<PAGE>
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 March 31, 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
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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 March 31, 1995, 16,803,711 shares of common stock were outstanding.
1
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
PART I FINANCIAL INFORMATION PAGE
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
(Thousands of dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 7,712 $ 9,467
Accounts receivable, net of allowance 1,202 2,398
Costs and estimated earnings in excess of
billings on uncompleted contracts 3,760 3,382
Inventories at lower of cost (first-in,
first-out) or market 10,869 10,499
Other current assets 889 1,233
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Total current assets 24,432 26,979
Non-current accounts receivable 55 __
Investment in lottery service agreements, net 2,234 2,254
Equipment, furniture and fixtures, net 1,795 1,650
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Total assets $29,403 $31,888
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 535 $ 909
Note payable to bank __ 300
Billings in excess of costs and estimated earnings on
uncompleted contracts 50 968
Accrued payroll and related taxes 868 595
Warranty reserves 308 348
Other current liabilities 2,144 1,623
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Total current liabilities 3,905 4,743
Shareholders' equity:
Common shares; no par value: Authorized shares
50,000,000--Issued and outstanding shares
16,803,711 (16,775,311 in 1994) 48,650 48,650
Retained earnings (accumulated deficit) (23,084) (21,354)
Foreign currency translation adjustment (68) (151)
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Total shareholders' equity 25,498 27,145
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Total liabilities and shareholders' equity $29,403 $31,888
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</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date.
3
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Condensed Consolidated Statements of Operations
Three Months Ended
March 31,
(Unaudited)
--------------------
1995 1994
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(Thousands of dollars,
except per share amounts)
Contract revenue and sales $ 5,240 $ 5,596
Costs & expenses:
Costs of sales 4,934 4,162
Engineering, research & development 99 453
Selling, general & administrative 2,027 1,622
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Total costs and expenses 7,060 6,237
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Loss from operations (1,820) (641)
Other income:
Interest income, net 90 144
Loss before provision for income taxes (1,730) (497)
Provision for income taxes -- --
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Net loss $(1,730) $ (497)
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Net loss per common share:
Primary and fully diluted $ (0.10) $ (0.03)
======= =======
Shares used in per share amounts:
Primary and fully diluted 16,804 16,641
4
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Condensed Consolidated Statements of Cash Flows
Three Months Ended
March 31,
(Unaudited)
------------------
1995 1994
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(Thousands of dollars)
Cash flow from operating activities:
Net loss $(1,730) $ (497)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 190 612
Changes in assets and liabilities:
Accounts receivable 1,196 1,267
Costs and estimated earnings in excess of
billings on uncompleted contracts (378) 375
Inventories (370) (3,549)
Accounts payable (374) 934
Billings in excess of costs and estimated earnings on
uncompleted contracts (918) 56
Accrued payroll and related taxes 273 64
Other 825 (325)
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Net cash used for operating activities (1,286) (1,063)
Cash flow used for investing activities:
Investment in lottery service agreements -- (2,212)
Non-current accounts receivable (55) (144)
Additions to equipment (197) (382)
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Net cash used for investing activities (252) (2,738)
Cash flow provided by (used for) financing activities:
Payments on notes payable (300) --
Proceeds from issuance of common shares -- 527
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Net cash provided by (used for) financing activities (300) 527
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Effect of exchange rate changes on cash 83 46
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Increase (decrease) in cash and cash equivalents (1,755) (3,228)
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Cash and cash equivalents at beginning of year 9,467 22,903
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Cash and cash equivalents at end of year $ 7,712 $19,675
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Supplemental cash flow information:
Cash paid during the three months for interest $ 6 $ 1
======= =======
5
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.(TM)
Notes to Condensed Consolidated Financial Statements
March 31, 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 March 31, 1995 and for the three 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 three month period ended March 31, 1995
are not necessarily indicative of the results to be expected for the full
year.
3. Inventories--The current inventory balance at March 31, 1995 is composed of
raw materials and work in process totaling $10,038 thousand and finished
goods totaling $831 thousand.
4. 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 thousand 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 $1.0 million 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 thousand 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.
The balance of the receivable has been reduced by the deferred gain on the
McKinnie sale and the balance of $483 thousand at December 31, 1994 and $333
thousand at March 31, 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.
6
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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 March 31, 1995, revenue decreased 6.4% compared to
the quarter ended March 31, 1994. This decrease in revenue reflected a lower
volume of contract business in 1995. Cost of sales as a percentage of revenue
increased 11% in 1995 to 74% from 63% in 1994. The increase in cost of sales
percentage was primarily due to expenses of $680 incurred to establish the
Russian lottery project and manufacturing variances which were significantly
higher in the first quarter of 1995 as compared to the first quarter or 1994.
Engineering, research and development costs decreased to $99 in 1995 from $453
in 1994. The 1994 costs were primarily development costs related to the DATAMARK
Flipper(TM), which went into production in 1995. Selling, general and
administrative expenses was attributed primarily to increased legal expenses
related to a shareholders lawsuit and costs incurred for domestic lottery
proposals.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1995, the Registrant's working capital
decreased by $1,709 due primarily to the loss from operations. Cash and current
receivable balances totaled approximately $8,914 at March 31, 1995 compared to
$11,865 at December 31, 1994. In April 1995 the Registrant renegotiated its
revolving capital line of credit of $2,500 which expires in June of 1995. There
was no borrowing from the line at March 31, 1995. In the second fiscal quarter
of 1995, the Registrant anticipates lower revenues as compared to the same
period in 1994. Additional lottery service costs of approximately $900 thousand
are anticipated to be incurred during the second quarter for the implementation
of the Registrant's Russian lottery project. These costs will be financed from
the Registrant's working capital.
As of March 31, 1995, there were no material commitments for capital
expenditures.
7
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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)
--------------------------------------
William A. Hainke
Chief Financial Officer,
Corporate Secretary and
Treasurer
Date: May 15, 1995
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 7,712
<SECURITIES> 0
<RECEIVABLES> 1,202
<ALLOWANCES> 0
<INVENTORY> 10,869
<CURRENT-ASSETS> 24,432
<PP&E> 1,795
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,403
<CURRENT-LIABILITIES> 3,905
<BONDS> 0
<COMMON> 48,650
0
0
<OTHER-SE> (23,152)
<TOTAL-LIABILITY-AND-EQUITY> 29,403
<SALES> 5,240
<TOTAL-REVENUES> 5,240
<CGS> 4,934
<TOTAL-COSTS> 4,934
<OTHER-EXPENSES> 2,126
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> (1,730)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,730)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,730)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
