,851 0 1,336 0 10,476 22,610 1,376 0 27,213 4,444 0 48,661 0 0 (26,048) 22,613 4,211 4,211 4,817 4,817 2,435 15 21 (2,957) 0 (2,957) 0 0 0 (2,957) (.18) 0