-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DKGrgNyIpOnrytqQ2crjlHAJM9Vw5EixH9TgsPvnv3pyXSCqrpj+3IfahKtyuGuc GN0jYIoA6znVg44q2ydJyA== 0000936392-95-000140.txt : 19951119 0000936392-95-000140.hdr.sgml : 19951119 ACCESSION NUMBER: 0000936392-95-000140 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NONE 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: 95591077 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 FOR THE PERIOD ENDED SEPTEMBER 30, 1995 1 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 September 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 Identification No.) Incorporation or Organization) 2131 FARADAY AVENUE, CARLSBAD, CALIFORNIA 92008-7297 ---------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (619) 931-4000 ---------------------------------------------------- (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 September 30, 1995, 16,816,211 shares of common stock were outstanding. 1 2 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
PART I FINANCIAL INFORMATION PAGE ---- Condensed Consolidated Balance Sheets September 30, 1995 and December 31, 1994 3 Condensed Consolidated Statements of Operations Three Months Ended September 30, 1995 and 1994 and Nine Months Ended September 30, 1995 and 1994 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7
2 3 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31, 1995 1994 (Thousands of dollars) (UNAUDITED) (NOTE) ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 5,191 $ 9,467 Accounts receivable, net of allowance 1,232 2,398 Costs and estimated earnings in excess of billings on uncompleted contracts 3,505 3,382 Inventories at lower of cost (first-in, first-out) or market 8,649 10,499 Other current assets 1,153 1,233 -------- ------- Total current assets 19,730 26,979 Non-current accounts receivable 61 -- Investment in lottery service agreements, net 2,795 2,254 Equipment, furniture and fixtures, net 1,339 1,650 Computer software costs, net 668 1,005 -------- -------- Total assets $ 24,593 $ 31,888 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 179 $ 909 Note payable to bank -- 300 Capital lease obligations - current 61 -- Billings in excess of costs and estimated earnings on uncompleted contracts 162 968 Accrued payroll and related taxes 1,217 595 Warranty reserves 292 348 Other current liabilities 6,460 1,623 -------- -------- Total current liabilities 8,371 4,743 Notes payable - long term 141 -- -------- -------- Total Liabilities 8,512 4,743 -------- -------- Shareholders' equity: Common shares; no par value: Authorized shares 50,000,000 - Issued and outstanding shares 16,816,211 (16,803,711 in 1994) 48,673 48,650 Retained earnings (accumulated deficit) (32,578) (21,354) Foreign currency translation adjustment (14) (151) -------- -------- Total shareholders' equity 16,081 27,145 -------- -------- Total liabilities and shareholders' equity $ 24,593 $ 31,888 ======== ========
Note: The balance sheet at December 31, 1994 has been derived from the audited financial statements at that date. 3 4 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Condensed Consolidated Statements of Operations
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, (UNAUDITED) (UNAUDITED) ------------------------ ------------------------- (Thousands of dollars, except per share amounts) 1995 1994 1995 1994 ------- ------- -------- -------- Contract revenue and sales $ 3,977 $ 5,722 $ 13,428 $ 18,930 Costs & expenses: Cost of sales 5,025 4,467 14,776 24,567 (A) Engineering, research & development 517 497 878 1,281 Selling, general & administrative 5,025 2,197 9,224 6,402 ------- ------- -------- -------- Total costs and expenses 10,567 7,161 24,878 32,250 ------- ------- -------- -------- Loss from operations (6,590) (1,439) (11,450) (13,320) Other income: Interest and other income, net 53 104 226 381 ------- ------- -------- -------- Income (loss) before income taxes (6,537) (1,335) (11,224) (12,939) Provision for taxes based on income -- -- -- -- ------- ------- -------- -------- Net (loss) $(6,537) $(1,335) $(11,224) $(12,939) ======= ======= ======== ======== Net (loss) per common share: - --------------------------- Primary and fully diluted $(0.39) $(0.08) $(0.67) $(0.77) ====== ====== ====== ====== Shares used in per share amounts: Primary and fully diluted 16,816 16,801 16,810 16,743 ====== ====== ====== ======
(A) Includes a $9,800 charge for service contract reserves. 4 5 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Condensed Consolidated Statements of Cash Flows
NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) -------------------------- (Thousand of dollars) 1995 1994 -------- --------- Cash flow from operating activities: Net loss $(11,224) $(12,939) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 979 1,241 Stock Option Compensation -- 304 Lottery service agreement write-off and write-down -- 9,800 Changes in assets and liabilities: Accounts receivable 1,166 1,612 Costs and estimated earnings in excess of billings on uncompleted contracts (123) 122 Inventories 1,850 (4,269) Accounts payable (730) (506) Billings in excess of costs and estimated earnings on uncompleted contracts (806) (1,536) Accrued payroll and related taxes 622 252 Other 5,247 1,115 -------- -------- Net cash used for operating activities (3,019) (4,804) -------- -------- Cash flow used for investing activities: Investment in lottery service agreements (977) (5,068) Lottery service agreement sale proceeds 355 -- Non-current accounts receivable (61) 111 Additions to equipment (284) (815) Additions to computer software costs (150) (259) -------- -------- Net cash used for investing activities (1,117) (6,031) Cash flow provided by (used for) financing activities: Payments on notes payable (300) -- Proceeds from issuance of common shares 23 607 -------- -------- Net cash provided by (used for) financing activities (277) 607 -------- -------- Effect of exchange rate changes on cash 137 111 -------- -------- Increase (decrease) in cash and cash equivalents (4,276) (10,117) Cash and cash equivalents at beginning of year 9,467 22,903 -------- -------- Cash and cash equivalents at end of year $ 5,191 $ 12,786 ======== ========
Non Cash Investing & Finance Activities A capital lease obligation in the amount of $196 was incurred in 1995 to acquire fixed assets. 5 6 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Notes to Condensed Consolidated Financial Statements September 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 September 30, 1995 and for the three and nine 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 1994 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 September 30, 1995 is composed of raw materials and work in process totaling $8,343 and finished goods totaling $306. 4. Papua New Guinea Lottery - In July 1995 the Registrant sold all interests in its Papua New Guinea ("PNG") lottery operations 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. Additionally, the Registrant will receive a percentage of the annual gross lotto sales for an annual sum of $260, whichever is greater for a period of five years, provided that the additional 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 $639 at September 30, 1995 and is included in other current assets. The Registrant will not record any gain until the balance of the receivable has been collected. 5. On November 6, 1995 the Registrant terminated its Russian lottery project after exhausting numerous financing and joint venture possibilities. Accordingly, the Registrant increased a previously established reserve to include the write-off of its remaining investment in the project, a related reduction in its Russian work force and costs related to the unwinding of the Registrant's Russian lottery project. 6 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 September 30, 1995, revenue decreased by $1,745, or 30% as compared to the quarter ended September 30, 1994. The decrease reflects lower contract volume in 1995. Cost of sales, as a percentage of revenue was 113% (excluding a provision for unwinding the Registrant's Russian lottery project) in 1995 compared to 1994's cost of sales percentage of 78%. The increase in cost of sales was primarily a result of higher unfavorable manufacturing variances due to the low level of contract volume, lower contract margins and after- market sales, and costs related to the unwinding of the Registrant's Russian lottery project. Engineering, research and development costs of $517 in 1995 related essentially to the development of software for the North American lottery market, whereas the costs of $497 in 1994 were primarily attributable to the development costs of the DATAMARK Flipper.(TM) Selling, general and administrative expenses increased $2,828 from the same period in 1994. This increase was primarily the result of litigation costs and costs associated with the proposed settlement of a shareholders' class action lawsuit. During the nine month period ended September 30, 1995, revenue decreased by $5,502, or 29% as compared to the same period in 1994. This decrease reflects lower contract volume in 1995. Cost of sales as a percentage of revenue, increased to 106% (excluding a provision for unwinding the Registrant's Russian lottery project) for the nine month period ended September 30, 1995, as compared to 78% (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 costs related to the Registrant's Russian lottery project, including the unwinding costs. Engineering, research and development costs decreased $403, or 31% for the nine month period ended September 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 increased $2,822 from the same period in 1994. This increase was the result of litigation costs and costs associated with the proposed settlement of a shareholders' class action lawsuit. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 1995, the Registrant's working capital decreased $10,877 due primarily to additional investment made in and costs related to the unwinding of the Registrant's Russian lottery project and a provision for a settlement of shareholders' lawsuit. Cash and current receivables totaled $6,423 at September 30, 1995. The Registrant currently has a revolving line of credit which expires in August 1996. No borrowing against the line was outstanding at September 30, 1995. As of September 30, 1995, there were no material commitments for capital expenditures. 7 8 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM) Part II OTHER INFORMATION Item 1. Legal Proceedings Shareholder Class Action Litigation - The Registrant and certain of its officers and directors who are defendants in a shareholders' consolidated class action litigation filed in June and July 1994, have agreed in principle to a settlement with the law firm representing the plaintiffs. The proposed settlement includes a cash payment and a number of authorized but unissued common shares of the Registrant, and is subject to agreement by the shareholders included in the class period and approval by the court. The Registrant has recorded a reserve for its obligations anticipated under the proposed settlement, which includes an estimate of the value of the shares at date of issuance as a current liability. ILTS v M. Kadirova - With respect to the action filed by the Registrant against M. Kadirova and others, in the U.S. Federal District Court in Florida and the subsequent counterclaim by Kadirova against the Registrant, the court dismissed the actions, with prejudice, as to all parties in October 1995. James Walters v ILTS - On November 3, 1995, Mr. Walters, the former chairman and president of the Registrant, who retired in 1994, filed an action in the San Diego County Superior Court against the Registrant, its current president, Frederick A. Brunn, a publishing company and an author alleging that certain statements in a magazine article were slander per se by ILTS and Brunn and libel by the publishing company and the author, and that Mr. Walters suffered an invasion of privacy by all defendants. In addition, Mr. Walters alleged that information in the Registrant's 1995 proxy statement relating to Mr. Walters' compensation and retirement date was erroneous, resulting in two other magazine articles publishing alleged incorrect information. Mr. Walters seeks general and special damages of $9 million and punitive damages. The Registrant and Mr. Brunn deny all allegations in Mr. Walters' complaint and will defend the litigation accordingly. 8 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: November 13, 1995 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1994 SEP-30-1995 5,191 0 1,232 0 8,649 19,730 1,339 0 24,593 8,371 0 48,673 0 0 (32,578) 24,593 13,428 13,428 14,776 24,878 0 45 53 (11,224) 0 (11,224) 0 0 0 (11,224) (0.67) 0
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