-----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, JbOVNtlQvErzgOTop7cdVr4SaReOHyx2Rs1ZJDWQU2jxARQasD+6m1NSS/hNQxt/ 82xkws5Eu81ilpXIVvr8lg== 0001095811-00-001478.txt : 20000516 0001095811-00-001478.hdr.sgml : 20000516 ACCESSION NUMBER: 0001095811-00-001478 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-10294 FILM NUMBER: 632661 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 10QSB 1 FORM 10-QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [ ] 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. (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) (760) 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 April 30, 2000, 12,943,000 shares of common stock were outstanding. 2 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. Index
PART I FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Balance Sheet (Unaudited) 3 Consolidated Statements of Operations (Unaudited) 4 Consolidated Statements of Cash Flows (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 1. Legal Proceedings 10 Signatures 12 Exhibits
2 3 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET (Unaudited)
MARCH 31, 2000 ------------ ($ in thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 3,875 Accounts receivable, net 4,160 Inventories, net 135 Costs in excess of billings on uncompleted contracts 1,351 Other current assets 1,243 ------------ Total current assets 10,764 Equipment, furniture and fixtures, net 505 ------------ $ 11,269 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,946 Billings in excess of costs on uncompleted contracts 687 Accrued payroll and related taxes 531 Related party liability 339 Other current liabilities 1,743 ------------ Total current liabilities 6,246 Shareholders' equity: Common shares, no par value, 50,000,000 shares authorized, 12,943,000 shares issued and outstanding 56,326 Accumulated deficit (51,208) Other accumulated comprehensive loss (95) ------------ Total shareholders' equity 5,023 ------------ $ 11,269 ============
See notes to consolidated financial statements. 3 4 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------------------ 2000 1999 ------------ ------------ ($ in thousands, except per share amounts) Revenues: Sales of products $ 11,290 $ 810 Services 174 567 ------------ ------------ 11,464 1,377 Cost of revenues: Cost of sales of products 8,204 740 Cost of services 177 383 ------------ ------------ 8,381 1,123 ------------ ------------ Gross profit: 3,083 254 Engineering, research and development 257 230 Selling, general and administrative 1,611 1,145 ------------ ------------ Income / (loss) from operations 1,215 (1,121) Other income and (expense), net 369 (3) ------------ ------------ Net income / (loss) $ 1,584 $ (1,124) ------------ ------------ Net income / (loss) per share: Basic $ .12 $ (0.19) ============ ============ Diluted $ .12 $ (0.19) ============ ============ Number of shares used in computation of net income /loss per share: Basic 12,943 6,009 ============ ============ Diluted 13,050 6,009 ============ ============
See notes to consolidated financial statements. 4 5 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------------------- 2000 1999 ------------ ------------ ($ in thousands) Cash flows from operating activities: Net income / (loss) $ 1,584 $ (1,124) Adjustments to reconcile net income / loss to net cash provided by (used for) operating activities: Depreciation and amortization 54 63 Changes in assets and liabilities: Accounts receivable (3,743) 773 Costs in excess of billings on uncompleted contracts (1,351) (2) Inventories -- 256 Accounts payable 2,262 (247) Billings in excess of costs on uncompleted contracts (1,550) 112 Accrued payroll and related taxes (90) (16) Other 230 (166) ------------ ------------ Net cash used for operating activities (2,604) (351) ------------ ------------ Cash flows from investing activities: Additions to equipment (288) (28) ------------ ------------ Net cash used for investing activities (288) (28) ------------ ------------ Effect of exchange rate changes on cash (34) 8 ------------ ------------ Decrease in cash and cash equivalents (2,926) (371) Cash and cash equivalents at beginning of period 6,801 2,270 ------------ ------------ Cash and cash equivalents at end of period $ 3,875 $ 1,899 ============ ============
See notes to consolidated financial statements. 5 6 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP 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. 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. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements incorporated by reference in the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1999. The Registrant's consolidated financial statements were prepared on a continuing operations basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2000 (in thousands, except per share amounts): Numerator: Net income $ 1,584 ------- Numerator for basic earnings per share - income available to common stockholders $ 1,584 ======= Denominator: Denominator for basic earnings per share - weighted average shares 12,943 Effect of dilutive securities: Stock option plans 107 ------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 13,050 ======= Basic earnings per share $ 0.12 ======= Diluted earnings per share $ 0.12 =======
6 7 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. For the three months ended March 31, 1999, net loss per share is computed using the weighted average number of common shares outstanding during the period. Outstanding stock options are not included in the per share calculation because their effect would be antidilutive. Therefore, there is no difference between basic and diluted net loss per share for that period. The weighted average number of shares outstanding for the three months ended March 31, 1999 was 6009. 3. INVENTORIES The inventories at March 31, 2000 are composed entirely of raw materials and work in process. 4. COMPREHENSIVE LOSS The company accounts for comprehensive income in accordance with the Statement of Financial Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income." The components of comprehensive income / (loss) are as follows (in thousands):
Three Months Ended March 31, ------------------------- 2000 1999 -------- --------- Net income/ (loss) $ 1,584 $ (1,124) Foreign currency translation adjustment (34) 8 ------- -------- Comprehensive income / (loss) $ 1,550 $ (1,116) ======= ========
7 8 INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS The statements in this filing that are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by forward-looking statements. These risks and uncertainties include dependence on business from foreign customers sometimes in politically unstable regions, political and governmental decisions as to the establishment of lotteries and other wagering industries in which the Registrant's products are marketed, fluctuations in quarter-by-quarter operating results and other factors described in the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1999. SUMMARY OF SIGNIFICANT DEVELOPMENTS In August 1999, the Registrant was awarded a contract by long-time customer AB Trav och Galopp ("ATG") of Sweden for 815 DATAMARK Flipper terminals and related spare parts. In March 2000, this contract was amended to add 60 terminals. The contract as amended has a total value of more than $4.25 million. Eighteen terminals were delivered in January 2000. The most significant portion of the order will be shipped during the second quarter, with the final 60 terminals shipped in the third quarter. Revenue is recognized upon final acceptance of the terminals by the customer. In September 1999, the Registrant announced the signing of two agreements with Global Technologies, Ltd. ("GTL") under which the Registrant will supply an on-line lottery system and facilities management services. Under the terms of the purchase agreement, the Registrant will provide a complete DataTrak on-line lottery system including central system hardware and software as well as a minimum of 3,500 DATAMARK Xclaim terminals with a value of $12.3 million. In addition, under a separate facilities management agreement, the Registrant will provide a full range of services in connection with the lottery system, including installation, training, computer operations, network management and field maintenance. The facilities management contract has a base term of eight years with options for extensions and a base value estimated to be a minimum of $30 million. Payment under the facilities maintenance agreement began in April 2000. Manufacture of the lottery terminals began in the fourth quarter of 1999 and substantially all of the terminals were delivered in the first quarter of 2000. The on-line lottery system commenced operation on March 27, 2000. Approximately $10.45 million of revenue has been recorded in the quarter ended March 31, 2000 based on delivery terms and acceptance by the customer. The remaining revenue under the sales contract is expected to be recognized in the second quarter. Historically, significant service revenue had been derived from a terminal maintenance agreement with an Australian lottery customer. In October 1998, the Australian lottery customer awarded this contract to a competitor of the Registrant. This maintenance agreement expired on January 31, 2000 and the operations of the Australian subsidiary were significantly reduced. During the three months ended March 31, 2000, revenues and net income were $11.46 million and 8 9 $1.58 million respectively. The Registrant had incurred significant net losses for the last four years prior to this quarter. The Registrant is largely dependent upon significant contracts for its revenue that typically include a deposit upon contract signing and up to three months lead-time before delivery of hardware begins. Management anticipates it will be successful in recovering its remaining investment in existing contracts and in obtaining sufficient contracts to enable the Registrant to continue normal operations; however, no assurances can be given that the Registrant will be successful in realizing sufficient new contract revenues. The Registrant's ability to continue its on-going operations on a long-term basis is dependent upon its ability to recover its investment in existing contracts, secure additional new contracts, install terminals on a timely basis, and ultimately achieve a sustainable level of profit from operations. RESULTS OF OPERATIONS Product sales in the first quarter of fiscal 2000 increased $10.48 million from $.81 million in the first quarter of fiscal 1999. Substantially all of the increase was revenue recognized from the sale of the on-line lottery system to GTL that was completed in March 2000. As discussed above, management expects to recognize the remaining system sale revenue in the second quarter, and payments under the facilities management contract began to generate on-going revenue in April. Service revenues decreased $393,000 from $567,000 in first quarter 1999. This reduction was the result of the January 31, 2000 expiration of the terminal maintenance agreement with the Australian customer. Gross profit on first quarter product sales was $3.09 million or 27%, compared with a gross profit of $.70 million or 9% in 1999. This increase reflects management's decision to outsource manufacturing and reduce overhead. The gross loss on first quarter service revenues was 1% in 2000 compared to a gross profit of 32% in 1999. The decrease was due to costs associated with the expiration of the Australian terminal maintenance agreement described above and the completion of software support agreements. Engineering, research and development expenses in the first quarter of 2000 increased 12% to $257,000 from $230,000 in the first quarter of 1999. The increase reflects costs incurred for product development. Selling, general and administrative expenses increased by 41%, or $466,000, for the first quarter of 2000 compared to the first quarter of 1999. This increase was the result of hiring new staff to operate the new United Kingdom subsidiary. Other income and expense, net, increased 124% or $372,000. The increase primarily related to payments received from a customer under a contract provision restricting the hiring of the company's employees, royalties received on the Registrant's processes, and interest earned on investments. 9 10 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2000, the Registrant had working capital of $4.52 million. During the quarter ended March 31, 2000, accounts receivable increased $3.74 million while cash decreased $2.93 million. Significant cash outlays were required to fund the GTL project and to purchase fixed assets for the new UK subsidiary. On October 5, 1999, the Registrant consummated the sale of 6,933,817 shares of authorized, but unissued shares of Common Stock to Berjaya Lottery Management (H.K.) Limited ("Berjaya"). The purchase price for the shares was $0.75 per share for an aggregate purchase price of $5.2 million. Prior to the purchase, Berjaya owned 2,311,500 shares, or approximately 38.5% of the Registrant's outstanding Common Stock. As a result of the purchase, Berjaya now owns 9,245,317 shares or approximately 71.4% of the Registrant's outstanding Common Stock. In Management's opinion, this additional investment significantly improves the Registrant's ability to continue its operations and pursue future contracts. As of March 31, 2000 there were no material commitments for capital expenditures. FOREIGN EXCHANGE FLUCTUATION The Registrant's reporting currency is the U.S. dollar. Historically, a majority of the Registrant's sales have been denominated in U.S. dollars, with the balance denominated in foreign currencies. These foreign currency sales have been affected principally by the Registrant's international subsidiaries. Changes from reporting period to reporting period in the exchange rates between various foreign currencies and the U.S. dollar have had, and will in the future continue to have, an impact on revenues and expenses reported by the Registrant, and such effect may be material in any individual reporting period. As the contracts are predominantly denominated in the functional currency of the subsidiary performing under the contract, the Registrant has historically incurred immaterial amounts of transaction gains or losses. YEAR 2000 As of April 30, 2000, the Registrant had not experienced any significant disruptions as a result of the rollover from 1999 to 2000. However, the success to date of the Year 2000 efforts cannot guarantee that a Year 2000 problem affecting third parties, upon which the Registrant may rely, will not become apparent in the future that could harm operations. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Registrant is subject to legal proceedings and claims that arise in the normal course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, Management does not believe that the outcome of any of these matters will have a material adverse effect on the Registrant's consolidated financial position or results of operations. 10 11 ITEM 6. (27) FINANCIAL DATA SCHEDULE 11 12 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. /s/ M. Mark Michalko - -------------------------------------------- M. Mark Michalko President and Acting Chief Financial Officer Date: May 15, 2000 12 EX-27 2 EXHIBIT 27
5 1,000 3-MOS DEC-31-1999 JAN-01-2000 MAR-31-2000 3,875 0 4,160 0 135 10,764 505 0 11,269 6,246 0 0 0 56,326 (51,208) 11,269 11,464 11,464 8,381 8,381 1,868 0 0 1,584 0 1,584 0 0 0 1,584 .12 .12
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